<PAGE>
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
[_] Definitive Proxy Statement
[X] Definitive Additional Materials
[_] Soliciting Materials Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ACE LIMITED
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ACE LIMITED
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(3).
[_] $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 Rule 14a-5(i)(4) and 0-11.
1) Title of each class of securities to which transactions applies:
Ordinary Shares
2) Aggregate number of securities to which transactions applies:
18,181,818*
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. $33.00 per Ordinary Share*
* Pursuant to the terms of the transaction described in the Joint
Proxy Statement/Prospectus, ACE Limited will issue Ordinary
Shares having an aggregate market value (determined as
described in the Joint Proxy Statement/Prospectus) of
$600,000,000, provided that the average closing price used in
determining the number of Ordinary Shares to be issued will not
be less than $33.00. The aggregate number of securities to
which the transaction applies and the per unit price have been
calculated assuming a $33.00 average closing price which would
provide the maximum number of Ordinary Shares issuable in the
transaction.
4) Proposed maximum aggregate value of transaction: $600,000,000
5) Total Fee paid: $120,000
[_]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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
Filed Pursuant to Rule 424(b)(3)
File No. 333-04153
ACE [LOGO]
LIMITED June 20, 1996
Dear Shareholder:
On June 19, 1996, ACE Limited ("ACE") entered into an amendment (the
"Amendment") to its Agreement and Plan of Amalgamation (as amended, the
"Amalgamation Agreement") with Tempest Reinsurance Company Limited ("Tempest").
Pursuant to the Amendment, Tempest will declare a pre-closing dividend which
will reduce Tempest's Net Assets (as defined in the Amendment) to $452.5
million. In addition, the 42 percent loss ratio provision has been removed from
the calculation of Tempest's Net Assets and the ability of either party to
terminate the transaction if the "Average Closing Price" (used in determining
the number of ACE Ordinary Shares to be issued in the transaction) is greater
than $49.00 has been eliminated. Tempest shareholders may also receive a
contingent additional dividend of up to a maximum of $50 million, depending on
the trading prices of ACE's Ordinary Shares shortly before and after the
closing of the Amalgamation. The increased dividends to be paid to Tempest
shareholders will not affect the number of shares to be issued in the
Amalgamation. The Amendment was agreed to in light of an offer to acquire
Tempest by IPC Holdings, Ltd. ACE's board of directors and management believe
that the Amalgamation provides ACE with a unique opportunity to diversify its
business and look forward to working with the talented people at Tempest.
THE BOARD OF DIRECTORS OF ACE HAS DETERMINED THAT THE AMALGAMATION AND THE
ISSUANCE OF ACE ORDINARY SHARES (THE "SHARE ISSUANCE") ARE FAIR TO AND IN THE
BEST INTERESTS OF THE SHAREHOLDERS OF ACE. ACCORDINGLY, THE BOARD HAS APPROVED
THE AMALGAMATION AGREEMENT AND THE SHARE ISSUANCE AND RECOMMENDS THAT ALL
SHAREHOLDERS VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE ACE SPECIAL MEETING.
The accompanying supplement (the "Supplement") to the Joint Proxy
Statement/Prospectus dated May 22, 1996 (the "Joint Proxy
Statement/Prospectus") includes information concerning the Amendment, describes
a number of recent developments since the mailing to you of the Joint Proxy
Statement/Prospectus and includes other important information relating to ACE,
Tempest and the proposed transaction. The Supplement modifies and supersedes
certain information contained in the Joint Proxy Statement/Prospectus and
should be read in conjunction with the Joint Proxy Statement/Prospectus. Both
documents include important information, and you are urged to give these
documents your careful attention and consideration.
In order to provide you with sufficient time to review the matters described
in the Supplement, the previously scheduled Extraordinary General Meeting of
Shareholders (the "ACE Special Meeting") of ACE has been adjourned to Monday,
July 1, 1996 at 8:30 a.m. The ACE Special Meeting will be held at the Hamilton
Princess Hotel, 76 Pitts Bay Road, Hamilton, Bermuda. At the ACE Special
Meeting, you will be asked to consider and approve the issuance of ACE Ordinary
Shares pursuant to the terms of the Amalgamation Agreement.
IF YOU HAVE ALREADY SUBMITTED A PROXY CARD, YOU DO NOT NEED TO SUBMIT THE
ACCOMPANYING PROXY CARD UNLESS YOU WISH TO CHANGE YOUR VOTE. A VOTE INDICATED
ON A PREVIOUSLY SUBMITTED PROXY CARD WILL REMAIN VALID, UNLESS YOU SUBMIT A
SUBSEQUENT PROXY CARD CHANGING YOUR VOTE OR YOU REVOKE YOUR PROXY.
Sincerely,
/s/ Brian Duperreault
Brian Duperreault,
Chairman, President and Chief Executive
Officer
<PAGE>
ACE [LOGO]
LIMITED
NOTICE OF ADJOURNED EXTRAORDINARY GENERAL MEETING
June 20, 1996
Hamilton, Bermuda
TO THE SHAREHOLDERS OF ACE LIMITED:
NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting of
Shareholders (the "ACE Special Meeting") of ACE Limited ("ACE") held on June
19, 1996 has been adjourned to Monday, July 1, 1996 at 8:30 a.m. The
continuation of the ACE Special Meeting will be held at the Hamilton Princess
Hotel, 76 Pitts Bay Road, Hamilton, Bermuda. At the ACE Special Meeting,
shareholders of ACE will consider and vote upon a proposal to approve the
issuance (the "Share Issuance") of Ordinary Shares, par value $0.125 per
share, of ACE pursuant to the terms of the Agreement and Plan of Amalgamation,
dated March 14, 1996, as amended by an Amendment thereto dated as of June 19,
1996, between ACE, TRCL Acquisition Limited, a wholly-owned subsidiary of ACE,
and Tempest Reinsurance Company Limited.
Only shareholders of record, as shown by the transfer books of ACE, at the
close of business on May 16, 1996 are entitled to notice of, and to vote at,
the ACE Special Meeting or any adjournment or postponement thereof.
IF YOU HAVE ALREADY SUBMITTED A PROXY CARD, YOU DO NOT NEED TO SUBMIT THE
ACCOMPANYING PROXY CARD UNLESS YOU WISH TO CHANGE YOUR VOTE. A VOTE INDICATED
ON A PREVIOUSLY SUBMITTED PROXY CARD WILL REMAIN VALID, UNLESS YOU SUBMIT A
SUBSEQUENT PROXY CARD CHANGING YOUR VOTE OR YOU REVOKE YOUR PREVIOUSLY
SUBMITTED PROXY.
FOR FURTHER INFORMATION CONCERNING THE AMALGAMATION, USE OF THE PROXY AND
OTHER RELATED MATTERS, YOU ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS PREVIOUSLY DELIVERED AND THE SUPPLEMENT TO THE JOINT
PROXY STATEMENT/PROSPECTUS ON THE FOLLOWING PAGES.
ACE'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE SHARE ISSUANCE.
By Order of the Board of Directors,
Brian Duperreault
Chairman, President and Chief
Executive Officer
<PAGE>
[LOGO] TempestRe
NOTICE OF ADJOURNED SPECIAL GENERAL MEETING OF MEMBERS
June 20, 1996
Hamilton, Bermuda
TO THE SHAREHOLDERS OF TEMPEST REINSURANCE COMPANY LIMITED:
NOTICE IS HEREBY GIVEN that the Special General Meeting of Members (the
"Tempest Special Meeting") of Tempest Reinsurance Company Limited ("Tempest")
has been adjourned to Thursday, June 27, 1996 at 9:30 a.m. The continuation of
the Tempest Special Meeting will be held at the Hamilton Princess Hotel, 76
Pitts Bay Road, Hamilton, Bermuda. At the Tempest Special Meeting, holders of
Tempest Common Shares will consider and vote upon a proposal to approve the
terms of the Agreement and Plan of Amalgamation, dated March 14, 1996, as
amended by an Amendment thereto dated as of June 19, 1996 (as amended, the
"Amalgamation Agreement"), among ACE Limited, TRCL Acquisition Limited, a
wholly-owned subsidiary of ACE Limited, and Tempest.
In connection with the Amalgamation, holders of Tempest Common Shares are
also being asked to consent to (i) the amendment of the Securityholders
Agreement dated as of September 15, 1993, as amended, and (ii) the waiver of
their appraisal rights (collectively, the "Tempest Transactions"), in each
case as detailed in the Joint Proxy Statement/Prospectus previously delivered.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PINK PROXY CARD, WHETHER OR NOT
YOU PLAN TO ATTEND THE TEMPEST SPECIAL MEETING, BY FACSIMILE TO (441) 292-
2790, ATTENTION: CORPORATE SECRETARY, TO BE CONFIRMED BY SENDING THE ORIGINAL
BY OVERNIGHT COURIER, TO: TEMPEST REINSURANCE COMPANY LIMITED, 4TH FLOOR, PAR-
LA-VILLE PLACE, 14 PAR-LA-VILLE ROAD, HAMILTON HM 08, BERMUDA. IF YOU LATER
DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER
DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS AND THE ATTACHED SUPPLEMENT
TO THE JOINT PROXY STATEMENT/PROSPECTUS. EVEN IF YOU HAVE ALREADY SUBMITTED A
BLUE PROXY CARD, PLEASE SUBMIT THE PINK PROXY CARD ACCOMPANYING THE
SUPPLEMENT.
FOR FURTHER INFORMATION CONCERNING THE AMALGAMATION, USE OF THE PROXY AND
OTHER RELATED MATTERS, YOU ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS PREVIOUSLY DELIVERED AND THE SUPPLEMENT TO THE JOINT
PROXY/STATEMENT PROSPECTUS ON THE FOLLOWING PAGES.
TEMPEST'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE AMALGAMATION AGREEMENT AND CONSENT TO THE TEMPEST
TRANSACTIONS.
By Order of the Board of Directors,
Charles G. Collis, Jr.
Assistant Secretary
<PAGE>
ACE LIMITED
AND
TEMPEST REINSURANCE COMPANY LIMITED
SUPPLEMENT
TO
JOINT PROXY STATEMENT
FOR THE ADJOURNED EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS OF ACE LIMITED
TO BE CONTINUED ON JULY 1, 1996
FOR THE ADJOURNED SPECIAL GENERAL MEETING OF MEMBERS OF TEMPEST REINSURANCE
COMPANY LIMITED
TO BE CONTINUED ON JUNE 27, 1996
--------------
ACE LIMITED
PROSPECTUS SUPPLEMENT
This supplement ("Supplement") to the Joint Proxy Statement/Prospectus,
dated May 22, 1996 (the "Joint Proxy Statement/Prospectus"), is being
furnished to the shareholders of ACE Limited, a Cayman Islands corporation
("ACE"), and Tempest Reinsurance Company Limited, a Bermuda corporation
("Tempest"), in connection with the solicitation of proxies by the respective
Boards of Directors of ACE and Tempest for use, respectively, at the adjourned
extraordinary general meeting of shareholders of ACE to be continued on
Monday, July 1, 1996, at 8:30 a.m. at the Hamilton Princess Hotel, 76 Pitts
Bay Road, Hamilton, Bermuda (the "ACE Special Meeting"), and at the adjourned
special general meeting of members of Tempest to be continued on Thursday,
June 27, 1996, at 9:30 a.m. at the Hamilton Princess Hotel, 76 Pitts Bay Road,
Hamilton, Bermuda (the "Tempest Special Meeting" and, together with the ACE
Special Meeting, the "Special Meetings").
At the ACE Special Meeting, the holders of record of ordinary shares, par
value $0.125 per share, of ACE ("ACE Ordinary Shares"), as shown by the
transfer books of ACE, at the close of business on May 16, 1996 (the "ACE
Record Date," and the holders of ACE Ordinary Shares on the ACE Record Date,
the "ACE Shareholders"), will consider and vote upon a proposal, as more fully
described herein and in the Joint Proxy Statement/Prospectus, to approve the
issuance (the "Share Issuance") of ACE Ordinary Shares pursuant to the
Agreement and Plan of Amalgamation, dated as of March 14, 1996 (the "Original
Amalgamation Agreement"), as amended (the "Amalgamation Agreement") by an
amendment (the "Amendment"), dated as of June 19, 1996, between ACE, TRCL
Acquisition Limited ("Acquisition Subsidiary"), a wholly-owned subsidiary of
ACE, and Tempest, which will effect the amalgamation of Acquisition Subsidiary
with and into Tempest (together with the transactions contemplated thereby,
and as more fully described herein, the "Amalgamation").
At the Tempest Special Meeting, the holders of record of common shares, par
value $10 per share, of Tempest ("Tempest Common Shares"), as shown in the
register of members of Tempest, at the close of business on May 16, 1996 (the
"Tempest Record Date," and the holders of Tempest Common Shares on the Tempest
Record Date, the "Tempest Shareholders"), will consider and vote upon a
proposal, as more fully described herein and in the Joint Proxy
Statement/Prospectus, to approve the Amalgamation Agreement and to consent to
(i) the amendment of the Securityholders Agreement dated as of September 15,
1993, as amended (the "Securityholders Agreement"), and (ii) the waiver of
their appraisal rights (collectively, the "Tempest Transactions"), in each
case as detailed in the Joint Proxy Statement/Prospectus.
A copy of the Amendment is attached to this Supplement as Annex A. A copy of
the Original Amalgamation Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus. If you need additional copies of the Joint Proxy
Statement/Prospectus, please call Corporate Investor Communications, Inc. at
(201) 896-1900 Attention: Processing Department.
On June 20, 1996, the last full trading day for which information was
available prior to the printing and mailing of this Supplement, the last
closing price reported for ACE Ordinary Shares on the New York Stock Exchange,
Inc. ("NYSE") Composite Tape was $47 1/4 per share.
This Supplement includes information concerning the Amendment, describes a
number of recent developments since the mailing of the Joint Proxy
Statement/Prospectus and includes other important information relating to ACE,
Tempest and the Amalgamation. This Supplement modifies and supersedes certain
information contained in the Joint Proxy Statement/Prospectus and should be
read in conjunction with the Joint Proxy Statement/Prospectus. Both documents
include important information, and you are urged to give these documents your
careful attention and consideration.
This Supplement is first being mailed to shareholders of ACE and Tempest on
or about June 21, 1996.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS SUPPLEMENT OR THE JOINT
PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------
The date of this Supplement to the Joint Proxy Statement/Prospectus is June
20, 1996.
<PAGE>
FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS SUPPLEMENT OR THE
JOINT PROXY STATEMENT/PROSPECTUS. THE BUYER IN NORTH CAROLINA UNDERSTANDS THAT
NONE OF ACE, TEMPEST OR ANY OF THEIR RESPECTIVE SUBSIDIARIES ARE LICENSED AS
INSURANCE COMPANIES IN NORTH CAROLINA NOR DO THEY MEET THE BASIC ADMISSION
REQUIREMENTS FOR LICENSING AS INSURANCE COMPANIES IN NORTH CAROLINA.
NO PERSON IS AUTHORIZED BY ACE OR TEMPEST TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION, OTHER THAN ANY INFORMATION OR REPRESENTATION CONTAINED IN
THIS SUPPLEMENT OR IN THE JOINT PROXY STATEMENT/PROSPECTUS, IN CONNECTION WITH
THE OFFERING AND THE SOLICITATION MADE BY THIS SUPPLEMENT AND THE JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS SUPPLEMENT DOES NOT
CONSTITUTE THE SOLICITATION OF A PROXY, OR AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO PURCHASE ANY SECURITIES, IN ANY JURISDICTION IN WHICH SUCH A
SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS SUPPLEMENT NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
SET FORTH HEREIN OR IN THE AFFAIRS OF ACE OR TEMPEST SINCE THE DATE HEREOF.
----------------
All information contained in this Supplement relating to ACE and Acquisition
Subsidiary has been supplied by ACE, and all information relating to Tempest
has been supplied by Tempest. Neither ACE nor Tempest warrants the accuracy or
completeness of information relating to the other party.
In this Supplement, amounts are expressed in United States dollars and
financial statements contained or incorporated by reference herein and (unless
otherwise indicated) related financial information derived therefrom have been
prepared in accordance with accounting principles generally accepted in the
United States ("GAAP").
Capitalized terms used in this Supplement without definition shall have the
respective meanings given such terms in the Joint Proxy Statement/Prospectus.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain sections of this Supplement contain forward looking statements that
involve risks and uncertainties, including those associated with the effect of
U.S. and international economic conditions, interest rates, market share risk
relating to underwriting criteria and changes in performance of the financial
markets.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE............................ ii
THE SPECIAL MEETINGS...................................................... 1
RECENT DEVELOPMENTS....................................................... 2
MARKET PRICES OF ACE ORDINARY SHARES...................................... 7
RECOMMENDATION OF THE BOARDS OF DIRECTORS AND REASONS FOR THE
AMALGAMATION............................................................. 7
THE AMENDMENT TO THE AMALGAMATION AGREEMENT............................... 15
THE GENERAL RE AGREEMENT.................................................. 18
TAX CONSEQUENCES OF THE AMENDED AMALGAMATION AGREEMENT.................... 20
TEMPEST DIRECTOR STOCK OPTIONS............................................ 20
COMPARATIVE PER SHARE DATA................................................ 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF ACE... 22
ANNEX A--Amendment to Agreement and Plan of Amalgamation.................. A-1
ANNEX B--Opinion of Donaldson, Lufkin & Jenrette Securities Corporation... B-1
ANNEX C--Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.... C-1
</TABLE>
iii
<PAGE>
THE SPECIAL MEETINGS
PLACE, DATE AND TIME
The ACE Special Meeting held on June 19, 1996 has been adjourned to Monday,
July 1, 1996 at 8:30 a.m. The continuation of the ACE Special Meeting will be
held at the Hamilton Princess Hotel, 76 Pitts Bay Road, Hamilton, Bermuda.
