<PAGE>
As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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ACE LIMITED
(Exact Name of Registrant as Specified in Its Charter)
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Cayman Islands 6331 98-0091805
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation Code Number)
or Organization)
The ACE Building Peter N. Mear
30 Woodbourne Avenue General Counsel and Secretary
Hamilton, HM 08, Bermuda c/o ACE INA Holdings Inc.
(441) 295-5200 Two Liberty Place
(Address, Including Zip Code, and 1601 Chestnut Street
Telephone Number, Including Area Code, Philadelphia, Pennsylvania 19101
of Registrant's Principal Executive (215) 761-4312
Offices) (Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Agent For Service)
Copies To:
Edward S. Best, Esq. Michael J. Silver, Esq.
Mayer, Brown & Platt Hogan & Hartson L.L.P.
190 South LaSalle Street 111 South Calvert Street
Chicago, Illinois 60603 Baltimore, Maryland 21202
--------------
Approximate date of commencement of proposed sale to the public: As soon as
possible after this registration statement is declared effective and all other
conditions described in the registration statement are satisfied.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
Proposed
Maximum Proposed
Title of Each Class of Aggregate Maximum Amount of
Securities Amount to Be Offering Price Aggregate Registration
to Be Registered Registered(1) Per Unit(2) Offering Price Fee(3)
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Ordinary shares, $0.041666667 par value(4)..... 19,214,471 $20.3646 $391,294,704 $108,780
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</TABLE>
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(1) Represents the maximum number of ACE Limited ordinary shares that may be
issued to former stockholders of Capital Re Corporation in the merger
described in this proxy statement/prospectus. The number of ACE Limited
ordinary shares to be registered is determined by multiplying the maximum
exchange ratio (generally, 0.60) by 32,024,119, the maximum aggregate
number of shares of Capital Re Corporation common stock convertible in the
merger.
(2) Calculated in accordance with Rule 457(f)(1) under the Securities Act of
1933, as amended, based on the aggregate market value on September 1, 1999
of the shares of Capital Re Corporation common stock expected to be
canceled in connection with the merger and computed by dividing (i) the
product of (A) the average of the high and low prices of Capital Re
Corporation common stock as reported on the New York Stock Exchange on
September 1, 1999 ($12.21875) and (B) 32,024,119, representing the maximum
number of shares of Capital Re Corporation common stock expected to be
cancelled in connection with the merger, by (ii) 19,214,471, representing
the maximum number of ACE Limited ordinary shares to be issued in
connection with the merger.
(3) The registration fee of $108,780 was calculated pursuant to Rule 457(f)
under the Securities Act of 1933, as amended, as follows: .000278
multiplied by the proposed maximum aggregate offering price. In accordance
with Rule 457(b), the filing fee of $85,663 paid pursuant to Section 14(g)
of the Securities Exchange Act of 1934, as amended, and Rule 0-11
thereunder at the time of the filing of the proxy statement/prospectus
contained in this registration statement as preliminary proxy materials has
been credited to offset the $108,780 registration fee that would otherwise
be payable, resulting in a net fee payable of $23,117 as of the date
hereof.
(4) Includes associated rights to purchase one ACE Limited ordinary share.
Until certain events occur, the rights are not exercisable. The rights are
evidenced by certificates representing ACE Limited ordinary shares and are
transferred only with ordinary shares.
--------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
CAPITAL RE CORPORATION
1325 Avenue of the Americas
New York, NY 10019
Merger Proposed--Your Vote Is Very Important
September 3, 1999
To the Stockholders of Capital Re Corporation:
The boards of directors of Capital Re Corporation and ACE Limited have
agreed on a merger of Capital Re and CapRe Acquisition Corp., a subsidiary of
ACE. Capital Re will be the surviving company in the merger and will become a
wholly owned subsidiary of ACE following the merger.
Upon completion of the merger, you will receive 0.60 of an ACE ordinary
share for each share of Capital Re common stock that you own, subject to a
maximum value to Capital Re's stockholders of $22.00 per share. The value of
the ACE ordinary shares you will receive in the merger will depend on the
market price of the ACE ordinary shares at the time of the merger, subject to
the $22.00 cap. ACE ordinary shares are traded on the New York Stock Exchange
under the symbol "ACL." On September 1, 1999, ACE ordinary shares closed on the
New York Stock Exchange at $20.8125 per share.
The merger has been structured to qualify as a nontaxable transaction under
the U.S. Internal Revenue Code. As a result, it is expected that Capital Re
stockholders will not recognize any taxable gain or loss for U.S. federal
income tax purposes on the exchange of their shares of Capital Re common stock
for ACE ordinary shares in the merger. Any cash payments they receive in place
of fractional ACE shares will, however, be taxable.
The merger requires the approval of the holders of at least a majority of
the outstanding shares of Capital Re common stock. Capital Re has scheduled a
special meeting of its stockholders on October 4, 1999 at 1325 Avenue of the
Americas, New York, NY 10019 to vote on the merger. We urge you to attend this
meeting, at which we will be available to answer any questions you may have.
ACE, which currently owns approximately 12.3% of Capital Re's common stock,
and other major stockholders together holding approximately 33.5% of Capital
Re's common stock, intend to vote in favor of adoption of the merger agreement
and approval of the merger.
Regardless of the number of shares you own or whether you plan to attend the
meeting, it is important that your shares be represented and voted. If you fail
to vote by proxy or in person, it will have the same effect as a vote against
the transaction. The board of directors of Capital Re unanimously recommends
that you vote FOR adoption of the merger agreement and approval of the merger.
Voting instructions are inside. This proxy statement/prospectus provides you
with detailed information about the proposed merger. We encourage you to read
this entire document carefully.
[JEROME F. JURSCHAK SIG]
Jerome F. Jurschak
Chairman and Chief Executive Officer
Capital Re Corporation
For a discussion of certain risk factors that you should consider in
evaluating the merger, see "Risk Factors" beginning on page 14 of the proxy
statement/prospectus.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the ACE ordinary shares to be issued in the merger or
determined whether this proxy statement/prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated September 3, 1999, and is first
being mailed to stockholders on September 3, 1999.
<PAGE>
CAPITAL RE CORPORATION
1325 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
Notice of Special Meeting of Stockholders October 4, 1999
Notice is hereby given that Capital Re Corporation will hold a special
meeting of its stockholders on October 4, 1999 at 10:00 a.m., at 1325 Avenue of
the Americas, New York, NY 10019, for the following purposes:
(1) To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger, dated as of June 10, 1999, among Capital Re, CapRe Acquisition
Corp. and ACE and to approve the merger contemplated by that agreement; and
(2) To transact such other business as may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
A copy of the merger agreement is attached as Appendix A to the proxy
statement/prospectus accompanying this notice. Capital Re has established the
close of business on September 2, 1999 as the record date to determine the
stockholders entitled to vote at the special meeting or any postponement or
adjournment thereof. No business other than the proposals described in this
notice will be considered at the special meeting or any adjournment or
postponement thereof. A list of stockholders entitled to vote at the special
meeting will be available for inspection by stockholders of record for any
purpose germane to the meeting during business hours at the principal executive
offices of Capital Re during the ten-day period prior to the date of the
Capital Re special meeting and will also be available at the special meeting.
The affirmative vote of a majority of the outstanding shares of Capital Re
common stock is required to adopt the merger agreement.
Your board of directors has unanimously determined that the merger agreement
and the merger are fair to and in the best interests of Capital Re and its
stockholders and unanimously recommends that you vote to adopt the merger
agreement and approve the merger described in detail in the accompanying proxy
statement/prospectus.
Your vote is important and we urge you to complete, sign, date and return
the accompanying proxy card in the enclosed postage-paid envelope as promptly
as possible, whether or not you expect to attend the Capital Re special
meeting. If you are unable to attend in person, your shares will be voted at
the Capital Re special meeting if you return your proxy card. If you complete,
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote FOR adoption of the merger agreement and
approval of the merger. If your shares are held in "street name" by your broker
or other nominee, only that holder can vote your shares. You should follow the
directions provided by that nominee regarding how to instruct it to vote your
shares.
By Order of the Board of Directors
[signature]
Alan S. Roseman
Secretary
Capital Re Corporation
New York, New York
September 3, 1999
<PAGE>
CAPITAL RE CORPORATION
PROXY STATEMENT
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ACE LIMITED
PROSPECTUS
19,214,471 ORDINARY SHARES
This proxy statement/prospectus relates to a merger in which you will
receive 0.60 ACE Limited ordinary shares for each share of Capital Re
Corporation common stock that you own on the date of the merger.
Capital Re Corporation's board of directors is furnishing this proxy
statement/prospectus to you in connection with its solicitation of proxies for
use at a meeting of Capital Re Corporation's stockholders to be held on Monday,
October 4, 1999 to adopt the merger agreement and approve the merger. Capital
Re Corporation's board of directors has unanimously approved and declared
advisable the merger agreement, and recommends that you vote to adopt the
merger agreement and approve the merger. This proxy statement/ prospectus and
the accompanying form of proxy are first being mailed to you on or about
September 3, 1999.
See "Risk Factors" on page 14 for a discussion of risks relevant to the merger.
ACE Limited ordinary shares are traded on the New York Stock Exchange under
the symbol "ACL," and shares of Capital Re Corporation common stock are traded
on the New York Stock Exchange under the symbol "KRE."
Please do not send your Capital Re Corporation common stock certificates with
the enclosed proxy.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this proxy statement/prospectus. Any representation to
the contrary is a criminal offense.
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The date of this proxy statement/prospectus is September 3, 1999
This proxy statement/prospectus incorporates by reference important business
and financial information about both ACE Limited and Capital Re Corporation
which is not included in or delivered with this proxy statement/prospectus. See
"Additional Information--Where You Can Find More Information" on page 74.
You can obtain any of the documents incorporated by reference in this
document through ACE Limited or Capital Re Corporation, as the case may be, or
from the Securities and Exchange Commission through its web site at
http://www.sec.gov. Documents incorporated by reference are available from ACE
Limited and Capital Re Corporation without charge, excluding any exhibits to
those documents unless the exhibit is specifically incorporated by reference as
an exhibit in this proxy statement/prospectus. You can obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from the appropriate company at the following
addresses:
ACE LIMITED CAPITAL RE CORPORATION
The ACE Building 1325 Avenue of the Americas
30 Woodbourne Avenue New York, NY 10019
Hamilton, HM 08, Bermuda 212-974-0100
(441) 295-5200
If you would like to request documents, please do so by September 27, 1999
to receive them before the meeting. If you request any incorporated documents,
we will mail them to you by first class mail, or another equally prompt means,
within one business day after we receive your request.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Summary Historical Consolidated Financial and Other Data of ACE.......... 8
Summary Historical Consolidated Financial Data of Capital Re............. 9
Summary Unaudited Pro Forma Condensed Consolidated Financial Information
of ACE.................................................................. 10
Comparative Per Share Information........................................ 11
Risk Factors............................................................. 14
Cautionary Statement Concerning Forward-Looking Statements............... 16
The Proposed Merger...................................................... 17
The Special Meeting...................................................... 34
Unaudited Pro Forma Condensed Consolidated Financial Information of ACE.. 36
Information Regarding Directors, Executive Officers and Five Percent
Stockholders............................................................ 46
The Merger Agreement..................................................... 48
The Stock Option Agreement............................................... 60
The Stockholder Support Agreements....................................... 62
Comparison of Stockholders' Rights and Description of the Share Capital
of ACE Following The Merger............................................. 63
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find More Information...................................... 74
Appendix A Agreement and Plan of Merger.................................. A-1
Appendix B Stock Option Agreement........................................ B-1
Appendix C Opinion of Goldman, Sachs & Co................................ C-1
</TABLE>
i
<PAGE>
SUMMARY
This document constitutes the proxy statement of Capital Re and the
prospectus of ACE. The transactions described in this proxy
statement/prospectus are complex. This summary highlights selected information
from this proxy statement/prospectus and may not contain all of the information
that is important to you. To better understand the merger and related
transactions and for a more complete description of the legal terms of the
merger and related transactions, you should carefully read this entire document
and the documents to which we have referred you. See "Where You Can Find More
Information" on page 74. References in this proxy statement/prospectus to "$"
or dollars are to United States dollars. Financial information regarding both
Capital Re and ACE has been prepared in accordance with United States generally
accepted accounting principles.
The Parties
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton, HM 08, Bermuda
(441) 295-5200
Internet address: http://www.acelimited.com
ACE is a holding company incorporated with limited liability under the
Cayman Islands Companies Law. ACE maintains its principal business office in
Bermuda. ACE, through its various subsidiaries, provides a broad range of
insurance and reinsurance products to insureds in the United States and 47
other countries worldwide. In addition, ACE provides funds at Lloyd's to
support underwriting by Lloyd's syndicates. As of June 30, 1999, ACE and its
subsidiaries had total consolidated assets of over $9.6 billion. Following
ACE's acquisition in July 1999 of the international and United States property
and casualty insurance business of CIGNA Corporation, ACE and its subsidiaries
had total consolidated assets of over $30 billion.
Capital Re Corporation
1325 Avenue of the Americas
New York, N.Y. 10019
(212) 974-0100
Internet address: http://www.capitalrecorp.com
Capital Re, a Delaware corporation, is an insurance holding company for a
group of reinsurance companies that are engaged principally in serving the
United States domestic and international financial guaranty and financial risks
insurance markets. Capital Re has two principal divisions: financial guaranty
and financial risks. The financial guaranty division is composed of municipal
and non-municipal financial guaranty reinsurance and credit default swaps. The
financial risks division is composed of mortgage guaranty reinsurance, trade
credit reinsurance, title reinsurance and financial solutions. As of June 30,
1999, Capital Re had assets in excess of $1.5 billion.
1
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The Merger
WHAT CAPITAL RE STOCKHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 49)
Each share of outstanding Capital Re common stock will be converted into
0.60 of an ACE ordinary share, subject to a maximum value to Capital Re
stockholders of $22.00 per share. If the market value of ACE's ordinary shares
(the average closing price of an ACE ordinary share for the 20 consecutive
trading days ending three days prior to the effective time of the merger) is
greater than $36.67, the exchange ratio will equal 22 divided by that market
value. Assuming no adjustment of the exchange ratio, the total number of shares
received by Capital Re stockholders will constitute approximately 9.2% of ACE
ordinary shares after the merger.
The following chart gives a few examples of the number of ACE ordinary
shares that Capital Re shareholders will receive in the merger. The chart does
not include cash received for fractional shares.
<TABLE>
<CAPTION>
Number of ACE Ordinary Shares
Market Value of Received for 100 Capital Re Market Value of ACE
ACE Ordinary Shares Common Shares Ordinary Shares Received
- ------------------- ----------------------------- ------------------------
<S> <C> <C>
$20.00 60 $1,200
$25.00 60 $1,500
$36.67 60 $2,200
$44.00 50 $2,200
</TABLE>
Capital Re stockholders will not receive fractional shares. Instead, Capital
Re stockholders will receive cash equal to the market value of any fractional
shares that will be based on the average closing price of an ACE ordinary share
for the twenty consecutive trading days ending three days prior to the
effective time of the merger.
WHAT CAPITAL RE STOCK OPTION HOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 49)
As a result of the merger, each outstanding and unexercised option or right
to purchase Capital Re common stock issued under Capital Re's employee benefit
plans will be replaced with an option or right to purchase ACE ordinary shares
under ACE's existing stock option plan. The number and purchase price of the
shares covered by the new options will be adjusted to reflect the exchange
ratio applied to the conversion of outstanding shares of Capital Re common
stock.
COMPARISON OF STOCKHOLDERS' RIGHTS (SEE PAGE 63)
Upon the merger, Capital Re stockholders will no longer be stockholders of a
company governed by the Delaware General Corporation Law but instead will
become shareholders of ACE, which is governed by the Companies Law of the
Cayman Islands.
Voting
MATTERS TO BE VOTED ON (SEE PAGE 34)
At the Capital Re special meeting, Capital Re stockholders will be asked to
adopt the merger agreement and approve the merger.
VOTE REQUIRED (SEE PAGE 34)
The affirmative vote of the holders of a majority of the outstanding shares
of common stock of Capital Re is required for adoption of the merger agreement.
Constellation Investments, Inc., a holder of 4,984,340 shares, or approximately
13.6%, of Capital Re's issued and outstanding common stock has agreed to vote
all of its
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shares to adopt the merger agreement and approve the merger. MP Investments,
Inc., a holder of 7,280,480 shares, or approximately 19.9%, of Capital Re's
issued and outstanding common stock has agreed to vote all of its shares to
adopt the merger agreement and approve the merger. See "The Stockholder Support
Agreements" on page 62.
Constellation Investments, Inc., MP Investments, Inc. and ACE together own
approximately 45.8% of Capital Re's common stock. ACE also intends to vote all
of its shares in favor of adoption of the merger agreement and approval of the
merger.
RECORD DATE (SEE PAGE 34)
You are entitled to vote at the Capital Re special meeting if you owned
shares of Capital Re common stock as of the close of business on the record
date, which is 5:00 p.m., New York time, on September 2, 1999.
CAPITAL RE'S RECOMMENDATIONS TO ITS STOCKHOLDERS (SEE PAGE 20)
Capital Re's board of directors believes that the merger and the related
transactions are advisable and fair to and in the best interests of Capital
Re's stockholders. Accordingly, it has unanimously approved the merger
agreement and unanimously recommends that Capital Re stockholders vote for the
proposal to adopt the merger agreement and approve the merger. Among the
reasons for the board's unanimous approval of the merger agreement are the
benefits to Capital Re's stockholders of the size and diversity of ACE's
business, the international reach of ACE's operations and ACE's access to
capital. Capital Re and ACE have complementary rather than overlapping
businesses in product lines, underwriting expertise and customers. The board of
Capital Re believes that, for these and other reasons, the combined company
will be able to compete more effectively in the market by delivering products
more quickly, increasing its market share and decreasing, through
diversification of products, stockholders' risk.
INTERESTS OF CAPITAL RE'S DIRECTORS AND OFFICERS IN THE MERGER (SEE PAGE 46)
In considering the recommendation of the Capital Re board with respect to
the merger agreement and the merger, you should be aware that the directors and
executive officers of Capital Re have interests in the merger that are
different from, and in addition to, your interests. The Capital Re board was
aware of and considered these interests in approving the merger agreement. Five
senior executive officers of Capital Re have entered into agreements relating
to their employment. These agreements provide that following the merger these
persons will continue to be employed by Capital Re in positions of
responsibility similar to their current positions and will receive certain
additional benefits. ACE will also honor all of the severance provisions of
Capital Re's employees' change in control and severance agreements.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 22)
On May 26, 1999, Goldman, Sachs & Co. orally advised the Capital Re board
that, as of that date and subject to reviewing the merger agreement and related
documents, the exchange ratio to be received by Capital Re stockholders under a
binding letter of intent signed on that date was fair from a financial point of
view to Capital Re stockholders. On June 10, 1999, Goldman Sachs confirmed its
earlier oral opinion by orally advising the Capital Re board that, as of that
date, the exchange ratio to be received by Capital Re stockholders under the
merger agreement was fair from a financial point of view to Capital Re
stockholders. Goldman Sachs subsequently confirmed, in all material respects,
its oral opinion by delivering a written opinion on June 10, 1999.
The full text of the written opinion of Goldman Sachs dated June 10, 1999,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached
3
<PAGE>
as Appendix C to this proxy statement/prospectus and is incorporated by
reference in this proxy statement/prospectus. The opinion of Goldman Sachs
referred to in this proxy statement/prospectus does not constitute a
recommendation as to how you should vote with respect to the merger. We urge
you to read the opinion in its entirety. Based on the closing price of an ACE
ordinary share on August 27, 1999, the aggregate fee payable by Capital Re to
Goldman Sachs in connection with the merger would be $4.6 million.
The Merger Agreement
The merger agreement is attached as Appendix A to this proxy
statement/prospectus. We encourage you to read the merger agreement because it
is the legal document that governs the merger. The following is a summary of
some of the principal terms of the merger agreement.
CONDITIONS TO THE MERGER (SEE PAGE 50)
The completion of the merger depends upon the satisfaction of a number of
customary conditions, including, among other things, the following:
--adoption of the merger agreement and approval of the merger by the
Capital Re stockholders;
--approval for listing by the New York Stock Exchange of the ACE shares to
be issued in the merger;
--receipt of all necessary regulatory approvals;
--absence of any law or court order that prohibits the merger;
--the registration statement registering the ACE ordinary shares to be
received by Capital Re's stockholders becoming effective;
--no material adverse change with respect to Capital Re or ACE;
--receipt of all necessary third party consents;
--receipt of legal opinions from counsel for each company as to the
qualification of the merger as a tax-free reorganization under U.S. income
tax laws;
--confirmation that employment agreements for five of Capital Re's
executive officers are in full force and effect; and
--subject to certain exceptions, no downgrading of the financial strength
ratings of certain key Capital Re insurance subsidiaries shall have
occurred.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 58)
The merger agreement can be terminated at any time prior to the effective
time of the merger under the following circumstances:
--by mutual written consent of both parties by action of each party's board
of directors;
--by either party
--if the merger is not completed on or before February 28, 2000, which
will be extended to April 28, 2000 if the sole reason the merger isn't
completed is the absence of a required governmental consent, other than
due to a material breach of the merger agreement by the terminating
party;
--if the stockholders of Capital Re fail to adopt the merger agreement
other than due to a material breach of the merger agreement by the
terminating party;
4
<PAGE>
--if a court or governmental authority permanently prohibits the merger;
or
--upon a material breach of any representation, covenant or agreement in
the merger agreement by the other party that is not cured within a
specified time or that cannot be cured;
--by Capital Re, prior to or after adoption of the merger agreement by its
stockholders
--if it is not in material breach of any of the terms of the merger
agreement and its board of directors authorizes Capital Re to enter into
a binding written agreement for an unsolicited superior proposal from a
party other than ACE; and
--Capital Re gives ACE notice and a copy of the superior proposal and ACE
does not make, within five business days, an offer that Capital Re's
board, after good faith consultation with its financial advisors and
after taking into account the long term prospects and interests of
Capital Re and its stockholders, believes is at least as favorable as the
superior proposal; and
--Capital Re pays the termination fee described below;
--by ACE's board
--at any time before the effective time of the merger if Capital Re enters
into a binding agreement for a superior proposal; or
--if Capital Re or its board of directors
--adversely withdraws, modifies or amends its recommendation to adopt
the merger agreement or fails to reconfirm, within five days after
ACE's written request, its recommendation to its stockholders in favor
of the merger;
--fails, after this proxy statement/prospectus is declared effective, to
promptly mail this proxy statement/prospectus;
--approves, recommends or enters into an agreement with respect to a
business combination or similar transaction proposal with a party other
than ACE;
--resolves to do any of the above; or
--fails, in response to a tender offer or exchange offer for 10% or more
of the outstanding Capital Re common stock, within ten business days
after the commencement of the offer, to recommend rejection of that
offer.
TERMINATION FEES AND EXPENSES (SEE PAGE 59)
The merger agreement requires the payment by Capital Re to ACE of a
termination fee of $25 million after termination of the merger agreement in any
of the following circumstances:
--termination by ACE because Capital Re's stockholders fail to approve the
merger; and
--prior to or at the time of Capital Re's stockholder meeting, a third
party either makes a proposal to acquire Capital Re or has publicly
announced an intention to acquire Capital Re; and
--within 12 months of the termination of the merger agreement, Capital Re
enters into an agreement concerning an acquisition proposal;
--termination by ACE because Capital Re accepts a superior proposal from a
third party for the acquisition of Capital Re; or
--termination by Capital Re in order to accept a superior proposal from a
third party after ACE has had an opportunity to match the superior
proposal.
5
<PAGE>
The merger agreement requires Capital Re to pay ACE up to $3 million for
ACE's out-of-pocket expenses if the merger agreement is terminated by ACE
because Capital Re materially breaches any representation, warranty, covenant
or agreement contained in the merger agreement that is not curable or, if
curable, is not cured within 20 days after written notice of the breach is
given by ACE to Capital Re.
The merger agreement also requires ACE to pay Capital Re up to $3 million
for Capital Re's out-of-pocket expenses if the merger agreement is terminated
by Capital Re because ACE materially breaches any representation, warranty,
covenant or agreement contained in the merger agreement that is not curable or,
if curable, is not cured within 20 days after written notice of the breach is
given by Capital Re to ACE.
AMENDMENT OF MERGER AGREEMENT (SEE PAGE 60)
Subject to applicable law, at any time prior to the effective time of the
merger, ACE and Capital Re may modify or amend the merger agreement.
WAIVER OF CONDITIONS (SEE PAGE 60)
Any failure of ACE or Capital Re to comply with any obligation, covenant,
agreement or condition in the merger agreement can be waived in writing by
Capital Re or ACE, respectively. However, a waiver or failure to insist upon
strict compliance with an obligation, covenant, agreement or condition does not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
The Stock Option Agreement
The stock option agreement is attached as Appendix B to this proxy
statement/prospectus. The following summarizes some of the principal terms of
the stock option agreement.
TERMS OF THE OPTION (SEE PAGE 60)
In connection with the merger agreement, Capital Re granted ACE an option to
purchase 3,220,135 shares of its common stock, approximately 9.9%, exercisable
under specified circumstances. The per share exercise price of the option is
$17.40. The option is exercisable if the merger agreement is terminated and ACE
is or becomes entitled to the $25 million termination payment from Capital Re.
However, in no event can the sum of ACE's profit on the sale of the option, or
shares into which they are exercisable, and the $25 million termination
payment, exceed $25 million.
OPTION MAY DETER COMPETING BIDDERS (SEE PAGE 62)
The option agreement was intended to increase the likelihood that the merger
will be consummated and to discourage third parties from seeking to acquire
Capital Re. The option agreement may discourage, but does not preclude, a third
party from proposing a competing transaction, including one that some Capital
Re stockholders might perceive to be more favorable to stockholders than this
merger.
Other Information
REGULATORY APPROVALS (SEE PAGE 32)
In order to complete the merger, ACE and Capital Re must receive
authorizations from various U.S. federal and state governmental and non-
governmental entities. ACE and Capital Re have filed, or will promptly file,
all applications and notices and have taken, or will promptly take, other
appropriate action with respect to any authorization which ACE or Capital Re
deems necessary.
6
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 11)
ACE's ordinary shares and Capital Re's common stock are each listed on the
New York Stock Exchange. On May 26, 1999, the last full trading day before ACE
and Capital Re confirmed publicly that they were engaged in discussions
regarding the merger, ACE ordinary shares closed at $31.50 per share and
Capital Re common stock closed at $19.25. On June 10, 1999, the last full
trading day on the New York Stock Exchange prior to the public announcement of
the proposed merger, ACE ordinary shares closed at $27.875 per share and
Capital Re common stock closed at $16.5625 per share. On September 1, 1999 ACE
ordinary shares closed at $20.8125 per share and Capital Re common stock closed
at $12.00 per share.
STOCK EXCHANGE LISTING OF ACE SHARES (SEE PAGE 29)
ACE has applied to list the ACE ordinary shares to be issued in connection
with the merger on the New York Stock Exchange.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF ACE
The following table sets forth summary historical consolidated financial and
other data of ACE. The interim financial data have been derived from our
unaudited financial statements and include, in our belief, all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial data. The results for the nine months do not necessarily
indicate the results to be expected for the full fiscal year. The year-end
financial data have been derived from our audited financial statements. On July
9, 1998, ACE completed the acquisition of Tarquin Limited which was accounted
for on a pooling-of-interests basis. All prior financial information presented
has been restated to include the results of operations and financial position
of the combined entities. On March 2, 1998, ACE effected a three-for-one split
of our ordinary shares. All share and per share data has been adjusted, where
necessary, to reflect the stock split. The following information should be read
in conjunction with ACE's financial statements and the notes to those financial
statements contained in ACE's 10-Q for the quarter ended June 30, 1999 and 10-K
for the year ended September 30, 1998, which are incorporated by reference into
this proxy statement/prospectus. See "Where You Can Find More Information" on
page 74. From and after July 2, 1999, the fiscal year of ACE will end on
December 31.
