<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN RE CORPORATION
(Name of Registrant as Specified in Its Charter)
------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
/ / Item 22(a)(2)
of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $.01 per share ("Common Stock"), of the Registrant
(2) Aggregate number of securities to which transaction applies: 51,875,950
(which includes shares of Common Stock issuable upon exercise of options
issued by the Registrant)
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $65.00 in
cash for each share of Common Stock
(4) Proposed maximum aggregate value of transaction: $3,371,936,750
(5) Total fee paid: $674,387.35
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
AMERICAN RE CORPORATION
American Re Plaza
555 College Road East
[LOGO]
Princeton, New Jersey 08543-5241
(609) 243-4200
October 23, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders of
American Re Corporation (the "Company"), which will be held at 9:00 a.m. on
November 21, 1996 at The St. Regis Hotel, 2 East 55th Street at Fifth Avenue,
New York, NY 10022.
At the Special Meeting, holders of shares of the Company's Common Stock will
be asked to consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger dated as of August 13, 1996, as amended by the amendment
thereto dated as of October 23, 1996 (the "Merger Agreement"), among Munchener
Ruckversicherungs-Gesellschaft Aktiengesellschaft in Munchen ("Munich Re"), Puma
Acquisition Corp., a subsidiary of Munich Re ("Sub"), and the Company. A copy of
the Merger Agreement is included as Annex I to the attached Proxy Statement. On
the terms and subject to the conditions of the Merger Agreement, Sub will be
merged with and into the Company (the "Merger").
Upon consummation of the Merger, each outstanding share of the Company's
Common Stock (other than shares to be cancelled pursuant to the Merger Agreement
and Dissenting Shares (as defined in the Merger Agreement)) will be converted
into the right to receive $65.00 in cash.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of common stock of the Company. American
Re Associates, L.P. and KKR Partners II, L.P. (together the "KKR Stockholders")
beneficially own shares of Common Stock representing approximately 63.9% of the
outstanding shares of Common Stock entitled to vote at the Special Meeting.
Pursuant to a Stockholders Agreement with Munich Re and Sub, the KKR
Stockholders have agreed, among other things, to vote their shares in favor of
the approval and adoption of the Merger Agreement. As a result, the requisite
vote of the holders of shares of Common Stock to approve and adopt the Merger
Agreement is assured. Detailed information concerning the Merger is set forth in
the Proxy Statement, which you are urged to read carefully.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, APPROVED THE AMENDMENT THERETO DATED AS OF
OCTOBER 23, 1996 AND DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. In reaching its determination,
your Board of Directors considered, among other things, the opinion of Goldman,
Sachs & Co. ("Goldman Sachs"), one of the Company's financial advisors, as to
the fairness of the $65.00 in cash to be received by the holders of shares of
Common Stock pursuant to the Merger, and the opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), the Company's other financial
advisor, as to the fairness from a financial point of view of the $65.00 in cash
to be received by the holders of shares of Common Stock pursuant to the Merger.
Their respective opinions are included as Annexes to the attached Proxy
Statement. You are urged to read the opinions in their entirety for further
information with respect to the assumptions made, matters considered and limits
of the reviews undertaken by Goldman Sachs and Merrill Lynch.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of Common Stock you own, please complete,
sign, date and return the enclosed proxy card promptly in the accompanying
prepaid envelope.
Sincerely,
[LOGO]
PAUL H. INDERBITZIN
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
THE TRANSACTION TO BE CONSIDERED AT THE SPECIAL MEETING INVOLVES A MATTER OF
GREAT IMPORTANCE TO THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY, STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THE
ATTACHED PROXY STATEMENT, AND TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IN THE ACCOMPANYING PREPAID ENVELOPE PROMPTLY.
<PAGE>
AMERICAN RE CORPORATION
American Re Plaza
555 College Road East
[LOGO]
Princeton, NJ 08543-5241
(609) 243-4200
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 21, 1996
---------------------
To Our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of American Re Corporation, a Delaware corporation (the "Company"),
will be held at 9:00 a.m. on November 21, 1996 at The St. Regis Hotel, 2 East
55th Street at Fifth Avenue, New York, NY 10022.
The Special Meeting is called for the purpose of considering and voting
upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger dated
as of August 13, 1996, as amended by the amendment thereto dated as of
October 23, 1996 (the "Merger Agreement"), among Munchener
Ruckversicherungs-Gesellschaft Aktiengesellschaft in Munchen, Puma
Acquisition Corp. and the Company. A copy of the Merger Agreement is
included as Annex I to the attached Proxy Statement and is incorporated
herein by reference.
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The proposed merger and other related matters are more fully described in
the attached Proxy Statement and the Annexes thereto.
The close of business on October 21, 1996 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting and any adjournments or postponements thereof. Only holders of
record of the Company's Common Stock on the record date are entitled to vote at
the Special Meeting.
In connection with the proposed merger, appraisal rights will be available
to those stockholders of the Company who meet and comply with the requirements
of Section 262 of the Delaware General Corporation Law (the "DGCL"), a copy of
which is included as Annex IV to the attached Proxy Statement. Reference is made
to the section entitled "The Merger--Dissenters' Rights" in the attached Proxy
Statement for a discussion of the procedures to be followed in asserting
appraisal rights under Section 262 of the DGCL in connection with the proposed
merger.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of Common Stock you own, please complete,
sign, date and return the enclosed proxy card promptly in the accompanying
prepaid envelope. You may revoke your proxy at any time before the authority
granted by it is exercised. If you attend the Special Meeting, you may vote in
person even if you have previously returned an executed proxy.
By Order of the Board of Directors
[LOGO]
ROBERT K. BURGESS
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
<PAGE>
--IMPORTANT--
If your shares are held in "street name," only your bank or broker can vote
your shares. Please contact the person responsible for your account and instruct
him or her to complete, sign, date and return the enclosed proxy card as soon as
possible.
If you have any questions or need further assistance in voting your shares,
please call American Re Corporation's transfer agent, Boston Equiserve, at (617)
575-3400 or its Investor Relations Department at (609) 243-4684.
BOSTON EQUISERVE
(617) 575-3400
<PAGE>
AMERICAN RE CORPORATION
American Re Plaza
555 College Road East
[LOGO]
Princeton, NJ 08543-5241
(609) 243-4200
------------------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 21, 1996
This proxy statement (this "Proxy Statement") is being furnished to the
stockholders of American Re Corporation, a Delaware corporation (the "Company"
or "American Re"), in connection with the solicitation of proxies by the Board
of Directors of the Company (the "Board of Directors" or the "Board") for use at
a Special Meeting of Stockholders to be held at 9:00 a.m. on November 21, 1996
at The St. Regis Hotel, 2 East 55th Street at Fifth Avenue, New York, NY 10022,
and at any adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, the holders of common stock, par value $.01 per
share ("Common Stock"), of the Company will consider and vote upon the approval
and adoption of the Agreement and Plan of Merger dated as of August 13, 1996, as
amended by the amendment thereto dated as of October 23, 1996 (the "Merger
Agreement"), among Munchener Ruckversicherungs-Gesellschaft Aktiengesellschaft
in Munchen ("Munich Re"), Puma Acquisition Corp., a subsidiary of Munich Re
("Sub"), and the Company. On the terms and subject to the conditions of the
Merger Agreement, Sub will be merged with and into the Company (the "Merger"),
and the Company will be the surviving corporation (the "Surviving Corporation").
Upon the consummation of the Merger, each outstanding share of Common Stock
(other than shares to be cancelled pursuant to the Merger Agreement and
Dissenting Shares (as defined in the Merger Agreement)) will be converted into
the right to receive $65.00 in cash. As a result of the Merger, all holders of
Common Stock will cease to have an equity interest in, or possess any rights as
stockholders of, the Surviving Corporation. See "The Merger-- General."
A copy of the Merger Agreement is attached hereto as Annex I and is
incorporated herein by reference. The summaries of the portions of the Merger
Agreement set forth in this Proxy Statement do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the text of
the Merger Agreement.
THE BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, APPROVED THE AMENDMENT THERETO DATED AS OF
OCTOBER 23, 1996 AND DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. In reaching its determination,
the Board of Directors considered, among other things, the opinion of Goldman,
Sachs & Co. ("Goldman Sachs"), one of the Company's financial advisors, as to
the fairness of the $65.00 in cash to be received by the holders of shares of
Common Stock pursuant to the Merger, and the opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), the Company's other financial
advisor, as to the fairness from a financial point of view of the $65.00 in cash
to be received by the holders of shares of Common Stock pursuant to the Merger.
The opinions of Goldman Sachs and Merrill Lynch are included as Annex II and
Annex III, respectively, hereto and are incorporated herein by reference.
Stockholders are urged to read the opinions in their entirety for further
information with respect to the assumptions made, matters considered and limits
of the reviews undertaken by Goldman Sachs and Merrill Lynch. See "The
Merger--Opinions of Financial Advisors."
In connection with the Merger, appraisal rights will be available to those
stockholders of the Company who meet and comply with the requirements of Section
262 of the Delaware General Corporation Law (the "DGCL"). A copy of Section 262
of the DGCL is attached as Annex IV hereto. For a discussion of the procedures
to be followed in asserting appraisal rights under Section 262 of the DGCL in
connection with the Merger, see "Dissenters' Rights."
------------------------
This Proxy Statement is first being mailed to the Company's
stockholders on or about October 23, 1996.
------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUMMARY.................................................................................................... 1
VOTING AND PROXIES......................................................................................... 8
Record Date; Solicitation of Proxies..................................................................... 8
Vote Required............................................................................................ 8
THE MERGER................................................................................................. 10
General.................................................................................................. 10
Background of the Merger................................................................................. 10
Reasons for the Merger; Recommendation of the Board of Directors......................................... 12
Opinions of Financial Advisors........................................................................... 13
Government and Regulatory Approvals and Filings.......................................................... 19
Anticipated Accounting Treatment......................................................................... 20
Certain Other Effects of the Merger...................................................................... 20
Plans of the Company in the Event the Merger is Not Consummated.......................................... 20
THE MERGER AGREEMENT....................................................................................... 21
Effective Time of the Merger............................................................................. 21
Payment for Shares of Common Stock....................................................................... 21
Representations and Warranties........................................................................... 22
Certain Covenants........................................................................................ 23
Conditions to Consummation of the Merger................................................................. 26
Benefit Plans............................................................................................ 26
Termination; Fees and Expenses........................................................................... 27
THE STOCKHOLDERS AGREEMENT................................................................................. 28
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................................................. 30
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER................................................. 31
Receipt of Merger Consideration.......................................................................... 31
Backup Withholding....................................................................................... 32
DISSENTERS' RIGHTS......................................................................................... 32
SELECTED FINANCIAL INFORMATION CONCERNING THE COMPANY...................................................... 35
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS................................................ 37
MARKET PRICES.............................................................................................. 39
CERTAIN PENDING LITIGATION................................................................................. 39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 39
INDEPENDENT ACCOUNTANTS.................................................................................... 40
STOCKHOLDER PROPOSALS...................................................................................... 40
OTHER MATTERS.............................................................................................. 40
</TABLE>
<TABLE>
<S> <C> <C>
ANNEX I Composite Conformed Copy of the Agreement and Plan of Merger dated as of
August 13, 1996, as amended by the amendment thereto dated as of October
23, 1996, among Munchener Ruckversicherungs-Gesellschaft
Aktiengesellschaft in Munchen, Puma Acquisition Corp. and American Re
Corporation.............................................................. I-1
ANNEX II Fairness Opinion of Goldman, Sachs & Co.................................. II-1
ANNEX III Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated... III-1
ANNEX IV Section 262 of the Delaware General Corporation Law...................... IV-1
</TABLE>
(i)
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT, IN THE ATTACHED ANNEXES AND IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY STATEMENT,
INCLUDING THE ANNEXES HERETO, IN ITS ENTIRETY.
THE PARTIES
AMERICAN RE CORPORATION. The Company was initially organized at the
direction of Kohlberg Kravis Roberts & Co., L.P. ("KKR") and certain members of
management of American Re-Insurance Company, a Delaware domiciled reinsurer
("American Re-Insurance"), to act as a holding company for American Re-
Insurance. American Re-Insurance underwrites property and casualty reinsurance
directly in both the domestic and international markets. The Company's executive
offices are located at American Re Plaza, 555 College Road East, Princeton, NJ
08543-5241, and its telephone number is (609) 243-4200.
MUNICH RE. Munich Re is the world's largest reinsurance company and has
been in business since 1880. Its principal executive offices are located at 107
Koniginstrasse, D-80791 Munich, Germany, and its telephone number is
011-49-89-38910.
PUMA ACQUISITION CORP. Sub is a special purpose Delaware corporation
created solely for the purpose of consummating the Merger and a wholly owned
subsidiary of Munich Re. The principal executive offices of Sub are located at
107 Koniginstrasse, D-80791 Munich, Germany, and its telephone number is
011-49-89-38910.
THE SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING; DATE, TIME AND PLACE
The Special Meeting of Stockholders of the Company will be held at 9:00 a.m.
on November 21, 1996 at The St. Regis Hotel, 2 East 55th Street at Fifth Avenue,
New York, NY 10022. At the Special Meeting, the holders of shares of Common
Stock will consider and vote upon the approval and adoption of the Merger
Agreement.
In the Merger, each share of Common Stock issued and outstanding at the
Effective Time (as defined herein), other than shares owned by the Company,
Munich Re, Sub or any of their respective subsidiaries, and shares held by
stockholders who perfect (and who do not effectively withdraw or lose) their
statutory dissenters' rights (see "Dissenters' Rights"), will be cancelled,
extinguished and converted automatically into the right to receive $65.00 in
cash, without interest (the "Merger Consideration").
VOTE REQUIRED; VOTING PROCEDURES; RECORD DATE
The close of business on October 21, 1996 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. Only holders of record of Common Stock at
the close of business on the Record Date will be entitled to vote at the Special
Meeting.
A majority of the outstanding shares of Common Stock entitled to vote,
represented in person or by proxy, is required for a quorum at the Special
Meeting. Approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock as
of the Record Date. At the Record Date, 47,293,014 shares of Common Stock were
issued and outstanding, each of which will be entitled to one vote on each
matter to be acted upon at the Special Meeting. See "Voting and Proxies--Record
Date; Solicitation of Proxies." American Re Associates, L.P. and KKR Partners
II, L.P. (together, the "KKR Stockholders") beneficially own 30,236,000 shares
of Common Stock,
1
<PAGE>
representing approximately 63.9% of the outstanding shares of Common Stock
entitled to vote at the Special Meeting. Pursuant to a Stockholders Agreement
dated as of August 13, 1996 (the "Stockholders Agreement"), among the KKR
Stockholders, Munich Re and Sub, the KKR Stockholders have agreed, among other
things, to vote their shares of Common Stock in favor of the approval and
adoption of the Merger Agreement. As a result, the requisite vote of the holders
of shares of Common Stock to approve and adopt the Merger Agreement is assured.
See "The Stockholders Agreement" and "Stock Ownership of Management and Certain
Beneficial Owners."
Shares of Common Stock which are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval and adoption
of the Merger Agreement, and in the discretion of the persons named in the proxy
as proxy appointees, as to any other matter which may properly come before the
Special Meeting. Under the rules of the New York Stock Exchange, Inc. (the
"NYSE"), while brokers who hold shares of Common Stock in street name have the
authority to vote on certain items when they have not received instructions from
beneficial owners, brokers will not be entitled to vote on the Merger Agreement
absent instructions. Brokers who do not receive instructions but who are
present, in person or by proxy, at the Special Meeting will be counted as
present for quorum purposes. Under applicable Delaware law, a failure by a
broker to vote will have the effect of a negative vote on the approval and
adoption of the Merger Agreement.
It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Special Meeting. If, however, other
matters are properly presented, the persons named as proxy appointees will vote
in accordance with their best judgment on such matters. The grant of a proxy
will also confer discretionary authority on the persons named in the proxy to
vote in accordance with their best judgment on matters incident to the conduct
of the Special Meeting.
Any stockholder may revoke a proxy at any time before it is voted by filing
with the Secretary of the Company an instrument revoking the proxy or by
returning a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. Any such filing should be made to the
attention of Robert K. Burgess, Senior Vice President, General Counsel and
Secretary, American Re Corporation, American Re Plaza, 555 College Road East,
Princeton, NJ 08543-5241. Attendance at the Special Meeting will not by itself
constitute revocation of a proxy.
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees (who
will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company will reimburse banks, brokerage houses, custodians and
other fiduciaries who hold shares of Common Stock in their name or custody, or
in the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the proxy materials to those persons for whom they hold
such shares. The Company will bear the costs of the Special Meeting and of
soliciting proxies therefor. In accordance with the Merger Agreement, the
Company and Munich Re will share equally the filing fees connected with and the
cost of printing this Proxy Statement.
THE MERGER
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The Board of Directors of the Company, at a special meeting held on August
13, 1996, unanimously approved the merger agreement (as in effect prior to the
amendment thereto dated as of October 23, 1996). At its meeting on October 23,
1996, the Board approved the amendment to such merger agreement and directed
that the Merger Agreement be submitted to the holders of Common Stock for
approval and adoption. The Board of Directors has determined that the Merger is
fair to and in the best interests of the Company and its stockholders, and
recommends that the stockholders vote FOR approval and adoption of the Merger
Agreement. In reaching its decision to approve the Merger Agreement, the
Company's Board
2
<PAGE>
of Directors considered a number of factors. For a discussion of the factors
considered by the Board in reaching its determination, see "The Merger--Reasons
for the Merger; Recommendation of the Board of Directors."
OPINIONS OF FINANCIAL ADVISORS
Goldman Sachs has delivered its written opinion to the Board of Directors of
the Company that, as of the date hereof, the $65.00 per share in cash to be
received by the holders of shares of Common Stock in the Merger is fair to such
holders. Merrill Lynch has delivered its written opinion to the Board of
Directors of the Company that, as of the date hereof, the $65.00 per share in
cash to be received by the holders of shares of Common Stock in the Merger is
fair to such holders from a financial point of view. The full text of the
written opinions of Goldman Sachs and Merrill Lynch, which set forth information
with respect to assumptions made, matters considered and limitations of the
reviews undertaken by Goldman Sachs and Merrill Lynch in connection with their
opinions, are attached hereto as Annex II and Annex III, respectively.
Stockholders are urged to, and should, read such opinions in their entirety. See
"The Merger--Opinions of Financial Advisors."
GOVERNMENT AND REGULATORY APPROVALS AND FILINGS
The consummation of the Merger will be subject to, among other things, the
prior approval of the Department of Insurance of the State of New York and the
Insurance Department of the State of Delaware, notice to the German Cartel
Office and expiration of the relevant waiting period, and the expiration or
early termination of the relevant waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Applications for
approval were submitted by Munich Re to both the Department of Insurance of the
State of New York and the Insurance Department of the State of Delaware on
September 23, 1996. On September 3, 1996 filings were made by Munich Re and the
Company (or their respective affiliates required to make such filings) with the
Federal Trade Commission (the "FTC") and with the Antitrust Division of the
Department of Justice with respect to the Merger pursuant to the HSR Act. On
September 13, 1996, the FTC granted early termination of the 30 day waiting
period. On August 14, 1996 Munich Re made a filing notifying the German Cartel
Office of the Merger. The German Cartel Office responded in a letter dated
September 9, 1996 indicating that the Merger could be completed. See "The
Merger--Government and Regulatory Approvals and Filings."
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a "purchase" for accounting purposes.
THE MERGER AGREEMENT
EFFECTIVE TIME OF THE MERGER; PAYMENT FOR COMMON STOCK
As soon as practicable after the satisfaction or waiver of the conditions
set forth in Article VI of the Merger Agreement, the Company will file with the
Secretary of State of the State of Delaware (the "Delaware Secretary of State")
the Merger Agreement or a certificate of merger (the "Certificate of Merger"),
executed in accordance with the relevant provisions of the DGCL. The date and
time of the filing of the Certificate of Merger with the Delaware Secretary of
State (or such later time as is agreed to in writing by the parties to the
Merger Agreement and is specified in the Certificate of Merger) will be the
"Effective Time." See "The Merger Agreement--Conditions to Consummation of the
Merger."
Detailed instructions with regard to the surrender of certificates formerly
evidencing shares of Common Stock, to be accompanied by a letter of transmittal,
will be forwarded to holders of such certificates as promptly as practicable
following the Effective Time by a paying agent to be designated by Sub (and
reasonably satisfactory to the Company) in accordance with the Merger Agreement
(the "Paying Agent"). Payment will be made to such former holders of shares of
Common Stock as promptly as
3
<PAGE>
practicable following receipt by the Paying Agent of certificates formerly
evidencing their shares of Common Stock and other required documents. No
interest will be paid or accrued on the cash payable upon the surrender of
certificates. See "The Merger--Payment for Shares of Common Stock."
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK FOR CASH.
CONDITIONS TO THE MERGER
The obligations of Munich Re, Sub and the Company to consummate the Merger
are subject to the satisfaction or waiver of certain conditions, including
obtaining requisite stockholder and regulatory approvals (including insurance
regulatory approvals from the Delaware Insurance Department and from the New
York Department of Insurance) and the absence of a material adverse change
affecting the Company. See "The Merger--Conditions to Consummation of the
Merger."
NO SOLICITATION; FIDUCIARY DUTIES
Under the Merger Agreement, the Company may not, nor may it authorize or
permit any of its affiliates, subsidiaries or advisors to, solicit other
Acquisition Proposals (as defined below). In addition, under the Merger
Agreement, the Company has agreed that the Board of Directors of the Company
will not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Munich Re or Sub, the approval or recommendation by the Board of the
Merger Agreement or the Merger, (ii) approve or recommend, or propose to approve
or recommend, any Acquisition Proposal which was not solicited after the date of
the Merger Agreement or (iii) enter into any agreement with respect to any
Acquisition Proposal which was not solicited after the date of the Merger
Agreement, unless the Company receives an Acquisition Proposal which was not
solicited after the date of the Merger Agreement and the Board determines in
good faith that in order to comply with its fiduciary duties to stockholders
under applicable law it is necessary for the Board to withdraw or modify its
approval or recommendation of the Merger Agreement or the Merger, approve or
recommend such Acquisition Proposal or enter into an agreement with respect to
such Acquisition Proposal.
As used in the Merger Agreement and this Proxy Statement, "Acquisition
Proposal" means any proposal with respect to a merger, consolidation, share
exchange or similar transaction involving the Company or any significant portion
of the assets of the Company and its subsidiaries, other than the transactions
contemplated by the Merger Agreement. See "The Merger Agreement--Certain
Covenants."
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time: (1) by mutual written consent of Munich Re and the Company; (2) by either
party if the Merger is not approved by the stockholders of the Company at the
Special Meeting; (3) by either party if the Merger has not occurred on or before
February 28, 1997 (as long as the party seeking to terminate has not failed to
fulfill any obligation under the Merger Agreement required to be fulfilled by
it, which failure caused the Merger not to occur); (4) by either party if a
governmental authority issues a final non-appealable order, decree or ruling or
takes other action restraining, enjoining or otherwise prohibiting the Merger;
(5) by either party if the Company exercises its rights described herein under
"The Merger--Fiduciary Duties"; (6) by Munich Re upon a material breach of a
representation, warranty, covenant or agreement contained in the Merger
Agreement by the Company such that one of the conditions to the obligations of
Munich Re to consummate the Merger set forth below under "The Merger--Conditions
to the Consummation of the Merger" would not be satisfied; or (7) by the Company
upon a material breach of a representation, warranty, covenant or agreement
contained in the Merger Agreement such that one of the conditions to the
obligations of the
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Company to consummate the Merger set forth below under "The Merger--Conditions
to the Consummation of the Merger" would not be satisfied.
If the Merger Agreement is terminated after a bona fide Acquisition Proposal
is commenced, publicly proposed, publicly disclosed or communicated to the
Company at any time after the date of the Merger Agreement and the Board of
Directors, in accordance with its rights described in "The Merger--Fiduciary
Duties," withdraws or modifies its approval or recommendation of the Merger
Agreement or the Merger, approves or recommends such Acquisition Proposal or
enters into an agreement with respect to such Acquisition Proposal, then the
Company will be required to pay Munich Re a fee of $26 million. See "The Merger
Agreement--Termination; Fees and Expenses" and "--Conditions to Consummation of
the Merger."
