SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 15, 1999
XL CAPITAL LTD
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(Exact Name of Registrant as Specified in its Charter)
Cayman Islands 1-10804 98-0191089
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Cumberland House, 1 Victoria Street, Hamilton, HM 11
Bermuda
(Address of Principal Executive Offices) (Zip Code)
(441) 292-8515
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
XL Capital Ltd, a limited liability company organized and
incorporated under the laws of the Cayman Islands ("XL"), Dasher Acquisition
Corp., a Delaware corporation and a newly-formed, direct, wholly-owned
subsidiary of XL ("Sub"), and NAC Re Corp., a Delaware corporation ("NAC
Re"), entered into an Agreement and Plan of Merger, dated as of February 15,
1999 (the "Merger Agreement"), pursuant to which Sub will merge with and into
NAC Re with NAC Re being the surviving corporation and becoming a wholly-
owned subsidiary of XL (the "Merger").
In accordance with the terms of the Merger Agreement, at the
effective time of the Merger (the "Effective Time") and without any action on
the part of the holders thereof, (i) each share of common stock of NAC Re,
par value $0.10 per share ("NAC Re Common Stock") issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 0.915 of a Class A Ordinary Share, par value $0.01 per share, of XL
("XL Ordinary Shares"), together with the associated purchase rights under
the Rights Agreement, dated as of September 11, 1998, between XL and
ChaseMellon Shareholder Services, L.L.C., with any cash to be paid in lieu of
fractional XL Ordinary Shares.
Consummation of the Merger is subject to a number of customary
closing conditions, including: (i) adoption of the Merger Agreement by an
affirmative vote of the holders of a majority of the outstanding shares of
NAC Re Common Stock; (ii) expiration or termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
and (iii) receipt of requisite insurance and other regulatory approvals.
In connection with the Merger Agreement, XL and NAC Re entered into
a Stock Option Agreement, dated as of February 15, 1999 (the "Stock Option
Agreement") pursuant to which XL would have the right, upon the occurrence of
certain events and subject to other specified conditions, to buy from NAC Re a
number of shares of NAC Re Common Stock equal to approximately 10% of the
outstanding shares of NAC Re Common Stock as of February 15, 1999.
The preceding description is qualified in its entirety by reference
to the Merger Agreement and the Stock Option Agreement, copies of which are
included as Exhibits 99.1 and 99.2 hereto, respectively. A copy of the joint
press release of XL and NAC RE announcing the execution of the Merger Agreement
is filed as Exhibit 99.3 hereto and incorporated by referenced herein.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit Description
99.1 Agreement and Plan of Merger, dated as of February 15, 1999, among
XL Capital Ltd, Dasher Acquisition Corp. and NAC Re Corp.
99.2 Stock Option Agreement, dated as of February 15, 1999, between XL
Capital Ltd and NAC Re Corp.
99.3 Text of joint press release, dated February 16, 1999, issued by XL
Capital Ltd and NAC Re Corp.
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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: February 17, 1999
XL CAPITAL LTD
By: /s/ Paul S. Giordano
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Paul S. Giordano
Secretary and General Counsel
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EXHIBIT INDEX
Exhibit Description
99.1 Agreement and Plan of Merger, dated as of February 15, 1999, among
XL Capital Ltd, Dasher Acquisition Corp. and NAC Re Corp.
99.2 Stock Option Agreement, dated as of February 15, 1999, between XL
Capital Ltd and NAC Re Corp.
99.3 Text of joint press release, dated February 16, 1999, issued by XL
Capital Ltd and NAC Re Corp.
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EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
among
XL CAPITAL LTD
DASHER ACQUISITION CORP.
and
NAC RE CORP.
February 15, 1999
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TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Effective Time . . . . . . . . . . . . . . . . . . 2
Section 1.3 Effects of the Merger . . . . . . . . . . . . . . 2
Section 1.4 Certificate of Incorporation; By-laws . . . . . . 3
Section 1.5 Directors and Officers . . . . . . . . . . . . . . 3
Section 1.6 Effect on Capital Stock . . . . . . . . . . . . . 3
ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund . . . . . . . . . . . . . . . . . . 5
Section 2.2 Exchange Procedures . . . . . . . . . . . . . . . 5
Section 2.3 Distributions with Respect to Unexchanged
Stock. . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 No Further Ownership Rights in Company Common
Stock . . . . . . . . . . . . . . . . . . . . . 7
Section 2.5 No Fractional Parent Ordinary Shares . . . . . . . 7
Section 2.6 Termination of Exchange Fund . . . . . . . . . . . 7
Section 2.7 No Liability . . . . . . . . . . . . . . . . . . . 8
Section 2.8 Investment of the Exchange Fund . . . . . . . . . 8
Section 2.9 Lost Certificates . . . . . . . . . . . . . . . . 8
Section 2.10 Withholding Rights . . . . . . . . . . . . . . . . 8
Section 2.11 Further Assurances . . . . . . . . . . . . . . . . 8
Section 2.12 Stock Transfer Books . . . . . . . . . . . . . . . 9
Section 2.13 Certain Adjustments . . . . . . . . . . . . . . . 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Corporation; Organization . . . . . . . . . . . . 9
Section 3.2 Capital Structure . . . . . . . . . . . . . . . . 11
Section 3.3 Corporate Authorization; Validity of Agreement;
Company Action . . . . . . . . . . . . . . . . . 12
Section 3.4 Consents and Approvals; No Violations . . . . . . 13
Section 3.5 SEC Filings; Financial Statements . . . . . . . . 14
Section 3.6 Absence of Certain Changes . . . . . . . . . . . . 16
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Section 3.7 Information Supplied . . . . . . . . . . . . . . . 16
Section 3.8 Employee Benefit Plans . . . . . . . . . . . . . . 17
Section 3.9 Compliance . . . . . . . . . . . . . . . . . . . . 19
Section 3.10 Material Contracts . . . . . . . . . . . . . . . . 19
Section 3.11 Absence of Litigation . . . . . . . . . . . . . . 19
Section 3.12 Tax Matters . . . . . . . . . . . . . . . . . . . 20
Section 3.13 Title to Properties; Leases . . . . . . . . . . . 21
Section 3.14 Intellectual Property . . . . . . . . . . . . . . 21
Section 3.15 Insurance Matters . . . . . . . . . . . . . . . . 22
Section 3.16 Liabilities and Reserves . . . . . . . . . . . . . 23
Section 3.17 Environmental Laws . . . . . . . . . . . . . . . . 24
Section 3.18 Investment Company . . . . . . . . . . . . . . . . 26
Section 3.19 Year 2000 . . . . . . . . . . . . . . . . . . . . 26
Section 3.20 Brokers . . . . . . . . . . . . . . . . . . . . . 26
Section 3.21 Opinion of Financial Advisor . . . . . . . . . . . 27
Section 3.22 Pooling of Interests . . . . . . . . . . . . . . . 27
Section 3.23 Takeover Statutes . . . . . . . . . . . . . . . . 27
Section 3.24 Rights Agreement . . . . . . . . . . . . . . . . . 27
Section 3.25 Employees . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . 28
Section 4.2 Capital Structure . . . . . . . . . . . . . . . . 29
Section 4.3 Corporate Authorization; Validity of Agreement;
Necessary Action . . . . . . . . . . . . . . . . 30
Section 4.4 No Prior Activities . . . . . . . . . . . . . . . 30
Section 4.5 Consents and Approvals; No Violations . . . . . . 31
Section 4.6 SEC Filings; Financial Statements . . . . . . . . 31
Section 4.7 Absence of Certain Changes . . . . . . . . . . . . 33
Section 4.8 Information Supplied . . . . . . . . . . . . . . . 33
Section 4.9 Compliance . . . . . . . . . . . . . . . . . . . . 33
Section 4.10 Absence of Litigation . . . . . . . . . . . . . . 34
Section 4.11 Brokers . . . . . . . . . . . . . . . . . . . . . 34
Section 4.12 Pooling of Interests . . . . . . . . . . . . . . . 34
Section 4.13 Opinion of Financial Advisor . . . . . . . . . . . 34
Section 4.14 Investment Company . . . . . . . . . . . . . . . . 34
Section 4.15 Insurance Matters . . . . . . . . . . . . . . . . 35
Section 4.16 Employee Benefit Plans . . . . . . . . . . . . . . 36
Section 4.17 NYSE Listing . . . . . . . . . . . . . . . . . . . 36
Section 4.18 Year 2000 . . . . . . . . . . . . . . . . . . . . 36
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ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of the Company . . . . . . . . 37
Section 5.2 Preparation of Form S-4 and the Proxy
Statement/Prospectus; Stockholders Meetings . . 41
Section 5.3 Access to Information . . . . . . . . . . . . . . 42
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . 43
Section 5.5 Supplemental Information . . . . . . . . . . . . . 44
Section 5.6 Employee Matters . . . . . . . . . . . . . . . . . 44
Section 5.7 Letters of Accountants . . . . . . . . . . . . . . 45
Section 5.8 No Solicitation . . . . . . . . . . . . . . . . . 45
Section 5.9 Publicity . . . . . . . . . . . . . . . . . . . . 47
Section 5.10 Notification of Certain Matters . . . . . . . . . 47
Section 5.11 Directors' and Officers' Insurance and
Indemnification . . . . . . . . . . . . . . . . 47
Section 5.12 Listing of Parent Ordinary Shares . . . . . . . . 49
Section 5.13 Rule 145 Affiliates; Pooling Letters . . . . . . . 49
Section 5.14 Parent Board of Directors . . . . . . . . . . . . 49
Section 5.15 Coordination of Dividends . . . . . . . . . . . . 49
Section 5.16 Pooling . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of Each Party . . . 50
Section 6.2 Conditions to the Obligations of Parent and Sub . 51
Section 6.3 Conditions to the Obligations of the Company . . . 53
Section 6.4 Adjustment of Terms in Certain Circumstances. . . 54
ARTICLE VII
TERMINATION
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . 54
Section 7.2 Effect of Termination . . . . . . . . . . . . . . 58
Section 7.3 Termination Fees and Expenses . . . . . . . . . . 58
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Costs and Expenses . . . . . . . . . . . . . . . . 60
Section 8.2 Amendment and Modification . . . . . . . . . . . . 60
Section 8.3 Nonsurvival of Representations and Warranties . . 60
Section 8.4 Notices . . . . . . . . . . . . . . . . . . . . . 60
Section 8.5 Interpretation . . . . . . . . . . . . . . . . . . 61
Section 8.6 Counterparts . . . . . . . . . . . . . . . . . . . 61
Section 8.7 Entire Agreement; No Third Party Beneficiaries . . 62
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Section 8.8 Severability . . . . . . . . . . . . . . . . . . . 62
Section 8.9 Specific Performance . . . . . . . . . . . . . . . 62
Section 8.10 Governing Law . . . . . . . . . . . . . . . . . . 62
Section 8.11 Assignment . . . . . . . . . . . . . . . . . . . . 62
Section 8.12 Consent to Jurisdiction and Service of Process . . 63
Section 8.13 Headings . . . . . . . . . . . . . . . . . . . . . 63
Section 8.14 Certain Definitions . . . . . . . . . . . . . . . 63
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 15, 1999,
among XL CAPITAL LTD, a limited liability company organized and incorporated
under the laws of the Cayman Islands ("Parent"), DASHER ACQUISITION CORP., a
Delaware corporation and a direct wholly owned subsidiary of Parent ("Sub"),
and NAC RE CORP., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub
and the Company have determined that it is advisable and would be fair to and
in the best interests of their respective stockholders to consummate the
merger of Sub with and into the Company (the "Merger"), upon the terms and
subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of
this Agreement and as a condition and inducement to Parent's willingness to
enter into this Agreement, the Company has entered into a stock option
agreement dated as of the date of this Agreement and attached hereto as
Exhibit A (the "Stock Option Agreement"), pursuant to which the Company
granted Parent an option to purchase shares of common stock, par value
$0.10 per share, of the Company, together with the associated purchase rights
(the "Company Rights") under the Company Rights Agreement (as defined in
Section 3.24(a)) ("Company Common Stock") under certain circumstances;
WHEREAS, Parent, Sub and the Company intend that the Merger
be accounted for as a pooling-of-interests for financial statement purposes
under United States generally accepted accounting principles;
WHEREAS, Parent, Sub and the Company intend that the Merger
shall qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the rules and regulations promulgated thereunder;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to
the transactions contemplated hereby;
WHEREAS, the Board of Directors of the Company has approved
the transactions contemplated by this Agreement and the Stock Option
Agreement in accordance with the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"); and
WHEREAS, certain capitalized terms used but not defined
herein shall have the meanings set forth in Section 8.14.
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NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Stock Option Agreement, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement, and in accordance with the DGCL, at the
Effective Time (as defined in Section 1.2), Sub shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
Sub shall cease and the Company shall continue as the surviving corporation
of the Merger (the "Surviving Corporation").
Section 1.2 Effective Time. Subject to the terms and
conditions of this Agreement, the parties hereto shall cause the Merger to be
consummated by filing, as soon as practicable after the Closing (as
hereinafter defined), this Agreement or a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, the DGCL. The date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
(or such later time as shall be agreed to in writing by the parties hereto
and specified in the Certificate of Merger) will be the "Effective Time".
The closing of the Merger (the "Closing") shall take place at 10:00 a.m. (New
York City time) on the second business day after the Determination Date (as
defined in Section 7.1(g)), unless the Board of Directors of the Company
shall have delivered notice to Parent of its determination to exercise its
termination right as set forth therein, in which case the Closing shall take
place on the tenth day following the Determination Date (or, if such day is
not a business day, on the next succeeding business day), unless this
Agreement has been theretofore terminated in accordance with its terms, at
the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York,
New York 10017, or such other time, date and place as the parties shall
agree.
Section 1.3 Effects of the Merger. The Merger shall have
the effects set forth in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, immunities, powers and
franchises of the Company and Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
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Section 1.4 Certificate of Incorporation; By-laws. (a) At
the Effective Time and without any further action on the part of the Company
or Sub, the certificate of incorporation of the Company as in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended as
provided therein and under the DGCL, except that at the Effective Time such
certificate of incorporation of the Company shall be amended as follows:
(i) Article FOURTH shall be amended to read in its entirety as follows: "The
total number of shares of stock which the Corporation shall have authority to
issue is 1,000 shares, which shall be designated Common Stock with a par
value of $0.10 per share."; (ii) Article FIFTH shall be deleted in its
entirety; and (iii) Article TENTH shall be deleted in its entirety.
(b) At the Effective Time and without any further action on
the part of the Company or Sub, the by-laws of Sub shall be the by-laws of
the Surviving Corporation and thereafter may be amended or repealed in
accordance with their terms or the terms of the certificate of incorporation
of the Surviving Corporation and as provided by law.
Section 1.5 Directors and Officers. The directors of Sub
immediately prior to the Effective Time, together with any directors of the
Company specified by Parent prior to the Effective Time, shall be the initial
directors of the Surviving Corporation, each to hold office in accordance
with the certificate of incorporation and by-laws of the Surviving
Corporation, and the officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed (as
the case may be) and qualified.
Section 1.6 Effect on Capital Stock. (a) At the Effective
Time, by virtue of the Merger and without any action on the part of the
holders thereof, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive .915 (the "Exchange Ratio") of a Class A Ordinary Share, par value
$0.01 per share, of Parent ("Parent Ordinary Shares"), together with the
associated purchase rights (the "Parent Rights") under the Parent Rights
Agreement (as defined in Section 4.2) (which together with any cash in lieu
of fractional Parent Ordinary Shares paid pursuant to Section 2.5 shall be
the "Merger Consideration"). All Parent Ordinary Shares issued as Merger
Consideration shall be validly issued, fully paid and non-assessable.
Subject to the terms and conditions of this Agreement, Parent shall take such
action as shall be necessary to issue the Parent Ordinary Shares to be
received as Merger Consideration and cause them to be registered on its share
register in the names of the holders of Company Common Stock submitting
Certificates (as defined in Section 1.6(b)) in exchange therefor in
accordance with the terms hereof.
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(b) As a result of the Merger and without any action on the
part of the holders thereof, at the Effective Time, all shares of Company
Common Stock shall cease to be outstanding and shall be canceled and retired
and shall cease to exist, and each holder (other than Parent, Sub and the
Company ) of a certificate which, immediately prior to the Effective Time,
represented any such shares of Company Common Stock (a "Certificate") shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive the applicable Merger Consideration
in accordance with Article II upon the surrender of such Certificate.
(c) Each share of Company Common Stock issued and owned or
held by Parent, Sub or the Company at the Effective Time shall, by virtue of
the Merger, cease to be outstanding and shall be canceled and retired and no
Parent Ordinary Shares or other consideration shall be delivered in exchange
therefor.
(d) Each share of common stock, par value $0.01 per share,
of Sub ("Sub Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into and shall become one validly issued,
fully paid and nonassessable share of common stock, par value $0.01 per
share, of the Surviving Corporation ("Surviving Corporation Common Stock") as
of the Effective Time, and the Surviving Corporation shall become a wholly
owned direct or indirect subsidiary of Parent.
(e) At the Effective Time, each outstanding option to
purchase, right to receive or other equity grant whose value is derived from
Company Common Stock (a "Company Stock Option") issued pursuant to the
(i) NAC Re Corp. 1989 Stock Option Plan, (ii) NAC Re Corp. 1993 Stock Option
Plan, (iii) NAC Re Corp. 1997 Incentive and Capital Accumulation Plan,
(iv) Amended and Restated NAC Re Corp. Employee Stock Purchase Plan (the
"Stock Purchase Plan"), (v) Amended and Restated Directors Stock Option Plan
and (vi) the NAC Re United Kingdom Option Scheme (collectively, the "Company
Stock Plans"), whether vested or unvested, shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Company Stock Option (taking into account any acceleration of vesting as
a result of the Merger), that number of Parent Ordinary Shares which the
holder of such Company Stock Option would have been entitled to receive
pursuant to the Merger if such holder had exercised such Company Stock Option
in full immediately prior to the Effective Time (rounded down to the nearest
whole share), at an exercise price per share equal to (y) the exercise price
per share for the shares of Company Common Stock purchasable pursuant to such
Company Stock Option divided by (z) the Exchange Ratio, rounded upwards to
the nearest whole cent (a "Converted Option"). Notwithstanding the
foregoing, in the case of any Company Stock Options to which Section 421 of
the Code applies by reason of their qualification under Section 422 or 423 of
the Code, the option price, the number of Parent Ordinary Shares purchasable
upon exercise of such Company Stock Option and the terms and conditions of
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exercise thereof shall be determined in order to comply with Section 424(a)
of the Code. Parent shall take such actions as are necessary for the
assumption of the Company Stock Options pursuant to this Section 1.6(e),
including the reservation, issuance and listing of Parent Ordinary Shares as
are necessary to effectuate the transactions contemplated by this
Section 1.6(e). Parent shall promptly prepare and file with the Securities
and Exchange Commission (the "SEC") a registration statement on Form S-8 or
other appropriate form with respect to Parent Ordinary Shares subject to
Company Stock Options issued under such Company Stock Plans and shall use its
best efforts to have such registration statement declared effective
immediately following the Effective Time and to maintain the effectiveness of
such registration statement or registration statements covering the Parent
Ordinary Shares issuable upon exercise of such Company Stock Options (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Company Stock Options remain outstanding.
ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund. Prior to the Effective Time,
Parent shall appoint a commercial bank or trust company reasonably acceptable
to the Company, having net capital of not less than $100,000,000, to act as
exchange agent hereunder for the purpose of exchanging Certificates for the
Merger Consideration (the "Exchange Agent"). At or prior to the Effective
Time, Parent shall deposit with the Exchange Agent, in trust for the benefit
of holders of shares of Company Common Stock, certificates representing the
Parent Ordinary Shares (and the associated Parent Rights) issuable pursuant
to Section 1.6(a) in exchange for outstanding shares of Company Common Stock.
Parent agrees to make available to the Exchange Agent, from time to time as
needed, cash sufficient to pay cash in lieu of fractional shares pursuant to
Section 2.5 and any dividends and other distributions pursuant to
Section 2.3. Any cash and certificates representing Parent Ordinary Shares
(and the associated Parent Rights) deposited with the Exchange Agent shall
hereinafter be referred to as the "Exchange Fund."
Section 2.2 Exchange Procedures. Promptly after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder
of a Certificate (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon due delivery of the Certificates and other required
documents to the Exchange Agent, and which letter shall be in customary form
and have such other provisions as Parent may reasonably specify and
(ii) instructions for effecting the surrender of such Certificates in
exchange for the applicable Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal,
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duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor
(A) a certificate representing one or more Parent Ordinary Shares (and the
associated Parent Rights) representing, in the aggregate, the whole number of
shares that such holder has the right to receive pursuant to Section 1.6(a)
(after taking into account all shares of Company Common Stock then held by
such holder) and (B) a check in the amount (after giving effect to any
required tax withholdings) equal to the cash that such holder has the right
to receive pursuant to the provisions of this Article II, including cash in
lieu of any fractional Parent Ordinary Shares pursuant to Section 2.5 and any
unpaid dividends and other distributions to which such holder is entitled
pursuant to Section 2.3, and the Certificate so surrendered shall forthwith
be canceled. No interest will be paid or will accrue on any cash payable
pursuant to Section 2.3 or Section 2.5. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company prior to the Effective Time, one or more certificates
evidencing, in the aggregate, the proper number of Parent Ordinary Shares and
a check in the proper amount of cash in lieu of any fractional Parent
Ordinary Shares pursuant to Section 2.5 and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.3 may be
issued with respect to such Company Common Stock to such a transferee if the
Certificate representing such shares of Company Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and the ownership of such shares of Company Common Stock
by such transferee and to evidence that any applicable stock transfer taxes
have been paid.
Section 2.3 Distributions with Respect to Unexchanged
Stock. No dividends or other distributions declared or made with respect to
Parent Ordinary Shares with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
Parent Ordinary Shares that such holder would be entitled to receive upon
surrender of such Certificate pursuant to the Merger and no cash payment in
lieu of fractional Parent Ordinary Shares shall be paid to any such holder
pursuant to Section 2.5 until such holder shall surrender such Certificate in
accordance with Section 2.2. Subject to the effect of applicable law,
following surrender of any such Certificate, there shall be paid to such
holder, without interest, (a) promptly after the time of such surrender, the
amount of any cash payable in lieu of fractional Parent Ordinary Shares to
which such holder is entitled pursuant to Section 2.5 and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole Parent Ordinary Shares, and
(b) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with
respect to such Parent Ordinary Shares.
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Section 2.4 No Further Ownership Rights in Company Common
Stock. All Parent Ordinary Shares issued and cash paid upon conversion of
shares of Company Common Stock in accordance with the terms of Article I and
this Article II (including any stock dividends or cash paid pursuant to
Section 2.3 or cash paid pursuant to Section 2.5) shall be issued or paid in
full satisfaction of all rights pertaining to the shares of Company Common
Stock.
Section 2.5 No Fractional Parent Ordinary Shares. (a) No
certificates or scrip representing fractional Parent Ordinary Shares shall be
issued upon the surrender for exchange of Certificates and such fractional
share interests will not entitle the owner thereof to vote or to have any
rights of a holder of Parent Ordinary Shares.
(b) Notwithstanding any other provision of this Agreement,
each holder of shares of Company Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a
Parent Ordinary Share (after taking into account all Certificates delivered
by such holder) shall be entitled to receive, in lieu thereof, cash (without
interest) in an amount equal to the product of (i) such fractional part of a
Parent Ordinary Share and (ii) the average closing price of the Parent
Ordinary Shares on the New York Stock Exchange, Inc. (the "NYSE"), as
reported on the NYSE Composite Tape for the 20 trading days prior to and
ending on the trading day immediately preceding the Closing Date (the
"Average Price"). As promptly as practicable after the determination of the
amount of cash, if any, to be paid to holders of fractional interests, the
Exchange Agent shall so notify Parent, and Parent shall deposit such amount
with the Exchange Agent and shall cause the Exchange Agent to forward
payments to such holders of fractional interests subject to and in accordance
with the terms hereof.