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30, For the Years Ended September 30,
---------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands except per share and selected other data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations data:
Net premiums written.... $ 887,037 $ 704,398 $ 880,973 $ 789,773 $ 781,884 $ 544,880 $ 385,926
Net premiums earned..... 803,545 673,155 894,303 805,372 755,840 473,133 391,117
Net investment income... 256,374 234,966 324,254 253,440 213,701 184,041 142,677
Net realized gain on
investments............ 172,715 242,557 188,385 127,702 55,229 50,765 3,717
Losses and loss
expenses(1)............ 523,521 398,268 516,892 486,140 520,277 366,322 520,556
Acquisition costs and
administration
expenses............... 230,654 161,719 271,566 153,486 138,343 81,976 63,459
Amortization of
goodwill............... 13,369 8,498 12,834 7,325 1,507 (437) (826)
Interest expense........ 13,418 12,578 25,459 11,657 10,481 5,036 --
Income taxes............ 14,992 22,976 20,040 25,181 26,543 7,673 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)(1).... $ 436,680 $ 546,639 $ 560,151 $ 502,725 $ 327,619 $ 247,369 $ (45,678)
========== ========== ========== ========== ========== ========== ==========
Balance sheet data (at
end of period):
Total investments and
cash................... $6,560,506 $6,331,177 $6,201,074 $4,787,916 $4,342,781 $3,225,786 $2,538,321
Total assets............ 9,667,810 8,711,343 8,788,753 5,647,596 5,077,780 3,514,946 2,632,361
Net unpaid losses and
loss expenses(1)....... 2,511,790 2,790,035 2,678,341 2,006,873 1,892,302 1,452,299 1,160,392
Total shareholders'
equity(1).............. 3,937,481 3,696,258 3,714,270 2,785,155 2,367,003 1,524,123 1,088,745
Selected other data:
Loss and loss expense
ratio(1)............... 65.2% 59.2% 57.8% 60.4% 68.8% 77.4% 133.1%
Underwriting and
administrative expense
ratio.................. 28.7% 24.0% 30.4% 19.0% 18.3% 17.2% 16.0%
Combined ratio(1)....... 93.9% 83.2% 88.2% 79.4% 87.1% 94.6% 149.1%
Loss reserves to capital
and surplus ratio(2)... 63.8% 75.5% 72.1% 72.1% 79.9% 95.3% 106.6%
Ratio of net premiums
written to capital and
surplus................ 0.23:1 0.19:1 0.24:1 0.28:1 0.33:1 0.36:1 0.35:1
</TABLE>
- --------
(1) At June 30, 1994, the Company increased its then existing reserves relating
to breast implant claims. Although the reserve increase was partially
satisfied by an allocation from existing IBNR, it also required an increase
in ACE's total reserve for unpaid losses and loss expenses at June 30, 1994
of $200 million (see "Management's Discussion and Analysis--Breast Implant
Litigation" in the 10-K incorporated by reference into this proxy
statement/prospectus).
(2) The earnings per share amounts prior to 1998 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share and the
impact of Statement No. 128, see the notes to the consolidated financial
statements in the 10-K incorporated by reference into this proxy
statement/prospectus.
8
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF CAPITAL RE
The following table presents summary historical consolidated financial data
of Capital Re for the periods indicated. The historical financial data as of
and for the five years ended December 31, 1998 were derived from Capital Re's
audited consolidated financial statements, as filed in Capital Re's Forms 10-K.
The historical financial data as of and for the six months ended June 30, 1999
were derived from Capital Re's unaudited consolidated financial statements, as
filed in Capital Re's Form 10-Q. The data should be read in conjunction with
the consolidated financial statements, related notes and other financial
information of Capital Re incorporated by reference in this proxy
statement/prospectus.
The historical financial information for Capital Re reflects the following
item that you should consider in making period-to-period comparisons:
Net income per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding for each period as
required by Statement of Financial Accounting Standard No. 128.
On June 30, 1998, Capital Re effected a two-for-one split of its common
stock.
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended For the Years Ended December 31,
June 30, June 30, ---------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------ ------------ -------- -------- -------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net premiums written.... $ 106,274 $116,411 $210,594 $164,275 $105,188 $89,508 $82,795
Net premiums earned..... 82,627 82,956 168,385 115,291 92,436 60,097 58,850
Net investment income... 34,849 32,052 64,854 56,498 51,558 46,654 40,113
Net realized gains on
sales of investments... 5,028 2,461 (1,506) 8,037 1,471 53 1,780
Other income............ 3,174 937 3,212 1,635 813 281 719
Losses and loss
expenses............... 187,927 12,592 86,564 15,633 9,483 2,637 2,167
Acquisition costs....... 27,064 25,370 49,433 38,515 30,714 20,902 21,471
Other expenses.......... 15,941 18,479 30,944 16,725 15,521 10,840 12,796
Interest expense........ 3,747 3,730 7,412 7,399 6,895 6,893 6,539
Minority interest in
Capital Re LLC......... 2,869 2,869 5,738 5,738 5,738 5,738 5,387
--------- -------- -------- -------- -------- ------- -------
(Loss)/income before
income tax............. (111,870) 55,366 54,854 97,451 77,927 60,075 53,102
Income tax.............. (41,656) 15,408 10,667 26,633 20,913 14,548 13,296
--------- -------- -------- -------- -------- ------- -------
Net (loss)/income from
continuing operations.. (70,214) 39,958 44,187 70,818 57,014 45,527 39,806
(Loss)/income from
discontinued
operations, net of
tax.................... (23,665) 23 (2,645) (766) (490) 0 0
--------- -------- -------- -------- -------- ------- -------
Net (loss)/income....... $ (93,879) $ 39,981 $ 41,542 $ 70,052 $ 56,524 $45,527 $39,806
========= ======== ======== ======== ======== ======= =======
Weighted average
shares--basic.......... 32,404 31,849 31,885 31,746 31,312 29,576 29,650
Earnings per share--
basic.................. (2.90) 1.26 1.30 2.21 1.81 1.54 1.34
Weighted average
shares--diluted........ 32,748 32,951 32,645 32,505 31,892 29,828 29,706
Earnings per share--
diluted................ (2.87) 1.21 1.27 2.16 1.77 1.53 1.34
</TABLE>
9
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF CAPITAL RE (cont'd)
<TABLE>
<CAPTION>
As of
December 31,
As of June ------------------------------------------------------
30, 1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total quoted investments
and cash............... $1,249,130 $1,184,931 $1,022,026 $ 914,409 $776,304 $640,114
Insurance and
reinsurance balances
receivable (including
reinsurance
recoveries)............ 70,707 75,045 77,511 83,522 86,396 61,210
Other assets............ 210,811 248,557 246,305 159,670 119,185 108,716
---------- ---------- ---------- ---------- -------- --------
Total assets........... $1,530,648 $1,508,893 $1,345,842 $1,157,601 $981,885 $810,040
---------- ---------- ---------- ---------- -------- --------
Unpaid losses and loss
expenses............... $ 142,601 $ 87,960 $ 27,986 $ 19,902 $ 12,783 $ 9,012
Unearned premiums....... 425,238 405,866 373,996 337,104 314,451 274,916
Other liabilities....... 408,041 404,241 374,917 310,709 242,708 200,598
---------- ---------- ---------- ---------- -------- --------
Total liabilities...... $ 975,880 $ 898,067 $ 776,899 $ 667,715 $569,942 $484,526
---------- ---------- ---------- ---------- -------- --------
Share capital and
additional paid in
capital................ $ 302,908 $ 227,604 $ 225,321 $ 222,685 $191,804 $191,364
Retained earnings....... 259,071 355,693 319,253 253,807 201,228 158,806
Other shareholders'
equity components...... (2,320) 32,420 29,260 16,724 22,549 (21,018)
Treasury Stock, at
cost................... (4,891) (4,891) (4,891) (3,870) (3,638) (3,638)
---------- ---------- ---------- ---------- -------- --------
Total shareholders'
equity................ $ 554,768 $ 610,826 $ 568,943 $ 489,346 $411,943 $325,514
---------- ---------- ---------- ---------- -------- --------
Total liabilities and
shareholders' equity.. $1,530,648 $1,508,893 $1,345,842 $1,157,061 $981,885 $810,040
========== ========== ========== ========== ======== ========
</TABLE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF
ACE
<TABLE>
<CAPTION>
For the Nine
Months Ended For the Year Ended
June 30, 1999 September 30, 1998
----------------------- ----------------------
(in millions except share and per share data)
---------------------------------------------------
<S> <C> <C>
Statement of Operations
Data:
Net premiums written.... $ 3,235 $ 4,082
====================== ======================
Net premiums earned..... 3,100 4,019
New investment income... 614 838
Other income............ 218 285
Losses and loss
expenses............... 2,401 2,769
Acquisition costs and
administrative
expenses............... 1,033 1,857
Other expenses.......... 687 230
Income tax.............. (102) 19
---------------------- ----------------------
Income excluding net
realized gains......... (87) 267
Cumulative effect of
accounting change...... (85) 0
Net realized gains on
investments............ 239 208
---------------------- ----------------------
Net income--continuing
operations............. $ 67 $ 475
====================== ======================
Earnings per share--
continuing operations.. $ 0.31 $ 2.24
====================== ======================
Earnings per share
excluding net realized
gains.................. $ (0.52) $ 1.26
====================== ======================
Weighted average shares
outstanding--fully
diluted................ 219,405,417 211,937,021
====================== ======================
<CAPTION>
As of June 30, 1999
-----------------------
(in millions, except
per share data)
<S> <C> <C>
Balance Sheet Data:
Total investments and
cash................... $ 14,304
Other assets, including
goodwill............... 17,712
Total assets............ 32,016
Unpaid losses and loss
expenses............... 18,371
Total liabilities....... 27,416
Total shareholders'
equity................. 4,600
Total liabilities and
shareholders' equity... 32,016
Fully diluted book value
per share.............. $ 21.18
</TABLE>
10
<PAGE>
COMPARATIVE PER SHARE INFORMATION
COMPARATIVE PER SHARE FINANCIAL DATA
The following table presents the net income, dividends, and book value per
share of ACE and Capital Re, on a pro forma basis for ACE and an equivalent pro
forma basis for Capital Re. Pro forma data for ACE was derived by combining the
historical financial statements of ACE with Capital Re's historical financial
statements, giving effect to the merger using the "purchase" method of
accounting. Equivalent pro forma information for Capital Re is presented on an
equivalent share basis, which reflects ACE's pro forma amounts multiplied by an
exchange ratio of 0.60 of an ACE share per share of Capital Re common stock.
Pro forma income statement-related per share amounts have been prepared as
if the merger had occurred at the beginning of the earliest year presented.
These amounts do not include non-recurring items directly attributable to the
merger, including change-in-control costs and fees for investment bankers,
accountants, and attorneys, nor do they include ACE's estimate of the expected
annual operating expense savings from the merger. Pro forma book value per
share amounts have been prepared as if the merger had occurred at the beginning
of the earliest year presented and do not include the effect of additional
shares that may be issued as a result of the exercise of stock options.
The information set forth below should be read in conjunction with the
respective audited consolidated financial statements and notes thereto of ACE
and Capital Re, which are incorporated herein by reference. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the merger had been consummated on the date indicated, nor is it
necessarily indicative of future operating results or financial position.
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
Year
Nine Months Ended or at
Ended or at September 30,
Historical ACE June 30, 1999 1998(1)(2)(3)
-------------- ------------- -------------
<S> <C> <C>
Earnings per share excluding net realized gains... $ 1.34 $ 1.97
Earnings per share................................ 2.21 2.96
Cash dividends per share(4)....................... $ 0.29 $ 0.34
Basic book value per share........................ $20.29 $19.19
Fully diluted book value per share................ $20.24 $19.14
<CAPTION>
Unaudited Pro Forma Combined for CIGNA P&C
Acquisition
------------------------------------------
<S> <C> <C>
Earnings per share excluding net realized gains... $(0.03) $ 1.18
Earnings per share................................ 0.76 2.27
Cash dividends per share(4)....................... 0.29 0.34
Basic book value per share........................ 20.29 N.M.
Fully diluted book value per share................ $20.34 N.M.
<CAPTION>
Nine Months Year Ended
Ended December 31,
Historical Capital Re June 30, 1999 1998
--------------------- ------------- -------------
<S> <C> <C>
Earnings per share from continuing operations
excluding net realized gains..................... $(2.44) $ 1.38
Earnings per share from continuing operations..... (2.46) 1.35
Cash dividends per share(4)....................... $ 0.12 $ 0.16
Basic book value per share........................ $15.19 $19.13
Fully diluted book value per share................ $15.12 $18.92
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Unaudited Pro Forma Combined for CIGNA P&C Ended or at Year Ended or at
Acquisition and Capital Re June 30, 1999 September 30, 1998
------------------------------------------ ------------- ------------------
<S> <C> <C>
Earnings per share excluding net realized
gains....................................... $(0.52) $1.26
Earnings per share........................... 0.31 2.24
Cash dividends per share(4).................. 0.29 0.34
Basic book value per share................... 21.29 N.M.
Fully diluted book value per share........... $21.18 N.M.
<CAPTION>
Unaudited Equivalent Pro Forma per Capital Re
Share Combined
for CIGNA P&C and Capital Re Acquisitions(5)
- ---------------------------------------------
<S> <C> <C>
Earnings per share excluding net realized
gains....................................... $(0.31) $0.76
Earnings per share........................... 0.19 1.34
Cash dividends per share(4).................. 0.29 0.34
Basic book value per share................... 12.77 N.M.
Fully diluted book value per share........... $12.71 N.M.
</TABLE>
- --------
(1) The historical earnings per share for the year ended September 30, 1998
include ACE's results for the year ended September 30, 1998 and Capital
Re's results for the year ended December 31, 1998.
(2) Pro forma combined per share data for the year ended September 30, 1998
includes ACE's results for the year ended September 30, 1998 and CIGNA
P&C's and Capital Re's results for the year ended December 31, 1998.
(3) Historical ACE earnings per share for the year ended September 30, 1998
include one-time expenses of $0.23 per share in connection with ACE's
pooling of interest transaction with Tarquin Limited in July 1998.
(4) Pro forma cash dividends per share are assumed to be the same as
historically declared by ACE.
(5) The Unaudited Equivalent Pro Forma per Capital Re Share data represents the
Unaudited Pro Forma Combined for CIGNA P&C and Capital Re Acquisitions data
calculated using the exchange ratio applied to the conversion of
outstanding Capital Re shares.
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
ACE ordinary shares are listed on the NYSE under the trading symbol "ACL,"
and Capital Re common stock is listed on the NYSE under the trading symbol
"KRE." The following table sets forth the high and low closing sale prices of
ACE shares and Capital Re common stock as reported on the New York Stock
Exchange Composite Transactions List for the periods indicated, both as
adjusted for the three for one stock split of ACE's ordinary shares in March
1998 and for the two for one stock split of Capital Re's common stock in June
1998.
<TABLE>
<CAPTION>
ACE Sales Capital Re Sales
Prices Prices
--------------- -----------------
High Low High Low
------- ------- -------- --------
<S> <C> <C> <C> <C>
Fiscal Year(1) 1997
First Quarter................................. $20.047 $17.453 $ 23.688 $ 20.625
Second Quarter................................ $22.078 $18.750 $ 27.125 $ 19.500
Third Quarter................................. $24.875 $19.422 $ 30.500 $ 25.031
Fourth Quarter................................ $32.172 $24.500 $ 31.438 $ 27.969
Fiscal Year(1) 1998
First Quarter................................. $33.484 $29.719 $ 33.219 $ 28.969
Second Quarter................................ $40.537 $30.422 $ 38.688 $ 31.344
Third Quarter................................. $40.313 $34.438 $ 37.750 $ 24.250
Fourth Quarter................................ $42.125 $26.938 $ 25.938 $ 15.500
Fiscal Year(1) 1999
First Quarter................................. $34.813 $25.438 $ 20.375 $ 11.938
Second Quarter................................ $34.438 $25.438 $ 20.625 $ 15.186
Third Quarter(2).............................. $34.875 $27.375 $ 16.000 $ 12.500
Fourth Quarter(3)............................. $28.438 $21.938
</TABLE>
12
<PAGE>
- --------
(1) The fiscal years of ACE ended on September 30 of each year; the fiscal year
of Capital Re ends on December 31 of each year. From and after July 2,
1999, the fiscal year of ACE will end on December 31.
(2) The third quarter of ACE ends on June 30 of each year; the third quarter of
Capital Re ends on September 30 of each year; Capital Re's figures are
through August 27, 1999.
(3) The fourth quarter of ACE ends on September 30 of each year; the fourth
quarter of Capital Re ends on December 31 of each year; ACE's figures are
through August 27, 1999.
DIVIDENDS
The following table sets forth dividends declared per ACE ordinary share and
per share of Capital Re common stock for the periods indicated. The ability of
either ACE or Capital Re to pay dividends to their respective stockholders is
subject to certain restrictions and depends upon limitations under applicable
law and other factors their respective boards of directors deem relevant,
including results of operations, financial condition and surplus requirements.
<TABLE>
<CAPTION>
ACE Capital Re
Dividends Dividends
--------- ----------
<S> <C> <C>
Fiscal Year(1) 1997
First Quarter.............................................. $ 0.06 $ 0.04
Second Quarter............................................. $ 0.06 $ 0.04
Third Quarter.............................................. $0.0733 $ 0.04
Fourth Quarter............................................. $0.0733 $ 0.04
Fiscal Year(1) 1998
First Quarter.............................................. $ 0.08 $ 0.04
Second Quarter............................................. $ 0.08 $ 0.04
Third Quarter.............................................. $ 0.09 $ 0.04
Fourth Quarter............................................. $ 0.09 $ 0.04
Fiscal Year(1) 1999
First Quarter.............................................. $ 0.09 $ 0.04
Second Quarter............................................. $ 0.09 $ 0.04
Third Quarter.............................................. $ 0.11 $ 0.04
Fourth Quarter............................................. $ 0.11 --
</TABLE>
- --------
(1) The fiscal years of ACE ended on September 30 of each year; the fiscal year
of Capital Re ends on December 31 of each year. From and after July 2,
1999, the fiscal year of ACE will end on December 31.
13
<PAGE>
RISK FACTORS
In addition to the matters addressed in "Cautionary Statement Concerning
Forward-Looking Statements" on page 18 and the other information included in
this proxy statement/prospectus, Capital Re stockholders should consider the
following risk factors carefully in determining whether to approve the merger.
SUBJECT TO A CAP, YOU WILL RECEIVE 0.60 OF AN ACE ORDINARY SHARE FOR EACH SHARE
OF CAPITAL RE COMMON STOCK YOU OWN DESPITE CHANGES IN MARKET VALUE OF CAPITAL
RE COMMON STOCK OR ACE ORDINARY SHARES
Each share of Capital Re common stock will be exchanged for 0.60 of an ACE
ordinary share in the merger. However, while there is no "downside" limitation
on the value of the ACE shares you receive in the merger, the value of your ACE
shares cannot rise above $22.00 per share of Capital Re common stock exchanged
at the time the merger is completed. If ACE shares have an average market value
at or above $36.67 at the time of the merger, the exchange ratio will be
adjusted. Accordingly, the market value of ACE ordinary shares you receive in
the merger will depend on the market value of ACE ordinary shares at the time
of completion of the merger.
YOU MAY HAVE DIFFICULTY ENFORCING CIVIL REMEDIES
ACE is a Cayman Islands company with its principal place of business in
Hamilton, Bermuda. Some of ACE's directors and officers, and some experts named
in this proxy statement/prospectus reside outside the United States and all or
a substantial portion of the assets of these people and of ACE are located
outside the United States. Consequently, it may be difficult for United States
investors to effect service within the United States upon ACE or its directors
or officers who are not United States residents, or to realize in the United
States upon judgments of courts of the United States predicated upon civil
liabilities under the Securities Act or other matters. In addition, investors
should not assume that courts in the Cayman Islands or other non-United States
jurisdictions
--would enforce judgments of United States courts obtained in actions
against ACE or those persons based upon civil liability provisions of the
United States federal securities laws or the securities or blue sky laws
of any state within the United States; or
--would enforce, in original actions, liabilities against ACE or those
persons based upon United States federal securities laws or any state
securities or blue sky laws.
ACE has appointed CT Corporation System, 1633 Broadway, New York, New York
10019, as agent for service of process in any action in any United States
federal or state court brought against it under the securities laws of the
United States arising out of the registration of its shares pursuant to the
registration statement of which this proxy statement/prospectus is a part.
14
<PAGE>
VARIOUS MARKET AND OTHER FACTORS HAVE CAUSED, OR COULD IN THE FUTURE CAUSE,
VOLATILITY IN ACE'S ORDINARY SHARE PRICE
The market price of ACE's ordinary shares has fluctuated, and may fluctuate
in the future, significantly in response to various factors and events,
including:
--fluctuations in ACE's financial results;
--changes in securities analysts' earning estimates or recommendations; or
--publicity about ACE or other companies in the insurance and reinsurance
industries.
Also, the stock market experiences broad price and volume fluctuations that,
in many cases, are unrelated to the performance of particular companies. These
fluctuations, as well as upgrades and downgrades in analysts' recommendations
of ACE ordinary shares, have affected the market price of ACE ordinary shares
in the past and are likely to do so in the future. In addition, the adoption of
new statutes or regulations affecting the insurance and reinsurance industries,
or changes in existing statutes and regulations, could impact ACE's ordinary
share price.
15
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
ACE and Capital Re have made in this proxy statement/prospectus and in the
documents referred to in this proxy statement/prospectus forward-looking
statements that are subject to risks and uncertainties. These statements are
based on the beliefs and assumptions of the management of the companies and on
the information currently available to management. Forward-looking statements
include information concerning possible or assumed future results of ACE,
Capital Re and the combined company and may be preceded by, followed by, or
otherwise include the words "believes," "expects," "anticipates," "intends,"
"plans," "estimates" or similar expressions.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, you should understand that there are or will be
important factors, in addition to those discussed elsewhere in this proxy
statement/prospectus and in the documents referred to in this proxy
statement/prospectus, that could affect the future results of the combined
company following the merger and that could cause actual results to differ
materially from those expressed in such forward-looking statements, including
but not limited to the following:
--uncertainties relating to government and regulatory policies (such as
subjecting ACE to insurance regulation or taxation in additional
jurisdictions),
--the occurrence of catastrophic events or other insured or reinsured
events with a frequency or severity exceeding ACE's estimates,
--the legal environment,
--the uncertainties of the reserving process,
--the impact of mergers and acquisitions, including the ability to
successfully integrate acquired businesses, such as Capital Re and the
international and domestic property and casualty businesses of CIGNA
Corporation, the competing demands for ACE's capital and the risk of
undisclosed liabilities,
--loss of the services of any of ACE's executive officers,
--changing rates of inflation and other economic conditions,
--losses due to foreign currency exchange rate fluctuations,
--ability to collect reinsurance recoverables,
--the competitive environment in which ACE operates and associated pricing
pressures,
--the impact of Year 2000 related issues,
--developments in global financial markets that could affect ACE's
investment portfolio, and
--risks associated with the introduction of new products and services.
Except for their ongoing obligations to disclose material information as
required by the federal securities laws, ACE and Capital Re do not have any
intention or obligation to update forward-looking statements after they
distribute this proxy statement/prospectus, even if new information, future
events or other circumstances have made them incorrect or misleading. For those
statements, ACE and Capital Re claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
16
<PAGE>
THE PROPOSED MERGER
GENERAL
Capital Re is furnishing this proxy statement to its stockholders in
connection with the solicitation of proxies by its board of directors for use
at the special meeting of its stockholders and at any adjournments or
postponements of that meeting. This proxy statement also serves as ACE's
prospectus with respect to the shares being issued in the merger.
At the Capital Re special meeting, Capital Re stockholders will be asked to
vote upon a proposal to adopt the merger agreement pursuant to which the merger
of CapRe Acquisition Corp., a newly-formed Delaware subsidiary of ACE, into
Capital Re will be effected. The affirmative vote of the holders of a majority
of the shares of Capital Re common stock outstanding on the record date is
required to approve the proposal to adopt the merger agreement. See "The
Special Meeting" on page 34.
THE MERGER
The merger agreement provides, among other things, for the merger of CapRe
Acquisition Corp. into Capital Re, with Capital Re being the surviving
corporation. As a result of the merger, Capital Re will become a wholly owned
subsidiary of ACE. In the merger, each outstanding share of Capital Re common
stock will be converted into 0.60 of an ACE ordinary share, together with
associated stock purchase rights, and with cash being paid in lieu of
fractional shares, subject to a maximum value to Capital Re stockholders of
$22.00 per share.
The merger will become effective at the time of filing a certificate of
merger with the Secretary of State of the State of Delaware or at such later
time as is specified in the certificate of merger. The effective time of the
merger is expected to occur as soon as practicable following the adoption by
the Capital Re stockholders of the merger agreement and the receipt of all
necessary insurance and other regulatory approvals. See "--Regulatory
Approvals" on page 32 and "The Merger Agreement--Closing of the Merger;
Effective Time of the Merger; Capital Re Following the Merger" on page 48.
After consummation of the merger, ACE may create a holding company between
itself and Capital Re. This new holding company may be incorporated outside the
United States.
BACKGROUND OF THE MERGER
Beginning in early 1998, following an announcement by Moody's Investors
Services that it was considering a possible downgrade of the financial strength
rating of Capital Reinsurance Company, ACE and Capital Re held a series of
preliminary discussions about possible strategic alliances. These discussions
included consideration of a possible business combination between the
companies. On March 11, 1998, ACE formed a joint venture, ACE Capital Re
Limited, with Capital Re. ACE Capital Re Limited, a Bermuda-domiciled, tax
advantaged insurance company, writes both traditional and custom-designed
programs covering financial guaranty, mortgage guaranty and a broad range of
financial risks. Operations are underwritten and managed in Bermuda by a joint
venture managing agency, ACE Capital Re Managers Ltd. ACE and Capital Re each
had a 50 percent economic interest in ACE Capital Re Limited and ACE Capital Re
Managers Ltd. In May 1998, Moody's reaffirmed Capital Reinsurance Company's
triple-A rating, but did so following Capital Re's agreement to curtail
elements of its diversification strategy. In light of the strategic constraints
placed upon Capital Re's diversification strategy from these rating agency
actions, the Capital Re board engaged Goldman Sachs to conduct an inquiry of a
limited number of qualified institutions regarding possible strategic
combinations. Based upon these inquiries, Capital Re decided to explore a
strategic combination with ACE, and mutual due diligence processes commenced
and continued through August 1998. At the end of August 1998, Moody's
tentatively indicated that a business combination of Capital Re and ACE would
adversely affect the triple-A rating of Capital Reinsurance Company and, as a
result, Capital Re and ACE agreed to terminate their discussions.
17
<PAGE>
On November 2, 1998, Capital Re reported that KRE Reinsurance Ltd., one of
Capital Re's reinsurance subsidiaries, had reinsured approximately $155.8
million in outstanding par amount of three issues of asset-backed securities
issued on behalf of Commercial Financial Services Inc. On October 22, 1998,
Standard & Poor's suspended its single "A' rating on the Commercial Financial
Services securities due to lack of sufficient information material to the
ratings of the transactions in light of allegations that Commercial Financial
Services may have been involved in improper conduct, including substantial
sales of assets to an affiliate. During October 22-23, 1998, based on these
allegations and insufficient information to the contrary, Duff & Phelps Credit
Rating Company, Fitch ICBA and Moody's also downgraded, or withdrew, their
ratings on the Commercial Financial Services securities that they rated.
On November 5, 1998, Moody's again placed the financial strength rating of
Capital Reinsurance Company on credit review for possible downgrade. The
senior debt and preferred stock rating of Capital Re were also placed under
review. Standard & Poor's followed with similar credit review actions
regarding certain Capital Re subsidiaries on December 17, 1998.
On December 9, 1998, Mr. Jurschak was appointed chairman and chief
executive officer of Capital Re.
As the Commercial Financial Services situation developed and the magnitude
of Capital Re's loss exposure became clearer, Capital Re engaged Goldman Sachs
and Cochoran, Coronia & Co. to raise $75 million of additional equity capital
to support the claims-paying rating of the operating subsidiaries. A small
group of financial and strategic investors were contacted as potential
investors.
By the third week of January 1999, Capital Re identified a small number of
potential investors who would be invited for due diligence, which began
shortly thereafter. ACE again indicated that it would likely be interested in
making an investment but would not become part of a competitive process.
Capital Re's management discussed the possibility of an ACE investment with
members of the board and it was decided to follow up with ACE to determine the
terms on which they would be willing to invest and the time frame on which
they could proceed. ACE representatives indicated to Capital Re that ACE would
be willing to invest in Capital Re at an attractive price and with a high
degree of closing certainty, given the due diligence already completed the
prior summer. It was the view of Capital Re's board that proceeding quickly
with ACE regarding the equity investment had both timing and strategic
advantages. Accordingly, a decision was made in later January to proceed with
ACE as soon as possible.
During the first two weeks of February 1999, Capital Re's market price
declined significantly and there were several conversations with ACE
concerning the price of the proposed investment. It was agreed that the price
would be set at the lower of December 31, 1998 fully diluted book value or the
average of the five highest closing prices for Capital Re's common stock from
the date of the definitive agreement until April 15, 1999.