THE STOCKHOLDERS AGREEMENT
At the same time that the Merger Agreement was executed, the KKR
Stockholders entered into the Stockholders Agreement with Munich Re and Sub. The
Stockholders Agreement provides that the KKR Stockholders will vote their shares
of Common Stock in favor of the adoption and approval of the Merger and the
Merger Agreement and that they will vote their shares against certain other
transactions that would interfere with the Merger. In addition, pursuant to the
Stockholders Agreement, the KKR Stockholders have granted to Sub the option to
purchase the shares of Common Stock held by the KKR Stockholders at a price per
share equal to the Merger Consideration in the event that the Merger Agreement
is terminated in certain circumstances (the "Option"). If the Option is
exercised, the Stockholders Agreement requires Munich Re to propose to the
Company a merger, on terms and subject to conditions substantially the same as
those provided for in the Merger Agreement, between Munich Re or one of its
wholly owned subsidiaries and the Company pursuant to which the stockholders of
the Company (other than the Company, any direct or indirect subsidiary of the
Company or Munich Re) will receive an amount of cash consideration per share of
Common Stock equal to the Merger Consideration, and to take such actions as may
be necessary or appropriate in order to effectuate such merger at the earliest
practicable time. See "The Stockholders Agreement."
In connection with the execution and delivery by the KKR Stockholders of the
Stockholders Agreement, the Company confirmed to the KKR Stockholders that the
Company's indemnification obligations to the KKR Stockholders and certain of
their affiliates under an agreement with the KKR Stockholders, which was entered
into at the time of the acquisition of the Company by the KKR Stockholders,
would be applicable to liabilities, obligations, losses and certain other costs
and expenses arising out of their purchase or ownership of shares of Common
Stock or litigation to which they are made parties in their capacity as
stockholders or owners of securities of the Company, including certain claims
that might arise with respect to their entering into or performing their
obligations under the Stockholders Agreement. Munich Re acknowledged such
obligations of the Company and agreed not to take any action which would affect
the Company's ability to perform such obligations. See "The Stockholders
Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In addition to (i) shares of Common Stock held by directors and executive
officers of the Company, for which they will receive the same consideration as
other stockholders of the Company, and (ii) options to acquire shares of Common
Stock granted pursuant to certain Company incentive compensation plans, which
will be treated as described below under "The Merger--Benefit Plans," Munich Re
has offered to certain executive officers of the Company the opportunity to
agree to the cancellation of a portion of their stock options in consideration
for the right to receive, in lieu of the payments to which they would otherwise
be entitled at the Effective Time with respect to such stock options, certain
amounts of compensation at a future date or dates. Twenty-eight executives, and
one former executive (who is a director of the Company), have elected to accept
such offer.
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In addition, pursuant to the Merger Agreement, Munich Re has agreed to
indemnify present and former directors or officers of the Company or any of its
subsidiaries and other persons entitled to indemnification to the same extent
and in the same manner as is now provided in the respective charters or bylaws
of the Company and such subsidiaries or otherwise in effect on the date of the
Merger Agreement with respect to any claim, liability, loss, damage, cost or
expense arising out of any matter existing or occurring at or prior to the
Effective Time and that, subject to certain limitations, the Company's current
directors' and officers' insurance policy will be continued for a period of not
less than six years after the consummation of the Merger. See "Interests of
Certain Persons in the Merger."
In addition, the Company has agreed to pay a fee to KKR in an amount equal
to 0.40% of the aggregate consideration in the Merger upon Munich Re's
acquisition of a controlling interest in the Company as consideration for
certain advisory services KKR has rendered to the Company since 1992 for which
KKR was not previously compensated, including services in connection with the
Merger. Certain members of the Company's Board of Directors are affiliates of
KKR. The directors of the Company who are not affiliated with KKR or members of
the Company's management unanimously approved the fee to KKR. See "Interests of
Certain Persons in the Merger" and "Stock Ownership of Management and Certain
Beneficial Owners."
For the two-year period following the Effective Time, Munich Re has agreed
in the Merger Agreement, subject to certain exceptions, to continue to maintain
certain benefit plans of the Company or substitute plans that are no less
favorable in the aggregate to the employees of the Company than such existing
benefit plans as described under "The Merger Agreement--Benefit Plans."
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for shares of Common Stock in the Merger or pursuant to
the exercise of dissenters' appraisal rights will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. Stockholders are urged to
consult their own tax advisors as to the particular tax consequences of the
Merger, including the applicability and effect of state, local, foreign and
other taxes. See "Certain U.S. Federal Income Tax Consequences of the Merger."
DISSENTERS' RIGHTS
Subject to compliance with the procedures set forth in Section 262 of the
DGCL, the full text of which is included as Annex IV to this Proxy Statement,
holders of shares of Common Stock are entitled to appraisal rights in connection
with the Merger. Any demand for appraisal must be made prior to the stockholder
vote on the Merger Agreement at the Special Meeting. Holders of shares of Common
Stock who, prior to the stockholder vote on the Merger Agreement at the Special
Meeting, properly demand and perfect their right to appraisal of their shares
(and do not withdraw such demand or lose such right) and who do not vote in
favor of the approval and adoption of the Merger Agreement, will have the right
to obtain a cash payment for the "fair value" of their shares (excluding any
element of value arising from the accomplishment or expectation of the Merger),
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. Such "fair value" would be determined in
judicial proceedings, the result of which cannot be predicted. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods which
are generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings. In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a stockholder's exclusive
remedy. The Court will also determine the amount of interest, if any, to be paid
upon the amounts to be received by persons whose shares of Common Stock have
been appraised. The costs of the action may be determined by the Court and taxed
upon the parties as the Court deems equitable. The Court may also order that all
or a portion of the expenses incurred by any holder of shares of Common Stock in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees
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and the fees and expenses of experts utilized in the appraisal proceeding, be
charged PRO RATA against the value of all of the shares of Common Stock entitled
to appraisal. Failure to take any of the steps required under Section 262 of the
DGCL on a timely basis may result in the loss of appraisal rights. Holders
considering seeking appraisal should be aware that the fair value of their
shares of Common Stock as determined under Section 262 could be more than, the
same as or less than the value of the Merger Consideration that they would
otherwise receive in the Merger if they did not seek appraisal of their shares
of Common Stock. See "Dissenters' Rights."
CERTAIN FINANCIAL INFORMATION
See "Selected Financial Information Concerning the Company" and
"Incorporation by Reference" for certain financial information with respect to
the Company and its subsidiaries.
MARKET PRICES
Shares of Common Stock are listed and traded on the NYSE. On July 1, 1996,
the day on which the proposed acquisition of National Re Corporation by General
Re Corporation was announced, high and low sales prices of a share of Common
Stock on the NYSE Composite Transactions Tape were $46.375 and $45.375,
respectively. See "The Merger--Background of the Merger." On August 2, 1996, the
last day of trading preceding the Company's press release announcing that it was
considering strategic alternatives, high and low sales prices of a share of
Common Stock on the NYSE Composite Transactions Tape were $58.25 and $57.00,
respectively. On August 13, 1996, the date preceding public announcement of the
signing of the merger agreement, high and low sales prices of a share of Common
Stock on the NYSE Composite Transactions Tape were $59.00 and $56.50,
respectively. On October 21, 1996, the latest practicable trading day before the
printing of this Proxy Statement, the high and low sales prices of a share of
Common Stock on the NYSE Composite Transactions Tape were $64.25 and $64.00,
respectively.
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VOTING AND PROXIES
RECORD DATE; SOLICITATION OF PROXIES
The close of business on October 21, 1996 has been fixed as the Record Date
for the determination of stockholders entitled to notice of and to vote at the
Special Meeting. At the Record Date, there were 47,293,014 shares of Common
Stock issued and outstanding and entitled to vote at the Special Meeting.
Holders of shares of Common Stock are entitled to one vote at the Special
Meeting for each share of Common Stock held of record by them at the Record
Date.
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees (who
will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company will reimburse banks, brokerage houses, custodians and
other fiduciaries who hold shares of Common Stock in their name or custody, or
in the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the proxy materials to those persons for whom they hold
such shares. The Company will bear the costs of the Special Meeting and of
soliciting proxies therefor. In accordance with the Merger Agreement, the
Company and Munich Re will share equally the filing fees connected with and the
cost of printing this Proxy Statement. The Company's transfer agent, Boston
Equiserve, has agreed to assist the Company in connection with the tabulation of
proxies. Pursuant to the Company's agreement with Boston Equiserve, Boston
Equiserve will provide various proxy services for the Company in connection with
the Special Meeting at a cost of approximately $6,000, plus reasonable
out-of-pocket expenses. Any questions or requests for assistance regarding this
Proxy Statement and related proxy materials may be directed in writing to Boston
Equiserve at P.O. Box 644, Boston, MA 02102-0644, or by telephone at (617)
575-3400.
VOTE REQUIRED
A majority of the outstanding shares of Common Stock entitled to vote as of
the Record Date, represented in person or by proxy, is required for a quorum at
the Special Meeting. The affirmative vote of a majority of the shares of
outstanding Common Stock as of the Record Date is required for approval and
adoption of the Merger Agreement. Abstentions may be specified with respect to
the approval and adoption of the Merger Agreement and will be counted as present
for the purpose of determining the existence of a quorum but will have the
effect of a negative vote due to the requirement of affirmative votes described
in the preceding sentence.
Shares of Common Stock which are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval and adoption
of the Merger Agreement, and in the discretion of the persons named in the proxy
as proxy appointees, as to any other matter which may properly come before the
Special Meeting.
Under the rules of the NYSE, while brokers who hold shares in street name
have the authority to vote on certain items when they have not received
instructions from beneficial owners, brokers will not be entitled to vote on the
Merger Agreement absent instructions. Brokers who do not receive instructions
but who are present, in person or by proxy, at the Special Meeting will be
counted as present for quorum purposes. Under applicable Delaware law, a failure
by a broker to vote will have the effect of a negative vote on the approval of
the Merger Agreement.
Under the Company's By-laws, the business which may be transacted at the
Special Meeting is limited to the purpose stated in the Notice of Meeting.
Accordingly, it is not expected that any matters other than those referred to in
this Proxy Statement will be brought before the Special Meeting. If, however,
other matters are properly presented, the persons named in the proxy as proxy
appointees will vote in accordance with their best judgment on such matters. The
grant of a proxy will also confer discretionary
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authority on the persons named as proxy appointees to vote in accordance with
their best judgment on matters incident to the conduct of the Special Meeting.
Any holder of shares of Common Stock may revoke a proxy at any time before
it is voted by filing with the Secretary of the Company an instrument revoking
the proxy or by returning a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. Any such filing should be
made to the attention of Robert K. Burgess, Senior Vice President, General
Counsel and Secretary, American Re Corporation, American Re Plaza, 555 College
Road East, Princeton, NJ 08543-5241. Attendance at the Special Meeting will not
by itself constitute revocation of a proxy.
Holders of shares of Common Stock have the right to demand appraisal rights
in connection with the Merger and, subject to certain conditions provided under
the DGCL, to receive payment for the fair value of their shares. See
"Dissenters' Rights."
The KKR Stockholders beneficially own 30,236,000 shares of Common Stock,
representing approximately 63.9% of the outstanding shares of Common Stock
entitled to vote at the Special Meeting. Pursuant to the Stockholders Agreement,
the KKR Stockholders have agreed, among other things, to vote their shares of
Common Stock in favor of the approval and adoption of the Merger Agreement. As a
result, the requisite vote of the holders of shares of Common Stock to approve
and adopt the Merger Agreement is assured. See "The Stockholders Agreement" and
"Stock Ownership of Management and Certain Beneficial Owners."
The Merger Agreement to be considered at the Special Meeting involves a
matter of great importance to the stockholders of the Company. Accordingly,
holders of shares of Common Stock are urged to read and carefully consider the
information presented in this Proxy Statement and are urged to complete, date,
sign and promptly return the enclosed proxy card in the accompanying prepaid
envelope.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK FOR CASH.
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THE MERGER
GENERAL
The following information with respect to the Merger is qualified in its
entirety by reference to the complete text of the Merger Agreement, a copy of
which is included in this Proxy Statement as Annex I. The Merger Agreement sets
forth the terms and conditions upon which the Merger is to be effected. If the
Merger Agreement is approved and adopted by the holders of a majority of the
outstanding shares of Common Stock at the Special Meeting, and all other
conditions to the obligations of the parties thereto are satisfied or waived,
the Merger will be consummated and Sub will merge with and into the Company at
the Effective Time. The Company will be the Surviving Corporation in the Merger.
Pursuant to the Merger, each share of Common Stock issued and outstanding at
the Effective Time, other than shares held in the treasury of the Company or
owned by Munich Re, Sub or any of their respective subsidiaries (which shares
will be cancelled and retired without any payment therefor) and shares held by
stockholders who perfect (and who do not effectively withdraw or lose) their
statutory dissenters' rights, will be cancelled, extinguished and converted
automatically into the right to receive the Merger Consideration. As a result of
the Merger, holders of shares of Common Stock will cease to have an equity
interest in, or possess any rights as stockholders of, the Surviving
Corporation.
Pursuant to the Merger Agreement, immediately prior to the Effective Time,
each outstanding Company Stock Option (as defined below), whether or not then
vested or exercisable shall be or become vested and exercisable and shall be
cancelled immediately prior to the Effective Time in exchange for the right to
receive, at the Effective Time or as soon as practicable thereafter, an amount
in cash equal to the product of (i) the number of shares of Common Stock
previously subject to such Company Stock Option and (ii) the excess, if any, of
the Merger Consideration per share of Common Stock over the per share exercise
price of such Company Stock Option. As used in the Merger Agreement, a "Company
Stock Option" refers to each employee stock option and any related stock
appreciation right and each director stock option and any related stock
appreciation right outstanding immediately prior to the Effective Time. At the
Record Date, 4,567,815 Company Stock Options having a per share exercise price
under $65.00 were outstanding. Pursuant to the Merger Agreement, before taking
into account any deferral elections described under "The Merger
Agreement--Benefit Plans," the holders of Company Stock Options will be entitled
to receive an aggregate of approximately $203,902,398 upon termination of the
Company Stock Options. Munich Re has offered to certain executive officers of
the Company the opportunity to agree to the cancellation of a portion of their
Company Stock Options in consideration for the right to receive, in lieu of the
payments to which they would otherwise be entitled at the Effective Time with
respect to such Company Stock Options, certain amounts of compensation at a
future date or dates. Twenty-eight executives, and one former executive (who is
a director of the Company), have elected to accept such offer. See "The Merger
Agreement--Benefit Plans."
BACKGROUND OF THE MERGER
The process that led the Board of Directors of the Company to recommend the
Merger started on July 1, 1996 with the announcement of the proposed acquisition
of National Re Corporation ("National Re") by General Re Corporation ("General
Re") at what the Company considered to be a high pricing level for the
reinsurance industry. After the announcement of the General Re/National Re
transaction, the chief executive officer of one of the Company's principal U.S.
based competitors ("Company B") contacted the Chairman of the Board of the
Company to explore the possibility of a strategic combination. Shortly
thereafter, investment bankers from Goldman Sachs, which had represented
National Re in its acquisition by General Re, commenced conversations with
members of management and various members of the Board of Directors of the
Company concerning their views with respect to a possible sale of the Company.
At the close of trading on the NYSE on July 1, 1996, the price of the Common
Stock as reported in published sources was $46 1/8 per share.
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In the middle of July, Goldman Sachs, with the approval of the Company,
contacted five companies (including Munich Re and Company B) that Goldman Sachs
considered to be the candidates most likely to be interested in and able to
consummate a financially attractive strategic combination with the Company. One
of these five companies indicated that it was not interested in such a
transaction, and another company indirectly expressed some interest in such a
transaction, but declined the opportunity to enter into a confidentiality
agreement with the Company. Munich Re and Company B signed separate
confidentiality agreements with respect to a potential transaction involving the
Company and, thereafter, on separate occasions, senior members of the Company's
management team met with representatives of Munich Re and Company B,
respectively, to provide them with a better understanding of the Company and its
operations and to discuss their possible interest in acquiring the Company.
Another of the candidates contacted by Goldman Sachs in the middle of July
("Company C") also signed a confidentiality agreement with respect to a
potential transaction involving the Company, and Munich Re, Company B and
Company C were provided access to certain confidential business information
concerning the Company, including premiums by division, projected results and
pro forma expense analyses.
On several occasions in late July and early August, executives and other
representatives of Munich Re indicated to the Company and Goldman Sachs that,
although Munich Re might be interested in acquiring the Company at a range of
prices which might be attractive to the Company, Munich Re would require an
exclusivity arrangement to complete its due diligence review of the Company and
to negotiate a transaction with the Company. At the time of Munich Re's request
for an exclusivity arrangement in early August, Munich Re's indicated
prospective price to acquire the Company was $60 per share of Common Stock. At
that time, the Company declined Munich Re's request.
On August 5, 1996, the Company issued a press release which stated in
pertinent part:
"American Re Corporation (NYSE--ARN) announced today that its Board of
Directors has determined that it is in the best interests of the Company
and its stockholders to explore strategic alternatives, including the
possible merger or sale of the Company. American Re has recently
received inquiries from, and has had preliminary contact with, several
parties expressing interest in such a transaction. In light of these
contacts, the Board determined that it is appropriate to pursue this
course of action at this time. American Re cautioned that,
notwithstanding this action, there is no assurance that the Company will
conclude a transaction on terms that will be acceptable to it."
After the issuance of the press release, no additional potential bidders
contacted the Company. Munich Re, Company B and Company C then were advised that
the Company would consider entering into an exclusivity agreement with any
bidder prepared to pay $65 per share or higher for the Company. Thereafter, only
Munich Re indicated its willingness to pay $65 per share, subject to
confirmatory due diligence and its ability to obtain from the Company an
exclusivity agreement satisfactory to it. As part of such arrangement, Munich Re
also insisted on obtaining various commitments from the KKR Stockholders.
Company B and Company C each indicated an interest in doing further due
diligence on the Company, but indicated that they were not yet prepared to
commit to pay a specified price. The high end of Company B's and Company C's
indicated prospective price ranges did not exceed $65 per share.
On August 7, 1996, the Company, Munich Re and KKR Associates, as general
partner of each of the KKR Stockholders, entered into an exclusive negotiating
agreement (the "Exclusivity Agreement"). In the Exclusivity Agreement, each of
the parties agreed to negotiate in good faith with the mutual aim of having
agreed, by 11:59 p.m. (New York time) on August 15, 1996, (i) the terms of a
definitive agreement pursuant to which Munich Re would acquire the Company at a
price of $65 per share in cash and (ii) the terms of a definitive agreement
pursuant to which the KKR Stockholders would, subject to receipt of all
necessary regulatory approvals, agree to vote their shares of Common Stock in
favor of such an acquisition and grant Munich Re an option to acquire their
shares of Common Stock at the same purchase price as specified in the definitive
acquisition agreement. In accordance with the Exclusivity Agreement, the Company
also stopped providing confidential information to prospective bidders for the
Company other than Munich Re and terminated discussions with Company B and
Company C.
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During the several days following the execution of the Exclusivity
Agreement, the Company, the KKR Stockholders, Munich Re and their legal and
financial advisors negotiated a merger agreement and the Stockholders Agreement,
while Munich Re and its advisors completed their due diligence.
At its Board meeting on August 13, 1996, the Board, with its legal and
financial advisors, reviewed, among other things, the history of the
transaction, the draft merger agreement and the draft Stockholders Agreement,
and heard presentations from its legal and financial advisors. Following its
deliberations, the Board of Directors approved the merger agreement (as in
effect prior to the amendment thereto dated as of October 23, 1996) and, to the
extent required by Section 203 of the DGCL, the Stockholders Agreement, and both
agreements were executed by the parties thereto later that same day.
On October 23, 1996, the Board of Directors approved the amendment to the
then effective merger agreement, which provided for the reduction in the
termination fee from $32.5 million to $26 million. Such amendment was executed
by the Company, Munich Re and Sub later that day. See "The Merger
Agreement--Termination; Fees and Expenses."
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
At its August 13, 1996 meeting, the Board of Directors determined that the
Merger was fair to and in the best interests of the Company and its
stockholders. Accordingly, at such meeting, the Board of Directors unanimously
approved the merger agreement (as in effect prior to the amendment thereto dated
as of October 23, 1996). At its meeting on October 23, 1996, the Board approved
the amendment to such merger agreement and directed that the Merger Agreement be
submitted to the holders of Common Stock for approval and adoption. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The determination of the Board of Directors to approve the Merger Agreement
was based upon consideration of a number of factors. The following list includes
all material factors considered by the Board of Directors in its evaluation of
the Merger and the Merger Agreement:
1. The Board's familiarity with, among other things, the business,
operations, financial condition, competitive position and prospects of the
Company, the nature of the reinsurance industry in which the Company
participates, and current industry, economic and market conditions, both on
a historical and on a prospective basis;
2. The fact that Goldman Sachs, on behalf of the Company, had solicited
interest in a possible acquisition of the Company from third parties and
that the Company had not received offers or indications of interest from
other parties at prices in excess of the Merger Consideration;
3. The fact that any other potential offer would be subject to numerous
contingencies, including negotiation of a transaction price, and that is was
not certain that any such other offer would materialize or be able to be
negotiated within a reasonable time, while Munich Re had indicated its
willingness to enter into the merger agreement (as in effect prior to the
amendment thereto dated as of October 23, 1996) promptly;
4. The Board's review of the historical and prospective market prices
of the shares of Common Stock compared to the Merger Consideration;
5. The Board's review of presentations by, and discussion of the terms
and conditions of the Merger with, senior executive officers of the Company,
representatives of its legal counsel and representatives of Goldman Sachs
and Merrill Lynch;
6. The Board's receipt of the opinion of Goldman Sachs that, as of
August 13, 1996, the $65.00 per share in cash to be received by the holders
of shares of Common Stock pursuant to the merger agreement (as in effect
prior to the amendment thereto dated as of October 23, 1996) was fair to
such holders and the Board's receipt of the opinion of Merrill Lynch that,
as of August 13, 1996, the $65.00 per share in cash to be received by the
holders of shares of Common Stock pursuant to the merger
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agreement (as in effect prior to the amendment thereto dated as of October
23, 1996) was fair to such holders from a financial point of view; and
7. The financial condition of Munich Re and Munich Re's standing as a
leader in the reinsurance industry.
In view of the wide variety of material factors considered in connection
with its evaluation of the Merger, the Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination.
The Board of Directors recognized that the Merger would deprive holders of
shares of Common Stock of the opportunity to continue their equity interests in
the Company as an independent entity or in any future growth of the Company.
However, the Board has determined, based upon consideration of the material
factors specified above, that the Merger, as opposed to other possible
transactions or remaining independent, is in the best interests of holders of
shares of Common Stock. The Board also determined that the Merger is consistent
with maximizing stockholder value. See "The Merger--Plans of the Company in the
Event the Merger is Not Consummated."
OPINIONS OF FINANCIAL ADVISORS
On August 13, 1996, Goldman Sachs delivered its oral opinion to the Board of
Directors that, as of the date of such opinion, the $65.00 per share in cash to
be received by the holders of shares of Common Stock pursuant to the merger
agreement (as in effect prior to the amendment thereto dated as of October 23,
1996) was fair to such holders and Merrill Lynch delivered its oral opinion to
the Board of Directors that, as of the date of such opinion, the $65.00 per
share in cash to be received by the holders of shares of Common Stock pursuant
to the merger agreement (as in effect prior to the amendment thereto dated as of
October 23, 1996) was fair to such holders from a financial point of view.
Goldman Sachs and Merrill Lynch subsequently confirmed their earlier opinions
with respect to the Merger Agreement by delivery of written opinions dated the
date hereof. The parties to the Merger Agreement determined the amount of
consideration to be paid pursuant to the Merger Agreement as the result of arms'
length negotiations, and Goldman Sachs and Merrill Lynch were not asked to, and
did not, propose the specific amount to the Board of Directors.
The full text of the written opinions of Goldman Sachs and Merrill Lynch
dated October 23, 1996, which set forth assumptions made, general procedures
followed, matters considered and limitations on the reviews undertaken in
connection with the opinions, are attached hereto as Annexes II and III,
respectively. Holders of shares of Common Stock are urged to, and should, read
such opinions in their entirety.
OPINION OF GOLDMAN, SACHS & CO.
On August 13, 1996, Goldman Sachs delivered its oral opinion to the Board
that as of that date the $65.00 per share in cash to be received by holders of
shares of Common Stock pursuant to the merger agreement (as in effect prior to
the amendment thereto dated as of October 23, 1996) was fair to such holders.