Section 2.6 Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders of Certificates
for 12 months after the Effective Time shall be delivered to Parent or
otherwise on the instruction of Parent, and any holders of the Certificates
who have not theretofore complied with this Article II shall thereafter look
only to Parent for the Merger Consideration with respect to the shares of
Company Common Stock formerly represented thereby to which such holders are
entitled pursuant to Section 1.7 and Section 2.2, including any cash in lieu
of fractional Parent Ordinary Shares to which such holders are entitled
pursuant to Section 2.5, and any dividends or distributions with respect to
Parent Ordinary Shares to which such holders are entitled pursuant to
Section 2.3, in each case, without any interest thereon. Any such portion of
the Exchange Fund remaining unclaimed by holders of shares of Company Common
Stock immediately prior to such time as such amounts would otherwise escheat
to or become property of any Governmental Entity (as defined in Section 3.4)
shall, to the extent permitted by applicable law, become the property of
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Parent free and clear of any claims or interest of any person previously
entitled thereto.
Section 2.7 No Liability. None of Parent, Sub, the
Company, the Surviving Corporation or the Exchange Agent shall be liable to
any person in respect of any Merger Consideration or any cash in respect of
dividends or other distributions from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
Section 2.8 Investment of the Exchange Fund. The Exchange
Agent shall invest any cash included in the Exchange Fund as directed by
Parent on a daily basis. Any interest and other income resulting from such
investments shall promptly be paid to Parent.
Section 2.9 Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed,
and if required by Parent, the posting by such person of a bond in such
reasonable amount as Parent may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
will deliver in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration with respect to the shares of Company Common Stock
formerly represented thereby (including any cash in lieu of fractional Parent
Ordinary Shares), and any unpaid dividends and distributions on Parent
Ordinary Shares deliverable in respect thereof, pursuant to this Agreement.
Section 2.10 Withholding Rights. Each of the Surviving
Corporation and Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code and the
rules and regulations promulgated thereunder, or any other provision of
applicable law. To the extent that amounts are so withheld by the Surviving
Corporation or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
of the shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may
be.
Section 2.11 Further Assurances. At and after the
Effective Time, the officers and directors of the Surviving Corporation will
be authorized to execute and deliver, in the name and on behalf of the
Company or Sub, any deeds, bills of sale, assignments or assurances and to
take and do, in the name and on behalf of the Company or Sub, any other
actions and things to vest, perfect or confirm of record or otherwise in
Parent or in the Surviving Corporation any and all right, title and interest
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in, to and under any of the rights, properties or assets acquired or to be
acquired by Parent or the Surviving Corporation as a result of, or in
connection with, the Merger.
Section 2.12 Stock Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of shares of Company Common Stock
thereafter on the records of the Company. From and after the Effective Time,
the holders of Certificates shall cease to have any rights with respect to
the shares of Company Common Stock formerly represented thereby, except the
right to receive the Merger Consideration and as otherwise provided herein.
Subject to Sections 2.6 and 2.7, on or after the Effective Time, any
Certificates presented to the Exchange Agent or Parent for any reason shall
be converted into the Merger Consideration with respect to the shares of
Company Common Stock formerly represented thereby (including any cash in lieu
of fractional Parent Ordinary Shares to which the holders thereof are
entitled pursuant to Section 2.5) and shall represent the right to receive
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.3.
Section 2.13 Certain Adjustments. If, between the date of
this Agreement and the Effective Time, the outstanding Parent Ordinary Shares
shall have been changed into a different number of shares or different class
of stock by reason of any reclassification, recapitalization, stock split,
split-up, combination or exchange of shares, or a stock dividend or dividend
payable in any other securities shall be declared with a record date within
such period, or any similar event shall have occurred, the Exchange Ratio
shall be appropriately adjusted to provide the holders of Company Common
Stock the same economic effect, voting rights and other terms and
designations as contemplated by this Agreement prior to any such event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent that:
Section 3.1 Corporation; Organization.
-------------------------
(a) Each of the Company and its subsidiaries is a
corporation or other business organization duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
or organization. Each of the Company and its subsidiaries (i) is qualified,
licensed or domesticated in all jurisdictions where such qualification,
license or domestication is required to own and operate its properties and
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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 United States 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 with respect to the Company. The Company has
furnished to Parent complete and correct copies of its certificate of
incorporation and by-laws as in effect on the date hereof. Such certificate
of incorporation and by-laws are in full force and effect and no other
organizational documents are applicable to or binding upon the Company. When
used in connection with any person or any of its subsidiaries, the term
"Material Adverse Effect" means any change or effect that, either
individually or in the aggregate with all other changes or effects, (i) is
materially adverse to the business, operations, assets, liabilities
(including contingent liabilities), financial condition or results of
operations of such person and its subsidiaries taken as a whole, or
(ii) could reasonably be expected to materially impair the ability of such
person to consummate the Merger and to perform its other obligations
hereunder and under the Stock Option Agreement on a timely basis.
(b) Section 3.1(b) of the letter, dated as of the date
hereof, from the Company to Parent regarding certain matters related to this
Agreement (the "Company Disclosure Letter"), sets forth the name of each
material subsidiary of the Company, the jurisdiction of its incorporation and
whether it is an insurance company (such insurance companies collectively,
the "Company Insurance Subsidiaries"). None of the Company Insurance
Subsidiaries is deemed to be "commercially domiciled" in any other
jurisdiction other than as set forth therein. Each of the Company Insurance
Subsidiaries is (i) duly licensed or authorized as an insurance company or,
where applicable, a reinsurer in its jurisdiction of incorporation, (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 (which jurisdictions are listed in Section 3.1(b) of the
Company Disclosure Letter), and (iii) duly authorized in its jurisdiction of
incorporation and each other applicable jurisdiction to write each line of
business currently written by it, except, in any such case, where the failure
to be so licensed or authorized would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to the
Company. Except as set forth in Section 3.1(b) of the Company Disclosure
Letter, there is no proceeding or investigation pending or, to the knowledge
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of the Company, threatened which would, individually or in the aggregate,
reasonably be expected to lead to the revocation, amendment, failure to
renew, limitation, suspension or restriction of any such license to transact
insurance business. The Company has made all required filings under
applicable insurance holding company statutes except where the failure to so
file would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to the Company.
Section 3.2 Capital Structure. (a) The authorized capital
stock of the Company consists of 25,000,000 shares of Company Common Stock
and 1,000,000 shares of preferred stock, par value $1.00 per share
("Preferred Stock"). As of the date hereof, (i) 18,417,966 shares of Company
Common Stock were issued and outstanding, (ii) 3,617,064 shares of Company
Common Stock were held in the treasury of the Company, (iii) options to
acquire an aggregate of 2,619,515 shares of Company Common Stock were
outstanding pursuant to Company Stock Options, including stock appreciation
rights, performance units and stock units, (iv) 49,703 shares of Company
Common Stock were reserved for issuance under the Stock Purchase Plan, (v) no
shares of preferred stock were issued and outstanding and (vi) 277,500 shares
of Series A Junior Preferred Stock were authorized and reserved for issuance
upon the exercise of the Company Rights. All the outstanding shares of the
Company's capital stock are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in Section 3.2(a) of the Company
Disclosure Letter, there are no bonds, debentures, notes or other
indebtedness having voting rights (or convertible or exchangeable into
securities having such rights) ("Voting Debt") of the Company or any of its
subsidiaries issued and outstanding. Section 3.2(a) of the Company
Disclosure Letter sets forth, with respect to each plan, arrangement or
agreement set forth in Section 3.8(a) of the Company Disclosure Letter
pursuant to which options or stock appreciation rights may be granted or
under which such options or stock appreciation rights have been granted and
are outstanding, in the aggregate by plan, arrangement or agreement the
number of options and stock appreciation rights outstanding, their grant
price, the date such options or rights were granted and the number of shares
of Company Common Stock reserved for issuance pursuant to the plan,
arrangement or agreement (such options and rights being herein collectively
referred to as the "Company Options"), a description of the exercise or
purchase prices, vesting schedules, expiration dates and numbers of shares of
Company Common Stock subject to each such Company Option, together with a
listing of all Company Options which by their terms shall vest and the time
at which they will vest as a result of the Merger and the other transactions
contemplated hereby. Except as set forth above, as set forth in
Section 3.2(a) of the Company Disclosure Letter, for the Company Rights and
for the transactions contemplated by this Agreement and the Stock Option
Agreement, (i) there are no shares of capital stock of the Company
authorized, issued or outstanding and (ii) there are no existing (A) options,
warrants, calls, preemptive rights, subscriptions or other rights,
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convertible or exchangeable securities, agreements, arrangements or
commitments of any character, relating to the issued or unissued capital
stock of the Company or any of its subsidiaries, obligating the Company or
any of its subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or Voting Debt of, or other
equity interest in, the Company or any of its subsidiaries, (B) securities
convertible into or exchangeable for such shares or equity interests or
(C) obligations of the Company or any of its subsidiaries to grant, extend or
enter into any such option, warrant, call, preemptive right, subscription or
other right, convertible security, agreement, arrangement or commitment.
(b) Except as set forth in Section 3.2(b) of the Company
Disclosure Letter, all of the outstanding shares of capital stock of each of
the Company's material subsidiaries are beneficially owned by the Company,
directly or indirectly, and all such shares have been validly issued and are
fully paid and nonassessable and are owned by either Company or one of its
subsidiaries free and clear of all Liens.
(c) There are no voting trusts or other agreements or
understandings to which the Company or any of its material subsidiaries is a
party with respect to the voting of the capital stock of the Company or any
of its material subsidiaries. None of the Company or its material
subsidiaries is a party to any agreement or obligation, contingent or
otherwise, to redeem, repurchase or otherwise acquire or retire shares of
capital stock of the Company or any of its material subsidiaries, whether as
a result of the transactions contemplated by this Agreement or otherwise.
(d) Except as described in Section 3.2(d) of the Company
Disclosure Letter or as specifically described in this Agreement or the Stock
Option Agreement, since September 30, 1998, the Company has not (i) made or
agreed to make any stock split or stock dividend, or issued or permitted to
be issued any shares of capital stock, or securities exercisable for or
convertible into shares of capital stock, of the Company other than pursuant
to and as required by the terms of any Company Option; (ii) repurchased,
redeemed or otherwise acquired any shares of capital stock of the Company; or
(iii) other than its regular quarterly cash dividend of $0.09 per share,
declared, set aside, made or paid to the stockholders of the Company
dividends or other distributions on the outstanding shares of capital stock
of the Company.
Section 3.3 Corporate Authorization; Validity of Agreement;
Company Action. (a) The Company has full corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement and,
subject to obtaining the necessary approval of its stockholders as
contemplated by Section 5.2(b) with respect to the Merger, to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement,
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and the consummation by it of the transactions contemplated hereby and
thereby, have been duly and validly authorized by its Board of Directors and,
except for obtaining the approval of its stockholders as contemplated by
Section 5.2(b) with respect to the Merger, no other corporate action or
proceedings on the part of the Company are necessary to authorize the
execution and delivery by the Company of this Agreement, and the consummation
by it of the transactions contemplated hereby and thereby. This Agreement
and the Stock Option Agreement have been duly executed and delivered by the
Company and, assuming this Agreement and the Stock Option Agreement
constitute valid and binding obligations of Parent and Sub, as applicable,
constitute valid and binding obligations of the Company enforceable against
the Company in accordance with their respective terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, fraudulent
conveyance, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) The Board of Directors of the Company has duly and
validly approved and taken all corporate action required to be taken by the
Board of Directors (in each case by a unanimous vote of all the directors in
office at such time) for the consummation of the transactions contemplated by
this Agreement and the Stock Option Agreement, including, but not limited to,
(i) having determined that this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby, taken together, are advisable
and are fair to and in the best interests of the stockholders of the Company,
(ii) having resolved to recommend that the holders of the shares of Company
Common Stock adopt this Agreement and approve the Merger and (iii) having
taken all actions necessary to render the provisions of Section 203 of the
DGCL inapplicable to this Agreement and the Stock Option Agreement. The
affirmative vote in favor of the adoption of this Agreement by stockholders
holding a majority of the outstanding shares of Company Common Stock (the
"Company Stockholder Approval") is the only vote of the holders of any class
or series of Company capital stock necessary to approve this Agreement and
the Merger. No vote of the stockholders of the Company is required to
approve the Stock Option Agreement.
Section 3.4 Consents and Approvals; No Violations. Except
as set forth in Section 3.4 of the Company Disclosure Letter and for all
filings, permits, authorizations, consents and approvals as may be required
under, and compliance with other applicable requirements of, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), state
securities or "blue sky" laws, state takeover laws, state and foreign
insurance regulatory laws and commissions, including Lloyd's of London and
the U.K. Treasury Department, and for the approval of this Agreement by the
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Company's stockholders and the filing and recordation of this Agreement or
the Certificate of Merger as required by the DGCL, neither the execution,
delivery or performance of this Agreement or the Stock Option Agreement nor
the consummation by the Company of the transactions contemplated hereby or
thereby nor compliance by the Company with any of the provisions hereof or
thereof will (i) result in any breach or violation of any provision of the
certificate of incorporation or by-laws or similar organizational documents
of the Company or of any of its subsidiaries, (ii) require any filing with,
or permit, authorization, consent or approval of, any United States or
foreign court, arbitral tribunal, administrative agency or commission or
other governmental or other regulatory authority, body, commission or agency,
including the Corporation of Lloyd's (a "Governmental Entity"), except where
the failure to obtain such permits, authorizations, consents or approvals or
to make such filings would not have a Material Adverse Effect with respect to
the Company, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation, acceleration or increase in
the rate of interest) under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their properties or assets may be bound (a
"Company Agreement") or result in the creation of a Lien upon any of the
properties or assets of the Company or any of its subsidiaries or
(iv) violate any order, writ, injunction, judgment, decree, statute, rule,
regulation or law ("Law") applicable to the Company, any of its subsidiaries
or any of their properties or assets, except in the case of clauses (iii) and
(iv) for violations, breaches, defaults, or rights of termination, amendment,
cancellation or acceleration or Liens, which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect with
respect to the Company.
Section 3.5 SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports, statements, schedules, registration
statements and other documents required to be filed with the SEC since
January 1, 1996 (the "Company SEC Documents"), each of which complied in all
material respects with the applicable requirements of the Securities Act of
1933 (the "Securities Act") and the rules and regulations promulgated
thereunder, or the Exchange Act and the rules and regulations promulgated
thereunder, each as in effect on the date so filed. No subsidiary of the
Company is required to file any form, report, statement, schedule,
registration statement or other document with the SEC. No Company SEC
Document, when filed (or, if amended or superseded by a filing prior to the
Closing Date, then on the date of such filing) contained any untrue statement
of a material fact or omitted to state a 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.
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(b) Each of the audited and unaudited consolidated
financial statements of the Company (including any related notes thereto)
included in the Company SEC Documents filed prior to the date hereof and the
audited consolidated financial statements of the Company (including any
related notes thereto) to be included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, have been prepared in
accordance with United States generally accepted accounting principles,
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the relevant periods (except as
may be disclosed in the notes thereto), and present fairly the consolidated
financial position and consolidated results of operations and changes in cash
flows of the Company and its subsidiaries as of the respective dates or for
the respective periods reflected therein, except, in the case of the
unaudited interim financial statements, for normal and recurring year-end
adjustments that are not material.
(c) Except to the extent set forth on the consolidated
balance sheet of the Company and its subsidiaries at September 30, 1998
included in the Company SEC Documents (the "Latest Balance Sheet"), or in the
notes thereto, neither the Company nor any of its subsidiaries has any
liabilities, debts, claims or obligations of any nature (whether accrued,
absolute, direct or indirect, contingent or otherwise, whether due or to
become due) which would be required to be reflected on a balance sheet or in
the notes thereto in accordance with United States generally accepted
accounting principles, and there is no existing condition or set of
circumstances which would reasonably be expected, individually or in the
aggregate, to result in such a liability, except for liabilities or
obligations incurred in the ordinary course of business consistent with past
practice since September 30, 1998, and liabilities incurred pursuant to the
terms of or as contemplated by this Agreement, the Stock Option Agreement and
the Merger, none of which would, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect with respect to the Company.
(d) Each Company Insurance Subsidiary has filed during the
three years ended December 31, 1998, all annual and quarterly statements,
together with all exhibits and schedules thereto, required to be filed with
or submitted to the appropriate regulatory authorities of the jurisdiction in
which it is domiciled and to any other jurisdiction where required on forms
prescribed or permitted by such authority. Each Annual Statement filed by
any Company Insurance Subsidiary with the insurance regulator in its state of
domicile for the three years ended December 31, 1997 (each a "Company Annual
Statement"), together with all exhibits and schedules thereto, financial
statements relating thereto and any actuarial opinion, affirmation or
certification filed in connection therewith and each Quarterly Statement so
filed for the quarterly periods ended after January 1, 1998 (each a "Company
Quarterly Statement") were prepared in conformity with the statutory
accounting practices prescribed or permitted by the insurance regulatory
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authorities of the applicable state or other jurisdiction of domicile ("SAP")
applied on a consistent basis, and present fairly, in all material respects,
to the extent required by and in conformity with SAP, the statutory financial
condition of such Company Insurance Subsidiary at their respective dates and
the results of operations, changes in capital and surplus and cash flow of
such subsidiary for each of the periods then ended. No deficiencies or
violations have been asserted by any insurance regulator with respect to the
foregoing Company Annual Statements and Company Quarterly Statements which
have not been cured or otherwise resolved to the satisfaction of such
insurance regulator.
Section 3.6 Absence of Certain Changes. Since
September 30, 1998, there has not occurred any event, change, circumstance,
condition or effect (including the incurrence of any liabilities of any
nature, whether or not accrued, contingent or otherwise) having or reasonably
likely to have, in the aggregate, a Material Adverse Effect with respect to
the Company. Since September 30, 1998, the Company and its subsidiaries have
conducted their respective businesses in the ordinary course consistent with
past practice.
Section 3.7 Information Supplied. None of the information
supplied by the Company for inclusion in (i) the registration statement on
Form S-4 to be filed with the SEC by Parent in connection with the issuance
of the Parent Ordinary Shares in the Merger (such Form S-4, as amended or
supplemented, is herein referred to as the "Form S-4") will, at the time the
Form S-4 is filed with the SEC, and at any time it is amended or supplemented
or 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 not
misleading or (ii) the proxy statement to be sent to the stockholders of the
Company in connection with the Stockholders Meeting (as defined in
Section 5.2(b)) (such proxy statement, as amended or supplemented, is herein
referred to as the "Proxy Statement/Prospectus") will, at the date the Proxy
Statement/Prospectus is first mailed to the Company's stockholders or at the
time of the Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading or contain any
statements which at the time and in the light of the circumstances under
which it is made, is false or misleading with respect to any material fact,
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of a proxy for the
Stockholders Meeting which has become false or misleading. The Form S-4 will,
as of its effective date, and the prospectus contained therein will, as of
its date, comply as to form in all material respects with the requirements of
the Securities Act and the rules and regulations promulgated thereunder. The
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Proxy Statement/Prospectus will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder. No representation is made by the Company with
respect to statements made or incorporated by reference in the Form S-4 or
the Proxy Statement/Prospectus based on information supplied in writing by
Parent specifically for inclusion or incorporation in the Form S-4 or the
Proxy Statement/Prospectus.
Section 3.8 Employee Benefit Plans. (a) Section 3.8(a) of
the Company Disclosure Letter contains a true and complete list of each
"employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including
multiemployer plans within the meaning of Section 3(37) of ERISA), stock
purchase, stock option, severance, employment, change-in-control, fringe
benefit, collective bargaining, bonus, incentive, deferred compensation and
all other employee benefit plans, agreements and programs, whether or not
subject to ERISA (including any funding mechanism therefor now in effect or
required in the future as a result of the transaction contemplated by this
Agreement or otherwise), whether oral or written, under which any employee or
former employee of the Company or its subsidiaries has any present or future
right to benefits or under which the Company or its subsidiaries has any
present or future liability. All such plans, agreements, programs, policies
and arrangements shall be collectively referred to as the "Company Plans".
(b) Except as disclosed in Section 3.8(b) of the Company
Disclosure Letter, no Company Plan (i) is a multiemployer plan within the
meaning of Section 3(37) of ERISA (and neither the Company nor any of its
subsidiaries has, at any time, contributed to nor had an obligation to
contribute to any such multiemployer plan) or (ii) is an "employee pension
plan" within the meaning of Section 3(2) of ERISA that is subject to Title IV
of ERISA.
(c) With respect to each Company Plan, the Company has
delivered to Parent a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable: (i) any related trust agreement or other funding instrument;
(ii) the most recent determination letter, if applicable; (iii) the most
recent summary plan description and other written communications (or a
description of any oral communications) by the Company or its subsidiaries to
their employees concerning the extent of the benefits provided under a
Company Plan; and (iv) for the three most recent years (A) the Form 5500 and
attached schedules, (B) audited financial statements, (C) actuarial valuation
reports (excluding valuation information regarding the individuals set forth
on Section 3.8(c) of the Company Disclosure Letter) and (D) attorneys'
responses to auditor's request for information.
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(d) (i) Each Company Plan has been established and
administered in all material respects in accordance with its terms, and in
compliance in all material respects with the applicable provisions of ERISA,
the Code and other applicable laws, rules and regulations; (ii) each Company
Plan which is intended to be qualified within the meaning of Section 401(a)
of the Code is so qualified, to the knowledge of the Company, and has
received a favorable determination letter as to its qualification, and
nothing has occurred, whether by action or failure to act, that would
reasonably be expected to cause the loss of such qualification; (iii) no
event has occurred and no condition exists that would subject the Company or
its subsidiaries, either directly or by reason of their affiliation with any
member of their "Controlled Group" (defined as any organization which is a
member of a controlled group of organizations within the meaning of Sections
414(b), (c), (m) or (o) of the Code), to any material tax, fine, lien,
penalty or other liability imposed by ERISA, the Code or other applicable
laws, rules and regulations; (iv) for each Company Plan with respect to which
a Form 5500 has been filed, no material change has occurred with respect to
the matters covered by the most recent Form since the date thereof; (v) no
non-exempt "prohibited transaction" (as such term is defined in Section 406
of ERISA and Section 4975 of the Code) has occurred with respect to any
Company Plan; (vi) no Company Plan provides retiree welfare benefits and
neither the Company nor its subsidiaries have any obligations to provide any
retiree welfare benefits (except to the extent retirees are entitled to
benefits pursuant to Section 601 et seq. of ERISA); and (vii) except as set
forth in Section 3.8(d) of the Company Disclosure Letter, all awards, grants
or bonuses made pursuant to any Company Plan have been, or will be, fully
deductible to the Company or its subsidiaries notwithstanding the provisions
of Section 162(m) of the Code and the regulations promulgated thereunder.
(e) With respect to any Company Plan, (i) no actions, suits
or claims (other than routine claims for benefits in the ordinary course) are
pending or, to the knowledge of the Company, threatened and (ii) to the
knowledge of the Company, no facts or circumstances exist that would give
rise to any such actions, suits or claims.
(f) Except as set forth in Section 3.8(f) of the Company
Disclosure Letter, the consummation of the Merger and other transactions
contemplated by this Agreement will not (i) entitle any employee or director
of the Company to severance pay, (ii) result in the payment to any present or
former employee of the Company or its subsidiaries of any money or other
property or accelerate the time of payment or vesting, or (iii) increase the
amount payable or provide any other rights or benefits to any present or
former employee of the Company or its subsidiaries, whether or not such
payment would constitute a parachute payment within the meaning of Section
280G of the Code.
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Section 3.9 Compliance. Neither the Company nor any of its
subsidiaries is in default or violation of (and no event has occurred which
with notice or lapse of time or both would constitute a default or violation
of) (i) its certificate of incorporation or by-laws or other governing
document, (ii) any Law applicable to the Company or any of its subsidiaries
or by which any of their respective properties or assets is bound or
affected, or (iii) any Company Agreement, except in the case of clauses (ii)
and (iii) for any such defaults or violations that would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect
with respect to the Company. The Company and its subsidiaries have and are
in compliance with all licenses, permits, and other authorizations, domestic
or foreign, necessary to conduct their respective businesses, except where
the failure to have or comply with such licenses, permits and authorizations
would not reasonably be expected to have a Material Adverse Effect with
respect to the Company.