The proposed pricing formula was at the higher end of the proposals Capital
Re had received from other prospective investors.
ACE conducted due diligence at Capital Re's New York offices on February 16
and 17, 1999. On February 19, 1999, ACE and Capital Re entered into a
definitive stock purchase agreement with respect to the $75 million
investment. One of the conditions precedent to closing was the maintenance of
Capital Reinsurance's Company's triple-A financial strength rating from
Moody's.
On March 10, 1999, Moody's announced a downgrade of the financial strength
rating of Capital Reinsurance Company to Aa2. As a result of the March 10,
1999 downgrade, Capital Re contacted ACE on March 11, 1999 to discuss ACE's
willingness to proceed with its pending investment notwithstanding the Moody's
downgrade. In a series of conversations on March 12, 1999, Capital Re and ACE
discussed the terms of the investment and agreed to amend the stock purchase
agreement to provide that the stock purchase would be at a price equal to the
lower of fully diluted book value at December 31, 1998 or the average of the
five
18
<PAGE>
highest consecutive closing prices of Capital Re's common stock from March 12,
1999 through April 15, 1999. The condition to closing regarding Capital
Reinsurance Company's Moody's financial strength rating would be amended to
Aa2. On March 16, 1999, ACE and Capital Re entered into a first amendment to
the stock purchase agreement incorporating the changes agreed to on March 12,
1999. Closing was then contingent on receipt of customary regulatory approvals.
On May 13, 1999, Capital Re was notified that International Financial
Services Life Insurance Company, a party to certain reinsurance transactions
entered into in 1997 and 1998 with KRE Reinsurance Ltd., had been placed under
supervision by the insurance department of its state of domicile. The
reinsurance transactions involved the assumption by KRE Reinsurance and
subsequent retrocession to International Financial Services Life Insurance
Company entities of certain blocks of single premium deferred and immediate
annuity business. Based on preliminary information available to Capital Re, it
appeared that all or a substantial part of the assets of International
Financial Services Life Insurance Company might be missing from the custody of
the International Financial Services Life Insurance Company companies. KRE
Reinsurance's net economic exposure to these transactions was approximately $70
million.
On May 14, 1999, Capital Re's executive management committee met to discuss
the International Financial Services Life Insurance Company situation and
potential implications for Capital Re's ratings, business plan and capital
plan. It was acknowledged that a material loss on the International Financial
Services Life Insurance Company exposure would have significant capital
impairment consequences for KRE Reinsurance, and could threaten its financial
strength ratings. A material loss could also put pressure on Capital
Reinsurance's financial strength ratings. It was also recognized that an actual
rating downgrade would interfere with the pending $75 million investment by ACE
as the closing of the transaction was subject to a maintenance of the ratings.
A meeting of the executive committee of Capital Re's board of directors was
held on May 14, 1999 and management described the situation and discussed
strategic alternatives.
On May 16, 1999, the executive committee of Capital Re's board of directors
met in Capital Re's New York offices. Management presented the limited facts of
the International Financial Services Life Insurance Company situation then
known and potential loss scenarios. The capital implications, effects on
Capital Re's business plan and effect on ratings of an International Financial
Services Life Insurance Company loss coupled with the Commercial Financial
Services loss reserve and the possible loss of ACE's $75 million capital
commitment were reviewed. Representatives of Goldman Sachs also were present
and gave advice concerning the situation. It was determined that Capital Re
should contact ACE and discuss both their continued interest in the $75 million
investment and other strategic alternatives, including a possible business
combination.
On May 18, 1999, members of Capital Re's management met with Mr. Frederico
of ACE in New York. After discussing the situation, Mr. Frederico indicated
that ACE would be interested in both completing its $75 million investment and
purchasing a controlling interest in Capital Re at a mutually agreeable price.
On May 19, 1999, Capital Re's board of directors met in New York and
discussed ACE's proposal. Capital Re's two largest institutional stockholders,
Constellation Investments, Inc. and MP Investments, Inc., who were represented
on the Capital Re board, indicated a willingness to pursue such a transaction.
That evening, Capital Re officials again met with Mr. Frederico and indicated a
willingness to proceed if ACE were interested. Mr. Frederico acknowledged ACE's
interest and a discussion of possible terms was held. Later that evening
Capital Re management met with the board representatives of Constellation
Investments, Inc. and MP Investments, Inc. and its financial advisors to
discuss the ACE proposal and alternative transaction structures. It was agreed
that Capital Re should respond to ACE with a proposal to effect a merger.
On the morning of May 20, 1999, Capital Re's board of directors reconvened
and endorsed moving ahead with negotiations with ACE concerning a business
combination. The board ratified the formal engagement of Goldman Sachs to act
as Capital Re's financial advisor for the transaction. Discussions were held
with Mr. Frederico that day regarding possible terms of a combination. These
discussions continued among Capital Re officials and ACE officials over the
course of the next several days. At the same time, counsel for the respective
parties exchanged drafts of a possible binding letter of intent.
19
<PAGE>
On May 24, 1999, Capital Re's board of directors met telephonically and,
after a presentation by management and its legal and financial advisors,
approved the material terms of the merger transaction and authorized final
negotiation of the binding letter of intent. A further board meeting was held
in the evening of May 26, 1999, at which time authorization was given to enter
into the letter of intent. At the May 26, 1999 board meeting, Goldman Sachs
orally advised Capital Re's board that, as of that date and subject to
reviewing the merger agreement and related documents, the exchange ratio to be
received by Capital Re stockholders under the letter of intent was fair from a
financial point of view to the Capital Re stockholders, subject to reviewing,
among other things, the merger agreement. ACE and Capital Re entered in the
letter of intent later that evening. ACE also confirmed its intention to
proceed with the $75 million investment under the stock purchase agreement.
These events were announced by press releases on May 27, 1999.
During the following two weeks, ACE and its professional advisors conducted
due diligence, and the merger agreement, option agreement and related documents
were drafted and negotiated between Capital Re's counsel and ACE's counsel.
On June 10, 1999, Capital Re's board of directors met telephonically and,
after a presentation by management and oral confirmation by Goldman Sachs
regarding the fairness of the exchange ratio, approved the merger agreement,
the stock option agreement and related documentation and authorized their
execution. Later that afternoon, both parties executed the agreement in Capital
Re's New York offices and Goldman Sachs delivered its written opinion that, as
of June 10, 1999, the exchange ratio was fair to Capital Re's stockholders from
a financial point of view. On the same day a second amendment to the stock
purchase agreement was executed reconfirming ACE's commitment to make the $75
million investment. These events were announced by press releases on June 11,
1999.
On June 15, 1999, the closing under the $75 million stock purchase agreement
was held.
ACE'S REASONS FOR THE MERGER
The ACE board believes that the merger offers an excellent opportunity to
build value for ACE's shareholders. Capital Re's domestic and financial
guaranty business will complement ACE's product lines and enable the combined
company to offer its customers a more complete array of insurance and
reinsurance products. In addition, ACE believes the diversification across
product lines will decrease the risk exposure of the combined company's
stockholders.
The ACE board has determined that the merger agreement and the stock option
agreement and the merger and the other transactions contemplated thereby are
advisable and are fair to and in the best interests of ACE and its shareholders
and has approved the merger agreement and the stock option agreement and
approved the merger and the other transactions contemplated thereby.
CAPITAL RE'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
OF CAPITAL RE
The board of directors of Capital Re has determined that the merger
agreement is advisable and unanimously recommends that stockholders vote to
adopt the merger agreement and approve the merger at the special meeting.
Capital Re's Reasons for the Merger
In reaching its conclusion that the merger agreement is advisable, the
Capital Re board considered and reviewed with its management, as well as its
financial and legal advisors, a number of factors.
20
<PAGE>
The following are the material factors considered by the Capital Re board of
directors:
--the business, financial condition, operations, earnings and prospects of
Capital Re, including the recent loss developments and the increased
probability of adverse ratings developments;
--the business, financial condition, operations, earnings and prospects of
ACE;
--the benefit to Capital Re from the size and diversity of ACE's business,
the international reach of ACE's operations and the financial flexibility
associated with the size of ACE's capital base, which should enable the
combined company to compete more effectively with existing and new
competitors having greater resources than Capital Re alone;
--the financial resources and access to capital available to Capital Re as
part of ACE contrasted with the limited access to new capital that Capital
Re currently faces;
--the potential that the then pending $75 million investment by ACE would
not close given the recent loss development related to International
Financial Services Life Insurance Company and the accompanying downgrade
in Capital Reinsurance Company's financial strength ratings;
--given capital constraints facing Capital Re as a stand-alone company,
even if Capital Re was able to withstand the immediate effects of the
recent loss developments, Capital Re would be in a more vulnerable
position should other unforeseen loss developments occur if Capital Re
does not combine with ACE;
--ACE has a demonstrated record of growth and innovations on a scale that
exceeds what Capital Re can achieve on its own;
--Capital Re and ACE have complementary, rather than overlapping,
businesses in product lines, reinsurance underwriting expertise and
customer base. The board of Capital Re believes that this fact should
enable the combined company to accelerate product line innovation and
market penetration while achieving the risk-spreading advantage to
stockholders from diversification;
--most members of Capital Re's management team are expected to have
significant roles in the combined company as ACE intends to consolidate
its financial risks operations through Capital Re;
--the opinion of Goldman Sachs that, as of June 10, 1999, the exchange
ratio under the merger agreement was fair, from a financial point of view,
to the stockholders of Capital Re;
--the terms and conditions of the merger agreement and the stock option
agreement, including the consideration to be received by the Capital Re
stockholders, and the potential for an increase in value, subject to a
maximum value to Capital Re stockholders of $22.00 per share, of the
consideration to be received;
--the compatibility of the respective corporate cultures and business
philosophies of Capital Re and ACE, which the Capital Re board believes is
important for successful integration of the companies; and
--the positive impact of the merger on Capital Re's customers and
employees, which the Capital Re board viewed as favorable to long-term
stockholder interests by enhancing Capital Re's existing strengths.
The Capital Re board also considered a variety of risks and other
potentially negative factors concerning the merger. These include the
following:
--the possibility that, despite the merger, the rating agencies may
nevertheless lower the financial ratings of Capital Re's reinsurance
subsidiaries, which could lead to potential adverse business developments;
--the possibility that the integration of the businesses of Capital Re and
ACE might not proceed as planned;
--the risk that, despite the efforts of the combined companies, senior
management and other personnel of Capital Re might not choose to remain
employed by the combined company;
21
<PAGE>
--the fact that the merger consideration to be received by Capital Re
stockholders is subject to a maximum value to Capital Re stockholders of
$22.00 per share and is not subject to a floor;
--those provisions of the merger agreement and stock option agreement that
restrict Capital Re from soliciting alternative proposals and that require
Capital Re to pay a termination fee and permit ACE to buy an additional
9.9% of Capital Re's shares should Capital Re ultimately be acquired by a
third party, which may prevent others from proposing alternative
transactions that may be more advantageous to Capital Re stockholders; and
--the fact that some members of Capital Re management have interests in the
merger that are different from, and in addition to, the interests of other
Capital Re stockholders, as described under "Other Interests of Directors
and Executive Officers in the Merger" beginning on page 46 below.
The foregoing discussion of the information and other factors considered by
the Capital Re board is not meant to be exhaustive. The board of directors of
Capital Re did not specifically adopt the conclusions of the opinion of Goldman
Sachs referred to above. The Goldman Sachs opinion was only one of many factors
considered by the board of directors of Capital Re. The Capital Re board did
not give particular priority to, quantify or weight the various factors
considered by it, including all of the material factors described above, in
reaching the determination to adopt the merger agreement and approve the merger
and recommend similar action by stockholders. Individual directors may have
viewed the relative importance of these factors differently.
Opinion of Capital Re's Financial Advisor
On May 26, 1999, Goldman Sachs orally advised the Capital Re board that, as
of that date and subject to reviewing the merger agreement and related
documents, the exchange ratio to be received by Capital Re stockholders under a
binding letter of intent signed on that date was fair from a financial point of
view to Capital Re stockholders. On June 10, 1999, Goldman Sachs confirmed its
earlier oral opinion by orally advising the Capital Re board that, as of that
date, the exchange ratio to be received by Capital Re stockholders under the
merger agreement was fair from a financial point of view to Capital Re
stockholders. Goldman Sachs subsequently confirmed, in all material respects,
its oral opinion by delivering a written opinion on June 10, 1999.
The full text of the written opinion of Goldman Sachs dated June 10, 1999,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Appendix C to
this proxy statement/prospectus and is incorporated by reference in this proxy
statement/prospectus. The opinion of Goldman Sachs referred to in this proxy
statement/prospectus does not constitute a recommendation as to how you should
vote with respect to the merger. We urge you to read the opinion in its
entirety.
In connection with its opinion, Goldman Sachs reviewed:
--the merger agreement;
--annual reports to stockholders and annual reports on Form 10-K of Capital
Re and ACE for each of the years in the five-year periods ended December
31, 1998 and September 30, 1998, respectively;
--certain interim reports to stockholders and quarterly reports on Form 10-
Q of Capital Re and ACE; and
--certain internal financial analyses and forecasts for Capital Re prepared
by its management.
Goldman Sachs also reviewed a liquidation analysis for Capital Re prepared
by its management assuming a downgrade of the outstanding financial strength
ratings of Capital Re's principal operating subsidiaries Capital Reinsurance
Company and KRE Reinsurance Ltd.
Goldman Sachs held discussions with members of the senior management of
Capital Re and ACE regarding the strategic rationale for, and the potential
benefits of, the transaction contemplated by the merger
22
<PAGE>
agreement, and the past and current business operations, financial condition
and future prospects of their respective companies. In addition, Goldman Sachs:
--reviewed the reported price and trading activity for Capital Re common
stock and the ACE ordinary shares;
--compared certain financial and stock market information for Capital Re
and ACE with similar information for certain other companies, the
securities of which are publicly traded;
--reviewed the financial terms of certain recent business combinations in
the financial guaranty insurance and mortgage guaranty insurance
industries; and
--performed such other studies and analyses as Goldman Sachs considered
appropriate.
Capital Re informed Goldman Sachs that it believed, and instructed Goldman
Sachs to assume, that, without (1) the sale of $75 million of shares of Capital
Re common stock to ACE and (2) the merger contemplated by the merger agreement,
Capital Re's reinsurance exposure to entities affiliated with International
Financial Services Life Insurance Company would result in a downgrade of the
financial strength ratings mentioned above in the immediate future and that
such downgrade would have a profound negative impact on the business operations
and the financial condition of Capital Re. Goldman Sachs also assumed that all
material governmental, regulatory or other consents and approvals, including
rating agency confirmation of the financial strength ratings, necessary for the
consummation of the merger, that are contemplated in the merger agreement will
be obtained without any adverse effect on Capital Re or ACE or on the
contemplated benefits of the merger contemplated in the merger agreement.
Goldman Sachs was not requested to solicit, and did not solicit, interest from
third parties with respect to an acquisition of or other business combination
with Capital Re.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information, including the liquidation analysis, reviewed
by it and assumed such accuracy and completeness for purposes of rendering its
opinion. ACE did not make available to Goldman Sachs in writing its forecasts
of expected future performance. Goldman Sachs' review with respect to this
information was limited to discussions with senior managers of ACE and the
earnings and growth estimates of research analysts. Goldman Sachs did not make
an independent evaluation or appraisal of the assets and liabilities of Capital
Re or ACE or any of their subsidiaries and was not furnished with any
evaluation or appraisal. The advisory opinion of Goldman Sachs referred to in
this proxy statement/prospectus was provided for the information and assistance
of the board of directors of Capital Re in connection with its consideration of
the merger contemplated in the merger agreement and the opinion does not
constitute a recommendation as to how any holder of the common stock of Capital
Re should vote with respect to the merger.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion to Capital Re's
board of directors on June 10, 1999.
Summary of Terms of Proposed Transaction. Goldman Sachs reviewed the terms
of the proposed merger, including:
--the form of consideration offered;
--the exchange ratio;
--the closing price of ACE ordinary shares as of June 8, 1999;
--the implied price per share of Capital Re common stock applying the
exchange ratio under the merger agreement;
--the expected method of purchase accounting;
--the requirement for the rating agencies to confirm the financial strength
ratings of Capital Re's principal insurance subsidiaries; and
--the requirement for two of the major stockholders of Capital Re to agree
to vote their shares in favor of the transaction.
23
<PAGE>
As defined above, the exchange ratio will equal 0.60 unless the average
closing price of ACE ordinary shares reported on the New York Stock Exchange
for the twenty consecutive trading days ending three trading days prior to the
closing of the merger is equal to or greater than $36.67 per share, in which
case, the exchange ratio will equal 22 divided by the average closing price.
Solely for the purposes of their analysis, Goldman Sachs calculated an implied
price per share of Capital Re common stock by multiplying the price of ACE
ordinary shares by the exchange ratio. Assuming a per share price of ACE
ordinary shares of $29.81, the closing price of ACE ordinary shares on June 8,
1999, and multiplying such price by the exchange ratio, Goldman Sachs
calculated an implied price of $17.89 per share of Capital Re common stock.
Based upon an implied price of $17.89, Goldman Sachs calculated the aggregate
amount to be paid for all the shares of Capital Re common stock to be
approximately $581 million. Any implied price calculated at the closing of the
merger may vary from the implied price calculated by Goldman Sachs depending on
the price of ACE ordinary shares unless the average closing price of ACE
ordinary shares is equal to or greater than $36.67 per share, in which case,
the maximum implied price of Capital Re common stock resulting from the
exchange ratio will equal $22.00 per share.
In addition to reviewing the implied price based on the exchange ratio,
Goldman Sachs conducted the analyses described below. Unless otherwise
indicated, estimated 1999 net income from continuing operations per share were
provided by the management of Capital Re, which included estimates for reserves
relating to Commercial Financial Services, International Financial Services
Life Insurance Company and the sale of RGB Underwriting Agencies (a subsidiary
of Capital Re). In addition, for purposes of its analysis, Goldman Sachs
calculated a normalized estimated 1999 net income per share. Normalized
estimated 1999 net income per share adjusts net income from continuing
operations per share to exclude management's estimated reserves for Commercial
Financial Services, International Financial Services Life Insurance Company and
the sale of RGB Underwriting Agencies. Unless otherwise indicated, all
estimates were provided by Capital Re management.
Historic Trading Analysis. Under these analyses, the implied value of
Capital Re common stock based on the exchange ratio reflected:
--a multiple of 13.4x net income from continuing operations per share for
the latest twelve months ending March 31, 1999;
--a multiple of 8.4x net income per share for the twelve months ending
March 31, 1999, adjusted to eliminate the impact of an actual Commercial
Financial Services reserve of $44.1 million pre-tax or $28.7 million after
tax;
--a multiple of 28.9x estimated 1999 net income from continuing operations
per share;
--a multiple of 7.5x normalized estimated 1999 net income per share;
--a multiple of 0.94x reported book value per share for Capital Re's common
stock at March 31, 1999, excluding marked to market adjustments to the
investment portfolio;
--a multiple of 1.07x pro forma book value per share for Capital Re's
common stock at March 31, 1999, which includes management's estimated
reserves for Commercial Financial Services, International Financial
Services Life Insurance Company and the sale of RGB Underwriting Agencies
and excludes marked to market adjustments to the investment portfolio;
--a premium to the closing price of Capital Re common stock on June 8,
1999, the date two days before Goldman Sachs delivered its written
opinion, of 6.4%;
--a discount to the closing stock price on May 26, 1999, the date of the
binding letter of intent, of 7.1%; and
--a premium to the closing stock price of February 16, 1999, the date
Capital Re common stock traded at its 52-week low, of 49.8%.
24
<PAGE>
In addition, Goldman Sachs reviewed the historical trading prices and
volumes for Capital Re common stock on a daily basis from June 8, 1998 through
June 8, 1999. This analysis showed that the closing market price of Capital Re
common stock ranged from $11.94 on February 17, 1999 to $38.19 on July 2, 1998,
with a closing price of $16.81 on June 8, 1999. Goldman Sachs also compared the
price performance of Capital Re common stock on a daily basis from May 26,
1999, the date on which the letter of intent with ACE was announced, through
June 8, 1999 with the performance of ACE, the S&P 500 Index and a composite of
Bermuda-based insurance companies comprised of XL Capital Ltd., Partner Re
Holdings Ltd. and Renaissance Re Holdings Ltd. over the same period. This
analysis indicated that:
--Capital Re's common stock decreased 12.7%;
--the price of ACE ordinary shares decreased 5.4%;
--the S&P 500 Index increased 1.0%; and
--the Bermuda composite decreased 0.7%.
Selected Companies Analysis. Goldman Sachs reviewed and compared other
financial information, including estimated earnings prepared by Capital Re
management and public market multiples for Capital Re, and compared them to
corresponding financial information, estimated earnings as reported by
Institutional Brokerage Estimate Service International, Inc. and public market
multiples for a group of selected companies in the bond insurance and
reinsurance industry, comprised of MBIA Inc., Ambac Financial Group Inc.,
Financial Security Assurance Holdings Ltd. and Enhance Financial Services Group
Inc., as well as a group of companies in the mortgage insurance industry,
comprised of MGIC Investment Corporation, PMI Group, Inc., CMAC Investment
Corporation and Triad Guaranty, Inc. These companies were selected because they
are publicly traded companies with operations that for purposes of analysis may
be considered similar to Capital Re. Goldman Sachs calculated and compared
various financial multiples and ratios. The multiples were calculated using the
June 8, 1999 and May 26, 1999 closing prices for Capital Re common stock of
$16.81 and $19.25, respectively, and the June 8, 1999 closing prices for the
comparable companies. The multiples and ratios for Capital Re were based on
information provided by Capital Re management and the multiples for each of the
selected companies were based on the most recent publicly available
information.
25
<PAGE>
Goldman Sachs' analysis, among other things, showed the following results:
<TABLE>
<CAPTION>
Price/Earnings
Per Share(a) Price/Book Value
----------------- Per Share
Company Closing Prices 1999E 2000E at 3/31/99
------- -------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Capital Re (price on
6/8/99)(b)............. $16.81 7.1x 6.5x 0.99x
Capital Re (price on
5/26/99)(b)............ 19.25 8.1 7.5 1.14
<CAPTION>
Bond Insurers/Reinsurers Price 6/8/1999
------------------------ --------------
<S> <C> <C> <C> <C>
MBIA.................... $66.63 13.7x 12.3x 1.90x
Ambac Financial......... 57.56 13.8 12.2 2.01
Financial Security
Assurance.............. 55.88 13.2 11.7 1.68
Enhance Financial
Services............... 19.94 8.1 7.0 1.15
Median.................. 13.4 11.9 1.79
<CAPTION>
Selection of Mortgage
Insurers
---------------------
<S> <C> <C> <C> <C>
MGIC.................... $45.38 12.1x 10.9x 3.01x
PMI Group............... 57.81 9.4 8.5 1.65
CMAC.................... 49.56 11.4 9.7 2.09
Triad Guaranty.......... 15.06 7.4 6.5 1.45
Median.................. 10.4 9.1 1.87
</TABLE>
- --------
Note:Financial data as of latest available public information.
(a) For the comparable companies, based on latest median calendarized
International Brokerage Estimate Service International, Inc. earnings
estimates.
(b) Estimates for net income per share for Capital Re were provided by
management and reverse the impact of estimated reserves for Commercial
Financial Services, International Financial Services Life Insurance
Company and the sale of RGB Underwriting Agencies and assumes the
maintenance of current ratings. Pro forma book value adjusted for
estimated reserves for Commercial Financial Services, International
Financial Services Life Insurance Company and the sale of RGB Underwriting
Agencies and marked to market adjustments to the investment portfolio
based on management estimates. Prior to $75 million investment from ACE
that closed on June 15, 1999.
26
<PAGE>
Selected Transaction Analysis. Goldman Sachs analyzed publicly available
information relating to the following eight selected transactions in the
mortgage insurance, bond insurance and bond reinsurance industry since 1989:
<TABLE>
<CAPTION>
Date Effective Acquiror Target
-------------- -------- ------
<S> <C> <C>
Pending CMAC Investment Amerin Corporation
Corporation
02/17/98 MBIA Inc. CapMac Holdings(a)
07/23/97 Swiss Reinsurance CapMac Holdings(b)
05/23/96 Swiss Reinsurance Enhance Financial Services
Group Inc.(c)
12/20/95 Financial Security Capital Guaranty
Assurance Holdings Ltd.
02/28/90 US WEST Financial Security
Assurance Holdings Ltd.
12/29/89 MBIA Inc. Bond Investors Group, Inc.
04/20/89 General Electric FGIC Corporation
Capital Corporation
</TABLE>
--------
(a) Acquisition of CapMac
(b) Purchased 5.8% interest
(c) Purchased 5.6% interest
Goldman Sachs compared information for these transactions to the implied
price of Capital Re common stock based on the exchange ratio proposed by ACE
under the merger agreement. This analysis indicated that for the selected
transactions:
--total consideration as a multiple of book value ranged from 0.86x to
1.78x for the selected transactions compared with:
--1.07x for the merger based on pro forma book value per share for
Capital Re's common stock at March 31, 1999, which includes management's
estimated reserves for Commercial Financial Services, International
Financial Services Life Insurance Company and the sale of RGB
Underwriting Agencies and excludes marked to market adjustment to the
investment portfolio; and
--0.94x for the merger based on reported book value per share for Capital
Re's common stock at March 31, 1999 excluding marked to market
adjustments to the investment portfolio;
--total consideration as a multiple of net income per share or net income,
whichever was more applicable, for the latest twelve months, ranged from
8.9x to 19.4x for the selected transactions compared with:
--13.4x for the merger based on net income from continuing operations per
share for the latest twelve months ending March 31, 1999; and
--8.4x for the merger based on net income per share for the latest twelve
months ending March 31, 1999, which reverses the impact of an actual
Commercial Financial Services reserve of $44.1 million pre-tax or $28.7
million after tax; and
--total consideration as a multiple of estimated 1999 net income per share
or estimated 1999 net income, whichever was more applicable, ranged from
8.5x to 17.5x for the selected transactions compared with:
--28.9x for the merger based on estimated 1999 net income from continuing
operations per share; and
--7.5x normalized estimated 1999 net income per share.
27
<PAGE>
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of the
financial impact of the merger using three prices for ACE ordinary shares:
--$23.95, a 20% decrease in market price as of June 8, 1999;
--$29.81, market price as of June 8, 1999; and
--$36.67, a 23% increase in market price as of June 8, 1999. A price of
$36.67 per share of ACE ordinary shares reflects the maximum implied price
of $22.00 per share of Capital Re common stock under the merger agreement.
Goldman Sachs reviewed the impact of the merger on the combined company's
net income per share, based on management estimates for Capital Re net income
per share and Institutional Brokerage Estimate Service International, Inc.
estimates for ACE net income per share and assuming the achievement of no
synergies or cost savings in 1999 or 2000. This analysis indicated that, on a
pro forma basis as if the transaction had occurred on January 1, 1999, the
transaction would be:
--Based on estimated 1999 net income per share for ACE:
--10.4% accretive to ACE's earnings per share at $23.95;
--9.0% accretive to ACE's earnings per share at $29.81; and
--8.3% accretive to ACE's earnings per share at $36.67.
--Based on estimated 2000 net income per share for ACE:
--8.5% accretive to ACE's earnings per share at $23.95;
--7.4% accretive to ACE's earnings per share at $29.81; and
--6.9% accretive to ACE's earnings per share at $36.67.
Liquidation Analysis. Goldman Sachs reviewed a liquidation analysis of
Capital Re prepared by Capital Re management. This analysis calculated the net
present value of Capital Re's book value per share assuming a downgrade of
current financial strength ratings that would result in the loss of previously
ceded premiums in the financial guaranty and mortgage businesses. This analysis
also assumed, among other things, the realization of the net present value of
the credit default swap business and the realization of losses and write-offs
for Commercial Financial Services, International Financial Services Life
Insurance Company and the sale of RGB Underwriting Agencies. Based on payout
periods in years 2000, 2001, and 2003 and discount rates of 10%, 12%, and 14%,
the analysis showed net present value of Capital Re book value in the range of
$11.24 to $15.11 per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all these analyses.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the Capital Re board of directors as to the fairness from a
financial point of view of the exchange ratio to be received under the merger
agreement. The analyses do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Analyses
based upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of Capital Re, ACE, Goldman
Sachs or any other person assumes responsibility if future results are
materially different from those
28
<PAGE>
forecast. As described above, Goldman Sachs' opinion to the board of directors
of Capital Re was one of many factors taken into consideration by the Capital
Re board of directors in making its determination to adopt the merger
agreement. The foregoing summary does not purport to be a complete description
of the analysis performed by Goldman Sachs. You should read the written opinion
of Goldman Sachs attached as Appendix C.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Capital Re selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in merger and
acquisition transactions. Goldman Sachs has provided investment banking
services to Capital Re from time to time, including acting as managing
underwriter of the initial public offering of 6,325,000 shares of common stock
in April 1992, managing underwriter for a public offering of $100 million of
7.75% debentures due November 1, 2002 in December 1992, managing underwriter
for a public offering of $75 million of 7.65% company obligated mandatorily
redeemable preferred securities of Capital Re LLC in May 1994 and managing
underwriter of a public offering of 3,450,000 shares of common stock in
February 1996. Goldman Sachs also advised Capital Re on the sale of $75 million
shares of its common stock to ACE and acted as its financial advisor in
connection with the merger agreement.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Capital Re and ACE for its own account and for the account of
customers.