Goldman Sachs subsequently confirmed its earlier opinion by delivery of its
written opinion with respect to the Merger Agreement dated the date of this
Proxy Statement.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Annex II to this Proxy Statement and
is incorporated herein by reference. Holders of shares of Common Stock are urged
to, and should, read such opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Exclusivity Agreement; (iii) the Stockholders
Agreement; (iv) this Proxy Statement; (v) the review of the loss and loss
adjustment expense reserves of American Re-Insurance Company, the Company's
principal subsidiary, prepared by its management (the "Management Review of Loss
and LAE Reserves"); (vi) the Annual Reports to Stockholders and Annual Reports
on Form 10-K of the Company
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for the three years ended December 31, 1995; (vii) certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; (viii) certain
other communications from the Company to its stockholders; and (ix) certain
internal financial analyses and forecasts for the Company prepared by its
management. Goldman Sachs also held discussions with members of the senior
management of the Company regarding the past and current business operations,
financial condition, and future prospects of the Company. In addition, Goldman
Sachs reviewed the reported price and trading activity for the Common Stock,
compared certain financial and stock market information for the Company with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities (including the loss and
loss adjustment expense reserves) of the Company or any of its respective
subsidiaries and, except for the Management Review of Loss and LAE Reserves
mentioned above, Goldman Sachs has not been furnished with any such evaluation
or appraisal.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its oral opinion to the Board on
August 13, 1996 with respect to the merger agreement (as in effect prior to the
amendment thereto dated as of October 23, 1996). Goldman Sachs utilized
substantially the same type of financial analyses in connection with providing
the written opinion attached hereto as Annex II.
HISTORICAL STOCK TRADING ANALYSIS. Goldman Sachs reviewed the historical
trading prices and volumes for the Common Stock. In addition, Goldman Sachs
analyzed the consideration to be received by the Company stockholders pursuant
to the Merger Agreement in relation to the closing market price of the Common
Stock on July 19, 1996, a date approximately four weeks prior to the execution
of the merger agreement, and on August 12, 1996, the last trading day prior to
the announcement of the execution of the merger agreement, and in relation to
the average closing market price of the Common Stock for the period from January
2, 1996 through June 28, 1996. Such analysis indicated that the price of $65.00
per share of Common Stock represented a premium of 43.3% over the July 19, 1996
closing market price of $45.375 per share, 14.0% over the August 12, 1996
closing market price of $57.00 per share and 57.7% over the average closing
price for the period from January 2, 1996 through June 28, 1996 of $41.22 per
share.
SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared certain
financial information relating to the Company to corresponding financial
information, ratios and public market multiples for (a) three large
capitalization (more than $1 billion) publicly-traded reinsurance companies:
General Re Corporation, Transatlantic Holdings, Inc. and Everest Reinsurance
Holdings, Inc. (the "Large Cap Selected Companies"); (b) five smaller
capitalization (less than $1 billion) publicly-traded reinsurance companies:
Zurich Reinsurance Centre Holdings, Inc., NAC Re Corp., National Re Corporation,
Trenwick Group Inc. and Chartwell Re Corporation (the "Small Cap Selected
Companies" and, together with the Large Cap Selected Companies, the "Selected
Companies"); and (c) four large capitalization publicly-traded property/casualty
insurers: Travelers/Aetna Property Casualty Corp., The Chubb Corporation, CNA
Financial Corporation and The St. Paul Companies, Inc. Goldman Sachs focused its
analysis on the Selected Companies, which were chosen because they are
publicly-traded reinsurance companies with operations that are similar to the
Company. Goldman Sachs calculated and compared various financial multiples and
ratios. The multiples of the Company were calculated using prices of $45.375 per
share, the closing price of the Common Stock on the NYSE on July 19, 1996, and
$57.00 per share, the closing price of the Common Stock on the NYSE on August
12, 1996. Goldman Sachs focused its analysis on multiples based on a price per
share of Common Stock of $45.375 and the multiples for the Company indicated in
this paragraph are based on that price. The multiples and ratios for the Company
and the Selected Companies were based on the most recent publicly available
information. Goldman Sachs used median earnings estimates for 1996 and 1997 for
the Company and the Selected Companies as provided by
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Institutional Brokers Estimate System ("IBES") as of August 12, 1996. With
respect to the Selected Companies, Goldman Sachs considered estimated calendar
year 1996 and 1997 price/earnings ratios, which ranged from 11.6x to 14.4x for
the Large Cap Selected Companies and from 9.3x to 27.0x for the Small Cap
Selected Companies, in each case as estimated for calendar year 1996, and which
ranged from 10.3x to 12.9x for the Large Cap Selected Companies and from 8.6x to
18.7x for the Small Cap Selected Companies, in each case as estimated for
calendar year 1997, compared to an estimated calendar year 1996 price/earnings
ratio of 11.3x and an estimated calendar year 1997 price/earnings ratio of 10.1x
for the Company; and a 1996-1997 earnings per share growth rate ranging from
11.3% to 19.4% for the Large Cap Selected Companies and from 8.7% to 44.3% for
the Small Cap Selected Companies compared to 12.5% for the Company. The review
also indicated price to stated book value ratios ranging from 1.28x to 1.89x for
the Large Cap Selected Companies and from 1.02x to 1.43x for the Small Cap
Selected Companies compared to 2.51x for the Company and ratios of price to book
value adjusted to exclude unrealized gains and losses on portfolio investments
ranging from 1.31x to 2.41x for the Large Cap Selected Companies and from 1.00x
to 1.48x for the Small Cap Selected Companies compared to 2.58x for the Company.
SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs analyzed certain information
relating to selected transactions in the reinsurance industry since 1990 (the
"Selected Transactions"). Such analysis indicated that for the Selected
Transactions (a) consideration as a multiple of latest twelve months ("LTM") net
income ranged from 8.8x to 18.3x, as compared to 19.1x for the consideration to
be received in the Merger, (b) consideration as a multiple of tangible book
value ranged from 1.00x to 2.41x, as compared to 3.99x for the consideration to
be paid in the Merger, and (c) consideration as a multiple of statutory surplus
ranged from 0.81x to 2.50x, as compared to 3.45x for the consideration to be
paid in the Merger. In addition, Goldman Sachs compared certain information
relating to General Re Corporation's agreement and plan of merger with National
Re Corporation (the "National Re Merger") with comparable information relating
to the Merger. This analysis indicated that consideration as a multiple of LTM
net operating income was 19.1x in the Merger and 18.3x in the National Re
Merger; consideration as a multiple of 1996 estimated net operating income was
16.3x in the Merger and 16.6x in the National Re Merger using IBES estimates and
15.7x in the Merger and 16.3x in the National Re Merger using management
estimates; consideration as a multiple of 1997 estimated net operating income
was 14.4x in the Merger and 15.1x in the National Re Merger using IBES estimates
and 12.9x in the Merger and 13.8x in the National Re Merger using management
estimates; consideration as a multiple of stated book value (as of June 30, 1996
for the Merger) was 3.59x in the Merger and 2.37x in the National Re Merger;
consideration as a multiple of tangible book value was 3.99x in the Merger and
2.37x in the National Re Merger; consideration as a multiple of statutory
surplus was 3.45x in the Merger and 2.50x in the National Re Merger; and the
premium to unaffected market price was 43.3% in the Merger and 65.6% in the
National Re Merger.
PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared a pro forma analysis of
the financial impact of the Merger on the net earnings of Munich Re in 1997
using management's earnings estimates for the Company and earnings estimates for
Munich Re prepared by Goldman Sachs' London-based Equity Research Department for
1997. While this analysis was based on numerous assumptions relating to the cost
of debt, tax rates and goodwill amortization, it did not take into account any
synergies or cost savings arising from the Merger. Based on this analysis, the
proposed transaction would be marginally dilutive to Munich Re's earnings per
share in 1997.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is completely comparable
to the Company or the contemplated transaction. The analyses were prepared
solely for purposes of Goldman Sachs' providing its opinion to the Board as to
the fairness of the $65.00 per share in cash to be received by holders of shares
of Common Stock and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon
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forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of the Company, Munich Re, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast. As described above, Goldman Sachs' opinion to the Board was
one of many factors taken into consideration by the Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Annex II hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs has
provided certain other investment banking services to the Company from time to
time, including acting as managing underwriter of a public offering by American
Re Capital, a Delaware business trust of which the Company is the sole
beneficial owner, of $237,500,000 of Cumulative Quarterly Income Preferred
Securities due in 2025. The Company selected Goldman Sachs as its financial
advisor because it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the Merger. Goldman Sachs has
provided certain investment banking services to KKR from time to time and may
provide investment banking services to KKR in the future.
Pursuant to a letter agreement dated August 9, 1996 (the "Engagement
Letter"), the Company engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated transaction. Pursuant to the terms of the
Engagement Letter, the Company has agreed to pay Goldman Sachs upon consummation
of the Merger a transaction fee equal to 0.40% of the aggregate consideration in
the Merger. The Company has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
On August 13, 1996, Merrill Lynch delivered its oral opinion to the Board of
Directors to the effect that, as of such date, and based upon the assumptions
made, general procedures followed, matters considered and limitations on the
review undertaken, as set forth in such opinion, the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger was
fair to such holders from a financial point of view. Merrill Lynch subsequently
confirmed its earlier opinion by delivery of its written opinion as of the date
of this Proxy Statement (the "Merrill Lynch Opinion").
The full text of the Merrill Lynch Opinion, which sets forth the assumptions
made, general procedures followed, matters considered and limitations on the
review undertaken by Merrill Lynch, is attached as Annex III to this Proxy
Statement and is incorporated herein by reference. Holders of shares of Common
Stock are urged to, and should, read the Merrill Lynch Opinion in its entirety.
The summary of the Merrill Lynch Opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.
The Merrill Lynch Opinion is addressed to the Board of Directors, is
directed only to the fairness from a financial point of view of the
consideration to be received by the holders of shares of Common Stock pursuant
to the Merger Agreement and does not constitute a recommendation to any holder
of Common Stock as to how such holder of Common Stock should vote with respect
to the Merger Agreement and the transactions contemplated thereby.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and the Company's
Forms 10-Q and the related unaudited financial information for
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the quarterly periods ended March 31 and June 30, 1996; (ii) reviewed certain
information, including financial forecasts, relating to the business, earnings,
cash flow, assets and prospects of the Company, furnished to Merrill Lynch by
the Company; (iii) conducted discussions with senior management of the Company
concerning the Company's business and prospects; (iv) reviewed the historical
market prices and trading activity for the Common Stock and compared them with
those of certain publicly traded companies which Merrill Lynch deemed to be
reasonably similar to the Company; (v) compared the results of operations of the
Company with those of certain companies which Merrill Lynch deemed to be
reasonably similar to the Company; (vi) compared the proposed financial terms of
the Merger with the financial terms of certain other mergers and acquisitions
which Merrill Lynch deemed to be relevant; (vii) reviewed the Merger Agreement;
(viii) reviewed the Stockholders Agreement; (ix) the Exclusivity Agreement; and
(x) reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as Merrill Lynch deemed
necessary, including Merrill Lynch's assessment of general economic, market and
monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied upon the
accuracy and completeness of all information supplied or otherwise made
available to it by the Company. Merrill Lynch did not independently verify such
information or undertake an independent appraisal or actuarial evaluation of the
assets or liabilities of the Company. With respect to the financial forecasts
furnished to Merrill Lynch by the Company, Merrill Lynch assumed that they were
reasonably prepared and reflected the best currently available estimates and
judgments of the Company's management as to the expected future financial
performance of the Company. The Merrill Lynch Opinion is necessarily based on
market, economic and other conditions as they existed on August 13, 1996.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at the Merrill Lynch Opinion and making
its presentation to the Board of Directors on August 13, 1996 with respect to
the merger agreement (as in effect prior to the amendment thereto dated as of
October 23, 1996).
ANALYSIS OF IMPLIED MULTIPLES PAID IN THE MERGER. Based on an assumed
aggregate offer value for the Merger of $3.3 billion (defined as the number of
shares of Common Stock on a fully diluted basis multiplied by $65.00, the Merger
Consideration), the offer value represents an implied multiple to the Company's
(i) June 30, 1996 GAAP shareholders' equity of 3.8x, (ii) June 30, 1996 tangible
shareholders' equity of 4.3x, and (iii) management's projected 1996 and 1997
operating earnings of 16.2x and 13.3x, respectively.
ANALYSIS OF HISTORICAL STOCK PRICE. Merrill Lynch reviewed the historical
trading prices and volumes for the Common Stock. In addition, Merrill Lynch
analyzed the consideration to be received by holders of shares of Common Stock
pursuant to the Merger Agreement in relation to the August 12, 1996 market price
of the Common Stock, the July 12, 1996 market price of the Common Stock, and the
range of market prices for the last twelve months ("LTM") and from January 29,
1993, the date of the Company's initial public offering. Such analysis indicated
that the price per share of the Common Stock to be paid pursuant to the Merger
Agreement represented a premium of 14.0% from the August 12, 1996 closing price
of $57.00 per share of Common Stock and a premium of 49.4% from the July 12,
1996 closing price of $43.50 per share of Common Stock.
COMPARABLE PUBLIC COMPANIES ANALYSIS. Using publicly available information,
Merrill Lynch compared certain financial and operating information (described
below) for the Company with corresponding financial and operating information
for a group of publicly traded companies that Merrill Lynch deemed to be
reasonably similar to the Company. The companies included in this portion of the
analysis were: General Re Corporation ("General Re"), National Re Corporation
("National Re"), Transatlantic Holdings, Inc., Everest Re Corporation, NAC Re
Corporation, Trenwick Group, Inc., Zurich Reinsurance Centre Holdings, Inc.,
Chartwell Re Corporation and Unionamerica Holdings plc (collectively, the
"Comparable Companies"). Merrill Lynch used mean earnings estimates for 1996 and
1997 for the Company and the Comparable Companies as provided by First Call as
of August 9, 1996. With respect to National Re, Merrill Lynch derived trading
multiples based on the closing price per share of National Re common stock on
June 24, 1996, one week prior to the announcement of the National Re Merger.
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Merrill Lynch compared the ratio of common stock price as of August 12, 1996
to earnings of the Comparable Companies, which ranged, (i) for estimated 1996
earnings, from 7.8x to 26.0x (with a median of 11.7x and a mean of 12.8x),
compared to the current trading multiple of 14.0x for the Company, and (ii) for
estimated 1997 earnings, from 7.0x to 18.5x (with a median of 10.3x and a mean
of 10.9x), compared to the current trading multiple of 11.5x for the Company.
Merrill Lynch also compared the ratio of common stock price of the Comparable
Companies to the most recent reported book value per share of the Comparable
Companies, which ranged from 1.0x to 1.9x (with a median of 1.4x and a mean of
1.4x), compared to a current trading multiple of 3.2x for the Company. In
addition, Merrill Lynch compared the projected 1996 return on average equity for
the Comparable Companies, which ranged from 4.2% to 19.9% (with a median of
12.3% and a mean of 12.0%), compared to 20.9% for the Company.
COMPARABLE ACQUISITION ANALYSIS. Merrill Lynch reviewed certain publicly
available information regarding six selected business combinations announced
since December 1994 (the "Comparable Transactions"). The Comparable
Transactions, listed as acquiror/target, and the dates such transactions were
announced were as follows: General Re/National Re (July 1996); Fairfax Financial
Holdings Limited/ Skandia America Reinsurance Corporation (February 1996); ACE
Limited/Tempest Reinsurance Company, Ltd. (January 1996); Societe Commerciale de
Reassurance, S.A./SCOR US Corporation (September 1995); Zurich Reinsurance
Centre Holdings, Inc./Re Capital Corporation (January 1995); and EXOR Group
SA/Constitution Reinsurance Company (December 1994).
Merrill Lynch compared, among other things, the offer value of each such
transaction as a multiple of prior year end statutory capital and surplus, most
recent reported GAAP shareholders' equity and LTM GAAP operating income. Such
comparisons produced the following ranges: (i) offer value to statutory capital
and surplus ranged from 0.7x to 2.2x (with a median of 1.2x and a mean of 1.3x),
compared to an implied 3.0x to be received in the Merger; (ii) offer value to
most recent reported GAAP shareholders' equity ranged from 1.0x to 2.5x (with a
median of 1.5x and a mean of 1.6x), compared to an implied 3.8x to be received
in the Merger; and (iii) offer value to LTM GAAP operating income ranged from
9.0x to 25.3x (with a median of 19.7x and a mean of 18.4x), compared to an
implied 21.4x to be received in the Merger (based on operating income adjusted
to exclude the effects of the Company's 1995 reserve strengthening).
With respect to the National Re Merger transaction, Merrill Lynch compared,
among other things, the offer value of such transaction as a multiple of: most
recent reported shareholders' equity, 1995 net operating income, LTM net
operating income, 1996 projected net operating income and 1997 projected net
operating income. The multiples resulting from such analyses were: (i) offer
value to most recent reported shareholders' equity, 2.5x, compared to an implied
3.8x to be received in the Merger; (ii) offer value to 1995 net operating
income, 19.9x, compared to an implied 23.3x to be received in the Merger
(excluding the Company's 1995 reserve strengthening); (iii) offer value to LTM
net operating income, 19.3x, compared to an implied 21.4x to be received in the
Merger (excluding the Company's 1995 reserve strengthening); (iv) offer value to
1996 projected net operating income, 17.7x, compared to an implied 16.2x to be
received in the Merger; and (v) offer value to 1997 projected net operating
income, 16.0x, compared to an implied 13.3x to be received in the Merger.
DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch performed a discounted cash
flow analysis of the Company based upon estimates of projected financial
performance prepared by the Company for fiscal years 1997 through 2000.
Utilizing these projections, Merrill Lynch calculated a range of values based
upon the discounted net present value of the Company's four-year stream of
projected unlevered after-tax cash flow and its projected year 2000 terminal
value. In performing this analysis, Merrill Lynch utilized discount rates
reflecting a weighted average cost of capital ranging from 10.0% to 13.0% and
terminal value multiples of (i) forward net income ranging from 9.0x to 12.0x
and (ii) projected GAAP book value ranging from 1.9x to 2.5x. The various ranges
for discount rates and terminal value multiples were chosen to reflect
theoretical analyses of cost of capital and a range of trading values for
comparable companies. Based on such analyses, Merrill Lynch determined an
implied per share value of the Common Stock ranging from $46.65 to $76.10.
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The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch. Arriving at a fairness opinion is a
complex process involving subjective judgments and is not necessarily
susceptible to partial or summary description. Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all such
factors and analyses, could create an incomplete view of the process underlying
the analyses set forth in the Merrill Lynch Opinion. The matters considered by
Merrill Lynch in its analyses are based on numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the Company's
control and involve the application of complex methodologies and educated
judgment. Any estimates incorporated in the analyses performed by Merrill Lynch
are not necessarily indicative of actual past or future results or values, which
may be significantly more or less favorable than such estimates. Estimated
values do not purport to be appraisals and do not necessarily reflect the prices
at which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty. No public company utilized as a
comparison is identical to the Company and none of the Comparable Transactions
or other business combinations utilized as a comparison are identical to the
proposed Merger. Accordingly, an analysis of publicly traded comparable
companies and comparable business combinations is not mathematical; rather it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and
transactions and other factors that could affect the public trading value of the
comparable companies or company to which they are being compared. In arriving at
its opinion, Merrill Lynch, in light of its experience and professional
judgment, considered the results of all its analyses and did not separately
consider the extent to which any one analysis supported its opinion. The fact
that any specific analysis has been referred to in the summary above is not
meant to indicate that such analysis was given more weight than any other
analysis; in reaching its conclusion, Merrill Lynch considered the results of
the analyses in light of each other and ultimately reached its opinions based on
the results of all analyses taken as a whole.
The Board of Directors selected Merrill Lynch to act as its financial
advisor on the basis of Merrill Lynch's reputation as an internationally
recognized investment banking firm with substantial expertise in transactions
similar to the Merger and because it is familiar with the Company and its
business. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Merrill Lynch has from time to time provided investment banking and other
financing services to the Company and KKR and has received customary fees for
rendering such services. In the ordinary course of its business, Merrill Lynch
and its affiliates may actively trade the securities of the Company for its or
their own accounts and for the accounts of its customers and, accordingly, may
at any time hold a long or short position in such securities.
MERRILL LYNCH FEES. With respect to Merrill Lynch's services as financial
advisor in connection with the Merger, pursuant to a letter agreement dated
August 12, 1996, the Company has agreed to pay Merrill Lynch a fee of $2,000,000
payable in cash upon the earlier of August 12, 1997 and the closing of the
Merger. In addition, the Company also has agreed to reimburse Merrill Lynch for
its reasonable out-of-pocket expenses (including reasonable fees and
disbursements of its legal counsel) and to indemnify Merrill Lynch and certain
related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of its engagement.
GOVERNMENT AND REGULATORY APPROVALS AND FILINGS
The consummation of the Merger is subject to a number of governmental and
regulatory approvals, including but not limited to those of the New York
Department of Insurance and the Delaware Insurance Department. In the Merger
Agreement, each of the Company, Munich Re and Sub have agreed to take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the Merger Agreement and the
transactions contemplated thereby including without
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limitation, furnishing all information in connection with approvals of or
filings with any governmental entity, including, without limitation, any
schedule, or reports required to be filed with the Securities and Exchange
Commission (the "Commission"), 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 the Merger Agreement
and the transactions contemplated thereby. In the Merger Agreement, each of the
Company, Munich Re and Sub have agreed to, and have agreed to 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 Munich Re, Sub, the Company or any of their subsidiaries in connection with
the Merger or the taking of any action contemplated thereby or by the Merger
Agreement.
Applications for approval were submitted by Munich Re to both the Department
of Insurance of the State of New York and the Insurance Department of the State
of Delaware on September 23, 1996. On September 3, 1996 filings were made by
Munich Re and the Company (or their respective affiliates required to make such
filings) with the FTC and with the Antitrust Division of the Department of
Justice with respect to the Merger pursuant to the HSR Act. On September 13,
1996, the FTC granted early termination of the 30 day waiting period. On August
14, 1996 Munich Re made a filing notifying the German Cartel Office of the
Merger. The German Cartel Office responded in a letter dated September 9, 1996
indicating that the Merger could be completed.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for by Munich Re as a "purchase" for accounting
purposes.
CERTAIN OTHER EFFECTS OF THE MERGER
If the Merger is consummated, the holders of shares of Common Stock will not
have an opportunity to continue their equity interest in the Company as an
ongoing corporation and therefore will not share in future earnings and growth,
if any, of the Company. If the Merger is consummated, public trading of the
Common Stock will cease and the Common Stock will cease to be quoted on the
NYSE. Moreover, the Surviving Corporation may be relieved of the obligation to
file certain informational reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), such as proxy statements, and its officers,
directors and more than 10% stockholders may be relieved of the reporting
requirements under, and the "short-swing" profit recapture provisions of,
Section 16 of the Exchange Act. For information concerning the income tax
consequences of the Merger, see "Certain U.S. Federal Income Tax Consequences of
the Merger."
PLANS OF THE COMPANY IN THE EVENT THE MERGER IS NOT CONSUMMATED
In the event that the Merger is not consummated, the Company would consider
other alternatives including, but not limited to, continuing the Company as an
independent entity or pursuing other business combinations. There can be no
assurance that any such alternatives would be available in the event that the
Merger is not consummated. See "The Stockholders Agreement" for a discussion of
certain rights and obligations of the KKR Stockholders, Munich Re and Sub in the
event the Merger is not consummated.
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THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is
attached as Annex I to this Proxy Statement. The summary of the Merger Agreement
contained herein is qualified in its entirety by reference to the Merger
Agreement. Stockholders are urged to review the Merger Agreement carefully.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that as soon as practicable after the
satisfaction or waiver of the conditions discussed below under "The
Merger--Conditions to the Consummation of the Merger," Munich Re, Sub and the
Company will cause the Merger to be consummated by filing the Merger Agreement
or 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 "Effective Time" is 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 Munich Re,
Sub and the Company and is specified in the Certificate of Merger). At the
Effective Time, Sub will merge with and into the Company. The Company will be
the Surviving Corporation in the Merger and will thereby become 100% owned by
Munich Re.