The Tempest Special Meeting held on June 19, 1996 has been adjourned to
Thursday, June 27, 1996 at 9:30 a.m. The continuation of the Tempest Special
Meeting will be held at the Hamilton Princess Hotel, 76 Pitts Bay Road,
Hamilton, Bermuda.
VOTING AND REVOCATION OF PROXIES
ACE. ACE Ordinary Shares represented by a proxy properly signed and received
at or prior to the ACE Special Meeting, unless subsequently revoked, will be
voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE ACE ORDINARY SHARES
REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL OF THE SHARE ISSUANCE. IF
A SHAREHOLDER HAS ALREADY SUBMITTED A PROXY CARD, HE OR SHE DOES NOT NEED TO
SUBMIT AN ADDITIONAL PROXY CARD UNLESS THE SHAREHOLDER WISHES TO CHANGE HIS OR
HER VOTE. A VOTE INDICATED ON A PREVIOUSLY SUBMITTED PROXY CARD WILL REMAIN
VALID UNLESS A SHAREHOLDER SUBMITS A SUBSEQUENT PROXY CARD CHANGING HIS OR HER
VOTE OR REVOKES HIS OR HER PREVIOUSLY SUBMITTED PROXY. Any proxy given
pursuant to this solicitation may be revoked by the person giving it at any
time before the proxy is voted by filing with the Secretary of ACE prior to or
at the ACE Special Meeting either (i) an instrument revoking it or (ii) a duly
executed proxy bearing a later date, or by voting in person at the ACE Special
Meeting. All written notices of revocation and other communications with
respect to revocation of ACE proxies should be addressed to: ACE Limited, The
ACE Building, 30 Woodbourne Avenue, Hamilton HM 08, Bermuda, Attention:
Assistant Secretary. Attendance at the ACE Special Meeting, in and of itself,
will not constitute a revocation of a proxy.
The ACE Board of Directors is not aware of any business to be acted upon at
the ACE Special Meeting other than as described herein and in the Joint Proxy
Statement/Prospectus. If, however, other matters are properly brought before
the ACE Special Meeting, including any adjournments or postponements thereof,
the persons appointed as proxies will have discretion to vote or act thereon
according to their best judgment, except that properly executed proxies voted
against the Share Issuance will not be voted for any such adjournment or
postponement. The grant of a proxy will also confer discretionary authority on
the persons named in the proxy to vote on matters incidental to the conduct of
the ACE Special Meeting.
ACE'S BOARD OF DIRECTORS HAS DETERMINED THAT THE SHARE ISSUANCE AND THE
AMALGAMATION AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF ACE AND ITS
SHAREHOLDERS. ACE'S BOARD OF DIRECTORS RECOMMENDS THAT ACE SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE SHARE ISSUANCE.
Tempest. Tempest Common Shares represented by a proxy properly signed and
received at or prior to the Tempest Special Meeting, unless subsequently
revoked, will be voted in accordance with the instructions thereon. IF A PROXY
IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE TEMPEST
COMMON SHARES REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL OF THE
AMALGAMATION AGREEMENT, AND THE TEMPEST SHAREHOLDER WILL BE DEEMED TO HAVE
CONSENTED TO THE TEMPEST TRANSACTIONS. PREVIOUSLY SUBMITTED BLUE PROXY CARDS
WILL BE DISREGARDED. TEMPEST SHAREHOLDERS MUST SUBMIT THE PINK PROXY CARDS IN
ORDER TO CAST THEIR VOTES FOR APPROVAL OF THE AMALGAMATION AGREEMENT AND
CONSENT TO THE TEMPEST TRANSACTIONS.
PINK PROXY CARDS SHOULD BE SENT BY FACSIMILE TO (441) 292-2790, ATTENTION:
CORPORATE SECRETARY, TO BE CONFIRMED BY SENDING THE ORIGINAL BY OVERNIGHT
COURIER TO: TEMPEST REINSURANCE COMPANY LIMITED, 4TH FLOOR, PAR-LA-VILLE
PLACE, 14 PAR-LA-VILLE ROAD, HAMILTON HM 08, BERMUDA, ATTENTION: CORPORATE
SECRETARY.
<PAGE>
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted by filing with the Corporate
Secretary of Tempest prior to or at the Tempest Special Meeting either (i) an
instrument revoking it or (ii) a duly executed proxy bearing a later date, or
by voting in person at the Tempest Special Meeting. All written notices of
revocation and other communications with respect to revocation of Tempest
proxies should be addressed to: Tempest Reinsurance Company Limited, 4th
Floor, Par-La-Ville Place, 14 Par-La-Ville Road, Hamilton HM 08, Bermuda,
Attention: Corporate Secretary. Attendance at the Tempest Special Meeting, in
and of itself, will not constitute a revocation of a proxy.
The Tempest Board of Directors is not aware of any business to be acted upon
at the Tempest Special Meeting other than as described herein and in the Joint
Proxy Statement/Prospectus. If, however, other matters are properly brought
before the Tempest Special Meeting, including any adjournments or
postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their best judgment, except that properly
executed proxies voted against the Amalgamation Agreement will not be voted
for any such adjournment or postponement. The grant of a proxy will also
confer discretionary authority on the persons named in the proxy to vote on
matters incidental to the conduct of the Tempest Special Meeting.
TEMPEST'S BOARD OF DIRECTORS HAS DETERMINED THAT THE AMALGAMATION AGREEMENT
AND THE TEMPEST TRANSACTIONS ARE FAIR TO AND IN THE BEST INTERESTS OF TEMPEST
AND ITS SHAREHOLDERS. TEMPEST'S BOARD OF DIRECTORS RECOMMENDS THAT TEMPEST
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMALGAMATION AGREEMENT AND CONSENT TO
THE TEMPEST TRANSACTIONS.
TEMPEST SHAREHOLDERS SHOULD NOT SEND SHARE CERTIFICATES WITH THEIR PROXY
CARDS. IF THE AMALGAMATION IS CONSUMMATED, A TRANSMITTAL FORM WITH
INSTRUCTIONS WITH RESPECT TO THE SURRENDER OF TEMPEST SHARE CERTIFICATES WILL
SHORTLY THEREAFTER BE MAILED TO EACH HOLDER OF TEMPEST COMMON SHARES AT THE
EFFECTIVE TIME.
RECENT DEVELOPMENTS
Set forth below is a description of certain recent developments, which
description should be read in conjunction with the Joint Proxy
Statement/Prospectus, including the matters described therein under "The
Amalgamation--Background of the Amalgamation."
On May 22, 1996, the Securities and Exchange Commission ("SEC") declared the
Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus, effective. On May 23, 1996, the Joint Proxy
Statement/Prospectus was mailed to shareholders of both ACE and Tempest.
Between May 22, 1996 and June 4, 1996, Brian Duperreault, Chairman,
President and Chief Executive Officer of ACE, and Donald Kramer, Co-Chairman
of Tempest, met with shareholders of both ACE and Tempest to discuss the terms
of the Amalgamation and solicit their proxies.
On June 3, 1996, Joseph C.H. Johnson, Chairman of the Board of IPC Holdings,
Ltd. ("IPC"), a Bermuda-based property catastrophe reinsurance company, sent a
letter (the "Initial IPC Letter" and, as subsequently modified by letters
dated June 10 and 17, 1996 , the "IPC Proposal") to the Tempest Board of
Directors, in which IPC proposed to acquire Tempest in a cash and stock
transaction (the "Proposed IPC Combination"). Based on the Initial IPC Letter,
the Proposed IPC Combination would occur as follows: First, General Re
Corporation ("General Re"), the holder of approximately 20% of the outstanding
Tempest Common Shares, would receive $146 million in cash from Tempest for the
(i) repurchase of 75% of the Tempest Common Shares held by General Re, (ii)
cancellation of General Re's options to purchase Tempest Common Shares, and
(iii) termination of all contractual arrangements between General Re and
Tempest. Second, Tempest would be permitted to declare a dividend to holders
of Tempest Common Shares (excluding those repurchased from General Re) of $100
million, subject to adjustments for changes in Tempest's book value from March
31, 1996
2
<PAGE>
to closing (excluding the above payment to General Re). Third, Tempest
shareholders would be able to elect to exchange their Tempest Common Shares
for either cash or stock, subject to proration only if the holders of less
than 39% or more than 48% of the outstanding Tempest Common Shares elected to
take cash. The cash consideration in the Proposed IPC Combination would
constitute a minimum of $275 million and a maximum of $340 million.
The Initial IPC Letter contemplated a collar to protect the value of the IPC
common stock to be received by Tempest shareholders as long as the average
price of the IPC common stock during the ten-day measurement period prior to
the shareholder meetings was not less than $18.00 and not more than $22.00.
Tempest would have the right to terminate the transaction if the average IPC
stock price was less than $16.00 during the measurement period, unless IPC
elected to top up the number of IPC shares issued to Tempest shareholders. If
IPC's stock price during the measurement period were to exceed $24.00, the
number of shares of IPC common stock to be issued would be adjusted in order
to put a cap on the maximum value of the consideration issued in the Proposed
IPC Combination of approximately $735 million (excluding the $100 million
dividend).
The Initial IPC Letter stated that American International Group, Inc.
("AIG"), an approximately 24.4% shareholder of IPC, had indicated its
commitment to purchase shares of IPC common stock so as to provide up to $65
million to fund, as necessary, cash elections made by Tempest shareholders and
to maintain its approximately 24.4% ownership of IPC after the proposed
combination.
The transactions contemplated in the Initial IPC Letter were subject to
General Re agreeing to the consideration it would receive under the Initial
IPC Letter, termination of the Original Amalgamation Agreement, execution of a
definitive agreement between IPC and Tempest and the approval of the Boards of
Directors and shareholders of both Tempest and IPC. Consummation of the
transaction proposed in the Initial IPC Letter was also conditioned upon the
satisfactory completion of a due diligence review of Tempest. According to the
Initial IPC Letter, IPC anticipated consummation of the Proposed IPC
Combination by September 30, 1996. The preceding description of the Initial
IPC Letter is qualified in its entirety by reference to the full text of the
Initial IPC Letter which has been filed with the SEC as an exhibit to a
Current Report on Form 8-K filed by IPC on June 3, 1996.
On June 3, in accordance with the Original Amalgamation Agreement, Tempest
informed ACE of the receipt of the Initial IPC Letter.
On June 6, 1996, the Amalgamation Committee of Tempest's Board convened to
address certain issues raised by Tempest's receipt of the Initial IPC Letter.
The Amalgamation Committee determined that (i) IPC had the financial ability
to consummate a Third Party Acquisition (as defined in the Original
Amalgamation Agreement), (ii) based on the written advice of counsel, a copy
of which was provided to ACE as required by the Original Amalgamation
Agreement, it was necessary in order to comply with the Tempest Board's
fiduciary duties under applicable law to provide requested non-public
information to IPC, and (iii) Tempest should enter into a confidentiality
agreement with IPC. Thereafter on June 6, 1996, IPC and Tempest each entered
into a confidentiality letter facilitating the provision of non-public
information necessary for each party to evaluate the business, results of
operations and financial condition of the other.
From June 6, 1996 to June 17, 1996, representatives of each of IPC and
Tempest conducted due diligence at the offices of the other and elsewhere. In
accordance with the Original Amalgamation Agreement, Tempest provided to ACE
copies of all documents provided to IPC.
On June 8, 1996, ACE's Board of Directors discussed, by informational
telephone conference, the terms of the Initial IPC Letter and the possibility
of increasing the consideration to be paid to Tempest shareholders through
dividends that Tempest would be permitted to declare prior to the
effectiveness of the Amalgamation. During this discussion, ACE's management,
as well as ACE's financial advisors, made presentations regarding their
analyses of the Initial IPC Letter and the effect of improving the
consideration to be offered to Tempest shareholders through increasing the
amount of dividends that could be declared by Tempest prior to the
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Amalgamation. Based upon its consideration of those presentations and the
presentations previously made at meetings of ACE's Board and Approval
Committee, as well as other factors more fully described below, the Approval
Committee of ACE's Board subsequently authorized, by unanimous written
consent, an amendment to the Original Amalgamation Agreement and authorized
Mr. Duperreault to communicate the improved offer to Tempest. Mr. Duperreault
sent a letter, dated June 8, 1996, to Mr. Kramer with the terms of the
improved offer (the "Improved ACE Proposal Letter").
As disclosed in the Improved ACE Proposal Letter, ACE proposed to amend the
Original Amalgamation Agreement to permit Tempest to declare a pre-closing
dividend of approximately $50 million in addition to the dividends already
contemplated by the Amalgamation Agreement, plus an additional contingent pre-
closing dividend (the "Second Contingent Dividend") of up to a maximum of $50
million if the price of ACE Ordinary Shares did not trade at $49.00 per share
or higher on any date from and including June 10, 1996 to the date prior to
the closing of the Amalgamation. As part of its proposal, ACE proposed to
remove the 42% loss ratio provision from the calculation of Tempest's Net
Assets (as defined in the Amalgamation Agreement) at the closing date. ACE
also agreed to an amendment of Tempest's agreement with General Re to provide
for an additional cash payment to General Re of $7.5 million. ACE proposed to
remove the ability of both ACE and Tempest to terminate the Original
Amalgamation Agreement if the Average Closing Price (as defined in the
Original Amalgamation Agreement) is greater than $49.00. See "The Amendment to
the Amalgamation Agreement--Termination." The preceding description of the
Improved ACE Proposal Letter is qualified in its entirety by reference to the
full text of the Improved ACE Proposal Letter which has been filed with the
SEC as an exhibit to a Current Report on Form 8-K filed by ACE on June 10,
1996, which Current Report on Form 8-K is incorporated herein by reference.
On June 9, 1996, ACE issued a press release disclosing the presentation of
the improved offer to Tempest.
By letter dated June 10, 1996 addressed to the Board of Directors of
Tempest, IPC clarified that in the event Tempest paid to ACE the termination
fee of $12 million as provided for in the Original Amalgamation Agreement, no
deduction would be made by reason of such termination fee in any dividends
otherwise payable by Tempest to Tempest's shareholders in accordance with the
transaction outlined in the IPC Proposal.
On June 10, 1996, the Tempest Board met to consider the terms of the
Original Amalgamation Agreement, as improved by the terms of the Improved ACE
Proposal Letter, and the terms of the Initial IPC Letter, as modified by the
letter dated June 10, 1996. At that meeting, the Tempest Board first ratified
all the determinations and actions of the Amalgamation Committee made or taken
in the preceding week, including the determination that IPC constituted an
entity with the financial ability to consummate a Third Party Acquisition (as
defined in the Original Amalgamation Agreement) and that it was necessary, in
order to comply with the Board's fiduciary duties under applicable law, to
enter into a confidentiality agreement with IPC and furnish requested
information to IPC. General Re advised the Tempest Board that, in light of
Tempest's receipt of the IPC and ACE proposals, both of which represented the
possibility of delivering to the Tempest Shareholders other than General Re
significantly greater consideration than would be delivered to them in the
original transaction with ACE, General Re believed the share purchase
agreement dated as of March 14, 1996 among Tempest, General Re and certain of
its affiliates (the "March 14 Share Purchase Agreement") was no longer
enforceable and that it would be appropriate to renegotiate the terms of the
March 14 Share Purchase Agreement. Although the Tempest Board of Directors did
not accept that the March 14 Share Purchase Agreement was unenforceable, it
elected, in the interest of facilitating discussion and evaluation of the ACE
transaction (as modified to date) and the IPC Proposal, to renegotiate with
General Re the terms of the March 14 Share Purchase Agreement.
The Tempest Board debated the merits of the Initial IPC Letter, as modified
by the letter dated June 10, 1996, noting that by its terms it was
conditioned, among other things, on the successful completion of a due
diligence investigation of Tempest and the ability of IPC to secure financing.
The Tempest Board also noted that IPC could not consummate the Proposed IPC
Combination before September 15, 1996 and anticipated a closing date of
September 30, 1996. The Tempest Board also discussed the Improved ACE Proposal
Letter and began negotiations with General Re regarding disposition of its
shareholding in Tempest. Merrill Lynch presented a preliminary analysis of the
relative economic benefit of each of the IPC and ACE proposals.