Under a letter agreement dated May 17, 1999, Capital Re engaged Goldman
Sachs to act as its financial advisor in connection with the merger. Under this
agreement, Capital Re agreed to pay Goldman Sachs an advisory fee of $1.0
million upon the signing of the merger agreement as well as a transaction fee
based on the outcome of the transaction as follows:
--If the purchase of 50% or more of the outstanding common stock or the
assets of Capital Re is accomplished, Goldman Sachs will be paid a
transaction fee of 1.055% of the aggregate consideration paid for the
common stock which equals approximately $4.6 million based on the closing
price per ACE ordinary share on August 27, 1999.
--If less than 50% of the outstanding common stock or the assets of Capital
Re is acquired, Goldman Sachs will be paid a transaction fee of $5.0
million.
The advisory fee of $1.0 million will be credited toward the payment of any
transaction fee. Capital Re agreed to pay any transaction fee in cash upon
consummation of each transaction.
Capital Re also agreed to reimburse Goldman Sachs for their reasonable out-
of-pocket expenses, including attorneys' fees, and to indemnify Goldman Sachs
against certain liabilities, including certain liabilities under the federal
securities laws.
LISTING OF THE ACE SHARES
ACE has agreed to use its best efforts to cause the ACE shares to be issued
in the merger and the ACE shares to be reserved for issuance upon the exercise
of the existing Capital Re options to be approved for listing on the New York
Stock Exchange, subject to official notice of issuance. Such authorizations for
listing are conditions to the obligations of ACE and Capital Re to consummate
the merger. See "The Merger Agreement--Conditions to the Merger" on page 50.
29
<PAGE>
DELISTING AND DEREGISTRATION OF CAPITAL RE COMMON STOCK; CESSATION OF CAPITAL
RE PERIODIC REPORTING
If the merger is consummated, the Capital Re common stock will cease to be
listed on the New York Stock Exchange. However, as an issuer of $75 million of
long term debt due 2002 and a guarantor of $75 million of monthly income
preferred stock of Capital Re LLC, Capital Re must still make separate periodic
filings with the SEC under the Securities Exchange Act of 1934. Capital Re
LLC's outstanding preferred stock will continue to be listed on the New York
Stock Exchange under the symbol KRE Pr L.
ACCOUNTING TREATMENT
ACE plans to account for the merger as a "purchase" in accordance with
United States generally accepted accounting principles. This means that, for
financial accounting purposes, ACE will allocate the purchase price to assets
acquired and liabilities assumed from Capital Re based on their estimated fair
values at the time the merger is completed. The amount of the purchase price
that exceeds the net fair market value of assets acquired and liabilities
assumed will be reflected on the balance sheet of ACE as goodwill and will have
to be written off against future earnings.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General. The following is a discussion of the material United States federal
income tax consequences of the merger. This summary deals only with Capital Re
stockholders who hold their shares of Capital Re common stock as capital assets
and is based upon the Internal Revenue Code of 1986, as amended, the proposed,
temporary and final Treasury regulations promulgated thereunder, and any
relevant administrative rulings or pronouncements or judicial decisions, all as
in effect on the date hereof and all of which are subject to change, possibly
with retroactive effect. This discussion does not address all of the tax
consequences that may be relevant to a particular Capital Re stockholder in
light of that stockholder's specific circumstances, nor does it discuss the
United States federal income tax consequences that may be applicable to certain
types of Capital Re stockholders, such as Capital Re stockholders who have
received their shares of Capital Re common stock pursuant to the exercise of
employee stock options or otherwise as compensation, dealers in securities,
financial institutions, tax-exempt entities, life insurance companies, persons
holding their shares as a part of a hedging, integrated, conversion or
constructive sale transaction or as part of a straddle, or who may be subject
to special rules and/or limitations under the Internal Revenue Code that are
not discussed below. In addition, the following discussion does not discuss the
state, local or foreign tax consequences of the merger. Consequently, each
Capital Re stockholder is urged to consult its own tax advisor in determining
the federal, state, local and foreign income and any other tax consequences. No
ruling on any of the issues discussed below will be sought from the Internal
Revenue Service. In addition, Capital Re stockholders should note that the
opinions of counsel described below are not binding on the IRS or the courts.
Consequently, no assurance can be given that the IRS will not assert positions
that are contrary to such opinions of counsel.
The Merger. ACE's obligation to effect the merger is conditioned on the
delivery of an opinion to ACE from Mayer, Brown & Platt, its tax counsel, and
Capital Re's obligation to effect the merger is conditioned on the delivery of
an opinion to Capital Re from Hogan & Hartson L.L.P., its tax counsel, each
dated as of the closing date of the merger, that, for United States federal
income tax purposes, the merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and each of ACE, Capital
Re and CapRe Acquisition Corp. will be a party to that reorganization within
the meaning of Section 368(b) of the Internal Revenue Code. It is a condition
to the consummation of the merger that such opinions be rendered, although,
pursuant to the merger agreement, Capital Re is permitted to waive the
condition calling for the opinion of Hogan & Hartson L.L.P. described above and
ACE is permitted to waive the condition calling for the opinion of Mayer, Brown
& Platt described above. See "The Merger Agreement--Conditions to the Merger"
on page 50. However, in the event of such a waiver following Capital Re
stockholder approval of the merger, the adoption of the merger agreement by the
Capital Re stockholders would be resolicited.
30
<PAGE>
The opinions of counsel described above will rely on the customary
representations and assumptions that are set forth therein, including, without
limitation, representations of ACE, CapRe Acquisition Corp. and Capital Re to
the effect that:
--at the effective time of the merger, the fair market value of ACE will be
equal to or greater than the fair market value of Capital Re;
--50% or less of the total voting power and the total value of the
outstanding ACE ordinary shares will be received pursuant to the merger by
Capital Re stockholders who are "United States persons";
--50% or less of the total voting power and the total value of the
outstanding ACE ordinary shares will be owned, immediately after the
merger, by "United States persons" who are either officers or directors of
Capital Re or persons that directly, indirectly or constructively owned 5%
or more of either the total voting power or the total value of the
outstanding stock of Capital Re immediately prior to the merger;
--either ACE or one or more of its "qualified subsidiaries" (within the
meaning of Treasury Regulations Section 1.367(a)-3(c)(5)(vii)) has been
engaged in an "active trade or business" (within the meaning of temporary
Treasury Regulations Sections 1.367(a)-2T(b)(2) and (3)) outside of the
United States for the entire 36 month period immediately preceding the
merger and ACE or such qualified subsidiary does not intend to
substantially dispose of or discontinue such trade or business; and
--Capital Re will timely file a United States federal income tax return for
the taxable year in which the merger occurs and attach a statement titled
"Section 367(a)--Reporting of Cross Border Transfer under Reg. Section
1.367(a)-3(c)(6)" that sets forth all of the information required to be
disclosed under such Treasury Regulation Section.
If any of the factual assumptions or representations set forth in the above
opinions, including, without limitation, the foregoing representations, are
inaccurate, such opinions may not accurately describe the proper United States
federal income tax treatment of the merger and, consequently, this discussion
may not accurately describe the United States federal income tax consequences
of the merger.
Assuming the merger constitutes a reorganization within the meaning of
Section 368(a) and each of ACE, Capital Re and CapRe Acquisition Corp. will be
a party to that reorganization within the meaning of Section 368(b) of the
Internal Revenue Code, the material United States federal income tax
consequences of the merger will be as follows:
--no gain or loss will be recognized by ACE, CapRe Acquisition Corp. or
Capital Re pursuant to the merger;
--no gain or loss will be recognized by Capital Re stockholders upon the
cancellation of their Capital Re common stock, and conversion thereof into
ACE ordinary shares, together with the associated ACE rights pursuant to
the merger, except that (1) a holder of Capital Re common stock that
receives cash in lieu of a fractional share interest in an ACE ordinary
share will generally recognize capital gain or loss equal to the
difference between the cash received and the tax basis allocated to the
fractional share interest in an ACE ordinary share as if such fractional
share interest had been distributed as part of the merger and then
redeemed by ACE for cash and (2) a holder of Capital Re common stock that
is a United States person and that directly, indirectly or constructively
owns (within the meaning of Treasury Regulations Section 1.367(a)-
3(c)(5)(ii)), at least five percent of either the total voting power or
total value of the outstanding ACE ordinary shares immediately after the
merger will recognize gain equal to the amount, if any, by which the value
of the ACE ordinary shares received exceeds the holder's tax basis in its
Capital Re common stock unless such holder enters into a gain recognition
agreement as described in Treasury Regulations Section 1.367(a)-8;
--the tax basis of the ACE ordinary shares received by a Capital Re
stockholder that is not required to recognize gain other than with respect
to fractional shares will be the same as such stockholder's tax basis in
the Capital Re common stock that was exchanged therefor pursuant to the
merger, reduced by
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<PAGE>
the amount of such tax basis, if any, that is allocable to any fractional
share interest in an ACE ordinary share with respect to which cash is
received;
--the holding period of the ACE ordinary shares received by a Capital Re
stockholder that is not required to recognize gain other than with respect
to fractional shares will include such stockholder's holding period with
respect to Capital Re common stock that was exchanged therefor pursuant to
the merger; and
--no gain or loss will be recognized by holders of ACE ordinary shares as a
result of the merger and their tax basis and holding period in such ACE
ordinary shares will not be affected by the merger.
Capital Re stockholders are urged to consult their own tax advisors to
determine the particular tax consequences to them (including the application
and effect of any state, local or foreign income and other tax laws) of the
merger.
REGULATORY APPROVALS
Antitrust Filings. Under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules promulgated thereunder by the Federal Trade
Commission, the merger may not be consummated until notifications have been
given and certain information has been furnished to the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice and specified waiting period requirements have been satisfied. Capital
Re filed notification and report forms under the Hart-Scott-Rodino Act with
the Federal Trade Commission and the Antitrust Division on August 20, 1999. On
September 2, 1999, ACE filed notification and report forms under the Hart-
Scott-Rodino Act with the Federal Trade Commission and the Antitrust Division.
Neither ACE nor Capital Re have received notice from the Federal Trade
Commission and the Antitrust Division of the early termination of the waiting
period of the Hart-Scott-Rodino Act. In addition, each state in which any
subsidiary of ACE or Capital Re or any of its subsidiaries operates may also
seek to review the merger. It is possible that some of these authorities may
seek to challenge the merger.
The businesses of ACE and Capital Re involve transactions in numerous
jurisdictions outside of the United States, and, as a result, implementation
of the merger may be subject to antitrust laws in such jurisdictions. ACE and
Capital Re are continuing to evaluate whether or not they are legally
required, or it is otherwise appropriate, to make any such filings in any
other jurisdiction.
State Insurance Regulatory Approvals. State insurance holding company laws
and regulations applicable to Capital Re provide that no person may acquire
control of certain Capital Re insurance subsidiaries unless such person has
provided certain required information to, and such acquisition has been
approved by, the appropriate insurance regulatory authorities. In accordance
with these laws, an application on Form A for approval of ACE's $75 million
investment in Capital Re was filed with and approved by the Commissioner of
Insurance of the State of Maryland and with and by the Superintendent of
Insurance of the State of New York. ACE and Capital Re have been advised that
no further approvals by these entities in connection with the merger are
required.
Lloyd's Consent. Capital Re indirectly owns 100% of the share capital of
RGB Underwriting Agencies Ltd., a Lloyd's of London regulated managing agency
that presently manages four syndicates operating in the Lloyd's insurance
market and CRC Capital Ltd., a Lloyd's corporate member. ACE and Capital Re
have been advised by counsel that the prior written consent of Lloyd's is not
required for ACE to become a controller of another managing agency or
corporate member.
Other. In addition to the foregoing, ACE and Capital Re may be required to
obtain regulatory approvals, file notices or make certain other filings in
other jurisdictions in which one or the other maintains an office,
32
<PAGE>
conducts business or has customers. At the time of this filing, ACE and Capital
Re do not expect any such other approvals, notices or other filings to be
material in connection with the merger.
Status of Regulatory Approvals and Other Information. ACE and Capital Re
have filed (or will promptly file) all applications and notices and have taken
(or will promptly take) other appropriate action with respect to any approvals
or other action of any governmental authority that ACE or Capital Re deems
necessary. The merger agreement provides that receipt of all regulatory
approvals and consents of governmental authorities required to permit the
consummation of the merger is a condition to the obligations of the companies
to consummate the merger. There can be no assurance that any governmental
authority will approve or take any other required action with respect to the
merger, and, if approvals are received or action is taken, there can be no
assurance as to the date of such approvals or action, that such approvals or
action will not be conditioned upon matters that would cause the parties to
mutually consent to abandon the merger or that no action will be brought
challenging such approvals or action.
Although ACE and Capital Re are not aware of any governmental approvals or
actions that may be required for consummation of the merger other than as
described above, should any other approval or action be required, ACE and
Capital Re currently contemplate that such approval or action would be sought.
Neither ACE nor Capital Re expects the consummation of the merger to be delayed
by any such approval or action.
The obligations of ACE and Capital Re to consummate the merger are further
subject to the condition that there be no preliminary or permanent injunction
or law or other order by any court of competent jurisdiction or other
governmental authority prohibiting the consummation of the merger.
NO APPRAISAL RIGHTS
Holders of Capital Re common stock are not entitled to dissenters' appraisal
rights under Delaware law in connection with the merger because Capital Re
common stock was listed on the New York Stock Exchange on the record date for
the Capital Re meeting, and the ACE ordinary shares that such holders will be
entitled to receive in the merger will continue to be listed on the New York
Stock Exchange at the effective time of the merger.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION
All ACE ordinary shares received by Capital Re stockholders in the merger
will be registered under the Securities Act and will be freely transferable,
except that ACE ordinary shares received by persons who are deemed to be
affiliates of Capital Re under the Securities Act at the time of the Capital Re
meeting may be resold by them only in transactions permitted by Rule 145 under
the Securities Act or otherwise permitted under the Securities Act. Persons who
may be deemed to be affiliates of Capital Re for such purposes generally
include individuals or entities that control, are controlled by or are under
common control with Capital Re and may include certain officers, directors and
principal stockholders of Capital Re. The merger agreement requires Capital Re
to provide ACE with a letter identifying such persons and to use its reasonable
best efforts to cause each of such affiliates to execute a written agreement to
the effect that such persons will not sell, pledge, transfer or otherwise
dispose of any of the ACE ordinary shares issued to such persons in the merger
in violation of the Securities Act or the rules and regulations promulgated by
the Securities and Exchange Commission thereunder.
Constellation Investments, Inc. and MP Investments, Inc., both of whom are
affiliates of Capital Re, have further agreed not to transfer or enter into any
agreement to transfer any of the ACE ordinary shares they receive in the merger
for a period of 180 days after consummation of the merger. However, either
Constellation Investments, Inc. or MP Investments, Inc. may transfer all of the
ACE ordinary shares they receive in the merger to a single person if that
person agrees in writing to be bound by the Stockholder Support Agreement
signed by the transferor.
This proxy statement/prospectus does not cover any resales of the ACE
ordinary shares to be received by the stockholders of Capital Re upon
consummation of the merger, and no person is authorized to make any use of this
proxy statement/prospectus in connection with any such resale. Resales by
Capital Re affiliates must be separately registered or qualify for an exemption
under the Securities Act.
33
<PAGE>
THE SPECIAL MEETING
PURPOSE, TIME AND PLACE
This proxy statement/prospectus is being furnished to stockholders of
Capital Re in connection with the solicitation of proxies by Capital Re from
holders of Capital Re common stock for use at the Capital Re special meeting to
be held on October 4, 1999, at 10:00 a.m., and at any adjournments or
postponements thereof. At the meeting, holders of Capital Re common stock will
be asked to consider and vote on the proposal to adopt the merger agreement and
approve the merger and on any other business as may properly come before the
special meeting.
The board of directors of Capital Re has unanimously determined that the
merger agreement and the merger are advisable and fair to and in the best
interests of Capital Re and its stockholders, has adopted the merger agreement
and unanimously recommends a vote for the adoption of the merger agreement and
approval of the merger.
RECORD DATE; QUORUM; VOTE REQUIRED
Record Date. Capital Re has established the close of business on September
2, 1999 as the record date to determine the holders of Capital Re common stock
entitled to notice of, and to vote at, the special meeting. Only holders of
record of Capital Re common stock at the close of business, which is 5:00 p.m.,
New York time, on the record date will be entitled to notice of, and to vote
at, the Capital Re special meeting. At the close of business on the record
date, 36,523,398 shares of Capital Re common stock were outstanding and were
held by approximately thirty eight holders of record. The Capital Re common
stock constitutes the only outstanding class of voting securities of Capital
Re. Each share of Capital Re common stock is entitled to one vote on the
adoption of the merger agreement. Votes may be cast at the Capital Re special
meeting in person or by proxy.
Quorum. The presence at the Capital Re special meeting of the holders of a
majority of the outstanding shares of Capital Re common stock, either in person
or by proxy, is necessary to constitute a quorum to transact business at the
Capital Re special meeting. In the event that a quorum is not present at the
Capital Re special meeting, it is expected that the meeting will be adjourned
or postponed in order to solicit additional proxies.
Abstentions and broker non-votes will be counted as shares present for
purposes of determining the presence or absence of a quorum at the Capital Re
special meeting. Broker non-votes are shares held by brokers or nominees that
are represented at a meeting but with respect to which the broker or nominee is
not empowered to vote on a particular matter.
If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the beneficial owner of shares held in street name
and this proxy statement/prospectus is being forwarded to you by your broker or
nominee who is considered the record holder with respect to the shares. As the
beneficial owner, you have the right to direct the record holder of your shares
on how to vote. If you do not instruct the record holder of your shares on how
to vote and he or she returns the proxy in respect of your shares, he or she
will be deemed by Capital Re to be present at the special meeting and your
shares will be deemed represented at the meeting for purposes of determining
the presence or absence of a quorum.
Vote Required.
The affirmative vote of the holders of a majority of the outstanding shares
of common stock of Capital Re is required for adoption of the merger agreement.
Constellation Investments, Inc., a holder of 4,984,340 shares, or approximately
13.6%, of Capital Re's issued and outstanding common stock has agreed to vote
all of its shares to adopt the merger agreement and approve the merger. MP
Investments, Inc., a holder of 7,280,480 shares, or approximately 19.9%, of
Capital Re's issued and outstanding common stock has agreed to vote all of its
shares to adopt the merger agreement and approve the merger. The voting
agreements with Constellation Investments, Inc. and MP Investments, Inc.
terminate if the merger agreement is terminated.
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<PAGE>
Constellation Investments, Inc., MP Investments, Inc. and ACE together own
approximately 45.8% of Capital Re common stock and will vote all of their
shares in favor of adoption of the merger agreement and approval of the merger.
Abstentions from voting may be specified with respect to the adoption of the
merger agreement by properly marking the "ABSTAIN" box on the proxy for the
adoption of the merger agreement. Abstentions, broker non-votes and failures to
vote will have the effect of votes cast against the adoption of the merger
agreement.
PROXIES
Shares of Capital Re common stock represented by properly executed proxies
received in time for the Capital Re special meeting will be voted at the
Capital Re special meeting in the manner specified on such proxies. Proxies
that are properly executed but that do not contain voting instructions will be
voted FOR the adoption of the merger agreement and approval of the merger. No
other matter other than the adoption of the merger agreement and approval of
the merger may be brought before the Capital Re special meeting.
In the event that a quorum is not present at the time the Capital Re special
meeting is convened, or if for any other reason Capital Re believes that
additional time should be allowed for the solicitation of proxies, Capital Re
may adjourn the Capital Re special meeting with or without a vote of the
stockholders. If Capital Re proposes to adjourn the Capital Re special meeting
by a vote of the stockholders, the persons named in the enclosed form of proxy
will vote all shares of Capital Re common stock for which they have voting
authority in favor of an adjournment.
The grant of a proxy on the enclosed Capital Re proxy card does not preclude
a stockholder from voting in person at the Capital Re special meeting. A
stockholder may revoke a proxy at any time prior to its exercise by:
--delivering, prior to the Capital Re special meeting, to Capital Re
Corporation, Attention: Secretary, a written notice of revocation bearing
a later date or time than the revoked proxy;
--completing and submitting a new later-dated proxy card; or
--attending the Capital Re special meeting and voting in person.
Attendance at the Capital Re special meeting will not by itself constitute
revocation of a proxy; a stockholder must vote in person at the meeting. If a
broker has been instructed to vote a stockholder's shares, the stockholder must
follow directions received from the broker in order to change the stockholder's
vote.
Capital Re will bear the cost of solicitation of proxies from its
stockholders, except that Capital Re and ACE will share equally the cost of
printing this proxy statement/prospectus and filing it with the Securities and
Exchange Commission. In addition to solicitation by mail, the directors,
officers and employees of Capital Re and its subsidiaries may solicit proxies
from Capital Re stockholders by telephone, fax, telegram or in person.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and Capital Re will
reimburse the custodians, nominees and fiduciaries for their reasonable out-of-
pocket expenses in connection with their forwarding of solicitation material.
If your shares are registered in the name of your broker and you would like to
vote your shares, you need to contact your broker and have the stock registered
in your name.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP, Capital Re's independent accountants,
are expected to be present at the Capital Re special meeting, where they will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION OF ACE
On July 2, 1999, ACE purchased the international and domestic property and
casualty businesses of CIGNA for $3.45 billion in cash. Under the terms of the
agreement, ACE acquired CIGNA's domestic property and casualty insurance
operations and also its international property and casualty insurance companies
and branches, including most of the accident and health business written
through those companies. National Indemnity Company, a subsidiary of Berkshire
Hathaway Inc., provided $1.25 billion of reinsurance against unanticipated
increases in recorded reserves for insurance losses and loss adjustment
expenses of certain subsidiaries being acquired by ACE. ACE financed this
acquisition with a combination of available cash, a hybrid trust preferred
security, and the remainder with commercial paper issuance. We intend to
replace the commercial paper with a combination of newly issued ACE ordinary
shares, senior debt, including the notes, and trust preferred securities.
On June 11, 1999, ACE announced that it had entered into an Agreement and
Plan of Merger for the acquisition of Capital Re. Capital Re's stockholders
will receive 0.60 ordinary shares of ACE for each share of common stock of
Capital Re at closing, subject to a maximum value to Capital Re stockholders of
$22 per share. It is anticipated that the transaction will be completed during
the second half of calendar 1999, subject to customary closing conditions,
including approval of the merger by Capital Re's shareholders and receipt of
necessary regulatory approval.
The following unaudited pro forma condensed consolidated balance sheet as of
June 30, 1999 gives effect to the acquisition of CIGNA's property and casualty
businesses and Capital Re as if they had occurred on June 30, 1999. The
unaudited pro forma condensed consolidated statements of operations for the
twelve months ended September 30, 1998 and for the nine months ended June 30,
1999 present operating results of ACE as if these acquisitions had occurred on
October 1, 1997. These amounts do not include ACE's estimate of the expected
annual operating expense savings from the acquisition of CIGNA's property and
casualty businesses.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with ACE's consolidated financial statements included in
ACE's Annual Report on Form 10-K for the year ended September 30, 1998, the
unaudited consolidated financial statements of ACE included in ACE's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999, the audited combined
financial statements of CIGNA's property and casualty businesses for the year
ended December 31, 1998 previously filed as exhibit 99.1 to a Form 8-K filed by
ACE dated May 19, 1999, the consolidated financial statements of Capital Re
included in the Capital Re Annual Report on Form 10-K for the year ended
December 31, 1998 and the unaudited consolidated financial statements of
Capital Re included in the Capital Re Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999. 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 these acquisitions had occurred at the dates indicated or of the
consolidated results of future operations or of future financial position. For
the historical periods presented below, ACE's fiscal year ended on September
30. From and after July 2, 1999, ACE's fiscal year will end on December 31.
The acquisitions of CIGNA's property and casualty businesses and Capital Re
have both been accounted for as a purchase in accordance with generally
accepted accounting principles. Under purchase accounting, the total purchase
price is allocated to the acquired assets and liabilities based on their fair
values.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At June 30, 1999
-----------------------------------------------------------------------------------------------
Pro Forma
Pro Forma Combined
Combined for CIGNA
for CIGNA P&C and
CIGNA Pro Forma P&C Pro Forma Capital Re
ACE P&C Adjustments Notes Acquisition Capital Re Adjustments Notes Acquisitions
----------- ------- ----------- ----- ----------- ----------- ----------- ------ ------------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total investments and
cash.................. $ 6,561 $ 9,244 $ 2,025 (2)
(3,450) (1)
(1,250) (3) $ 13,130 $1,249 $ (75) (13) $ 14,304
Reinsurance
recoverables.......... 1,291 6,044 1,250 (3) 8,585 4 8,589
Premiums receivable.... 459 2,329 -- 2,788 16 2,804
Other assets........... 823 2,500 118 (4) 3,441 262 3,703
Goodwill............... 534 394 1,501 (6)
71 (5) 2,500 41 (10)
75 (13) 2,616
----------- ------- --------- ----------- ------ ---------- -----------
Total assets.......... $ 9,668 $20,511 $ 265 $ 30,444 $1,531 $ 41 $ 32,016
=========== ======= ========= =========== ====== ========== ===========
Unpaid losses and loss
expenses.............. 3,803 14,425 -- 18,228 143 18,371
Unearned premiums...... 847 1,378 -- 2,225 425 2,650
Trust Preferred
Securities............ 400 -- 400 75 475
Indebtedness........... 250 -- 2,025 (2) 2,275 100 2,375
Other liabilities...... 430 3,057 (230) (4)
50 (1) 3,307 233 5 (10) 3,545
----------- ------- --------- ----------- ------ ---------- -----------
Total liabilities..... $ 5,730 $18,860 $ 2,245 $ 26,435 $ 976 $ 5 $ 27,416
----------- ------- --------- ----------- ------ ---------- -----------
Total shareholders'
equity................ 3,938 1,651
230 (4)
118 (4)
71 (5)
(1,999) (7) 4,009 555 584 (9)
7 (11)
(555) (12) 4,600
----------- ------- --------- ----------- ------ ---------- -----------
Total liabilities, and
shareholders equity.. $ 9,668 $20,511 $ 265 $ 30,444 $1,531 $ 41 $ 32,016
=========== ======= ========= =========== ====== ========== ===========
Shares outstanding on a
fully diluted basis... 203,494,644 2,544,000 (5) 206,038,699 20,103,571 (9)(11) 226,142,215
=========== ========= =========== ========== ===========
Fully diluted book
value per
share(8)(14).......... $ 20.24 $ 20.34 $ 21.18
=========== =========== ===========
</TABLE>
37
<PAGE>
PRO FORMA BALANCE SHEET FOOTNOTES
(1) Under the terms of the acquisition agreement by and among CIGNA
Corporation, CIGNA Holdings, Inc and ACE dated January 11, 1999, ACE paid
a total purchase price of $3.45 billion. In addition, ACE expects to incur
approximately $50 million of estimated transaction related expenses.
(2) The $3.45 billion purchase price was initially financed with $1.025
billion of available cash, $400 million from a hybrid trust preferred
security and the remainder with commercial paper issuance (the "initial
financing"). Ultimately, the commercial paper will be replaced with a
combination of newly issued ACE ordinary shares, senior debt, including
the notes, and trust preferred securities (together the "permanent
financing"). ACE will issue each of the new ACE ordinary shares, senior
debt and trust preferred securities at the time when ACE considers market
conditions to be most favorable for issuance. These pro forma financial
statements reflect the initial financing described above.
(3) Under the terms of the acquisition agreement, CIGNA agreed to provide a
guarantee to ACE to indemnify against unanticipated increases in recorded
reserves for losses and loss adjustment expenses of certain subsidiaries
being acquired by ACE. CIGNA had the option to replace its guarantee with
reinsurance obtained from a mutually agreed upon third party reinsurer.
Contemporaneous with the consummation of the acquisition, CIGNA exercised
its option and replaced its guarantee with reinsurance by directing
certain subsidiaries being acquired to transfer $1.25 billion of
investments to a reinsurer for aggregate coverage of $2.5 billion. Such
coverage attached at an amount equal to the net recorded reserves of the
certain subsidiaries acquired, on the closing date, minus $1.25 billion.