Section 3.10 Material Contracts. Except as set forth in
Section 3.10 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 Documents
or to be filed as exhibits thereto are described in the Company SEC Reports
or filed as exhibits thereto and are in full force and effect.
(b) Neither the Company nor any of its subsidiaries is
party to any agreement containing any provision or covenant limiting in any
material respect the ability of the Company or any of its subsidiaries 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 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) Subject to obtaining the consents referred to in
Section 3.4 and except as set forth in Section 3.8(f) of the Company
Disclosure Letter, neither the Company nor any of its subsidiaries is a party
to or bound by any contract, agreement or arrangement which would cause the
rights or obligations of any party thereto to change upon the consummation of
the Merger, except for any such contract, agreement or arrangement which
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to the Company.
Section 3.11 Absence of Litigation. There is no claim,
suit, action, proceeding or investigation pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries, or any
property or asset of the Company or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, which (a) individually or in the aggregate, would
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reasonably be expected to have a Material Adverse Effect with respect to the
Company or (b) in any manner challenges or seeks to prevent, enjoin, alter or
delay the transactions contemplated hereby. Neither the Company nor any of
its subsidiaries nor any of their respective properties or assets is subject
to any order, writ, judgment, injunction, decree, determination or award
having, or which would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect with respect to the Company. There are
no pending or, to the knowledge of the Company, threatened claims for
indemnification by the Company in favor of directors, officers, employees and
agents of the Company.
Section 3.12 Tax Matters. The Company and each of its
subsidiaries, and any consolidated, combined, unitary or aggregate group for
Tax purposes of which the Company or any of its subsidiaries is or has been a
member has timely filed or caused to be timely filed all Tax Returns required
to be filed by it in the manner provided by law and has paid or reserved for
(in accordance with United States generally accepted accounting principles),
all amounts of Taxes (including interest and penalties) whether or not shown
to be due and owing on such Tax Returns for all taxable years for periods (or
portions thereof) ending on or prior to the Effective Time unless such
failure would not have a Material Adverse Effect with respect to the Company.
All such Tax Returns were true, correct and complete in all material
respects. Except as has been disclosed in Section 3.12 of the Company
Disclosure Letter: (i) no claim for any material amount of unpaid Taxes has
been proposed in writing against the Company or any of its subsidiaries or,
to the best knowledge of the Company, has become a Lien of any kind against
the property of the Company or any of its subsidiaries (except for statutory
Liens for current Taxes not yet due and payable) or is being asserted in
writing against the Company or any of its subsidiaries (other than in each
case claims or assertions for which adequate reserves have been established
in the Latest Balance Sheet and which are being contested in good faith);
(ii) as of the date hereof no audit of any material Tax Return of the Company
or any of its subsidiaries is being conducted by any Tax authority, no
material audit or other proceeding by any Tax authority has formally
commenced and there is no material claim or assessment pending, and, to the
knowledge of the Company, no written notice has been given to the Company and
its subsidiaries that such an audit or other proceeding is pending with
respect to any material amount of Taxes due from or with respect to the
Company and its subsidiaries or any material Tax Return filed by or with
respect to the Company and its subsidiaries; (iii) no extension or waiver of
the statute of limitations on the assessment of any material amount of Taxes
has been granted by the Company or any of its subsidiaries and is currently
in effect and no power of attorney granted by or with respect to the Company
and its subsidiaries relating to any material amount of Taxes is currently in
force; (iv) neither the Company nor its subsidiaries is a party to or bound
by, and does not have any obligation under, any material Tax sharing
agreement or similar contract or arrangement or any agreement that obligates
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it to make any payment computed by reference to the Taxes, taxable income or
taxable losses of any other person; and (v) none of the Company nor any of
its subsidiaries has been a member of an affiliated group (other than the
group to which it is currently a member) filing a consolidated federal income
Tax Return. As used herein, the term "Tax" or "Taxes" shall mean any taxes
of any kind, including but not limited to those on or measured by or referred
to as income, gross receipts, capital, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or
foreign. As used herein, "Tax Return" shall mean any return, report or
statement required to be filed with any Governmental Entity with respect to
Taxes.
Section 3.13 Title to Properties; Leases. The Company has
good and marketable title to, and is the lawful owner of, or has the right to
use pursuant to a license or otherwise, all of the tangible and intangible
assets, properties and rights reflected in the Latest Balance Sheet or
acquired since the date of the Latest Balance Sheet, free and clear of all
Liens and material defects in title, in each case except where the failure to
have title, be the owner or have the right to use would not reasonably be
expected to interfere in any material respect with the conduct of the
business of the Company as currently conducted. The Company has provided
Parent with a copy or an accurate summary of the material terms of all
material real property and personal property leases of the Company. All such
leases are valid, binding and enforceable against the Company (and, to the
knowledge of the Company, each other party thereto) in accordance with their
respective terms, and there does not exist under any lease of real property
or personal property any material defect in title or any event which, with
notice or lapse of time or both, would constitute a material default by the
Company or, to the knowledge of the Company, by any other party thereto.
Section 3.14 Intellectual Property. The Company owns or
possesses, or has all necessary rights to use, all patents, patent rights,
licenses, inventions (whether or not patentable or reduced to practice),
copyrights (whether registered or unregistered), know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), registered and unregistered trademarks,
service marks and trade names and other intellectual property rights
(collectively, "Intellectual Property") necessary to conduct its business as
conducted and proposed to be conducted except to the extent that the failure
of the Company to own or have such rights and licenses in such Intellectual
Property would not reasonably be expected to have a Material Adverse Effect
with respect to the Company. The Company has not received any notice of, and
is not aware of any fact or circumstance that would give any person a right
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to assert, any infringement or misappropriation of, or conflict with,
asserted rights of others or invalidity or unenforceability of any
Intellectual Property owned by the Company with respect to any of the
foregoing which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect with respect to the Company. To
the best knowledge of the Company, the use of such Intellectual Property to
conduct the business and operations of the Company as conducted or proposed
to be conducted does not infringe on the rights of any person in any case
where such infringement would reasonably be expected to have a Material
Adverse Effect with respect to the Company. To the knowledge of the Company,
no person is challenging, infringing on or otherwise violating any right of
the Company with respect to any Intellectual Property owned by and/or
licensed to the Company. Except as set forth in Section 3.13 of the Company
Disclosure Letter, neither the execution of this Agreement or the Stock
Option Agreement nor the consummation of the transactions contemplated hereby
or thereby will result in a loss of or limitation in the rights and licenses
of the Company to use or enjoy the benefit of any Intellectual Property
employed by the Company in connection with its business as conducted or
proposed to be conducted where such loss or limitation, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect
with respect to the Company.
Section 3.15 Insurance Matters. (a) Except as otherwise
would not, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect with respect to the Company, all policies, binders,
slips, treaties, certificates, annuity contracts and participation agreements
and other agreements of insurance or reinsurance, whether individual or
group, in effect as of the date hereof (including all applications,
supplements, endorsements, riders and ancillary agreements in connection
therewith) (the "General Insurance Contracts") that are issued by the Company
or its subsidiaries and any and all marketing materials are, to the extent
required under applicable Law, on forms approved by applicable insurance or
reinsurance regulatory authorities or which have been filed and not objected
to by such authorities within the period provided for objection, and such
forms comply in all material respects with the insurance or reinsurance
statutes, regulations and rules applicable thereto and, as to premium rates
established by the Company or any subsidiary which are required to be filed
with or approved by insurance or reinsurance regulatory authorities, the
rates have been so filed or approved, the premiums charged conform thereto in
all material respects and such premiums comply in all material respects with
the insurance or reinsurance statutes, regulations and rules applicable
thereto.
(b) Each reinsurance and coinsurance treaty or agreement,
including retrocessional agreements, to which the Company or any of its
subsidiaries is a party, under which the Company or any of its subsidiaries
has any existing rights, duties, obligations or liabilities or which is
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otherwise applicable to the Company or any of its subsidiaries, assuming its
due authorization, execution and delivery by the other party or parties
thereto, is valid and binding in all material respects in accordance with its
terms and is in full force and effect, except for such treaties or agreements
the failure to be valid and binding or in full force and effect of which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to the Company. No party to any such
treaty or agreement has given notice to the Company or any of its
subsidiaries that it intends to terminate or cancel any such treaty or
agreement as a result of the Merger or the contemplated operations of the
Company or its subsidiaries after the Merger is consummated, which
termination or cancellation would have a Material Adverse Effect with respect
to the Company. Any subsidiary of the Company that has ceded reinsurance
pursuant to any such treaty or agreement is entitled to take full credit in
its financial statements for all amounts recoverable (net of any reserve for
collectibility under such treaty or agreement) with such credit accounted for
(i) pursuant to SAP, as a reduction of such Company's loss reserves and
(ii) pursuant to United States generally accepted accounting principles, as a
reinsurance recoverable asset. The Company has no unrecoverable reinsurance
balances, other than as fully reserved on the Latest Balance Sheet or
specified in Section 3.15 of the Company Disclosure Letter.
(c) The Company has not received any written notice that
the financial condition of any other party to any reinsurance, coinsurance or
other similar agreement with it or any of its subsidiaries is so impaired as
to result in a default thereunder, except to the extent that adequate
reserves in respect of any such default are reflected on the Latest Balance
Sheet.
(d) Prior to the date hereof, the Company has delivered or
made available to Parent a true and complete copy of any actuarial reports
prepared by actuaries, independent or otherwise, with respect to the Company
or any Company Insurance Subsidiary since January 1, 1998, 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.
(e) As of the date hereof, the Company has no reason to
believe that any rating presently held by the Company or any of its
subsidiaries is likely to be modified, qualified, lowered or placed under
surveillance for a possible downgrade for any reason other than as a result
of the transactions contemplated hereby.
Section 3.16 Liabilities and Reserves. (a) Except for
instances where the failure of any of the following statements to be true
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would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on the Company, (i) the reserves carried on the
statutory 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, in compliance with
the requirements for reserves established by the insurance departments of the
jurisdiction of domicile of such Company Insurance Subsidiary and each other
jurisdiction where it is regulated or (as the case may be) by the Corporation
of Lloyd's, were determined in accordance with SAP and with generally
accepted actuarial standards, assumptions and principles consistently
applied, and were fairly stated in accordance with sound actuarial and
statutory accounting principles; (ii) such reserves were, in the reasonable
judgment of the Company, 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 statutory surplus 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.
(b) Except for regular periodic assessments in the ordinary
course of business or assessments based on developments which are publicly
known within the insurance and reinsurance industry, to the best knowledge of
the Company and its subsidiaries, no claim or assessment is pending or
threatened against any subsidiary which is peculiar or unique to such
subsidiary by any state insurance guaranty associations in connection with
such association's fund relating to insolvent insurers which if determined
adversely, would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to the Company.
Section 3.17 Environmental Laws. Except to the extent that
any inaccuracy in any of the following representations, individually or in
the aggregate with any other inaccuracy under the respective following
representations, would not reasonably be expected to have a Material Adverse
Effect with respect to the Company, (a) each of the Company and each of its
subsidiaries is in compliance with all Environmental Laws applicable to the
properties, assets or businesses of the Company and its subsidiaries, and
possesses and complies with and has possessed and complied with all
Environmental Permits required under such laws; (b) none of the Company and
its subsidiaries has received any Environmental Claim, and none of the
Company and its subsidiaries is aware after reasonable inquiry of any
threatened Environmental Claim or of any Environmental Claim pending or
threatened against any entity for which the Company or any of its
subsidiaries may be responsible; (c) none of the Company and its subsidiaries
has assumed, contractually or by operation of law, any liabilities or
obligations under any Environmental Laws; (d) there are no present or, to the
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best knowledge of the Company, past events, conditions, circumstances,
practices, plans or legal requirements that would reasonably be expected to
result in liability to the Company or any of its subsidiaries under
Environmental Laws, prevent, or reasonably be expected to increase the burden
on the Company or any of its subsidiaries of, complying with Environmental
Laws or of obtaining, renewing, or complying with all Environmental Permits
required under such laws; (e) there are and, to the best knowledge of the
Company, there have been no Hazardous Materials or other conditions at or
from any property owned, operated or otherwise used by the Company or any of
its subsidiaries now or, to the best knowledge of the Company, in the past
that would reasonably be expected to give rise to liability of the Company or
any of its subsidiaries under any Environmental Law; and (f) the Company has
provided to Parent all Environmental Reports in the possession or control of
the Company or any of its subsidiaries. For purposes of this Agreement, the
following terms shall have the following meanings:
"Environmental Claim" means any written or oral notice,
claim, demand, action, suit, complaint, proceeding or other
communication by any person alleging liability or potential liability
arising out of, relating to, based on or resulting from (i) the
presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, whether or not owned, leased or
operated by the Company or any of its subsidiaries or
(ii) circumstances forming the basis of any violation or alleged
violation of any Environmental Law or Environmental Permit or
(iii) otherwise relating to obligations or liabilities under any
Environmental Laws; provided, however, that the term "Environmental
Claim" shall not include any such claim, demand, action, suit,
complaint, proceeding or other communication under an insurance or
reinsurance policy issued by the Company.
"Environmental Laws" means all applicable statutes, rules,
regulations, ordinances, orders, decrees and common law, in each case
of any Governmental Entity, as they exist at the date hereof,
relating in any manner to contamination, pollution or protection of
human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act,
the Solid Waste Disposal Act, the Resource Conservation and Recovery
Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Occupational Safety and Health Act, the Emergency
Planning and Community-Right-to-Know Act, the Safe Drinking Water
Act, all as amended, and similar state laws.
"Environmental Permits" means all permits, licenses,
registrations and other governmental authorizations required for the
Company and its subsidiaries and the operations of the Company's and
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its subsidiaries' facilities to conduct its business under
Environmental Laws.
"Environmental Report" means any report, study, assessment,
audit, or other similar document that addresses any issue of
noncompliance with, or liability under, any Environmental Law that
may affect the Company or any of its subsidiaries.
"Hazardous Materials" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos,
pollutants, contaminants, radioactivity, and any other substances of
any kind, whether or not any such substance is defined as hazardous
or toxic under any Environmental Law, that is regulated pursuant to
or could give rise to liability under any Environmental Law.
Section 3.18 Investment Company. Neither the Company nor
any of its subsidiaries is an "investment company" as defined under the
Investment Company Act of 1940, as amended (the "1940 Act"), and neither the
Company nor any of its subsidiaries sponsors any person that is such an
investment company.
Section 3.19 Year 2000. The Company is in the process of
reviewing its and its subsidiaries' software and hardware systems that
perform critical or important accounting, data processing, data storage, data
transmission and report writing functions for the purposes of evaluating the
readiness of these systems to function without material interruption on the
occurrence of the year 2000 ("Y2K Readiness"). In connection with this
process and as described in Section 3.19 of the Company Disclosure Letter,
the Company has retained the services of Y2K Readiness consultants to assist
the Company in these efforts and has undertaken to obtain assurances from its
principal software suppliers and service firms as to the Y2K Readiness of
certain critical or important systems obtained from these outside sources or
utilized by them in providing critical services to the Company. The Company
reasonably believes that all software, hardware and equipment (including
microprocessors) that is owned by, or leased or licensed to, the Company or
any of its subsidiaries in the operations of its or their respective business
will be capable, by December 31, 1999, of accounting for all calculations
using a century and date sensitive algorithm for the year 2000 and the fact
that the year 2000 is a leap year and to otherwise continue to function
without any interruption caused by the occurrence of the year 2000. In the
event of a Y2K related failure, the Company will have in place a business
contingency plan that will address the continuity of critical business
processes into the Year 2000.
Section 3.20 Brokers. No broker, finder or investment
banker (other than Morgan Stanley, Dean Witter & Co. Incorporated ("Morgan
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Stanley"), CIBC Oppenheimer Corp. and SBC Warburg Dillon Read (collectively,
the "Company Financial Advisors")) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement. The Company has furnished to Parent a complete and correct
copy of all agreements between the Company and the Company Financial Advisors
pursuant to which the Company Financial Advisors would be entitled to any
payment relating to the transactions contemplated hereby.
Section 3.21 Opinion of Financial Advisor. The Company has
received an opinion from Morgan Stanley, dated the date hereof, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to the holders of Company Common Stock. A copy of such opinion has
been provided to Parent.
Section 3.22 Pooling of Interests As of the date of this
Agreement, the Company does not know of any reason relating to the Company
why the Merger would not qualify as a pooling of interests for financial
reporting purposes under United States generally accepted accounting
principles.
Section 3.23 Takeover Statutes. No "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover
statute or regulation enacted under any law applicable to the Company is
applicable to this Agreement, the Stock Option Agreement, the Merger or the
other transactions contemplated hereby or thereby. The Company has taken all
steps necessary to irrevocably exempt the transactions contemplated by this
Agreement and the Stock Option Agreement from any applicable provisions of
the Company's certificate of incorporation or by-laws and from Section 203 of
the DGCL.
Section 3.24 Rights Agreement. (a) Prior to entering into
this Agreement, the Company has taken all actions necessary such that, for
all purposes under the Rights Agreement, dated, as of June 18, 1998 (the
"Company Rights Agreement"), between the Company and American Stock Transfer
& Trust Co., Parent shall not be deemed an Acquiring Person (as defined in
the Company Rights Agreement), the Distribution Date (as defined in the
Company Rights Agreement) shall not be deemed to occur and the Company Rights
issuable pursuant to the Company Rights Agreement will not separate from the
shares of the Company Common Stock as a result of Parent's entering into this
Agreement or the Stock Option Agreement or consummating the Merger or the
other transactions contemplated hereby or thereby.
(b) The Company has taken all necessary action with respect
to all of the outstanding Company Rights so that (i) neither Parent, Sub nor
any of their respective affiliates shall become an "Acquiring Person"
thereunder as a result of the execution and delivery of this Agreement and
the Stock Option Agreement or the consummation of the transactions
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contemplated hereby and thereby and (ii) no holder of Company Rights shall
be entitled to exercise such Company Rights or shall be entitled to any
rights or benefits pursuant to the Company Rights Agreement as a result of
the execution and delivery of this Agreement and the Stock Option Agreement
and the consummation of the transactions contemplated hereby and thereby.
Section 3.25 Employees. Neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement. Since
January 1, 1996, neither the Company nor any of its subsidiaries has had any
employee strikes, work stoppages, slowdowns or lockouts or received any
requests for certifications of bargaining units or any other requests for
collective bargaining. Except as set forth in Section 3.25 of the Company
Disclosure Letter, there is no unfair labor practice, employment
discrimination or other complaint against the Company or any of its
subsidiaries pending or, to the knowledge of the Company, threatened, which,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as
follows:
Section 4.1 Organization. (a) Each of Parent and Sub is a
corporation or other business organization duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
or organization. Each of Parent and its subsidiaries (i) is qualified,
licensed or domesticated 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 United States 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 with respect to Parent. Parent has furnished
to the Company complete and correct copies of its memorandum and articles of
association and Sub's certificate of incorporation and by-laws as in effect
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on the date hereof. Such documents are in full force and effect and no other
organizational documents are applicable to or binding upon Parent or Sub.
(b) Each material subsidiary of Parent that is an insurance
company (a "Parent Insurance Subsidiary") has filed during the three years
ended December 31, 1998, all financial statements, together with all exhibits
and schedules thereto, required to be filed with or submitted to the
appropriate regulatory authorities of the jurisdiction in which it is
domiciled and to any other jurisdiction where required on forms prescribed or
permitted by such authority. Each annual statement filed by any Parent
Insurance Subsidiary with the insurance regulator in its jurisdiction of
domicile for the three years ended November 30, 1997 (each a "Parent Annual
Statement"), together with all exhibits and schedules thereto, financial
statements relating thereto and any actuarial opinion, affirmation or
certification filed in connection therewith and any Quarterly Statement so
filed for the quarterly periods ended after December 31, 1998 (each a "Parent
Quarterly Statement") were prepared in conformity with SAP applied on a
consistent basis, and present fairly, in all material respects, to the extent
required by and in conformity with SAP, the statutory financial condition of
such Parent Insurance Subsidiary at their respective dates and the results of
operations, changes in capital and surplus and cash flow of such subsidiary
for each of the periods then ended. No deficiencies or violations have been
asserted by any insurance regulator with respect to the foregoing Parent
Annual Statements and Parent Quarterly Statements which have not been cured
or otherwise resolved to the satisfaction of such insurance regulator.
Section 4.2 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 February 1, 1999,
(i) 109,013,614 Parent Ordinary Shares were issued and outstanding (excluding
509,700 Parent Ordinary Shares held in treasury, which for purposes of Cayman
Islands law are deemed to be cancelled), (ii) 3,115,873 Non-Voting Common
Shares, par value $0.01 per share were issued and outstanding and
(iii) additional Parent Ordinary Shares were reserved for issuance upon the
exercise of the Parent Rights distributed to the holders of Parent Ordinary
Shares pursuant to the Rights Agreement dated as of December 1, 1996 (the
"Parent Rights Agreement"), between Parent and Mellon Securities Trust
Company. All the outstanding shares of Parent's share capital are duly
authorized, validly issued, fully paid and non-assessable. The Parent
Ordinary Shares to be issued in the Merger, when issued in accordance with
the terms hereof, will be duly authorized, validly issued and fully paid and
nonassessable and not subject to preemptive rights.
(b) Except as set forth in Section 4.2(b) of the Parent
Disclosure Letter, all of the outstanding shares of capital stock of each of
Parent's material subsidiaries are beneficially owned by Parent, directly or
indirectly, and all such shares have been validly issued and are fully paid
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and nonassessable and are owned by either Parent or one of its material
subsidiaries free and clear of all Liens.
(c) Except as set forth in Section 4.2(c) of the letter,
dated as of the date hereof, from Parent to the Company regarding certain
matters related to this Agreement (the "Parent Disclosure Letter"), there are
no voting trusts or other agreements or understandings to which Parent or any
of its material subsidiaries is a party with respect to the voting of the
capital stock of Parent or any of its material subsidiaries. None of Parent
or its material subsidiaries is a party to any agreement or obligation,
contingent or otherwise, to redeem, repurchase or otherwise acquire or retire
shares of capital stock of Parent or any of its subsidiaries, whether as a
result of the transactions contemplated by this Agreement or otherwise.
Section 4.3 Corporate Authorization; Validity of Agreement;
Necessary Action. (a) Each of Parent and Sub has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Parent and Sub of this Agreement and the consummation by Parent and Sub of
the transactions contemplated hereby have been duly and validly authorized by
their respective boards of directors, and no other corporate action or
proceedings on the part of Parent or Sub are necessary to authorize the
execution and delivery by Parent or Sub of this Agreement and the
consummation by Parent and Sub of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and Sub, and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, constitutes a valid and binding obligation of each of Parent and
Sub, enforceable against each of them in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(b) The Boards of Directors of each of Parent and Sub have
duly and validly approved and taken all corporate action required to be taken
by each of them for the consummation of the transactions contemplated by this
Agreement and the Stock Option Agreement, including having determined that
this Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby, taken together, are fair to and in the best interests of
Parent. No vote of the shareholders of Parent is required to approve the
Merger or the issuance of Parent Ordinary Shares in the Merger under
applicable Law.
Section 4.4 No Prior Activities. Sub has not incurred,
directly or indirectly, any liabilities or obligations, and has acquired no
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assets of any kind, except those incurred or acquired in connection with its
incorporation or with the negotiation of this Agreement and the consummation
of transactions contemplated hereby. Sub has been formed solely to
facilitate the transactions contemplated in this Agreement and has not
engaged, directly or indirectly, in any business or activity of any type or
kind, or entered into any Agreement or arrangement with any person or entity,
and is not subject to or bound by any obligation or undertaking, that is not
contemplated by or in connection with this Agreement and the transactions
contemplated thereby.