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At the June 10, 1996 meeting of the Tempest Board, the Board tentatively
approved the repurchase by Tempest of all the Tempest Common Shares held by
General Re, and cancellation of General Re's option to acquire additional
Tempest Common Shares and certain related contractual arrangements between
Tempest and General Re for aggregate cash consideration of approximately $216
million, payable in cash and assuming the success of the ACE offer. General Re
also agreed, in its capacity as a shareholder of Tempest, to vote in respect
of all of its voting rights for the Amalgamation subject to: (i) reaching
agreement with Tempest on related matters, (ii) ACE and Tempest reaching
agreement on final terms providing substantially the same aggregate value to
all Tempest shareholders as proposed by ACE in the Improved ACE Proposal
Letter and (iii) the absence of a determination by General Re that an
alternative amalgamation was superior for Tempest shareholders to the proposed
Amalgamation.
Prior to adjournment of its June 10, 1996 meeting, the Tempest Board
expressly delegated to the Amalgamation Committee, after approving the
addition of a General Re-designated committee member, the responsibility of
further exploring the transactions outlined in each of the Initial IPC Letter,
as modified by the June 10, 1996 letter, and the Improved ACE Proposal Letter.
The Amalgamation Committee convened daily in the week of June 10 to continue
evaluating each of the IPC Proposal and the Improved ACE Proposal Letter as
well as to finalize negotiations with General Re. Counsel to Tempest
negotiated with counsel to IPC the terms of an amalgamation agreement between
Tempest and IPC. Tempest advised IPC that General Re had indicated that it
would not accept the terms of the Initial IPC Letter, as modified by the June
10, 1996 letter, relating to the consideration to be paid to General Re.
On June 11, 1996, following conversations between Mr. Duperreault and Mr.
Kramer and their respective advisors, Mr. Duperreault sent a letter (the "ACE
June 11 Letter") to Mr. Kramer offering, subject to certain conditions, to
permit Tempest to reduce its Net Assets to $452.5 million (before giving
effect to the payment of the Second Contingent Dividend) at the closing,
thereby allowing Tempest to provide additional consideration to General Re.
The offer contained in the ACE June 11 Letter was subject to the following
conditions: (i) the transactions contemplated by the Amalgamation Agreement
and the March 14 Share Purchase Agreement closing on June 19, 1996, (ii) the
Board of Directors of Tempest (including the directors nominated by General
Re) forthwith reconfirming their approval of the Amalgamation with ACE, (iii)
the Board of Directors of Tempest (including the directors nominated by
General Re) recommending to Tempest Shareholders that they approve the
transactions contemplated by the Amalgamation Agreement, (iv) General Re
agreeing to vote all Tempest Common Shares beneficially owned by it in favor
of approving the transactions contemplated by the Amalgamation Agreement, (v)
General Re and its affiliates fulfilling their respective obligations under
the March 14 Share Purchase Agreement without any additional consideration
whatsoever and (vi) General Re agreeing to an exclusivity provision reasonably
satisfactory to ACE precluding General Re, unless the Amalgamation Agreement
with ACE was terminated, from negotiating with any other entity with respect
to any matter related to the acquisition of the stock, assets or business of
Tempest or any amalgamation or other.
On June 12, 1996, based upon information that General Re would not accept
all the terms outlined in the ACE June 11 Letter, Mr. Duperreault informed Mr.
Kramer that the offer contained in the ACE June 11 Letter was withdrawn.
From June 12 through 14, 1996, the Amalgamation Committee convened daily
with Tempest's outside advisors. The Amalgamation Committee continued to
consider the terms of the Initial IPC Letter, as modified by the June 10, 1996
letter. In addition, the Amalgamation Committee outlined the terms upon which
Tempest would agree to consummate an amalgamation with ACE, which terms were
delivered to ACE on June 14, 1996. Such terms included a reservation by the
Tempest Board of the right to allocate, in its sole discretion, among all
Tempest shareholders the aggregate consideration payable in connection with
the Amalgamation. The financial terms are substantially as continued in the
Amendment. ACE orally confirmed acceptance of such terms as a basis upon which
an amalgamation between Tempest and ACE could be consummated.
On June 17, 1997, the Tempest Board met to review and evaluate the Proposed
IPC Combination based on the terms of the Initial IPC Letter, as modified by
the June 10, 1996 letter. The Tempest Board considered the results of due
diligence completed by its outside advisors and received a presentation by its
financial advisor, Merrill Lynch. It was Merrill Lynch's advice that the
Proposed IPC Combination, as offered by IPC to such
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date, would not provide greater aggregate value to Tempest and/or Tempest
Shareholders than the Amalgamation under the Original Amalgamation Agreement
as modified by ACE to such date. After discussion and deliberation, the
Tempest Board (i) noted that it had previously determined that the IPC offer
was a bona fide proposal by an entity with the financial ability to consummate
such proposal, (ii) based on numerous considerations, including timing
considerations, catastrophe and market risks, Tempest's diversification
strategy for long-term value, liquidity and the structures of the respective
proposals, determined that such IPC Proposal would not provide greater
aggregate value to Tempest and/or Tempest Shareholders than the ACE proposal
as agreed and modified to such date, and (iii) determined that such IPC
Proposal was not a Superior Proposal as defined under the Original
Amalgamation Agreement.
The Tempest Board also considered the terms by which General Re would agree
to sell its Tempest Common Shares and options to Tempest prior to an
amalgamation with ACE. The Tempest Board confirmed that, subject to
resolution of certain outstanding issues, the agreement reached with General
Re at its June 10, 1996 meeting, would be acceptable to Tempest. The Tempest
Board noted that the fee to be paid to General Re for termination of the
contract with GRUS would be the same as under the March 14 Share Purchase
Agreement and that the total additional consideration to be received by
General Re for its shares and options had been calculated on the basis of the
value to be received by other Tempest shareholders for their Tempest Common
Shares, subject to a discount for receipt of cash as opposed to ACE Ordinary
Shares. The Tempest Board preliminarily calculated the monetary consideration
to be received by General Re (excluding amounts for the termination of the
GRUS contract and the repurchase and cancellation of General Re's option and
prior to consideration of other provisions of the agreement between the
parties) and concluded that such monetary consideration was not greater on a
per share basis than that which would be received by all other shareholders
for their Tempest Common Shares.
The Tempest Board subsequently received a presentation from Merrill Lynch
regarding the ACE offer to date, including Merrill Lynch's determination that,
subject to resolution of certain outstanding issues, Merrill Lynch expected to
be in a position to render its opinion that the proposed consideration to be
received by Tempest Shareholders in the form of ACE Ordinary Shares pursuant
to the Original Amalgamation Agreement, as it would be modified by ACE's
improved offer, including the effect of the Second Contingent Dividend, was
fair from a financial point of view to such Tempest Shareholders. After
further discussion and deliberation, the Tempest Board approved amendment of
the Original Amalgamation Agreement in accordance with the revised terms
offered by ACE, subject to final execution of an agreement with General Re and
delivery to Tempest of a written opinion from Merrill Lynch.
Prior to adjournment of its June 17, 1996 meeting, the Tempest Board
expressly delegated to the Amalgamation Committee the responsibility for
further negotiation and, if appropriate, approval of the agreement with
General Re and the amendment of the Original Amalgamation Agreement, as well
as any further consideration of the IPC offer and any final determination of
whether or not such a proposal was a Superior Proposal under the Original
Amalgamation Agreement. Between June 17 and 19, 1996, the Amalgamation
Committee negotiated the final terms of the agreement with General Re, which
included indemnification of General Re and general releases by Tempest and
General Re and the amendment of the Original Amalgamation Agreement.
By letter dated June 17, 1996 (delivered by IPC subsequent to the June 17
meeting of the Tempest Board of Directors), IPC informed the Tempest Board,
among other things, that IPC had completed its due diligence investigation of
Tempest; commitments had been obtained from two IPC shareholders providing
additional cash equity for the Proposed IPC Combination of approximately $40
million (not affecting, however, the overall amount of consideration proposed
to be paid to Tempest shareholders pursuant to an amalgamation of Tempest with
IPC); and a commitment letter had been executed to secure the cash financing
necessary to complete the proposed IPC transaction with Tempest. The IPC June
17 letter provided that the offer of IPC referenced thereto would expire at
5:00 p.m. (EDT) on June 19, 1996.
All members of the Tempest Board were immediately advised of the receipt by
Tempest of the IPC communication described above. Tempest also circulated to
each Tempest Board member (i) a draft from IPC of
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a proposed share purchase agreement to be entered into between Tempest and
General Re in the event of the election of Tempest to enter into the Proposed
IPC Combination; (ii) the secured credit facility commitment letter to IPC
dated June 17, 1996; (iii) a letter to IPC from the two IPC shareholders
committing to make available the additional $40 million, and (iv) memoranda
regarding the results of Tempest's due diligence investigation of IPC.
On June 19, 1996, the Amalgamation Committee received the advice from
Merrill Lynch that, and subsequently determined that, the IPC Proposal was not
a Superior Proposal (as defined in the Amalgamation Agreement) to the ACE
offer as modified. The Amalgamation Committee then approved the terms of the
share purchase agreement among Tempest, General Re and certain General Re
affiliates intended to supersede the March 14 Share Purchase Agreement and
approved the Amendment.
On June 19, 1996, Tempest, General Re, General Re Underwriting Services
("GRUS") and General Re--New England Asset Management, Inc. executed a new
share purchase agreement (the "General Re Agreement") and the Amendment to the
Amalgamation Agreement was executed by the respective parties thereto. Shortly
thereafter, a representative of Tempest telephoned IPC to terminate
discussions between Tempest and IPC.
The execution of the Amendment was jointly announced by ACE and Tempest in
the evening of June 19, 1996.
On June 19, 1996, Merrill Lynch delivered its written opinion as to the
fairness, from a financial point of view, of the Amalgamation consideration to
the Tempest Shareholders participating in the Amalgamation. On June 20, 1996,
DLJ rendered its written opinion, dated the date of this Supplement as to the
fairness, from a financial point of view, to ACE and its shareholders of the
consideration to be paid by ACE pursuant to the Amalgamation Agreement.
MARKET PRICES OF ACE ORDINARY SHARES
On June 20, 1996, the last full trading day for which information was
available prior to the printing and mailing of this Supplement, the last
closing price reported for ACE Ordinary Shares on the NYSE Composite Tape was
$47 1/4 per share.
TEMPEST SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR ACE
ORDINARY SHARES IN CONNECTION WITH VOTING THEIR SHARES. ACE ORDINARY SHARES
ARE TRADED ON THE NYSE UNDER THE SYMBOL "ACL."
RECOMMENDATION OF THE BOARDS OF DIRECTORS AND REASONS FOR THE AMALGAMATION
RECOMMENDATIONS OF THE ACE BOARD OF DIRECTORS AND ACE'S REASONS FOR THE
AMALGAMATION
THE ACE BOARD OF DIRECTORS APPROVED THE AMALGAMATION AGREEMENT AND THE SHARE
ISSUANCE AND RECOMMENDS THAT THE ACE SHAREHOLDERS VOTE FOR APPROVAL OF THE
SHARE ISSUANCE.
The Approval Committee of ACE's Board of Directors and ACE's Board of
Directors considered a variety of factors and information in their respective
deliberations and concluded that the terms of the Amalgamation, as revised,
would offer a number of benefits to ACE and would be in the best interests of
ACE's shareholders. Reference is made to the Joint Proxy Statement/Prospectus
for a more detailed description of ACE's reasons for the Amalgamation. See
"The Amalgamation and Related Transactions--Recommendation of the ACE Board of
Directors and ACE's Reasons for the Amalgamation" in the Joint Proxy
Statement/Prospectus. Among the
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factors considered by the Approval Committee and ACE's Board of Directors in
its analysis of the Amendment were the following:
The Approval Committee considered the effect of the IPC Proposal on the
existing agreement between ACE and Tempest. The Approval Committee noted
that the existing agreement could not be terminated unless the IPC Proposal
was deemed to be a "Superior Proposal" (as defined in the Original
Amalgamation Agreement), in light of any improved offer made by ACE. The
Approval Committee also considered the terms of the IPC Proposal, including
the forms of consideration being offered. The Approval Committee determined
that the value of the IPC Proposal should be discounted to take into
account certain contingencies. Based upon the presentations from ACE's
management and DLJ, the Approval Committee determined that, while the ACE
offer as embodied in the Original Amalgamation Agreement provided superior
long-term value to Tempest's shareholders, it would be appropriate to
improve ACE's offer to facilitate an ACE/Tempest amalgamation. The Approval
Committee determined that, in light of the circumstances existing at the
time, improving ACE's offer, as described in the Improved ACE Proposal
Letter, would not materially detract from the expected benefits of the
Amalgamation.
The Approval Committee considered the pro forma financial results and
financial position of the pro forma combined company and the effects of the
Amalgamation on ACE's business, results of operations and financial
condition.
The Approval Committee considered the terms and conditions of the
Amendment, including the additional dividends that Tempest would be
permitted to declare prior to the effectiveness of the Amalgamation. The
fact that the transaction would continue to diversify ACE's overall risk
profile and ACE's customer base as well as the fact that the Amalgamation
would remain significantly accretive on both a book value per share and
earnings per share basis was particularly important. The Approval Committee
found the terms and conditions of the Amalgamation Agreement to be
favorable to ACE.
The Approval Committee considered the effects of the elimination of the
right of either party to terminate the Amalgamation Agreement if the
Average Closing Price was greater than $49.00 per ACE Ordinary Share. The
Approval Committee determined that, given the then recent and expected
trading prices of the ACE Ordinary Shares, the removal of such provision
did not materially detract from the expected benefits of the Amalgamation.
The Approval Committee considered the financial presentation of DLJ
delivered at a meeting on June 8, 1996. The Approval Committee found DLJ's
financial presentations to support its opinion that the Amalgamation
Agreement and Share Issuance are fair to and in the best interests of the
ACE Shareholders.
The foregoing discussion of the information and factors considered by the
Approval Committee of ACE's Board of Directors is not intended to be
exhaustive. In view of the many and varied factors considered by the Approval
Committee of ACE's Board of Directors, and the necessarily subjective and
complex nature of many of these, the Approval Committee of ACE's Board of
Directors did not deem it appropriate or practical to assign relative weights
to the various factors considered in reaching this determination. Rather, the
Approval Committee of ACE's Board of Directors viewed its positions and
recommendations as being based on the totality of the information presented to
and considered by it.
The principal reasons for the Approval Committee's conclusion that the
Amalgamation is fair and in the best interests of ACE's shareholders and that
the Share Issuance should be approved by ACE Shareholders are described in the
Joint Proxy Statement/Prospectus. See "The Amalgamation and Related
Transactions--Recommendation of the ACE Board of Directors and ACE's Reasons
for the Amalgamation" in the Joint Proxy Statement/Prospectus. In addition, in
concluding that the Amendment is fair and in the best interests of ACE's
shareholders the Approval Committee also considered the following:
Accretion to Earnings Per Share. ACE's Approval Committee believed that
the Amalgamation generally will remain accretive to ACE's future earnings
per share assuming an Average Closing Price of $45.00 per share or greater.
ACE's earnings per share for the year ended September 30, 1995 were $5.05
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and earnings per share for the same period, on a pro forma basis giving
effect to the Amalgamation, would have been $5.96. Earnings per share,
excluding net realized gains (losses) on investments, for the year ended
September 30, 1995 were $3.97 and earnings per share, excluding net
realized gains (losses) on investments, for the same period, on a pro forma
basis giving effect to the Amalgamation, would have been $5.17.
ACE'S BOARD OF DIRECTORS RECOMMENDS THAT ACE SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE SHARE ISSUANCE.
OPINION OF FINANCIAL ADVISOR TO ACE
In its role as financial advisor to ACE, DLJ was asked by ACE to render its
opinion to the ACE Board of Directors as to the fairness, from a financial
point of view, to ACE and its shareholders of the consideration to be paid by
ACE to Tempest Shareholders pursuant to the Amalgamation Agreement. On March
14, 1996 and May 22, 1996, DLJ delivered its written opinions to the ACE Board
of Directors with respect to the consideration to be paid pursuant to the
Amalgamation Agreement prior to the Amendment. DLJ also delivered to the ACE
Board of Directors a written opinion dated the date of this Supplement with
respect to the consideration to be paid pursuant to the Amalgamation Agreement
(the "DLJ Updated Opinion").
A copy of the DLJ Updated Opinion is attached hereto as Annex B. ACE
Shareholders are urged to read the opinion in its entirety for the assumptions
made, procedures followed, other matters considered and limits of the review
by DLJ. The summary of the DLJ Updated Opinion set forth in this Supplement is
qualified in its entirety by reference to the full text of such opinion. The
DLJ Updated Opinion was prepared for the ACE Board of Directors and is
directed only to the fairness to ACE and the holders of ACE Ordinary Shares as
of the date of this Supplement, from a financial point of view, of the
consideration to be paid by ACE pursuant to the Amalgamation Agreement and
does not constitute a recommendation to any shareholder as to how to vote at
the ACE Special Meeting. The summary of the DLJ Updated Opinion set forth in
this Supplement should be read in conjunction with the summary of DLJ's
opinion dated May 22, 1996 set forth in the Joint Proxy Statement/Prospectus.