(4) Under the terms of the acquisition agreement, CIGNA Corporation: (a)
forgave certain inter-company indebtedness amounting to $118 million, and
(b) retained certain net employment and post-employment related
liabilities amounting to approximately $230 million.
(5) Pursuant to the acquisition agreement, all unvested options to acquire
shares of CIGNA and all unvested restricted stock of CIGNA held by CIGNA
employees that transferred to ACE were cancelled by CIGNA and replaced
with restricted stock of ACE. As a result, ACE will issue approximately
2,544,000 shares of restricted stock for a total value of approximately
$71 million to those new ACE employees. ACE will record the fair value of
these ACE shares as part of the purchase price of the acquired businesses.
(6) Under purchase accounting, the total purchase price is allocated to the
acquired assets and liabilities assumed based on their fair values. The
excess of the cost of the transaction (including expenses incurred by ACE
related to the transaction estimated at $50 million and the value of new
ACE restricted stock discussed in note 5) over the fair value of net
tangible assets acquired is recorded as goodwill. Goodwill is expected to
be amortized on a straight line basis over 40 years.
(7) This adjustment reflects the consolidation adjustment to eliminate the
shareholder's equity of the acquired businesses after adjustment for the
items discussed in notes 4 and 5.
(8) Fully diluted book value per share is based on the sum of the total
shareholders' equity and the aggregate proceeds assuming exercise of all
outstanding ACE options.
(9) The Agreement and Plan of Merger among Capital Re Corporation, ACE and
CapRe Acquisition Corp. dated June 10, 1999 provides that, at the
effective time of the merger, each Capital Re common share issued and
outstanding immediately prior to the effective time will be converted into
the right to receive 0.60 ACE ordinary shares in accordance with the
applicable exchange ratio. This value has been 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 merger) 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) a later date
if any significant terms of the transaction change. The original terms of
the Capital Re merger were agreed and announced on May 27, 1999. For
purposes of the pro forma financial statements, ACE has used a $30.3125
share price and has assumed that it will issue 19,259,171 ACE ordinary
shares (with a total value of $583.8 million) in exchange for Capital Re
common shares.
(10) Under purchase accounting, the total purchase price is allocated to the
acquired assets and liabilities assumed 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 million) over the fair value of
the Capital Re net assets acquired is recorded as goodwill. Based on the
value of the ACE ordinary shares expected to be issued,
38
<PAGE>
PRO FORMA BALANCE SHEET FOOTNOTES
including the ACE options described in note 11, to effect the merger, ACE
would record goodwill of $116 million as a result of the merger (see
discussion of purchase price in note 9 above). Goodwill is expected to be
amortized on a straight line basis over 25 years.
(11) Pursuant to the merger agreement, all of Capital Re stock options
outstanding will be cancelled and replaced with ACE options. ACE will
also issue restricted shares of ACE ordinary shares to certain Capital Re
employees in conjunction with the merger. ACE will record the value of
these ACE options and the restricted stock of approximately $7 million as
part of the purchase price of Capital Re.
(12) The adjustment reflects the consolidation adjustment to eliminate Capital
Re's shareholders' equity.
(13) Eliminates ACE's current investment of $75 million in Capital Re.
(14) 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 Capital Re stock options that will be
cancelled and replaced with ACE options.
39
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended June 30, 1999
----------------------------------------------------------------------------------------------------------
Pro Forma
Pro Forma Combined for
Combined CIGNA
for CIGNA P&C and
CIGNA Pro Forma P&C Pro forma Capital
ACE P&C (1) Adjustments Notes Acquisition Capital Re(8) Adjustments Notes Re Acquisition
----------- ------- ----------- ------ ----------- -------------- ----------- ------- --------------
(dollars in millions, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Premiums
Written........ $ 887 $ 2,188 $ 3,075 $ 160 $ 3,235
Net Premiums
Earned......... 804 2,174 2,978 122 3,100
Net investment
income......... 256 413 $ (106) (2)(3) 563 51 614
Other revenues.. 213 213 5 218
Losses and loss
expenses....... (523) (1,698) 61 (3) (2,160) (241) (2,401)
Acquisition
costs and
administrative
expenses....... (231) (740) (971) (62) (1,033)
Other expenses.. (27) (515) (136) (4)(5) (678) (6) $ (3) (11) (687)
Income tax...... (15) 34 31 (6) 50 52 102
----------- ------- --------- ----------- ----- ---------- -----------
Income (loss)
excluding net
realized gains
(losses)....... 264 (119) (150) (5) (79) (3) (87)
Net realized
gains (losses)
on
investments.... 173 68 241 (2) 239
Cumulative
effect of
accounting
change for
guaranty fund
and other
insurance
related
assessments,
net of taxes... (85) (85) (85)
----------- ------- --------- ----------- ----- ---------- -----------
Income (loss)
from continuing
operations..... 437 (136) (150) 151 (81) (3) 67
Loss from
discontinued
operations, net
of tax......... (26) (26)
=========== ======= ========= ----------- ----- ---------- -----------
Net Income
(loss)......... $ 437 $ (136) $ (150) $ 151 $(107) $ (3) $ 41
=========== ======= ========= =========== ===== ========== ===========
Basic earnings
per share,
excluding net
realized gains
(losses) and
cumulative
effect of
accounting
change......... $ 1.36 $ (0.03) $ (0.52)
=========== =========== ===========
Basic earnings
per share from
continuing
operations..... $ 2.25 $ .77 $ .31
=========== =========== ===========
Basic earnings
per share...... $ 2.25 $ .77 $ .19
=========== =========== ===========
Weighted average
shares
outstanding--
basic.......... 193,802,722 2,544,000 (7) 196,346,722 19,259,171 (9) 215,605,893
=========== ========= =========== ========== ===========
Diluted Earnings
per share,
excluding net
realized gains
(losses) and
cumulative
effect of
accounting
change......... $ 1.34 $ (0.03) $ (0.52)
=========== =========== ===========
Diluted earnings
per share from
continuing
operations..... $ 2.21 $ .76 $ .31
=========== =========== ===========
Diluted earnings
per share...... $ 2.21 $ .76 $ .19
=========== =========== ===========
Weighted average
shares
outstanding--
diluted........ 197,258,687 2,544,000 (7) 199,802,687 19,602,730 (9)(10) 219,405,417
=========== ========= =========== ========== ===========
</TABLE>
40
<PAGE>
PRO FORMA FOOTNOTES FOR THE NINE MONTHS ENDED JUNE 30, 1999
(1) The combined statements of operations of CIGNA's property and casualty
businesses reflect its results of operations for the nine months ended
June 30, 1999.
(2) ACE funded part of the purchase price with $1.025 billion of cash on hand.
The estimated investment income on this $1.025 billion of the purchase
price has been eliminated (based on a yield of 5.8% that approximates the
yield on the ACE portfolio for the fiscal year ended September 30, 1998).
(3) Under the terms of the acquisition agreement, CIGNA agreed to provide a
guarantee to ACE to indemnify against unanticipated increases in recorded
reserves for losses and loss adjustment expenses of certain subsidiaries
being acquired by ACE. CIGNA had the option to replace its guarantee with
reinsurance obtained from a mutually agreed upon third party reinsurer.
Contemporaneous with the consummation of the acquisition, CIGNA exercised
its option and replaced its guarantee with reinsurance by directing
certain subsidiaries being acquired to transfer $1.25 billion of
investments to a reinsurer for aggregate coverage of $2.5 billion. Such
coverage attached at an amount equal to the net recorded reserves of the
certain subsidiaries acquired, on the closing date, minus $1.25 billion.
The estimated investment income on this $1.25 billion has been eliminated
(based on a yield of 6.5% that approximates the yield on the applicable
portion of the acquired businesses' portfolio for the fiscal year ended
December 31, 1998). The pro forma adjustment to losses and loss expenses
reflects the estimated historical adverse development recorded during the
period on the guaranteed reserves.
(4) In addition to the $1.025 billion of cash on hand, ACE funded part of the
purchase price with $400 million from a hybrid trust preferred security
and the remainder with commercial paper issuance (the "initial
financing"). Interest on the hybrid trust preferred security and
commercial paper has been calculated at rates of 8.5% and 5.3%,
respectively. Ultimately, the commercial paper will be replaced with a
combination of newly issued ACE ordinary shares, senior debt, including
the notes, and trust preferred securities (together the "permanent
financing"). ACE will issue each of the new ACE ordinary shares, senior
debt and trust preferred securities at the time when ACE considers market
conditions to be most favorable for issuance. These pro forma financial
statements reflect the initial financing described above.
(5) Any excess between the purchase price and the fair value of acquired net
tangible assets will be allocated to goodwill. These pro forma financial
statements reflect all of the excess purchase price over net tangible
assets as goodwill. This entry reflects the amortization of goodwill for
the period.
(6) The estimated income tax savings is based on the estimated reduction in
net income before tax as a result of interest expense on the initial
financing.
(7) Pursuant to the acquisition agreement, all unvested options to acquire
shares of CIGNA and all unvested restricted stock of CIGNA held by CIGNA
employees who transferred to ACE were cancelled by CIGNA and replaced with
restricted stock of ACE. As a result, ACE will issue approximately
2,544,000 shares of restricted stock to those new ACE employees.
(8) The Capital Re consolidated statements of operations reflect its results
of operations for the nine months ended June 30, 1999.
(9) The Agreement and Plan of Merger among Capital Re Corporation, ACE, and
CapRe Acquisition Corp. dated June 10, 1999 provides that, at the
effective time of the merger, each Capital Re common share issued and
outstanding immediately prior to the effective time will be converted into
the right to receive 0.60 ACE ordinary shares in accordance with the
applicable exchange ratio. 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 any significant terms of the transaction change. The
original terms of the amalgamation were agreed and announced on May 27,
1999. For purposes of the pro forma financial statements, ACE has used a
$30.3125 share price and has assumed that it will issue 19,259,171 ACE
ordinary shares (with a total value of $583.8 million) in exchange for
Capital Re common shares. Fees and other expenses related to the
transaction are estimated to be $5 million.
41
<PAGE>
PRO FORMA FOOTNOTES FOR THE NINE MONTHS ENDED JUNE 30, 1999
(10) All of the outstanding options to purchase Capital Re common shares will
be cancelled and replaced with options to purchase ACE ordinary shares.
This adjustment represents the weighted average number of ordinary share
equivalents outstanding related to the newly issued ACE options.
(11) Amortization of goodwill created by the acquisition of Capital Re is
expected to be amortized over 25 years.
42
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30, 1998
------------------------------------------------------------------------------------------------
Pro Forma
Pro Forma Combined for
Combined for CIGNA
CIGNA CIGNA P&C and
P&C Pro Forma P&C Capital Pro Forma Capital Re
ACE (1) Adjustments Notes Acquisition Re (8) Adjustments Notes Acquisitions
------------ ------ ----------- ----- ------------ ------- ----------- ------ ------------
(dollars in millions, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Premiums Written.... $ 881 $2,990 $ 3,871 $211 $ 4,082
Net Premiums Earned..... 894 2,957 3,851 168 4,019
Net investment income... 324 590 $ (141) (2)(3) 773 65 838
Other revenues.......... 282 282 3 285
Losses and loss
expenses............... (517) (2,247) 81 (3) (2,683) (86) (2,769)
Acquisition costs and
administrative
expenses............... (271) (1,500) (1,771) (86) (1,857)
Other expenses.......... (38) (180) (4)(5) (218) (7) $ (5) (11) (230)
Income tax.............. (20) (30) 42 (6) (8) (11) (19)
------------ ------ --------- ------------ ---- ----------- ------------
Income excluding net
realized gains (losses)
....................... 372 52 (198) 226 46 (5) 267
Net realized gains
(losses) on investments
....................... 188 22 210 (2) 208
------------ ------ --------- ------------ ---- ----------- ------------
Income from continuing
operations............. 560 74 (198) 436 44 (5) 475
Loss from discontinued
operations (3) (3)
------------ ------ --------- ------------ ---- ----------- ------------
Net Income.............. $ 560 $ 74 $ (198) $ 436 $ 41 $ (5) $ 472
============ ====== ========= ============ ==== =========== ============
Basic earnings per
share, excluding
realized gains (losses)
and loss from
discontinued
operations............. $ 2.01 $ 1.20 $ 1.29
============ ============ ============
Basic earnings per share
from continuing
operations............. $ 3.03 $ 2.32 $ 2.30
============ ============ ============
Basic earnings per
share.................. $ 3.03 $ 2.32 $ 2.28
============ ============ ============
Weighted average shares
outstanding--basic..... 185,130,479 2,544,000 (7) 187,674,479 19,259,171 (9) 206,933,650
============ ========= ============ =========== ============
Diluted Earnings per
share, excluding
realized gains (losses)
and loss from
discontinued
operations............. $ 1.97 $ 1.18 $ 1.26
============ ============ ============
Diluted earnings per
share from continuing
operations............. $ 2.96 $ 2.27 $ 2.24
============ ============ ============
Diluted earnings per
share.................. $ 2.96 $ 2.27 $ 2.23
============ ============ ============
Weighted average shares
outstanding--diluted... 189,281,175 2,544,000 (7) 191,825,175 20,111,846 (9)(10) 211,937,021
============ ========= ============ =========== ============
</TABLE>
43
<PAGE>
PRO FORMA FOOTNOTES FOR THE YEAR ENDED SEPTEMBER 30, 1998
(1) The combined statements of operations of CIGNA's property and casualty
businesses reflect its results of operations for the year ended December
31, 1998.
(2) ACE funded part of the purchase price with $1.025 billion of cash on hand.
The estimated investment income on this $1.025 billion of the purchase
price has been eliminated (based on a yield of 5.8% that approximates the
yield on the ACE portfolio for the fiscal year ended September 30, 1998).
(3) Under the terms of the acquisition agreement, CIGNA agreed to provide a
guarantee to ACE to indemnify against unanticipated increases in recorded
reserves for losses and loss adjustment expenses of certain subsidiaries
being acquired by ACE. CIGNA had the option to replace its guarantee with
reinsurance obtained from a mutually agreed upon third party reinsurer.
Contemporaneous with the consummation of the acquisition, CIGNA exercised
its option and replaced its guarantee with reinsurance by directing certain
subsidiaries being acquired to transfer $1.25 billion of investments to a
reinsurer for aggregate coverage of $2.5 billion. Such coverage attached at
an amount equal to the net recorded reserves of the certain subsidiaries
acquired, on the closing date, minus $1.25 billion. The estimated
investment income on this $1.25 billion has been eliminated (based on a
yield of 6.5% that approximates the yield on the applicable portion of the
acquired businesses' portfolio for the fiscal year ended December 31,
1998). The pro forma adjustment to losses and loss expenses reflects the
estimated historical adverse development recorded during the period on the
guaranteed reserves.
(4) In addition to the $1.025 billion of cash on hand, ACE funded part of the
purchase price with $400 million from a hybrid trust preferred security and
the remainder with commercial paper issuance (the "initial financing").
Interest on the hybrid trust preferred security and commercial paper has
been calculated at rates of 8.5% and 5.3%, respectively. Ultimately, the
commercial paper will be replaced with a combination of newly issued ACE
ordinary shares, senior debt, including the notes, and trust preferred
securities (together the "permanent financing"). ACE will issue each of the
new ACE ordinary shares, senior debt and trust preferred securities at the
time when ACE considers market conditions to be most favorable for
issuance. These pro forma financial statements reflect the initial
financing described above.
(5) Any excess between the purchase price and the fair value of acquired net
tangible assets will be allocated to goodwill. These pro forma financial
statements reflect all of the excess purchase price over net tangible
assets as goodwill. This entry reflects the amortization of goodwill for
the period.
(6) The estimated income tax savings is based on the estimated reduction in net
income before tax as a result of interest expense on the initial financing.
(7) Pursuant to the acquisition agreement, all unvested options to acquire
shares of CIGNA and all unvested restricted stock of CIGNA held by CIGNA
employees who transferred to ACE were cancelled by CIGNA and replaced with
restricted stock of ACE. As a result, ACE will issue approximately
2,544,000 shares of restricted stock to those new ACE employees.
(8) The Capital Re consolidated statements of operations reflect its results of
operations for the year ended December 31, 1998.
(9) The merger agreement provides that, at the effective time, each Capital Re
common share issued and outstanding immediately prior to the effective time
will be converted into the right to receive 0.60 ACE ordinary shares in
accordance with the applicable exchange ratio. 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) a later date if any significant terms of the
transaction change. The original terms of the amalgamation were agreed and
announced on May 27, 1999. For purposes of the pro forma financial
statements, ACE has used a $30.3125 share price and has assumed that it
will issue 19,259,171 ACE ordinary shares (with a total value of $583.8
million) in exchange for Capital Re common shares. Fees and other expenses
related to the transaction are estimated to be $5 million.
44
<PAGE>
PRO FORMA FOOTNOTES FOR THE YEAR ENDED SEPTEMBER 30, 1998
(10) All of the outstanding options to purchase Capital Re common shares will
be cancelled and replaced with options to purchase ACE ordinary shares.
This adjustment represents the weighted average number of ordinary share
equivalents outstanding related to the newly issued ACE options.
(11) Amortization of goodwill created by the acquisition of Capital Re is
expected to be amortized over 25 years.
45
<PAGE>
INFORMATION REGARDING DIRECTORS, EXECUTIVE OFFICERS AND
FIVE PERCENT STOCKHOLDERS
Other Interests of Directors and Executive Officers in the Merger
In considering the recommendation of the Capital Re board with respect to
the merger agreement and the merger, you should be aware that the directors and
executive officers of Capital Re have interests in the merger that are
different from, and in addition to, your interests. The Capital Re board was
aware of and considered these interests in adopting the merger agreement and
approving the merger.
Employment Arrangements
ACE has entered into agreements with five senior Capital Re executives:
David A. Buzen, Laurence C.D. Donnelly, Jerome F. Jurschak, Alan S. Roseman and
Joseph W. Swain III. These agreements provide that, following the merger, these
persons will continue to be employed by Capital Re in positions of
responsibility similar to their current positions. The agreements also provide
that each executive will receive the following benefits in addition to amounts
provided under his current employment agreement:
--retention payments of $200,000 on each of January 1, 2002 and January 1,
2003, if the executive continues to be employed;
--stock options for 50,000 ACE ordinary shares;
--a grant of 20,000 shares of restricted ACE ordinary shares; and
--an additional grant of restricted ACE ordinary shares if the fair market
value of ACE ordinary shares increases between June 10, 1999 and the
closing date of the merger.
Except as described above, no employment agreements or consulting agreements
have been entered into with these or any other employees of Capital Re in
connection with the merger.
Performance Share Plan
Effective July 1, 1996, Capital Re adopted a performance share plan to
provide performance-based compensation to some of its officers and key
employees. The performance share plan provides that, in the event of a change
in control, any increase in the share price of Capital Re common stock will be
the sole performance criterion for determining eligibility for payments under
the performance share plan. The merger will be a change in control. If the
merger is completed, the aggregate value of performance share awards, based on
the maximum merger consideration of $22.00 per share, would be $1,328,859. The
value of the awards to Capital Re's executive officers would be as follows:
<TABLE>
<S> <C>
David A. Buzen..................................... $119,597
Laurence C.D. Donnelly............................. $119,597
Susan L. Hooker.................................... $ 33,221
Jerome F. Jurschak................................. $119,597
Alan S. Roseman.................................... $119,597
Joseph W. Swain III................................ $119,597
</TABLE>
If the price of Capital Re common stock does not exceed $18.625 per share,
there will be no performance shares awarded to Capital Re's executive officers.
Under the terms of the merger agreement, for a period of six years after the
closing of the merger, ACE is required to cause Capital Re to indemnify the
current and former directors and officers of Capital Re as provided in Capital
Re's certificate of incorporation and by-laws in effect on June 10, 1999, the
date the merger agreement was entered into. In addition, for a period of not
less than one year after the closing of the
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merger, ACE is obligated to cause Capital Re to maintain in effect its
directors' and officers' liability insurance policy, so long as the annual
premium does not exceed 150% of the last annual premium paid by Capital Re
prior to June 10, 1999. Instead of maintaining Capital Re's current policy, ACE
may cause no less favorable coverage to be provided under any policy maintained
by ACE for its directors and officers or a separate policy maintained by the
same insurer.
Stock Options Held by Capital Re Directors and Executive Officers
The merger agreement provides that outstanding options to purchase Capital
Re common stock will be replaced by options to purchase ACE ordinary shares.
The total number of ACE options will be determined by multiplying the number of
shares of Capital Re common stock subject to options times the exchange ratio.
The exercise price of the ACE options will be determined by dividing the
exercise price per share of the Capital Re options by the exchange ratio.
Ownership of Capital Re Common Stock
The following table sets forth certain information as of August 30, 1999
(unless otherwise specified) with respect to the beneficial ownership of
Capital Re's common stock by each person who is known to Capital Re to
beneficially own more than 5% of the outstanding shares of Capital Re common
stock, each director, each named officer, as described below, and all directors
and executive officers as a group. Unless otherwise described below, all shares
are held with sole voting and dispositive power by the parties shown.
<TABLE>
<CAPTION>
Shares of
Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Class
- ------------------------------------ ------------------ ----------
<S> <C> <C>
Minnesota Power(1).............................. 7,280,480 19.9%
30 W. Superior Street
Duluth, Minnesota 55802
Constellation Investments, Inc.(1).............. 4,984,340 13.6%
250 W. Pratt Street, 23rd floor
Baltimore, Maryland 21201
ACE............................................. 4,499,279(2) 12.3%
Harrison W. Conrad, Jr.......................... 9,200(3) *
Richard L. Huber................................ 10,000(4) *
Philip Robinson................................. 11,000(5) *
Edwin L. Russell................................ 4,000 *
Barbara D. Stewart.............................. 9,000(6) *
Jerome F. Jurschak (1).......................... 478,700(7) 1.31%
Joseph W. Swain III............................. 185,300(8) *
David A. Buzen.................................. 320,750(9) *
Laurence C.D. Donnelly.......................... 333,870(10) *
Susan Hooker.................................... 40,650(11) *
All Directors and Executive Officers as a group
(11 persons)................................... 1,685,420(12) 4.6%
</TABLE>
- --------
*Less than 1%
(1) Parties to the 1992 Stockholders' Agreement. Constellation is an indirect
subsidiary of Baltimore Gas and Electric Company. Under the voting
provisions of the 1992 Stockholders' Agreement, each Institutional
Stockholder party to the 1992 Stockholders' Agreement may be deemed to
have shared voting power with respect to the shares of all parties to the
1992 Stockholders' Agreement and, accordingly, for certain limited
purposes of the Federal securities laws, each institutional stockholder
may be deemed to be the beneficial owner of the shares beneficially held
by all parties to the 1992 Stockholders' Agreement.
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<PAGE>
(2) Does not include (i) 7,280,480 shares of Capital Re common stock
beneficially owned by Minnesota Power or 4,984,340 shares of Capital Re
common stock beneficially owned by Constellation Investments, Inc. which
ACE may be deemed to beneficially own as a result of the execution of
voting agreements with Minnesota Power and Constellation Investments, Inc.
or (ii) 3,220,135 shares of Capital Re common stock issuable under the
Stock Option Agreement.
(3) Includes 9,000 shares Mr. Conrad has the right to acquire within sixty
days through exercise of outstanding options.
(4) Includes 9,000 shares Mr. Huber has the right to acquire within sixty days
through exercise of outstanding options.
(5) Includes 9,000 shares Mr. Robinson has the right to acquire within sixty
days through exercise of outstanding options.
(6) Includes 9,000 shares Ms. Stewart has the right to acquire within sixty
days through exercise of outstanding options.
(7) Includes 273,700 shares Mr. Jurschak has the right to acquire within sixty
days through exercise of outstanding options.
(8) Includes 183,600 shares Mr. Swain has the right to acquire within sixty
days through exercise of outstanding options.
(9) Includes 257,700 shares Mr. Buzen has the right to acquire within sixty
days through exercise of outstanding options.
(10) Includes 277,700 shares Mr. Donnelly has the right to acquire within sixty
days through exercise of outstanding options.
(11) Includes 40,650 shares Ms. Hooker has the right to acquire within sixty
days through exercise of outstanding options.
(12) Includes an aggregate of 1,311,350 shares that the executive officers and
directors have the right to acquire within sixty days through exercise of
outstanding options.
THE MERGER AGREEMENT
GENERAL
The merger agreement provides for the merger of a wholly owned subsidiary of
ACE, CapRe Acquisition Corp., into Capital Re, with Capital Re surviving the
merger as a wholly owned subsidiary of ACE. This section of the document
describes material provisions of the merger agreement. Because the description
of the merger agreement contained in this proxy statement/prospectus is a
summary, it does not contain all the information that may be important to you.
You should read carefully the entire copy of the merger agreement, which is
attached as Appendix A to this proxy statement/prospectus, before you decide
how to vote.
CLOSING OF THE MERGER; EFFECTIVE TIME OF THE MERGER; CAPITAL RE FOLLOWING THE
MERGER
Closing of the Merger. Unless the parties agree otherwise, the closing of
the merger will take place on the third business day after the date on which
all closing conditions have been satisfied or waived. The closing of the merger
is expected to take place shortly after the approval of the stockholders of
Capital Re at the special meeting and the receipt of all necessary insurance
and other regulatory approvals.
Effective Time of the Merger. At the closing of the merger, ACE and Capital
Re will file a certificate of merger with the Delaware Secretary of State.
Unless the parties agree otherwise in writing, the merger will become effective
at the time the certificate of merger is duly filed with the Delaware Secretary
of State.
Capital Re Following the Merger. Capital Re will be a wholly owned
subsidiary of ACE following the merger. The certificate of incorporation of
Capital Re will be amended in the merger to reduce the authorized
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<PAGE>
common stock of Capital Re to 1,000 shares, par value $0.01. The by-laws of
Capital Re will be the same as the by-laws of CapRe Acquisition Corp. prior to
the merger. The directors of Capital Re following the merger will be the
directors of CapRe Acquisition Corp. prior to the merger. The officers of
Capital Re following the merger will be the officers of Capital Re prior to the
merger, until their death, resignation or termination.
CONSIDERATION TO BE RECEIVED IN THE MERGER
In the merger:
--each share of Capital Re common stock outstanding immediately prior to
the effective time of the merger will be converted into the right to
receive 0.60 of an ACE ordinary share together with the associated
purchase rights under ACE's rights agreement, but, if the average closing
price of an ACE ordinary share, as reported on the New York Stock Exchange
for the twenty consecutive trading days ending three trading days prior to
the effective time of the merger is equal to or greater than $36.67 per
share, the number of ACE ordinary shares received by Capital Re
stockholders will be calculated by multiplying;
--22 divided by this average closing price;
times
--the number of Capital Re shares owned by the stockholder;
--each share of Capital Re common stock owned or held by ACE or Capital Re
or any of their direct or indirect subsidiaries, except for shares owned
on behalf of third parties, will cease to be outstanding and will be
canceled and retired without the payment of any consideration;
--each share of common stock of CapRe Acquisition Corp. outstanding
immediately prior to the effective time of the merger will be converted
into one validly issued, fully paid and non-assessable share of common
stock $0.01 par value of Capital Re, as the surviving corporation;
and
--each ACE ordinary share outstanding immediately prior to the merger will
remain outstanding following the merger and will continue to represent one
ACE ordinary share.
TREATMENT OF CAPITAL RE STOCK OPTIONS
As a result of the merger, each outstanding and unexercised option or right
to purchase Capital Re common stock issued under Capital Re's employee benefit
plans will be replaced with an option or right to purchase ACE ordinary shares
under ACE's existing stock option plan. The number and purchase price of the
new options will be adjusted to reflect the exchange ratio applied to the
conversion of outstanding shares of Capital Re common stock. The new options or
rights will otherwise have vesting and termination rights that are no less
favorable than those provided under the Capital Re stock options.
EXCHANGE OF SHARES; FRACTIONAL SHARES
Exchange Agent. Prior to the merger, ACE will enter into an agreement with
The Bank of New York to effect the exchange of certificates representing shares
of Capital Re common stock for certificates representing ACE ordinary shares,
any dividends or other distributions and cash to be paid in lieu of fractional
shares. At the time of the merger, ACE will deposit certificates representing
ACE ordinary shares in trust for the holders of Capital Re common stock. From
time to time as needed, ACE will make cash available to the exchange agent
sufficient to pay any unpaid dividends and other distributions and to pay cash
in lieu of fractional shares as described under "--Consideration to be Received
in the Merger" on this page.