PAYMENT FOR SHARES OF COMMON STOCK
As a result of the Merger, holders of certificates formerly representing
shares of Common Stock will cease to have any equity interest in the Company. At
the Effective Time, by virtue of the Merger and without any action on the part
of Sub, the Company or the holders of shares of Common Stock: (i) each share of
Common Stock issued and outstanding immediately prior to the Effective Time
(other than any shares to be cancelled as described in clause (ii) below and any
Dissenting Shares) will be cancelled, extinguished and converted automatically
into the right to receive an amount equal to the Merger Consideration ($65.00
per share in cash) payable to the holder thereof, without interest, upon
surrender of the certificate that prior to the Merger represented such share in
the manner provided below, less any required withholding taxes; (ii) each share
held in the treasury of the Company and each share owned by Munich Re, Sub or
any other direct or indirect subsidiary of Munich Re or of the Company, in each
case immediately prior to the Effective Time, will be cancelled and retired
without any conversion thereof and no payment or distribution shall be made with
respect thereto; and (iii) each share of common, preferred or other capital
stock of Sub issued and outstanding immediately prior to the Effective Time will
be converted into and become one validly issued, fully paid and nonassessable
share of identical common, preferred or other capital stock of the Surviving
Corporation.
In the Merger Agreement, Sub has agreed to designate, prior to the Effective
Time, the Paying Agent to receive the Merger Consideration to which holders of
shares of Common Stock will become entitled.
In the Merger Agreement, it has been agreed that, as soon as practicable
after the Effective Time (but in no event more than five business days after the
Effective Time), the Surviving Corporation will cause to be mailed to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented shares of
Common Stock (the "Certificates"), a form of letter of transmittal (which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. HOLDERS OF SHARES
OF COMMON STOCK SHOULD NOT SUBMIT THEIR CERTIFICATES TO THE PAYING AGENT UNTIL
THEY HAVE RECEIVED A FORM OF LETTER OF TRANSMITTAL. Upon surrender to the Paying
Agent of a Certificate, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, the holder of such
Certificate will be entitled to receive in exchange therefor the Merger
Consideration for each share of Common Stock formerly represented by such
Certificate, and such Certificate will then be cancelled. No interest will be
paid or accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the
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Certificates. If payment of the Merger Consideration is to be made to a person
other than the person in whose name the surrendered Certificate is registered,
it will be a condition of payment that the Certificate so surrendered be
properly endorsed or be otherwise in proper form for transfer and that the
person requesting such payment has paid any transfer and other taxes required by
reason of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered or has established to the
satisfaction of the Surviving Corporation that such tax either has been paid or
is not applicable.
At the close of business on the day of the Effective Time, the stock
transfer books of the Company will be closed and thereafter there will be no
further registration of transfers of shares of Common Stock on the records of
the Company. From and after the Effective Time, the holders of Certificates will
cease to have any rights with respect to such shares except as otherwise
provided for herein or by applicable law.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement includes various customary representations and
warranties of the parties thereto. The Merger Agreement includes representations
and warranties by the Company as to, among other things: (a) the corporate
organization, standing and power of the Company and its subsidiaries; (b) the
Company's capital structure; (c) the authorization, execution, delivery,
performance, enforceability and binding effect of the Merger Agreement; (d) that
the Merger Agreement will not conflict with or cause a default under the
Company's or its subsidiaries' organizational documents, debt instruments or
contracts, and will not violate applicable laws or require consents from
governmental authorities, except as provided therein; (e) that the documents
filed by the Company and its subsidiaries with the Commission and insurance
regulators since January 1, 1995 do not contain material misstatements or
omissions; (f) that there has been no Material Adverse Effect (as defined
below), no payment of dividends (other than regular quarterly dividends) and no
change in accounting principles or methods since June 30, 1996; (g) that this
Proxy Statement will not contain a material misstatement or omission with
respect to Company information; (h) the Company's and its subsidiaries' employee
benefit plans; (i) that the Company and its subsidiaries have complied with
applicable laws and the terms of contracts to which they are parties; (j) the
absence of litigation against the Company and its subsidiaries; (k) that the
Company and its subsidiaries have properly filed their tax returns and paid
their taxes; (l) that the Company has received opinions from financial advisors
as to the fairness of the Merger to the stockholders; and (m) that the Aggregate
Excess of Loss Agreement dated September 30, 1992 between the Company and The
Aetna Casualty and Surety Company is in full force and effect. In customary
circumstances, the representations are subject to materiality or Material
Adverse Effect qualifications.
The Merger Agreement also includes representations and warranties by Munich
Re and Sub as to, among other things, (a) the due organization of Munich Re and
its subsidiaries; (b) the authorization, execution, delivery, performance,
enforceability and binding effect of the Merger Agreement; (c) that the Merger
Agreement will not conflict with or cause a default under Munich Re's or any of
its subsidiaries' organizational documents, debt instruments or contracts, and
will not violate applicable laws or require consents from governmental
authorities; (d) that the proxy statement will not contain a material
misstatement or omission with respect to Munich Re information; and (e) that
either Munich Re or Sub had, on the date of the Merger Agreement, or will have
prior to the consummation of the Merger, sufficient funds available to purchase
the shares of Common Stock which will be converted into the right to receive the
Merger Consideration in the Merger.
Under the Merger Agreement, the term "Material Adverse Effect" means any
adverse change or effect that has had or will have a material adverse effect on
the financial condition, results of operations or business of a person and its
subsidiaries, taken as a whole, but excludes any change or effect resulting from
general economic conditions (including without limitation changes in interest
rates), any occurrence or condition affecting the property and casualty
insurance or reinsurance industry generally (including
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without limitation any change or proposed change in insurance laws or
regulations in any jurisdiction), any reinsurance or insurance exposure relating
to any catastrophe and, for purposes of the Company's representation and
warranty that there has been no Material Adverse Effect since June 30, 1996
only, any occurrence or condition arising out of the transactions contemplated
by the Merger Agreement or the public announcement thereof.
CERTAIN COVENANTS
COVENANTS RELATING TO THE CONDUCT OF BUSINESS PRIOR TO THE MERGER. The
Company has agreed with Munich Re and Sub in the Merger Agreement that prior to
the Effective Time, except as otherwise set forth in the Merger Agreement or
with the prior written consent of Munich Re, it will, and will cause its
subsidiaries to, (a) carry on its business in the ordinary course of business
consistent with past practice and will use all reasonable efforts to preserve
its business organization intact and maintain its existing relations with
material customers, retrocessionaires, employees, creditors and business
partners; (b) not split, combine or reclassify the outstanding capital stock of
the Company or its subsidiaries or amend its or their certificate of
incorporation or by-laws or similar organizational documents; (c) not declare or
pay dividends other than, among other exceptions, ordinary quarterly cash
dividends by the Company not to exceed $.11 per quarter (or, if the Effective
Time is after December 31, 1996, a prorated dividend may be paid for the period
from January 1, 1997 to the Effective Time); (d) not issue, sell, dispose of or
encumber any additional shares of, or securities convertible into or
exchangeable for, any shares of capital stock of the Company or its
subsidiaries, other than issuances pursuant to exercises of Company Stock
Options; (e) not transfer or otherwise dispose of or encumber any assets that
are material to the Company and its subsidiaries, taken as a whole, other than
sales of investment assets in the ordinary course of business consistent with
past practice; (f) not redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock; (g) not grant any increase in the
compensation payable or to become payable by the Company or any of its
subsidiaries to any executive officer other than scheduled annual increases in
the ordinary course of business consistent with past practice in an amount not
to exceed 10% for any individual; (h) except to the extent required under
applicable law at the time of the Merger Agreement or the terms of the
applicable agreement or arrangement, not adopt any new, or amend or otherwise
increase, or accelerate the payment or vesting of the amounts payable or to
become payable under any existing employee benefit plan agreement or arrangement
(however, the foregoing does not prohibit payment in 1996 of a bonus accrued in
1996 which would in the ordinary course be payable in 1997); (i) except in
accordance with past practice and in an aggregate amount not to exceed $5
million, and other than by reason of the transactions contemplated in the Merger
Agreement, not enter into any, or amend any existing, employment, consulting or
severance agreement with, or grant any severance or termination pay to, any
officer, director or employee of the Company or any of its subsidiaries; (j)
except with respect to the Company's foreign operations, as required by law or
existing arrangements, not make any additional contributions to any grantor
trust created by the Company to provide funding for non-tax-qualified employee
benefits or compensation; (k) not provide any severance program to any
subsidiary which does not have a severance program as of the date of the Merger
Agreement; (l) not permit any material insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or terminated, except in the
ordinary course of business; (m) not incur or assume any debt except for
borrowings under existing credit facilities in an amount not to exceed $150
million; (n) not assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any other person, except in the ordinary
course of business consistent with past practice; (o) not make any loans,
advances or capital contributions to, or investments in, any other person (other
than, among other exceptions, as to such matters related to the Company's or any
of its subsidiaries' investment portfolios in the ordinary course of business
consistent with past practice); (p) not make any material capital expenditure
other than in the ordinary course of business consistent with past practice; (q)
not change accounting principles used by it; (r) not adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other material reorganization of the Company or any of its
subsidiaries or any agreement relating to an
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Acquisition Proposal other than the Merger and other than upon exercise by the
Board of its fiduciary duties in accordance with the Merger Agreement; (s) not
engage in certain transactions with affiliates or certain other persons; (t)
except upon the prior written consent of Munich Re, not make any tax election
that would have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole, except in the ordinary course of business consistent with past
practice; (u) not pay, discharge or satisfy any claim, liability or obligation,
other than in the ordinary course of business consistent with past practice; and
(v) not enter into an agreement, contract, commitment or arrangement to do any
of the foregoing, or to authorize, recommend, propose or announce an intention
to do any of the foregoing.
NO SOLICITATION. The Merger Agreement provides that the Company shall not,
nor shall it permit any of its subsidiaries to, nor shall it authorize or permit
any officer, director or employee of, or any investment banker, attorney or
other advisor or representative of, the Company or any of its subsidiaries to,
directly or indirectly, (i) solicit, initiate or encourage the submission of any
Acquisition Proposal or (ii) participate in any discussions, conversations,
negotiations or other communications regarding, or furnish to any person any
information with respect to, or otherwise cooperate in any way, assist or
participate in, facilitate or encourage any effort or attempt by any other
person or entity, to seek to do any of the foregoing or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or is
likely to lead to, any Acquisition Proposal. Notwithstanding the foregoing, the
Company, any of its subsidiaries or any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, the Company
or any of its subsidiaries may, (i) following receipt of a request for
information made within 30 days of the date of the Merger Agreement (i.e., by
September 12, 1996) (A) which was not solicited, initiated or encouraged by the
Company, any of its subsidiaries or any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, the Company
or any of its subsidiaries after the date of the Merger Agreement and (B) which
the Company in good faith believes could lead to an Acquisition Proposal,
furnish information, in the case of any person who has executed a
confidentiality agreement with the Company prior to the date of the Merger
Agreement, pursuant to such confidentiality agreement or, in the case of any
other person, pursuant to a confidentiality agreement substantially similar to
the confidentiality agreement between the Company and Munich Re, and (ii)
following receipt of an Acquisition Proposal by the Company with respect to
which the Board of Directors determines in good faith that in order to comply
with its fiduciary duties to stockholders under applicable law it is necessary
for the Board of Directors to withdraw or modify its approval or recommendation
of the Merger Agreement or the Merger, approve or recommend such Acquisition
Proposal or enter into an agreement with respect to such Acquisition Proposal,
participate in discussions or negotiations regarding, or furnish information
with respect to, or take other actions to facilitate, such Acquisition Proposal.
With respect to clause (i) of the preceding sentence, no request for information
was made of the Company by September 12, 1996.
FIDUCIARY DUTIES. The Merger Agreement provides that the Board of Directors
shall not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Munich Re or Sub, the approval or recommendation by the Board of
Directors of the Merger Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal which was not
solicited after the date of the Merger Agreement or (iii) enter into any
agreement with respect to any Acquisition Proposal which was not solicited after
the date of the Merger Agreement, unless the Company receives an Acquisition
Proposal which was not solicited after the date of the Merger Agreement and the
Board of Directors determines in good faith that in order to comply with its
fiduciary duties to stockholders under applicable law it is necessary for the
Board of Directors to withdraw or modify its approval or recommendation of the
Merger Agreement or the Merger, approve or recommend such Acquisition Proposal
or enter into an agreement with respect to such Acquisition Proposal.
Under the Merger Agreement, the Board of Directors may take, and disclose to
the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act, with respect to any tender offer for shares
of capital stock of the Company.
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Any action by the Board of Directors permitted by the exercise of the
Board's fiduciary duties as described above will not constitute a breach of the
Merger Agreement by the Company. Nonetheless, if the Merger Agreement is
terminated following the exercise by the Board of its fiduciary duties as
described above, the Company will be obligated to pay Munich Re (or its
designee) a fee of $26 million as described under "--Termination; Fees and
Expenses."
ADDITIONAL COVENANTS. Under the Merger Agreement, the parties have also
agreed, among other matters, to the following additional covenants: (a) the
Company shall (and shall cause each of its subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of Munich Re, reasonable access, during normal business hours,
during the period prior to the Effective Time, to all of its and its
subsidiaries' properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Munich Re (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 concerning
its business, properties and personnel as Munich Re may reasonably request; (b)
each of the Company, Munich Re and Sub will take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
it with respect to the Merger Agreement and the transactions contemplated
thereby which actions shall include, without limitation, furnishing all
information in connection with approvals of or filings with any governmental
entity, including, without limitation, any schedule, or reports required to be
filed with the Commission, 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 the Merger Agreement
and the transactions contemplated thereby; (c) each of the Company, Munich Re
and Sub agreed, 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 Munich Re, Sub, the Company or any of their
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by the Merger Agreement; (d) as soon as practicable
following the date of the Merger Agreement, Munich Re and Sub will use their
reasonable best efforts to prepare and file with relevant insurance regulators
requests for approval of the transactions contemplated by the Merger Agreement
and to use all reasonable efforts to have such insurance regulators approve the
transactions contemplated by the Merger Agreement; (e) each of Munich Re and Sub
will give to the Company prompt written notice if it receives any notice or
other communication from any insurance regulator in connection with the
transactions contemplated by the Merger Agreement, and, in the case of any such
written notice or communication, shall promptly furnish the Company with a copy
thereof; (f) each of Munich Re and Sub will give to the Company reasonable prior
written notice of the time and place when any meetings may be held by it with
insurance regulators in connection with the transactions contemplated by the
Merger Agreement, and the Company will have the right to have a representative
or representatives present at any such meeting; (g) a reasonable time prior to
furnishing any written materials or presentations to any insurance regulator in
connection with the transactions contemplated by the Merger Agreement, Munich Re
and Sub will furnish the Company with a copy thereof, and the Company shall have
a reasonable opportunity to provide comments thereon; and (h) subject to the
terms and conditions provided in the Merger Agreement, each of the parties
thereto will use all reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable, whether under applicable laws and regulations or otherwise, or to
remove any injunctions or other impediments or delays, legal or otherwise, to
consummate and make effective the Merger and the other transactions contemplated
by the Merger Agreement.
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CONDITIONS TO CONSUMMATION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The Merger
Agreement provides that the obligations of the Company, on the one hand, and
Munich Re 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) the Merger Agreement shall
have been adopted by the stockholders of the Company in accordance with the
DGCL; (b) no court, arbitrator or governmental body, agency or official shall
have issued any order, decree or ruling and there shall not be any statute, rule
or regulation, restraining, enjoining or prohibiting the consummation of the
Merger; (c) any waiting period applicable to the Merger under the HSR Act shall
have expired or been terminated; (d) any necessary approval of the German Cartel
Office shall have been obtained; and (e) all actions by or in respect of any
filing or any governmental body, agency, official, or authority required to
permit the consummation of the Merger (including insurance regulatory approvals
from the Delaware Insurance Department and from the New York Department of
Insurance and all other material insurance regulatory approvals) shall have been
obtained and such approval shall be in full force and effect. See "The Merger--
Government and Regulatory Approvals and Filings".
CONDITIONS TO THE OBLIGATIONS OF MUNICH RE AND SUB. The Merger Agreement
provides that the obligations of Munich Re and Sub to consummate the Merger are
subject to the satisfaction (or waiver by Munich Re) of the following further
conditions: (a) the representations and warranties of the Company made in the
Merger Agreement shall have been true and accurate 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 as of such date or
with respect to such period), except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein),
would not have, individually or in the aggregate, a Material Adverse Effect on
the Company and its subsidiaries, taken as a whole; and (b) the Company shall
have performed in all material respects its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Time.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The Merger Agreement provides
that 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)
the representations and warranties of Munich Re and Sub made in the Merger
Agreement (which are discussed above) shall be true and accurate 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 as of such date or with respect to such period), except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein), would not, individually or in the aggregate,
materially impair the ability of Munich Re and Sub to consummate the Merger and
the other transactions contemplated thereby; and (b) each of Munich Re and Sub
shall have performed in all material respects all of the respective obligations
under the Merger Agreement required to be performed by Munich Re or Sub, as the
case may be, at or prior to the Effective Time.
BENEFIT PLANS
In the Merger Agreement, Munich Re has agreed that for a period of two years
following the Effective Time, it will either continue the existing employee
benefit plans of the Company or will 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 benefit plans. With respect to any Parent Benefit Plan which is an
"employee benefit plan" as defined in section 3(3) of the Employee Retirement
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Income Security Act of 1974, as amended, the Merger Agreement provides that for
purposes of determining eligibility to participate, vesting and entitlement to
benefits, including severance benefits, vacation entitlement, service awards or
any service-related benefits, and accrual of pension benefits, service with the
Company or any subsidiary will be treated as service with Munich Re or its
subsidiaries; provided, however, that such service will not be recognized to the
extent that such recognition would result in a duplication of benefits. The
Merger Agreement also provides that such service will apply for purposes of
satisfying any waiting periods, evidence of insurability requirements or the
application of any preexisting condition limitations, and that employees of the
Company or any subsidiary will be given credit for amounts paid under a
corresponding benefit plan during the same period for purposes of applying
deductibles, copayments and out-of-pocket maximums as though such amounts had
been paid in accordance with the terms and conditions of the Parent Benefit
Plan. See "The Merger--General" for a description of the treatment of Company
Stock Options in the Merger.
Pursuant to the Merger Agreement, Munich Re is permitted to enter into
agreements ("Option Deferral Agreements") with holders of Company Stock Options
whereby such holders may agree to the cancellation of a portion of their Company
Stock Options in consideration for the right to receive, in lieu of the payments
to which they would otherwise be entitled at the Effective Time with respect to
their Company Stock Options, certain amounts of compensation at a future date or
dates. Pursuant to this provision, Munich Re and the Company have agreed to the
material terms of the Option Deferral Agreements, and 28 executives (as well as
one former executive who is a director of the Company) have elected to defer at
least 50% of the amounts that they would otherwise be entitled to receive at the
Effective Time in respect of their Company Stock Options (the "Deferred
Amounts"). The Deferred Amounts will be paid on the fifth anniversary of the
Effective Time (the "End Date"), subject to possible accelerated payment upon
the occurrence of certain specified events. The Deferred Amounts also will be
credited with a return based on a range of notional investments selected by each
executive (the "Basic Return") plus, except in the case of the former executive,
an additional 5% annual return (the "Additional Return"). In the event that,
prior to the End Date (a) a participating executive's employment with the
Company terminates as a result of a voluntary termination (other than as a
consequence of a constructive discharge) or a termination by the Company for
cause, and (b) such executive engages in conduct in competition with the Company
within two years of such termination of employment, then, in lieu of being paid
the Basic Return plus the Additional Return on the Deferred Amount, such
executive will be paid the lesser of the Basic Return and a money market rate.
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time: (a) by the mutual written consent of Munich Re and the Company; (b) by
either of the Company or Munich Re: (1) if the Merger shall not have occurred on
or prior to February 28, 1997; provided, however, that the right to terminate
the Merger Agreement under this provision will not be available to any party
whose failure to fulfill any obligation under the Merger Agreement has been the
cause of, or resulted in, the failure of the Merger to occur on or prior to such
date; or (2) if any governmental entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other action
the parties to the Merger Agreement are required, pursuant thereto, to use their
best efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement and
such order, decree, ruling or other action shall have become final and
non-appealable; (c) by the Company: (1) if Munich Re or Sub (x) breaches or
fails in any material respect to perform or comply with any of its covenants and
agreements contained in the Merger Agreement or (y) breaches its representations
and warranties, in each case such that the conditions to the Company's
obligations set forth above under the first paragraph of "The Merger--Conditions
to Consummation of the Merger" would not be satisfied; (2) if the Board of
Directors of the Company shall have exercised its rights as described above
under "The Merger Agreement--Certain Covenants--Fiduciary Duties"; or (3) if the
stockholders of the Company do not approve the Merger at the Special Meeting; or
(d) by Munich Re:
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(1) if the Company (x) breaches or fails in any material respect to perform or
comply with any of its covenants and agreements contained in the Merger
Agreement or (y) breaches its representations and warranties, in each case such
that the conditions to Munich Re's obligations set forth above under "The
Merger--Conditions to the Consummation of the Merger" would not be satisfied;
(2) if the Board of Directors of the Company shall have exercised its rights as
described above under "The Merger Agreement--Certain Covenants--Fiduciary
Duties"; or (3) if the stockholders of the Company do not approve the Merger at
the Special Meeting.
In the event that all of the following shall have occurred, the Merger
Agreement provides that the Company shall pay promptly to or on behalf of Munich
Re $26 million in cash: (a) a bona fide Acquisition Proposal is commenced,
publicly proposed, publicly disclosed or communicated to the Company at any time
after the date of the Merger Agreement; (b) the Board of Directors of the
Company, in accordance with its rights described in "The Merger
Agreement--Certain Covenants--Fiduciary Duties," withdraws or modifies its
approval or recommendation of the Merger Agreement or the Merger, approves or
recommends such Acquisition Proposal or enters into an agreement with respect to
such Acquisition Proposal; and (c) the Merger Agreement is terminated in
accordance with clause (c)(2), (c)(3), (d)(2) or (d)(3) of the immediately
preceding paragraph. See "The Merger Agreement--Conditions to Consummation of
the Merger."
In the Merger Agreement, the parties have agreed that, except for expenses
incurred in connection with printing this Proxy Statement as well as the filing
fees relating hereto, which costs will be shared equally by Munich Re and the
Company, all costs and expenses incurred in connection with the Merger Agreement
and the consummation of the transactions contemplated thereby will be paid by
the party incurring such expenses.
THE STOCKHOLDERS AGREEMENT
The terms of the Stockholders Agreement are set forth in the Stockholders
Agreement which was filed as Exhibit 4 to the Company's Current Report on Form
8-K (file No. 1-11688) filed on August 14, 1996, and the description of the
Stockholders Agreement contained herein is qualified in its entirety by
reference to the Stockholders Agreement. The Stockholders Agreement among Munich
Re, Sub and the KKR Stockholders was executed at the same time as the Merger
Agreement, and it provides, among other things, that the KKR Stockholders will
vote their shares in favor of the adoption and approval of the Merger Agreement
and the Merger. In addition, except as otherwise agreed to in writing in advance
by Munich Re, the KKR Stockholders agreed with Munich Re and Sub to vote against
the following actions (other than the Merger and the transactions contemplated
by the Merger Agreement): (i) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company or its
subsidiaries; (ii) a sale, lease or transfer of a material amount of assets of
the Company or its subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its subsidiaries; (iii) (a) any
change in a majority of the persons who constitute the Board of Directors; (b)
any material amendment of the Company's certificate of incorporation or by-laws;
or (c) any other action involving the Company or its subsidiaries which has the
effect of impeding, interfering with, delaying, postponing, or impairing (1) the
ability of the Company to consummate the Merger or (2) the transactions
contemplated by the Stockholders Agreement and the Merger Agreement.
In addition, pursuant to the Stockholders Agreement, each KKR Stockholder
granted to Sub an irrevocable Option to purchase the shares of Common Stock held
by such KKR Stockholder for an amount equal to the product of the Merger
Consideration and the number of shares held (the "Purchase Price") by such KKR
Stockholder. The Option may be exercised by Sub, as a whole and not in part,
during the period beginning upon the occurrence of any of the following events
and ending on the date which is the 30th calendar day following the first to
occur of such events: (i) the Merger Agreement shall have been terminated by the
Company as a result of the exercise by the Board of Directors of its rights with
respect to its fiduciary duties as described under "The Merger
Agreement--Certain Covenants--Fiduciary Duties";
28
<PAGE>
(ii) the Merger Agreement shall have been terminated by the Company because the
holders of shares of Common Stock shall have failed to approve the Merger at the
Special Meeting; or (iii) the Merger Agreement shall have been terminated by
Munich Re for the reasons described in (i) or (ii) or as a result of a material
breach by the Company of its covenants, agreements, representations or
warranties pursuant to the Merger Agreement such that the conditions to the
obligations of Munich Re and Sub would not be fulfilled.