Section 4.5 Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be
required under, and compliance with other applicable requirements of, the
Exchange Act, the Securities Act, the HSR Act, state securities or "blue sky"
laws, state takeover laws, state and foreign insurance regulatory laws and
commissions, and for the filing or recordation of this Agreement or the
Certificate of Merger as required by the DGCL, neither the execution,
delivery or performance of this Agreement by Parent and Sub nor the
consummation by Parent and Sub of the transactions contemplated hereby nor
compliance by Parent and Sub with any of the provisions hereof will
(i) result in any breach or violation of any provision of the memorandum or
articles of association or similar organizational documents of Parent or any
of its subsidiaries, (ii) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not have a Material Adverse Effect with respect to Parent,
(iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or increase in the rate
of interest) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, guarantee, other evidence of indebtedness, lease,
license, contract, agreement or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which or any of their
properties or assets may be bound (a "Parent Agreement") or result in the
creation of a Lien upon any of the properties or assets of Parent or
(iv) violate any Law applicable to Parent, any of its subsidiaries or any of
their properties or assets, except in the case of clauses (iii) and (iv) for
violations, breaches, defaults, or rights of termination, amendment,
cancellation or acceleration, which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with
respect to Parent.
Section 4.6 SEC Filings; Financial Statements. (a) Parent
has filed all forms, reports, statements, schedules, registration statements
and other documents required to be filed with the SEC since January 1, 1996
(the "Parent SEC Documents"), each of which complied in all material respects
with the applicable requirements of the Securities Act, and the rules and
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regulations promulgated thereunder, or the Exchange Act and the rules and
regulations promulgated thereunder, each as in effect on the date so filed.
No subsidiary of Parent is required to file any form, report, statement,
schedule, registration statement or other document with the SEC. No Parent
SEC Document, when filed (or, if amended or superseded by a filing prior to
the Closing Date, then on the date of such filing) contained any untrue
statement of a material fact or omitted to state a 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.
(b) Each of the audited and unaudited consolidated
financial statements of Parent (including any related notes thereto) included
in the Parent SEC Documents filed prior to the date hereof and the audited
consolidated financial statements of Parent (including any related notes
thereto) to be included in Parent's Annual Report on Form 10-K for the fiscal
year ended November 30, 1998, have been prepared in accordance with United
States generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the relevant periods (except as may be disclosed in
the notes thereto), and present fairly the consolidated financial position
and consolidated results of operations and changes in cash flows of Parent
and its subsidiaries as of the respective dates or for the respective periods
reflected therein, except, in the case of the unaudited interim financial
statements, for normal and recurring year-end adjustments that are not
material.
(c) Except to the extent set forth on the consolidated
balance sheet of Parent and its subsidiaries at August 31, 1998 included in
the Parent SEC Documents (the "Latest Parent Balance Sheet"), or in the notes
thereto, neither Parent nor any of its subsidiaries has any liabilities,
debts, claims or obligations of any nature (whether accrued, absolute, direct
or indirect, contingent or otherwise, whether due or to become due) which
would be required to be reflected on a balance sheet or in the notes thereto
in accordance with United States generally accepted accounting principles,
and there is no existing condition or set of circumstances which would
reasonably be expected, individually or in the aggregate, to result in such a
liability, except for liabilities or obligations incurred in the ordinary
course of business consistent with past practice since August 31, 1998, and
liabilities incurred pursuant to the terms of or as contemplated by this
Agreement, the Stock Option Agreement and Merger, none of which would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to Parent.
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Section 4.7 Absence of Certain Changes. Except as set
forth in Section 4.7 of the Parent Disclosure Letter, since August 31, 1998
there has not occurred any event, change, circumstance, condition or effect
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) having or reasonably likely to have, in the
aggregate, a Material Adverse Effect with respect to Parent.
Section 4.8 Information Supplied. None of the information
supplied by Parent or Sub for inclusion in (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC, and at any time it is amended or
supplemented or 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 not misleading or (ii) the Proxy Statement/Prospectus will, at the
date it is first mailed to the Company's stockholders or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading or contain any statements which at the
time and in the light of the circumstances under which it is made, is false
or misleading with respect to any material fact, omit to state any material
fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of a proxy for the Stockholders Meeting
which has become false or misleading. The Form S-4 will, as of its effective
date, and the prospectus contained therein will, as of its date, comply as to
form in all material respects with the requirements of the Securities Act and
the rules and regulations promulgated thereunder. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder. No representation is made by Parent with respect to statements
made or incorporated by reference in the Form S-4 based on information
supplied in writing by the Company specifically for inclusion or
incorporation in the Form S-4.
Section 4.9 Compliance. Neither Parent nor Sub is in
default or violation of (and no event has occurred which with notice or lapse
of time or both would constitute a default or violation of) (i) its
memorandum or articles of association, certificate of incorporation or by-
laws or other governing document, (ii) any Law applicable to Parent or any of
its subsidiaries or by which any of their respective properties or assets is
bound or affected, or (iii) any Parent Agreement, except in the case of
clauses (ii) and (iii) for any such defaults or violations that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to Parent. Parent and its subsidiaries have and
are in compliance with all licenses, permits, and other authorizations,
domestic or foreign, necessary to conduct their respective businesses, except
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where the failure to have or comply with such licenses, permits and
authorizations would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect with respect to Parent.
Section 4.10 Absence of Litigation. There is no claim,
suit, action, proceeding or investigation pending or, to the knowledge of
Parent, threatened against Parent or any of its subsidiaries, or any property
or asset of the Parent or any of its subsidiaries, before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign, which (a) individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect with respect to
Parent or (b) in any manner challenges or seeks to prevent, enjoin, alter or
delay the transactions contemplated hereby. Neither Parent nor any of its
subsidiaries nor any property or asset of Parent or any of its subsidiaries
is subject to any order, writ, judgment, injunction, decree, determination or
award having, or which would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect with respect to Parent. Except
as set forth in Section 4.10 of the Parent Disclosure Letter, there are no
pending or, to the knowledge of Parent, threatened claims for indemnification
by Parent in favor of directors, officers, employees and agents of Parent.
Section 4.11 Brokers. No broker, finder or investment
banker (other than Donaldson Lufkin & Jenrette Securities Corporation ("DLJ")
and Wasserstein Perella & Co. Inc. ("Wasserstein Perella" and, together with
DLJ, the "Parent Financial Advisors")) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions contemplated
by this Agreement. Parent has furnished to the Company a complete and
correct copy of all agreements between Parent and each of the Parent
Financial Advisors pursuant to which such firm would be entitled to any
payment relating to the transactions contemplated hereby.
Section 4.12 Pooling of Interests. As of the date of this
Agreement, neither Parent nor Sub knows of any reason relating to Parent or
Sub why the Merger would not qualify as a pooling of interests for financial
reporting purposes under United States generally accepted accounting
principles.
Section 4.13 Opinion of Financial Advisor. The Board of
Directors of Parent has received opinions from each of DLJ and Wasserstein
Perella, dated the date of this Agreement, to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of view, to the
Company. Copies of such opinions have been provided to the Company.
Section 4.14 Investment Company. Neither Parent nor any of
its subsidiaries is an "investment company" as defined under the 1940 Act and
neither Parent nor any of its subsidiaries sponsors any person that is such
an investment company.
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Section 4.15 Insurance Matters. (a) Except as otherwise
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to Parent, General Insurance Contracts
that are issued by Parent or its subsidiaries and any and all marketing
materials are, to the extent required under applicable Law, on forms approved
by applicable insurance or reinsurance regulatory authorities or which have
been filed and not objected to by such authorities within the period provided
for objection, and such forms comply in all material respects with the
insurance or reinsurance statutes, regulations and rules applicable thereto
and, as to premium rates established by Parent or any subsidiary which are
required to be filed with or approved by insurance or reinsurance regulatory
authorities, the rates have been so filed or approved, the premiums charged
conform thereto in all material respects and such premiums comply in all
material respects with the insurance or reinsurance statutes, regulations and
rules applicable thereto.
(b) Each reinsurance and coinsurance treaty or agreement,
including retrocessional agreements, to which Parent or any of its
subsidiaries is a party, under which Parent or any of its subsidiaries has
any existing rights, duties, obligations or liabilities or which is otherwise
applicable to Parent or any of its subsidiaries, assuming its due
authorization, execution and delivery by the other party or parties thereto,
is valid and binding in all material respects in accordance with its terms
and is in full force and effect, except for such treaties or agreements the
failure to be valid and binding or in full force and effect of which would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to Parent. No party to any such treaty
or agreement has given notice to Parent or any of its subsidiaries that it
intends to terminate or cancel any such treaty or agreement as a result of
the Merger or the contemplated operations of Parent or its subsidiaries after
the Merger is consummated, which termination or cancellation would have a
Material Adverse Effect with respect to Parent. Any subsidiary of Parent
that has ceded reinsurance pursuant to any such treaty or agreement is
entitled to take full credit in its financial statements for all amounts
recoverable (net of any reserve for collectibility under such treaty or
agreement) with such credit accounted for (i) pursuant to SAP, as a reduction
of Parent's loss reserves and (ii) pursuant to United States generally
accepted accounting principles, as a reinsurance recoverable asset. Parent
has no unrecoverable reinsurance balances which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with
respect to Parent, other than as fully reserved on the Latest Parent Balance
Sheet.
(c) Parent has not received any written notice that the
financial condition of any other party to any reinsurance, coinsurance or
other similar agreement with it or any of its subsidiaries is so impaired as
to result in a default thereunder, except to the extent that adequate
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reserves in respect of any such default are reflected on the Latest Parent
Balance Sheet.
(d) 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 the Parent
or any Parent Insurance Subsidiary since January 1, 1998, 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.
(e) As of the date hereof, Parent has no reason to believe
that any rating presently held by Parent or any of its subsidiaries is likely
to be modified, qualified, lowered or placed under surveillance for a
possible downgrade for any reason other than as a result of the transactions
contemplated hereby.
Section 4.16 Employee Benefit Plans. (a) Section 4.16(a)
of the Parent Disclosure Letter contains a true and complete list of each
"employee benefit plan" (within the meaning of Section 3(3) of ERISA) that is
subject to ERISA. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Parent Plans".
(b) (i) Each Parent Plan has been established and
administered in all material respects in accordance with its terms, and in
compliance in all material respects with applicable Law and (ii) no event has
occurred and no condition exists that would subject Parent or its
subsidiaries, either directly or by reason of their affiliation with any
member of their "Controlled Group" (defined as any organization which is a
member of a controlled group of organizations within the meaning of
Sections 414(b), (c), (m) or (o) of the Code), to any material tax, fine,
lien, penalty or other liability imposed by applicable Law.
Section 4.17 NYSE Listing. Parent does not know of any
reason why the Parent Ordinary Shares to be issued in the Merger and upon the
exercise of Converted Stock Options would not be approved for listing on the
NYSE.
Section 4.18 Year 2000. Parent is in the process of
reviewing its and its subsidiaries' software and hardware systems that
perform critical or important accounting, data processing, data storage, data
transmission and report writing functions for the purposes of evaluating its
Y2K Readiness. In connection with this process, Parent has undertaken to
obtain assurances from its principal software suppliers and service firms as
to the Y2K Readiness of certain critical or important systems obtained from
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these outside sources or utilized by them in providing critical services to
Parent. Parent reasonably believes that all software, hardware and equipment
(including microprocessors) that is owned by, or leased or licensed by or to,
Parent or any of its subsidiaries in the operations of its or their
respective business will be capable, by December 31, 1999, of accounting for
all calculations using a century and date sensitive algorithm for the year
2000 and the fact that the year 2000 is a leap year and to otherwise continue
to function without any material interruption caused by the occurrence of the
year 2000. In the event of a Y2K related failure, Parent will have in place
a business contingency plan that will address the continuity of critical
business processes into the Year 2000.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of the Company. Except as
expressly contemplated by this Agreement, in Section 5.1 of the Company
Disclosure Letter or as consented to in writing by Parent (in its sole
discretion), during the period from the date of this Agreement to the
Effective Time, the Company will, and will cause its subsidiaries to, conduct
their operations, including their investment practices and policies, only in,
and not take any action except in, the ordinary and usual course of business
and consistent with past practice, and the Company will, and will cause its
subsidiaries to, use its and their 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,
retrocessionaires, creditors, licensors, licensees, suppliers, contractors,
distributors, business partners and others having business relationships with
the Company and its subsidiaries. Without limiting the generality of the
foregoing, prior to the Effective Time, the Company will not, and will not
permit any of its subsidiaries to without the prior written consent of Parent
(which may be withheld in its sole discretion):
(a) split, combine or reclassify any shares of its capital
stock; declare, pay or set aside for payment any dividend or other
distribution payable in cash, stock, property or otherwise in respect of its
capital stock (other than quarterly cash dividends upon the shares of Company
Common Stock in an amount not to exceed $0.09 per share, provided, however,
that in the event that the Effective Time does not occur on or prior to
September 1, 1999, such amount may be increased in respect of the dividend
for the Company's third fiscal quarter to $.4026 per share, and dividends
paid to the Company by its wholly owned subsidiaries); or directly or
indirectly redeem, purchase, repurchase or otherwise acquire any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock other than the forfeiture or
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repurchase of Company Common Stock pursuant to Company Plans in accordance
with the terms thereof as in effect on the date hereof;
(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 issuance or granting of any options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any of its
capital stock or any securities convertible into or exercisable or
exchangeable for shares of its capital stock, except as required by the Stock
Option Agreement, in accordance with the terms, as in effect on the date
hereof, of any Company Options listed in Section 3.2 of the Company
Disclosure Letter or by agreements as in effect as of the date hereof which
are 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 or issue any debt
securities except for borrowings under existing lines of credit in the
ordinary course of business consistent with past practice, (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 consistent with past practice,
(iii) make any loans or advances to any person other than loans or advances
of out-of-pocket expenses incurred in connection with Company business, or
make any capital contributions to, or, except as otherwise permitted in this
Section 5.1, investments in, any other person, (iv) pledge or otherwise
encumber shares of capital stock of any of its subsidiaries, or (v) mortgage
or pledge any of its assets, tangible or intangible, or create any material
Lien thereupon other than in the ordinary course of business consistent with
past practice;
(d) except as may be required by Law or as set forth in
Section 5.1(d) of the Company Disclosure Letter, enter into, adopt, amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other Company 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 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 other employee or agent of the Company or any of its
subsidiaries except, in the case of employees other than directors or
officers of the Company, for salary increases and employee promotions in the
ordinary course of business consistent with past practice; or hire employees
at the senior vice president level or higher except to fill vacancies; or pay
any benefit not required by any plan and arrangement as in effect as of the
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date hereof (including the granting of stock options, stock appreciation
rights or performance units);
(e) acquire (by merger, amalgamation, consolidation or
acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof or make any investment either by
purchase of stock or securities, contributions to capital, property transfer
or acquisition (including by lease) of any material amount of properties or
assets of any other individual or entity except for the purchase of
investment securities by Company Insurance Subsidiaries for investment in the
ordinary and prudent course of their business consistent with past practice.
(f) except as expressly required herein, (i) pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business consistent with
past practice or in accordance with their terms as in effect on the date
hereof, or (ii) waive, release, grant or transfer any rights of material
value or modify or change in any material respect any existing license,
lease, contract or other document other than in the ordinary course of
business, consistent with past practice;
(g) amend the certificate of incorporation or by-laws of
the Company or any of its material subsidiaries;
(h) adopt a plan of complete or partial liquidation or
resolutions providing for the complete or partial liquidation, dissolution,
merger (other than the Merger), consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
material subsidiaries;
(i) enter into any new lines of business (whether or not
part of the insurance or reinsurance business) (except for the lines of
business disclosed in Section 5.1(i) of the Company Disclosure Letter), make
any material change in its policy forms, investment policies or guidelines or
otherwise make material changes to the operation of its business or change
its loss reserve methodology;
(j) release or reverse any existing reserves, including any
case reserves or reserves for allocated or unallocated loss adjustment
expenses (other than for resolution of claims for which such reserve was
established) or any reserves for claims which are incurred but not reported,
or recognize any unrecognized gain on investment or other assets other than
in the ordinary course of business consistent with the Company's past
practice;
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(k) invest any investment securities of the Company in
investments which are not rated in one of the four highest categories by a
"nationally recognized statistical rating agency" as defined in the rules or
regulations of the SEC;
(l) sell (whether by merger, consolidation or otherwise),
lease, encumber, transfer or dispose of any assets (including rights of
renewal) other than sales of investment assets in the ordinary course of
business consistent with past practice or sales of assets which are not, in
the aggregate, material to the Company, or enter into any material commitment
or transaction outside the ordinary course of business consistent with past
practices;
(m) authorize or make or commit to make any capital
expenditures, except for transactions in the ordinary course of business
consistent with past practice (but in no event in excess of $500,000 in the
aggregate) or pursuant to agreements or commitments entered into by the
Company prior to the date hereof and disclosed in Section 5.1(m) of the
Company Disclosure Letter;
(n) make any Tax elections, make or change any method of
Tax accounting (except as may be required by Law), file any amended Tax
Returns, settle or compromise any material Tax liability, or waive or extend
the statute of limitations for imposing or assessing any material Taxes;
(o) pay or agree to pay in settlement or compromise of any
suits or claims of liability against the Company, its directors, officers,
employees or agents, more than an aggregate of $500,000 for all such suits
and claims, unless otherwise reserved against in the Latest Balance Sheet, it
being understood that without the prior written consent of Parent, no such
settlement or compromise shall be entered into involving non-monetary
obligations;
(p) take any action likely to materially decrease or
diminish the assets or net worth of the Company;
(q) except as may be required as a result of a change in
law or in United States generally accepted accounting principles or SAP (in
either case, with the written concurrence of the Company's independent
accountants), change any of the accounting principles or practices used by
it;
(r) enter into any agreement providing for the acceleration
of payment, vesting or performance or other consequence as a result of a
change in control of the Company;
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(s) amend, modify or waive any provision of the Company
Rights Agreement, or take any action to redeem the Company Rights or render
the Company Rights inapplicable to any transaction other than the Merger and
the transactions contemplated by the Stock Option Agreement;
(t) permit any material insurance policy or retrocessional
agreement naming it as a beneficiary or a loss payable payee to be cancelled
or terminated, except in the ordinary course of business consistent with past
practice; or
(u) take any action or agree, in writing or otherwise, to
take any of the foregoing actions or any action which would make any
representation or warranty in Article III hereof materially untrue or
incorrect.
Section 5.2 Preparation of Form S-4 and the Proxy
Statement/Prospectus; Stockholders Meetings. (a) Promptly following the
execution of this Agreement, Parent and the Company shall prepare and file
with the SEC the Proxy Statement/Prospectus, and Parent shall prepare and
file with the SEC the Form S-4, in which the Proxy Statement/Prospectus will
be included. Each of Parent and the Company shall use its reasonable best
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing and to keep the Form S-4 effective
as long as is necessary to consummate the Merger. Parent shall also take any
action (other than qualifying to do business in any jurisdiction in which it
is not now so qualified or filing a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of the Parent Ordinary Shares in the Merger and the Company
shall furnish all information concerning the Company and the holders of
Company Common Stock as may be reasonably requested in connection with any
such action. The parties shall promptly provide copies, consult with each
other and prepare written responses with respect to any written comments
received from the SEC with respect to the Proxy Statement/Prospectus and the
Form S-4 and advise one another of any oral comments with respect to the
Proxy Statement/Prospectus and the Form S-4 received from the SEC. The
parties will cooperate in preparing and filing with the SEC any necessary
amendment or supplement to the Proxy Statement/Prospectus or the Form S-4.
No amendment or supplement to the Proxy Statement/Prospectus shall be filed
without the approval of both parties, which approvals shall not be
unreasonably withheld or delayed. The Company will use its best efforts to
cause the Proxy Statement/Prospectus to be mailed to the Company's
stockholders as promptly as practicable after the Form S-4 is declared
effective under the Securities Act.
(b) Whether or not the Board of Directors of the Company
shall take any action permitted by the third sentence of this 5.2(b), the
Company shall cause a meeting of its stockholders (the "Stockholders
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Meeting") to be duly called and held as soon as practicable after the date of
this Agreement for the purpose of voting on the adoption of this Agreement.
The Board of Directors of the Company shall (i) include in the Proxy
Statement/Prospectus the recommendation described in Section 3.3(b)(ii) (the
"Company Board Recommendation") and the written opinion of Morgan Stanley,
dated the date of this Agreement, to the effect that, as of the date hereof,
the Exchange Ratio is fair, from a financial point of view, to the holders of
Company Common Stock and (ii) use its reasonable best efforts to obtain the
necessary vote in favor of the adoption of this Agreement by its
stockholders. The Board of Directors of the Company shall not withdraw,
amend, modify or qualify in a manner adverse to Parent the Company Board
Recommendation (or announce publicly its intention to do so), except that
prior to the receipt of the Company Stockholder Approval, the Board of
Directors of the Company shall be permitted to withdraw, amend, modify or
materially qualify in a manner adverse to Parent the Company Board
Recommendation (or publicly announce its intention to do so), upon three
business days' prior notice to Parent, but only if (i) the Company has
complied with Section 5.8, (ii) an unsolicited bona fide written Transaction
Proposal with respect to the Company shall have been made after the date of
this Agreement by any person other than Parent or its affiliates and such
proposal is pending at the time of such action, and (iii) the Board of
Directors of the Company shall have concluded in good faith, on the basis of
the advice of its outside financial advisors (confirmed in writing to the
Board of Directors), that such Transaction Proposal is a Superior Proposal
(as defined in Section 5.8), and, on the basis of advice of its outside U.S.
legal counsel (confirmed in writing to the Board of Directors), that the
Board of Directors is required to withdraw, amend or modify the Company Board
Recommendation in order to prevent it from breaching its fiduciary duties to
the stockholders of the Company under the DGCL.
Section 5.3 Access to Information. (a) The Company shall
(and shall cause each of its subsidiaries to) afford to the officers,
employees, accountants, counsel, actuaries, financial advisors and other
representatives of Parent reasonable access, during normal business hours,
during the period prior to the Effective Time, to all of its and its
subsidiaries' personnel, offices and other facilities, books, contracts,
commitments and records (including any Tax Returns or other Tax related
information pertaining to the Company and its subsidiaries) and, during such
period, the Company shall (and shall cause each of its subsidiaries to)
furnish promptly to Parent (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of the federal securities laws or any insurance
regulatory laws and (ii) all other information, including financial and
operating data, concerning its business, properties and personnel as Parent
may reasonably request (including any Tax Returns or other Tax related
information pertaining to the Company and its subsidiaries). Parent will
hold any such information which is nonpublic in confidence in accordance with
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the provisions of the existing confidentiality agreement between the Company
and Parent, dated December 1, 1998 (the "Confidentiality Agreement").
(b) Parent shall (and shall cause each of its subsidiaries
to) afford to the officers, employees, accountants, counsel, actuaries,
financial advisors and other representatives of the Company reasonable
access, during normal business hours, during the period prior to the
Effective Time, to all of its and its subsidiaries' personnel, offices and
other facilities, and, during such period, Parent shall (and shall cause each
of its subsidiaries to) furnish promptly to the Company (i) a copy of each
material report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of the federal
securities laws or any insurance regulatory laws and (ii) all other
information, including financial and operating data, concerning its business,
properties and personnel as the Company may reasonably request (including any
Tax Returns or other Tax related information pertaining to Parent and its
subsidiaries). The Company will hold any such information which is nonpublic
in confidence in accordance with the provisions of the Confidentiality
Agreement.
Section 5.4 Consents and Approvals. (a) Each of the
Company, Parent and Sub will use its reasonable best efforts to comply
promptly with all legal requirements which may be imposed on it with respect
to this Agreement and the transactions contemplated hereby, which actions
shall include furnishing all information in connection with approvals of or
filings with any Governmental Entity, including any schedules or reports
required to be filed with the SEC, and including any approvals or filings
which are not compulsory but are desirable to obtain in the reasonable
opinion of Parent, Sub and the Company, and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their subsidiaries in connection with this
Agreement and the transactions contemplated hereby. Each of the Company,
Parent and Sub will, and will cause its subsidiaries to, take all reasonable
actions necessary to obtain any consent, authorization, order or approval of,
or any exemption by, any Governmental Entity or other public or private third
party required to be obtained or made by Parent, Sub, the Company or any of
their subsidiaries or necessary in the reasonable opinion of Parent, Sub or
the Company in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
(b) The Company and Parent will (i) take all actions
necessary to make the filings required of it or its affiliates under the HSR
Act with respect to the transactions contemplated by this Agreement as
promptly as practicable following the date of this Agreement, (ii) comply
with any request for additional information received from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the HSR Act, (iii) cooperate with each other in connection with filings under
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the HSR Act and (iv) request early termination of the applicable waiting
period.