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Exchange of Shares. Promptly after the merger, the exchange agent will mail
to each holder of a certificate of Capital Re common stock a letter of
transmittal and instructions explaining how to surrender the certificate to the
exchange agent in exchange for ACE ordinary shares.
Capital Re stockholders who surrender their stock certificates to the
exchange agent, together with a properly completed and signed letter of
transmittal and any other documents required by the instructions to the letter
of transmittal, will receive an ACE ordinary share certificate representing the
number of shares and associated purchase rights to which the holders are
entitled in accordance with the exchange ratio, with cash being paid in lieu of
fractional shares. Holders of unexchanged Capital Re stock certificates will
not receive any dividends or other distributions made by ACE after the merger
until their stock certificates are surrendered. Upon surrender, however,
subject to applicable laws, the holders will receive all dividends and
distributions made on the related ACE ordinary shares subsequent to the merger,
without interest, together with cash in lieu of fractional shares. Any ACE
ordinary shares or cash deposited in trust with the exchange agent that remain
undistributed 180 days after the merger will be delivered back to ACE, and
holders of Capital Re common stock thereafter will have to look to ACE for
exchanging their Capital Re common stock for the merger consideration.
Capital Re stock certificates should not be returned with the enclosed proxy
card and should not be forwarded to the exchange agent except with a signed
letter of transmittal and any other documents that may be required by the
exchange agent. The letter of transmittal will be provided to Capital Re
stockholders following the merger and will be accompanied by instructions for
exchanging your shares.
Fractional Shares. No fractional ACE ordinary shares will be issued to
holders of Capital Re common stock. In lieu of fractional shares, each holder
of shares of Capital Re common stock will receive cash in an amount equal to
the product of:
--the fractional part of a share held by the stockholder; and
--the average closing price for an ACE ordinary share on the New York Stock
Exchange on the twenty trading days prior to and ending three trading days
prior to the date of the merger.
No interest will be paid in connection with the payments for fractional
shares.
CONDITIONS TO THE MERGER
Conditions to Each Company's Obligation to Effect the Merger. The
obligations of each company to effect the merger are subject to the following
conditions, unless any such condition is waived by both companies:
--adoption of the merger agreement and approval of the merger by the
Capital Re stockholders;
--approval for listing by the New York Stock Exchange of the ACE ordinary
shares to be issued in the merger;
--receipt of all necessary regulatory approvals, including the expiration
or early termination of the waiting period under the Hart-Scott-Rodino Act
or similar statute in other jurisdictions;
--absence of any law or court order that prohibits the merger;
--the registration statement registering the ACE ordinary shares to be
received by Capital Re's stockholders becoming effective; and
--the Securities and Exchange Commission not having issued a stop order
suspending the effectiveness of the registration statement on Form S-4 of
which this proxy statement/prospectus will be a part and the absence of
any pending or threatened proceedings for such purpose.
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Additional Conditions to Obligations of ACE. The obligations of ACE to
effect the merger are further subject to the following additional conditions,
unless the condition is waived by ACE:
--the representations and warranties of Capital Re set forth in the merger
agreement being true and correct as of the closing of the merger, or if
the representation or warranty speaks as of another date, such
representation or warranty being true as of such date, except for such
inaccuracies that would not, individually or in the aggregate, have a
material adverse effect on Capital Re;
--there has not occurred any event, change, or effect since June 10, 1999
having or that would reasonably be likely to have, individually or in the
aggregate, a material adverse effect with respect to Capital Re, other
than changes in insurance laws and regulations affecting the reinsurance
industry generally;
--compliance by Capital Re in all material respects with its agreements and
covenants under the merger agreement;
--receipt of all necessary third party consents;
--the receipt by ACE of a written opinion of Mayer, Brown & Platt that:
--the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and
--each of ACE, Capital Re and CapRe Acquisition Corp. will be a party to
that reorganization within the meaning of Section 368(b) of the Internal
Revenue Code;
--confirmation that employment agreements for five of Capital Re's
executive officers are in full force and effect;
--there has not occurred any downgrading of the financial strength rating
of Capital Reinsurance Company below Aa3 by Moody's Investors Service,
Inc. or below AAA by Standard & Poor's Rating Services;
--there has not occurred any downgrading in the financial strength rating
of either Capital Mortgage Reinsurance Company or KRE Reinsurance Ltd.
below the double A category by Standard & Poor's Rating Services;
--there shall not be an announcement of a credit watch or a credit review
action with respect to the ratings of Capital Reinsurance Company, Capital
Mortgage Reinsurance Company or KRE Reinsurance Ltd. that ACE reasonably
believes, after discussions with the rating agency, will cause a downgrade
in the ratings either immediately after or as a result of consummation of
the merger; and
--there has been no notification from Moody's Investors Service, Inc. of
its determination not to provide to the financial guaranty ceding
companies of Capital Reinsurance Company at least 85% capital credit in
respect of Capital Re's reinsurance.
Additional Conditions to Obligations of Capital Re. The obligations of
Capital Re to effect the merger are further subject to the following additional
conditions, unless the condition is waived by Capital Re:
--the representations and warranties of ACE and CapRe Acquisition Corp. set
forth in the merger agreement being true and correct as of the closing of
the merger, or if the representation or warranty speaks as of another
date, such representation or warranty being true as of such date, except
for such inaccuracies that would not, individually or in the aggregate,
have a material adverse effect on ACE;
--there has not occurred any event, change, or effect since June 10, 1999
having or that would reasonably be likely to have, individually or in the
aggregate, a material adverse effect with respect to ACE, other than
changes in insurance laws and regulations affecting the reinsurance
industry generally;
--compliance by ACE and CapRe Acquisition Corp. in all material respects
with their agreements and covenants under the merger agreement;
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<PAGE>
--the receipt by Capital Re of a written opinion of Hogan & Hartson L.L.P.
that:
--the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and
--each of Capital Re, ACE and CapRe Acquisition Corp. will be a party to
that reorganization within the meaning of Section 368(b) of the Internal
Revenue Service.
REPRESENTATIONS AND WARRANTIES BY CAPITAL RE
The merger agreement contains representations and warranties, subject to
qualifications, made by Capital Re to ACE as to, among other things:
--its organization and the organization of its subsidiaries, including its
insurance subsidiaries, and their good standing;
--its capital structure;
--corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and consummate the merger;
--approval of the board of directors and all other corporate action having
been taken to adopt the merger agreement and the stock option agreement
and approve the transactions contemplated in and by those agreements;
--recommendation of the board of directors that Capital Re's stockholders
adopt the merger agreement and approve the merger;
--receipt of an opinion of Goldman Sachs that the exchange ratio is fair
from a financial point of view to the Capital Re stockholders;
--absence of breach or violation of organizational documents, governmental
permits or material agreements of entering into or consummating the merger
and related transactions;
--compliance, as to form, in all material respects, of each report filed by
Capital Re with the SEC and the absence of any untrue statement of a
material fact or omission of a material fact that is required or necessary
to make the statements in the filings, in light of the circumstances in
which they were made, not misleading;
--financial statements included in reports filed by Capital Re with the SEC
having been prepared in accordance with generally accepted accounting
principles, consistently applied;
--conformity of statutory financial statements with statutory accounting
principles and all applicable laws, rules and regulations when filed;
--absence of certain changes in the financial condition, properties,
business or results of operations of Capital Re since December 31, 1998;
--absence of pending or threatened litigation;
--absence of undisclosed liabilities;
--absence of any material legal action that would reasonably be expected to
have a material adverse effect on Capital Re;
--compliance with and absence of liability under the Employee Retirement
Income Security Act of 1974, as amended;
--compliance with federal, state, local and foreign laws and permits, and
the proper filing of permits and compliance with such laws for the last
three years;
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<PAGE>
--ownership or rights and licenses in and to all intellectual property
necessary to conduct Capital Re's business;
--establishment, budgeting and implementation of a Year 2000 compliance
program;
--compliance with all environmental laws;
--the fact that neither Capital Re nor its subsidiaries is an "investment
company";
--inapplicability of anti-takeover statutes;
--timely and accurate filing of tax returns;
--compliance with all labor laws, and absence of any plans of any officer,
director, executive or key employee to terminate his employment with
Capital Re;
--title to property and assets;
--all material contracts being in full force and effect and binding and
enforceable against Capital Re;
--the absence of employment of any broker or finder other than Goldman
Sachs;
--all material insurance policies being in full force and effect and
adequate to insure against Capital Re's risks;
--reserves of Capital Re carried on its statutory accounting policy
statements being in compliance in all material respects with the
requirements for reserves established by the insurance departments of each
state in which its insurance companies are incorporated; and
--lack of action or knowledge of any fact that would jeopardize the
transaction's qualification as a reorganization under Section 368(a) of
the Internal Revenue Code.
REPRESENTATIONS AND WARRANTIES BY ACE AND CAPRE ACQUISITION CORP.
The merger agreement contains representations and warranties, subject to
qualifications, made by ACE, and CapRe Acquisition Corp., as applicable, to
Capital Re as to, among other things:
--ACE's organization and the organization of its subsidiaries, including
CapRe Acquisition Corp. and its insurance subsidiaries, and their good
standing;
--capital structure of ACE and CapRe Acquisition Corp.;
--absence of prior business activity of CapRe Acquisition Corp.;
--authorization of the ACE ordinary shares to be issued to Capital Re's
stockholders;
--corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and consummate the merger;
--approval of the board of directors and all other corporate action having
been taken to adopt the merger agreement and the stock option agreement
and approve the transactions contemplated in and by those agreements;
--the ACE ordinary shares to be received by Capital Re stockholders being
validly issued, fully paid and non-assessable; not subject to any pre-
emptive right; when issued, registered under the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, and
exempt from registration under state securities laws;
--absence of breach or violation of organizational documents, governmental
permits or material agreements;
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<PAGE>
--compliance, as to form, in all material respects, of each report filed by
ACE with the SEC and the absence of any untrue statement of a material
fact or omission of a material fact that is required or necessary to make
the statements in the filings, in light of the circumstances in which they
were made, not misleading;
--financial statements included in reports filed by ACE with the SEC having
been prepared in accordance with generally accepted accounting principles,
consistently applied;
--absence of certain changes in the financial condition, properties,
business or results of operations of ACE since September 30, 1998;
--absence of pending or threatened litigation; and
--absence of employment of any broker or finder other than Credit Suisse
First Boston Corporation.
COVENANTS AND OTHER AGREEMENTS
Capital Re Operating Covenants. The merger agreement provides that prior to
the merger Capital Re will, and will cause its subsidiaries to, conduct their
operations in the ordinary course consistent with past practice, and will use
their best efforts to preserve intact their business organization, keep
available the services of their officers and key employees and maintain
advantageous relationships with persons having business relationships with
them. Subject to some exceptions, including Capital Re obtaining the consent of
ACE, the merger agreement places specific restrictions on the ability of
Capital Re and its subsidiaries to, among other things:
--split, combine or reclassify any shares of its capital stock or other
securities;
--declare, set aside for payment or consummate any dividend or other
distribution payable in cash, stock, property or otherwise, other than
regularly paid cash dividends not in excess of $0.04 per share;
--directly or indirectly redeem, purchase or otherwise acquire any shares
of its capital stock or other securities;
--authorize for issuance, issue, sell, pledge, dispose of, encumber,
deliver or agree or commit to issue, sell, pledge or deliver any capital
stock of any class of Capital Re or any subsidiary or any securities
convertible into or exercisable or exchangeable for shares of capital
stock of any class of Capital Re or any subsidiary;
--incur any material indebtedness not previously approved by ACE;
--incur any other indebtedness except in the ordinary course of business;
--pledge or otherwise encumber shares of capital stock of Capital Re or its
subsidiaries;
--mortgage or pledge any of its material assets, tangible or intangible, or
create any lien on any of them;
--enter into, adopt, amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit plan;
--enter into or amend any employment or severance agreement with, increase
in any material manner the salary, wages, bonus, commission, or other
compensation or benefits of any director or executive officer of Capital
Re or any of its subsidiaries;
--acquire any corporation, partnership or other business organization or
division thereof or make any material investment either by purchase of
stock or securities, contributions to capital, property transfer or
acquisition of any material amount of properties or assets of any other
individual or entity;
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--pay, discharge or satisfy any claims, liabilities or obligations other
than in the ordinary course of business and consistent with past practice
of liabilities reflected or reserved against on Capital Re's consolidated
balance sheet dated March 31, 1999 or incurred in the ordinary course of
business and consistent with past practice;
--amend the certificate of incorporation or any similar document of Capital
Re or any of its subsidiaries;
--adopt a plan of complete or partial liquidation or resolutions providing
for the complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
Capital Re or any of its subsidiaries;
--enter into any new lines of business, change any policy forms, change the
pricing formula for insurance policies, change its investment policies or
guidelines or otherwise make material changes to the operation of its
business or change its loss reserve methodology;
--invest any investment securities of Capital Re in investments that are
not rated in one of the four highest categories by a "nationally
recognized statistical rating agency," as defined in the rules or
regulations of the SEC;
--sell, lease, encumber, transfer or dispose of any assets outside the
ordinary course of business consistent with past practice or any assets
that are material to Capital Re or any of its subsidiaries, or enter into
any material commitment or transaction outside the ordinary course of
business consistent with past practice; except that ACE will not
unreasonably withhold consent of a disposition of RGB Underwriting
Agencies, Ltd.;
--authorize or make or commit to make any capital expenditures, except for
transactions in the ordinary course of business consistent with past
practice, but not in excess of $100,000 in the aggregate, or pursuant to
agreements or commitments entered into by Capital Re or any of its
subsidiaries, unless otherwise reserved against in Capital Re's balance
sheet dated March 31, 1999;
--make any tax elections or settle or compromise any material United States
federal, state, local or other foreign income tax liability, or waive or
extend the statute of limitations in respect of any such taxes;
--pay or agree to pay in settlement or compromise of any suits or claims of
liability against Capital Re or any of its subsidiaries, its directors,
officers, employees or agents more than an aggregate of $50,000;
--take any action likely to materially decrease or diminish the assets or
net worth of Capital Re or any of its subsidiaries;
--change any of the accounting principles or practices used by it; or
--enter into any agreement providing for the acceleration or payment or
performance or other consequence as a result of a change in control of
Capital Re or any of its subsidiaries.
Other Covenants. The merger agreement contains additional agreements
relating to, among other things:
--the preparation, filing and delivery of this proxy statement/prospectus
and ACE's filing of the registration statement on Form S-4 of which this
proxy statement/prospectus will be a part;
--the delivery of "comfort" letters from each company's independent
accountants in connection with the filing of the registration statement on
Form S-4 of which this proxy statement/prospectus will be a part;
--cooperation regarding certain filings with governmental authorities and
other agencies and organizations;
--mutual access to information, business and properties;
--refraining from taking any action that would result in the merger not
qualifying as a tax free reorganization;
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--cooperation in the issuance of press releases relating to the merger;
--refraining from purchasing, acquiring, selling or disposing of ACE
ordinary shares;
--indemnification of officers and directors of Capital Re;
--cooperation regarding takeover statutes;
--notification upon the occurrence or non-occurrence of an event that would
violate a representation, warranty, covenant or condition in the merger
agreement; and
--obtaining requisite consents.
Recommendation of Capital Re's Board; Stockholders Meeting. Capital Re
agreed to convene a stockholders meeting as soon as practicable for the
purposes of voting on the adoption of the merger agreement and approval of the
merger. Capital Re further agreed to include in this proxy statement/prospectus
the recommendation of its board of directors that Capital Re's stockholders
adopt the merger agreement and approve the merger and the written opinion of
Goldman Sachs that the exchange ratio is fair, from a financial point of view,
to Capital Re's stockholders. Furthermore, the Capital Re board agreed to use
its reasonable best efforts to obtain stockholder adoption of the merger
agreement. The Capital Re board of directors may not withdraw or modify its
recommendation in any manner adverse to ACE, unless:
--Capital Re's stockholders have not yet adopted the merger agreement; and
--Capital Re is in compliance with the terms of the merger agreement,
including the provisions described below under "--No Solicitation;" and
--it receives an unsolicited, bona fide, written proposal to acquire more
than 15% of Capital Re's assets or outstanding stock; and
--it has concluded in good faith, on the advice of its outside financial
advisors, that the proposal is a superior proposal;
or
--there has been a material adverse change in ACE and Capital Re's board of
directors is required to withdraw, amend or modify its recommendation, on
the advice of its legal counsel, in order to prevent it from breaching its
fiduciary duties to its stockholders.
Employee Matters. For a one year period following the merger, ACE agreed to
continue the existing Capital Re employee benefit plans or provide, in the
aggregate, benefits that are at least as favorable as those provided by Capital
Re. In addition, ACE will honor all of the severance provisions of Capital Re
employees' change in control severance agreements. ACE has agreed to grant, as
promptly as possible after the effective time of the merger, up to 80,000 ACE
ordinary shares under its 1998 Long-Term Incentive Plan to employees of Capital
Re and its subsidiaries designated by Capital Re's Executive Committee and
approved by ACE. All of these grants will be restricted stock awards subject to
vesting over a three year period beginning on the grant date and will be
registered under the Securities Act of 1933, as amended.
Affiliate Agreements. Capital Re has agreed to provide ACE, no later than 45
days prior to the merger, with a letter identifying all persons who may be
deemed affiliates of Capital Re for purposes of Rule 145 under the Securities
Act. Capital Re has further agreed to use its best efforts to deliver to ACE,
not less than 5 days prior to the merger, a letter from each such affiliate
agreeing, among other things, to abide by certain transfer restrictions
pursuant to Rule 145.
Listing of ACE Ordinary Shares. ACE has agreed to use its best efforts to
cause the ACE ordinary shares to be issued in connection with the merger to be
listed on the New York Stock Exchange.
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Coordination of Dividends. ACE and Capital Re agreed to coordinate with each
other regarding the declaration of dividends so that the holders of ACE
ordinary shares or Capital Re common stock will not receive two dividends or
fail to receive one dividend for any single calendar quarter with respect to
shares of Capital Re common stock and/or ACE ordinary shares received in the
merger.
NO SOLICITATION
Pursuant to the merger agreement and except as described below, Capital Re
has agreed that neither it nor its subsidiaries will, directly or indirectly,
solicit, initiate, encourage (including by way of furnishing information) or
take any action knowingly to facilitate the submission of any inquiries,
proposals or offers (whether or not in writing) with respect to a transaction
proposal, as defined below, agree to or endorse any transaction proposal, or
enter into or participate in any discussions or negotiations regarding a
transaction proposal.
Under the merger agreement, "transaction proposal" means:
--any acquisition by a third party of 15% or more of Capital Re's
consolidated assets or 15% or more of any class of Capital Re's or any of
its subsidiaries' equity securities;
--any tender offer, including a self-tender offer, or exchange offer that
if consummated would result in any person beneficially owning 15% or more
of any class of Capital Re's or any of its material subsidiaries' equity
securities;
--any merger, consolidation, business combination, sale of substantially
all of the assets, recapitalization, liquidation, dissolution or similar
transaction involving Capital Re or any of its subsidiaries whose assets,
individually or in the aggregate, constitute 15% or more of Capital Re's
consolidated assets; or
--any other transaction that would or would reasonably be expected to
impede, interfere with, prevent or materially delay the merger.
Notwithstanding the foregoing, Capital Re or its board of directors is
permitted under the merger agreement, subject in certain cases to ACE's right
to terminate the merger agreement and/or receive a termination fee, to:
--comply with Rule 14d-9 and Rule 14e-2 under the Exchange Act with regard
to a bona fide tender offer or exchange offer, which rules require a
target company to publicly respond to a tender offer; or
--participate in negotiations or discussions with, or furnish information
to, any person in response to an unsolicited bona fide written transaction
proposal submitted to Capital Re's board prior to the date Capital Re's
stockholders adopt the merger agreement, if and only to the extent that
prior to participating in discussions or negotiations or furnishing
information:
--Capital Re receives an executed confidentiality agreement containing
terms at least as favorable to it as the one previously entered into
with ACE; and
--Capital Re's board of directors concludes in good faith, based on
advice from its outside financial advisors, that the transaction
proposal is reasonably likely to be or result in a superior proposal, as
defined below, and based on written advice from its outside legal
counsel that participating in negotiations or discussions or furnishing
information is required in order to prevent the Capital Re board from
breaching its fiduciary duties to its stockholders.
Capital Re must also provide ACE contemporaneous notice of entering into any
negotiations or discussions or furnishing any information, provide prompt
notice of the terms and conditions of any transaction proposal and the identity
of the person making it and, to the extent disclosure is not prohibited by the
terms of any confidentiality agreement, the status of any material discussions
or negotiations. To the extent any activities regarding transaction proposals
occurred before June 10, 1999, Capital Re agreed to cease and cause its
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representatives to cease all such activities, discussions or negotiations of
those activities and shall use its reasonable best efforts to cause any third
parties to return or destroy any confidential information in their possession.
Under the merger agreement, "superior proposal" means:
--any acquisition by a third party of 51% or more of Capital Re's
consolidated assets or 51% or more of any class of Capital Re's or any of
its subsidiaries' equity securities;
--any tender offer, including a self tender offer, or exchange offer that
if consummated would result in any person beneficially owning 51% or more
of any class of Capital Re's or any of its material subsidiaries' equity
securities;
--any merger, consolidation, business combination, sale of substantially
all of the assets, recapitalization, liquidation, dissolution or similar
transaction involving Capital Re or any of its subsidiaries whose assets,
individually or in the aggregate, constitute 51% or more of Capital Re's
consolidated assets; and
--in each case with respect to which any required financing is committed
or, in the good faith judgment of Capital Re's board of directors, based
on the written advice of its outside financial advisors, the party making
the proposal is reasonably capable of financing it, and which, based on
the advice of its outside legal counsel and financial advisors:
--is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the transaction
proposal and the identity of the person making the proposal; and
--would, if consummated, result in a transaction more favorable to
Capital Re's stockholders from a financial point of view than the
merger.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
The merger agreement provides that, for a period of six years following the
merger, ACE will indemnify and hold harmless, and pay in advance to, all past
and present directors and officers of Capital Re and its subsidiaries to the
same extent such persons are indemnified or have the right to expenses pursuant
to Capital Re's certificate of incorporation and by-laws as of June 10, 1999,
for acts or omissions occurring at or prior to the merger, including in
connection with the adoption of the merger agreement and the stock option
agreement and the approval of the transactions contemplated by those
agreements.
Following the merger, ACE will cause Capital Re to maintain for one year
directors' and officers' liability insurance policies covering matters
occurring prior to the merger and containing terms and conditions that are not
materially less advantageous than those maintained by Capital Re on June 10,
1999. ACE will not be required to spend in any one year more than 150% of the
annual premium currently paid by Capital Re for such insurance. If the annual
premium would exceed such amount, ACE will cause Capital Re to obtain a policy
with the best coverage available for a cost not exceeding that amount.
TERMINATION
The merger agreement can be terminated at any time prior to the effective
time of the merger under the following circumstances:
--by mutual written consent of both parties by action of each party's board
of directors;
--by either party
--if the merger is not completed on or before February 28, 2000, which
will be extended to April 28, 2000 if the sole reason the merger isn't
completed is the absence of a required governmental consent, other than
due to a material breach of the merger agreement by the terminating
party;
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--if the stockholders of Capital Re fail to adopt the merger agreement,
other than due to a material breach of the merger agreement by the
terminating party;
--if a court or governmental authority permanently prohibits the merger;
or
--upon a material breach of any representation, covenant or agreement in
the merger agreement by the other party that is not cured within a
specified time or that cannot be cured;
--by Capital Re, prior to or after adoption of the merger agreement by its
stockholders
--if it is not in material breach of any of the terms of the merger
agreement and its board of directors authorizes Capital Re to enter into
a binding written agreement for an unsolicited superior proposal from a
party other than ACE;
--Capital Re gives ACE notice and a copy of the superior proposal and ACE
does not make, within five business days, an offer that Capital Re's
board, after good faith consultation with its financial advisors and
after taking into account the long term prospects and interests of
Capital Re and its stockholders, believes is at least as favorable as
the superior proposal; and
--Capital Re pays the termination fee described below;
--by ACE's board
--at any time before the effective time of the merger if Capital Re
enters into a binding agreement for a superior proposal;
--if Capital Re or its board of directors
--adversely withdraws, modifies or amends its recommendation to adopt the
merger agreement or fails to reconfirm, within 5 days after ACE's
written request, its recommendation to its stockholders in favor of the
merger;
--fails, after this proxy statement/prospectus is declared effective, to
promptly mail this proxy statement/prospectus;
--approves, recommends or enters into an agreement with respect to a
business combination or similar transaction proposal with a party other
than ACE;
--resolves to do any of the above; or
--fails, in response to a tender offer or exchange offer for 10% or more
of the outstanding Capital Re common stock, within ten business days
after the commencement of the offer, to recommend rejection of that
offer.
TERMINATION FEES AND EXPENSES
The merger agreement requires the payment by Capital Re to ACE of a
termination fee of $25 million after termination of the merger agreement in any
of the following circumstances:
--termination by ACE because Capital Re's stockholders fail to approve the
merger; and
--prior to or at the time of Capital Re's stockholder meeting, a third
party either makes a proposal to acquire Capital Re or has publicly
announced an intention to acquire Capital Re; and
--within 12 months of the termination of the merger agreement, Capital Re
enters into an agreement concerning an acquisition proposal;
--termination by ACE because Capital Re accepts a superior proposal from a
third party for the acquisition of Capital Re; or
--termination by Capital Re in order to accept a superior proposal from a
third party after ACE has had an opportunity to match the superior
proposal.
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The merger agreement requires Capital Re to pay ACE up to $3 million for
ACE's out-of-pocket expenses if the merger agreement is terminated by ACE
because Capital Re materially breaches any representation, warranty, covenant
or agreement contained in the merger agreement that is not curable or, if
curable, is not cured within 20 days after written notice of the breach is
given by ACE to Capital Re.
The merger agreement also requires ACE to pay Capital Re up to $3 million
for Capital Re's out-of-pocket expenses if the merger agreement is terminated
by Capital Re because ACE materially breaches any representation, warranty,
covenant or agreement contained in the merger agreement that is not curable or,
if curable, is not cured within 20 days after written notice of the breach is
given by Capital Re to ACE.
OTHER EXPENSES
The merger agreement provides that, whether or not the merger is
consummated, all out-of-pocket expenses incurred in connection with the merger
agreement and the transactions contemplated thereby will be paid by the party
incurring such expenses, except that ACE and Capital Re will share equally the
Securities and Exchange Commission filing fee and printer's fees in connection
with this proxy statement/prospectus, and except as described above in "--
Termination Fees and Expenses."
AMENDMENT AND WAIVER
Subject to applicable law, at any time prior to the effective time of the
merger, ACE and Capital Re may modify or amend the merger agreement.
Any failure of ACE or Capital Re to comply with any obligation, covenant,
agreement or condition in the merger agreement can be waived in writing by
Capital Re or ACE, respectively. However, a waiver or failure to insist upon
strict compliance with an obligation, covenant, agreement or condition does not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
THE STOCK OPTION AGREEMENT
GENERAL
As an inducement to ACE to enter into the merger agreement, Capital Re
granted ACE an option to purchase up to approximately 9.9% of Capital Re's
currently outstanding shares of common stock pursuant to a stock option
agreement. Because the description of the stock option agreement contained in
this proxy statement/prospectus is a summary, it does not contain all the
information that may be important to you. You should read carefully the entire
copy of the stock option agreement, which is attached as Appendix B to this
proxy statement/prospectus and incorporated herein by reference, before you
decide how to vote.
TERMS OF THE OPTION
Number of Shares and Exercise Price. Under the stock option agreement,
Capital Re has granted to ACE an option to purchase up to 3,220,135 shares of
Capital Re common stock at a price per share equal to $17.40.
The number and type of securities subject to the option and the exercise
price therefor will be adjusted for any change or distribution in respect of
Capital Re's common stock by reason of a stock dividend, subdivision, spinoff,
stock split, split-up, merger, consolidation, recapitalization, combination,
exchange of shares that would be prohibited under the terms of the merger
agreement or any similar event so as to fully preserve the economic benefits
provided under the option agreement. The number of shares of Capital Re's
common stock subject to the option will also be adjusted in the event Capital
Re issues additional shares of its common stock such that the number of shares
of Capital Re's common stock subject to the option, together with shares
previously purchased pursuant thereto, represents 9.9% of Capital Re's common
stock then issued and outstanding, without giving effect to shares subject to
or issuable pursuant to the option.
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Exercise Rights. ACE may exercise its option if the merger agreement is
terminated under circumstances in which a termination fee would become payable
by Capital Re.
Expiration. To the extent the option has not been exercised, it will expire
upon the earliest of:
--the merger;
--the close of business 180 days after ACE becomes entitled to receive the
termination fee; or
--the close of business on the date ACE is no longer potentially entitled
to receive the termination fee for a reason other than ACE has already
received the termination fee.