In considering the DLJ Updated Opinion, shareholders may want to take into
account DLJ's fee arrangements with respect to the Amalgamation, under which
DLJ's fees are substantially greater if the Amalgamation is consummated, as
set forth under "The Amalgamation and Related Transactions--Opinions of
Financial Advisor to ACE--Engagement and Fees Payable to DLJ" in the Joint
Proxy Statement/Prospectus.
In arriving at the DLJ Updated Opinion, DLJ reviewed the Amalgamation
Agreement as well as financial and other information that was available or
furnished to it by ACE and Tempest including information provided during
discussions with their respective managements. Financial income statement and
balance sheet projections for Tempest for the fiscal years ended November 30,
1996 and 1997 were developed by DLJ based upon discussions with and
information provided by the management of Tempest and were reviewed and
accepted as reasonable by the management of ACE. The Tempest projections
indicated an increase in premiums earned at a lower growth rate than that
experienced by Tempest historically. The loss and loss expense ratios in 1996
and 1997 were projected to increase to levels higher than the 1995 loss and
loss expense ratio. The underwriting and administrative expense ratios in 1996
and 1997 were projected to decrease moderately from the 1995 level. Net
operating income in 1996 and 1997 was projected to decline relative to net
operating income in 1995, partially due to a projected decline in investment
income attributable to the anticipated reduction in Tempest's Net Assets value
to $402.5 million which was assumed to occur immediately prior to closing and
which assumes payment of the maximum amount of $50 million pursuant to the
Second Contingent Dividend.
In addition, certain financial projections of ACE for fiscal years 1996 and
1997 were developed by DLJ based upon public information and were reviewed and
accepted as reasonable by the management of ACE. The ACE projections indicated
overall compound annual growth in premiums during the years 1996-1997. The
loss and loss expense ratios in 1996 and 1997 were projected to remain at
approximately the 1995 loss and loss expense ratio. The underwriting and
administrative expense ratios in 1996 and 1997 were projected to remain at
approximately the 1995 level. Net operating income in 1996 and 1997 was
projected to grow each year at a relatively constant rate.
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The financial projections with respect to ACE and Tempest were based on
certain long-term operating assumptions regarding the businesses of each
company, taking into consideration past performance. The operating assumptions
included, but were not limited to, (i) premium growth rates; (ii) loss and
loss adjustment expense ratios; and (iii) expense ratios and yields on
invested assets. In addition, projections with respect to Tempest gave effect
to the anticipated reduction in Tempest's Net Assets to $402.5 million which
was assumed to occur immediately prior to closing and which assumes payment of
the maximum amount of $50 million pursuant to the Second Contingent Dividend.
DLJ also compared certain financial data of Tempest with various other
comparable companies whose securities are traded in the public markets,
reviewed the historical stock price and trading volume of the ACE Ordinary
Shares, reviewed prices and premiums paid in other comparable business
combinations and conducted such other studies, analyses and investigations as
DLJ deemed appropriate for purposes of its opinion, including utilizing
materials prepared by and discussions held with ACE's outside accounting,
legal, underwriting and actuarial consultants.
In rendering the DLJ Updated Opinion, DLJ relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all of
the financial and other information that was available to it from public
sources, that was provided to DLJ by ACE and Tempest or their respective
representatives, or that was otherwise reviewed by DLJ. With respect to the
financial projections developed by DLJ and reviewed by the management of ACE,
DLJ has assumed that the information provided by the management of ACE and the
management of Tempest, in connection therewith, reflects the best currently
available estimates and judgments of the managements of ACE and Tempest as to
the future operating and financial performance of ACE and Tempest. DLJ did not
make any independent evaluation of ACE's or Tempest's assets or liabilities,
nor did DLJ verify any of the information reviewed by it.
The DLJ Updated Opinion is necessarily based on economic, market, financial
and other conditions as they existed on the date of such opinion and on the
information made available to DLJ as of such date. It should be understood
that, although subsequent developments may affect the DLJ Updated Opinion, DLJ
does not have any obligation to update, revise or reaffirm the DLJ Updated
Opinion.
The following is a summary of the material factors considered and principal
financial analyses performed by DLJ to arrive at the DLJ Updated Opinion. DLJ
performed certain procedures, including each of the financial analyses
described below, and reviewed with the managements of ACE and Tempest the
assumptions on which such analyses were based and other factors, including the
current and projected financial results of such companies.
Pro Forma Effect of the Transaction on ACE's Financial Position and
Projected Earnings. DLJ analyzed certain pro forma financial effects resulting
from the Amalgamation. The Tempest financial projections were developed by DLJ
to reflect the terms of the Amalgamation Agreement and certain long-term
operating assumptions regarding the property catastrophe reinsurance business.
DLJ noted that while the Tempest projections assume normalized results, the
actual results in any one year may differ substantially due to the high
severity, low frequency characteristics of the property catastrophe business.
Such analysis indicated, among other things, that the Amalgamation would be
accretive, on a pro forma basis, to ACE's 1995 earnings per share by 20.4% to
30.0% over the range of Average Closing Prices of $31.00 to $49.00. The 1996
and 1997 projected results, on a pro forma basis, indicated that the
Amalgamation would be accretive to ACE's earnings per share by 6.5% to 15.1%
and 8.2% to 16.9%, over the range of Average Closing Prices of $31.00 to
$49.00. The results of the pro forma financial analysis are not necessarily
indicative of future operating results or financial position.
Public Market Valuation Analysis. To provide contextual data and comparative
market information, DLJ compared selected share price and operating and
financial data and ratios for Tempest to the corresponding data and ratios of
the following publicly traded companies: GCR Holdings Ltd.; LaSalle Re
Holdings Ltd.; Mid Ocean Limited; PartnerRe Ltd.; RenaissanceRe Holdings Ltd.;
and IPC Holdings Ltd. The ranges of price as a multiple of 1995 operating
earnings, price as a multiple of projected 1996 operating earnings and price
as a multiple of
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shareholders' equity for the publicly traded companies at the date of the DLJ
Updated Opinion were: 8.3x-4.5x; 7.4x-4.8x; and 1.57x to 1.18x, respectively.
The average multiple of price to 1995 operating earnings, average multiple of
price to 1996 projected operating earnings and average multiple of price to
shareholders' equity for the publicly traded companies as of the date of the
DLJ Updated Opinion were 6.9x, 6.2x and 1.36x, respectively. Such analysis
indicated that the total consideration to be paid by ACE, over the range of
Average Closing Prices, would result in multiples within the lower end of the
range of the price-earnings trading multiples of the publicly traded
companies. Assuming an Average Closing Price of $31.00 (the Average Closing
Price below which the Amalgamation could be terminated by either party), the
total consideration to be paid by ACE in the Amalgamation would result in a
purchase price multiple to Tempest's 1995 operating earnings of 4.4x. Assuming
an Average Closing Price between $33.00 to $49.00, the total consideration to
be paid by ACE in the Amalgamation would result in a purchase price multiple
to Tempest's 1995 operating earnings of 4.7x.
Such analysis indicated that the total consideration to be paid by ACE, over
the range of Average Closing Prices, would result in multiples of
shareholders' equity within the range of the price-to-book trading multiples
of the publicly traded companies. Assuming an Average Closing Price of $31.00,
the total consideration to be paid by ACE in the Amalgamation would result in
a purchase price multiple to Tempest's shareholders' equity of 1.41x. Assuming
an Average Closing Price between $33.00 to $49.00, the total consideration to
be paid by ACE in the Amalgamation would result in a purchase price multiple
to Tempest's shareholders' equity of 1.51x.
Analysis of ACE Ordinary Shares Trading History. DLJ also analyzed ACE's
public market valuation at the date of the DLJ Updated Opinion, relative to
ACE's historical price-to-earnings and price-to-book multiplies. At the date
of the DLJ Updated Opinion, ACE's stock was trading at approximately 10.1x
(price as a multiple of projected 1996 operating earnings), which is within
ACE's projected price-to-earnings multiple range since ACE's initial public
offering of 14.0x to 6.4x, and was trading at 1.40x, the high end of ACE's
historical price-to-book multiple range of 1.48x to 0.89x.
Amalgamation Market Valuation Analysis. DLJ analyzed over thirty selected
merger and acquisition transactions involving property and casualty insurance
and reinsurance companies from 1989 through 1995. Although DLJ used these
transactions for comparative purposes, DLJ noted that: (i) the absence of any
merger and acquisition transactions in the Bermuda property catastrophe
industry itself, and (ii) the lack of comparability between transactions
involving property and casualty insurance and reinsurance companies and
transactions involving a Bermuda-based property catastrophe company due to the
large differences in financial and operating dynamics.
DLJ analyzed the price-to-book multiples in selected merger and acquisition
transactions and determined that on a price-to-book basis the total
consideration to be paid by ACE was slightly above the median multiples of the
selected property and casualty and reinsurance merger and acquisition
transactions of 1.40x and 1.45x, respectively. The consideration to be paid by
ACE implies a price-to-book multiple of between 1.41x and 1.51x over the range
of Average Closing Prices of $31.00 to $49.00.
Limitations of Opinion. The summary set forth above does not purport to be a
complete description of the analyses performed by DLJ. The preparation of a
fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these
methods to the particular circumstances and, therefore, such opinion is not
readily susceptible to summary description. The preparation of a fairness
opinion does not involve a mathematical evaluation or weighing of the results
of the individual analyses performed, but requires DLJ to exercise its
professional judgment--based on its experience and expertise--in considering a
wide variety of analyses taken as a whole. Each of the analyses conducted by
DLJ was carried out in order to provide a different perspective on the
transaction and to add to the breadth of information available. DLJ did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness. Rather,
in reaching its conclusion, DLJ considered the results of the analyses in
light of each other and ultimately reached its opinion based on the results of
all analyses taken as a whole. DLJ did not place particular reliance or weight
on any individual analysis, but instead concluded that its analyses, taken as
a whole, supported its determination. Accordingly, notwithstanding
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the separate factors summarized above, DLJ believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, may
create an incomplete view of the evaluation process underlying its opinion. In
performing its analyses, DLJ made numerous assumptions with respect to
industry performance, business and economic conditions and other matters. The
analyses performed by DLJ are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than those
suggested by such analyses.
RECOMMENDATIONS OF THE TEMPEST BOARD OF DIRECTORS AND TEMPEST'S REASONS FOR
THE AMALGAMATION
The Tempest Board of Directors, at its June 17, 1996 meeting, approved
amendment of the Amalgamation Agreement in accordance with the improved ACE
offer, subject to resolution of certain matters relating to the General Re
Agreement and the delivery of a written fairness opinion by Merrill Lynch
confirming that the consideration to be received in the form of ACE Ordinary
Shares by Tempest Shareholders pursuant to the Amalgamation Agreement is fair
from a financial point of view to such Tempest Shareholders. The Amalgamation
Committee to which the Tempest Board had delegated such authority, thereafter
agreed with General Re on the terms of the General Re Agreement and received
the written fairness opinion of Merrill Lynch to the effect set forth above.
The Tempest Board has accordingly determined, based upon its independent
review of the material factors described below, that the Amalgamation
Agreement and the Tempest Transactions are fair to and in the best interests
of Tempest and its shareholders and has approved the Amalgamation Agreement.
The Tempest Board of Directors and the Amalgamation Committee considered a
variety of factors and information in their respective deliberations and
concluded that the Amalgamation Agreement, incorporating the terms of the
improved ACE offer, provided significant value to Tempest Shareholders and was
in the best interests of Tempest Shareholders. Reference is made to the Joint
Proxy Statement/Prospectus for a more detailed description of Tempest's
reasons for the Amalgamation. See "The Amalgamation and Related Transactions--
Recommendation of the Tempest Board of Directors and Tempest's Reasons for the
Amalgamation" in the Joint Proxy Statement/Prospectus. Among the factors
considered by the Tempest Board of Directors and the Amalgamation Committee in
their respective analyses of the Amendment were the following:
Each of the Tempest Board and the Amalgamation Committee considered the
additional dividends that Tempest would be permitted to declare prior to
the effectiveness of the Amalgamation.
The Tempest Board received the financial presentation of Merrill Lynch
delivered at the June 17, 1996 Tempest Board meeting, and the Amalgamation
Committee also considered Merrill Lynch's written opinion addressed to the
Tempest Board dated June 19, 1996, all to the effect that, based upon and
subject to certain matters presented at the Tempest Board meeting, or
stated in Merrill Lynch's written opinion, the consideration to be received
in the form of ACE Ordinary Shares by Tempest Shareholders including the
effect of the Second Contingent Dividend pursuant to the Amalgamation is
fair from a financial point of view to such Tempest Shareholders.
Each of the Tempest Board and the Amalgamation Committee considered the
presentation by Merrill Lynch regarding the advantages and disadvantages of
the IPC Proposal and the ACE transaction, as modified by the terms of the
improved ACE offer, and Merrill Lynch's advice that the Proposed IPC
Combination, as offered by IPC to such date, would not provide greater
aggregate value to Tempest and/or Tempest Shareholders than the
Amalgamation under the Original Amalgamation Agreement as modified by ACE
to such date. After discussion and deliberation, the Tempest Board (i)
noted that it had previously determined that the IPC offer was a bona fide
proposal by an entity with the financial ability to consummate such
proposal, (ii) based on numerous considerations, including timing
considerations, catastrophe and market risks, Tempest's diversification
strategy for long-term value, liquidity and the structures of the
respective proposals, determined that such IPC Proposal would not provide
greater aggregate value to
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Tempest and/or Tempest Shareholders than the ACE proposal as agreed and
modified to such date, and (iii) determined that such IPC Proposal was not
a Superior Proposal as defined under the Original Amalgamation Agreement.
The Tempest Board and the Amalgamation Committee considered the financial
strength of ACE and of the pro forma combined company. The structure of the
Amalgamation, which would permit Tempest Shareholders to exchange their
Tempest Common Shares for ACE Ordinary Shares, was deemed by the Tempest
Board to be a desirable outcome for Tempest Shareholders, consistent with
Tempest's diversification strategy for achieving long-term value for
Tempest Shareholders.
The foregoing discussion of the information and factors considered by the
Tempest Board is not intended to be exhaustive, but is believed to include all
material factors considered by the Tempest Board.
The principal reasons for the Tempest Board of Directors' conclusion that
the Amalgamation is fair and in the best interests of the Tempest Shareholders
and that Tempest Shareholders should vote for approval of the Amalgamation
Agreement and consent to the Tempest Transactions are described in the Joint
Proxy Statement/Prospectus. See "The Amalgamation and Related Transactions --
Recommendations of the Tempest Board of Directors and Tempest's Reasons for
the Amalgamation" in the Joint Proxy Statement/Prospectus.
TEMPEST'S BOARD OF DIRECTORS RECOMMENDS THAT THE TEMPEST SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE AMALGAMATION AGREEMENT AND CONSENT TO THE TEMPEST
TRANSACTIONS.
OPINION OF FINANCIAL ADVISOR TO TEMPEST
Merrill Lynch has rendered a written opinion, dated June 19, 1996, to the
Tempest Board that as of such date the consideration to be received in the
form of ACE Ordinary Shares, including the effect of the Second Contingent
Dividend, by Tempest Shareholders pursuant to the Amalgamation Agreement is
fair from a financial point of view to such Tempest Shareholders.
The full text of Merrill Lynch's opinion dated June 19, 1996 is attached as
Annex C. The description of the written opinions set forth herein is qualified
in its entirety by reference to the full text of the opinion attached as Annex
C. The Tempest Shareholders are urged to read the opinion in its entirety for
a description of the procedures followed, assumptions made, matters
considered, and qualifications and limitations on the review undertaken, by
Merrill Lynch in connection therewith. In considering the Merrill Lynch
opinion, Tempest Shareholders may want to take into account Merrill Lynch's
fee arrangements with respect to the Amalgamation, under which Merrill Lynch's
fees are substantially greater if the Amalgamation is consummated, as set
forth under "Fees Payable to Merrill Lynch."
Merrill Lynch's opinion is directed only to the fairness of the
consideration to be received in the form of ACE Ordinary Shares by Tempest
Shareholders. The opinion is directed to the Board of Directors of Tempest and
does not constitute a recommendation to any Tempest Shareholders as to how to
vote at the Tempest Special Meeting or otherwise.
Material Relied Upon by Merrill Lynch. In arriving at its opinion dated June
19, 1996, Merrill Lynch, among other things: reviewed the Amalgamation
Agreement, reviewed the Tempest Annual Reports and related financial
information for each of the years in the two-year period ended November 30,
1995, the period ended November 30, 1993 and unaudited Tempest financial
statements for the three months ended February 29, 1996, reviewed ACE's Annual
Reports and related financial information for each of the years in the three-
year period ended September 30, 1995 and unaudited ACE financial statements
for the six months ended March 31, 1996, conducted discussions with members of
senior management of Tempest concerning the business and prospects of Tempest,
conducted discussions with members of senior management of ACE concerning the
business and prospects of ACE, reviewed the historical market prices and
trading activity for the ACE Ordinary Shares,
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reviewed certain information, including a study by a nationally recognized,
independent actuarial firm engaged by Tempest and financial forecasts relating
to the business, earnings, cash flow, assets and prospects of Tempest and ACE
furnished to Merrill Lynch by Tempest and ACE. Merrill Lynch compared the
proposed financial terms of the transaction contemplated by the Amalgamation
Agreement with the proposed financial terms of an amalgamation between IPC and
Tempest contemplated by the IPC Proposal and with the financial terms of
certain mergers and acquisitions which Merrill Lynch determined to be
relevant, compared the results of operations of Tempest with those of certain
companies which Merrill Lynch determined to be reasonably similar to Tempest,
compared the results of operations of ACE with those of companies which
Merrill Lynch deemed to be reasonably similar to ACE and reviewed such other
financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed necessary.