(c) Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable, whether under applicable laws and regulations
or otherwise, or to remove any injunctions or other impediments or delays,
legal or otherwise, (i) to cause the conditions to closing set forth in
Article VI to be satisfied, including using its best efforts to satisfy the
condition set forth in Section 6.1(g), and (ii) otherwise to consummate and
make effective the Merger and the other 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 Parent and the Surviving Corporation shall
use all reasonable efforts to take, or cause to be taken, all such necessary
actions.
Section 5.5 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
Entity (including the SEC or NYSE) in connection with this Agreement or the
transactions contemplated hereby.
Section 5.6 Employee Matters. (a) For a period of three
years following the Effective Time, Parent shall either continue the existing
Company Plans or shall provide, or cause the Surviving Corporation to
provide, benefits to employees of the Company and its subsidiaries under
substitute plans or arrangements ("Parent Benefit Plans") that are no less
favorable in the aggregate to such employees than those provided under such
existing Company Plans.
(b) For purposes of determining eligibility for
participation and vesting under any Parent Benefit Plans (but not to the
extent it results in any duplication of benefits), employees of the Company
and its subsidiaries shall receive service credit for service with the
Company and any of its subsidiaries to the same extent such service was
granted under the Company Plans.
(c) Parent shall cause the Surviving Corporation to assume,
recognize and give effect to all of the change in control provisions with
respect to the severance of employees as set forth in each of the contracts
listed in Section 3.8(a) of the Company's Disclosure Letter, in accordance
with the terms thereof.
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Section 5.7 Letters of Accountants. (a) The Company shall
use its reasonable best efforts to cause to be delivered to Parent a letter
of Ernst & Young LLP, the Company's independent public accountants, dated a
date within two business days before the date on which the Form S-4 shall
become effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4. In connection with the Company's efforts
to obtain such letter, if requested by Ernst & Young LLP, Parent shall
provide a representation letter to Ernst & Young LLP complying with SAS 72,
if then required.
(b) Parent shall use its reasonable best efforts to cause
to be delivered to the Company a letter of PricewaterhouseCoopers LLP,
Parent's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and
addressed to the Company, in form and substance reasonably satisfactory to
the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4. In connection with Parent's efforts to obtain such
letter, if requested by PricewaterhouseCoopers LLP, the Company shall provide
a representation letter to PricewaterhouseCoopers LLP complying with SAS 72,
if then required.
Section 5.8 No Solicitation. From and after the date
hereof, neither the Company nor any of its subsidiaries shall (whether
directly or indirectly through its or their officers, directors, agents,
representatives, advisors or other intermediaries (collectively,
"Representatives")), nor shall the Company or any of its subsidiaries
authorize or permit any of its or their Representatives to, (a) solicit,
initiate, encourage (including by way of furnishing information) or take any
action knowingly to facilitate the submission of any inquiries, proposals or
offers (whether or not in writing) from any person relating to, other than
the transactions contemplated by this Agreement and the Stock Option
Agreement, (i) any acquisition or purchase of 15% or more of the consolidated
assets of the Company and its subsidiaries or of 15% or more of any class of
equity securities of the Company or any of its subsidiaries, (ii) any tender
offer (including a self tender offer) or exchange offer that if consummated
would result in any person beneficially owning 15% or more of any class of
equity securities of the Company or any of its material subsidiaries
(including through the ownership of securities convertible or exercisable
into or exchangeable for equity securities of the Company), (iii) any merger,
consolidation, business combination, sale of substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction involving
the Company or any of its subsidiaries whose assets, individually or in the
aggregate, constitute 15% or more of the consolidated assets of the Company,
or (iv) any other transaction the consummation of which would or would
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reasonably be expected to impede, interfere with, prevent or materially delay
the Merger (any of the foregoing, a "Transaction Proposal"), or agree to or
endorse any Transaction Proposal, or (b) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to any
other person any information with respect to its business, properties or
assets in connection with any of the foregoing, or otherwise cooperate in any
way with, or knowingly assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that the foregoing shall not prohibit the Company, prior
to the receipt of the Company Stockholder Approval, (A) from complying with
Rule 14e-2 and Rule 14d-9 under the Exchange Act with regard to a bona fide
tender offer or exchange offer or (B) from participating in negotiations or
discussions with or furnishing information to any person in connection with
an unsolicited bona fide Transaction Proposal which is submitted in writing
by such person to the Board of Directors of the Company after the date of
this Agreement and prior to the Company Stockholder Approval; provided
further, however, that prior to participating in any such discussions or
negotiations or furnishing any information, (i) the Company receives from
such person an executed confidentiality agreement on terms not less favorable
to the Company than the Confidentiality Agreement, a copy of which shall be
provided for informational purposes only to Parent, and (ii) the Board of
Directors of the Company shall have concluded in good faith, based on the
advice of its outside financial advisors, that such Transaction Proposal is
reasonably likely to be or to result in a Superior Proposal, and based on the
written advice of its outside U.S. legal counsel, that participating in such
negotiations or discussions or furnishing such information is required in
order to prevent the Board of Directors of the Company from breaching its
fiduciary duties to its stockholders under the DGCL; and provided, further,
that the Board of Directors of the Company shall not take any of the
foregoing actions unless it provides Parent with contemporaneous notice
thereof. If the Board of Directors of the Company receives a Transaction
Proposal, then the Company shall promptly inform Parent in writing of the
terms and conditions of such proposal and the identity of the person making
it. The Company agrees that it will keep Parent informed, on a current
basis, of the terms of any such proposals or offers and, to the extent
disclosure is not prohibited by the terms of any confidentiality agreement
with the party making such Transaction Proposal, the status of any such
material discussions or negotiations. The Company agrees to immediately
cease and cause its Representatives to cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing, and shall use its reasonable best efforts to
cause any such parties in possession of confidential information about the
Company that was furnished by or on behalf of the Company to return or
destroy all such information in the possession of any such party or in the
possession of any agent or advisor of any such party. The Company agrees not
to release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which such party or its
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subsidiaries is a party. The Company shall ensure that its officers,
directors and employees and any investment banker or other Representative
retained by it are aware of the restrictions described in this Section 5.8.
"Superior Proposal" means any of the transactions described in clause (i),
(ii) or (iii) of the definition of Transaction Proposal (with all of the
percentages included in the definition of such term raised to 51% for
purposes of this definition) with respect to which any required financing is
committed or, in the good faith judgment of the Board of Directors of the
Company, based on the written advice of its outside financial advisors, is
reasonably capable of being financed by the person making the proposal, and
with respect to which the Board of Directors of the Company shall have
concluded in good faith, based on the written advice of its outside legal
counsel and financial advisors, is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of the
Transaction Proposal and the person making the proposal, and would, if
consummated, result in a transaction more favorable to the Company's
stockholders from a strategic and financial point of view than the
transactions contemplated by this Agreement.
Section 5.9 Publicity. So long as this Agreement is in
effect, neither the Company nor Parent nor their affiliates shall issue or
cause the publication of any press release or other public statement or
announcement with respect to this Agreement or the transactions contemplated
hereby without prior approval of the other party, except as may be required
by law or by obligations pursuant to any listing agreement with a national
securities exchange, and in such case shall use all reasonable efforts to
consult with the other party prior to such release or announcement being
issued.
Section 5.10 Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to
the Company, of (a) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty of the Company or Parent and Sub, as the case may be, contained in
this Agreement to be untrue or inaccurate in any material respect at or prior
to the Effective Time and (b) any material failure of the Company or Parent,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 5.10 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 5.11 Directors' and Officers' Insurance and
Indemnification. (a) The Surviving Corporation shall, and Parent shall
cause the Surviving Corporation to, (i) indemnify and hold harmless, and
provide advancement of expenses to, all past and present directors and
officers of the Company and its subsidiaries to the same extent such persons
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are indemnified or have the right to advancement of expenses as of the date
of this Agreement by the Company pursuant to the Company's certificate of
incorporation and by-laws as in existence on the date hereof for acts or
omissions occurring at or prior to the Effective Time (including for acts or
omissions occurring in connection with the approval of this Agreement and the
Stock Option Agreement and the consummation of the transactions contemplated
hereby and thereby) and (ii) ensure that the certificate of incorporation and
by-laws of the Surviving Corporation following the Merger shall contain
provisions identical with respect to elimination of personal liability and
indemnification to those set forth in the certificate of incorporation and
by-laws of the Company, which provisions shall continue in full force and
effect and shall not (except as otherwise required by applicable law) be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at or immediately prior to the Effective Time
were directors, officers, agents or employees of the Company.
(b) Parent shall cause the Surviving Corporation to
maintain in effect for four years from the Effective Time policies of
directors' and officers' liability insurance containing terms and conditions
which are not less advantageous in any material respect (including with
respect to the payment of reasonable attorneys' fees, to the extent so
provided) than those policies maintained by the Company at the date hereof,
with respect to matters occurring prior to the Effective Time, to the extent
available, and having the maximum available coverage under the current
policies of directors' and officers' liability insurance; provided that
(i) Parent following the Effective Time shall not be required to spend an
amount in any year in excess of 150% of the annual aggregate premiums
currently paid by the Company for such insurance; and provided, further, that
if the annual premiums of such insurance coverage exceed such amount, Parent
shall be obligated to cause the Surviving Corporation to obtain a policy with
the best coverage available, in the reasonable judgment of the Board of
Directors of Parent following the Merger, for a cost not exceeding such
amount, and (ii) in the sole discretion of Parent (x) such policies may be
one or more "tail" policies for all or any portion of the full four-year
period or (y) Parent may cause comparable coverage in accordance with the
foregoing clauses to be provided under any policy maintained for the benefit
of the directors and officers of Parent or any of its subsidiaries.
(c) In the event that any action, suit, proceeding or
investigation relating hereto or to the transactions contemplated by this
Agreement is commenced, whether before or after the Effective Time, the
parties hereto agree to cooperate and use their respective reasonable best
efforts to vigorously defend against it and respond thereto.
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Section 5.12 Listing of Parent Ordinary Shares. Parent
shall use its best efforts to cause the Parent Ordinary Shares to be issued
in the Merger and the Parent Ordinary Shares to be reserved for issuance upon
exercise of the Converted Options to be approved for listing on the NYSE,
subject to official notice of issuance.
Section 5.13 Rule 145 Affiliates; Pooling Letters. No
later than 30 days following the date of this Agreement, each of the Company
and Parent shall deliver to one another letters identifying all other persons
who are at the date of this Agreement or who it is expected that at the time
of the Stockholders Meeting may be deemed to be "affiliates" of the Company
for purposes of Rule 145 under the Securities Act (the "Rule 145
Affiliates"). The Company and Parent shall each use its reasonable best
efforts to cause each person who is identified as a Rule 145 Affiliate in
such list to deliver to the other party at least 35 days prior to the Closing
Date a written agreement in the form attached hereto as Exhibit B or C as
applicable.
Section 5.14 Parent Board of Directors. The Board of
Directors of Parent shall take such corporate actions as are necessary to
provide that, effective at the Effective Time subject to satisfying the
qualifications of a Director under Parent's Articles of Association, Ronald
L. Bornhuetter and another current non-executive director of the Company
selected by Parent prior to the Effective Time, after consultation with the
Chief Executive Officer of the Company, shall become members of the Board of
Directors of Parent.
Section 5.15 Coordination of Dividends. After the date of
this Agreement, Parent and the Company will coordinate with each other
regarding the declaration of dividends in respect of the Parent Ordinary
Shares and the Company Common Stock and the record dates and payment dates
relating thereto, it being the intention of the parties that holders of
Parent Ordinary Shares and shares of Company Common Stock will not receive
two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to their shares of Company Common Stock and/or the
Parent Ordinary Shares any such holder receives in exchange therefor in the
Merger.
Section 5.16 Pooling. During the period from the date of
this Agreement to the Effective Time, each of Parent, Sub and the Company
will not, and will not permit any of their respective subsidiaries to, take
any action which (i) would reasonably be expected to prevent or impede the
Merger from qualifying for pooling-of-interests accounting treatment under
United States generally accepted accounting principles and applicable SEC
rules and regulations or (ii) would reasonably be expected to prevent the
Merger from qualifying as a reorganization within the meaning of Section
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368(a) of the Code. Nothing in the foregoing sentence shall preclude Parent
from exercising its rights under the Stock Option Agreement.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of Each Party.
The obligations of the Company, on the one hand, and Parent and Sub, on the
other hand, to consummate the Merger are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of
the following conditions:
(a) Company Stockholder Approval. The Company Stockholder
Approval shall have been received.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other Governmental Entity of
competent jurisdiction or other legal restraint or prohibition
preventing or making illegal the consummation of the Merger shall be
in effect; provided, however, that the parties hereto shall use their
reasonable best efforts to have any such injunction, order, restraint
or prohibition vacated.
(c) HSR and Other Approvals. Any waiting period (and any
extension thereof) or period for any referral to any body applicable
to the Merger under the HSR Act or similar or equivalent statute or
statutes in other jurisdictions shall have expired or been
terminated.
(d) Form S-4. The Form S-4 shall have been declared
effective under the Securities Act and no stop order suspending the
effectiveness thereof shall be in effect and no procedures for such
purpose shall be pending before or threatened by the SEC.
(e) NYSE Listing. The Parent Ordinary Shares to be issued
in the Merger and the Parent Ordinary Shares to be reserved for
issuance upon the exercise of Converted Stock Options shall have been
approved for listing on the NYSE, subject to official notice of
issuance.
(f) Governmental and Regulatory Approvals. All regulatory
approvals and other actions or approvals by any Governmental Entity
required to permit the consummation of the Merger (including those
which are not compulsory but are desirable to obtain in the
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reasonable opinion of Parent, Sub and the Company) (including the
insurance regulatory approvals set forth in Section 6.1(f) of the
Company 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 Parent and its subsidiaries
(including the Surviving Corporation following the Merger) to conduct
their business after the Effective Time, which would require changes
to the terms of this Agreement or which would change the
consideration payable to stockholders of the Company in the Merger)
and such approvals shall be in full force and effect.
(g) Pooling. The Company shall have received and delivered
to Parent and Parent's independent public accountants a letter from
its independent public accountants, dated as of the Closing Date,
stating that the Company qualifies as a "combining company" in
accordance with the criteria set forth in Opinion 16 of the
Accounting Principles Board and accordingly is a poolable entity.
Parent shall have received and delivered to the Company a letter from
its independent public accountants, dated as of the Closing Date,
stating that accounting for the Merger as a pooling of interests
under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations is appropriate if the Merger is closed and
consummated as contemplated by this Agreement. Notwithstanding the
foregoing, the satisfaction of this Section 6.1(g) shall not be a
condition to the obligations of a party to effect the Merger if the
failure to satisfy this condition results from any action taken or
agreed to be taken by or on behalf of such party.
Section 6.2 Conditions to the Obligations of Parent and
Sub. The obligations of Parent and Sub to consummate the Merger are subject
to the satisfaction (or waiver by Parent) of the following further
conditions:
(a) Representations and Warranties. The representations
and warranties of the Company qualified as to materiality shall be
true and accurate (and those not so qualified shall be true and
accurate in all material respects) as of the Effective Time as if
made at and as of such time (except for those representations and
warranties that address matters only as of a particular date or only
with respect to a specific period of time which need only be true and
accurate (or true and accurate in all material respects) as of such
date or with respect to such period. Parent shall have received a
certificate of the chief executive officer and the chief financial
officer of the Company to the effect set forth in this paragraph.
(b) Performance of Obligations. The Company and its
subsidiaries shall have performed or complied with all agreements and
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covenants required to be performed or complied with by them under
this Agreement at or prior to the Closing Date that are qualified as
to materiality and shall have performed or complied in all material
respects with all other agreements and covenants required to be
performed by them under this Agreement at or prior to the Closing
Date that are not so qualified, and Parent shall have received a
certificate of the chief executive officer and the chief financial
officer of the Company to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any event, change,
circumstance, condition or effect that shall have caused, or shall be
reasonably likely to cause, a Material Adverse Effect with respect to
the Company.
(d) Closing Documents. Parent shall receive customary
closing documents in form and substance reasonably satisfactory to
it.
(e) Consents, etc. Parent shall have received evidence, in
form and substance reasonably satisfactory to it, that all licenses,
permits, consents, approvals, authorizations, qualifications and
orders of all third parties listed on Section 6.2(e) of the Company
Disclosure Letter have been obtained without, in the case of third
parties, the payment or imposition of any material costs or
obligations.
(f) No Trigger of Company Rights. The Company Rights
Agreement shall have been amended to cause the expiration of the
Company Rights at or prior to the Effective Time or the Company
Rights shall have been redeemed or otherwise terminated, and no
trigger event shall have occurred thereunder.
(g) Tax Opinion. Parent shall have received an opinion,
dated the Closing Date, of Simpson Thacher & Bartlett, counsel to
Parent, to the effect that the Merger will be treated for U.S.
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that the transfer of Company Common
Stock by holders of Company Common Stock, other than holders that are
or will be "5% transferee shareholders" within the meaning of
Treasury regulations Section 1.367(a)-3(c)(5)-(ii) pursuant to the
Merger will qualify for an exception under Treasury regulations
Section 1.367(a)-3 and, accordingly, Parent will be treated as a
corporation for U.S. federal income tax purposes. Each party agrees
to make all reasonable representations and covenants reasonably
requested in connection with the rendering of such opinion.
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Section 6.3 Conditions to the Obligations of the Company.
The obligations of the Company to consummate the Merger are subject to the
satisfaction (or waiver by the Company) of the following further conditions:
(a) Representations and Warranties. The representations
and warranties of Parent and Sub qualified as to materiality shall be
true and accurate (and those not so qualified shall be true and
accurate in all material respects) as of the Effective Time as if
made at and as of such time (except for those representations and
warranties that address matters only as of a particular date or only
with respect to a specific period of time which need only be true and
accurate (or true and accurate in all material respects) as of such
date or with respect to such period. The Company shall have received
a certificate of the chief executive officer and the chief financial
officer of Parent to the effect set forth in this paragraph.
(b) Performance of Obligations. Parent and its
subsidiaries shall have performed or complied with all agreements and
covenants required to be performed or complied with by them under
this Agreement at or prior to the Closing Date that are qualified as
to materiality and shall have performed or complied in all material
respects with all other agreements and covenants required to be
performed by them under this Agreement at or prior to the Closing
Date that are not so qualified, and the Company shall have received a
certificate of the chief executive officer and the chief financial
officer of Parent to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall not have occurred and be continuing any event,
change, circumstance, condition or effect that shall have caused, or
shall be reasonably likely to cause, a Material Adverse Effect with
respect to Parent.
(d) Closing Documents. Parent shall receive customary
closing documents in form and substance reasonably satisfactory to
it.
(e) Tax Opinion. The Company shall have received an
opinion, dated the Closing Date, of Cadwalader, Wickersham & Taft,
counsel to the Company, to the effect that the Merger will be treated
for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that the transfer of
Company Common Stock by holders of Company Common Stock, other than
Company shareholders that are or will be "5% transferee shareholders"
within the meaning of Treasury regulations Section 1.367(a)-3(c)(5)-
(ii), pursuant to the Merger will qualify for an exception under
Treasury regulations Section 1.367(a)-3 and, accordingly, Parent will
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be treated as a corporation for U.S. federal income tax purposes.
Each party agrees to make all reasonable representations and
covenants reasonably requested in connection with the rendering of
such opinion.
Section 6.4 Adjustment of Terms in Certain Circumstances.
Each of Parent, Sub and the Company agrees that, in the event that the Merger
is not consummated as a result of the failure to have satisfied or waived any
of the conditions set forth in this Article VI (other than Section 6.1(a),
Section 6.2(a), (b) or (c) or Section 6.3(a), (b) or (c)) on the Closing
Date, it will negotiate with the other parties to this Agreement in good
faith, for a period of 30 days, to adjust the terms of this Agreement and the
transactions contemplated hereby so as to achieve as nearly as is practicable
the benefits expected to be received by each of them upon entering into this
Agreement as of the date hereof. In the event that the parties are not able
to reach an agreement with respect to such an adjustment, this Agreement may
be terminated by either party as provided in Section 7.1(i), unless the party
seeking to terminate this Agreement shall have breached a representation,
warranty or covenant which breach (or the substance thereof) shall be the
cause of the failure to have satisfied such condition.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Anything herein or elsewhere to
the contrary notwithstanding, this Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after the Company Stockholder Approval shall have been
received.
(a) by the mutual written consent of Parent and the
Company;
(b) by either Parent or the Company if any Governmental
Entity (i) shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become final and
nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action, as applicable, and such denial of
a request to issue such order, decree, ruling or take such other
action shall have become final and nonappealable, in the case of each
of (i) and (ii) which is necessary to fulfill the conditions set
forth in Sections 6.1(b) and 6.1(f); provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not
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be available to any party whose failure to comply with Section 5.4
has been the cause of such action or failure to act; or
(c) by either Parent or the Company if the Merger shall not
have been consummated on or before December 31, 1999 (the
"Termination Date"); provided, that the right to terminate this
Agreement under this Section 7.1(c) shall not be available to the
party whose failure to fulfill any of its obligations under this
Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date; or
(d) by Parent or the Company, if the Company Stockholder
Approval shall not have been obtained at a duly held meeting of
stockholders or at any adjournment thereof; or
(e) by Parent, if the Company or its Board of Directors
shall have (i) withdrawn, modified or amended in any respect adverse
to Parent its recommendation of the adoption of this Agreement,
(ii) failed as promptly as practicable after the Form S-4 is declared
effective to mail the Proxy Statement/Prospectus to its stockholders,
unless such failure was caused by the actions or inactions of Parent
or its representatives, or failed to include in such statement the
Company Board Recommendation, (iii) approved, recommended or entered
into an agreement with respect to, or consummated, any Transaction
Proposal from a person other than Parent or any of its affiliates,
(iv) resolved to do any of the foregoing or (v) in response to the
commencement of any tender offer or exchange offer for 10% or more of
the outstanding the Company Common Stock, not recommended rejection
of such tender offer or exchange offer within ten business days after
the commencement thereof (as such term is defined in Rule 14d-2 under
the Exchange Act);
(f) (i) by the Company, if Parent breaches any of its
representations, covenants or agreements contained in this Agreement
and such breach (A) would permit the Company not to consummate the
Merger pursuant to Sections 6.3(a) or 6.3(b), and (B) either by its
terms cannot be cured by the Closing Date or with respect to any such
breach that is reasonably capable of being remedied, the breach is
not remedied within 20 days after the Company has furnished Parent
with written notice of such breach; or (ii) by Parent, if the Company
breaches any of its representations, covenants or agreements
contained in this Agreement and such breach (A) would permit Parent
not to consummate the Merger pursuant to Sections 6.2(a) or 6.2(b),
and (B) either by its terms cannot be cured by the Closing Date or
with respect to any such breach that is reasonably capable of being
remedied, is not remedied within 20 days after Parent has furnished
the Company with written notice of such breach; or
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(g) By the Company, if its Board of Directors determines at
any time, by the vote of a majority of the members of its entire
board, during the five-day period commencing on the business day
following the Determination Date, that both of the following
conditions are satisfied:
(i) the Average Closing Price on the Determination Date of
Parent Ordinary Shares shall be less than the product of the Starting
Price and 0.85; and
(ii) (A) the number obtained by dividing the Average
Closing Price on the Determination Date by the Starting Price (such
number being the "Parent Ratio") shall be less than (B) the number
obtained by dividing the Average Index Price on the Determination
Date by the Average Index Price on the Starting Date and subtracting
0.15 from such quotient (such number being referred to herein as the
"Index Ratio");
subject, however, to the following four sentences: If the Company elects to
exercise its termination right pursuant to the immediately preceding
sentence, it shall give prompt written notice to Parent which notice shall
specify that the conditions set forth above have been satisfied; provided
that such notice of election to terminate may be withdrawn at any time within
the aforementioned five-day period and the five-day period described in the
following sentence. During the five-day period commencing with its receipt
of such notice, Parent shall have the option of adjusting the Exchange Ratio
to equal the lesser of (x) a number equal to a quotient (rounded to the
nearest one-ten-thousandth), the numerator of which is the product of 0.85,
the Starting Price and the Exchange Ratio (as then in effect) and the
denominator of which is the Average Closing Price on the Determination Date,
and (y) a number equal to a quotient (rounded to the nearest one-ten-
thousandth), the numerator of which is the Index Ratio multiplied by the
Exchange Ratio (as then in effect) and the denominator of which is the Parent
Ratio. If Parent makes an election contemplated by the preceding sentence
within such five-day period, it shall give prompt written notice to the
Company of such election and the revised Exchange Ratio, whereupon no
termination shall have occurred pursuant to this Section 7.1(g) and this
Agreement shall remain in effect in accordance with its terms (except as the
Exchange Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this Section 7.1(g).