REPURCHASE AT THE OPTION OF ACE
Under the option agreement, ACE has the right, following a repurchase
event, as described below, and ending 180 days later, to require Capital Re to
repurchase for cash the option and any shares of Capital Re's common stock
purchased by ACE pursuant to the option.
Repurchase Events. A repurchase event will occur if the merger agreement is
terminated under circumstances in which a termination fee would become payable
by Capital Re.
Repurchase Price. The price Capital Re will pay if ACE exercises its
repurchase right is equal to the sum of:
--the option price, which is
--the number of shares then purchasable upon exercise of the option; or
--such lesser number of shares as may be designated in the Repurchase
Notice;
multiplied by
--the amount by which the market/offer price exceeds the option price;
and
--the price for the option shares, which is
--the number of option shares designated in the repurchase notice;
multiplied by
--the market/offer price.
Market/Offer Price. Under the stock option agreement, the market offer
price is equal to the highest of:
--the price per share of Capital Re common stock at which a tender or
exchange offer for common stock has been made;
--the price per share for Capital Re's common stock to be paid by any third
party pursuant to an agreement with Capital Re; and
--the highest trading price per share of Capital Re common stock on the New
York Stock Exchange during the preceding six month period.
REGISTRATION RIGHTS
Under the stock option agreement, ACE has the right to require Capital Re
to file a shelf registration statement in order to permit the sale or other
disposition of any shares of Capital Re's common stock purchased by ACE
pursuant to the option.
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LIMITATION OF PROFIT
ACE's total profit under the option agreement may not exceed $25 million.
The total profit under the option agreement is the sum of:
--any net cash proceeds from the sale of the option shares to a third party
within 12 months after the exercise of the option;
--any net cash proceeds from the transfer of the option, including the
repurchase of the option by Capital Re; and
--all termination fees received by ACE under the merger agreement other
than in respect of expenses;
less
--all cash previously paid by ACE to Capital Re regarding limitation of
profit; and
--the value of the option shares previously delivered to Capital Re for
cancellation.
EFFECT OF THE STOCK OPTION AGREEMENT
The stock option agreement is intended to increase the likelihood that the
merger will be consummated in accordance with the terms of the merger
agreement. Accordingly, the option agreement may discourage a third party from
proposing a competing transaction, including one that might be perceived by
some Capital Re stockholders as being more favorable than the merger.
THE STOCKHOLDER SUPPORT AGREEMENTS
As an inducement and condition to the willingness of ACE to enter into the
merger agreement, MP Investments and Constellation Investments, Inc. entered
into stockholder support agreements with ACE. At the record date for the
Capital Re special meeting, these stockholders collectively held approximately
33.5% of the voting power of all outstanding Capital Re common stock. As of
such record date, ACE held an additional 12.3% of the voting power of all
outstanding Capital Re common stock. Together, these stockholders are able to
significantly influence the vote on the adoption of the merger agreement and
the approval of the merger.
Under the stockholder support agreements, at the Capital Re special meeting
or any other meeting of Capital Re stockholders, however called, and in any
action by written consent of the Capital Re stockholders, each such stockholder
has agreed:
--to vote all of its Capital Re common stock in favor of adoption of the
merger agreement;
--to vote all of its Capital Re common stock against, among other things:
--approval of any proposal made in opposition to or in competition with
the merger; or
--any other action which reasonably may be expected to delay or prevent
consummation of the merger;
--to deliver to ACE upon request a proxy entitling ACE to vote such
stockholder's shares of Capital Re common stock;
--not to sell, pledge or otherwise dispose of, or enter into any voting
arrangement with respect to, its shares of Capital Re common stock;
--not to solicit or knowingly encourage the submission of any proposal to
merge with or acquire a substantial portion of the stock or assets of
Capital Re;
--not to solicit proxies or become a participant in a solicitation in
opposition to or competition with the consummation of the merger;
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--not to become a member of a group for the purpose of opposing or
competing with the consummation of the merger; and
--to otherwise use its best efforts to cause the merger to be consummated
in the most expeditious manner practicable.
Each such stockholder has agreed not to transfer any ACE ordinary shares to
be received in the merger for a period of 180 days after completion of the
merger, subject to certain restrictions.
In addition, each such stockholder has agreed for a period of three years
following the execution of the stockholder support agreement, that, subject to
certain exceptions, it will not, without ACE's prior written approval, (a)
purchase or otherwise acquire any securities of ACE or any other right to
acquire such securities if upon any such purchase or acquisition the
stockholder would own or have the right to acquire (whether or not presently)
five percent or more of the outstanding voting shares of ACE, (b) solicit
proxies from stockholders of ACE or otherwise seek to influence or control the
management or policies of ACE or any of its affiliates, (c) form, join or in
any way participate in a group with respect to any voting securities of ACE or
any of its subsidiaries, (d) otherwise act, alone or in concert with others, to
seek to control or influence the management, Board of Directors or policies of
ACE, (e) disclose any intention, plan or arrangement inconsistent with the
foregoing or (f) assist, advise or encourage any other person in doing any of
the foregoing. The stockholders also agree during such period not to request
ACE (or its directors, officers, employees or agents) to amend or waive any of
the foregoing or take any action which might require ACE to make a public
announcement regarding the possibility of a business combination, merger or
extraordinary transaction.
The stockholder support agreements terminate on the earlier of the
consummation of the merger or the termination of the merger agreement.
COMPARISON OF STOCKHOLDERS' RIGHTS AND DESCRIPTION OF
THE SHARE CAPITAL OF ACE FOLLOWING THE MERGER
Upon the merger, the stockholders of Capital Re, whose rights are currently
governed by the Delaware General Corporation Law and the certificate of
incorporation and by-laws of Capital Re, will become shareholders of ACE, and
their rights will be governed by the Companies Law (1998 Revision) of the
Cayman Islands and the articles of association and memorandum of association of
ACE as in effect at the time of the merger. The following is a summary of
certain material differences between the rights of Capital Re stockholders and
ACE shareholders.
The following discussion is qualified by reference to the complete text of
the Companies Law (1998 Revision) of the Cayman Islands, the articles of
association and memorandum of association of ACE, the Delaware General
Corporation Law and the certificate of incorporation and by-laws of Capital Re.
For information as to how you can obtain copies of the organizational documents
of ACE and Capital Re, See "Where You Can Find More Information" on page 74.
SHARE CAPITAL
ACE's authorized share capital is 300 million ordinary shares, par value
$.041666667 per share, of which 194,059,295 were outstanding as of September 1,
1999, and 10 million other shares, none of which are outstanding. In the merger,
Capital Re shareholders will receive only ordinary shares and associated rights.
Under ACE's articles of association, the board of directors can issue any part
of ACE's authorized capital with any terms, rights and restrictions as the board
determines. In addition, 500,000 preferred shares were reserved for issuance
upon the exercise of rights distributed to ACE's shareholders pursuant to ACE's
shareholder rights plan.
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On a pro forma basis, assuming no change in the share capital of ACE and the
capital stock of Capital Re as of September 1, 1999, immediately following the
merger approximately 213,318,466 ordinary shares will be outstanding and
500,000 preferred shares will be reserved for issuance upon the exercise of the
rights distributed to ACE's shareholders pursuant to ACE's shareholder rights
plan.
ACE ORDINARY SHARES
The ACE ordinary shares to be issued to Capital Re stockholders in the
merger are entitled to one vote per share on all matters requiring a vote of
shareholders, subject to the 10% voting limitation described below. See "--
Voting Rights" on this page. There are no provisions of Cayman Islands law or
ACE's articles of association that impose any limitation on the rights of
shareholders that are not residents of the Cayman Islands to hold or vote
ordinary shares.
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent and registrar for ACE ordinary
shares.
STOCK EXCHANGE LISTING
ACE ordinary shares are listed on the New York Stock Exchange. ACE will use
its best efforts to cause the ACE ordinary shares issuable in the merger to be
approved for listing on the New York Stock Exchange on or prior to the
effective date of the merger, subject to official notice of issuance.
VOTING RIGHTS
Capital Re. Each holder of Capital Re common stock is entitled to one vote
per share on all matters submitted to a vote of stockholders at any
stockholders' meeting. All matters voted on at any duly held stockholders'
meeting shall be carried by a majority of the votes cast at the meeting by
shareholders present or represented in person or by proxy, except that Section
251 of the Delaware General Corporation Law provides that the majority of
shares entitled to vote at a meeting of shareholders is required to adopt a
merger agreement.
Shares of Capital Re common stock have noncumulative voting rights, which
means that the holders of a majority of the voting power of Capital Re may
elect all of Capital Re's directors and, in such event, the holders of the
remaining shares of Capital Re common stock will not be able to elect any
directors.
ACE. Each holder of ACE ordinary shares is entitled to one vote per share on
all matters submitted to a vote of shareholders at any shareholders' meeting,
subject to the 10% voting limitation described below. All matters, including
the election of directors, voted upon at any duly held shareholders' meeting
shall be carried by a majority of the votes cast at the meeting by shareholders
present or represented in person or by proxy, except:
--approval of a special resolution;
--a variation of the rights attached to any class of shares, which requires
that a special resolution passed by written consent of 75% of the issued
shares of the class or at a separate meeting of the holders of shares of
that class, and for which a quorum will be holders of not less than 50% of
the issued shares of the class; and
--as otherwise provided by Cayman Islands law.
A special resolution requires the approval of at least 66 2/3% of the votes
cast by the shareholders represented in person or by proxy at a duly convened
meeting at which a quorum is present. Subject to applicable law, and any
requirement to obtain the approval of holders of a class of shares voting
separately as described above, ACE may from time to time by special resolution:
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--alter, amend or repeal its memorandum of association and/or articles of
association;
--increase its share capital;
--consolidate and divide all or any of its share capital;
--subdivide the whole or any part of its share capital;
--reduce its share capital, any capital redemption reserve fund, or any
share premium account;
--change its name or alter its objects; or
--cancel shares that have not been taken or agreed to be taken by any
person.
The rights attached to a class of shares may be varied by special resolution
passed at a separate meeting of the holders of that class of shares. The quorum
for that meeting is one or more shareholders present in person or by proxy
holding not less than 50% of the issued shares of that class.
Each ordinary share has one vote, except that if, and so long as, the
controlled shares, as defined below, of any person constitute 10% or more of
the issued ACE ordinary shares, the voting rights with respect to the
controlled shares owned by that person shall be limited, in the aggregate, to a
voting power of less than 10%, pursuant to a formula specified in the articles
of association of ACE. Controlled shares means:
--all ACE ordinary shares directly, indirectly or constructively owned by
any person within the meaning of Section 958 of the Internal Revenue Code;
and
--all ACE ordinary shares directly, indirectly or constructively owned by
any such person or "group" of persons within the meaning of Section 13(d)
of the Exchange Act.
ACE ordinary shares have noncumulative voting rights, which means that the
holders of a majority of the voting power of ACE may elect all of ACE's
directors and, in such event, the holders of the remaining ACE ordinary shares
will not be able to elect any directors.
ANNUAL MEETING OF STOCKHOLDERS
Capital Re. Under Delaware law, if the annual meeting for the election of
directors is not held on the designated date or action by unanimous written
consent has not been taken, the directors are required to hold the meeting as
soon as is convenient. If they fail to do so or take action by written consent
for a period of thirty days after the designated date for the annual meeting,
or if no date has been designated for a period of thirteen months after the
latest to occur of the organization of the corporation, its last annual meeting
or after the last action by written consent to elect directors in lieu of an
annual meeting, a Delaware court may order a meeting to be held upon
application of any stockholder or director. The shares of stock represented at
such a meeting constitute a quorum for the purposes of the meeting,
notwithstanding any provision of the certificate of incorporation or by-laws to
the contrary. However, Delaware law does not provide for a stockholder to call
such meeting other than by application to a Delaware court.
ACE. The ACE articles of association provide that an annual general meeting
of the shareholders of ACE shall be convened each year at such time and place
as the board of directors may appoint. If a meeting is not held, the
shareholders may directly or indirectly be able to bring an action requiring
the directors to convene an annual general meeting in accordance with the
provisions of ACE's articles of association.
SPECIAL MEETINGS OF STOCKHOLDERS
Capital Re. Under Delaware law, a special meeting of stockholders may be
called only by the board of directors or by persons authorized in the
certificate of incorporation or the by-laws. The by-laws of Capital Re provide
that the chairman of the board, the president, a majority of the board of
directors or a stockholder or stockholders owning at least 10% of Capital Re's
voting power can call a special meeting.
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ACE. The ACE articles of association provide that extraordinary general
meetings of shareholders may be called by the board of directors and shall be
called by the board on the requisition in writing of shareholders of ACE
holding at least 25% of its issued share capital carrying the right to vote at
general meetings (after taking account of the 10% voting limitations, see "--
Voting Rights" on page 63).
QUORUM OF STOCKHOLDERS
Capital Re. Under Delaware law and Capital Re's by-laws, the quorum required
for transaction of business at a stockholders' meeting consists of a majority
of shares entitled to vote present in person or represented by proxy, but in no
event may a quorum at any stockholders' meeting be less than one-third of the
issued and outstanding stock of Capital Re entitled to vote at the meeting;
except that, where a separate vote by a class or series or classes or series is
required, a quorum shall consist of no less than one-third of the shares of
such class or series or classes or series.
ACE. The quorum required for a general meeting of shareholders is not less
than one or more shareholders present in person or represented by proxy holding
at least 50% of the voting power of the issued and outstanding shares entitled
to vote at the meeting. A quorum for considering a "special resolution" is 66
2/3% of the voting power of the issued and outstanding shares entitled to vote
at the meeting.
STOCKHOLDER CONSENT TO ACTION WITHOUT A MEETING
Capital Re. Under Delaware law, unless otherwise provided in the charter,
any action that can be taken at a meeting of the stockholders may be taken
without a meeting by written consent, signed by the holders of outstanding
stock having the minimum number of votes necessary to authorize or take the
action at a stockholders' meeting.
ACE. Cayman Islands law provides that shareholders may take action requiring
an ordinary or, if authorized by the articles of association, a special
resolution without a meeting only by unanimous written consent. The articles of
association of ACE provide that ordinary or special shareholder resolutions may
be passed without a meeting by unanimous written consent.
NOTICE OF STOCKHOLDER MEETINGS
Capital Re. Under Delaware law, a stockholder must receive notice of a
stockholder meeting not more than sixty days and not less than ten days before
the meeting.
ACE. There is no statutory minimum notice period in relation to general
meetings of shareholders under Cayman Islands law. However, the articles of
association of ACE provide that written notice of each meeting of shareholders
stating the place, date and time of the meeting shall be given not less than
ten nor more than sixty days before the date of the meeting, to each
shareholder entitled to vote at such a meeting. The notice of any such meeting
shall state the purpose or purposes for which the meeting was called.
INSPECTION OF BOOKS AND RECORDS
Capital Re. Under Delaware law, any stockholder may inspect Capital Re's
books and records for a proper purpose.
ACE. Shareholders of a Cayman Islands company have no general rights to
inspect or obtain copies of the list of shareholders or corporate records of a
company, other than the memorandum of association, the articles of association
and the register of mortgages and charges.
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AMENDMENT OF ORGANIZATIONAL DOCUMENTS
Capital Re. Under Delaware law, the certificate of incorporation may be
amended if:
--the board of directors sets forth the proposed amendment in a resolution,
declares the advisability of the amendment and directs that it be
submitted to a vote at the meeting of stockholders; and
--the holders of at least a majority of shares of stock entitled to vote on
the amendment approve it, unless the certificate of incorporation requires
the vote of a greater number of shares.
If the holders of the outstanding shares of a class are entitled to vote as
a class upon a proposed amendment, the holders of a majority of the outstanding
shares of such class must also vote in favor of the amendment.
Under Delaware law, the board of directors may amend its by-laws if so
authorized in the company's articles of incorporation. The stockholders of a
Delaware corporation may also amend its by-laws. Capital Re's certificate of
incorporation authorizes the board of directors to adopt, amend or repeal the
by-laws of Capital Re.
ACE. The articles of association and memorandum of association of ACE may be
amended or altered by a special resolution of ACE shareholders. Under Cayman
Islands law, a special resolution requires the approval of at least 66 2/3% of
the votes cast by the shareholders represented in person or by proxy at a duly
convened meeting at which a quorum is present.
TRANSFER OF SHARES
Capital Re. Capital Re has no restriction on the transfer of Capital Re
common stock.
ACE. The board of directors of ACE has absolute discretion to decline to
register a transfer of ACE shares, except in certain limited circumstances
specified in the articles of association of ACE, and in addition will decline
to register a transfer of ACE shares except in certain limited circumstances
specified in the articles of association of ACE, if it determines that the
transfer would increase the number of controlled shares of any person to 10% or
any higher percentage of the voting power of ACE. Other than for this purpose,
ACE does not anticipate restricting the transfer of any ACE shares issuable to
Capital Re stockholders in the merger unless required by applicable law.
The restrictions on voting and ownership of more than 10% of the issued ACE
shares described above may have the effect of discouraging an attempt to obtain
control of ACE.
PREEMPTIVE RIGHTS
Capital Re. Under Delaware law, security holders of a corporation only have
preemptive rights as may be provided in the corporation's certificate of
incorporation. Capital Re's certificate of incorporation does not provide for
preemptive rights.
ACE. Holders of ACE shares do not have preemptive rights to subscribe to any
additional issue of shares of any class or series nor to any security
convertible into such shares.
DISTRIBUTIONS AND DIVIDENDS; REPURCHASES AND REDEMPTIONS
Capital Re. Under Delaware law, a corporation may pay dividends out of
surplus and, if there is no surplus, out of net profits for the current and/or
the preceding fiscal year, unless the net assets of the corporation are less
than the capital represented by issued and outstanding stock having a
preference on asset distributions. Surplus is defined as the excess of the net
assets over capital, as such capital may be adjusted by the board of directors.
A Delaware corporation may purchase or redeem shares of any class except when
its capital is impaired or would be impaired by such purchase or redemption. A
corporation may, however,
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purchase or redeem out of capital shares that are entitled upon any
distribution of its assets to a preference over another class or series of its
stock or, if no shares entitled to such a preference are outstanding, any of
its own shares if such shares are to be retired and the capital reduced.
ACE. Under Cayman Islands law, the board of directors of ACE may pay to its
shareholders those dividends as appear to the directors to be justified by the
profits or financial condition of ACE out of profits available for distribution
or out of the "share premium account" (similar to the concept of additional
paid in capital) if ACE has the ability to pay its debts as they become due
immediately after payment of the dividend. The articles of association of ACE
permit the board of directors to declare dividends out of profits or out of
monies otherwise available for dividends in accordance with Cayman Islands law.
Under Cayman Islands law, ACE may purchase or redeem shares out of profits
or from the proceeds of a fresh issue of shares or out of capital if it is able
to pay its debts as they become due on terms agreed to by the board of
directors and the relevant shareholders.
APPRAISAL RIGHTS
Capital Re. Under Delaware law, a stockholder of a corporation does not have
appraisal rights--rights of dissenting shareholders in a merger to receive
payments in cash for the judicially determined value of their shares--in
connection with a merger or consolidation or, in the case of a disposition, if:
--the shares of the corporation are listed on a national securities
exchange or held of record by more than 2,000 stockholders, as is
presently the case with Capital Re; or
--the corporation will be the surviving corporation of the merger and no
vote of the stockholders of the surviving corporation is required to
approve the merger; provided, however, that a stockholder is entitled to
appraisal rights in the case of a merger or consolidation if such
stockholder is required by the terms of an agreement of merger or
consolidation to accept in exchange for the shares of such stockholder
anything other than any combination of the following:
--shares of stock of the corporation surviving or resulting from such
merger or consolidation;
--shares of any other corporation that on the effective date of the
merger or consolidation will be either listed on a national securities
exchange or held of record by more than 2,000 stockholders;
--cash in lieu of fractional shares of the corporation; or
--any combination of the shares of stock and cash in lieu of fractional
shares.
ACE. Cayman Islands law does not provide for appraisal rights. However, in
the case of a court sanctioned reorganization of a Cayman Islands company, a
dissenting shareholder has the right to express to the court such shareholder's
view that the transaction sought to be approved would not provide the
shareholders with fair value for their shares. The Cayman Islands court has the
discretion to make such order as it may decide. However, ACE has been advised
that the court ordinarily would not disapprove the transaction on that ground
absent other evidence that the arrangement or reorganization is such that any
reasonable person could not approve it, and if the transaction were approved
and consummated, the arrangement would be binding on all shareholders by
operation of law and the dissenting shareholder would have no rights comparable
to the appraisal rights available to dissenting stockholders of Delaware
corporations in certain circumstances.
In addition, Cayman Islands law provides that where an offer is made by a
company for shares of a Cayman Islands company and, within four months of the
offer, the holders of not less than 90% of the shares that are the subject of
the offer accept, the offeror may by notice given within two months after the
expiration of the four month period, require the dissenting shareholders to
transfer their shares on the terms of the offer. Within one month of such
notice, a dissenting shareholder may apply to the court objecting to the
transfer. The burden is on the dissenting shareholders to show that the court
should exercise its discretion to prevent the
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transfer. The Cayman Islands court has absolute discretion to make any order as
it may decide. However, ACE has been advised that the court is unlikely to
prevent the requirement of such transfer unless there is evidence of fraud or
bad faith or collusion as between the offeror and the holders of the shares who
have accepted the offer as a means of unfairly forcing out minority
stockholders or where it is affirmatively established that notwithstanding the
views of a very large majority of the shareholders the transaction is unfair.
DIRECTORS; ELECTION AND REMOVAL OF DIRECTORS
Capital Re. The by-laws of Capital Re provide for one or more members of the
board of directors, with the actual number being fixed by the board, the
default number being nine.
A majority of the number of directors then in office constitutes a quorum
for the transaction of business. A vacancy among the directors may be filled by
the remaining directors in office, although less than a quorum, or by a sole
remaining director. The term of a director appointed to fill a newly created
directorship or other vacancy shall expire at the same time as the term of the
other directors of the class from which the new directorship is created or in
which the vacancy occurred.
Directors hold office until the annual meeting of Capital Re stockholders
for the year in which his or her term expires. Capital Re stockholders may at
any time by majority vote remove and replace any director for cause.
ACE. The articles of association of ACE provide for not less than three, nor
more than 20, members of the board of directors, with the actual number being
determined by a resolution of the board subject to the power of shareholders by
ordinary resolution to increase or reduce the limits on the number of
directors. The board is divided into three classes as nearly equal in number as
possible. At each annual general meeting of shareholders, successors to the
class of directors whose term has expired as of the annual meeting are elected
to serve for a three-year term. Classification of directors has the effect of
making it more difficult for shareholders to change the composition of the
board. At least two annual meetings, rather than one, will generally be
required to effect a change in a majority of the ACE board of directors.
Unless otherwise fixed by the board, one-third of the number of directors
then in office present in person or by proxy constitutes a quorum for the
transaction of business. A vacancy among the directors may be filled by the
remaining directors in office, although less than a quorum. The term of a
director appointed to fill a newly created directorship or other vacancy shall
expire at the same time as the term of the other directors of the class from
which the new directorship is created or in which the vacancy occurred.
Directors hold office until the annual general meeting of ACE shareholders
for the year in which his or her term expires and until his or her successor is
appointed or elected or until he or she vacates office. ACE shareholders may at
any time by special resolution of the total voting power determined in
accordance with the articles of association of ACE, including the 10% voting
limitation, remove and replace any director.
TRANSACTIONS WITH DIRECTORS
Capital Re. Delaware law provides that a contract or transaction between a
corporation and one or more of its directors or officers, or between a
corporation and any other entity of which one or more of its directors or
officers are directors or officers, or in which one or more of its directors or
officers have a financial interest, is not void or voidable if:
--the material facts as to the director's or officer's relationship or
interest and as to the contract or transaction are disclosed or known to
the board of directors or a committee of the board, which authorizes the
contract or transaction in good faith by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors are less than a quorum;
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--the material facts as to the director's or officer's relationship or
interest and as to the contract or transaction are disclosed or known to
the stockholders entitled to vote on the contract or transaction and the
contract or transaction is specifically approved in good faith by the
stockholders; or
--the contract or transaction is fair to the corporation as of the time it
is authorized, approved or ratified by the board of directors, a committee
of the board, or the stockholders.
A corporation may make loans to, guarantee the obligations of or otherwise
assist its officers or other employees and those of a subsidiary, including
directors who are also officers or employees of the corporation or a
subsidiary, when such action, in the judgment of the directors, may reasonably
be expected to benefit the corporation.
ACE. The articles of association of ACE provide that no director will be
disqualified from office or prevented by such office from contracting with ACE.
In addition, a director interested in any contract with the company may vote in
respect of that contract or transaction in which he is interested provided that
he discloses the nature of his interest prior to the board's consideration of
it.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Capital Re. Under Delaware law, a corporation is permitted to provide
indemnification or advancement of expenses, through by-law provision, agreement
or otherwise, against judgments, fines, expenses and amounts paid in settlement
actually and reasonably incurred by the person in connection with such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation.
The certificate of incorporation of Capital Re makes indemnification
mandatory on the part of Capital Re to the fullest extent permitted by Delaware
law. ACE has agreed to keep these provisions in place for a period of six years
from the date of the merger.
ACE. Cayman Islands law does not limit the extent to which a company's
articles of association may provide for the indemnification of officers and
directors, except to the extent that such provision may be held by the Cayman
Islands courts to be contrary to public policy, for instance, for purporting to
provide indemnification against the consequences of committing a crime.
The articles of association of ACE provide that it will indemnify its
officers, directors, employees and agents against certain liabilities.
LIMITED LIABILITY OF DIRECTORS
Capital Re. Section 102(b)(7) of the Delaware General Corporation Law
permits the adoption of a charter provision limiting or eliminating the
monetary liability of a director to a corporation or its stockholders by reason
of a director's breach of the fiduciary duty of care. However, the law does not
permit any limitation of the liability of a director for:
--breaching the duty of loyalty to the corporation or its stockholders;
--failing to act in good faith;
--engaging in intentional misconduct or a known violation of law;
--obtaining an improper personal benefit from the corporation; or
--paying a dividend or approving a stock repurchase that was illegal under
the Delaware law.
The certificate of incorporation of Capital Re eliminates the monetary
liability of a director to the fullest extent permitted by Delaware law. ACE
has agreed to keep these provisions in place for a period of six years from the
date of the merger.
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ACE. There is no equivalent provision under Cayman Islands law. However, the
articles of association include a provision exempting officers and directors of
ACE from liability to ACE in respect of the execution of the duties of their
respective offices.
STOCKHOLDERS' SUITS
Capital Re. Section 327 of the Delaware General Corporation Law requires
that the stockholder bringing a derivative suit must have been a stockholder at
the time of the wrong complained of or that he received the stock by operation
of law from a person who was such a stockholder. In addition, the stockholder
must remain a stockholder throughout the litigation. Furthermore, a stockholder
may not sue derivatively unless he or she first makes a demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that the demand would have been futile.
ACE. Cayman Islands courts have recognized derivative suits by shareholders;
however, the consideration of such suits has been limited. In this regard, ACE
has been advised that the Cayman Islands courts ordinarily would be expected to
follow English precedent, which may permit a minority shareholder to commence
an action against or a derivative action in the name of the company to remedy a
wrong done to the company where, for example:
--the act complained of is alleged to be beyond the corporate power of the
company or illegal;
--the act complained of is alleged to constitute a fraud against the
minority perpetrated by those in control of the company; or
--the act requires approval by a greater percentage of the company's
shareholders than actually approved it.
A shareholder may also be able to bring a personal action against a company
where the right alleged to have been infringed is a personal right vested in
the individual shareholder.
ANTI-TAKEOVER LAWS
Capital Re. Section 203 of the Delaware General Corporation Law restricts
the ability of an "interested stockholder" to merge with or enter into other
business combinations with a corporation for a period of three years after
becoming an "interested stockholder." Capital Re has elected in its certificate
of incorporation not to be governed by Section 203.
ACE. There is no equivalent provision under Cayman Islands law.
VOLUNTARY DISSOLUTION
Capital Re. Delaware law provides that, unless the board of directors
approves a proposal to dissolve a corporation, the dissolution must be
consented to in writing by stockholders holding 100% of the total voting power
of the corporation. If the dissolution is initiated by the board of directors,
it need only be approved by a majority of the outstanding stock of the
corporation entitled to vote on it.
ACE. Under Cayman Islands law, a special resolution of shareholders,
requiring 66 2/3% of the votes cast by shareholders at a duly convened meeting
at which a quorum is present, is required to commence a voluntary liquidation
of ACE.