In the Stockholders Agreement, the KKR Stockholders made certain
representations and warranties with respect to, among other things: (i) their
due organization as partnerships; (ii) their due authorization of the
Stockholders Agreement; (iii) that the Stockholders Agreement would not conflict
with or cause a default under their organizational documents, debt instruments
or contracts or result in a violation of applicable laws; and (iv) their
ownership of the shares of Common Stock to which the Option relates. Munich Re
made representations and warranties similar to those listed in the previous
sentence in clauses (i), (ii) and (iii) and with respect to its access to
sufficient funds to pay for shares to be purchased upon the exercise of the
Option.
In the Stockholders Agreement, the KKR Stockholders agreed (i) not to
dispose of, enforce or permit the execution of the provisions of any redemption
agreement with the Company or enter into any contract with respect to the
disposition or encumbrance of their shares of Common Stock except to Munich Re;
(ii) not to grant any proxies or powers of attorney with respect to such shares
except to Munich Re or Sub; (iii) not to take any action that would make any
representation or warranty of such KKR Stockholder contained in the Stockholders
Agreement untrue or incorrect or have the effect of preventing or disabling such
KKR Stockholder from performing its obligations under the Stockholders
Agreement; (iv) to irrevocably waive any rights of appraisal or rights to
dissent from the Merger that they may have; (v) not to request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such KKR Stockholder's shares of
Common Stock, unless such transfer is made in compliance with the Stockholders
Agreement; (vi) not to and not to permit any officer, director, employee or
representative of such KKR Stockholder to, directly or indirectly, (A) solicit,
initiate or encourage the submission of any Acquisition Proposal or (B)
participate in any discussions, conversations, negotiations or other
communications regarding, or furnish to any person any information with respect
to, or otherwise cooperate in any way, assist or participate in, facilitate or
encourage any effort or attempt by any other person or entity, to seek to do any
of the foregoing or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or is likely to lead to, any
Acquisition Proposal; and (vii) to promptly advise Munich Re orally and in
writing of the receipt by it of any Acquisition Proposal, or any inquiry which
would be likely to lead to any Acquisition Proposal, the material terms and
conditions of such Acquisition Proposal or inquiry, and the identity of the
person making any such Acquisition Proposal or inquiry.
In the Stockholders Agreement, Munich Re agreed that: (i) in the event that
Sub purchases the KKR Stockholders' shares of Common Stock pursuant to the
Option, as promptly as practicable thereafter, Munich Re will propose to the
Company, and will take such actions as may be necessary or appropriate in order
to effectuate at the earliest practicable time, a merger, on terms and subject
to conditions substantially the same as those provided for in the Merger
Agreement, between itself or one of its wholly owned subsidiaries and the
Company pursuant to which the stockholders of the Company (other than the
Company, any direct or indirect subsidiary of the Company or Munich Re) will
receive an amount of cash consideration per share of Common Stock equal to the
Merger Consideration; and (ii) if, after purchasing pursuant to the Option, the
shares of Common Stock that are subject to the Option, Munich Re or any of its
affiliates receives any cash or non-cash consideration in respect of the shares
in connection with a Third Party Business Combination (as defined below) in the
year following the closing of the sale pursuant to the Option, Munich Re will
promptly pay over to the KKR Stockholders, as an addition to the Purchase Price,
the excess, if any, of such consideration over the aggregate Purchase Price paid
for the shares purchased pursuant to the Option less the sum of the amount of
taxes payable by Munich Re or Sub in connection
29
<PAGE>
with such Third Party Business Combination and the amount of out-of-pocket
expenses paid by Munich Re or Sub in connection with such Third Party Business
Combination. Under the Stockholders Agreement, the term "Third Party Business
Combination" means the occurrence of any of the following events: (A) the
Company or any subsidiary of the Company is acquired by merger or otherwise by
any person or group, other than Munich Re or any affiliate thereof (a "Third
Party"); (B) the Company or any subsidiary of the Company enters into an
agreement with a Third Party which contemplates the acquisition of 20% or more
of the total assets of the Company and its subsidiaries, taken as a whole; (C)
the Company or Munich Re enters into a merger or other agreement with a Third
Party which contemplates the acquisition of more than 20% of the outstanding
shares of the Company's capital stock; or (D) a Third Party acquires more than
20% of the total assets of the Company and its subsidiaries, taken as a whole.
Notwithstanding the foregoing, however, in no event will the KKR Stockholders be
entitled to receive any such payment if at any time prior to the consummation of
such Third Party Business Combination, Munich Re shall, directly or indirectly,
beneficially own 100% of the Common Stock of the Company.
Munich Re and Sub further agreed in the Stockholders Agreement that, in
connection with any exercise of the Option, Sub will purchase, pursuant to "tag
along" rights of stockholders of the Company who are parties to agreements with
any KKR Stockholder (or any affiliate of such KKR Stockholder), all shares of
Common Stock required to be purchased as a result of the sale by the KKR
Stockholders of all shares of Common Stock owned by them pursuant to such
exercise of the Option. Any such purchase of shares of Common Stock from such
management stockholders is required by the Stockholders Agreement to be for the
same purchase price as for the shares of Common Stock purchased pursuant to such
exercise of the Option and is required by the Stockholders Agreement to be made
notwithstanding any waiver or nonfulfillment by any such stockholder or any KKR
Stockholder (or its affiliate) of any requirements for notice of sale or proper
exercise of such "tag along" rights.
In connection with the execution and delivery by the KKR Stockholders of the
Stockholders Agreement, the Company confirmed to the KKR Stockholders that the
Company's indemnification obligations to the KKR Stockholders and certain of
their affiliates under an agreement with the KKR Stockholders which was entered
into at the time of the acquisition of the Company by the KKR Stockholders would
be applicable to liabilities, obligations, losses and certain other costs and
expenses arising out of their purchase or ownership of shares of Common Stock or
litigation to which they are made parties in their capacity as stockholders or
owners of securities of the Company, including certain claims that might arise
with respect to their entering into or performing their obligations under the
Stockholders Agreement. Munich Re acknowledged such obligations of the Company
and agreed not to take any action which would affect the Company's ability to
perform such obligations.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In addition to (i) shares of Common Stock held by directors and executive
officers of the Company, for which they will receive the same consideration as
other holders of shares of Common Stock of the Company, and (ii) options to
acquire shares of Common Stock granted pursuant to certain Company incentive
compensation plans, which will be treated as described under "The Merger
Agreement--Benefit Plans," Munich Re has offered to certain executive officers
of the Company the opportunity to agree to the cancellation of a portion of
their stock options in consideration for the right to receive, in lieu of the
payments to which they would otherwise be entitled at the Effective Time with
respect to such stock options, certain amounts of compensation at a future date
or dates. Twenty-eight executives, and one former executive (who is a director
of the Company), have elected to accept such offer.
In connection with the consummation of the Merger Agreement, the executive
officers named below will have the opportunity to receive the following amounts
upon exchange and cancellation of their Company Stock Options as of the Record
Date (before taking into account any deferral elections described under "The
Merger--Benefit Plans") Mahmoud M. Abdallah (205,000 Company Stock Options,
$9,211,877); James R. Fisher (275,000 Company Stock Options, $13,201,880); Paul
H. Inderbitzin (550,000
30
<PAGE>
Company Stock Options, $28,052,500); Edward B. Jobe (250,000 Company Stock
Options, $14,650,000); James A. Lawrence (18,000 Company Stock Options,
$566,000); Edward J. Noonan (205,000 Company Stock Options, $9,211,877); and
Michael R. Zucchini (20,000 Company Stock Options, $600,280). In addition, other
executive officers of the Company will receive payments upon exchange of their
Company Stock Options. See "Stock Ownership of Management and Certain Beneficial
Owners."
The Merger Agreement provides that Munich Re, at all times after the
Effective Time, will indemnify each person who was, on the date of the Merger
Agreement or at any time prior to the date of the Merger Agreement, a director
or officer of the Company or of any of the Company's subsidiaries or a person
entitled to indemnification (each individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the same extent and in the same
manner as was provided on the date of the Merger Agreement in the respective
charters or by-laws of the Company and such subsidiaries or otherwise in effect
on the date of the Merger Agreement, with respect to any claim, liability, loss,
damage, cost or expense (whenever asserted or claimed) ("Indemnified Liability")
based in whole or in part on, or arising in whole or in part out of, any matter
existing or occurring at or prior to the Effective Time. The Indemnified Parties
will be entitled, pursuant to the Merger Agreement, to advancement of expenses
provided such Indemnified Party provides Munich Re with an undertaking to
reimburse Munich Re in a form comparable to the undertaking provided for by the
DGCL. Munich Re will, or will cause the Surviving Corporation to, maintain in
effect for not less than six years after consummation of the Merger the policies
of directors' and officers' liability insurance (the "D&O Insurance") maintained
by the Company and its subsidiaries on the date of the Merger Agreement;
provided that Munich Re may substitute therefor policies having at least the
same coverage and containing terms and conditions which are no less advantageous
to the persons currently covered by such policies and with carriers comparable
to the Company's existing carriers in terms of creditworthiness, with respect to
matters existing or occurring at or prior to the Effective Time.
In addition, the Company has agreed to pay a fee to KKR in an amount equal
to 0.40% of the aggregate consideration in the Merger upon Munich Re's
acquisition of a controlling interest in the Company as consideration for
certain advisory services KKR has rendered to the Company since 1992 for which
KKR was not previously compensated, including services in connection with the
Merger. Certain members of the Company's Board of Directors are affiliates of
KKR. The directors of the Company who are not affiliated with KKR or members of
the Company's management unanimously approved the fee to KKR. See "Stock
Ownership of Management and Certain Beneficial Owners."
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion of the material United States federal income tax
consequences of the Merger is for general information only. It is based on the
Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
existing and proposed Treasury regulations and judicial and administrative
determinations, all of which are subject to change at any time, possibly on a
retroactive basis. It does not discuss the state, local or foreign tax
consequences of the Merger, nor does it discuss tax consequences to categories
of stockholders that are subject to special rules, such as foreign persons,
tax-exempt organizations, insurance companies, banks, persons who received their
shares of Common Stock, upon the exercise of employee stock options or
otherwise, as compensation and dealers in stock and securities. Tax consequences
may vary depending on the particular status of an investor. No rulings will be
sought from the Internal Revenue Service (the "Service") with respect to the
federal income tax consequences of the Merger.
RECEIPT OF MERGER CONSIDERATION
The receipt of the Merger Consideration pursuant to the Merger will be a
taxable transaction for U.S. federal income tax purposes (and may also be a
taxable transaction under applicable state, local and other
31
<PAGE>
income tax laws). In general, for federal income tax purposes, a stockholder
will recognize gain or loss equal to the difference between his or her adjusted
tax basis in his or her shares of Common Stock and the amount of cash received
in exchange therefor. Such gain or loss generally will be capital gain or loss
if the
shares of Common Stock were held as capital assets and will be long-term capital
gain or loss if, on the date of sale, the shares of Common Stock were held for
more than one year.
BACKUP WITHHOLDING
Under the Code, the receipt of Merger Consideration may be subject, under
certain circumstances, to "backup withholding" at a 31% rate. This withholding
generally applies only if the stockholder (i) fails to furnish his or her social
security or other taxpayer identification number ("TIN") within a reasonable
time after the request therefor, (ii) furnishes an incorrect TIN, (iii) is
notified by the Service that he or she has failed to report properly interest or
dividends, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is the correct
number and that he or she is not subject to backup withholding. Any amount
withheld from a payment to a stockholder under the backup withholding rules is
allowable as a credit against such stockholder's federal income tax liability,
provided that the required information is furnished to the Service. Corporations
and certain other entities described in the Code and Treasury Regulations are
exempt from such withholding if their exempt status is properly established.
Stockholders should consult their tax advisors as to their qualification for
exemption from withholding and the procedure for obtaining such exemption.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF
THE MERGER.
DISSENTERS' RIGHTS
Record holders of shares of Common Stock who follow the appropriate
procedures are entitled to appraisal rights under Section 262 of the DGCL in
connection with the Merger. The following discussion is not a complete statement
of the law pertaining to appraisal rights under the DGCL and is qualified in its
entirety by the full text of Section 262 of the DGCL which is reprinted in its
entirety as Annex IV to this Proxy Statement. Except as set forth herein,
stockholders of the Company will not be entitled to appraisal rights in
connection with the Merger.
Under Section 262 of the DGCL, record holders of shares of Common Stock who
follow the procedures set forth in Section 262 of the DGCL and who have not
voted in favor of the Merger will be entitled to have their shares of Common
Stock appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, as determined by such court.
Under Section 262 of the DGCL, where a merger agreement is to be submitted
for approval and adoption at a meeting of stockholders, as in the case of the
Special Meeting, not less than 20 days prior to the meeting, the Company must
notify each of the holders of shares of Common Stock at the close of business on
the Record Date that such appraisal rights are available and include in each
such notice a copy of Section 262 of the DGCL. This Proxy Statement constitutes
such notice. Any such stockholder who wishes to exercise appraisal rights should
review the following discussion and Annex IV carefully because failure to timely
and properly comply with the procedures specified in Section 262 of the DGCL
will result in the loss of appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights must
deliver to the Company, before the vote on the approval and adoption of the
Merger Agreement at the Special Meeting,
32
<PAGE>
a written demand for appraisal of such holder's shares of Common Stock. In
addition, a holder of shares of Common Stock wishing to exercise appraisal
rights must hold of record such shares on the date the written demand for
appraisal is made and must continue to hold such shares through the Effective
Time.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates.
If the shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker who holds
shares of Common Stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the shares of Common Stock held for one or more
beneficial owners while not exercising such rights with respect to the shares of
Common Stock held for other beneficial owners; in such case, the written demand
should set forth the number of shares as to which appraisal is sought and where
no number of shares is expressly mentioned the demand will be presumed to cover
all shares of Common Stock held in the name of the record owner. Holders of
shares of Common Stock who hold their shares in brokerage accounts or other
nominee forms and who wish to exercise appraisal rights are urged to consult
with their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such nominee. All written demands for appraisal of
shares of Common Stock should be mailed or delivered to Robert K. Burgess,
Senior Vice President, General Counsel and Secretary, American Re Corporation,
American Re Plaza, 555 College Road East, Princeton, New Jersey 08543-5241 so as
to be received before the vote on the approval and adoption of the Merger
Agreement at the Special Meeting.
Within 10 days after the Effective Time, the Company, as the surviving
corporation in the Merger, must send a notice as to the effectiveness of the
Merger to each person who has satisfied the appropriate provisions of Section
262 of the DGCL. Within 120 days after the Effective Time, but not thereafter,
the Company, or any holder of shares of Common Stock entitled to appraisal
rights under Section 262 of the DGCL and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of such shares. The Company is not under any
obligation, and has no present intention, to file a petition with respect to the
appraisal of the fair value of the shares of Common Stock. Accordingly, it is
the obligation of the stockholders to initiate all necessary action to perfect
their appraisal rights within the time prescribed in Section 262 of the DGCL.
Within 120 days after the Effective Time, any record holder of shares of
Common Stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from the Company a
statement setting forth the aggregate number of shares of Common Stock with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statements must be mailed within 10 days
after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares of
Common Stock entitled to appraisal rights and will appraise the "fair value" of
the shares of Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Holders considering seeking appraisal should be aware that the fair value of
their shares of Common Stock as determined under Section 262 of the DGCL could
be more than, the same as or less than the value of the Merger Consideration
that they would otherwise receive if they did not seek appraisal of their shares
of Common Stock. The Delaware Supreme Court has
33
<PAGE>
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. More specifically, the
Delaware Supreme Court has stated that: "Fair value, in an appraisal context,
measures `that which has been taken from the shareholder, viz., his
proportionate interest in a going concern.' In the appraisal process the
corporation is valued `as an entity,' not merely as a collection of assets or by
the sum of the market price of each share of its stock. Moreover, the
corporation must be viewed as an on-going enterprise, occupying a particular
market position in the light of future prospects." In addition, Delaware courts
have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a stockholder's exclusive remedy. The Court
will also determine the amount of interest, if any, to be paid upon the amounts
to be received by persons whose shares of Common Stock have been appraised. The
costs of the action may be determined by the Court and taxed upon the parties as
the Court deems equitable. The Court may also order that all or a portion of the
expenses incurred by any holder of shares of Common Stock in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the shares of Common Stock entitled to
appraisal.
Any holder of shares of Common Stock who has duly demanded an appraisal in
compliance with Section 262 of the DGCL will not, after the Effective Time, be
entitled to vote the shares of Common Stock subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to holders of
record of shares of Common Stock as of a date prior to the Effective Time).
If any holder of shares of Common Stock who demands appraisal of shares
under Section 262 of the DGCL fails to perfect, or effectively withdraws or
loses, the right to appraisal, as provided in the DGCL, the shares of Common
Stock of such holder will be converted into Merger Consideration in accordance
with the Merger Agreement. A holder of shares of Common Stock will fail to
perfect, or will effectively lose, the right to appraisal if no petition for
appraisal is filed within 120 days after the Effective Time. A holder may
withdraw a demand for appraisal by delivering to the Company a written
withdrawal of the demand for appraisal and acceptance of the Merger, except that
any such attempt to withdraw made more than 60 days after the Effective Time
will require the written approval of the Company.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
The foregoing is a summary of certain of the provisions of Section 262 of
the DGCL and is qualified in its entirety by reference to the full text of such
Section, a copy of which is attached hereto as Annex IV.
34
<PAGE>
SELECTED FINANCIAL INFORMATION CONCERNING THE COMPANY
Set forth below are five years and the most recent interim period of
selected financial information which should be read in conjunction with the
consolidated financial statements and notes of the Company incorporated by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996. Financial information is presented for
American Re-Insurance for the year ended December 31, 1991, and the nine-month
period ended September 30, 1992, and for the Company for the three months ended
December 31, 1992, and each of the years ended December 31, 1993, 1994 and 1995.
The information for the year ended December 31, 1991, and the nine months ended
September 30, 1992, was derived from the audited consolidated financial
statements and related notes of American Re-Insurance. The information as of and
for the three months ended December 31, 1992, and each of the years ended
December 31, 1993, 1994 and 1995, was derived from the audited consolidated
financial statements and related notes of the Company. The financial data for
the six months ended June 30, 1995 and 1996, respectively, have been derived
from the Company's unaudited consolidated financial statements as of and for the
six-month periods then ended, which, in the opinion of the management of the
Company, include all adjustments (consisting of normal recurring accruals)
necessary for the fair presentation of results of operations and financial
position for the periods and as of the dates presented. The results of
operations for any interim period are not necessarily indicative of results of
operations for the full year. The statutory data have been derived from
statutory financial statements. Such statutory financial statements are prepared
in accordance with statutory accounting principles, which differ from generally
accepted accounting principles ("GAAP").
<TABLE>
<CAPTION>
AMERICAN RE-INSURANCE THE
(PREDECESSOR COMPANY) COMPANY COMBINED(1) THE COMPANY
----------------------------- ------------- ------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NINE MONTHS THREE MONTHS YEAR SIX MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------
<CAPTION>
(DOLLARS IN
MILLIONS,
EXCEPT
PER SHARE
DATA) 1991 1992 1992 1992 1993 1994 1995 1995 1996
------------ --------------- ------------- ------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING
DATA:
Net premiums
written... $ 901.7 $ 741.7 $ 278.6 $ 1,020.4 $ 1,363.4 $ 1,553.3 $ 1,629.5 $ 828.6 $ 965.5
Net premiums
earned.... 930.1 692.7 270.7 963.4 1,249.9 1,461.4 1,530.9 766.9 859.8
Losses and
LAE (2)... 677.6 472.0 201.3 673.3 796.9 1,011.0 1,340.2 505.4 568.6
Underwriting
expenses... 256.2 245.5 76.4 322.0 403.5 439.3 452.4 230.2 227.5
Underwriting
gain
(loss).... (3.7) (24.8) (7.1) (31.9) 49.5 11.1 (261.7) 31.3 63.8
Net
investment
income.... 220.7 165.3 42.0 207.3 165.1 188.7 222.6 108.3 120.0
Net realized
capital
gains
(losses)... 10.4 4.2 (2.1) 2.1 5.1 (0.2) 4.7 2.1 1.2
Interest
expense... -- -- 24.9 -- 66.1 60.0 60.7 32.5 27.1
Income
(loss)
before
income
taxes..... 202.8 128.9 (10.5) -- 144.0 120.7 (159.5) 96.0 144.5
Income taxes
(benefits)... 44.7 28.2 (7.0) -- 36.0 23.2 (76.6) 23.8 40.4
Income
(loss)
before
distributions
on
preferred
securities
of
subsidiary
trust,
extraordinary
loss, and
cumulative
effect of
accounting
change.... 158.1 100.7 (3.5) -- 108.0 97.5 (82.9) 72.2 104.1
Distributions
on
preferred
securities
of
subsidiary
trust..... -- -- -- -- -- -- (4.4) -- (6.6)
Income
(loss)
before
extraordinary
loss and
cumulative
effect of
accounting
change.... 158.1 100.7 (3.5) -- 108.0 97.5 (87.3) 72.2 97.5
Extraordinary
loss, net
of
applicable
income tax
effect.... -- -- -- -- (26.6) -- (0.3) -- --
Cumulative
effect of
accounting
change,
net of
applicable
income tax
effect.... -- -- -- -- 17.8 -- -- -- --
Net income
(loss)
before
preferred
dividend... 158.1 100.7 (3.5) -- 99.3 97.5 (87.6) 72.2 97.5
Paid-in-kind
preferred
dividends... -- -- 2.5 -- 0.9 -- -- -- --
Net income
(loss)
available
to common
shareholders... 158.1 100.7 (6.0) -- 98.4 97.5 (87.6) 72.2 97.5
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RE-INSURANCE THE
(PREDECESSOR COMPANY) COMPANY COMBINED(1) THE COMPANY
----------------------------- ------------- ------------- -----------------------------------------------------
NINE MONTHS THREE MONTHS YEAR SIX MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------
(DOLLARS IN
MILLIONS,
EXCEPT
PER SHARE
DATA) 1991 1992 1992 1992 1993 1994 1995 1995 1996
------------ --------------- ------------- ------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
(LOSS) PER
SHARE:
Income
(loss)
before
extraordinary
loss and
cumulative
effect of
accounting
change.... -- -- $ (0.10) -- $ 2.24 $ 2.01 $ (1.85) $ 1.49 $ 2.00
Extraordinary
loss, net
of tax.... -- -- -- -- (0.55) -- (0.01) -- --
Cumulative
effect of
accounting
change,
net of
tax....... -- -- -- -- 0.37 -- -- -- --
Paid-in-kind
preferred
dividend... -- -- (0.08) -- (0.02) -- -- -- --
------------ ------ ------------- ------------- --------- --------- --------- --------- ---------
Net income
(loss) per
common
share..... -- -- $ (0.18) -- $ 2.04 $ 2.01 $ (1.86) $ 1.49 $ 2.00
DIVIDENDS
DECLARED PER
COMMON SHARE:
Cash
dividend
per common
share..... -- -- -- -- -- -- $ 0.32 $ -- $ 0.19
OTHER GAAP
OPERATING
DATA (3):
Loss and LAE
ratio..... 72.9% 68.1% 74.4% 69.9% 63.8% 69.2% 87.5% 65.9% 66.1%
Underwriting
expense
ratio..... 27.5 35.5 28.2 33.4 32.3 30.0 29.6 30.0 26.4
------------ ------ ------------- ------------- --------- --------- --------- --------- ---------
Combined
ratio..... 100.4% 103.6% 102.6% 103.3% 96.1% 99.2% 117.1% 95.9% 92.5%
STATUTORY DATA
(4):
Ratio of net
premiums
written to
surplus... 1.22x -- -- 1.15x 1.26x 1.39x 1.45x 1.47x 1.53x
Policyholders'
surplus... $ 735.7 -- -- $ 875.8 $ 1,079.3 $ 1,104.1 $ 1,109.6 $ 1,127.4 $ 1,150.8
Loss and LAE
ratio..... 73.0% -- -- 68.5% 64.8% 71.2% 88.9% 67.7% 66.1%
Underwriting
expense
ratio..... 29.7 -- -- 34.3 34.7 32.6 32.1 31.9 28.8
------------ ------ ------------- ------------- --------- --------- --------- --------- ---------
Combined
ratio..... 102.7% -- -- 102.8% 99.5% 103.8% 121.0% 99.6% 94.9%
BALANCE SHEET
DATA (AT END
OF PERIOD):
Total
investments
and
cash...... $ 2,752.3 -- $ 2,833.8 -- $ 3,153.3 $ 3,308.9 $ 3,957.5 $ 3,579.3 $ 4,006.3
Total
assets.... 3,812.5 (5) -- 5,886.9 -- 6,231.4 6,677.9 7,814.4 7,071.4 8,131.3
Loss and LAE
reserves... 2,063.5 (5) -- 3,523.9 -- 3,685.7 3,971.9 4,790.0 4,158.4 4,884.7
Senior bank
debt...... -- -- 575.0 -- 275.0 200.0 75.0 150.0 75.0
Senior
subordinated
debt...... -- -- 450.0 -- 450.0 450.0 450.0 450.0 450.0
Company-obligated
mandatorily
redeemable
preferred
securities
of
subsidiary
trust
holding as
all its
assets
Junior
Subordinated
Debentures... -- -- -- -- -- -- 237.5 -- 237.5
Stockholders'
equity.... 966.0 -- 386.3 -- 797.2 789.2 847.1 953.1 855.9
Book Value
per common
share..... -- -- $ 9.32 -- $ 16.94 $ 16.77 $ 18.00 $ 20.26 $ 18.10
</TABLE>
- ------------------------
(1) Represents the sum of American Re-Insurance's results for the nine months
ended September 30, 1992, and the Company's results for the three months
ended December 31, 1992. The combined sum has been presented for comparison
of significant operating data.