In preparing its opinion, Merrill Lynch relied upon the accuracy and
completeness of all information supplied or otherwise made available to
Merrill Lynch by Tempest and ACE, and Merrill Lynch did not independently
verify such information or make an independent valuation or appraisal of the
assets or liabilities of Tempest or ACE. In particular, Merrill Lynch relied
upon the representation by ACE's management and actuaries that its reserves
for breast implant related claims are adequate, and Merrill Lynch did not
independently verify nor value the accuracy of such reserves. Merrill Lynch
further relied upon the assurances of the management of Tempest and ACE that
they were not aware of any facts that would make such information inaccurate
or misleading as of the date of Merrill Lynch's inquiry. With respect to the
financial forecasts furnished by Tempest and ACE, Merrill Lynch assumed with
the consent of Tempest's Board that they were reasonably prepared and
reflected the best currently available estimates and judgment of Tempest's or
ACE's management as to the expected future financial performance of Tempest,
ACE or their combined operations, as the case may be. Merrill Lynch's opinion
is necessarily based upon market, economic and other conditions as they
existed on the date of the opinion.
Financial Analyses by Merrill Lynch. In preparing its opinion dated June 19,
1996, Merrill Lynch compared the financial terms of the Amalgamation Agreement
with the financial terms contemplated by the IPC Proposal. Merrill Lynch
calculated the imputed value of the Amalgamation to holders of Tempest Common
Shares which are to receive ACE Ordinary Shares in the Amalgamation. This
analysis showed a value of $177.98 per Tempest Common Share based upon (i) an
Average Closing Price of between $33 and $45 per ACE Share, (ii) a Second
Contingent Dividend of $12.03 per Tempest Common Share, and (iii) a Contingent
Dividend estimated, based on management's projections to June 30, 1996, to be
$89.5 million, or $21.53 per Tempest Common Share. Merrill Lynch also
calculated the imputed value of a transaction under the IPC Proposal to
holders of Tempest Common Shares other than General Re. This analysis showed a
value of $176.56 per Tempest Common Share at IPC average closing prices
ranging from $18 to $22. Assuming that a transaction with ACE would close on
June 30, 1996, Merrill Lynch also calculated the present value at June 30,
1996 of the IPC Proposal, taking into account an assumed IPC closing date of
September 30, 1996 and taking into account the catastrophe loss risk
associated with such a closing date (by assuming a cost of $25 million and $50
million for a catastrophe cover); at a discount rate of 15%, such present
value was $171.47 and $165.67, respectively, per Tempest Common Share, and at
a discount rate of 20% such present value was $169.43 and 163.70 per Tempest
Common Share compared with $177.98 for the revised ACE transaction (or $178.54
including an assumed present value of an ACE fourth quarter dividend). All of
the calculations were based on various estimates, including the estimated book
value of Tempest at closing. Finally, Merrill Lynch analyzed statistics for
the trading of ACE Ordinary Shares and IPC shares of common stock and also
performed financial analyses of amalgamations of Tempest Re with ACE under the
Amalgamation Agreement, and with IPC under the IPC Proposal, on a pro forma
basis.
In addition, Merrill Lynch performed substantially the same types of
financial analyses as those it used in preparing its opinions dated March 12,
1996 and dated the date of the Joint Proxy Statement/Prospectus, as described
in the Joint Proxy Statement/Prospectus under "The Amalgamation and Related
Transactions--Opinions of Financial Advisor to Tempest". Thus, Merrill Lynch
reviewed measures of financial performance
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and share trading multiples for ACE and IPC and compared this information with
comparable information for Mid Ocean Limited, LaSalle Re Holdings, Ltd.,
PartnerRe Ltd., RenaissanceRe Holdings Ltd., and GCR Holdings Limited. Merrill
Lynch also examined publicly available data with regard to selected
acquisitions of reinsurers.
Limitations of Opinions. The information above and in the Joint Proxy
Statement/Prospectus summarizes the material analyses prepared by Merrill
Lynch in connection with its opinion. Such summary does not purport to be a
complete description of the analyses performed by Merrill Lynch in connection
with the rendering of its opinions. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Merrill Lynch believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of
its analyses, without considering all analyses, or selecting part or all of
the above summary, without considering all factors and analyses, would create
an incomplete view of the process underlying the analyses set forth in the
Merrill Lynch presentations and opinions. In arriving at its opinion, Merrill
Lynch, in light of its experience and professional judgment, considered the
results of all such
analyses and did not separately consider the extent to which any one analysis
supported the opinion. The fact that any specific analysis has been referred
to in the summary above and in the Joint Proxy Statement/Prospectus 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.
Fees Payable to Merrill Lynch. Pursuant to a letter agreement dated December
5, 1995, as amended by letter dated June 12, 1996, between Merrill Lynch and
Tempest (the "Engagement Letter"), Tempest paid Merrill Lynch a fee of
$500,000 upon execution of the Amalgamation Agreement. For each opinion
delivered on or after June 12, 1996, Tempest will pay Merrill Lynch a fee of
$500,000. If, during the period Merrill Lynch is retained or within two years
thereafter, a strategic transaction is consummated with ACE or another
purchaser which Merrill Lynch identified, as to which Merrill Lynch advised
Tempest or with which Tempest or Merrill Lynch had discussions, Tempest will
pay Merrill Lynch an additional fee equal to 0.5% of the aggregate purchase
price paid in such transaction, except that any fees previously paid to
Merrill Lynch pursuant to the Engagement Letter will be credited against the
additional fee, and maximum total fees paid related to a transaction in which
ACE is the Purchaser will be $3,750,000. If the Amalgamation is consummated on
the terms contemplated by the Amalgamation Agreement, Merrill Lynch's fee will
be $3,750,000. The Tempest Board was aware of this fee structure, which is
standard and customary in the industry for transactions similar to the
Amalgamation, and took it into account in considering Merrill Lynch's opinion
and in approving the Amalgamation Agreement and the transactions contemplated
thereby. Because a substantial portion of Merrill Lynch's fee is contingent
upon the successful completion of the Amalgamation, Merrill Lynch may
potentially have a conflict of interest. The Engagement Letter provides that
Tempest will reimburse Merrill Lynch for its reasonable out-of-pocket expenses
and will indemnify Merrill Lynch against certain liabilities, including
liabilities under securities laws, incurred in connection with its services.
THE AMENDMENT TO THE AMALGAMATION AGREEMENT \~
The following is a summary of the material provisions of the Amendment,
which is attached as Annex A to this Supplement and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the
Amendment and should be read in conjunction with the description of the
Original Amalgamation Agreement contained in the Joint Proxy
Statement/Prospectus and appearing as Annex A thereto. Other than as described
below, the description of the Amalgamation Agreement as set forth in the Joint
Proxy Statement/Prospectus is materially unchanged.
AMALGAMATION CONSIDERATION
Pursuant to the Amendment, at the Effective Time (as defined in the Original
Amalgamation Agreement) each Tempest Common Share issued and outstanding
immediately prior to the Effective Time, other than Tempest Common Shares held
by ACE or any of its respective wholly owned subsidiaries (all of which will
be
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cancelled) will cease to be outstanding and will be converted into the right
to receive that number of ACE Ordinary Shares obtained by dividing (i) the
quotient of (x) the Premium Amount (as defined below) divided by (y) the
Average Closing Price (as defined below), by (ii) the number of Tempest Common
Shares issued and outstanding (excluding Tempest Common Shares held by ACE or
any of its respective wholly owned subsidiaries) immediately prior to the
Effective Time. As revised by the Amendment, the "Premium Amount" means an
amount equal to the product of (x) a fraction the numerator of which is 600
and the denominator of which is 452.5 multiplied by (y) the Net Assets (as
defined herein; see "--Additional Agreements--Net Assets") of Tempest;
provided, however, that if the Net Assets of Tempest should exceed $452.5
million then the Premium Amount shall be an amount equal to the sum of (i)
$600 million and (ii) the dollar amount by which the Net Assets exceed $452.5
million. The "Average Closing Price" shall be an amount equal to the average
per share closing price of ACE Ordinary Shares as reported on the NYSE
Composite Transaction Tape for the ten NYSE trading days immediately preceding
the three NYSE trading days prior to the date of the ACE Special Meeting;
provided, however, that if the Average Closing Price is greater than $45.00,
the exchange ratio will become fixed as if the Average Closing Price were
$45.00 (resulting in ACE Ordinary Shares of greater aggregate market value
being distributed) and if the Average Closing Price is less than $33.00, the
exchange ratio will become fixed as if the Average Closing Price were $33.00
(resulting in ACE Ordinary Shares of lesser aggregate market value being
distributed) (the prices at which the exchange ratio will be fixed are
collectively referred to herein as the "Average Closing Price Caps"). The
Average Closing Price will be determined on the third NYSE trading day prior
to the ACE Special Meeting (i.e. June 26, 1996) and will be publicly announced
by ACE as soon as practicable after its determination. Interested parties may
also contact ACE's investor relations department (441-295-5200) for the
Average Closing Price beginning on the Determination Date. The maximum number
of ACE Ordinary Shares issuable in connection with the Amalgamation (which
would be based upon an Average Closing Price of $33.00 or lower) is 18,181,818
and the minimum number of ACE Ordinary Shares issuable in connection with the
Amalgamation (which would be based upon an Average Closing Price of $45.00 or
higher) is 13,333,333. Each Tempest Shareholder will receive its respective
amount of the Amalgamation Consideration upon surrender to the exchange agent
appointed by ACE (the "Exchange Agent") of the certificate or certificates
representing such shareholder's Tempest Common Shares.
CONDITIONS TO CONSUMMATION OF THE AMALGAMATION
Conditions to Obligations of ACE and Acquisition Subsidiary to Effect the
Amalgamation. Pursuant to the Amendment, the obligations of ACE and
Acquisition to effect the Amalgamation are subject to the fulfillment or
waiver at or prior to the Effective Time to the following additional
condition: General Re, Tempest and the other parties thereto shall have fully
performed the Share Purchase Agreement, dated as of June 19, 1996, among
General Re, GRUS, GRAM and Tempest, on the terms provided in such agreement.
The Share Purchase Agreement dated as of March 14, 1996 among the same parties
has been superseded by the Share Purchase Agreement dated as of June 19, 1996,
see "Certain Additional Information--General Re Agreement." See "Conditions to
Consummation of the Amalgamation--Conditions to Obligations of ACE and
Acquisition Subsidiary to Effect the Amalgamation" in the Joint Proxy
Statement/Prospectus for a description of other conditions to the obligations
of ACE and Acquisition Subsidiary to effect the Amalgamation.
ADDITIONAL AGREEMENTS
Net Assets. The Amalgamation Agreement provides that Tempest and its
directors shall take (or shall have taken), prior to the Effective Time, all
necessary action to: (i) repurchase or otherwise acquire or cancel Tempest
Common Shares and options to acquire Tempest Common Shares of certain persons
disclosed in the Amalgamation Agreement; (ii) declare a dividend (a
"Contingent Dividend") in an amount equal to such portion of the Net Assets of
Tempest, measured immediately prior to the Effective Time and taking into
account the transactions contemplated pursuant to (i) above, as exceeds
$452,500,000 (such Contingent Dividend shall be paid to shareholders of record
of Tempest as of the Effective Time and shall be held and distributed by
Tempest to such shareholders, without interest, upon surrender of their
certificates representing the right to receive the Amalgamation Consideration,
to the extent not previously paid to Tempest Shareholders by Tempest),
provided
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that, the Contingent Dividend shall be payable only from assets of Tempest
existing at the Effective Time; and (iii) declare a dividend (a "Second
Contingent Dividend") in an amount equal to the product of (x) the remainder
of (X) $49.00 minus (Y) the ACE Closing Price (as defined below) multiplied by
(y) 13,333,333 (such Second Contingent Dividend shall be paid to shareholders
of record of Tempest as of the Effective Time and shall be held and
distributed by Tempest to such shareholders, without interest, upon surrender
of their certificates representing the right to receive the Amalgamation
Consideration, to the extent not previously paid to Tempest Shareholders by
Tempest), provided that, the Second Contingent Dividend shall be payable only
from assets of Tempest existing at the Effective Time; provided further, that
the amount of the Second Contingent Dividend shall in no event be greater than
$50 million or less than $0. The repurchase, acquisition or cancellation by
Tempest of Tempest Common Shares or options to acquire Tempest Common Shares
and the declaration or distribution of the Contingent Dividend or the Second
Contingent Dividend shall not obligate or commit the ACE Reinsurance
Subsidiary or any of its Affiliates in any way except for the payment of the
Contingent Dividend and the Second Contingent Dividend. "Net Assets" of
Tempest for purposes of the Amalgamation Agreement is defined as the
shareholders' equity of Tempest computed in accordance with GAAP (and without
giving effect to any Second Contingent Dividend) and adjusted to: (i) add any
amounts accrued on the financial statements of Tempest for options to acquire
Tempest Common Shares; and (ii) deduct the sum of (A) fees of Tempest's legal,
accounting, auditing and other advisors incurred by Tempest in connection with
the transactions contemplated by the Amalgamation Agreement to the extent that
such fees have not already been accrued on the financial statements of
Tempest, and (B) an accrual equal to the closing price on the NYSE on the date
immediately prior to the closing date (the "Market Value") of ACE Ordinary
Shares represented by the options issued under the Amalgamation Agreement at
the closing date less the exercise price of those options, and (C) an accrual
equal to (1) the product of (a) the number of Tempest Common Shares subject to
Tempest Options outstanding at the closing date other than options to be
replaced by ACE Options multiplied by (b) the Market Value of the ACE Ordinary
Shares issued in the Amalgamation for each Tempest Common Share less (2) the
aggregate exercise price of such Tempest Options. "ACE Closing Price" for
purposes of the Amalgamation Agreement means the weighted average trading
price of the ACE Ordinary Shares on three of the following four days: (i) the
two NYSE trading days immediately prior to the closing date, (ii) the closing
date and (iii) the NYSE trading day immediately subsequent to the closing
date, with the day on which the lowest weighted average trading price of the
ACE Ordinary Shares occurs being excluded. The weighted average trading price
of the ACE Ordinary Shares for any day shall be computed by (i) taking each
trade during such day and multiplying the price at which the trade was
executed by the number of ACE Ordinary Shares traded, (ii) adding the products
obtained in (i), and (iii) dividing the sum obtained in (ii) by the total
number of ACE Ordinary Shares traded on such day. The weighted average trading
price for any number of days shall be computed in a similar manner.
TERMINATION
Termination of the Amalgamation Agreement. In addition to other termination
provisions described in the Joint Proxy Statement/Prospectus, which remain
unchanged (other than as described below and under "--Effect of Tempest
Shareholder Approval on Exclusivity and Termination--Termination"), the
Amalgamation Agreement may be terminated and the Amalgamation contemplated
thereby may be abandoned at any time prior to the Effective Time, whether
before or after approval of the Amalgamation by the Board of Directors and
shareholders of Tempest, by either ACE or Tempest by written notice to the
other, no later than 5:00 p.m., Bermuda Time, on the second calendar day
following the date upon which the Average Closing Price is determined, if the
Average Closing Price shall be less than $31.00 (the price at which either
party may terminate and abandon the Amalgamation Agreement are collectively
referred to herein as the "Termination Price"). Pursuant to the Amendment, the
Amalgamation Agreement may no longer be terminated by any party if the Average
Closing Price is greater than $49.00.
EFFECT OF TEMPEST SHAREHOLDER APPROVAL ON EXCLUSIVITY AND TERMINATION
Exclusivity. Pursuant to the Amendment, from and after the approval of the
Amalgamation Agreement by the Tempest Shareholders, neither Tempest nor any of
its directors, officers or employees shall, and Tempest
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shall use its best efforts to ensure that none of its representatives shall,
directly or indirectly, solicit, initiate or encourage any inquiries or
proposals from or with any Person (other than ACE or its Affiliates or their
respective directors, officers, employees, representatives and agents) that
constitute, or would lead to, a Third Party Acquisition (as defined in the
Amalgamation Agreement). Tempest will promptly advise ACE of (i) any request
for non-public information from any Person expressing an interest in a Third
Party Acquisition or (ii) a proposal in respect of a Third Party Acquisition
received by Tempest, including the identity of the Person requesting non-
public information or making such a proposal (as the case may be); in the case
of a proposal in respect of a Third Party Acquisition, Tempest will furnish to
ACE the terms and conditions of such proposal. Tempest and its Board of
Directors may not (i) provide non-public information to any Person (other than
to or at the direction of ACE), (ii) undertake any review of any such proposal
or (iii) participate in negotiations respecting any such proposal; provided,
however, if ACE Shareholders have not approved the Share Issuance on or before
July 11, 1996 the amendment to this provision described above shall be
rescinded and Tempest shall have the rights set forth in the Amalgamation
Agreement prior to the Amendment. See "The Amalgamation Agreement--Additional
Agreements--No Solicitation of Transactions" in the Joint Proxy
Statement/Prospectus.