For purposes of this Section 7.1(g), the following term
shall have the following meanings:
"Average Closing Price on the Determination Date" means the
average of the daily closing prices of Company Common Stock as reported on
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the NYSE Composite Tape (as reported in The Wall Street Journal or, if not
reported therein, in another mutually acceptable authoritative source) for
the ten consecutive full trading days in which such shares are traded on the
NYSE ending at the close of trading on the Determination Date (the "Company
Stock Measurement Period").
"Average Index Price" means, as of the Starting Date or the
Determination Date, the average of the weighted average (weighted in
accordance with the market capitalization of such companies on the Starting
Date) of the daily closing prices of the common stocks of the companies
composing the Index Group as reported on the NYSE Composite Tape (as reported
in The Wall Street Journal or, if not reported therein, in another
authoritative source) on the Starting Date or for the ten consecutive full
trading days in which such shares are traded on the NYSE ending at the close
of trading on the Determination Date.
"Determination Date" means the trading day immediately
preceding the date on which all the conditions to Closing (other than
conditions that, by their terms, cannot be satisfied until the Closing Date)
set forth in Article VI shall have been satisfied or waived, subject to
change as provided in this Section 7.1(g).
"Index Group" means the group of the ten companies listed in
Section 7.1(g) of the Company Disclosure Letter. In the event that the
common stock of any such company ceases to be publicly traded or a proposal
shall be announced for such company to be acquired or for such company to
acquire another company or companies in transactions with a value exceeding
25% of the acquiror's market capitalization as of the Starting Date, such
company will be removed from the Index Group, and the weights (which have
been determined based on market capitalization) redistributed proportionately
for purposes of determining the Average Index Price.
"Starting Date" means the first full trading day following
the issuance of a press release announcing the execution of this Agreement.
"Starting Price" shall mean the last sale price per Parent
Ordinary Share on the Starting Date, as reported by the NYSE Composite Tape
(as reported in The Wall Street Journal or, if not reported therein, in
another mutually agreed upon authoritative source).
If between the date of this Agreement and the Determination
Date, the outstanding shares of any stock in the Index Group shall have been
changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, stock split, split-up, combination or
exchange of shares or a stock dividend or dividend payable in any other
securities or extraordinary cash dividend shall be declared with a record
date within such period, or any similar event shall have occurred,
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appropriate adjustments shall be made to the Average Index Price, as the case
may be, for purposes of this Agreement; or
(h) By the Company, prior to the receipt of the Company
Stockholder Approval, if its Board of Directors approves a Superior
Proposal; provided, however, that (i) the Company shall have complied
with Section 5.8, (ii) the Board of Directors of the Company shall
have concluded in good faith, on the basis of the advice of its
outside legal counsel and financial advisors, that such proposal is a
Superior Proposal and (iii) the Board of Directors shall have
concluded in good faith, based upon the advice of its outside legal
counsel, that approving and entering into an agreement in connection
with, and consummating, such Superior Proposal would likely be
required in order to prevent the Board of Directors of the Company
from breaching its fiduciary duties to the stockholders of the
Company under the DGCL; provided, that this Agreement may not be
terminated pursuant to this Section 7.1(h) unless (A) concurrently
with, and as a condition to the effectiveness of, such termination,
the Company pays to Parent the Termination Fee and Expenses (as
defined in Sections 7.3(a) and 7.3(b)), (B) concurrently with such
termination the Company enters into a definitive agreement with
respect to, or consummates, such Superior Proposal, (C) the Company
shall have given Parent three business days' prior written notice of
the terms and identity of the party proposing such Superior Proposal
and of such proposed termination, and (D) during such three business
day period, the Company shall have negotiated in good faith with
Parent to permit Parent to make an equivalent proposal, which will be
accepted by the Company; or
(i) By the Company or Parent in accordance with the
provisions of Section 6.4 hereof.
Section 7.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 7.1, written notice
thereof shall forthwith be given to the other party or parties specifying the
provision hereof pursuant to which such termination is made, and this
Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, Sub or the Company except (a) for fraud or
for willful breach of this Agreement, (b) for the payment of the Termination
Fee and Expenses in accordance with Section 7.3 and (c) as set forth in this
Section 7.2, in Article VIII hereof and in the last sentence of Section 5.3.
Section 7.3 Termination Fees and Expenses. (a) In
addition to any other amounts which may be payable pursuant to any other
paragraph of this Section 7.3, the Company shall, following the termination
of this Agreement pursuant to Sections 7.1(e) or 7.1(h), promptly, but in no
event later than one business day following written notice thereof, together
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with reasonable supporting documentation, reimburse Parent, in an aggregate
amount of up to $8,000,000, for all out-of-pocket expenses and fees
(including fees payable to all counsel, accountants, financial advisors,
financial printers, experts and consultants), whether incurred prior to,
concurrently with or after the execution of this Agreement, in connection
with the Merger and the consummation of all transactions contemplated by this
Agreement and the Stock Option Agreement (collectively, the "Expenses").
(b) In the event that this Agreement is terminated by
Parent pursuant to Sections 7.1(e) or 7.1(h), the Company shall pay to Parent
by wire transfer of immediately available funds to an account designated by
Parent on the next business day following such termination an amount equal to
$38,000,000 (the "Termination Fee").
(c) If all of the following events have occurred:
(i) a Transaction Proposal is commenced, publicly
disclosed, publicly proposed or otherwise communicated to the Company
at any time on or after the date of this Agreement and prior to the
termination hereof, and either (A) Parent or the Company terminates
this Agreement pursuant to Sections 7.1(c) or 7.1(d) or (B) Parent
terminates this Agreement pursuant to Section 7.1(f)(ii); and
(ii) thereafter, within 18 months of the date of such
termination, the Company enters into a definitive agreement with
respect to, or consummates, any Transaction Proposal (whether or not
such Transaction Proposal was commenced, publicly disclosed, publicly
proposed or otherwise communicated to the Company prior to such
termination);
then, the Company shall pay to Parent an amount equal to the Termination Fee
and Expenses concurrently with the earlier of the execution of such
definitive agreement or the consummation of such Transaction Proposal.
(d) In the event this Agreement is terminated by the
Company pursuant to Section 7.1(i) following the failure of the condition
contained in Section 6.1(g) to be satisfied on the Closing Date (other than
as a result of a breach by the Company of its representation and warranty
contained in Section 3.22 or the covenants contained in Sections 5.4(c) or
5.16), Parent shall pay to the Company by wire transfer of immediately
available funds, to an account designated by the Company, on the next
business day following notice of such termination, together with receipt of
reasonable supporting documentation, the amount of $8 million as
reimbursement of expenses incurred by the Company in connection with this
Agreement.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1 Costs and Expenses. Except for expenses
incurred in connection with printing the Proxy Statement/Prospectus, as well
as the filing fees relating thereto, which costs shall be shared equally by
Parent and the Company, and except as set forth in Article VII, all costs and
expenses incurred in connection with this Agreement and the consummation of
the transactions contemplated hereby shall be paid by the party incurring
such expenses.
Section 8.2 Amendment and Modification. Subject to
applicable law, this Agreement may be amended, modified and supplemented in
any and all respects, whether before or after any vote of the stockholders of
the Company contemplated hereby, by written agreement of the parties hereto,
pursuant to action taken by their respective Boards of Directors, at any time
prior to the Effective Time with respect to any of the terms contained
herein; provided, however, that after the approval of this Agreement by the
stockholders of the Company, no such amendment, modification or supplement
shall reduce or change the consideration to be received by the Company's
stockholders in the Merger except as set forth in Section 7.1(g).
Section 8.3 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
schedule, instrument or other document delivered pursuant to this Agreement
shall survive the Effective Time. None of the covenants or agreements in
this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Effective Time, except for those covenants and agreements
contained herein or therein that by their terms apply or are to be performed
in whole or in part after the Effective Time.
Section 8.4 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by an overnight courier
service to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
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(a) if to Parent or Sub, to:
Cumberland House
One Victoria Street
P.O. Box HM 2245
Hamilton HM JX
Bermuda
Attention: Paul S. Giordano, Esq.
Telephone No.: (441) 294-7162
Telecopy No.: (441) 292-5280
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Lee Meyerson, Esq.
Telephone No.: (212) 455-3675
Telecopy No.: (212) 455-2502
(b) if to the Company, to:
One Greenwich Plaza
P.O. Box 2568
Greenwich, CT 06836-2568
Attention: Martha G. Bannerman, Esq.
Telephone No.: (203) 622-5248
Telecopy No.: (203) 625-5511
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10028
Attention: Dennis J. Block, Esq.
Telephone No.: (212) 504-5555
Telecopy No.: (212) 504-5557
Section 8.5 Interpretation. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed to
be followed by the words "without limitation".
Section 8.6 Counterparts. This Agreement may be executed
in two or more counterparts, all of which shall be considered one and the
same agreement and shall become effective when two or more counterparts have
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been signed by each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same counterpart.
Section 8.7 Entire Agreement; No Third Party Beneficiaries.
This Agreement and the Confidentiality Agreement (including the exhibits
hereto and the documents and the instruments referred to herein and therein):
(a) constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 5.11 with
respect to the obligations of Parent thereunder, are not intended to confer
upon any person other than the parties hereto any rights or remedies
hereunder.
Section 8.8 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties
as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
Section 8.9 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to the remedy of specific performance of the terms
hereof, in addition to any other remedy at law or equity.
Section 8.10 Governing Law. This Agreement shall be
governed and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
Section 8.11 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties, except that Sub may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Parent or to any direct or indirect wholly owned subsidiary of
Parent; provided, however, that no such assignment shall relieve Parent from
any of its obligations hereunder. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
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Section 8.12 Consent to Jurisdiction and Service of
Process. 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 Delaware or any
Delaware state court, and each of the parties hereto consents to the non-
exclusive jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and waives any
objection to venue laid therein. Process in any such suit, action or
proceeding may be served on any party anywhere in the world and, without
limiting the generality of the foregoing, each party hereto agrees that
service of process upon such party at the address referred to in Section 8.4,
together with written notice of such service to such party shall be deemed
effective service of process upon such party.
Section 8.13 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 8.14 Certain Definitions. Certain capitalized
terms used in this Agreement shall have the meaning set forth below:
(a) "affiliate"shall have the meaning set forth in
Rule 12b-2 of the Exchange Act.
(b) "business day" means any day other than a Saturday, a
Sunday, or a bank holiday in Bermuda or in the State of New York.
(c) "Dollars" or "$" means United States dollars.
(d) "Lien" means any mortgage, lien, security interest,
pledge, lease or other charge or encumbrance of any kind, including,
the lien or retained security title of a purchase money creditor or
conditional vendor, and any easement, right of way or other
encumbrance on title to real property, and any agreement to give any
of the foregoing.
(e) "person" means an individual, corporation, limited
liability company, partnership, association, trust, unincorporated
organization or other entity.
(f) "subsidiary" means, with respect to a specified person,
each corporation, partnership or other entity in which the specified
person owns or controls, directly or indirectly through one or more
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intermediaries, 50 percent or more of the stock or other interests
having general voting power in the election of directors or persons
performing similar functions or rights to 50 percent or more of any
distributions; provided, however, with respect to the Company,
"subsidiary" shall also include any syndicate at Lloyd's of London
managed by any such subsidiary.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
XL CAPITAL 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]
DASHER ACQUISITION CORP.
By: /s/ Brian M. O'Hara
---------------------------------------
Name: Brian M. O'Hara
Title: President
NAC RE CORP.
By: /s/Nicholas M. Brown, Jr.
---------------------------------------
Name: Nicholas M. Brown, Jr.
Title: President and Chief Executive
Officer
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EXHIBIT 99.2
STOCK OPTION AGREEMENT
between
XL CAPITAL LTD
and
NAC RE CORP.
February 15, 1999
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THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
STOCK OPTION AGREEMENT
-----------------------
STOCK OPTION AGREEMENT, dated as of February 15, 1999 (the
"Agreement"), by and between NAC Re Corp., a Delaware corporation ("Issuer"),
and XL Capital Ltd, a limited liability company organized and incorporated
under the laws of the Cayman Islands ("Grantee").
RECITALS
1. The Merger Agreement. Grantee, Issuer and Dasher
Acquisition Corp., a Delaware corporation ("Sub") are concurrently herewith
entering into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), among Issuer, Grantee and Sub, providing for, among
other things, the merger of Sub with and into Issuer, with Issuer being the
surviving corporation.
2. Condition to Merger Agreement. As a condition and
inducement to Grantee's and Sub's execution of the Merger Agreement, Grantee
and Sub have required that Issuer agree, and Issuer has agreed, to grant
Grantee the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Merger Agreement, and intending to be legally bound hereby,
Issuer and Grantee agree as follows:
a. Defined Terms. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Merger
Agreement.
b. Grant of Option. Subject to the terms and conditions
set forth herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 1,860,215 shares (as adjusted as set forth
herein, the "Option Shares") of common stock, par value $0.10 per share, of
Issuer ("Issuer Common Stock"), at a purchase price per Option Share (as
adjusted as set forth herein, the "Purchase Price") equal to $45.3125;
provided that in no event shall the number of Option Shares for which this
Option is exercisable exceed 10.1% of the issued and outstanding shares of
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Issuer Common Stock. Each Option Share issued upon exercise of the Option
shall be accompanied by the applicable number of Company Rights as provided
in the Company Rights Agreement.
c. Exercise of Option.
-------------------
i. Holder may exercise the Option, in whole or in part, at
any time and from time to time following the occurrence of a Purchase Event
(as hereinafter defined); provided that the Option shall terminate and be of
no further force or effect upon the earliest to occur of (a) the Effective
Time, (b) termination of the Merger Agreement in accordance with the terms
thereof prior to the occurrence of a Purchase Event (as hereinafter defined)
or (c) the later of a) February 15, 2000 and b) 6 months after a termination
of the Merger Agreement following the occurrence of a Purchase Event; and
provided, further that any purchase of shares upon exercise of the Option
shall be subject to compliance with applicable law. Notwithstanding the
termination of the Option, Grantee or Holder, as the case may be, shall be
entitled to purchase those Option Shares with respect to which it has
exercised the Option in accordance with the terms of this Agreement prior to
the termination of the Option. The term "Holder" shall mean the holder or
holders of the Option from time to time, which initially is Grantee. The
termination of the Option shall not affect any rights hereunder which by
their terms extend beyond the date of such termination.
ii. As used herein, a "Purchase Event" means any of the
following events:
(1) without Grantee's prior written consent, Issuer
shall have authorized, recommended, publicly proposed or publicly
disclosed an intention to authorize, recommend or propose, or entered
into one or more agreements with any person (other than Grantee or
any subsidiary of Grantee) to effect, or effected, in a single
transaction or a series of related transactions, any Transaction
Proposal; or
(2) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of or the
right to acquire beneficial ownership of, or any "group" (as such
term is defined in Section 13(d)(3) of the Exchange Act), other than
a group of which Grantee or any subsidiary of Grantee is a member,
shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of 10% or more of the voting power of
Issuer or any of its Subsidiaries; or
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(3) any person (other than Grantee or any subsidiary of
Grantee) shall have commenced (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration statement
under the Securities Act with respect to, a tender offer or exchange
offer to purchase any shares of Issuer Common Stock such that, upon
consummation of such offer, such person would own or control 10% or
more of the then outstanding shares of Issuer Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively); or
(4) the Company Stockholder Approval shall not have
been received at a duly held meeting of stockholders or at any
adjournment thereof, or the Stockholders Meeting shall not have been
held or shall have been canceled prior to the termination of the
Merger Agreement, in each case after it shall have been publicly
disclosed that any person (other than Grantee or any subsidiary of
Grantee) shall have (a) made, or disclosed an intention to make, a
Transaction Proposal, or (b) filed an application or notice, whether
in draft or final form, with a Governmental Entity for approval or
consent to make or consummate a Transaction Proposal; or
(5) the Issuer or its Board of Directors shall have
(a) withdrawn, modified or amended in any respect adverse to Grantee
the recommendation of Issuer's Board of Directors with respect to the
Merger Agreement, (b) failed as promptly as practicable after the
Form S-4 is declared effective to mail the Proxy Statement/
Prospectus to its stockholders, unless such failure was caused by the
actions or inactions of Grantee or its representatives, or failed to
include in such Proxy Statement/Prospectus the Company Board
Recommendation or (c) resolved to take any of the foregoing actions;
or
(6) the Merger Agreement shall have been terminated in
accordance with its terms under any circumstances in which the
Termination Fee is or, upon the occurrence of the events specified
therein, would become payable as provided in Section 7.3(b) or
7.3(c) of the Merger Agreement.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
iii. Issuer shall notify Grantee promptly in writing of the
occurrence of any Purchase Event, it being understood that the giving of such
notice by Issuer shall not be a condition to the right of Holder to exercise
the Option.
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iv. In the event Holder wishes to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (1) the total number of Option
Shares it intends to purchase pursuant to such exercise and (2) a place and
date not earlier than three business days nor later than 60 business days
from the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"); provided that if the Closing cannot be consummated by reason
of any applicable Law or the need to obtain any necessary approvals or
consents of applicable Governmental Entities, the period of time that
otherwise would run pursuant to this sentence shall run instead from the date
on which such restriction on consummation has expired or been terminated; and
provided, further, without limiting the foregoing, that if prior notification
or application to, approval of or authorization by any Governmental Entity is
required in connection with such purchase, Issuer shall use all reasonable
efforts to cooperate with the Holder in the prompt filing of the required
notice or application for approval or authorization, and the Closing shall
occur immediately following the date on which such approvals have been
obtained or any required notification or waiting periods have expired. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
v. Notwithstanding Section 3(d), in no event shall any
Closing Date be more than 12 months after the related Notice Date, and if the
Closing Date shall not have occurred within 12 months after the related
Notice Date due to the failure to obtain any such required approval, the
exercise of the Option effected on the Notice Date shall be deemed to have
expired. In the event (1) Holder receives official notice that an approval
of any Governmental Entity required for the purchase of Option Shares will
not be issued or granted or (2) a Closing Date shall not have occurred within
12 months after the related Notice Date due to the failure to obtain any such
required approval, Grantee shall be entitled to exercise the Option (whether
or not the Option would have otherwise terminated) in connection with the
resale of Issuer Common Stock or other securities pursuant to a registration
statement as provided in Section 11. The provisions of this Section 3 and
Section 4 shall apply with appropriate adjustments to any such exercise.
d. Payment and Delivery of Certificates.
------------------------------------
i. On each Closing Date, Holder shall (1) pay to
Issuer, in immediately available funds by wire transfer to a bank account
designated by Issuer (provided that the failure or refusal of Issuer to
designate a bank account shall not preclude the Holder from exercising the
Option), an amount equal to the Purchase Price multiplied by the number of
Option Shares to be purchased on such Closing Date, and (2) present and
surrender this Agreement to the Issuer at the address of the Issuer specified
in Section 14(f).
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ii. At each Closing, simultaneously with the delivery
of immediately available funds and surrender of this Agreement as provided in
Section 4(a), (1) Issuer shall deliver to Holder (a) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all Liens and subject to no
preemptive rights, and (b) if the Option is exercised in part only, an
executed new agreement with the same terms as this Agreement evidencing the
right to purchase the balance of the shares of Issuer Common Stock
purchasable hereunder, and (2) Holder shall deliver to Issuer a letter
agreeing that Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
iii. In addition to any other legend that is required by
applicable law, certificates for the Option Shares delivered at each Closing
shall be endorsed with a restrictive legend which shall read substantially as
follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF
FEBRUARY 15, 1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE SECRETARY OF THE
ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that (1) the portion of the above legend relating
to the Securities Act shall be removed by delivery of substitute
certificate(s) without such legend if such Option Shares have been registered
pursuant to the Securities Act, such Option Shares have been sold in reliance
on and in accordance with Rule 144 under the Securities Act or Holder shall
have delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Issuer
and its counsel, to the effect that such legend is not required for purposes
of the Securities Act, (2) the reference to restrictions pursuant to this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do
not require the retention of such reference and (3) such legend shall be
removed in its entirety if the conditions in the preceding clauses (i) and
(ii) are both satisfied.
iv. Upon the giving by Holder to Issuer of the written
notice of exercise of the Option provided for under Section 3(d), the tender
of the applicable Purchase Price in immediately available funds and the
tender of this Agreement to Issuer, Holder shall be deemed to be the holder
of record of the shares of Issuer Common Stock issuable upon such exercise,
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notwithstanding that the stock transfer books of Issuer shall then be closed
or that certificates representing such shares of Issuer Common Stock shall
not then be actually delivered to Holder. Issuer shall pay all expenses, and
any and all federal, foreign, state, and local taxes and other charges that
may be payable in connection with the preparation, issuance and delivery of
stock certificates under this Section 4(d) in the name of Holder or its
assignee, transferee, or designee.
v. Issuer agrees (1) that it shall at all times
maintain, free from Liens and preemptive or similar rights, sufficient
authorized but unissued or treasury shares of Issuer Common Stock ("Available
Authorized Shares") so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Issuer
Common Stock then outstanding, (2) that it will not, by charter amendment or
through reorganization, recapitalization, consolidation, merger, dissolution,
liquidation, spin-off, sale of assets or similar transaction, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, agreements, stipulations or conditions to be observed or
performed hereunder by Issuer, (3) promptly to take all action as may from
time to time be required (including (a) complying with all premerger
notification, reporting and waiting period requirements and (b) in the event
prior approval or authorization of or notice or application to any
Governmental Entity is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Entity as it may require) in
order to permit Holder to exercise the Option and Issuer duly and effectively
to issue shares of the Issuer Common Stock pursuant hereto, and (4) promptly
to take all action provided herein to protect the rights of Holder against
dilution. Notwithstanding the foregoing, it is understood that as of the
date of this Agreement, Issuer does not have Available Authorized Shares
sufficient to permit the exercise of the Option in full. Issuer covenants
and agrees to use its best efforts to cause its Board of Directors to
designate, in accordance with its certificate of incorporation and the DGCL,
a series of preferred stock of Issuer having terms such that each 1/100 of a
share of such preferred stock (a "Preferred Share") shall have voting,
dividend and liquidation rights equivalent to one share of Issuer Common
Stock. In the event of an exercise of the Option for a number of shares of
Issuer Common Stock in excess of the number of Available Authorized Shares
(such excess, the "Excess Shares"), Grantee shall be entitled to purchase a
number of such Preferred Shares equal to the number of Excess Shares at a
price per 1/100th of a Preferred Share equal to the Purchase Price. Any such
Preferred Shares so issued pursuant to the terms hereof shall be "Option
Shares" and shares of "Issuer Common Stock" for all purposes under this
Agreement and all references herein to "Option Shares" and "Issuer Common
Stock" shall include the Preferred Shares.
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e. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee (and Holder, if different than Grantee) as
follows:
i. Corporate Authority. Issuer has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby; the execution and delivery
of this Agreement and, subject to receiving any necessary approvals or
authorizations from Governmental Entities, the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer, and no other corporate proceedings on the part
of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated; this Agreement has been duly and validly
executed and delivered by Issuer and (assuming due authorization, execution
and delivery by Grantee) constitutes a valid and binding obligation of
Issuer, enforceable against Issuer in accordance with its terms, except that
(1) such enforcement may be subject to applicable bankruptcy, insolvency,
fraudulent conveyance, moratorium or other similar laws, now or hereinafter
in effect, affecting creditors' rights generally, and (2) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
ii. Shares Reserved for Issuance; Capital Stock.