(2) "LAE" means loss adjustment expense.
(3) GAAP loss and LAE ratio represents the sum of losses and LAE as a percentage
of net premiums earned. GAAP underwriting expense ratio represents
underwriting expenses as a percentage of net premiums earned. GAAP combined
ratio represents the sum of the GAAP loss and LAE ratio and GAAP
underwriting expense ratio.
(4) Represents statutory data for the applicable period. Ratio of net premiums
written to surplus represents statutory net premiums written for the period
over statutory policyholders' surplus at the end of such period. Statutory
loss and LAE ratio represents the sum of statutory losses and LAE as a
percentage of statutory net premiums earned. Statutory underwriting expense
ratio represents statutory underwriting expenses as a percentage of
statutory net premiums written. Statutory combined ratio represents the sum
of the statutory loss and LAE ratio and the statutory underwriting expense
ratio.
(5) Stated prior to the Company's adoption of the gross financial reporting
requirements as prescribed by Financial Accounting Standard No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts."
36
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of the Record Date, by (i) each person
known by the Company to own beneficially more than 5% of the Company's
outstanding shares of Common Stock, (ii) each of the Company's directors
(Messrs. Fox, Golkin, Inderbitzin, Jobe, Kravis, Lawrence and Zucchini), (iii)
the named executive officers and (iv) all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1)(2) PERCENTAGE(1)
- ------------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
KKR Associates(2)
9 West 57th Street
New York, New York 10019............................................................ 30,236,000 63.9%
Edward A. Gilhuly(2)(3)............................................................ 900 *
Perry Golkin(2)(4)................................................................. 1,800 *
James H. Greene, Jr.(2)(5)......................................................... 6,935 *
Henry R. Kravis(2)(6).............................................................. 3,800 *
Paul E. Raether(2)(7).............................................................. 4,800 *
Clifton S. Robbins(2).............................................................. 2,000 *
George R. Roberts(2)(8)............................................................ 18,400 *
Scott Stuart(2).................................................................... 800 *
Wellington Management Company
75 State Street(9)
Boston, MA 02109................................................................... 2,440,420 5.16%
Mahmoud M. Abdallah(10)............................................................ 206,138 *
James R. Fisher(11).................................................................. 281,329 *
Saul A. Fox(2)(12)................................................................... 36,525 *
Paul H. Inderbitzin(13).............................................................. 558,695 1.1%
Edward B. Jobe(14)................................................................... 255,712 *
James A. Lawrence(15)................................................................ 27,000 *
Edward J. Noonan(16)................................................................. 205,141 *
Michael R. Zucchini(17).............................................................. 30,000 *
All directors and executive officers as a group(18) (other than as set forth in
relation to KKR Associates and the individuals listed thereunder) (15 persons)..... 2,361,487 4.7%
</TABLE>
- ------------------------
* Less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares as of a given date which such person
has the right to acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons named above on a given date, any security which such person or
persons has the right to acquire within 60 days after such date is deemed to
be outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Shares shown as owned by KKR Associates are owned of record by the KKR
Stockholders, of each of which KKR Associates is the sole general partner
and as to which it possesses sole voting and investment power. KKR
Associates is a limited partnership of which Henry R. Kravis, Perry Golkin
(both directors of the Company), Edward A. Gilhuly, James H. Greene, Jr.,
Robert I. MacDonnell, Michael W. Michelson, Paul E. Raether, Clifton S.
Robbins, George R. Roberts, Scott Stuart and Michael T. Tokarz are the
general partners. Saul A. Fox was a general partner of KKR Associates until
37
<PAGE>
September 1, 1996. Messrs. Kravis and Roberts are also members of the
Executive Committee of KKR Associates. The general partners of KKR
Associates may be deemed to share beneficial ownership of the shares shown
as owned by KKR Associates. Such individuals disclaim beneficial ownership
of the shares shown as owned by KKR Associates. By virtue of the
Stockholders Agreement and the Merger Agreement, Munich Re and Sub may be
deemed to be beneficial owners of the 30,236,000 shares of Common Stock
shown as owned by KKR Associates. The address of both Munich Re and Sub is
107 Koniginstrasse, D-80791 Munich, Germany.
(3) All 900 shares are held in trust by the Edward and Karen Gilhuly Trust.
(4) Includes 1,500 shares held by members of Mr. Golkin's family living in his
household, as to which he disclaims beneficial ownership.
(5) Includes 1,935 shares held by members of Mr. Greene's family living in his
household, as to which he disclaims beneficial ownership.
(6) All 3,800 shares are held in trust for the benefit of members of Mr.
Kravis' family. Mr. Kravis disclaims beneficial ownership of these shares.
(7) All 4,800 shares are held in trust for the benefit of Mr. Raether's family
as to which shares he disclaims beneficial ownership. Mr. Raether's spouse
is a trustee of such trust.
(8) All 18,400 shares are owned by a private foundation established by Mr.
Roberts. Mr. Roberts disclaims beneficial ownership of such shares.
(9) Based on information contained in the most recent Schedule 13-G filed by
the beneficial owner under the Exchange Act, Wellington Management Company
and its wholly owned subsidiary, Wellington Trust Co. N.A., are deemed to be
the beneficial owners of the shares in their capacity as investment advisor
to various investment advisory clients. Wellington has shared voting power
with respect to 1,227,400 shares and shared dispositive power with respect
to all such shares.
(10) Includes 205,000 shares which Mr. Abdallah currently has the right to
acquire pursuant to exercisable options. Such options, for purposes of this
table, are deemed to be beneficially owned by Mr. Abdallah.
(11) Includes 275,000 shares which Mr. Fisher currently has the right to acquire
pursuant to exercisable options. Such options, for purposes of this table,
are deemed to be beneficially owned by Mr. Fisher.
(12) Includes 325 shares held by members of Mr. Fox's family living in his
household as to which he disclaims beneficial ownership.
(13) Includes 550,000 shares which Mr. Inderbitzin currently has the right to
acquire pursuant to exercisable options. Such options for purposes of this
table, are deemed to be beneficially owned by Mr. Inderbitzin.
(14) Includes 250,000 shares which Mr. Jobe currently has the right to acquire
pursuant to exercisable options. Such options, for purposes of this table,
are deemed to be beneficially owned by Mr. Jobe.
(15) Includes 18,000 shares which Mr. Lawrence currently has the right to
acquire pursuant to exercisable options. Such options, for purposes of this
table, are deemed to be beneficially owned by Mr. Lawrence.
(16) Includes 205,000 shares which Mr. Noonan currently has the right to acquire
pursuant to exercisable options. Such options, for purposes of this table,
are deemed to be beneficially owned by Mr. Noonan.
(17) Includes 20,000 shares which Mr. Zucchini currently has the right to
acquire pursuant to exercisable options. Such options, for purposes of this
table, are deemed to be beneficially owned by Mr. Zucchini.
38
<PAGE>
(18) Includes 2,291,500 shares which all directors and executive officers as a
group have the right to acquire pursuant to exercisable options. Such
options, for purposes of this table, are deemed to be beneficially owned by
such directors and executive officers.
MARKET PRICES
Shares of Common Stock are listed and traded on the NYSE. On July 1, 1996,
the day on which the proposed acquisition of National Re Corporation by General
Re Corporation was announced, high and low sales prices of a share of Common
Stock on the NYSE Composite Transactions Tape were $46.375 and $45.375,
respectively. See "The Merger--Background of the Merger." On August 2, 1996, the
last day of trading preceding the Company's press release announcing that it was
considering strategic alternatives, high and low sales prices of a share of
Common Stock on the NYSE Composite Transactions Tape were $58.25 and $57.00,
respectively. On August 13, 1996, the date preceding public announcement of the
signing of the merger agreement, high and low sales prices of a share of Common
Stock on the NYSE Composite Transactions Tape were $59.00 and $56.50,
respectively. On October 21, 1996, the latest practicable trading day before the
printing of this Proxy Statement, the high and low sales prices of a share of
Common Stock on the NYSE Composite Transactions Tape were $64.25 and $64.00,
respectively.
CERTAIN PENDING LITIGATION
On August 16, 1996, the Company and all of its directors, including a
director who is also an executive officer, KKR and Munich Re were named as
defendants in a complaint filed in the Court of Chancery in the State of
Delaware. The complaint was brought by an alleged stockholder of the Company,
individually and purportedly as a class action on behalf of all other
stockholders of the Company. The complaint alleges breaches of fiduciary duty by
the Company and its directors, including certain directors who are also general
partners of KKR, and purported breaches of fiduciary duty by KKR, as an alleged
majority and controlling shareholder, arising primarily from the Merger. The
complaint also alleges that Munich Re aided and abetted the foregoing alleged
breaches of fiduciary duty. In general, the complaint alleges that the directors
of the Company and KKR breached their purported fiduciary duties by undertaking
the sale of the Company to Munich Re without giving adequate consideration to
all feasible and value-maximizing strategic alternatives, and alludes to certain
separate agreements with the Company and Munich Re which are alleged to have
indicated that KKR negotiated with different objectives and interests than those
of the minority, public stockholders. The complaint seeks, inter alia,
injunctive relief prohibiting the Company from, among other things, consummating
the Merger. The complaint also seeks damages and other relief. An agreement in
principle to settle the litigation has been reached with counsel to the
plaintiff and is subject to documentation and court approval.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission, are
incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K (File No.1-11688) for the
year ended December 31, 1995;
(ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996, respectively; and
(iii) the Company's Current Reports on Form 8-K filed February 3, 1996
(as amended February 6, 1996) and August 14, 1996, respectively.
All reports and definitive proxy or information statements filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference into this Proxy
Statement
39
<PAGE>
from the dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated in this Proxy Statement shall
be deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference modifies or
supersedes such statement.
A copy of the documents incorporated herein by reference (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information incorporated herein) that are not presented herein or delivered
herewith will be provided without charge to each person, including any
beneficial owner, to whom a Proxy Statement is delivered, upon oral or written
request of any such person and by first-class mail or other equally prompt means
within one business day of receipt of request. Requests should be directed to
Ms. Nancy Columbia, Investor Relations, American Re Corporation, 555 College
Road East, Princeton, New Jersey 08543-5241 (telephone (609) 243-4684). In order
to ensure timely delivery of the documents in advance of the Special Meeting to
which this Proxy Statement relates, any such request should be made by November
14, 1996.
Statements contained in this Proxy Statement or in any document incorporated
by reference in this Proxy Statement relating to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to this Proxy Statement or such other report or
document, each such statement being qualified in all respects by such reference.
INDEPENDENT ACCOUNTANTS
Upon appointment by the Company's Board of Directors, ratified by the
holders of the Common Stock, Deloitte & Touche LLP, independent public
accountants, audited and reported on the consolidated financial statements of
the Company and its subsidiaries for the year ended December 31, 1995. Such
financial statements have been incorporated by reference in this Proxy Statement
in reliance upon such report. The Company's Board of Directors appointed
Deloitte & Touche LLP as the Company's independent auditors for the year ending
December 31, 1996, and the Company's common stockholders ratified the
appointment of auditors at the Annual Meeting of Stockholders held May 14, 1996.
A representative of Deloitte & Touche LLP is expected to be present at the
Special Meeting, will have an opportunity to make a statement if such
representative so desires and will be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS
If the Merger Agreement is not approved by the holders of shares of Common
Stock of the Company, it is presently expected that the 1997 Annual Meeting of
Stockholders will be held on May 15, 1997. Stockholder proposals intended to be
presented at that annual meeting in 1997 should be directed to the Secretary of
the Company and must be received by the Company no later than December 2, 1996
for inclusion in the proxy statement and proxy card relating to that meeting.
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any other
matters before the Special Meeting and as of the date hereof does not know of
any other matters that may be brought before the Special Meeting by others. If
any other matter should properly come before the Special Meeting, the persons
named in the enclosed proxy as proxy appointees will have discretionary
authority to vote the shares of Common Stock thereby represented in accordance
with their best judgment.
ROBERT K. BURGESS
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
October 23, 1996
40
<PAGE>
ANNEX I
COMPOSITE CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
AMONG
MUNCHENER RUCKVERSICHERUNGS-GESELLSCHAFT
AKTIENGESELLSCHAFT IN MUNCHEN,
PUMA ACQUISITION CORP.
AND
AMERICAN RE CORPORATION
DATED AS OF AUGUST 13, 1996*
- ------------------------
* As amended as of October 23, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger............................................................................. I-1
Section 1.2 Effective Time......................................................................... I-1
Section 1.3 Effects of the Merger.................................................................. I-2
Section 1.4 Certificate of Incorporation; By-laws.................................................. I-2
Section 1.5 Directors and Officers................................................................. I-2
ARTICLE II
CONVERSION OF SHARES; STOCKHOLDERS MEETING
Section 2.1 Conversion of Securities............................................................... I-2
Section 2.2 Treatment of Company Stock Options..................................................... I-2
Section 2.3 Dissenting Shares and Section 262 Shares............................................... I-3
Section 2.4 Surrender of Shares; Stock Transfer Books.............................................. I-3
Section 2.5 Stockholders Meeting................................................................... I-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization........................................................................... I-5
Section 3.2 Capitalization......................................................................... I-5
Section 3.3 Corporate Authorization; Validity of Agreement; Company Action......................... I-6
Section 3.4 Consents and Approvals; No Violations.................................................. I-6
Section 3.5 SEC Reports and Financial Statements................................................... I-7
Section 3.6 Absence of Certain Changes............................................................. I-8
Section 3.7 Information in Proxy Statement......................................................... I-8
Section 3.8 Employee Benefit Plans................................................................. I-8
Section 3.9 Compliance............................................................................. I-9
Section 3.10 Absence of Litigation.................................................................. I-9
Section 3.11 Taxes.................................................................................. I-10
Section 3.12 Opinion of Financial Advisors.......................................................... I-10
Section 3.13 Aetna Adverse Loss Agreement........................................................... I-10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.1 Organization........................................................................... I-11
Section 4.2 Corporate Authorization; Validity of Agreement; Necessary Action....................... I-11
Section 4.3 Consents and Approvals; No Violations.................................................. I-11
Section 4.4 Information in Proxy Statement......................................................... I-12
Section 4.5 Financing.............................................................................. I-12
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company...................................................... I-12
Section 5.2 Access to Information.................................................................. I-14
Section 5.3 Consents and Approvals................................................................. I-14
Section 5.4 Employee Matters....................................................................... I-14
Section 5.5 No Solicitation........................................................................ I-15
</TABLE>
I-(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Section 5.6 Fiduciary Duties..................................................... I-15
Section 5.7 Additional Agreements................................................ I-16
Section 5.8 Publicity............................................................ I-16
Section 5.9 Notification of Certain Matters...................................... I-16
Section Directors' and Officers' Insurance and Indemnification...............
5.10 I-16
Section Proxy Statement......................................................
5.11 I-17
Section Certain Fees.........................................................
5.12 I-17
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of Each Party.......................... I-18
Section 6.2 Conditions to the Obligations of Parent and Sub...................... I-18
Section 6.3 Conditions to the Obligations of the Company......................... I-18
ARTICLE VII
TERMINATION
Section 7.1 Termination.......................................................... I-19
Section 7.2 Effect of Termination................................................ I-19
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Costs and Expenses................................................... I-20
Section 8.2 Financial Advisory Fees.............................................. I-20
Section 8.3 Amendment and Modification........................................... I-20
Section 8.4 Nonsurvival of Representations and Warranties........................ I-20
Section 8.5 Notices.............................................................. I-20
Section 8.6 Interpretation....................................................... I-21
Section 8.7 Counterparts......................................................... I-21
Section 8.8 Entire Agreement; No Third Party Beneficiaries....................... I-21
Section 8.9 Severability......................................................... I-21
Section Specific Performance.................................................
8.10 I-22
Section Governing Law........................................................
8.11 I-22
Section Assignment...........................................................
8.12 I-22
Section Consent to Jurisdiction..............................................
8.13 I-22
</TABLE>
I-(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of August 13 1996,* among MUNCHENER
RUCKVERSICHERUNGS-GESELLSCHAFT AKTIENGESELLSCHAFT IN MUNCHEN, a German company
("PARENT"), PUMA ACQUISITION CORP., a Delaware corporation and a wholly owned
subsidiary of Parent ("SUB"), and AMERICAN RE CORPORATION, a Delaware
corporation (the "COMPANY").
WHEREAS, the Board of Directors of the Company has (i) determined that the
consideration to be paid for each outstanding share (collectively, the "SHARES")
of Common Stock, par value $.01 per share (the "COMPANY COMMON STOCK"), in the
Merger (as defined in Section 1.1) is fair to and in the best interests of the
stockholders of the Company, (ii) approved this Agreement and the transactions
contemplated hereby and (iii) resolved to recommend approval of the Merger and
this Agreement by such stockholders;
WHEREAS, the Boards of Directors of Parent and Sub have approved, and deem
it advisable and in the best interests of their respective stockholders to
consummate, the Merger, upon the terms and subject to the conditions set forth
herein;
WHEREAS, as a condition and inducement to Parent's and Sub's entering into
this Agreement and incurring the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, Parent and sub are entering into a
Stockholders Agreement (the "STOCKHOLDERS AGREEMENT") with each of American Re
Associates, L.P. and KKR Partners II, L.P. (collectively, the "STOCKHOLDERS"),
pursuant to which, among other things, the Stockholders, severally and not
jointly, have agreed to vote the shares of Company Common Stock then owned by
them in favor of the Merger provided for herein and have granted to Parent an
option to purchase such shares of Company Common Stock, all on the terms and
subject to the conditions set forth in the Stockholders Agreement, including the
condition that all necessary regulatory approvals from the Delaware Department
of Insurance and the New York State Department of Insurance shall have been
obtained and shall be in full force and effect; and
WHEREAS, the Board of Directors of the Company has approved the transactions
contemplated by this Agreement and the Stockholders Agreement in accordance with
the provisions of Section 203 of the Delaware General Corporation Law (the
"DGCL");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Stockholders 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 (the
"MERGER"). 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. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article VI, the parties hereto shall
cause the Merger to be consummated by filing 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 is
specified in the Certificate of Merger) will be the "EFFECTIVE TIME". On the
second business day following the later to occur
- ------------------------
* As amended as of October 23, 1996.
I-1
<PAGE>
of the satisfaction of the condition specified in Section 6.1(a) and the
satisfaction of the condition specified in Section 6.1(e) (or such other date as
the parties shall mutually agree), a closing shall be held at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, or such
other place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Article VI.
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.
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 amended, the "CERTIFICATE OF
INCORPORATION") 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.
(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 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 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.
ARTICLE II
CONVERSION OF SHARES; STOCKHOLDERS MEETING
SECTION 2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or the holders
of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than any Shares to be cancelled pursuant to Section 2.1(b)) and
any Dissenting Shares (as defined in Section 2.3(a))) shall be cancelled,
extinguished and converted automatically into the right to receive an amount
equal to $65.00 per share in cash (the "MERGER CONSIDERATION") payable to
the holder thereof, without interest, upon surrender of the certificate that
prior to the Merger represented such Share in the manner provided in Section
2.4, less any required withholding taxes.
(b) Each Share held in the treasury of the Company and each Share owned
by Parent, Sub or any other direct or indirect Subsidiary (as defined in
Section 3.1) of Parent or of the Company, in each case immediately prior to
the Effective Time, shall be cancelled and retired without any conversion
thereof and no payment or distribution shall be made with respect thereto.
(c) Each share of common, preferred or other capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one validly issued, fully paid and nonassessable share of
identical common, preferred or other capital stock of the Surviving
Corporation.
SECTION 2.2 TREATMENT OF COMPANY STOCK OPTIONS. (a) Immediately prior to
the Effective Time, each then outstanding employee stock option and any related
stock appreciation right and each then outstanding director stock option and any
related stock appreciation right (collectively, a "COMPANY STOCK
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OPTION"), whether or not then vested or exercisable, shall be (or, if not
previously vested and exercisable, shall become), consistent with the plans and
agreements applicable to such Company Stock Options, vested and exercisable and
such Company Stock Options immediately thereafter shall be cancelled by the
Company, and (except to the extent such Company Stock Option is subject to an
Option Deferral Agreement (as defined below)) each holder of a cancelled Company
Stock Option shall be entitled to receive at the Effective Time or as soon as
practicable thereafter (or, if later, with respect to any Company Stock Option,
the date six months and one day following the grant of such Company Stock
Option) from the Company (and, if necessary, Parent shall provide funds to the
Company sufficient for such payments) in consideration for the cancellation of
such Company Stock Option an amount in cash equal to the product of (i) the
number of shares of Company Common Stock previously subject to such Company
Stock Option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per share of Company Common Stock previously subject to such
Company Stock Option.
(b) Parent shall be permitted, on or prior to the date 30 days following the
date of this Agreement, to enter into agreements ("OPTION DEFERRAL AGREEMENTS")
with one or more holders of Company Stock Options, whereby such holders may
agree to the cancellation of a portion of their Company Stock Options
immediately prior to the Effective Time in consideration for the right to
receive, in lieu of the payments provided for in Section 2.2(a) above, certain
amounts of compensation at a date or dates in the future as specified in the
Option Deferral Agreements.
SECTION 2.3 DISSENTING SHARES AND SECTION 262 SHARES. (a) Notwithstanding
anything in this Agreement to the contrary, shares of Company Common Stock that
are issued and outstanding immediately prior to the Effective Time and which are
held by stockholders who have not voted in favor of or consented to the Merger
and who shall have delivered a written demand for appraisal of such shares of
Company Common Stock in the time and manner provided in Section 262 of the DGCL
and shall not have failed to perfect or shall not have effectively withdrawn or
lost their rights to appraisal and payment under the DGCL (the "DISSENTING
SHARES") shall not be converted into the right to receive the Merger
Consideration, but shall be entitled to receive the consideration as shall be
determined pursuant to Section 262 of the DGCL; PROVIDED, HOWEVER, that if such
holder shall have failed to perfect or shall have effectively withdrawn or lost
his, her or its right to appraisal and payment under the DGCL, such holder's
shares of Company Common Stock shall thereupon be deemed to have been converted,
at the Effective Time, into the right to receive the Merger Consideration set
forth in Section 2.1(a) of this Agreement, without any interest thereon, less
any required withholding taxes.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal pursuant to Section 262 received by the Company, withdrawals of such
demands, and any other instruments served pursuant to the DGCL and received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Parent, make any payment with respect
to any such demands for appraisal or offer to settle or settle any such demands.
SECTION 2.4 SURRENDER OF SHARES; STOCK TRANSFER BOOKS. (a) Prior to the
Effective Time, Sub shall designate a bank or trust company (which shall be
reasonably satisfactory to the Company) to act as agent for the holders of
Shares in connection with the Merger (the "PAYING AGENT") to receive the Merger
Consideration to which holders of Shares shall become entitled pursuant to
Section 2.1(a). When and as needed, Parent or Sub will make available to the
Paying Agent sufficient funds to make all payments pursuant to Section 2.4(b).
Such funds shall be invested by the Paying Agent as directed by Sub or, after
the Effective Time, the Surviving Corporation, PROVIDED that such investments
shall be in obligations of or guaranteed by the United States of America, in
commercial paper obligations rated A-1 or P-1 or better by Moody's Investors
Service, Inc. or Standard & Poor's Rating Services, respectively, or in deposit
accounts, certificates of deposit, bank repurchase or reverse repurchase
agreements or banker's acceptances of, or Eurodollar time deposits purchased
from, commercial banks with capital exceeding $250 million (based on the most
recent financial statements of such bank which are then publicly available at
the SEC or
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otherwise). Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) As soon as practicable after the Effective Time (but in no event more
than five business days after the Effective Time), the Surviving Corporation
shall cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "CERTIFICATES"), a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and such Certificate shall then be cancelled. No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable.