Termination. Prior to the Amendment, the Amalgamation Agreement provided
that: (i) Tempest could terminate the Amalgamation Agreement, to the extent
not performed, upon payment to ACE of $12 million (the "Termination Fee") by
bank cashier's check or wire transfer to an account designated by ACE for that
purpose and (a) five business days elapsed following ACE's receipt of a Notice
of Superior Proposal (as defined in the Amalgamation Agreement) and the
Superior Proposal (as defined in the Amalgamation Agreement) described in the
Notice of Superior Proposal continued to be a Superior Proposal in light of
any improved transaction proposed by ACE prior to the expiration of the five
business day period following receipt by ACE of the Notice of Superior
Proposal, or (b) the Tempest Board of Directors withdrew, modified or changed
in a manner adverse to ACE its approval or recommendation of the Amalgamation
or the other transactions contemplated by the Amalgamation Agreement or
recommended another offer, or adopted any resolution to effect any of the
foregoing, in any case, as it deemed necessary in the exercise of its
fiduciary obligations to Tempest's shareholders after being so advised in
writing, with a copy to ACE, by outside legal counsel, (c) the approval of
Tempest Shareholders of the Amalgamation Agreement, the Amalgamation and the
transactions contemplated hereby should not have been obtained and there
should be existing a Superior Proposal or (d) a Third Party Acquisition
occurred or any person entered into a definitive agreement or an agreement in
principle with Tempest with respect to a Third-Party Acquisition; or (ii) ACE
and Acquisition Subsidiary could terminate the Amalgamation Agreement, to the
extent not performed, upon payment to Tempest of the Termination Fee by bank
cashier's check or wire transfer to an account designated by Tempest for this
purpose if the Board of Directors of ACE withdrew, modified or changed in a
manner adverse to Tempest its approval or recommendation of the Amalgamation
or the other transactions contemplated by the Amalgamation Agreement or
recommended another offer, or adopted any resolution to effect any of the
foregoing.
Pursuant to the Amendment, from and after the approval of the Amalgamation
Agreement by Tempest Shareholders, the foregoing termination provisions will
no longer be applicable unless the ACE shareholders have not approved the
Share Issuance on or before July 11, 1996 at which time the provisions
described in clause (i) of the preceding paragraph shall be reinstated.
THE GENERAL RE AGREEMENT
Each of Tempest, General Re, GRUS and GRAM entered into a new Share Purchase
Agreement dated as of June 19, 1996 (the "General Re Agreement"), which
supersedes in all respects the March 14 Share Purchase Agreement among the
same parties. Pursuant to the General Re Agreement, in each case subject to,
and immediately prior to, consummation of the Amalgamation: (i) Tempest will
repurchase all Tempest Common Shares held by General Re, (ii) Tempest will
purchase and cancel all options to purchase Tempest Common Shares (the
"Options") held by General Re, (iii) the GRUS contract will be amended to
terminate at the later of June 30, 1996 or the closing of the Amalgamation,
(iv) the GRAM contract will be amended to terminate at April 30, 1999, (v)
General Re will consent to the amendment of the Securityholders Agreement and
the waiver
18
<PAGE>
of appraisal rights as described herein, and (vi) Tempest will purchase
continuation coverage in respect of Tempest's directors' and officers'
indemnity policy for the period beginning as of the Effective Time and
continuing to the fourth anniversary thereof. In addition, General Re agreed,
in its capacity as a shareholder of Tempest, to vote in respect of all of its
voting rights for the proposed combination of ACE with Tempest, unless General
Re believes an alternative amalgamation to be superior for Tempest
Shareholders to the proposed Amalgamation.
In consideration of the repurchase by Tempest of all of the 1,082,785
Tempest Common Shares and Options (representing the right to purchase 285,366
Tempest Common Shares on a fully-diluted basis) held by General Re, as well as
all other agreements made by General Re in the General Re Agreement, Tempest
will pay General Re approximately $216.3 million (the "Cash Purchase Price"),
subject to modification in certain circumstances. Because the Cash Purchase
Price includes amounts relating to the cancellation of an option and the
termination of a service contract, the amount of the Cash Purchase Price,
which was negotiated by Tempest's Board of Directors and General Re, is not
necessarily comparable to the consideration to be received by the other
Tempest shareholders in connection with the Amalgamation. Tempest will use
cash on hand and proceeds from the sale of short-term and other investments to
pay General Re the Cash Purchase Price. For a discussion of the consideration
to have been received by General Re under the March 14 Share Purchase
Agreement, see "The Amalgamation and Related Transactions--Interests of
Certain Persons in the Amalgamation--General Re Agreement" in the Joint Proxy
Statement/Prospectus.
In addition, the GRUS contract will be amended to revise a provision of the
GRUS contract relating to computation of the underwriting profit payable by
Tempest to GRUS. The purpose of amending this provision is to preclude any
reduction, under the terms of the GRUS contract, in the amount of the GRUS
Termination Fee to be paid to GRUS by Tempest.
In connection with the amendment of the GRUS contract, Tempest will, upon
termination of the GRUS contract, receive from GRUS a perpetual,
nontransferable (other than to an affiliate of Tempest or to ACE or any of
ACE's affiliates) license to use the computer-based models and modeling
programs and other technological, mathematical, statistical and scientific
programs, procedures, models, tools and related underwriting data and software
devised during the term of the GRUS contract. Tempest and GRUS have
acknowledged that GRUS has no duty or obligation to maintain, support, upgrade
or enhance such data, models, programs, procedures, tools and software after
termination of the GRUS contract. GRUS has also agreed, when necessary (as
determined solely in Tempest's discretion), to use its best efforts to cause
appropriate GRUS personnel to be made available, on such reasonable terms and
conditions as GRUS and Tempest may agree, to assist on matters arising in
connection with the GRUS contract for a period of 18 months after the Closing.
In connection with the amendment to the termination provisions of the GRAM
contract, Tempest has agreed that if Tempest elects to retain an outside
advisor to manage its assets subsequent to April 30, 1999, it will afford GRAM
the opportunity to bid for appointment as asset manager, on terms to be agreed
at such time.
General Re has agreed to consent to the amendment of Sections 14 and 17 of
the Securityholders Agreement and the waiver of its appraisal rights. See "The
Amalgamation and Related Transactions--The Tempest Transactions--
Securityholders Agreement" and "--Appraisal Rights" in the Joint Proxy
Statement/Prospectus.
Tempest agreed to purchase continuation coverage for its directors' and
officers' indemnity insurance policy in respect of the liability of Tempest
directors and officers arising from the Amalgamation. Coverage will be
provided for the period beginning on the Effective Date and continuing to the
fourth anniversary thereof.
Tempest agreed to indemnify General Re and its directors (including the
General Re-designated directors of Tempest), officers, employees and agents
("General Re Indemnitees") for any liability arising from the execution and
delivery by Tempest of the Amalgamation Agreement or the performance by
Tempest of the transactions contemplated therein, except that Tempest will not
indemnify the General Re Indemnitees if (i) the closing of the Amalgamation
does not occur, (ii) the liability arises from the gross negligence or wilful
misconduct of any General Re Indemnitee, or (iii) any such General Re
Indemnitee has materially breached the General Re Agreement. Tempest and
General Re also agreed to execute and deliver forms of general releases.
It is a condition of the consummation of all the transactions provided for
in the General Re Agreement that the Amalgamation Agreement and the
transactions therein contemplated be approved by Tempest Shareholders.
19
<PAGE>
TAX CONSEQUENCES OF THE AMENDED AMALGAMATION AGREEMENT
TREATMENT OF DIVIDENDS
Subject to the discussion in the next paragraph, the declaration and payment
of the Contingent Dividend and the Second Contingent Dividend provided for in
the amended Amalgamation Agreement should have the same U.S. federal income
tax consequences for Tempest Shareholders as the declaration and payment of
the Dividends, as described in the Joint Proxy Statement/Prospectus under "Tax
Consequences to Tempest Shareholders--Tax Consequences of the Amalgamation--
United States--Payment of Dividends."
TREATMENT OF THE AMALGAMATION
The changes provided for in the amended Amalgamation Agreement should not
significantly affect the tax treatment of the Amalgamation, as described in
the Joint Proxy Statement/Prospectus under "Tax Consequences to Tempest
Shareholders--Tax Consequences of the Amalgamation--United States--The
Amalgamation." Accordingly, it is still intended that the Amalgamation
constitute a reorganization within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended. As also described in such
discussion in the Joint Proxy Statement/Prospectus, such treatment as a
reorganization is not free from doubt. The U.S. federal income tax
consequences to Tempest Shareholders, should the Amalgamation not be treated
as a reorganization, are described on page 43 of the Joint Proxy
Statement/Prospectus.
TEMPEST DIRECTOR STOCK OPTIONS
Awards of options under Tempest's stock option plan were granted to each
Tempest director at the October 20, 1995 meeting of the Tempest Board of
Directors. Each Tempest director was granted options with respect to 2,000
Tempest Common Shares at an exercise price of $100 per Tempest Common Share.
The vesting of such options will accelerate upon the closing of the
Amalgamation and such options will be converted into options to acquire ACE
Ordinary Shares as described in the Joint Proxy Statement/Prospectus under
"The Amalgamation and Related Transactions--Amalgamation Consideration--
Tempest Options" and "The Amalgamation and Related Transactions--
Recommendations of the Tempest Board of Directors and Tempest's Reasons for
the Amalgamation."
20
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share excluding net realized
gains (losses), earnings per share, cash dividends per share and fully diluted
book value per share data of ACE and Tempest, unaudited pro forma combined per
share data of ACE and unaudited pro forma equivalent per share data of
Tempest. The pro forma combined unaudited data give effect to the Amalgamation
as if it had occurred at October 1, 1994 for data included in the statements
of operations and March 31, 1996 for balance sheet data. The data set forth
below should be read in conjunction with (i) ACE's audited consolidated
financial statements and unaudited interim financial statements, including the
notes thereto, which are incorporated by reference in the Joint Proxy
Statement/Prospectus and (ii) Tempest's financial statements and related
notes, other financial information appearing in the Joint Proxy
Statement/Prospectus and "Management's Discussion and Analysis of Results of
Operations and Financial Condition of Tempest" appearing in the Joint Proxy
Statement/Prospectus. The data should also be read in conjunction with the
unaudited pro forma condensed consolidated balance sheet and statements of
operations, including the notes thereto, included elsewhere in this
Supplement.
<TABLE>
<CAPTION>
ACE TEMPEST (1)
------------------------------- -------------------------
SIX MONTHS YEAR ENDED OR
SIX MONTHS YEAR ENDED OR ENDED OR AT AT
ENDED OR AT AT SEPTEMBER 30, MARCH 31, NOVEMBER 30,
MARCH 31, 1996 1995 1996 1995
-------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Historical:
Earnings per share
excluding net realized
gains.................. $ 2.16 $ 3.97 $ 11.60 $ 20.39
Earnings per share...... $ 3.24 $ 5.05 $ 11.87 $ 19.97
Cash dividends per
share.................. $ 0.28 $ 0.50 -- --
Fully diluted book value
per share.............. $33.29 $31.19 $138.56 $130.33
<CAPTION>
TEMPEST PRO FORMA
PRO FORMA COMBINED (1) EQUIVALENTS (1)(2)
------------------------------- -------------------------
YEAR ENDED SIX MONTHS YEAR ENDED
SIX MONTHS OR AT ENDED OR AT OR AT
ENDED OR AT SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
MARCH 31, 1996 1995 1996 1995
-------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Earnings per share
excluding net realized
gains.................. $ 2.72 $5.17 $ 8.73 $16.59
Earnings per share...... $ 3.58 $5.96 $ 11.49 $19.13
Cash dividends per share
(3).................... $ 0.28 $0.50 $ 0.90 $ 1.60
Fully diluted book value
per share (4).......... $36.47 N/A $117.04 N/A
Tempest Contingent and
Second Contingent
Dividends.............. N/A N/A $ 21.25 N/A
</TABLE>
- --------
N/A--Not applicable.
(1) The historical Tempest earnings per share excluding net realized gains and
earnings per share are for the six month period ended March 31, 1996 and
for the year ended November 30, 1995. Therefore, the months of October and
November 1995 are included in both the six month period ended March 31,
1996 and the year ended November 30, 1995. Earnings per share for these
two months were $2.34.
(2) The Tempest pro forma equivalent data represents the unaudited pro forma
combined earnings per share excluding net realized gains, earnings per
share, cash dividends per share and fully diluted book value per share
calculated on the assumption that the exchange ratio will be 3.2091 ACE
Ordinary Shares for each Tempest Common Share.
(3) Pro forma cash dividends per share are assumed to be the same as
historically declared by ACE. However, any decision to increase or
decrease the cash dividend per share is at the discretion of the ACE Board
of Directors.
(4) The Tempest pro forma equivalent fully diluted book value per share of
$117.04 excludes the Contingent Dividend that will be declared immediately
prior to the Effective Time and the Second Contingent Dividend. If the
Amalgamation had been consummated on March 31, 1996, the Contingent
Dividend would have been $14.03 per Tempest Common Share based on
unaudited financial statements of Tempest as of March 31, 1996. See "The
Amalgamation Agreement--Additional Agreements--Net Assets" in the Joint
Proxy Statement/Prospectus. Assuming an ACE Closing Price of $46.75, the
Second Contingent Dividend would be $7.22 per Tempest Common Share.
Accordingly, Tempest's historical fully diluted book value per share of
$138.56 should be compared to the sum of the pro forma equivalent fully
diluted book value per share of $117.04, the Contingent Dividend of
$14.03, and the Second Contingent Dividend of $7.22, or $138.29.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF ACE
The following unaudited pro forma condensed consolidated statements of
operations for the twelve months ended September 30, 1995 and for the six
months ended March 31, 1996 present operating results of ACE as if the
Amalgamation had occurred on October 1, 1994. The unaudited pro forma
condensed consolidated balance sheet as of March 31, 1996 gives effect to the
Amalgamation as if it had occurred on March 31, 1996. Pro forma adjustments
are based upon available information and certain assumptions that management
of ACE believes are reasonable in the circumstances.
The unaudited pro forma condensed consolidated financial information should
be read in conjunction with the consolidated financial statements of ACE,
including the notes thereto, and the other financial information pertaining to
ACE and Tempest contained elsewhere or incorporated by reference in this
Supplement or in the Joint Proxy Statement/Prospectus. The unaudited pro forma
condensed consolidated financial information is not intended to be indicative
of the consolidated results of operations or financial position of ACE that
would have been reported if the Amalgamation had occurred at the date
indicated or of the consolidated results of future operations or of future
financial position.
The Amalgamation is accounted for as a purchase in accordance with GAAP.
Under purchase accounting, the total purchase price is allocated to the
acquired assets and liabilities based on their fair values. Allocation of the
purchase price is subject to valuations and other studies which are not
complete. Accordingly, the final allocation may be different from the amounts
reflected herein. However, management of ACE does not believe such difference
will be material.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------------------------------
PRO FORMA
ACE TEMPEST ADJUSTMENTS COMBINED
---------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C> <C>
Total investments and cash...... $3,433,018 $786,169 $(216,307)(1)
(88,287)(2) $ 3,914,593
Other assets.................... 140,150 94,362 234,512
Goodwill........................ 208,276 (3)
5,000 (3) 213,276
---------- -------- --------- -----------
Total assets.................... $3,573,168 $880,531 $ (91,318) $ 4,362,381
========== ======== ========= ===========
Unpaid losses and loss expenses. $1,611,366 $ 42,284 $ 1,653,650
Unearned premiums............... 349,521 85,499 435,020
Other liabilities............... 72,630 14,809 (4,515)(4)
10,000 (3) 92,924
---------- -------- --------- -----------
Total liabilities............... 2,033,517 142,592 5,485 2,181,594
---------- -------- --------- -----------
Total shareholders' equity...... 1,539,651 737,939 623,333 (5)
17,803 (4)
(216,307)(1)
(88,287)(2)
(433,345)(6) 2,180,787
---------- -------- --------- -----------
Total liabilities and
shareholders' equity........... $3,573,168 $880,531 $ (91,318) $ 4,362,381
========== ======== ========= ===========
Shares outstanding on a fully
diluted basis.................. 61,016,010
===========
Fully diluted book value per
share(7)....................... $ 36.47
===========
</TABLE>
See accompanying notes.
22
<PAGE>
- --------
(1) Pursuant to the General Re Agreement, Tempest will repurchase, at the time
of but subject to the consummation of the Amalgamation, all Tempest Common
Shares and options to purchase Tempest Common Shares held by General Re.