Issuer has taken all necessary corporate action to authorize and reserve and
permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms, will have
reserved for issuance, upon the exercise of the Option, that number of shares
of Issuer Common Stock (including Preferred Shares) equal to the maximum
number of shares of Issuer Common Stock and other shares and securities which
are at any time and from time to time purchasable upon exercise of the
Option, and all such shares and other securities (including Preferred
Shares), upon issuance pursuant to the Option, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free and
clear of all Liens (other than those created by this Agreement) and not
subject to any preemptive or other similar rights.
iii. No Violations. The execution, delivery and
performance of this Agreement does not and will not, and the consummation by
Issuer of any of the transactions contemplated hereby will not, constitute or
result in (a) a breach or violation of, or a default under, its certificate
of incorporation or by-laws, or the comparable governing instruments of any
of its subsidiaries, or (b) a breach or violation of, or a default under, any
Company Agreement (with or without the giving of notice, the lapse of time or
both) or under any Law or governmental or non-governmental permit or license
to which it or any of its subsidiaries is subject, that would in any case
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give any other person the ability to prevent or enjoin Issuer's performance
under this Agreement in any material respect.
iv. Board Action. The Board of Directors of Issuer has
approved this Agreement and the consummation of the transactions contemplated
hereby as required under Section 203 of the DGCL and any other applicable
state takeover laws so that any such state takeover laws do not and will not
apply to this Agreement or any of the transactions contemplated hereby
(including the purchase of shares of Issuer Common Stock pursuant to this
Agreement).
(e) Rights Amendment. The Company Rights Agreement has
been amended to provide that neither Grantee nor any Holder will become an
"Acquiring Person" and that no "Stock Acquisition Date" or "Distribution
Date" (as such terms are defined in the Company Rights Agreement) will occur
as a result of the approval, execution or delivery of this Agreement or the
Merger Agreement or the consummation of the transactions contemplated hereby
and thereby, including the acquisition of shares of Issuer Common Stock by
Grantee or Holder pursuant to this Agreement.
f. Representations and Warranties of Grantee. Grantee
hereby represents and warrants to Issuer as follows:
i. Corporate Authority. Grantee has full corporate
power and authority to enter into this Agreement and, subject to obtaining
the approvals referred to in this Agreement, to consummate the transactions
contemplated by this Agreement; the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee; and this
Agreement has been duly executed and delivered by Grantee and (assuming due
authorization, execution and delivery by Issuer) constitutes a valid and
binding obligation of the Grantee, enforceable against the Grantee in
accordance with its terms.
ii. Purchase Not for Distribution. Any Option Shares
or other securities acquired by Grantee or Holder upon exercise of the Option
will not be taken with a view to the public distribution thereof and will not
be transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
g. Adjustment upon Changes in Issuer Capitalization, Etc.
------------------------------------------------------
i. In the event of any change from time to time in
Issuer Common Stock and any other shares or securities subject to the Option
by reason of a stock dividend, subdivision, spinoff, stock split, split-up,
merger, consolidation, recapitalization, combination, exchange of shares,
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distribution on or in respect of the Issuer Common Stock that would be
prohibited under the terms of the Merger Agreement, or similar transaction,
the type and number of shares or securities subject to the Option, and the
Purchase Price therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction, so that
Holder shall receive, upon exercise of the Option, the economic benefits
provided hereunder, including the number and class of shares or other
securities or property that Holder would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior to such
event, or the record date therefor, as applicable. If any additional shares
of Issuer Common Stock are issued or otherwise become outstanding after the
date of this Agreement (other than pursuant to an event described in the
first sentence of this Section 7(a) or upon exercise of the Option) the
number of shares of Issuer Common Stock subject to the Option shall be
adjusted so that, after such issuance, it, together with any shares of Issuer
Common Stock previously issued pursuant hereto, equals 10.1% of the number of
shares of Issuer Common Stock then issued and outstanding, without giving
effect to any shares subject to or issued pursuant to the Option. In the
event that Issuer issues or agrees to issue any shares of Issuer Common Stock
(other than as permitted by the Merger Agreement) at a price per share less
than the Purchase Price (as theretofore adjusted pursuant to this Section 7)
the Purchase Price shall be reduced to equal such lesser price. No provision
of this Section 7 shall be deemed to affect or change, or constitute
authorization for any violation of, any of the covenants, agreements,
representations or warranties in the Merger Agreement.
ii. Without limiting the parties' relative rights,
remedies, liabilities and obligations under the Merger Agreement or this
Agreement, in the event that Issuer shall enter into an agreement (other than
the Merger Agreement) (1) to consolidate with or merge into any person, other
than Grantee or one of its Subsidiaries, and shall not be the continuing or
surviving corporation of such consolidation or merger, (2) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer
and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common
Stock shall be changed into or exchanged for another class or series of stock
or other securities of Issuer or any other person or cash or any other
property or the outstanding shares of Issuer Common Stock immediately prior
to such merger shall, after such merger, represent less than 75% of the
outstanding shares and share equivalents having general voting power of the
merged company, or (3) to sell or otherwise transfer all or substantially all
of its assets or the assets of its subsidiaries taken as a whole, in one
transaction or a series of related transactions, to any person, other than
Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions so that the
Option shall, upon the consummation of any such transaction and upon the
terms and conditions set forth herein, be converted into, or exchanged for,
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an option (the "Substitute Option"), at the election of Holder, of either
(x) the Acquiring Corporation (as hereinafter defined), (y) any person that
controls the Acquiring Corporation, or (z) in the case of a merger described
in clause (ii), Issuer (such person being referred to as "Substitute Option
Issuer").
iii. The Substitute Option shall have the same terms as
the Option, provided that, if the terms of the Substitute Option cannot, for
legal reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to Holder, and provided, further
that the Substitute Option shall be exercisable immediately upon issuance
without the occurrence of a further Purchase Event. Substitute Option Issuer
shall also enter into an agreement with Holder in substantially the same form
as this Agreement, which shall be applicable to the Substitute Option.
iv. The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock (as hereinafter defined) as is
equal to the Assigned Value (as hereinafter defined) multiplied by the number
of shares of Issuer Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as hereinafter defined). The
exercise price of the Substitute Option per share of Substitute Common Stock
(the "Substitute Option Price") shall then be equal to the Purchase Price
multiplied by a fraction in which the numerator is the number of shares of
Issuer Common Stock for which the Option was theretofore exercisable and the
denominator is the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
v. The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (x) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (y) Issuer in a merger in which Issuer
is the continuing or surviving person, or (z) the transferee of all
or substantially all of Issuer's assets (or the assets of its
subsidiaries taken as a whole).
(2) "Assigned Value" shall mean the highest of
(w) the price per share of Issuer Common Stock at which a Tender
Offer or an Exchange Offer therefor has been made, (x) the price per
share of Issuer Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (y) the highest closing price for shares
of Issuer Common Stock within the six-month period immediately
preceding the date on which the merger, consolidation, asset sale or
other transaction in question is consummated, and (z) in the event of
a sale of all or substantially all of Issuer's assets (or of the
assets of its subsidiaries as a whole) an amount equal to (I) the sum
of the price paid in such sale for such assets and the current market
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value of the remaining assets of Issuer, as determined by a
nationally recognized investment banking firm selected by Holder,
divided by (II) the number of shares of Issuer Common Stock
outstanding at such time. In calculating the Assigned Value, in the
event that a Tender Offer or an Exchange Offer is made for Issuer
Common Stock or an agreement is entered into for a merger or
consolidation involving consideration other than cash, the value of
the securities or other property issuable or deliverable in exchange
for Issuer Common Stock shall be determined by a nationally
recognized investment banking firm selected by Holder.
(3) "Average Price" shall mean the average
closing price of a share of Substitute Common Stock on the NYSE (or
if such Substitute Common Stock is not listed on the NYSE, the
average closing price on the National Association of Securities
Dealers Automated Quotation System or, if the shares of Substitute
Common Stock are not quoted thereon, the highest bid price per share
as quoted on the principal trading market on which such shares are
traded as reported by a recognized source) for the one year
immediately preceding the date of consummation of the consolidation,
merger or sale in question, but in no event higher than the closing
price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the
issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by Issuer, by the
person merging into Issuer or by any company which controls such
person, as Holder may elect.
(4) "Substitute Common Stock" shall mean the
shares of capital stock (or similar equity interest) with the
greatest voting power in respect of the election of directors (or
persons similarly responsible for the direction of the business and
affairs) of the Substitute Option Issuer.
vi. In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than 10.1% of
the aggregate of the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute Option
would be exercisable for more than 10.1% of the aggregate of the shares of
Substitute Common Stock but for the limitation in the first sentence of this
Section 7(f), Substitute Option Issuer shall make a cash payment to Holder
equal to the excess of (1) the value of the Substitute Option without giving
effect to the limitation in the first sentence of this Section 7(f) over
(2) the value of the Substitute Option after giving effect to the limitation
in the first sentence of this Section 7(f). This difference in value shall
be determined by a nationally-recognized investment banking firm selected by
Holder.
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vii. Issuer shall not enter into any transaction
described in Section 7(b) unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations
of Issuer hereunder and take all other actions that may be necessary so that
the provisions of this Section 7 are given full force and effect (including,
without limitation, any action that may be necessary so that the holders of
the other shares of common stock issued by Substitute Option Issuer are not
entitled to exercise any rights by reason of the issuance or exercise of the
Substitute Option and the shares of Substitute Common Stock are otherwise in
no way distinguishable from or have lesser economic value (other than any
diminution in value resulting from the fact that the Substitute Common Stock
are restricted securities, as defined in Rule 144 under the Securities Act or
any successor provision) than other shares of common stock issued by
Substitute Option Issuer).
h. Repurchase at the Option of Holder.
----------------------------------
i. At the request of Holder at any time (1) commencing
upon the first occurrence of a Repurchase Event (as defined in Section 8(d))
and ending 18 months immediately thereafter and (2) for 30 business days
following the occurrence of either of the events set forth in clauses (i) and
(ii) of Section 3(e) (but solely as to shares of Issuer Common Stock with
respect to which the required approval was not received, Issuer (or any
successor) shall repurchase from Holder (x) the Option and (y) all shares of
Issuer Common Stock purchased by Holder pursuant hereto with respect to which
Holder then has beneficial ownership. The date on which Holder exercises its
rights under this Section 8 is referred to as the "Request Date". Such
repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(1) the aggregate Purchase Price paid by Holder
for any shares of Issuer Common Stock acquired pursuant to the Option
with respect to which Holder then has beneficial ownership;
(2) the excess, if any, of (x) the Applicable
Price (as defined below) for each share of Issuer Common Stock over
(y) the Purchase Price (subject to adjustment pursuant to Section 7),
multiplied by the number of shares of Issuer Common Stock with
respect to which the Option has not been exercised; and
(3) the excess, if any, of the Applicable Price
over the Purchase Price (subject to adjustment pursuant to Section 7)
paid (or, in the case of Option Shares with respect to which the
option has been exercised but the Closing Date has not occurred,
payable) by Holder for each share of Issuer Common Stock with respect
to which the Option has been exercised and with respect to which
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Holder then has beneficial ownership, multiplied by the number of
such shares.
ii. If Holder exercises its rights under this
Section 8, Issuer shall, within 5 business days after the Request Date, pay
the Section 8 Repurchase Consideration to Holder in immediately available
funds, and contemporaneously with such payment, Holder shall surrender to
Issuer the Option and the certificates evidencing the shares of Issuer Common
Stock purchased thereunder with respect to which Holder then has beneficial
ownership, and Holder shall warrant that it has sole record and beneficial
ownership of such shares and the Option and that the same are then free and
clear of all Liens. Notwithstanding the foregoing, to the extent that prior
notification to or approval of any Governmental Entity is required in
connection with the payment of all or any portion of the Section 8 Repurchase
Consideration, Holder shall have the ongoing option to revoke its request for
repurchase pursuant to Section 8, in whole or in part, or to require that
Issuer deliver from time to time that portion of the Section 8 Repurchase
Consideration that it is not then so prohibited from paying and promptly file
the required notice or application for approval and expeditiously process the
same (and each party shall cooperate with the other in the filing of any such
notice or application and the obtaining of any such approval) and the period
of time that would otherwise run pursuant to the preceding sentence for the
payment of the portion of the Section 8 Repurchase Consideration shall run
instead from the date on which, as the case may be, (1) any required
notification period has expired or been terminated or (2) such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If any Governmental Entity disapproves of any part of Issuer's
proposed repurchase pursuant to this Section 8, Issuer shall promptly give
notice of such fact to Holder. If any Governmental Entity prohibits the
repurchase (and Issuer hereby undertakes to use all reasonable efforts to
obtain all required approvals from Governmental Entities to accomplish such
repurchase) in part but not in whole, then Holder shall have the right (i) to
revoke the repurchase request or (ii) to the extent permitted by such
Governmental Entity, determine whether the repurchase should apply to the
Option and/or Option Shares and to what extent to each, and Holder shall
thereupon have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at the Request Date less the sum
of the number of shares covered by the Option in respect of which payment has
been made pursuant to Section 8(a)(ii) and the number of shares covered by
the portion of the Option (if any) that has been repurchased; whereupon, in
the case of clause (ii), Issuer shall promptly (x) deliver to the Holder that
portion of the Section 8 Repurchase Consideration Price that Issuer is not
prohibited from delivering and (y) deliver to the Holder, as appropriate,
either (a) a new Agreement evidencing the right of the Holder to purchase
that number of shares of Issuer Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a
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fraction, the numerator of which is the Section 8 Repurchase Consideration
less the portion thereof theretofore delivered to the Holder and the
denominator of which is the Section 8 Repurchase Consideration, or (b) a
certificate for the Option Shares it is then so prohibited from repurchasing;
provided, that if the Option shall have terminated prior to the date of such
notice or shall be scheduled to terminate at any time before the expiration
of a period ending on the thirtieth business day after such date, Holder
shall nonetheless have the right so to exercise the Option or exercise its
rights under Section 9 until the expiration of such period of 30 business
days. Holder shall notify Issuer of its determination under the preceding
sentence within 10 business days of receipt of notice of disapproval of the
repurchase.
iii. For purposes of this Agreement, the "Applicable
Price" means the highest of (1) the highest price per share of Issuer Common
Stock paid for any such share by the person or groups described in
Section 8(d)(i), (2) the price per share of Issuer Common Stock received by
holders of Issuer Common Stock in connection with any merger or other
business combination transaction described in Section 7(b)(i), 7(b)(ii) or
7(b)(iii), and (3) the highest closing sales price per share of Issuer Common
Stock quoted on the NYSE (or if Issuer Common Stock is not listed on the
NYSE, the highest closing price per share as quoted on the Nasdaq National
Market System or, if the shares of Issuer Common Stock are not quoted
thereon, the highest bid price per share as quoted on the principal trading
market in which such shares are traded as reported by a recognized source)
during the 40 business days preceding the Request Date; provided, however,
that in the event of a sale of less than all of Issuer's assets, the
Applicable Price shall be the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected by
Holder, divided by the number of shares of the Issuer Common Stock
outstanding at the time of such sale. If the consideration to be offered,
paid or received pursuant to either of the foregoing clauses (i) or (ii)
shall be other than cash, the value of such consideration shall be determined
in good faith by an independent nationally recognized investment banking firm
selected by Holder, which determination shall be conclusive for all purposes
of this Agreement.
iv. As used herein, a "Repurchase Event" shall occur if
(1) any person (other than Grantee or any subsidiary of Grantee) shall have
acquired beneficial ownership of (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the Exchange Act)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 35% or more of the then outstanding shares of Issuer
Common Stock, (2) any of the transactions described in Section 7(b)(i),
7(b)(ii) or 7(b)(iii) has been consummated or (3) Issuer has entered into an
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agreement pursuant to which any of the transactions described in
Section 7(b)(i), 7(b)(ii) or 7(b)(iii) could or will be consummated.
i. Repurchase of Substitute Option.
-------------------------------
i. At the request of Holder at any time (1) commencing
upon the first occurrence of a Substitute Repurchase Event (as defined in
Section 9(d)) and ending 18 months immediately thereafter and (2) for
30 business days following the occurrence of either of the events set forth
in clauses (i) and (ii) of Section 3(e) (but solely as to shares of
Substitute Common Stock with respect to which the required approval was not
received), Substitute Option Issuer (or any successor) shall repurchase from
Holder (x) the Option and (y) all shares of Substitute Common Stock purchased
by Holder pursuant hereto with respect to which Holder then has beneficial
ownership. The date on which Holder exercises its rights under this
Section 9 is referred to as the "Section 9 Request Date". Such repurchase
shall be at an aggregate price (the "Section 9 Repurchase Consideration")
equal to the sum of:
(1) the aggregate Purchase Price paid by Holder
for any shares of Substitute Common Stock acquired pursuant to the
Substitute Option with respect to which Holder then has beneficial
ownership;
(2) the excess, if any, of (x) the Substitute
Applicable Price (as defined below) for each share of Substitute
Common Stock over (y) the Purchase Price (subject to adjustment
pursuant to Section 7), multiplied by the number of shares of
Substitute Common Stock with respect to which the Substitute Option
has not been exercised; and
(3) the excess, if any, of the Substitute
Applicable Price over the Purchase Price (subject to adjustment
pursuant to Section 7) paid (or, in the case of Option Shares (for
purposes of this Agreement, Option Shares shall include shares of
Substitute Common Stock and related securities subject to the
Substitute Option) with respect to which the Substitute Option has
been exercised but the Closing Date has not occurred, payable) by
Holder for each share of Substitute Common Stock with respect to
which the Substitute Option has been exercised and with respect to
which Holder then has beneficial ownership, multiplied by the number
of such shares.
ii. If Holder exercises its rights under this
Section 9, Substitute Option Issuer shall, within 5 business days after the
Section 9 Request Date, pay the Section 9 Repurchase Consideration to Holder
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in immediately available funds, and contemporaneously with such payment,
Holder shall surrender to Substitute Option Issuer the Substitute Option and
the certificates evidencing the shares of Substitute Common Stock purchased
thereunder with respect to which Holder then has beneficial ownership, and
Holder shall warrant that it has sole record and beneficial ownership of such
shares and the Substitute Option and that the same are then free and clear of
all Liens. Notwithstanding the foregoing, to the extent that prior
notification to or approval of any Governmental Entity is required in
connection with the payment of all or any portion of the Section 9 Repurchase
Consideration, Holder shall have the ongoing option to revoke its request for
repurchase pursuant to Section 9, in whole or in part, or to require that
Substitute Option Issuer deliver from time to time that portion of the
Section 9 Repurchase Consideration that it is not then so prohibited from
paying and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other
in the filing of any such notice or application and the obtaining of any such
approval) and the period of time that would otherwise run pursuant to the
preceding sentence for the payment of the portion of the Section 9 Repurchase
Consideration shall run instead from the date on which, as the case may be,
(1) any required notification period has expired or been terminated or
(2) such approval has been obtained and, in either event, any requisite
waiting period shall have passed. If any Governmental Entity disapproves of
any part of Substitute Option Issuer's proposed repurchase pursuant to this
Section 9, Substitute Option Issuer shall promptly give notice of such fact
to Holder (such notice a "Notice of Disapproval"). If any Governmental
Entity prohibits the repurchase (and Substitute Option Issuer hereby
undertakes to use all reasonable efforts to obtain all required approvals
from Governmental Entities to accomplish such repurchase) in part but not in
whole, then Holder shall have the right (i) to revoke the repurchase request
or (ii) to the extent permitted by such Governmental Entity, determine
whether the repurchase should apply to the Substitute Option and/or Option
Shares and to what extent to each, and Holder shall thereupon have the right
to exercise the Substitute Option as to the number of Option Shares for which
the Substitute Option was exercisable at the Section 9 Request Date less the
sum of the number of shares covered by the Substitute Option in respect of
which payment has been made pursuant to Section 9(a)(ii) and the number of
shares covered by the portion of the Substitute Option (if any) that has been
repurchased; whereupon, in the case of clause (ii), Substitute Option Issuer
shall promptly (x) deliver to the Holder that portion of the Section 9
Repurchase Consideration Price that Substitute Option Issuer is not
prohibited from delivering and (y) deliver to the Holder, as appropriate,
either (a) a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Substitute Common Stock obtained by
multiplying the number of shares of Substitute Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the
Section 9 Repurchase Consideration less the portion thereof theretofore
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delivered to the Holder and the denominator of which is the Section 9
Repurchase Consideration or (b) a certificate for the Option Shares it is
then so prohibited from repurchasing; provided, further, that if the
Substitute Option shall have terminated prior to the date of such notice or
shall be scheduled to terminate at any time before the expiration of a period
ending on the thirtieth business day after such date, Grantee shall
nonetheless have the right so to exercise the Substitute Option or exercise
its rights under Section 9 until the expiration of such period of 30 business
days. Holder shall notify Substitute Option Issuer of its determination
under the preceding sentence within ten business days of receipt of Notice of
Disapproval of the repurchase.
iii. For purposes of this Agreement, the "Substitute
Applicable Price" means the highest of (1) the highest price per share of
Substitute Common Stock paid for any such share by the person or groups
described in Section 9(d)(i), (2) the price per share of Substitute Common
Stock received by holders of Substitute Common Stock in connection with any
merger or other business combination transaction described in
Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (3) the highest closing sales
price per share of Substitute Common Stock quoted on the NYSE (or if the
Substitute Common Stock is not listed on the NYSE, the highest closing price
per share as quoted the Nasdaq NMS or, if the shares of Substitute Common
Stock are not quoted thereon, the highest bid price on the principal trading
market in which such shares are traded by a recognized source) during the
40 business days preceding the Section 9 Request Date; provided, however,
that in the event of a sale of less than all of Substitute Option Issuer's
assets, the Substitute Applicable Price shall be the sum of the price paid in
such sale for such assets and the current market value of the remaining
assets of Substitute Option Issuer as determined by a nationally recognized
investment banking firm selected by Holder, divided by the number of shares
of the Substitute Common Stock outstanding at the time of such sale. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Holder, which determination
shall be conclusive for all purposes of this Agreement.
iv. As used herein, a "Substitute Repurchase Event"
shall occur if (1) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership of (as such term is defined
in Rule 13d-3 promulgated under the Exchange Act), or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right
to acquire beneficial ownership of, 35% or more of the then outstanding
shares of Substitute Common Stock, (2) any of the transactions described in
Section 7(b)(i), 7(b)(ii) or 7(b)(iii) has been consummated or (3) Substitute
Option Issuer has entered into an agreement pursuant to which any of the
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transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) could or
will be consummated. If the consideration paid or to be paid to holders of
Substitute Common Stock in the transactions referred to in either of the
foregoing clauses (i) or (ii) shall be other than cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Holder, which determination
shall be conclusive for all purposes of this Agreement.
v. All references to "Issuer", "Issuer Common Stock"
and "Section 8" contained herein shall also be deemed to be references to
"Substitute Option Issuer," "Substitute Common Stock" and "Section 9"
respectively.
j. Right of First Refusal. If, within one year after the
Closing Date (but not thereafter), Grantee proposes to sell all or any part
of the Option Shares in a transaction not required to be registered under the
Securities Act (other than in a transfer by operation of law upon
consummation of a merger or consolidation, in a tender or exchange offer or
in a sale under Rule 144 or a successor provision under the Securities Act),
it shall give Issuer the opportunity, in the following manner, to purchase
such Option Shares:
i. Grantee shall give notice to Issuer in writing of
its intent to sell Option Shares (a "Disposition Notice"), specifying the
number of Option Shares to be sold, the price and the material terms of any
agreement relating thereto. The Disposition Notice may be given at any time.
ii. Issuer shall have the right, exercisable by written
notice given to Grantee within 5 business days after receipt of a Disposition
Notice, to purchase all, but not less than all, of the Option Shares
specified in the Disposition Notice at the price set forth in the Disposition
Notice. If the purchase price specified in the Disposition Notice includes
any property other than cash, the purchase price to be paid by Issuer shall
be an amount of cash equal to the sum of (1) the cash included in the
purchase price plus (2) the fair market value of such other property at the
date of the Disposition Notice. If such other property consists of
securities with an existing public trading market, the average of the last
sale prices for such securities on the five trading days ending five days
prior to the date of the Disposition Notice shall be used as the fair market
value of such property. If such other property consists of something other
than cash or securities with an existing public trading market and at the
time of the closing referred to in paragraph (c) below, agreement on the
value of such other property has not been reached, the average of the closing
prices for the Issuer's common stock on the five trading days ending
five days prior to the date of the Disposition Notice shall be used as the
per share purchase price; provided, however, that promptly after the closing,
Grantee and Issuer or its designee, as the case may be, shall settle any
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additional amounts to be paid or returned as a result of the determination of
fair market value of such other property made by a nationally recognized
investment banking firm selected by Issuer and approved by Grantee within
30 days of the closing. Such determination shall be final and binding on all
parties hereto.
iii. If Issuer exercises its right of first refusal
hereunder, the closing of the purchase of the Option Shares with respect to
which such right has been exercised shall take place within five business
days after the notice of such exercise; provided, however, that at any time
prior to the closing of the purchase of Option Shares hereunder, Grantee may
determine not to sell the Option Shares and revoke the Disposition Notice
and, by so doing, cancel Issuer's right of first refusal with respect
thereto. Issuer shall pay for the Option Shares in immediately available
funds.
iv. If Issuer does not exercise its right of first
refusal hereunder within the time specified for such exercise, Grantee shall
be free for 90 days following the expiration of such time for exercise to
sell or enter into an agreement to sell the Option Shares specified in the
Disposition Notice, at the price specified in the Disposition Notice or any
price in excess thereof and otherwise on substantially the same terms set
forth in the Disposition Notice; provided, that if such sale is not
consummated within such 90-day period (unless the approval or consent of a
Governmental Entity is required to consummate such sale, in which case the
90-day period shall not be deemed to have expired until after such approval
or consent shall have been granted), then the provisions of this Section 10
will again apply to the sale of such Option Shares.
k. Registration Rights.