(c) At any time following six months after the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it any
funds (including any interest and other income received with respect thereto)
which had been made available to the Paying Agent and which have not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Merger Consideration payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) At the close of business on the day of the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be no
further registration of transfers of shares of Company Common Stock on the
records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of Shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such Shares except
as otherwise provided for herein or by applicable law.
SECTION 2.5 STOCKHOLDERS MEETING. Subject to Section 5.6, in order to
consummate the Merger, the Company, acting through its Board of Directors,
shall, in accordance with applicable law and the Company's Certificate of
Incorporation and By-laws, (a) duly call, give notice of, convene and hold a
special meeting of its stockholders as soon as practicable after the date of
this Agreement for the purpose of considering and taking action on this
Agreement and the transactions contemplated hereby (the "STOCKHOLDERS MEETING")
and (b) subject to Section 5.6, include in the proxy statement to be sent to the
stockholders of the Company (such proxy statement, as amended or supplemented,
is herein referred to as the "PROXY STATEMENT") the recommendation of the Board
of Directors that the stockholders of the Company vote in favor of the approval
of this Agreement and the transactions contemplated hereby.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 3.1 ORGANIZATION. Each of the Company and its Subsidiaries (as
defined below) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has all requisite corporate or other power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below) on the Company and
its Subsidiaries, taken as a whole. Each of the Company and its Subsidiaries is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole.
As used in this Agreement, the term "SUBSIDIARY" means, with respect to any
party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding such partnerships where such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. Section 3.1 of the Disclosure Schedule
delivered by the Company to Parent on or prior to the date hereof (the
"DISCLOSURE SCHEDULE") sets forth a complete list of the Company's Subsidiaries,
together with the jurisdiction of incorporation of each Subsidiary and the
percentage of the outstanding capital stock of each Subsidiary owned by the
Company and each other Subsidiary.
As used in this Agreement, "MATERIAL ADVERSE EFFECT" means any adverse
change or effect that has had or will have a material adverse effect on the
financial condition, results of operations or business of a person and its
Subsidiaries, taken as a whole, but shall exclude any change or effect resulting
from general economic conditions (including without limitation changes in
interest rates), any occurrence or condition affecting the property and casualty
insurance or reinsurance industry generally (including without limitation any
change or proposed change in insurance laws or regulations in any jurisdiction),
any reinsurance or insurance exposure relating to any catastrophe and, for
purposes of Section 3.6 only, any occurrence or condition arising out of the
transactions contemplated by this Agreement or the public announcement thereof.
SECTION 3.2 CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 250,000,000 shares of Company Common Stock and 20,000,000
shares of preferred stock. As of the date hereof, (i) 47,292,325 shares of
Company Common Stock were issued and outstanding, (ii) no shares of Company
Common Stock were held in the treasury of the Company, (iii) options to acquire
an aggregate of 4,583,625 shares of Company Common Stock were outstanding
pursuant to Company Stock Options and (iv) no shares of preferred stock were
issued and outstanding. All the outstanding shares of the Company's capital
stock are duly authorized, validly issued, fully paid and non-assessable. There
are no bonds, debentures, notes or other indebtedness having voting rights (or
convertible into securities having such rights) ("VOTING DEBT") of the Company
or any of its Subsidiaries issued and outstanding. Except as set forth above, as
set forth on Section 3.2(a) of the Disclosure Schedule, and for the transactions
contemplated by this Agreement, (i) there are no shares of capital stock of the
Company authorized, issued or outstanding and (ii) there are no existing
options, warrants, calls, preemptive rights, subscriptions or other
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rights, convertible 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 or securities convertible into or exchangeable for such
shares or equity interests or obligations of the Company or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, convertible security, agreement, arrangement or
commitment.
(b) Except as set forth in Section 3.2(b) of the Disclosure Schedule, all of
the outstanding shares of capital stock of each of the Company's 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 the Company or one of its Subsidiaries free and clear of all
liens, charges, security interests, options, claims or encumbrances of any
nature whatsoever.
(c) Except as set forth in Section 3.2(c) of the Disclosure Schedule, there
are no voting trusts or other agreements or understandings to which the Company
or any of its Subsidiaries is a party with respect to the voting of the capital
stock of the Company or any of the Subsidiaries. None of the Company or its
Subsidiaries is required to redeem, repurchase or otherwise acquire shares of
capital stock of the Company, or any of its Subsidiaries, respectively, as a
result of the transactions contemplated by this Agreement.
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, subject to obtaining the necessary approval of its
stockholders as contemplated by Section 2.5 with respect to the Merger, to
consummate the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly and validly authorized by its
Board of Directors and, except for obtaining the approval of its stockholders as
contemplated by Section 2.5 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. This Agreement has been duly
executed and delivered by the Company and, assuming this Agreement constitutes a
valid and binding obligation of Parent and Sub, constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency 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 for
the consummation of the transactions contemplated by this Agreement and the
Stockholders Agreement, including, but not limited to, all actions necessary to
render the provisions of Section 203 of the DGCL inapplicable to this Agreement
and the Stockholders Agreement. The affirmative vote of the holders of a
majority of the Shares is the only vote of the holders of any class or series of
Company capital stock necessary to approve the Merger.
SECTION 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth in
Section 3.4 of the Disclosure Schedule and for all filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act (as defined herein), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), all necessary approvals of the German Cartel Office, the Investment
Advisers Act of 1940, as amended, state securities or "blue sky" laws, state
takeover laws, state and foreign insurance regulatory laws and commissions, and
for the approval of this Agreement by the Company's stockholders and the filing
and recordation of the Certificate of Merger as required by the DGCL, neither
the execution, delivery or performance of this Agreement nor the
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consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach 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 court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority, commission or agency (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 on the Company and its
Subsidiaries, taken as a whole and would not materially impair the ability of
the Company to consummate the Merger or the other transactions contemplated
hereby, (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) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, guarantee,
other evidence of indebtedness (collectively, the "DEBT INSTRUMENTS"), 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 (iv) violate
any order, writ, injunction, decree, statute, rule or regulation 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, which would
not have a Material Adverse Effect on the Company and its Subsidiaries, taken as
a whole.
SECTION 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. (a) The Company has
filed with the SEC and has heretofore made available to Parent true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its Subsidiaries since January 1, 1995 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the
Securities Act of 1933, as amended (the "SECURITIES ACT") (as such documents
have been amended since the time of their filing, collectively, the "COMPANY SEC
DOCUMENTS"). As of their respective dates or, if amended, as of the date of the
last such amendment, the Company SEC Documents (a) did not contain any untrue
statement of a material fact or omit 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 and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be, and the applicable rules and regulations
of the SEC thereunder. Each of the consolidated financial statements included in
the Company SEC Documents has been prepared from, and are in accordance with,
the books and records of the Company and/or its consolidated Subsidiaries,
comply in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if any)
of the Company and its consolidated Subsidiaries as at the dates thereof or for
the periods presented therein (subject, in the case of unaudited interim
financial statements, to normal year end adjustments).
(b) The Annual Statements and Quarterly Statement of American Re-Insurance
Company, a Delaware domiciled insurer and a wholly owned Subsidiary of the
Company (the "INSURER"), as filed with the Department of Insurance for the State
of Delaware (the "DELAWARE INSURANCE DEPARTMENT") for the years ended December
31, 1994 and December 31, 1995 (the "ANNUAL STATUTORY STATEMENTS") and the
quarter ended March 31, 1996 (the "QUARTERLY STATUTORY STATEMENT"),
respectively, together with all exhibits and schedules thereto (all Annual
Statutory Statements and the Quarterly Statutory Statement, together with all
exhibits and schedules thereto, are referred to as the "STATUTORY FINANCIAL
STATEMENTS"), have been prepared in accordance with the accounting practices
prescribed or permitted by the Delaware Insurance Department for purposes of
financial reporting to the state's insurance regulators ("STATE STATUTORY
ACCOUNTING PRINCIPLES"), and such accounting practices have been applied on a
basis consistent with State
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Statutory Accounting Principles throughout the periods involved, except as
expressly set forth in the notes, exhibits or schedules thereto, and the
Statutory Financial Statements of the Insurer present fairly in all material
respects the financial position and the results of operations for the Insurer
and its Subsidiaries as of the dates and for the periods therein in accordance
with State Statutory Accounting Principles. The Company has heretofore made
available to Parent true and complete copies of the Statutory Financial
Statements.
SECTION 3.6 ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, there have
not occurred (i) any events, changes or effects (including the incurrence of any
liabilities of any nature, whether or not accrued, contingent or otherwise)
having, in the aggregate, a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to the equity interests of the Company or any of its Subsidiaries, other
than regular quarterly cash dividends and dividends paid by wholly owned
Subsidiaries; or (iii) any change by the Company or any of its Subsidiaries in
accounting principles or methods, except insofar as may be required by a change
in GAAP or State Statutory Accounting Principles. Since January 1, 1996, the
Company and its Subsidiaries have conducted their respective businesses in the
ordinary course consistent with past practice.
SECTION 3.7 INFORMATION IN PROXY STATEMENT. The Proxy Statement (or any
amendment thereof or supplement thereto), at the date mailed to the Company's
stockholders and at the time of the Stockholders Meeting, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, PROVIDED,
HOWEVER, that no representation is made by the Company with respect to
statements made therein based on information supplied by Parent or Sub for
inclusion in the Proxy Statement. The Proxy Statement will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
SECTION 3.8 EMPLOYEE BENEFIT PLANS. As of the date of this Agreement: (a)
there are no material employee or director benefit plans, arrangements,
practices, contracts or agreements (including, without limitation, employment
agreements, change of control employment agreements and severance agreements,
incentive compensation, bonus, stock option, stock appreciation rights and stock
purchase plans) of any type (including but not limited to plans described in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained by the company, any of its Subsidiaries or any trade or
business, whether or not incorporated (an "ERISA AFFILIATE"), that together with
the Company would be deemed a "controlled group" within the meaning of section
4001(a)(14) of ERISA, or with respect to which the Company or any of its
Subsidiaries has or may have a liability, other than those listed on Section
3.8(a) of the Disclosure Schedule (the "BENEFIT PLANS"). Except as disclosed in
Section 3.8(a) of the Disclosure Schedule (or as otherwise permitted by this
Agreement) neither the Company nor any ERISA Affiliate has adopted or announced
any formal plan or commitment, whether legally binding or not, to create any
additional Benefit Plan or modify or change any existing Benefit Plan that would
materially increase the liability of the Company or any ERISA Affiliate to any
employee or terminated employee of the Company or any ERISA Affiliate.
(b) With respect to each Benefit Plan except as disclosed on Schedule 3.8(b)
of the Disclosure Schedule: (i) if intended to qualify under section 401(a),
401(k) or 403(a) of the Internal Revenue Code of 1986, as amended (the "CODE"),
such plan has received, or an application is pending for, a determination letter
from the Internal Revenue Service (the "SERVICE") that the Plan so qualifies,
and its trust is exempt from taxation under section 501(a) of the Code and the
Company knows of no event that would have a material adverse effect on such
qualification; (ii) such plan has been administered in all material respects in
accordance with its terms and applicable law; (iii) no breaches of fiduciary
duty have occurred; (iv) no material disputes are pending, or, to the knowledge
of the Company, threatened; (v) no prohibited transaction (within the meaning of
section 406 of ERISA) has occurred; (vi) all contributions and premiums due
(including any extensions for such contributions and premiums) have been made in
full;
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(vii) no such plan has incurred or will incur any "accumulated funding
deficiency," as such term is defined in section 412 of the Code, whether or not
waived; (viii) no plan is a "multiemployer plan," as such term is defined in
section 3(37) of ERISA, or is covered by section 4063 or 4064 of ERISA;
provided, however, that all of the foregoing representations shall be deemed to
be true so long as the liability which could reasonably be expected to arise
thereunder, without regard to this proviso (when aggregated with all such other
liabilities thereunder, disregarding this proviso) could not result in liability
that would have a Material Adverse Effect. Except as set forth in the Company
SEC Documents (including the footnotes to any audited financial statements
included therein), the aggregate accumulated benefit obligations of each Benefit
Plan subject to Title IV of ERISA (as of the date of the most recent actuarial
valuation prepared for such Benefit Plan) do not exceed the fair market value of
the assets of such Benefit Plan (as of such Valuation Date).
(c) Except as disclosed on Schedule 3.8(c) of the Disclosure Schedule,
neither the Company nor any ERISA Affiliate has incurred any liability under
Title IV of ERISA since the effective date of ERISA that has not been satisfied
in full (including sections 4063, 4064 and 4069 of ERISA) that would have a
Material Adverse Effect and, to the knowledge of the Company, no reasonable
basis for any such liability exists.
(d) Except as set forth in Section 3.8(d) of the Disclosure Schedule or to
the extent disclosed in the Company SEC Documents, the consummation of the
transactions contemplated by this Agreement will not entitle any individual to
severance pay or accelerate the time of payment or vesting, or increase the
amount, of compensation or benefits due to any individual with respect to any
Benefit Plan in an amount which would have a Material Adverse Effect. As a
result of the transactions described herein, either alone or together with
another event such as termination of employment, except as set forth in Section
3.8(d) of the Disclosure Schedule, no party will be required to make an "excess
parachute payment" to a "disqualified individual" within the meaning of section
280G of the Code in an amount which would have a Material Adverse Effect.
(e) Other than documents related to plans maintained under the laws of
countries outside the United States and which are required to be maintained
under such foreign laws, the Company has delivered or made available to Parent
accurate and complete copies of all plan texts, summary plan descriptions, trust
agreements and other related agreements including all amendments to the
foregoing; the two most recent annual reports; the most recent annual and
periodic accounting of plan assets; the most recent determination letter
received from the Service; and the two most recent actuarial reports, to the
extent any of the foregoing may be applicable to a particular Benefit Plan.
SECTION 3.9 COMPLIANCE. Neither the Company nor any Subsidiary is in
default or violation of (i) any law, rule, regulation, order, judgment or decree
applicable to the Company or any Subsidiary or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary or any property or asset of the
Company or any Subsidiary is bound or affected, except for any such defaults or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 3.10 ABSENCE OF LITIGATION. Except as disclosed in the Company SEC
Documents filed prior to the date of this Agreement, as of the date hereof,
there is no claim, action, proceeding or investigation (excluding those relating
to policies of insurance or reinsurance written by the Company and its
Subsidiaries) pending or, to the knowledge of the Company, threatened in writing
against the Company or any Subsidiary, or any property or asset of the Company
or any Subsidiary, before any court, arbitrator or administrative, governmental
or regulatory authority or body, domestic or foreign, which individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect. As of the
date hereof, neither the Company nor any Subsidiary nor any property or asset of
the Company or any Subsidiary is subject to any order, writ, judgment,
injunction, decree, determination or award having, individually or in the
aggregate, a Material Adverse Effect.
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SECTION 3.11 TAXES. 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 all
Tax Returns required to be filed by it, has paid all Taxes shown thereon to be
due and has provided adequate reserves in its financial statements for any Taxes
that have not been paid, whether or not shown as being due on any returns,
except where the failure to make such filings, pay such taxes or provide for
such reserves would not have a Material Adverse Effect. Except as disclosed on
Schedule 3.9, none of the Company or the Subsidiaries has granted any extension
or waiver of the statute of limitations period applicable to any Tax return,
which period (after giving effect to such extension or waiver) has not expired.
Except as disclosed on Schedule 3.9, the Company and the Subsidiaries have not
received any notice of deficiency or assessment from any taxing authority with
respect to liabilities for income and other material Taxes which have not been
fully paid or finally settled. There are no liens with respect to Taxes upon any
of the properties or assets of the Company or the Subsidiaries other than liens
for Taxes not yet due and payable. As used herein, "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, 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
authority with respect to Taxes.
SECTION 3.12 OPINION OF FINANCIAL ADVISORS. The Company has received
opinions from Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the effect that the consideration to be received by the
stockholders of the Company pursuant to the Merger is fair to such stockholders.
SECTION 3.13 AETNA ADVERSE LOSS AGREEMENT. The Aggregate Excess of Loss
Agreement dated September 30, 1992, between the Company and The Aetna Casualty
and Surety Company, a true and complete copy of which has been delivered to
Parent, as of the date hereof is in full force and effect and the Company has
received no notice that it is in default or violation of such agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
SECTION 4.1 ORGANIZATION. Each of Parent 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, and has all requisite corporate or other power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approvals would not materially impair the ability of Parent and
Sub to consummate the Merger or the other transactions contemplated hereby.
Parent and each of its Subsidiaries is duly qualified or licensed to do business
and in good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect on Parent and its Subsidiaries, taken as a whole. Sub has not heretofore
conducted any business other than in connection with this Agreement and the
transactions contemplated hereby.
SECTION 4.2 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY
ACTION. 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 of this
Agreement and the consummation by Parent of the transactions contemplated hereby
have been duly and validly authorized by its Management Board and its
Supervisory Board and the execution, delivery and performance by Sub of this
Agreement and the consummation by Sub of the transactions contemplated hereby
have been duly and validly authorized by its Board of Directors, and no other
corporate action or proceedings on the part of Parent and Sub are necessary to
authorize the execution and delivery by Parent and 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 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.
SECTION 4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the Securities Act, the
DGCL, the HSR Act, all necessary approvals of the German Cartel Office, state
securities or "blue sky" laws, state takeover laws and state and foreign
insurance regulatory laws and commissions, 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) conflict with or result in any breach
of any provision of the certificate of incorporation or by-laws 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 materially impair the ability of Parent and Sub to consummate
the Merger or the other transactions contemplated hereby), (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) 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 any
of them or any of their properties or assets may be bound or
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(iv) violate any order, writ, injunction, decree, statute, rule or regulation
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 materially impair the ability of Parent or Sub to consummate the
Merger or the other transactions contemplated hereby.
SECTION 4.4 INFORMATION IN PROXY STATEMENT. None of the information
supplied by Parent or Sub for inclusion or incorporation by reference in the
Proxy Statement will, at the date mailed to stockholders of the Company and at
the time of the Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
SECTION 4.5 FINANCING. Either Parent or Sub has, or will have prior to the
consummation of the Merger, sufficient funds available to purchase the Shares
which will be converted into the right to receive the Merger Consideration in
the Merger.
ARTICLE V
COVENANTS
SECTION 5.1 INTERIM OPERATIONS OF THE COMPANY. The Company covenants and
agrees that, except (i) as expressly provided in this Agreement, (ii) with the
prior written consent of Parent or (iii) as set forth on Section 5.1 of the
Disclosure Schedule, after the date hereof and prior to the Effective Time:
(a) the business of the Company and its Subsidiaries, including, without
limitation, investment practices and policies, shall be conducted in the
ordinary course of business consistent with past practice and each of the
Company and its Subsidiaries shall use all reasonable efforts to preserve
its business organization intact and maintain its existing relations with
material customers, retrocessionaires, employees, creditors and business
partners;
(b) the Company shall not, directly or indirectly, split, combine or
reclassify the outstanding Company Common Stock, or any outstanding capital
stock of any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i) amend its
certificate of incorporation or by-laws or similar organizational documents;
(ii) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock other than
dividends paid by the Company's wholly owned Subsidiaries to the Company or
its wholly owned Subsidiaries and other than ordinary quarterly cash
dividends by the Company not to exceed $.11 per quarter; (iii) issue, sell,
transfer, pledge, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class of the Company or its Subsidiaries, other than issuances
pursuant to exercises of Company Stock Options; (iv) transfer, lease,
license, sell, mortgage, pledge, dispose of, or encumber any assets that are
material to the Company and its Subsidiaries, taken as a whole other than
sales of investment assets in the ordinary course of business consistent
with past practice; or (v) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock; PROVIDED that, notwithstanding anything
to the contrary in the foregoing, to the extent the Effective Time occurs
after December 31, 1996, the Company shall be permitted to declare and pay
immediately prior to the Effective Time a quarterly dividend (not to exceed
$.11 per share pro rated for the period from January 1, 1997 to the
Effective Time, inclusive);
(d) neither the Company nor any of its Subsidiaries shall: (i) grant any
increase in the compensation payable or to become payable by the Company or
any of its Subsidiaries to any executive officer other than scheduled annual
increases in the ordinary course of business consistent with past practice
in an amount not to exceed 10% for any individual; (ii) except to the extent
currently required under applicable law or the terms of the applicable
agreement or arrangement, adopt any new, or amend or
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otherwise increase, or accelerate the payment or vesting of the amounts
payable or to become payable under any existing, bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other employee
benefit plan agreement or arrangement; (iii) except in accordance with past
practice and in an aggregate amount not to exceed $5 million, and other than
by reason of the transactions contemplated hereby, enter into any, or amend
any existing, employment, consulting or severance agreement with, or grant
any severance or termination pay to, any officer, director or employee of
the Company or any of its Subsidiaries; (iv) except with respect to the
Company's foreign operations, as required by law or existing arrangements,
make any additional contributions to any grantor trust created by the
Company to provide funding for non-tax-qualified employee benefits or
compensation; or (v) provide any severance program to any Subsidiary which
does not have a severance program as of the date of this Agreement; PROVIDED
that notwithstanding anything to the contrary in the foregoing, bonuses
accrued in 1996, but which would in the ordinary course be payable in 1997,
may be paid in 1996;
(e) neither the Company nor any of its Subsidiaries shall permit any
material insurance policy naming it as a beneficiary or a loss payable payee
to be cancelled or terminated, except in the ordinary course of business;
(f) neither the Company nor any of its Subsidiaries shall: (i) incur or
assume any debt except for borrowings under existing credit facilities in an
amount not to exceed $150 million; (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,
advances or capital contributions to, or investments in, any other person
(other than to wholly owned Subsidiaries of the Company or customary loans
or advances to employees in accordance with past practice and other than as
to such matters related to the Company's or any of its Subsidiaries'
investment portfolios (including private placements) in the ordinary course
of business consistent with past practice); or (iv) make any material
capital expenditure other than in the ordinary course of business consistent
with past practice;
(g) neither the Company nor any of its Subsidiaries shall change any of
the accounting principles used by it unless required by Statutory Accounting
Principles or GAAP;
(h) neither the Company nor any of its Subsidiaries will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other material reorganization of the
Company or any of its Subsidiaries or any agreement relating to an
Acquisition Proposal (as defined in Section 5.5) other than the Merger and
other than as permitted by Section 5.6;
(i) neither the Company nor any of its Subsidiaries will engage in any
transaction with, or enter into any agreement, arrangement, or understanding
with, directly or indirectly, any of the Company's affiliates, including,
without limitation, any transactions, agreements, arrangements or
understandings with any affiliate or other Person covered under Item 404 of
Regulation S-K under the Securities Act that would be required to be
disclosed under such Item 404 other than such transactions of the same
general nature, scope and magnitude as are disclosed in the Company SEC
Documents;
(j) except upon the prior written consent of Parent, the Company shall
not make any Tax election that would have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole, except in the ordinary
course of business consistent with past practice;
(k) neither the Company nor any of its Subsidiaries shall pay, discharge
or satisfy any claim, liability or obligation (including contingent claims,
liabilities and obligations), other than in the ordinary course of business
consistent with past practice; and
(l) neither the Company nor any of its Subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing,
or to authorize, recommend, propose or announce an intention to do any of
the foregoing.
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SECTION 5.2 ACCESS TO INFORMATION. The Company shall (and shall cause each
of its Subsidiaries to) afford to the officers, employees, accountants, counsel,
financing sources 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' properties, 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
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 the provisions of the
existing confidentiality agreement between the Company and Parent, dated July
23, 1996, as amended (the "CONFIDENTIALITY AGREEMENT").
SECTION 5.3 CONSENTS AND APPROVALS. (a) Each of the Company, Parent and
Sub will take all reasonable actions necessary 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, without
limitation, furnishing all information in connection with approvals of or
filings with any Governmental Entity, including, without limitation, any
schedule, or reports required to be filed with the SEC, 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 in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement.