See "The General Re Agreement." In connection with the Amalgamation,
Tempest and GRUS will amend the GRUS contract to provide for its
termination in consideration of the payment of a termination fee. See "The
General Re Agreement." In total, Tempest will pay General Re an aggregate
amount of approximately $216,307,000.
(2) Pursuant to the Amalgamation Agreement, Tempest will declare the
Contingent Dividend to Tempest Shareholders of record as of the Effective
Time to reduce the Net Assets of Tempest to $452,500,000. Assuming the
Amalgamation had occurred on March 31, 1996, the Contingent Dividend would
have been approximately $58,287,000. In addition, Tempest will declare the
Second Contingent Dividend up to a maximum of $50,000,000 if the ACE
Closing Price is less than $49.00. Assuming an ACE Closing Price of
$46.75, the value per share used in measuring the value of the ACE
Ordinary Shares to be issued in exchange for Tempest Common Shares (see
note 5 below), Tempest would pay the Second Contingent Dividend of
$30,000,000, making a total dividend of $88,287,000.
(3) Under purchase accounting, the total purchase price is allocated to the
acquired assets and liabilities based on their fair values. The excess of
the cost of the transaction (including expenses incurred by ACE related to
the transaction estimated at $5,000,000) over the fair value of the
Tempest net assets acquired is recorded as goodwill. Tempest's GAAP net
assets have been adjusted in accordance with the Amalgamation Agreement to
accrue fees and other expenses related to the transaction estimated at
$5,000,000 and additional Tempest stock option costs of $5,845,000. Based
on the value of the ACE Ordinary Shares expected to be issued, including
the ACE Options described in note 4, to effect the Amalgamation, ACE will
record goodwill of $213,276,000 as a result of the Amalgamation (see
discussion of purchase price in note 5 below). For purposes of the pro
forma financial statements goodwill will be amortized on a straight line
basis over a 40-year period.
(4) At March 31, 1996, Tempest had accrued $4,515,000 related to the intrinsic
value of Tempest stock options that will be cancelled and replaced with
ACE Options. ACE will record the fair value of these ACE Options of
$17,803,000 as part of the purchase price of Tempest. Accordingly the
Tempest liability will no longer exist, and the difference of $13,288,000
has been recorded as a component of goodwill.
(5) The Amalgamation Agreement provides that, at the Effective Time, each
Tempest Common Share issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive ACE Ordinary
Shares in accordance with the applicable exchange ratio. See "The
Amalgamation and Related Transactions--Amalgamation Consideration" in the
Joint Proxy Statement/Prospectus. This value will be determined in
accordance with the EITF 95-19 consensus that the value of equity
securities issued to effect a purchase combination (in this case the
Amalgamation) should be based on (a) the market price for a reasonable
period before and after the date the terms of the acquisition are agreed
and announced, or (b) at a later date if the purchase price changes. The
original terms of the Amalgamation were agreed and announced on February
9, 1996. However, as a result of the IPC Proposal, ACE improved its bid to
acquire Tempest. The terms of the revised Amalgamation Agreement were
agreed and announced on June 19, 1996. For purposes of the pro forma
financial statements, ACE has used a $46.75 share price and has
accordingly assumed that it will issue 13,333,333 ACE Ordinary Shares
(with a total value of $623,333,000) in exchange for Tempest Common
Shares.
If the Average Closing Price is $45.00 per ACE Ordinary Share or above, the
number of ACE Ordinary Shares issued would remain fixed at 13,333,333
shares. If the Average Closing Price is within the $33 to $45 per share
range, the exchange ratio will vary, although the value of the ACE Ordinary
Shares to be issued will always total $600,000,000. Within this range, the
pro forma fully diluted book value per share at March 31, 1996 will change
by an amount between $0.18 and $0.28 per share for each $1 change in the
Average Closing Price.
Tempest will also pay the Second Contingent Dividend which will vary
between nil and $50,000,000 depending on the ACE Closing Price. If the ACE
Closing Price is calculated to be $45.25 per share or lower, the value of
the Second Contingent Dividend would be $50,000,000. If the ACE Closing
Price is calculated
23
<PAGE>
to be $49 per share or higher, the value of the Second Contingent Dividend
would be nil. Assuming an ACE Closing Price of $46.75, the Second
Contingent Dividend would be $30,000,000.
(6) The adjustment of $433,345,000 reflects the consolidation adjustment to
eliminate Tempest's remaining shareholders' equity, after payment to
General Re (note 1) and payment of the Contingent Dividend and the Second
Contingent Dividend (note 2).
(7) Fully diluted book value per share is based on the sum of total
shareholders' equity and the aggregate proceeds assuming exercise of all
outstanding ACE options and Tempest stock options that will be cancelled
and replaced with ACE options.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1996
-------------------------------------------------
PRO FORMA
ACE TEMPEST(1) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net premiums written......... $ 306,330 $80,025 $ 386,355
========== ======= ==========
Net premiums earned.......... $ 262,377 $79,785 $ 342,162
Net investment income........ 95,438 20,742 (2,774)(2) 113,406
Losses and loss expenses..... (214,000) (16,659) (230,659)
Acquisition costs and
administrative expenses..... (43,339) (21,819) 4,325 (3)
2,888 (5)
(868)(4) (58,813)
Amortization of goodwill..... (2,666)(6) (2,666)
---------- ------- ---------- ----------
Income excluding net realized
gains....................... 100,476 62,049 905 163,430
Net realized gains on
investments................. 49,863 1,436 51,299
---------- ------- ---------- ----------
Net income................... $ 150,339 $63,485 $ 905 $ 214,729
========== ======= ========== ==========
Earnings per share........... $3.24 $3.58
========== ==========
Earnings per share excluding
net realized gains.......... $2.16 $2.72
========== ==========
Weighted average shares 46,462,323
outstanding................. ========== 213,281 (7)
13,333,333 (8) 60,008,937
========== ==========
</TABLE>
- --------
(1) The Tempest condensed statement of operations has been compiled to
reflect its results of operations for the six-month period ended March
31, 1996.
(2) The estimated investment income adjustment has been calculated to
eliminate investment income assumed to have been earned on the Net Assets
of Tempest in excess of $433,345,000 at October 1, 1994 (see Note 2 to
the unaudited pro forma consolidated statement of operations for the
twelve months ended September 30, 1995).
(3) Included in Tempest's acquisition costs and administrative expenses are
fees paid to GRUS in consideration for GRUS performing certain
underwriting, claims supervision and administrative services for Tempest.
Under this contract, Tempest pays GRUS underwriting fees equal to 3% of
written premiums plus 4% of any underwriting profits of Tempest. In
connection with the Amalgamation, the GRUS contract will be terminated.
The adjustment of $4,325,000 represents total GRUS fees expensed in the
six-month period ended March 31, 1996 which will not recur in the
combined entity.
(4) As discussed in Note 3 above, certain underwriting and other services are
currently performed by GRUS. The contract with GRUS will terminate as
part of the Amalgamation. Tempest expects that certain expenses,
including the salaries and benefits of one GRUS employee and other new
employees, will be paid by the ACE Reinsurance Subsidiary after the
Amalgamation. The adjustment of $868,000 reflects the estimated
additional administrative expenses required for ongoing operations.
(5) Tempest's stock option plan provides that options may be redeemed for
cash in certain circumstances, based on the net book value per share.
Under Accounting Principles Board Opinion No. 25 (APB 25), these options
are deemed to be compensatory and as a result, increases in the intrinsic
value of the options are recorded as compensation expense in Tempest's
statement of operations. The Amalgamation Agreement provides for the
exchange of Tempest Options for options to acquire ACE Ordinary Shares.
See "The Amalgamation and Related Transactions--Amalgamation
Consideration--Tempest Options" in the Joint Proxy Statement/Prospectus.
The options to acquire ACE Ordinary Shares will not be compensatory. The
adjustment of $2,888,000 represents the expense recorded in the six-month
period with respect to the Tempest Options which will not recur in the
combined entity.
25
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Amendment
dated as of June 19, 1996
to
Agreement and Plan of Amalgamation
dated as of March 14, 1996
by and among
ACE Limited,
a Cayman Islands corporation,
TRCL Acquisition Limited,
a Bermuda limited liability company
and
Tempest Reinsurance Company Limited,
a Bermuda limited liability company
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANNEX A
AMENDMENT
TO
AGREEMENT AND PLAN OF AMALGAMATION
THIS AMENDMENT, dated as of June 19, 1996 (the "Amendment"), by and among
ACE Limited, a Cayman Islands corporation ("Parent"), TRCL Acquisition
Limited, a limited liability company organized and incorporated under the laws
of Bermuda and a wholly owned direct subsidiary of Parent ("Acquisition"), and
Tempest Reinsurance Company Limited, a limited liability company organized and
incorporated under the laws of Bermuda (the "Company").
WHEREAS, Parent, Acquisition and the Company have previously entered into
that certain Agreement and Plan of Amalgamation, dated as of March 14, 1996
(the "Agreement"); and
WHEREAS, the respective Boards of Directors of the Company, Parent and
Acquisition deem it advisable and in the best interests of their respective
shareholders to amend the Agreement as hereinafter set forth and have duly
approved this Amendment and authorized its execution and delivery.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined herein, shall
have the meanings given them in the Agreement, and each reference in the
Agreement to "this Agreement," "hereof," "herein," "hereunder" or "hereby" and
each other similar reference shall be deemed to refer to the Agreement as
amended hereby. All references to the Agreement in any other agreement between
Parent, Acquisition and the Company relating to the transactions contemplated
by the Agreement shall be deemed to refer to the Agreement as amended hereby.
2. Section 1.01 of the Agreement is hereby amended by adding the following
new subparagraph (a) and renumbering the remaining subsections as appropriate:
"ACE Closing Price" shall mean the weighted average trading price of the
Parent Shares on three of the following four days: (i) the two NYSE trading
days immediately prior to the Closing Date, (ii) the Closing Date and (iii)
the NYSE trading day immediately subsequent to the Closing Date, with the
day on which the lowest weighted average trading price of the Parent Shares
occurs being excluded. The weighted average trading price of the Parent
Shares for any day shall be computed by (i) taking each trade during such
day and multiplying the price at which the trade was executed by the number
of Parent Shares traded, (ii) adding the products obtained in (i), and
(iii) dividing the sum obtained in (ii) by the total number of Parent
Shares traded on such day. The weighted average trading price for any
number of days shall be computed in a similar manner.
3. Section 1.01 of the Agreement is hereby amended by replacing subparagraph
(o) (formerly subparagraph (n) before the renumbering referred to in Section 2
above) in its entirety with the following:
(o) "Net Assets" of the Company shall mean the shareholders' equity of
the Company computed in accordance with GAAP as shown on the Closing Date
Balance Sheet (as defined herein) (and without giving effect to any Second
Contingent Dividend (as defined herein)) and adjusted to: (i) add any
amounts accrued on the financial statements of the Company for Company
Options (as defined herein); and (ii) deduct the sum of (A) fees of the
Company's legal, accounting, auditing and other advisors incurred by the
Company in connection with the transactions contemplated hereby to the
extent that such fees have not already been accrued on the financial
statements of the Company, and (B) an accrual equal to the Market Value of
Parent Shares (as defined herein) represented by the options issued under
this Agreement at the Closing Date less the exercise price of those
options, and (C) an accrual equal to (1) the product of (a) the number of
Shares subject to Company Options outstanding at the Closing Date other
than Roll-Over Options (as defined
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herein) multiplied by (b) the Market Value of the Parent Shares issued
pursuant to Section 2.07(a) per Share less (2) the aggregate exercise price
of such Company Options.
4. Section 2.07 of the Agreement is hereby amended by replacing subparagraph
(a) in its entirety with the following:
Section 2.07 Conversion of Shares. At the Effective Time, by virtue of
the Amalgamation and without any action on the part of Parent, Acquisition,
the Company or the holder of any of the following securities thereof:
(a) Each common share, $10 par value per share, of the Company (a
"Share") which is issued and outstanding immediately prior to the Effective
Time (other than Shares to be cancelled pursuant to Section 2.07(d) hereof)
shall be, by virtue of the Amalgamation and without any action on the part
of the holder thereof, cancelled and extinguished and shall be converted
into that number of ordinary shares, par value $0.125 per share, of Parent
(the "Parent Shares"), obtained by dividing (i) the quotient of (x) the
Premium Amount (as defined below) divided by (y) the Average Closing Price
(as defined below), by (ii) the number of Shares issued and outstanding
(excluding Shares to be cancelled pursuant to Section 2.07(d) hereof)
immediately prior to the Effective Time (the ratio of a Share to such
number of Parent Shares, rounded to the nearest 1/10,000th of a Parent
Share, being defined herein as the "Exchange Ratio").
The "Premium Amount" shall be an amount equal to the product of (x) a
fraction the numerator of which is 600 and the denominator of which is
452.5 multiplied by (y) the Net Assets of the Company; provided, however,
that if the Net Assets of the Company should exceed $452.5 million then the
Premium Amount shall be an amount equal to the sum of (i) $600 million plus
(ii) the dollar amount by which the Net Assets exceed $452.5 million.
The Parent Shares to be received as consideration pursuant to the
Amalgamation and the procedures set forth in Section 2.08 by each holder of
Shares is referred to herein as the "Amalgamation Consideration." Parent
shall take such action as shall be necessary to issue the Parent Shares to
be received as Amalgamation Consideration and register them on its share
register.
The "Average Closing Price" shall be an amount equal to the average per
share closing price of Parent Shares as reported on the NYSE Composite
Transaction Tape for the ten NYSE trading days immediately preceding the
three NYSE trading days prior to the date upon which Parent's shareholders'
meeting occurs as provided in Section 5.08; provided, however, that if the
Average Closing Price is greater than $45.00, the Exchange Ratio will
become fixed as if the Average Closing Price were $45.00 and if the Average
Closing Price is less than $33.00, the Exchange Ratio will become fixed as
if the Average Closing Price were $33.00 (the prices at which the Exchange
Ratio will be fixed are collectively referred to herein as the "Average
Closing Price Caps").
5. Section 2.08 of the Agreement is hereby amended by replacing subparagraph
(f) in its entirety with the following:
(f) No dividends or other distributions with respect to the Parent Shares
constituting part of the Amalgamation Consideration shall be paid to the
holder of any unsurrendered certificates representing Shares until such
certificates are surrendered as provided in this Section 2.08. Upon such
surrender, there shall be paid (to the extent due and not yet paid),
without interest, to the Person in whose name the certificates representing
the Parent Shares into which such Shares were converted are registered, (i)
by Parent any dividends and other distributions in respect of Parent Shares
that are payable on a date subsequent to, and the record date for which
occurs after, the Effective Time and (ii) by the Company any dividends
(including any Contingent Dividend and any Second Contingent Dividend, as
defined in Section 5.14 hereof) or other distributions in respect of Shares
that are payable on a date subsequent to, and the record date for which
occurs on or before, the Effective Time.
6. Section 3.21 of the Agreement is hereby amended by replacing Section 3.21
in its entirety with the following:
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Section 3.21 Agreements with General Re. Except as set forth in Section
3.21 of the Disclosure Letter and other than the Share Purchase Agreement,
dated as of June 19, 1996, among the Company, General Re, GRUS and General
Re-New England Asset Management, Inc. (the "Share Purchase Agreement") and
related releases, the Company is not a party to or bound by any contract,
agreement or arrangement with General Re or an affiliate thereof.
7. Section 5.14 of the Agreement is hereby amended by replacing Section 5.14
in its entirety with the following:
Section 5.14 Net Assets. Notwithstanding anything to the contrary in this
Agreement, the Company and its directors shall take (or shall have taken),
prior to the Effective Time, all necessary action to:
(i) repurchase or otherwise acquire or cancel Shares and options to
acquire Shares of the Persons set forth in Section 5.14 of the
Disclosure Letter, which schedule shall set forth the number of Shares
and/or options to acquire Shares held by each such Person to be
repurchased or otherwise acquired or cancelled as provided in this
Section 5.14, provided, that, the repurchase, acquisition or
cancellation of Shares or Company Options by the Company shall not
obligate or commit Tempest Re or any of its Affiliates in any way other
than as set forth in Section 5.14 of the Disclosure Letter;
(ii) declare a dividend (a "Contingent Dividend") in an amount equal
to such portion of the Net Assets of the Company, measured immediately
prior to the Effective Time, as exceeds $452.5 million (such Contingent
Dividend shall be paid to shareholders of record of the Company as of
the Effective Time and shall be held and distributed by the Company to
such shareholders, without interest, pursuant to Section 2.08(f)
hereof, to the extent not previously paid to shareholders by the
Company); provided, that, the Contingent Dividend shall be payable only
from assets of the Company existing at the Effective Time; and
(iii) declare a dividend (a "Second Contingent Dividend") in an
amount equal to the product of (x) the remainder of (X) $49.00 minus
(Y) the ACE Closing Price multiplied by (y) 13,333,333 (such Second
Contingent Dividend shall be paid to shareholders of record of the
Company as of the Effective Time and shall be held and distributed by
the Company to such shareholders, without interest, pursuant to Section
2.08(f) hereof, to the extent not previously paid to shareholders by
the Company); provided, that the Second Contingent Dividend shall be
payable only from assets of the Company existing at the Effective Time;
provided further, that, the amount of the Second Contingent Dividend
shall in no event be greater than $50 million or less than $0;
provided, that, the repurchase, acquisition or cancellation of Shares or
Company Options by the Company and the declaration or distribution of the
Contingent Dividend or the Second Contingent Dividend shall not obligate or
commit Tempest Re or any of its Affiliates (except for the payment of
dividends or distributions referred to in clause (ii) or (iii) above) in
any way whatsoever.