-------------------
i. Demand Registration Rights. Issuer shall, subject
to the conditions of Section 11(c) below, if requested by any Holder,
including Grantee and any permitted transferee ("Selling Stockholder"), as
expeditiously as possible prepare, file and keep current a registration
statement under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all shares of Issuer Common
Stock or other securities that have been acquired by or are issuable to the
Selling Stockholder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by the Selling
Stockholder in such request, including, without limitation, a "shelf"
registration statement under Rule 415 under the Securities Act or any
successor provision, and Issuer shall use its best efforts to qualify such
shares or other securities for sale under any applicable state securities
laws.
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ii. Piggyback Registration Rights. If Issuer at any
time after the exercise of the Option proposes to register any shares of
Issuer Common Stock under the Securities Act in connection with an
underwritten public offering of such Issuer Common Stock, Issuer will
promptly give written notice to the Selling Stockholders of its intention to
do so and, upon the written request of any Selling Stockholder given within
30 days after receipt of any such notice (which request shall specify the
number of shares of Issuer Common Stock intended to be included in such
underwritten public offering by the Selling Stockholder), Issuer will cause
all such shares for which a Selling Stockholder requests participation in
such registration, to be so registered and included in such underwritten
public offering; provided, however, that Issuer may elect to not cause such
shares to be so registered (1) if in the reasonable good faith opinion of the
underwriters for such offering, the inclusion of all such shares by the
Selling Stockholder would materially interfere with the marketing of such
offering (in which case Issuer shall register as many shares as possible
without materially interfering with the marketing of the offering), or (2) in
the case of a registration solely to implement an employee benefit plan or a
registration filed on Form S-4 of the Securities Act or any successor Form.
If some but not all the shares of Issuer Common Stock with respect to which
Issuer shall have received requests for registration pursuant to this
Section 11(b) shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among the Selling
Stockholders desiring to register their shares pro rata in the proportion
that the number of shares requested to be registered by each such Selling
Stockholder bears to the total number of shares requested to be registered by
all such Selling Stockholders then desiring to have Issuer Common Stock
registered for sale.
iii. Conditions to Required Registration. Issuer shall
use all reasonable efforts to cause each registration statement referred to
in Section 11(a) above to become effective and to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective; provided, however, that Issuer may delay
any registration of Option Shares required pursuant to Section 11(a) above
for a period not exceeding 90 days provided Issuer shall in good faith
determine that any such registration would adversely affect an offering or
contemplated offering of other securities by Issuer, and Issuer shall not be
required to register Option Shares under the Securities Act pursuant to
Section 11(a) above:
(1) prior to the earliest of 1) termination of
the Merger Agreement pursuant to Article VII thereof, 2) failure to
obtain the Company Stockholder Approval, and 3) a Purchase Event;
(2) on more than two occasions during any
calendar year;
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(3) within 90 days after the effective date of
a registration referred to in Section 11(b) above pursuant to which
the Selling Stockholder or Selling Stockholders concerned were
afforded the opportunity to register such shares under the Securities
Act and such shares were registered as requested;
(4) unless a request therefor is made to Issuer
by Selling Stockholders that hold at least 25% or more of the
aggregate number of Option Shares (including shares of Issuer Common
Stock and other securities issuable upon exercise of the Option) then
outstanding; and
(5) after such date as all the Option Shares
may be resold in one transaction pursuant to Rule 144 of the
Securities Act (or any successor or similar rule or act).
In addition to the foregoing, Issuer shall not be required
to maintain the effectiveness of any registration statement after the
expiration of one year from the effective date of such registration
statement. Issuer shall use all reasonable efforts to make any filings, and
take all steps, under all applicable state securities laws to the extent
necessary to permit the sale or other disposition of the Option Shares so
registered in accordance with the intended method of distribution for such
shares; provided, however, that Issuer shall not be required to consent to
general jurisdiction or qualify to do business in any state where it is not
otherwise required to so consent to such jurisdiction or to so qualify to do
business. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating
itself in respect of representations, warranties, indemnities and other
agreements customarily included in secondary offering underwriting
agreements. Upon receiving any request under this Section 11 from any
Holder, Issuer agrees to send a copy thereof to any other person known to
Issuer to be entitled to registration rights under this Section 11, in each
case by promptly mailing the same, postage prepaid, to the address of record
of the persons entitled to receive such copies.
iv. Expenses. Except where applicable state law
prohibits such payments, Issuer will pay all expenses (including, without
limitation, registration fees, qualification fees, blue sky fees and expenses
(including the fees and expenses of counsel), legal fees and expenses,
including the reasonable fees and expenses of one counsel to the holders
whose Option Shares are being registered, printing expenses and the costs of
special audits or "cold comfort" letters, expenses of underwriters, excluding
discounts and commissions but including liability insurance if Issuer so
desires or the underwriters so require, and the reasonable fees and expenses
of any necessary special experts) in connection with each registration
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pursuant to Section 11(a) or 11(b) above (including the related offerings and
sales by holders of Option Shares) and all other qualifications,
notifications or exemptions pursuant to Section 11(a) or 11(b) above.
v. Indemnification. In connection with any
registration under Section 11(a) or 11(b) above Issuer hereby indemnifies the
Selling Stockholders, and each underwriter thereof, including each person, if
any, who controls such holder or underwriter within the meaning of Section 15
of the Securities Act, against all expenses, losses, claims, damages and
liabilities caused by any untrue, or alleged untrue, statement of a material
fact contained in any registration statement or prospectus or notification or
offering circular (including any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission, or alleged omission, to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such expenses,
losses, claims, damages or liabilities of such indemnified party are caused
by any untrue statement or alleged untrue statement that was included by
Issuer in any such registration statement or prospectus or notification or
offering circular (including any amendments or supplements thereto) in
reliance upon and in conformity with, information furnished in writing to
Issuer by such indemnified party expressly for use therein, and Issuer and
each officer, director and controlling person of Issuer shall be indemnified
by each such Selling Stockholder, or by such underwriter, as the case may be,
for all such expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement, that was included by Issuer in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such Selling
Stockholder or such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this
Section 11(e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be
sought against any indemnifying party under this Section 11(e), such
indemnified party shall notify the indemnifying party in writing of the
commencement of such action, but the failure so to notify the indemnifying
party shall not relieve it of any liability which it may otherwise have to
any indemnified party under this Section 11(e) unless the failure so to
notify the indemnified party results in substantial prejudice thereto. In
case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel (other than reasonable costs of
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investigation) shall be paid by the indemnified party unless (1) the
indemnifying party either agrees to pay the same, (2) the indemnifying party
fails to assume the defense of such action with counsel satisfactory to the
indemnified party, or (3) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party
that may be contrary to the interest of the indemnified party, in which case
the indemnifying party shall be entitled to assume the defense of such action
notwithstanding its obligation to bear fees and expenses of such counsel. No
indemnifying party shall be liable for any settlement entered into without
its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 11(e) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to
be indemnified, shall contribute to the amount paid or payable by such party
to be indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
benefits received by Issuer, the Selling Stockholders and the underwriters
from the offering of the securities and also the relative fault of Issuer,
the Selling Stockholders and the underwriters in connection with the
statements or omissions which resulted in such expenses, losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the
expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
provided, however, that in no case shall any Selling Stockholder be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Any
obligation by any holder to indemnify shall be several and not joint with
other holders.
In connection with any registration pursuant to
Section 11(a) or 11(b) above, Issuer and each Selling Stockholder (other than
Grantee) shall enter into an agreement containing the indemnification
provisions of this Section 11(e).
vi. Miscellaneous Reporting. Issuer shall comply with
all reporting requirements and will do all such other things as may be
necessary to permit the expeditious sale at any time of any Option Shares by
the Selling Stockholders thereof in accordance with and to the extent
permitted by any rule or regulation promulgated by the SEC from time to time,
including, without limitation, Rule 144. Issuer shall at its expense provide
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the Selling Stockholders with any information necessary in connection with
the completion and filing of any reports or forms required to be filed by
them under the Securities Act or the Exchange Act, or required pursuant to
any state securities laws or the rules of the NASD or any stock exchange.
vii. Issue Taxes. Issuer will pay all stamp taxes in
connection with the issuance and the sale of the Option Shares and in
connection with the exercise of the Option, and will save the Selling
Stockholders harmless, without limitation as to time, against any and all
liabilities with respect to all such taxes.
l. Quotation: Listing. If Issuer Common Stock or any other
securities to be acquired in connection with the exercise of the Option are
then authorized for quotation or trading or listing on the NYSE, the Nasdaq
NMS or any other securities exchange or securities quotation system, Issuer,
upon the request of Holder, will promptly file an application, if required,
to authorize for quotation or trading or listing the shares of Issuer Common
Stock or any other securities (including Preferred Shares) to be acquired
upon exercise of the Option on the NYSE, the Nasdaq NMS or such other
securities exchange or securities quotation system and will use all
reasonable efforts to obtain approval, if required, of such quotation or
listing as soon as practicable.
m. Division of Option. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Holder,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Issuer Common Stock purchasable hereunder. The terms "Agreement"
and "Option" as used herein include any other Stock Option Agreement and
related Options for which this Agreement (and the Option granted hereby) may
be exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Agreement, and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Agreement, if
mutilated, Issuer will execute and deliver a new Agreement of like tenor and
date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
n. Limitation of Grantee Profit. i. Notwithstanding any
other provision herein, in no event shall Grantee's Total Profit (as defined
below) exceed $38,000,000, exclusive of any reimbursement of expenses
pursuant to Section 7.3 of the Merger Agreement (the "Maximum Profit"), and,
if it otherwise would exceed such amount, Grantee, at its sole discretion,
shall either (1) reduce the number of shares subject to the Option (and any
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Substitute Option), (2) deliver to Issuer, or the Substitute Issuer, as the
case may be, for cancellation shares of Issuer Common Stock or Substitute
Common Stock, as the case may be (or other securities into which such Option
Shares are converted or exchanged), (3) pay cash to Issuer, or the Substitute
Issuer, as the case may be, or (4) any combination of the foregoing, so that
Grantee's actually realized Total Profit shall not exceed the Maximum Profit
after taking into account the foregoing actions.
ii. For purposes of this Agreement, "Total Profit" shall
mean: (1) the aggregate amount of (a) the excess of (x) the net cash amounts
received by Grantee pursuant to a sale of Option Shares (or securities into
which such shares are converted or exchanged) to any unaffiliated third party
within 12 months after the exercise of the Option, over (y) the Grantee's
aggregate purchase price for such Option Shares (or other securities), plus
(b) all amounts received by Grantee on the transfer of the Option (including
pursuant to Section 8), plus (c) all equivalent amounts with respect to the
Substitute Option (including pursuant to Section 9), plus (d) all amounts
received by Grantee pursuant to Section 7.3 of the Merger Agreement (other
than reimbursement in respect of Expenses), minus (2) all amounts of cash
previously paid to Issuer pursuant to this Section 14 plus the value of the
Option Shares (or other securities) previously delivered to Issuer for
cancellation pursuant to this Section 14.
iii. Notwithstanding any other provision of this Agreement,
nothing in this Agreement shall affect the ability of Grantee to receive, nor
relieve Issuer's obligation to pay, any payment provided for in Section 7.3
of the Merger Agreement; provided that if and to the extent the Total Profit
received by Grantee would exceed the Maximum Profit following receipt of such
payment, Grantee shall be obligated to comply with the terms of Section 14(a)
within 30 days of the latest of (1) the date of receipt of such payment,
(2) the date of receipt of the net cash by Grantee pursuant to the sale of
Option Shares (or securities into which such Option Shares are converted or
exchanged) to any unaffiliated party within 12 months after the exercise of
this Option with respect to such Option Shares, (3) the date of receipt of
net cash from the disposition of the Option or Substitute Option, as the case
may be, and (4) the date of receipt of equivalent amounts pursuant to the
sale of the Substitute Option or shares of Substitute Common Stock (or other
securities into which such Substitute Common Stock is converted or
exchanged).
iv. For purposes of paragraph (a) of this Section and
clause (b)(ii) of this Section, the value of any Option Shares delivered to
Issuer shall be the Assigned Value of such Option Shares and the value of any
Substitute Common Stock delivered to Substitute Issuer shall be the
Substitute Applicable Price of such Substitute Common Stock.
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o. Miscellaneous.
-------------
i. Expenses. Except as otherwise provided herein or
in the Merger Agreement, each of the parties hereto shall bear and pay all
costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including, without limitation, fees and
expenses of its own financial consultants, investment bankers, accountants
and counsel.
ii. Waiver and Amendment. Any provision of this
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights. No single or partial exercise of any
right, remedy, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. Any waiver shall be effective only in the specific instance and
for the specific purpose for which given and shall not constitute a waiver to
any subsequent or other exercise of any right, remedy, power or privilege
hereunder.
iii. Entire Agreement: No Third-Party Beneficiaries;
Severability. This Agreement, together with the Merger Agreement and the
other documents and instruments referred to herein and therein, between
Grantee and Issuer (1) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and (2) is not intended to
confer upon any person other than the parties hereto or their respective
successors and assigns (other than any transferees of the Option Shares or
any permitted transferee of this Agreement pursuant to Section 15(h)) any
rights, remedies, obligations or liabilities hereunder. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or Governmental Entity to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected impaired or invalidated. If for any reason such
court or Governmental Entity determines that the Option does not permit
Holder to acquire, or does not require Issuer to repurchase, the full number
of shares of Issuer Common Stock as provided in Section 2 (as may be adjusted
herein), it is the express intention of Issuer to allow Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible without any amendment or modification hereof.
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iv. Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware.
v. Descriptive Headings. The descriptive headings
contained herein are for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
vi. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (with confirmation) or mailed by registered or
certified mail (return receipt requested) to the parties at the addresses set
forth in the Merger Agreement (or at such other address for a party as shall
be specified by like notice).
vii. Counterparts. This Agreement and any amendments
hereto may be executed in two counterparts, each of which shall be considered
one and the same agreement and shall become effective when both counterparts
have been signed, it being understood that both parties need not sign the
same counterpart.
viii. Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder or under the Option shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except that
Holder may assign this Agreement to a wholly-owned subsidiary of Holder and
Holder may assign its rights hereunder in whole or in part after the
occurrence of a Purchase Event. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
ix. Further Assurances. In the event of any exercise
of the Option by the Holder, Issuer and the Holder shall execute and deliver
all other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for by
such exercise.
x. Specific Performance. The parties hereto agree
that this Agreement may be enforced by either party through specific
performance, injunctive relief and other equitable relief. Both parties
further agree to waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such equitable relief and that
this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
xi. Rights Plan. Until the Option has been exercised
or terminated in full and Grantee or Holder no longer holds any Option
Shares, Issuer shall not amend, modify or waive any provision of the Company
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Rights Agreement or take any other action which would cause Grantee or Holder
to be an "Acquiring Person", or which would cause a "Stock Acquisition Date"
or "Distribution Date", or any event specified in Section 11 or 13 of the
Company Rights Agreement or any similar event with respect to the Company
Rights to occur, by reason of the existence or exercise (in whole or in part)
of the Option, the beneficial ownership by Grantee or Holder or any of their
respective "Affiliates" or "Associates" of any of the Option Shares, or the
consummation of the other transactions contemplated hereby (all terms in
quotes are used as defined in the Company Rights Agreement). This covenant
shall also apply to any Substitute Option or shares of Substitute Common
Stock issued in respect thereof, and to any securities into which any Option
Shares or Substitute Common Stock are converted or exchanged.
xii. Consent to Jurisdiction and Service of Process.
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 Delaware or any Delaware
state court, and each of the parties hereto consents to the non-exclusive
jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and waives any objection to
venue laid therein. Process in any such suit, action or proceeding may be
served on any party anywhere in the world and, without limiting the
generality of the foregoing, each party hereto agrees that service of process
upon such party at the address referred to in Section 8.4 of the Merger
Agreement, together with written notice of such service to such party shall
be deemed effective service of process upon such party.
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IN WITNESS WHEREOF, Issuer and Grantee have caused this
Stock Option Agreement to be signed by their respective officers thereunto
duly authorized, all as of the day and year first written above.
NAC RE CORP.
By: /s/ Nicholas M. Brown, Jr.
---------------------------------------
Name: Nicholas M. Brown, Jr.
Title: President and Chief Executive
Officer
XL CAPITAL LTD
By: /s/ Brian M. O'Hara
---------------------------------------
Name: Brian M. O'Hara
Title: President and Chief Executive
Officer
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<PAGE>
EXHIBIT 99.3
JOINT PRESS RELEASE
issued by
XL CAPITAL LTD
and
NAC RE CORP.
February 16, 1999
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NAC Re Corporation XL Capital Ltd
One Greenwich Plaza Cumberland House
P.O. Box 2568 One Victoria Street
Greenwich, CT 06836-2568 P. O. Box HM 2245
U.S.A. Hamilton HM JX
Bermuda
Phone: (203) 622- 5200 Phone: (441) 292-8515
Fax: (203) 622-5511 Fax: (441) 292-5280
NEWS RELEASE
IMMEDIATE
Contact: Richard H. Miller Gavin R. Arton
CFO & Treasurer SVP - Investor Relations
NAC Re Corporation XL Capital Ltd
(203) 622-5535 (441) 292-8515
XL CAPITAL LTD AND NAC RE CORPORATION ANNOUNCE
INTENTION TO MERGE
NAC Re Shareholders to receive 0.915 shares of XL Capital in All Stock
Transaction
HAMILTON, BERMUDA and GREENWICH, CT, February 16, 1999 -XL Capital Ltd
(NYSE:XL) ("XL") and NAC Re Corporation (NYSE:NRC) ("NAC Re") announced today
that the two companies have signed a definitive agreement whereby XL and NAC
Re will merge in an all stock transaction. In addition, all outstanding NAC
Re indebtedness will be assumed by XL.
Under the terms of the transaction, shareholders of NAC Re will receive 0.915
XL shares for each NAC Re share in a tax-free exchange of shares that will be
accounted for as a pooling of interests under U.S. generally accepted
accounting principles ("GAAP"). The transaction is subject to the approval
of the NAC Re shareholders, expiration of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act, receipt of insurance,
regulatory approvals and other customary closing conditions. It is expected
that the merger will be completed by late second calendar quarter or early
third quarter of this year. The Boards of Directors of NAC Re and XL have
each voted unanimously to approve the transaction. Based on XL's closing
price of $60.50 on the New York Stock Exchange on Friday, February 12, 1999,
each NAC Re share would be valued at $55.36.
"NAC Re is the premier broker-market reinsurer in the United States and will
be a major cornerstone of XL's business," stated Brian M. O'Hara, President
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and Chief Executive Officer of XL Capital Ltd. "NAC Re will become our
platform for the United States, the largest insurance and reinsurance market
in the world. Its reinsurance portfolio complements our other businesses
very well, particularly XL Mid Ocean Re's existing property and specialty
reinsurance operations. In terms of capital, on a combined basis we will
have the world's largest broker market reinsurance activities. Under the
leadership of Ron Bornhuetter and Nick Brown, NAC Re has become one of the
most respected and successful franchises in the reinsurance business with an
outstanding professional staff. We expect this transaction to be not only
accretive, but the foundation upon which significant future growth in the
U.S. can be built."
Nicholas M. Brown, Jr., President and Chief Executive Officer of NAC Re
Corporation noted "We are very pleased with this new affiliation with XL.
They are a highly successful, well-respected and innovative player in the
global insurance and reinsurance markets. The merger as structured will
maintain the strong NAC Re franchise and enable us to better serve our
clients, providing new and expanded product offerings and increasing our
capacity. This is clearly a combination that will benefit both parties. I
am looking forward to working with Brian O'Hara and his team at XL."
Upon completion of the transaction, Mr. Brown will serve as Chairman,
President and Chief Executive Officer of NAC Re Corporation, which will
retain its name. Ronald L. Bornhuetter, current Chairman of NAC Re, along
with another member of the current NAC Re Board to be designated prior to the
closing, will be invited to join the Board of Directors of XL Capital Ltd.
Mr. Brown will also become President and Chief Executive Officer of XL
America, Inc. and will serve as an Executive Vice President of XL Capital Ltd
with responsibility for North American operations.
On a pro-forma basis at year-end 1998, the combined XL Capital/NAC Re
organization would have had assets of $13.3 billion, $2.3 billion of
revenues, shareholders' equity of $5.6 billion and a market capitalization of
approximately $8 billion.
Donaldson, Lufkin & Jenrette Securities Corporation and Wasserstein Perella &
Co. Inc. acted as financial advisors to XL Capital Ltd and Morgan Stanley,
Dean Witter & Co. Incorporated, CIBC Oppenheimer Corp. and SBC Warburg Dillon
Read acted as financial advisors for NAC Re Corporation.
XL Capital Ltd, through XL Insurance Ltd, XL Mid Ocean Reinsurance Ltd, The
Brockbank Group plc and XL Capital Products Ltd, is a leading provider of
insurance and reinsurance coverages and financial products worldwide. As of
November 30, 1998, XL Capital Ltd had assets of $10.1 billion and
shareholders' equity of $4.8 billion. XL Capital Ltd changed its name from
EXEL Limited on February 1, 1999.
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NAC Re Corporation through its A+ rated subsidiaries writes insurance and
reinsurance throughout the world. As of December 31, 1998, NAC Re Corp. had
assets in excess of $3.2 billion and shareholders' equity in excess of $750
million.
Additional information on both XL Capital and NAC Re is available from their
respective web sites, "www.xl.bm" and "www.nacre.com."
This presentation contains forward looking statements of management beliefs,
estimates, projections, and assumptions for the financial condition, results
of operations, business and prospects of XL for NAC Re and the combined
XL/NAC Re on a pro forma basis, including statements relating to: (a) future
assets, shareholders' equity, market capitalization and market position; (b)
the cost savings, synergies and accretion to reported and cash earnings that
will 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 XL's and NAC Re's reports and filings with the
Securities and Exchange Commission. Factors that may cause actual results to
differ materially from those contemplated by such forward looking statements
include, among others: (1) expected cost savings and synergies from the
merger cannot be fully realized or realized within the expected time frame;
(2) revenues following the merger are lower than expected or customer loss
and business disruption following the merger are greater than anticipated;
(3) competitive pressure among insurers or reinsurers increases
significantly; (4) costs or difficulties related to the integration of the
businesses of XL and NAC Re 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, or losses have a
greater frequency or severity than anticipated by the companies' reserving
methodologies.
# # #
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