(b) In furtherance and not in limitation of Section 5.3(a), (i) as soon as
practicable following the date of this Agreement, Parent and Sub shall use their
reasonable best efforts to prepare and file with relevant insurance regulators
requests for approval of the transactions contemplated by this Agreement and
shall use all reasonable efforts to have such insurance regulators approve the
transactions contemplated by this Agreement, (ii) each of Parent and Sub shall
give to the Company prompt written notice if it receives any notice or other
communication from any insurance regulator in connection with the transactions
contemplated by this Agreement, and, in the case of any such written notice or
communication, shall promptly furnish the Company with a copy thereof; (iii)
each of Parent and Sub shall give to the Company reasonable prior written notice
of the time and place when any meetings may be held by it with insurance
regulators in connection with the transactions contemplated by this Agreement,
and the Company shall have the right to have a representative or representatives
present at any such meeting; and (iv) a reasonable time prior to furnishing any
written materials or presentations to any insurance regulator in connection with
the transactions contemplated by this Agreement, Parent and Sub shall furnish
the Company with a copy thereof, and the Company shall have a reasonable
opportunity to provide comments thereon.
SECTION 5.4 EMPLOYEE MATTERS. (a) For a period of two years following the
Effective Time, Parent shall either continue the existing Benefit Plans of the
Company 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 Benefit
Plans.
(b) With respect to any Parent Benefit Plan which is an "employee benefit
plan" as defined in section 3(3) of ERISA, for purposes of determining
eligibility to participate, vesting and entitlement to benefits, including for
severance benefits, vacation entitlement, service awards or any service-related
benefits, and accrual of pension benefits, service with the Company or any
Subsidiary shall be treated as service with
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Parent or its Subsidiaries; PROVIDED, HOWEVER, that such service shall not be
recognized to the extent that such recognition would result in a duplication of
benefits. Such service also shall apply for purposes of satisfying any waiting
periods, evidence of insurability requirements or the application of any
preexisting condition limitations. Employees of the Company or any Subsidiary
shall be given credit for amounts paid under a corresponding benefit plan during
the same period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in accordance with
the terms and conditions of the Parent Benefit Plan.
SECTION 5.5 NO SOLICITATION. The Company shall not, nor shall it permit
any of its Subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its Subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Acquisition
Proposal (as hereinafter defined) or (ii) participate in any discussions,
conversations, negotiations or other communications regarding, or furnish to any
person any information with respect to, or otherwise cooperate in any way,
assist or participate in, facilitate or encourage any effort or attempt by any
other person or entity, to seek to do any of the foregoing or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or is likely to lead to, any Acquisition Proposal. From and after
the date hereof, the Company, its Subsidiaries and all officers, directors,
employees of, and all investment bankers, attorneys and other advisors and
representatives of, the Company and its Subsidiaries shall cease doing any of
the foregoing; PROVIDED, HOWEVER, that, notwithstanding the provisions of the
first sentence of this Section 5.5, the Company, any of its Subsidiaries or any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its Subsidiaries may, (i)
following receipt of a request for information made within 30 days of the date
hereof (A) which was not solicited, initiated or encouraged by the Company, any
of its Subsidiaries or any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, the Company or any of
its Subsidiaries after the date of this Agreement and (B) which the Company in
good faith believes could lead to an Acquisition Proposal, furnish information,
in the case of any person who has executed a confidentiality agreement with the
Company prior to the date hereof, pursuant to such confidentiality agreement or,
in the case of any other person, pursuant to a confidentiality agreement
substantially similar to the Confidentiality Agreement, and (ii) following
receipt of an Acquisition Proposal by the Company with respect to which the
Board of Directors of the Company determines in good faith that in order to
comply with its fiduciary duties to stockholders under applicable law it is
necessary for the Board of Directors to withdraw or modify its approval or
recommendation of this Agreement or the Merger, approve or recommend such
Acquisition Proposal or enter into an agreement with respect to such Acquisition
Proposal, participate in discussions or negotiations regarding, or furnish
information with respect to, or take other actions to facilitate, such
Acquisition Proposal. Notwithstanding anything in this Agreement to the
contrary, from and after the date hereof, the Company shall promptly and within
not more than 12 hours advise Parent orally and in writing of the receipt by it
(or any of the other entities or person referred to above) of any Acquisition
Proposal, or any inquiry which is likely to lead to any Acquisition Proposal,
the material terms and conditions of such Acquisition Proposal or inquiry, and
the identity of the person making any such Acquisition Proposal or inquiry. The
Company will keep Parent fully informed of the status and details of any such
Acquisition Proposal or inquiry. For purposes of this Agreement, "ACQUISITION
PROPOSAL" means any proposal with respect to a merger, consolidation, share
exchange or similar transaction involving the Company or any significant portion
of the assets of the Company and its Subsidiaries, other than the transactions
contemplated hereby.
SECTION 5.6 FIDUCIARY DUTIES. (a) The Board of Directors of the Company
shall not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Sub, the approval or recommendation by such Board of
Directors of this Agreement or the Merger, (ii) approve or recommend, or propose
to approve or recommend, any Acquisition Proposal which was not solicited after
the date hereof or (iii) enter into any agreement with respect to any
Acquisition Proposal which was not solicited after the date hereof, UNLESS the
Company receives an Acquisition Proposal which was not solicited after
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the date hereof and the Company's Board of Directors determines in good faith
that in order to comply with its fiduciary duties to stockholders under
applicable law it is necessary for the Board of Directors to withdraw or modify
its approval or recommendation of this Agreement or the Merger, approve or
recommend such Acquisition Proposal or enter into an agreement with respect to
such Acquisition Proposal.
(b) The Company's Board of Directors may take, and disclose to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with respect to any tender offer for shares of capital stock of
the Company.
(c) Notwithstanding anything contained in this Agreement to the contrary,
any action by the Board of Directors permitted by this Section 5.6 shall not
constitute a breach of this Agreement by the Company.
SECTION 5.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable, whether under applicable laws and
regulations or otherwise, or to remove any injunctions or other impediments or
delays, legal or 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 the Company,
Parent and Sub shall use all reasonable efforts to take, or cause to be taken,
all such necessary actions.
SECTION 5.8 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 consultation
with 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 5.9 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 5.9 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 5.10 DIRECTORS' AND OFFICERS' INSURANCE AND
INDEMNIFICATION. Parent agrees that at all times after the Effective Time, it
shall indemnify each person who is now, or has been at any time prior to the
date hereof, a director or officer of the Company or of any of the Company's
Subsidiaries or person entitled to indemnification (individually an "INDEMNIFIED
PARTY" and collectively the "INDEMNIFIED PARTIES"), to the same extent and in
the same manner as is now provided in the respective charters or by-laws of the
Company and such Subsidiaries or otherwise in effect on the date hereof, with
respect to any claim, liability, loss, damage, cost or expense (whenever
asserted or claimed) ("INDEMNIFIED LIABILITY") based in whole or in part on, or
arising in whole or in part out of, any matter existing or occurring at or prior
to the Effective Time. The Indemnified Parties shall be entitled to advancement
of expenses provided such Indemnified Party provides Parent with an undertaking
to reimburse Parent in a form comparable to the undertaking provided for by the
DGCL. Parent shall, or shall cause the Surviving Corporation to, maintain in
effect for not less than six (6) years after consummation of the Merger the
current policies of directors' and officers' liability insurance maintained by
the Company and its Subsidiaries on the date hereof; PROVIDED that Parent may
substitute therefor policies having at least the same coverage and containing
terms and conditions which are no less advantageous to the persons currently
covered by such policies and with carriers comparable to the Company's existing
carriers in terms of creditworthiness, with respect to
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matters existing or occurring at or prior to the Effective Time. Promptly after
receipt by an Indemnified Party of notice of the assertion (an "ASSERTION") of
any claim or the commencement of any action against him or her in respect to
which indemnity or reimbursement may be sought against Parent, the Company, the
Surviving Corporation or a Subsidiary of the Company or the Surviving
Corporation ("INDEMNITORS") hereunder, such Indemnified Party shall notify any
Indemnitor in writing of the Assertion, but the failure to so notify any
Indemnitor shall not relieve any Indemnitor of any liability it may have to such
Indemnified Party hereunder except where such failure shall have materially
prejudiced Indemnitor in defending against such Assertion. No Indemnified Party
shall settle any Assertion without the prior written consent of Parent,
PROVIDED, HOWEVER, that if Parent withholds such consent, then Parent shall
provide the Indemnified Party reasonable assurances that it shall honor the
indemnification provisions of this Section 5.10. The provisions of this Section
5.10 are intended for the benefit of, and shall be enforceable by, the
respective Indemnified Parties.
SECTION 5.11 PROXY STATEMENT. As soon as practicable following the date of
this Agreement, the Company shall prepare and file with the SEC the Proxy
Statement and shall use all reasonable efforts to have the Proxy Statement
cleared by the SEC as promptly as practicable. Parent shall cooperate with the
Company in the preparation of the Proxy Statement. The Company shall give Parent
and its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give Parent and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. The Company will provide to Parent
promptly copies of all correspondence between it or any of its representatives
and the SEC. Parent shall furnish all information concerning it required to be
included in the Proxy Statement, and as promptly as practicable, the Proxy
Statement will be mailed to the stockholders of the Company. No amendment or
supplement to the Proxy Statement will be made without the approval of Parent,
which approval will not be unreasonably withheld or delayed. The Company will
advise Parent promptly after it receives notice thereof, of the time when any
supplement or amendment to the Proxy Statement has been filed, or the issuance
of any stop order, or of any request by the SEC or the New York Stock Exchange
for amendment of the Proxy Statement.
SECTION 5.12 CERTAIN FEES. The Company shall pay promptly to or on behalf
of Parent $26 million, payable in cash, if all of the following shall have
occurred:
(a) a bona fide Acquisition Proposal is commenced, publicly proposed,
publicly disclosed or communicated to the Company at any time after the date
of this Agreement;
(b) the Board of Directors of the Company, in accordance with Section
5.6, withdraws or modifies its approval or recommendation of this Agreement
or the Merger, approves or recommends such Acquisition Proposal or enters
into an agreement with respect to such Acquisition Proposal; and
(c) this Agreement is terminated in accordance with Section 7.1(c)(ii),
7.1(c)(iii), 7.1(d)(ii) or 7.1(d)(iii).
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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) this Agreement shall have been adopted by the stockholders of the
Company in accordance with the DGCL;
(b) no court, arbitrator or governmental body, agency or official shall
have issued any order, decree or ruling and there shall not be any statute,
rule or regulation, restraining, enjoining or prohibiting the consummation
of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall
have expired or been terminated;
(d) any necessary approval of the German Cartel Office shall have been
obtained; and
(e) all actions by or in respect of any filing or any governmental body,
agency, official, or authority required to permit the consummation of the
Merger (including insurance regulatory approvals from the Delaware Insurance
Department and from the New York Department of Insurance and all other
material insurance regulatory approvals) shall have been obtained and such
approval shall be in full force and effect.
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) the representations and warranties of the Company shall have been
true and accurate 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 as of such date or with respect to such
period), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein), would not
have, individually or in the aggregate, a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole; and
(b) the Company shall have performed in all material respects its
obligations hereunder required to be performed by it at or prior to the
Effective Time.
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) the representations and warranties of Parent and Sub shall be true
and accurate 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 as of such date or with respect to such
period), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein), would not,
individually or in the aggregate, materially impair the ability of Parent
and Sub to consummate the Merger and the other transactions contemplated
hereby; and
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<PAGE>
(b) each of Parent and Sub shall have performed in all material respects
all of the respective obligations hereunder required to be performed by
Parent or Sub, as the case may be, at or prior to the Effective Time.
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 stockholder approval thereof:
(a) by the mutual written consent of Parent and the Company;
(b) by either of the Company or Parent:
(i) if the Merger shall not have occurred on or prior to February
28, 1997; PROVIDED, HOWEVER, that the right to terminate this Agreement
under this Section 7.1(b)(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Merger to occur on or prior to
such date; or
(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their best efforts to lift), in each
case 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 non-appealable;
(c) by the Company:
(i) if Parent or Sub (x) breaches or fails in any material respect
to perform or comply with any of its covenants and agreements contained
herein or (y) breaches its representations and warranties, in each case
such that the conditions set forth in Section 6.1 or Section 6.3 would
not be satisfied;
(ii) if the Board of Directors of the Company shall have exercised
its rights set forth in Section 5.6(a) hereof; or
(iii) if the stockholders of the Company do not approve the Merger at
the Stockholders Meeting; or
(d) by Parent:
(i) if the Company (x) breaches or fails in any material respect to
perform or comply with any of its covenants and agreements contained
herein or (y) breaches its representations and warranties, in each case
such that the conditions set forth in Section 6.1 or Section 6.2 would
not be satisfied;
(ii) if the Board of Directors of the Company shall have exercised
its rights set forth in Section 5.6(a) hereof; or
(iii) if the stockholders of the Company do not approve the Merger at
the Stockholders Meeting.
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
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or for willful breach of this Agreement and (b) as set forth in Sections 5.12
and 8.2 hereof and in the last sentence of Section 5.2.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 COSTS AND EXPENSES. Except for expenses incurred in connection
with printing the Proxy Statement, as well as the filing fees relating thereto,
which costs shall be shared equally by Parent and the Company, 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 FINANCIAL ADVISORY FEES. (a) Except for Morgan Stanley & Co.
Incorporated, whose fees will be paid by Parent, there is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of Parent or any of its Subsidiaries who might be entitled to
any fee or commission from Parent or any of its Subsidiaries upon consummation
of the transactions contemplated by this Agreement.
(b) Except for Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, whose fees and expenses will be paid by the Company at or
prior to the Effective Time and in accordance with the Company's agreements with
such firms, the terms of which have been previously disclosed to Parent by the
Company, and except for the payments to third parties for services rendered to
the Company disclosed in Section 8.2(b) of the Disclosure Schedule, there are no
investment bankers, brokers, finders or other intermediaries which have been
retained by or are authorized to act on behalf of the Company or any of its
Subsidiaries who might be entitled to any fee or commission from the Company or
any of its Subsidiaries upon consummation of the transactions contemplated by
this Agreement.
SECTION 8.3 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.
SECTION 8.4 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.
SECTION 8.5 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):
(a) if to Parent or Sub, to:
Munich Reinsurance Company
Koniginstrasse 107
D-80791 Munich
Germany
Attention: Dr. Heiner Hasford
Telephone No.: 011-49-89-3891-3542
Telecopy No.: 011-49-89-3891-9030
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<PAGE>
with a copy to:
Shearman & Sterling
199 Bishopsgate
London EC2M 3TY
England
Attention: W. Jeffrey Lawrence
Telephone No.: 011-44-171-920-9080
Telecopy No.: 011-44-171-920-9020
(b) if to the Company, to:
American Re Corporation
555 College Road East
Princeton, New Jersey 08543
Attention: General Counsel
Telephone No.: (609) 243-4200
Telecopy No.: (609) 243-4992
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: Gary I. Horowitz, Esq.
Telephone No.: (212) 455-2000
Telecopy No.: (212) 455-2502
SECTION 8.6 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". The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to August 13, 1996. As used in this
Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule
12b-2 of the Exchange Act.
SECTION 8.7 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 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 8.8 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 5.10 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 8.9 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
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<PAGE>
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 8.10 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 8.11 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 8.12 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.
SECTION 8.13 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. (a) Each of
the parties hereto:
(i) consents to submit itself to the personal jurisdiction of (A) the
United States District Court for the Southern District of New York in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement to the extent such court would have subject
matter jurisdiction with respect to such dispute and (B) the Chancery or
other Courts of the State of Delaware otherwise;
(ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction or venue by motion or other request for leave from any such
court;
(iii) agrees that it will not bring any action relating to this Agreement
or any of the transactions contemplated by this Agreement in any court other
than such courts; and
(iv) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to a party at its
address set forth in subsection 8.5 or at such other address of which a
party shall have been notified pursuant thereto;
(v) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to
sue in any other jurisdiction; and
(vi) agrees to appoint an agent for service of process in Delaware.
(B) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING IN RELATION TO THIS AGREEMENT AND FOR ANY
COUNTERCLAIM THEREIN.
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<PAGE>
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.
<TABLE>
<S> <C> <C>
MUNCHENER RUCKVERSICHERUNGS-
GESELLSCHAFT AKTIENGESELLSCHAFT
IN MUNCHEN
By: /s/ HANS RATHNOW
-----------------------------------------
Name: Hans Rathnow
Title: Member of the Board of Management
By: /s/ DR. JUR. HEINER HASFORD
-----------------------------------------
Name: Dr. jur Heiner Hasford
Title: Member of the Board of Management
PUMA ACQUISITION CORP.
By: /s/ HANS RATHNOW
-----------------------------------------
Name: Hans Rathnow
Title: Chairman of the Board, President
and Chief Executive Officer
By: /s/ DR. JUR. HEINER HASFORD
-----------------------------------------
Name: Dr. jur. Heiner Hasford
Title: Vice President and Assistant
Secretary
AMERICAN RE CORPORATION
By: /s/ PAUL H. INDERBITZIN
-----------------------------------------
Name: Paul H. Inderbitzin
Title: Chairman of the Board,
President and Chief Executive Officer
</TABLE>
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<PAGE>
[LETTERHEAD OF GOLDMAN SACHS]
ANNEX II
October 23, 1996
Board of Directors
American Re Corporation
555 College Road East
Princeton, NJ 08543-5241
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $.01 per share (the "Common
Stock"), of American Re Corporation (the "Company") of the $65.00 per share in
cash to be received by such holders pursuant to the Agreement and Plan of Merger
dated as of August 13, 1996, as amended on October 23, 1996, among Munchener
Ruckversicherungs-Gesellschaft Aktiengesellschaft in Munchen ("Munich Re"), Puma
Acquisition Corp., a wholly-owned subsidiary of Munich Re ("Sub"), and the
Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. We have provided certain investment banking services to the Company
from time to time, including acting as managing underwriter of a public offering
in August 1995 by American Re Capital, a Delaware business trust of which the
Company is the sole beneficial owner, of $237,500,000 of Cumulative Quarterly
Income Preferred Securities due in 2025. We are also familiar with Kohlberg
Kravis Roberts & Co. ("KKR"), whose affiliates American Re Associates, L.P. and
KKR Partners II, L.P. (collectively, the "KKR Shareholders") own a majority of
the Common Stock. We have provided certain investment banking services to KKR
from time to time and may provide investment banking services to KKR in the
future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Exclusivity Agreement dated as of August 7, 1996 among Munich Re,
KKR Associates and the Company; the Stockholders Agreement dated as of August
13, 1996 among Munich Re, Sub, and the KKR Shareholders; the Proxy Statement
relating to the Special Meeting of Stockholders of the Company to be held in
connection with the Agreement; the review of the net loss and loss adjustment
expense reserves of American Re-Insurance Company, the Company's principal
subsidiary, prepared by its management (the "Management Review of Loss and LAE
Reserves"); Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the three years ended December 31, 1995; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects. In addition, we have reviewed the reported price and trading
activity management for the Common Stock, compared certain financial and stock
market information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the reinsurance industry
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
II-1
<PAGE>
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities (including the loss and
loss adjustment expense reserves) of the Company or any of its subsidiaries and,
except for the Management Review of Loss and LAE Reserves referred to in the
third paragraph of this opinion, we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $65.00
per share in cash to be received by the holders of Common Stock pursuant to the
Agreement is fair to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
II-2
<PAGE>
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH]
OCTOBER 23, 1996
ANNEX III
Board of Directors
American Re Corporation
American Re Plaza
555 College Road East
Princeton, New Jersey 08543
Gentlemen:
American Re Corporation (the "Company"), Munchener
Ruckversicherungs-Gesellschaft Aktiengesselschaft in Munchen (the "Acquiror")
and a wholly owned subsidiary of the Acquiror (the "Acquisition Sub"), have
entered into an Agreement and Plan of Merger dated as of August 13, 1996, as
amended on October 23, 1996 (the "Agreement") pursuant to which the Company will
be merged with the Acquisition Sub in a transaction (the "Merger") in which each
outstanding share of the Company's common stock, par value $0.01 per share (the
"Shares"), other than Shares held by certain persons specified in the Agreement,
will be converted into the right to receive $65.00 in cash. The Merger is
expected to be considered by the shareholders of the Company at a special
shareholders' meeting and consummated on or shortly after the date of such
meeting after approval by the shareholders.
You have asked us whether, in our opinion, the proposed consideration to be
received by the holders of the Shares pursuant to the Merger is fair to such
shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and the
Company's Forms 10-Q and related unaudited financial information for the
quarterly periods ended March 31, 1996 and June 30, 1996;
(2) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company,
furnished to us by the Company;
(3) Conducted discussions with senior management of the Company concerning
the Company's business and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with the results of
certain companies which we deemed to be reasonably similar to the
Company;
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<PAGE>
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(7) Reviewed a copy of the Agreement;
(8) Reviewed a copy of the Stockholders Agreement, dated as of August 13,
1996, among Acquiror, Acquisition Sub, the Company and certain
stockholders of the Company;
(9) Reviewed the Exclusivity Agreement among the Company, the Acquiror and
KKR Associates, dated as of August 7, 1996; and
(10) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company, and
we have not independently verified such information or undertaken an independent
appraisal or actuarial evaluation of the assets or liabilities of the Company.
With respect to the financial forecasts furnished to us by the Company, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgments of the Company's management as to the expected
future financial performance of the Company.
We have, from time to time, provided investment banking and other financing
services to the Company and have received customary fees for the rendering of
such services. In the ordinary course of our business, we may actively trade the
securities of the Company and the Acquiror for our or their own accounts and for
the accounts of our customers and, accordingly, we may at any time hold a long
or short position in such securities.
The opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholders of the Company as to how
such shareholders should vote at any shareholder meeting of the Company.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration to be received by the holders of the Shares pursuant
to the Merger is fair to such shareholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ EDWARD V. BLANCHARD
-----------------------------------
Managing Director
Investment Banking Group
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<PAGE>
ANNEX IV
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL. C. SECTION 262
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to SectionSection251 (other than a merger effected pursuant to
subsection (g) of Section251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
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<PAGE>
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the
assets of the corporation. If the certificate of incorporation contains such
a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving
IV-2
<PAGE>
or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending
of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall not be more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement shall be
mailed to the stockholder within 10 days after his written request for such
a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified mail
to the surviving or resulting corporation and to the stockholders shown on
the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Court, and the
costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
IV-3
<PAGE>
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate
fully in all proceedings until it is finally determined that he is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of
such stockholder to an appraisal shall cease. Notwithstanding the foregoing,
no appraisal proceeding in the Court of Chancery shall be dismissed as to
any stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
IV-4
<PAGE>
AMERICAN RE CORPORATION
555 COLLEGE ROAD EAST
PRINCETON, N.J. 08543-5241
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
Revoking any such prior appointment, the undersigned hereby appoints James
R. Fisher and Robert K. Burgess and each of them attorneys and agents, with
power of substitution to vote as Proxy for the undersigned, as herein stated, at
the special meeting of stockholders of American Re Corporation (the "Company"),
to be held at the St. Regis Hotel, 2 East 55th Street at Fifth Avenue, New York,
New York on Thursday, November 21, 1996 at 9:00 a.m. and at any adjournments
thereof, with respect to the number of shares the undersigned would be entitled
to vote if personally present.
THIS PROXY, WHEN PROPERLY EXECUTED AND DELIVERED, WILL BE VOTED FOR THE
PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER DATED AS OF
AUGUST 13, 1996, AS AMENDED ON OCTOBER 23, 1996 (THE "MERGER AGREEMENT"), AMONG
MUNCHENER RUCKVERSICHERUNGS-GESELLSCHAFT AKTIENGESELLSCHAFT IN MUNCHEN, PUMA
ACQUISITION CORP. AND THE COMPANY, if no instructions to the contrary are
indicated, and in the discretion of the named attorneys and agents on such
matters as may properly come before the meeting.
The undersigned hereby acknowledges receipt of a copy of the Proxy
Statement relating to such annual meeting.
-------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-------------
<PAGE>
- ----- Please mark
X votes as in
- ----- this example
1. Proposal to approve and adopt the Agreement FOR AGAINST ABSTAIN
and Plan of Merger dated as of August 13,
1996, as amended on October 23, 1996
(the "Merger Agreement"), among Munchener / / / / / /
Ruckversicherungs-Gesellschaft
Aktiengesellschaft in Munchen, Puma Acquisition
Corp. and the Company.
2. In accordance with their discretion on any matters or proposal which may
properly come before the meeting.
MARK HERE MARK HERE
FOR ADDRESS / / IF YOU PLAN / /
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
(Signatures should conform exactly to name shown on this proxy. Executors,
administrators, guardians, trustees, attorneys, and officers signing for
corporations should give full title.)
Signature _______________ Date: _______ Signature _______________ Date: _______