8. Section 6.03(l) of the Agreement is hereby amended by replacing clause
(iv) thereof in its entirety with the following:
(iv) General Re, the Company and the other parties thereto shall have
fully performed the Share Purchase Agreement on the terms provided in such
agreement.
9. Section 7.05 of the Agreement is hereby amended by replacing subparagraph
(c) in its entirety with the following:
(c) by either Parent or the Company by written notice to the other, no
later than 5:00 p.m., Bermuda Time, on the second calendar day following
the Determination Date if the Average Closing Price shall be less than
$31.00 (such price being referred to herein as the "Termination Price").
10. Section 2.09 of the Agreement is hereby amended by replacing the phrase
"Termination Prices" with "Termination Price."
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11. From and after the approval of the Agreement by the Company's
shareholders as contemplated by Section 6.01(a) of the Agreement, Section 5.02
of the Agreement shall be amended (without further action on the part of the
parties hereto) by replacing Section 5.02 in its entirety with the following:
Section 5.02 Exclusivity. Neither the Company nor any of its directors,
officers or employees shall, and the Company shall use its best efforts to
ensure that none of its representatives shall, directly or indirectly,
solicit, initiate or encourage any inquiries or proposals from or with any
Person (other than Parent and Acquisition (or other Affiliates of Parent)
or such Person's directors, officers, employees, representatives and
agents) that constitute, or would lead to, a Third Party Acquisition. The
Company will promptly advise Parent of (i) any request for non-public
information from any Person expressing an interest in a Third Party
Acquisition or (ii) a proposal in respect of a Third Party Acquisition
received by the Company, including the identity of the Person requesting
non-public information or making such a proposal (as the case may be); in
the case of a proposal in respect of a Third Party Acquisition, the Company
will furnish to Parent the terms and conditions of such proposal. The
Company and its Board of Directors may not (i) provide non-public
information to any Person (other than to or at the direction of Parent),
(ii) undertake any review of any such proposal or (iii) participate in
negotiations respecting any such proposal.
; provided, that if Parent's shareholders have not approved the issuance of
the Parent Shares as contemplated by Section 6.01(a) of the Agreement on or
before July 11, 1996, the amendment of Section 5.02 of the Agreement provided
for in this Section 11 shall be rescinded.
12. Section 5.09 of the Agreement is hereby amended by deleting subsection
(b) thereof in its entirety and all references in the Agreement to
"restrictive legends" shall be deleted as appropriate.
13. Section 5.19 of the Agreement is hereby amended by replacing subsection
(a) thereof in its entirety with the following:
(a) From and after the Effective Time, Parent shall indemnify, defend and
hold harmless the officers, directors (including any directors who have
resigned subsequent to March 1, 1996) and employees of the Company (the
"Indemnified Parties") against all losses, expenses, claims, damages and
liabilities arising out of the transactions contemplated by this Agreement
to the fullest extent permitted or required under applicable law
(including, without limitation, reasonable attorneys' fees). Parent agrees
that all rights to indemnification existing in favor of the directors,
officers and employees, of the Company as provided in the Company's
memorandum of association and bye-laws, and all rights to indemnification
existing pursuant to indemnification agreements entered into by the Company
(including an indemnification agreement between the Company and General Re
pursuant to which the Company has agreed to indemnify, defend and hold
harmless General Re and its affiliates, including the General Re designated
directors of the Company, for liability, other than for liability arising
from the gross negligence of General Re and its affiliates, arising from
certain aspects of the Amalgamation), as in effect as of the date hereof
(unless subsequently voluntarily terminated or superseded by the parties
thereto), including the Share Purchase Agreement, with respect to matters
occurring through the Effective Time, shall survive the Amalgamation and
shall continue in full force and effect for a period of not less than six
years from the Effective Time, and Parent shall guaranty the obligations of
the Company in respect thereof.
14. From and after the approval of the Agreement by the Company's
shareholders as contemplated by Section 6.01(a) of the Agreement, Sections
7.01(b), 7.02, 7.03(b) and 7.04 of the Agreement shall be of no further force
and effect; provided, that if Section 5.02 of the Agreement, as in effect
prior to this Amendment, is reinstated, Sections 7.01(b), 7.02 and 7.03(b) of
the Agreement shall also thereupon become reinstated.
15. Section 8.06 of the Agreement is hereby amended by replacing Section
8.06 in its entirety with the following:
Section 8.06 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other Person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement, except
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for Section 2.07 (which is intended to be for the benefit of the Persons
referred to therein, and may be enforced by such Persons), Sections 4.12
and 5.18 (which are intended to be for the benefit of Former Holders and
may be enforced by such Former Holders) and Section 5.19 (which is intended
to be for the benefit of the parties to the Shares Purchase Agreement and
may be enforced by such parties).
16. This Amendment shall be governed by and construed in accordance with the
laws of Bermuda without regard to the conflicts of laws rules thereof.
17. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
18. Except as expressly amended hereby, the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be signed and sealed on its behalf by its duly authorized officers, all as of
the day and year first above written.
ACE LIMITED
Brian Duperreault
By __________________________________
Brian Duperreault
Chairman, President and Chief
Executive Officer
[SEAL]
TRCL ACQUISITION LIMITED
Brian Duperreault
By __________________________________
Brian Duperreault
Chairman, President and Chief
Executive Officer
Christopher Z. Marshall
By __________________________________
Christopher Z. Marshall
Executive Vice President and Chief
Financial Officer
[SEAL]
TEMPEST REINSURANCE COMPANY LIMITED
Donald Kramer
By __________________________________
Donald Kramer
Co-Chairman
Charles G. Collis
By __________________________________
Charles G. Collis
Director
[SEAL]
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<PAGE>
ANNEX B
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE]
June 20, 1996
The Board of Directors
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08, Bermuda
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to ACE Limited ("ACE" or the "Company") and its shareholders of the
consideration to be paid by the Company pursuant to the terms of the Agreement
and Plan of Amalgamation, dated as of March 14, 1996, as amended by the
Amendment, dated as of June 19, 1996 (as amended, the "Agreement"), by and
among the Company, TRCL Acquisition Limited and Tempest Reinsurance Company
Limited ("Tempest").
Pursuant to the Agreement, each Tempest common share ("Tempest Share") will
be converted into the number of ACE ordinary shares, par value $0.125 per
share ("ACE Ordinary Shares"), obtained by dividing (i) the quotient of (x)
the Premium Amount (as defined in the Agreement) divided by (y) the Average
Closing Price (as defined below), by (ii) the number of Tempest Shares
outstanding immediately prior to the effective time (the "Exchange Ratio").
The value of the ACE Ordinary Shares, for the purposes of calculating the
Exchange Ratio, will be equal to the average closing price of the ACE Ordinary
Shares on the New York Stock Exchange ("NYSE") for the ten NYSE trading days
immediately preceding the three NYSE trading days prior to the date upon which
ACE's shareholders meet to vote on the transaction (the "Average Closing
Price"). The Exchange Ratio will be adjusted if the Average Closing Price of
the ACE Ordinary Shares is between $33.00 and $45.00, such that the total
value received for each Tempest Share remains constant. If the Average Closing
Price is greater than $45.00, the Exchange Ratio is fixed such that the number
of ACE Ordinary Shares to be received for each Tempest Share would be
determined as if the Average Closing Price were $45.00 with the result that
the total value received for each Tempest Share would increase. If the Average
Closing Price is less than $33.00, the Exchange Ratio is fixed such that the
number of ACE Ordinary Shares to be received for each Tempest Share would be
determined as if the Average Closing Price were $33.00 with the result that
the total value received for each Tempest Share would decrease. Immediately
prior to closing, Tempest will declare a dividend, or otherwise distribute, to
its shareholders an amount equal to such portion of the Net Assets (as defined
in the Agreement) as exceeds $452.5 million. Included in this distribution
will be cash amounts paid to General Reinsurance Corporation ("General Re")
necessary to acquire 100% of its interest in Tempest and to buy out General
Re's underwriting services contract with Tempest. In addition, prior to
closing, Tempest will declare a Second Contingent Dividend (as defined in the
Agreement), equal to the product of (x) $49.00 less the ACE Closing Price (as
defined in the Agreement) and (y) 13,333,333; provided that the amount of such
Second Contingent Dividend will in no event be greater than $50 million or
less than $0. Based on $452.5 million of Net Assets, the Exchange Ratio would
result in the issuance of 13,333,333 ACE Ordinary Shares, assuming an Average
Closing Price of $45.00. The terms of the transaction are more fully set forth
in the Agreement.
The Agreement may be terminated by either ACE or Tempest if the Average
Closing Price is less than $31.00 per share. In addition all outstanding
unexercised Tempest options will be canceled and options to acquire ordinary
shares of ACE will be granted in lieu thereof.
In arriving at our opinion we have reviewed the Agreement. We also have
reviewed financial and other information that was available or furnished to us
by ACE and Tempest including information provided during discussions with
their respective managements. Financial projections for Tempest for the fiscal
years ended
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November 30, 1996 and 1997 were developed by us based upon discussions with
and information provided by the management of Tempest and were reviewed and
accepted as reasonable by the management of ACE. In addition, certain
financial projections of ACE for fiscal years 1996 through 1997 were developed
by us based upon public information and were reviewed and accepted as
reasonable by the management of ACE. In addition, we have compared certain
financial data of ACE and Tempest with various other comparable companies
whose securities are traded in the public markets, reviewed the historical
stock price and trading volume of ACE Ordinary Shares, reviewed prices and
premiums paid in other comparable business combinations and conducted such
other studies, analyses and investigations as we deemed appropriate for
purposes of this opinion, including utilizing materials prepared by and
discussions held with ACE's outside accounting, legal, underwriting and
actuarial consultants.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all of
the financial and other information that was available to us from public
sources, that was provided to us by ACE and Tempest or their respective
representatives, or that was otherwise reviewed by us. With respect to the
financial projections developed by us and reviewed by the management of ACE,
we have assumed that the information provided by the management of ACE and the
management of Tempest, in connection therewith, reflect the best currently
available estimates and judgments of the management of ACE and Tempest as to
the future operating and financial performance of ACE and Tempest. We did not
make any independent evaluation of ACE's or Tempest's assets or liabilities
nor did we verify any of the information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which ACE Ordinary Shares will actually trade at any time.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
DLJ served as financial advisor to ACE on ACE's acquisition of a 51% interest
in Methuen Group Limited, a Lloyd's of London managing agency (the "Methuen
Transaction"). The Methuen Transaction closed on March 27, 1996. DLJ received
compensation in connection with the Methuen Transaction.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be paid by ACE pursuant to the
Agreement is fair to ACE and its shareholders from a financial point of view.
Very truly yours,
Donaldson, Lufkin & Jenrette
Securities Corporation
/s/ Leandro S. Galban
By: _________________________________
Leandro S. Galban
Managing Director
B-2
<PAGE>
ANNEX C
[LETTERHEAD OF MERRILL LYNCH]
June 19, 1996
Board of Directors
Tempest Reinsurance Company Limited
14 Par-La-Ville Road
Hamilton, HM08 Bermuda
Gentlemen:
ACE Limited ("ACE"), TRCL Acquisition Limited. ("TRCL Ltd."), a limited
liability company and wholly-owned direct subsidiary of ACE, and Tempest
Reinsurance Company Limited ("Tempest Re") have entered into an Agreement and
Plan of Amalgamation, dated as of March 14, 1996, as amended by the amendment
dated as of June 19, 1996 (the "Amalgamation Agreement"), pursuant to which
TRCL Ltd. is to be amalgamated with Tempest Re (the "Amalgamation") and each
common share, $10 par value per share, of Tempest Re outstanding immediately
prior to the Effective Time (as defined in the Amalgamation Agreement) is to be
exchanged for ordinary shares par value $0.125 per share, of ACE ("ACE Shares")
with a total value of $600 million if ACE's average closing price on the New
York Stock Exchange for the ten trading days preceding the three trading days
before the ACE extraordinary general meeting of shareholders ("Average Closing
Price") is between $33 and $45. If the ACE average share price is greater than
$45, the number of ACE Shares received by Tempest Re shareholders would remain
the same as if such average share price were $45. Likewise, if such average
share price were less than $33, the number of shares received by Tempest Re
shareholders would be the same as if such average share price were $33. The
Amalgamation Agreement may be terminated by either party if the Average Closing
Price is less than $31. Prior to the Effective Time, Tempest Re shares and
options to acquire shares held by General Re Corporation ("General Re") are to
be repurchased by Tempest Re for cash and certain other contractual
arrangements between Tempest Re and General Re are to be terminated. Tempest Re
is to declare and pay to its remaining shareholders a dividend that will reduce
its consolidated net worth to $452.5 million at the Effective Time. In order to
ensure that the value to be received by Tempest Re shareholders in the form of
ACE shares be as close to $49 per ACE share as possible, Tempest Re shall
declare a Second Contingent Cash Dividend (as defined in the Amalgamation
Agreement) up to an aggregate amount of $50 million immediately prior to the
Effective Time. The terms of the transaction are more fully set forth in the
Amalgamation Agreement.
You have asked us whether, in our opinion, the proposed consideration to be
received in the form of ACE Shares, including the effect of the Second
Contingent Cash Dividend, by Tempest Re shareholders pursuant to the
Amalgamation Agreement is fair from a financial point of view to such Tempest
Re shareholders.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Amalgamation Agreement;
(2) Reviewed Tempest Re Annual Reports and related GAAP financial
information for the three fiscal years ended November 30, 1995, and the
unaudited statements for the three months ended February 29, 1996;
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<PAGE>
(3) Reviewed ACE's Annual Reports and related GAAP financial information
for the three fiscal years ended September 30, 1995, and the unaudited
statements for the six months ended March 31, 1996;
(4) Conducted discussions with members of senior management of Tempest Re
concerning the business and prospects of Tempest Re;
(5) Conducted discussions with members of senior management of ACE
concerning the business and prospects of ACE;
(6) Reviewed the historical market prices and trading activity for the ACE
Shares;
(7) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of Tempest
Re and ACE, furnished to us by Tempest Re and ACE;
(8) Compared the proposed financial terms contemplated by the Amalgamation
Agreement with the proposed financial terms of an amalgamation between
IPC Holdings, Ltd. ("IPC") and Tempest Re contemplated by the letter of
June 3, 1996 from IPC, as subsequently revised by the letters of June
10, 1996 and June 17, 1996 from IPC;
(9) Compared the proposed financial terms of the transaction contemplated
by the Amalgamation Agreement with the financial terms of certain
mergers and acquisitions which we determined to be relevant;
(10) Compared the results of operations of Tempest Re with those of certain
companies which we deemed to be reasonably similar to Tempest Re;
(11) Compared the results of operations of ACE with those of certain
companies which we deemed to be reasonably similar to ACE; and
(12) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied upon the accuracy and completeness
of all information supplied or otherwise made available to us by Tempest Re
and ACE and we have not independently verified such information or made an
independent valuation or appraisal of the assets or liabilities of Tempest Re
or ACE. In particular, we have relied upon the representation by ACE's
management and actuaries that its reserves for breast implant related claims
are adequate and we have not independently verified nor valued the accuracy of
such reserves. We have further relied upon the assurances of the management of
Tempest Re and ACE that they are not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial forecasts
furnished by Tempest Re and ACE, we have assumed with your consent that they
have been reasonably prepared and reflect the best currently, available
estimates and judgment of Tempest Re's or ACE's management as to the expected
future financial performance of Tempest Re, ACE or their combined operations,
as the case may be. Our opinion is necessarily based upon market, economic and
other conditions as they exist on the date hereof. In connection with the
preparation of this opinion, we have not been authorized by Tempest Re to
solicit, nor have we solicited, third-party indications of interest for the
acquisition of all or any part of Tempest Re.
We have, in the past, provided financial advisory and financing services to
Tempest Re and have received fees for rendering such services. In 1993 we
served as Lead Placement Agent in the establishment of Tempest Re, raising
$535 million in a private placement. We are acting as financial advisor in
connection with the Amalgamation and will receive a fee for our services, a
substantial portion of which is contingent upon the consummation of the
Amalgamation.
This opinion is directed to the Board of Directors of Tempest Re and does
not constitute a recommendation to any shareholders of Tempest Re as to how
such shareholders should vote at any shareholder meeting of Tempest Re.
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On the basis of and subject to the foregoing, we are of the opinion that, as
the date hereof, the consideration to be received in the form of ACE Shares,
including the effect of the Second Contingent Cash Dividend, by Tempest Re
shareholders pursuant to the Amalgamation Agreement is fair from a financial
point of view to such Tempest Re shareholders.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
/s/ Steven J. Goulart
By___________________________________
Steven J. Goulart
Director
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