STOCKHOLDER APPROVAL OF BUSINESS COMBINATIONS
Capital Re. Under Delaware law, there is no statutory restriction on a
Delaware corporation's ability to acquire the business of another corporation.
However, a merger or consolidation, sale, lease, exchange or other
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disposition of all or substantially all of the property of the corporation not
in the usual and regular course of the corporation's business, or a dissolution
of the corporation, generally must be approved by the holders of a majority of
the shares entitled to vote thereon unless the charter provides otherwise.
ACE. ACE may acquire the assets and business of another company and carry on
that business when it is within its objects and powers as set out in its
memorandum of association. A Cayman Islands company may not "merge" with
another company. However, under Cayman Islands law, ACE may consolidate or
amalgamate with another company or reorganize or reconstruct itself pursuant to
an arrangement approved by:
--for each class of members, a majority in the number of the holders of the
shares of that class present in person or by proxy at a special meeting of
that class, provided that the shares represent at least 75% of the nominal
value of the shares of the class held by the shareholders present in
person or by proxy at the special meeting; and
--the Cayman Islands court, who may, but need not, grant its approval.
The Cayman Islands court will consider the reasonableness of the terms of
the arrangement and may refuse to grant approval even if the requisite majority
of shareholders approve the arrangement.
In addition, under Cayman Islands law, where an offer is made by a company
for shares of a Cayman Islands company and the holders of at least 90% of the
shares that are the subject of the offer accept, the offeror may compulsorily
acquire the remaining 10%. For a more detailed discussion of this provision,
See "--Appraisal Rights" on page 68.
ABSENCE OF REQUIRED VOTE FOR CERTAIN MERGERS
Capital Re. Under Delaware law, no vote of the stockholders of a corporation
surviving a merger is required to approve a merger if:
--the agreement of merger does not amend the charter of the corporation;
--each share of stock of the corporation outstanding immediately before the
merger is to be an identical outstanding or treasury share of the
surviving corporation thereafter; and
--the number of shares of common stock of the corporation to be issued in
the merger, if any, does not exceed 20 percent of the number of shares
outstanding immediately before the merger.
ACE. Under Cayman Islands law, there is no equivalent provision, and
therefore the shareholders of the surviving company in such a situation would
be entitled to vote on the business combination as described above.
RIGHTS PLANS
ACE. On May 7, 1999, ACE's board of directors declared a dividend of one
preference share purchase right for each outstanding ordinary share to
shareholders of record at the close of business on June 1, 1999. Subject to
certain exceptions, each right, when exercisable, entitles the holder to
purchase from ACE one one-thousandth of a series A junior participating
preference share at an exercise price of $150, subject to certain antidilution
adjustments. Because of the nature of the preference shares' dividend,
liquidation and voting rights, the value of the one one-thousandth of a
preference share purchasable upon the exercise of each right should approximate
the value of one ordinary share.
The rights generally will only be exercisable:
--10 days following a public announcement that a person or a group of
affiliated or associated persons has acquired, or obtained the right to
acquire, 15% or more of the outstanding ordinary shares of ACE; or
--15 business days following the commencement of, or the announcement of an
intention to make, a tender or exchange offer for 15% or more of the
outstanding ordinary shares of ACE.
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In the following description, a person or group that acquires, or obtains
the right to acquire, 15% or more of the outstanding ordinary shares of ACE is
referred to as an "acquiring person." Generally, if any person or group becomes
an acquiring person, each right, except for rights held by the acquiring
person, will entitle its holder to purchase ordinary shares having a value
equal to two times the exercise price of the right. If ACE is acquired in a
merger, amalgamation or other business combination transaction or if 50% or
more of ACE's assets or earnings power is sold, then proper provision will be
made so that each holder of a right, except for the acquiring person, will be
entitled to receive common stock of the acquiring or surviving company having a
value equal to two times the exercise price of the right.
ACE's board of directors has the option, at any time after any person or
group becomes an acquiring person but before the acquiring person acquires 50%
or more of the outstanding ordinary shares, to exchange each right, except for
rights held by the acquiring person, for one ACE ordinary share.
At any time prior to the time that any person or group becomes an acquiring
person, ACE's board of directors may redeem the rights in whole, but not in
part, at a price of $0.01 per right. The rights will expire on June 1, 2009 if
they have not been previously exercised, exchanged or redeemed.
Purpose of the Rights. The ACE rights are designed to protect the interests
of the companies and their shareholders against coercive takeover tactics. The
purpose of the rights is to encourage potential acquirors to negotiate with the
companies' boards of directors prior to attempting a takeover and to give the
boards leverage in negotiating on behalf of their shareholders the terms of any
proposed takeover. The rights may deter certain takeover proposals.
Capital Re. Capital Re does not have a rights plan.
LEGAL MATTERS
The validity of ACE ordinary shares to be issued in connection with the
merger will be passed upon by Maples and Calder, Cayman Islands counsel to ACE.
Certain United States federal income tax matters relating to the merger will be
passed upon by Mayer, Brown & Platt, Chicago, Illinois, for ACE and by Hogan &
Hartson L.L.P., Washington, D.C., for Capital Re. See "The Proposed Merger--
Material United States Federal Income Tax Consequences" on page 30.
EXPERTS
The consolidated financial statements and financial statement schedules
incorporated in this Registration Statement by reference to ACE's Annual Report
on Form 10-K for the year ended September 30, 1998 have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
The CIGNA Corporation Property and Casualty Businesses Combined Financial
Statements incorporated in this Registration Statement by reference to ACE's
Form 8-K current report (date of earliest event reported: May 19, 1999) have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements and financial statement schedules of
Capital Re included in Capital Re's Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated by reference in the proxy statement of
Capital Re, which is referred to and made a part of this prospectus and
registration statement of ACE, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, and are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
ACE and Capital Re each file annual, quarterly and other reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's public reference rooms at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at public reference rooms in New York,
New York and Chicago, Illinois. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Reports, proxy and information statements and other information
regarding ACE and Capital Re that is filed electronically with the Securities
and Exchange Commission are also available to the public at the web site
maintained by the Securities and Exchange Commission at "http://www.sec.gov"
and from ACE's and Capital Re's web sites at "http://www.acelimited.com" and
"http://www.capitalrecorp.com," respectively.
ACE has filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the ACE ordinary shares to be issued to
Capital Re stockholders in the merger. This proxy statement/prospectus is a
part of the registration statement and constitutes a prospectus of ACE in
addition to being a proxy statement of Capital Re for the Capital Re meeting.
As allowed by Securities and Exchange Commission rules, this proxy
statement/prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the registration statement.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this proxy statement/prospectus, which means that
we can disclose important information to you by referring you to another
document filed separately with the Securities and Exchange Commission. The
information incorporated by reference is deemed to be part of this proxy
statement/prospectus, except for any information superseded by information in
this proxy statement/prospectus. This proxy statement/prospectus incorporates
by reference the documents set forth below that we have previously filed with
the Securities and Exchange Commission. These documents contain important
information about our companies and their finances.
<TABLE>
<CAPTION>
ACE SEC FILINGS (FILE NO. 1-11778) PERIOD
---------------------------------- ------
<S> <C>
Annual Report on Form 10-K, as amended... Year ended September 30, 1998
Quarterly Report on Form 10-Q............ Quarter ended December 31, 1998
Quarterly Report on Form 10-Q............ Quarter ended March 31, 1999
Quarterly Report on Form 10-Q............ Quarter ended June 30, 1999
Current Report on Form 8-K............... Filed on December 23, 1998
Current Report on Form 8-K, as amended... Filed on January 14, 1999
Current Report on Form 8-K............... Filed on May 10, 1999
Current Report on Form 8-K............... Filed on May 19, 1999
Current Report on Form 8-K............... Filed on July 19, 1999
Description of ACE ordinary shares on
Form 8-A, as amended.................... Filed on March 2, 1993
Description of Series A Junior
Participating Preference Shares on Form
8-A..................................... Filed on May 7, 1999
<CAPTION>
CAPITAL RE SEC FILINGS (FILE NO. 1-10995) PERIOD
----------------------------------------- ------
<S> <C>
Annual Report on Form 10-K............... Year ended December 31, 1998
Quarterly Report on Form 10-Q............ Quarter ended March 31, 1999
Quarterly Report on Form 10-Q............ Quarter ended June 30, 1999
Current Report on Form 8-K............... Filed on June 11, 1999
</TABLE>
We are also incorporating by reference additional documents that we file
with the Securities and Exchange Commission between the date of this proxy
statement/prospectus and the date of the Capital Re special meeting.
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ACE has supplied all information contained or incorporated by reference in
this proxy statement/prospectus relating to ACE and Capital Re has supplied all
such information relating to Capital Re.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain all of them through us or the
Securities and Exchange Commission. Documents incorporated by reference are
available from us without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this proxy
statement/prospectus. Stockholders may obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them in writing or
by telephone from the appropriate party at the following addresses:
<TABLE>
<CAPTION>
ACE LIMITED CAPITAL RE CORPORATION
----------- ----------------------
<S> <C>
The ACE Building 1325 Avenue of the Americas
30 Woodbourne Avenue New York, NY 10019
Hamilton, HM 08, Bermuda (212) 974-0100
(441) 295-5200
</TABLE>
If you would like to request documents from us, please do so by September
27, 1999 in order to receive them before the meeting on October 4, 1999.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on adoption of the merger
agreement. We have not authorized anyone to provide you with information that
is different from what is contained in this proxy statement/prospectus. This
proxy statement/prospectus is dated September 3, 1999. You should not assume
that the information contained in this proxy statement/prospectus is accurate
as of any date other than such date, and neither the mailing of this proxy
statement/prospectus to stockholders of Capital Re nor the issuance of ACE
ordinary shares in the merger shall create any implication to the contrary.
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Appendix A
Agreement and Plan of Merger
among
CAPITAL RE CORPORATION,
ACE LIMITED
and
CAPRE ACQUISITION CORP.
Dated as of June 10, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER....................................................... 1
1.1. The Merger......................................................... 1
1.2. Closing............................................................ 2
1.3. Effective Time..................................................... 2
ARTICLE II THE SURVIVING CORPORATION....................................... 2
2.1. The Certificate of Incorporation................................... 2
2.2. The Bylaws......................................................... 2
2.3. Directors.......................................................... 2
2.4. Officers........................................................... 2
ARTICLE III CONVERSION OF SHARES........................................... 3
3.1. Effect on Stock.................................................... 3
3.2. Exchange of Certificates for Shares................................ 3
3.3. Appraisal Rights................................................... 5
3.4. Adjustments to Prevent Dilution.................................... 5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 5
4.1. Organization, Good Standing and Qualification...................... 5
4.2. Capitalization..................................................... 6
4.3. Company Subsidiaries............................................... 6
4.4. Corporate Authority; Approval and Fairness......................... 7
4.5. Governmental Filings; No Violations................................ 7
4.6. Company Reports; Financial Statement............................... 8
4.7. Absence of Certain Changes......................................... 9
4.8. Litigation and Liabilities......................................... 9
4.9. Employee Benefits.................................................. 10
4.10. Compliance with Laws; Permits...................................... 12
4.11. Intellectual Property.............................................. 12
4.12. Year 2000 Compliance............................................... 13
4.13. Environmental Laws................................................. 13
4.14. Investment Company................................................. 14
4.15. Takeover Statutes.................................................. 14
4.16. Taxes.............................................................. 14
4.17. Labor Matters...................................................... 14
4.18. Title to Property.................................................. 15
4.19. Material Contracts................................................. 15
4.20. Brokers and Finders................................................ 15
4.21. Insurance Matters.................................................. 15
4.22. Liabilities and Reserves........................................... 16
4.23. Accounting and Tax Matters......................................... 17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY... 17
5.1. Merger Subsidiary.................................................. 17
5.2. Organization, Good Standing and Qualification...................... 18
5.3. Capitalization..................................................... 18
5.4. Corporate Authority; Approval and Fairness......................... 18
5.5. Governmental Filings; No Violations................................ 19
5.6. Parent Reports; Financial Statements............................... 19
</TABLE>
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<TABLE>
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5.7.Absence of Certain Changes.......................................... 20
5.8.Litigation and Liabilities.......................................... 20
5.9.Brokers and Finders................................................. 20
ARTICLE VI COVENANTS...................................................... 20
6.1.Interim Operations of the Company................................... 20
6.2.Interim Operations of Merger Subsidiary............................. 22
6.3.No Solicitation..................................................... 22
6.4.Information Supplied................................................ 24
6.5.Stockholders Meeting................................................ 24
6.6.Filings; Other Actions; Notification................................ 24
6.7.Taxation and Accounting............................................. 26
6.8.Access.............................................................. 26
6.9.Affiliates.......................................................... 26
6.10.Stock Exchange Listing............................................. 26
6.11.Publicity.......................................................... 26
6.12.Benefits........................................................... 27
6.13.Certain Change in Control Matters.................................. 27
6.14.Expenses........................................................... 28
6.15.Indemnification; Directors' and Officers' Insurance................ 28
6.16.Purchase of Ordinary Shares........................................ 29
6.17.Other Actions by the Company and Parent............................ 29
6.18.Coordination of Dividends.......................................... 30
ARTICLE VII CONDITIONS.................................................... 30
7.1.Conditions to Each Party's Obligation to Effect the Merger.......... 30
7.2.Conditions to Obligations of Parent and Merger Subsidiary........... 31
7.3.Conditions to Obligation of the Company............................. 32
ARTICLE VIII TERMINATION.................................................. 32
8.1.Termination by Mutual Consent....................................... 32
8.2.Termination by Either Parent or the Company......................... 33
8.3.Termination by the Company.......................................... 33
8.4.Termination by Parent............................................... 33
8.5.Effect of Termination and Abandonment............................... 34
ARTICLE IX MISCELLANEOUS AND GENERAL...................................... 35
9.1.Survival............................................................ 35
9.2.Modification or Amendment........................................... 35
9.3.Waiver of Conditions................................................ 35
9.4.Counterparts........................................................ 35
9.5.Governing Law; Waiver of Jury Trial................................. 35
9.6.Notices............................................................. 36
9.7.Entire Agreement; No Other Representations.......................... 36
9.8.No Third Party Beneficiaries........................................ 37
9.9.Severability........................................................ 37
9.10.Interpretation..................................................... 37
9.11.Assignment......................................................... 37
9.12.Definitions........................................................ 37
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (hereinafter called this "Agreement"),
dated as of June 10, 1999 among Capital Re Corporation, a Delaware corporation
(the "Company"), ACE Limited, a company incorporated with limited liability
under the Cayman Islands Companies Law ("Parent"), and CapRe Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary").
RECITALS
Whereas, the respective boards of directors of each of Parent, Merger
Subsidiary and the Company have determined that the merger of the Merger
Subsidiary with and into the Company (the "Merger") upon the terms and subject
to the conditions set forth in this Agreement is advisable and have approved
the Merger, whereby each issued and outstanding share of common stock, par
value $.01 per share, of the Company ("Company Common Stock") not owned
directly or indirectly by Parent or the Company will be converted into 0.60 of
an ordinary share, par value $.041666667 per share, of Parent ("Parent
Shares");
Whereas, in order to induce Parent and Merger Subsidiary to enter into this
Agreement, concurrently herewith certain stockholders are entering into
stockholder support agreements with Parent (the "Stockholder Agreements"),
pursuant to which, among other things, each such stockholder agrees to vote in
favor of this Agreement and the Merger and against any competing proposals,
upon the terms and subject to the conditions set forth herein;
Whereas, as a condition and inducement to Parent and Merger Subsidiary
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, the Company and
Parent have entered into a Stock Option Agreement dated as of the date of this
Agreement and attached hereto as Exhibit A (the "Stock Option Agreement"),
pursuant to which the Company has granted Parent an option to purchase shares
of common stock of the Company under certain circumstances;
Whereas, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"); and
Whereas, the Company, Parent and Merger Subsidiary desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
Now, Therefore, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger
1.1. The Merger.
Upon the terms and subject to the conditions set forth in this Agreement, at
the Effective Time (as defined in Section 1.3) the Merger Subsidiary shall be
merged with and into the Company and the separate corporate existence of the
Merger Subsidiary shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger except as otherwise provided herein. The Merger shall have the
effects specified in the Delaware General Corporation Law, as amended (the
"DGCL").
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1.2. Closing.
The closing of the Merger (the "Closing") shall take place (i) at the
offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York, at 9:00
A.M. on the third business day after the day on which the last to be fulfilled
or waived of the conditions set forth in Article VII (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) shall be satisfied or waived
in accordance with this Agreement or (ii) at such other place and time and/or
on such other date as the Company and Parent may agree in writing (the "Closing
Date").
1.3. Effective Time.
As soon as practicable following the Closing, the Company, Merger Subsidiary
and Parent will cause a Certificate of Merger (the "Certificate of Merger") to
be executed, acknowledged and filed with and accepted for record by the
Delaware Secretary of State (the "Secretary") as provided in Section 251 of the
DGCL. The Merger shall become effective at the time the Certificate of Merger
is filed with the Secretary or at such later time as may be agreed to by the
Company and Parent and set forth in the Certificate of Merger (the "Effective
Time").
ARTICLE II
The Surviving Corporation
2.1. The Certificate of Incorporation.
At the Effective Time, the certificate of incorporation of the Company shall
be amended so that Article FOURTH thereof reads in its entirety as follows:
"The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 1,000 shares of Common Stock, par
value $.01 per share", and as so amended shall be the certificate of
incorporation of the Surviving Corporation, until thereafter amended as
provided therein or by applicable law (the "Certificate of Incorporation").
2.2. The Bylaws.
The bylaws of Merger Subsidiary in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation (the "Bylaws"), until thereafter amended as
provided therein, as set forth in the Certificate of Incorporation or by
applicable law.
2.3. Directors.
The directors of Merger Subsidiary at the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Certificate
of Incorporation and the Bylaws.
2.4. Officers.
The officers of the Company at the Effective Time shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or termination.
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ARTICLE III
Conversion of Shares
3.1. Effect on Stock.
At the Effective Time, as a result of the Merger and without any action on
the part of the holder of any stock of the Company:
(a) Merger Consideration. Each share of Company Common Stock (each a
"Share" or, collectively, the "Shares") issued and outstanding immediately
prior to the Effective Time (other than any Shares of Company Common Stock
to be cancelled pursuant to Section 3.1(b)) shall be converted into, and
become exchangeable for the right to receive the "Merger Consideration",
consisting of 0.60 Parent Shares (including any related Rights issued
pursuant to the Rights Agreement (the "Parent Rights Agreement") dated May
7, 1999 between Parent and The Bank of New York) (the "Exchange Ratio");
provided, however, that if the average closing price (the "Average Closing
Price") of a Parent Share as reported on the New York Stock Exchange
("NYSE") for the twenty consecutive trading days ending three trading days
prior to the Effective Time is equal to or greater than $36.67 per share,
the Exchange Ratio shall be equal to 22 divided by the Average Closing
Price. At the Effective Time, all Shares shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each certificate (a "Certificate") formerly representing any of such Shares
shall thereafter represent only the right to receive the Merger
Consideration, cash in lieu of fractional Parent Shares pursuant to Section
3.2(e), if any, and any distribution or dividend pursuant to Section
3.2(c).
(b) Cancellation of Shares. Each Share issued and outstanding
immediately prior to the Effective Time and owned by Parent or owned by the
Company or any direct or indirect Subsidiary of Parent or of the Company
(in each case other than Shares that are owned on behalf of third parties),
shall, by virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding and shall be canceled and retired
without payment of any consideration therefor.
(c) Merger Subsidiary. At the Effective Time, each share of common stock
of Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock, $0.01 par value, of the Surviving
Corporation.
3.2. Exchange of Certificates for Shares.
(a) Exchange Agent. Promptly after the Effective Time, Parent shall deposit,
or shall cause to be deposited, with an exchange agent, who shall be the
Parent's transfer agent or another entity selected by Parent prior to the
Effective Time with the Company's approval, which shall not be unreasonably
withheld (the "Exchange Agent"), for the benefit of the holders of Shares,
certificates representing the Parent Shares and, after the Effective Time, if
applicable, any cash, dividends or other distributions with respect to Parent
Shares to be issued or paid pursuant to the last sentence of Section 3.1(a)
(including cash in lieu of fractional Parent Shares) in exchange for Shares
outstanding immediately prior to the Effective Time upon due surrender of the
Certificates (or affidavits of loss in lieu thereof) pursuant to the provisions
of this Article III (such certificates for Parent Shares, together with the
amount of any dividends or other distributions payable with respect thereto and
any cash in lieu of fractional Parent Shares, being hereinafter referred to as
the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record of Shares (i) a
letter of transmittal specifying that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent,
such letter of transmittal to be in such form and have such other provisions as
Parent and the Company may reasonably agree prior to the Effective Time, and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for (A) certificates representing Parent Shares and (B) any unpaid
dividends and other distributions pursuant to Section 3.2(c) and cash in lieu
of fractional
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Parent Shares. Subject to Section 3.2(h), upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing that number of whole Parent
Shares that such holder is entitled to receive pursuant to this Article III,
(y) a check in the amount (after giving effect to any required tax
withholdings) of any cash in lieu of fractional Parent Shares plus any unpaid
dividends or other distributions that such holder has the right to receive
pursuant to Section 3.2(c), and the Certificate so surrendered shall forthwith
be canceled. No interest will be paid or accrued on any amount payable upon due
surrender of the Certificates. In the event of a transfer of ownership of
Shares that is not registered in the transfer records of the Company, a
certificate representing the proper number of Parent Shares, together with a
check for any cash to be paid upon due surrender of the Certificate in lieu of
fractional Parent Shares and any other dividends or distributions in respect
thereof, may be issued and/or paid to such a transferee if the Certificate
formerly representing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. If any
certificate for Parent Shares is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the Person (as defined below) requesting
such exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for Parent Shares in a name other than that of the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of Parent or the Exchange Agent that such tax has been paid or is
not applicable. For the purposes of this Agreement, the term "Person" shall
mean any individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, governmental entity or other entity of any kind or
nature.
(c) Distributions with Respect to Unexchanged Shares; Voting.
(i) All Parent Shares to be issued pursuant to the Merger shall be
deemed issued and outstanding as of the Effective Time and whenever a
dividend or other distribution is declared by Parent in respect of Parent
Shares, the record date for which is after the Effective Time, that
declaration shall include dividends or other distributions in respect of
all shares issuable pursuant to this Agreement. No dividends or other
distributions in respect of Parent Shares shall be paid to any holder of
any unsurrendered Certificate until such Certificate is surrendered for
exchange in accordance with this Article III. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall
be issued and/or paid to the holder of the certificates representing whole
Parent Shares issued in exchange therefor, without interest, (A) at the
time of such surrender, the dividends or other distributions with a record
date after the Effective Time and a payment date on or prior to such time
of surrender payable with respect to such whole Parent Shares and not paid
and (B) at the appropriate payment date, the dividends or other
distributions payable with respect to such whole Parent Shares with a
record date after the Effective Time and with a payment date subsequent to
surrender.
(ii) Holders of unsurrendered Certificates who were the registered
holders at the Effective Time shall not be entitled to vote after the
Effective Time at any meeting of Parent stockholders (or consent in
connection with any consent of stockholders in lieu of a meeting).
(d) Transfers. After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional Parent Shares will be issued and any holder of Shares
entitled to receive a fractional Parent Share but for this Section 3.2(e) shall
be entitled to receive a cash payment in lieu thereof, which payment shall
equal the amount determined by multiplying (i) the fraction of a Parent Share
to which such holder would otherwise be entitled by (ii) the average closing
price of a Parent Share as reported on the NYSE for the twenty consecutive
trading days ending three trading days prior to the Effective Time. The
fractional share interests of each holder of Company Common Stock shall be
aggregated, so that no such holder shall receive cash in an amount equal to or
greater than the value of one Parent Share.
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(f) Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Parent on a daily basis. Any
interest and other income resulting from such investments shall promptly be
paid to Parent.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Shares) that
remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who
have not theretofore complied with this Article III shall thereafter look only
to Parent for payment of their Parent Shares and any cash, dividends and other
distributions in respect thereof payable and/or issuable pursuant to Section
3.1 and Section 3.2(c) upon due surrender of their Certificates (or affidavits
of loss in lieu thereof), in each case, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation, the
Exchange Agent or any other Person shall be liable to any holder of Shares for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(h) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent, the posting by such Person of a bond in
customary amount as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Parent Shares and any cash
payable and any unpaid dividends or other distributions in respect thereof
pursuant to Section 3.2(c) upon due surrender of and deliverable in respect of
the Shares represented by such Certificate pursuant to this Agreement.
(i) Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Merger Subsidiary, any other actions and things
to vest, perfect or confirm of record or otherwise in Parent or in the
Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets acquired or to be acquired by Parent or
the Surviving Corporation as a result of, or in connection with, the Merger.
3.3. Appraisal Rights.
In accordance with Section 262(b) of the DGCL, no appraisal rights shall be
available to holders of Shares in connection with the Merger.
3.4. Adjustments to Prevent Dilution.
In the event that after the date hereof and prior to the Effective Time the
Company changes the number of Shares or securities convertible or exchangeable
into or exercisable for Shares, or Parent changes the number of Parent Shares
or securities convertible or exchangeable into or exercisable for Parent
Shares, issued and outstanding prior to the Effective Time, as a result of a
reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction, the Merger Consideration shall be
equitably adjusted.
ARTICLE IV
Representations and Warranties of the Company
Except as set forth in the corresponding sections or subsections of the
Company disclosure schedule attached to this agreement (the "Company Disclosure
Schedule"), the Company hereby represents and warrants to Parent and Merger
Subsidiary that:
4.1. Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and each of its Subsidiaries
(as defined in Section 9.12(b)) is a corporation or other entity
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duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization. The Company and each of its
Subsidiaries has full power and authority (corporate and other) to own, lease
and operate its respective properties and assets and to carry on its business
as presently conducted and as proposed to be conducted, except where the
failure to hold such franchises, grants, licenses, certificates, permits,
consents and orders, or to have such power and authority, would not, when taken
together with all other such failures, reasonably be expected to have a Company
Material Adverse Effect (as defined in Section 9.12(b)). The Company has made
available to Parent a complete and correct copy of the Company's and each
Subsidiary's charter and by-laws or other organizational documents, each as
amended to and as in effect as of the date hereof.
4.2. Capitalization.
The authorized capital stock of the Company consists of 75,000,000 Shares,
of which 32,526,619 Shares were outstanding as of the close of business on June
9, 1999, and 25,000,000 shares of Preferred Stock, par value $.01 per share
(the "Preferred Shares"), of which no shares were outstanding as of the close
of business on the date hereof. All of the outstanding Shares have been duly
authorized and are validly issued, fully paid and nonassessable. The Company
has no commitments to issue or deliver Shares or Preferred Shares, except that,
as of June 9, 1999, there were an aggregate of 6,460,000 Shares reserved for
issuance pursuant to the Company's 1992 Employee Stock Option Plan, 1997
Employee Stock Option Plan, 1993 Director's Stock Option Plan and the
Performance Share Plan (the "Company Stock Plans"). Each of the outstanding
shares of capital stock or other securities of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by the Company or a direct or indirect wholly-owned subsidiary of the
Company, free and clear of any lien, pledge, security interest, claim or other
encumbrance. Section 4.2 of the Company Disclosure Schedule sets forth in the
aggregate, by Company Stock Plan, the number of options and stock appreciation
rights outstanding, their grant price, the date such options or rights were
granted and the class and number of Shares reserved for issuance pursuant to
each such Company Stock Plan, together with the name of each holder of an
option or stock appreciation right outstanding under any such Company Stock
Plan, (such options and rights being having collectively referred to as the
"Company Options"), a description of the exercise or purchase prices, vesting
schedules, expiration dates, and class and number of Shares subject to each
such Company Option, together with a listing of all Company Options that shall
vest at the Effective Time as a result of the Merger. Except as described in
Section 4.2 of the Company Disclosure Schedule, there are no preemptive or
other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company or
any of its Subsidiaries, and no securities or obligations evidencing such
rights are authorized, issued or outstanding. The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or, except as referred to in this Section 4.2,
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter.
Except as described in Section 4.2 of the Company Disclosure Schedule or as
specifically described in this Agreement or the Stock Option Agreement, since
December 31, 1998, the Company has not (i) made or agreed to make any stock
split or stock dividend, or issued or permitted to be issued any shares of
capital stock, or securities exercisable for or convertible into shares of
capital stock, of the Company other than pursuant to and as required by the
terms of any Company Stock Plan; (ii) repurchased, redeemed or otherwise
acquired any shares of capital stock of the Company; or (iii) other than its
regular quarterly cash dividend of $0.04 per share, declared, set aside, made
or paid to the stockholders of the Company dividends or other distributions on
the outstanding shares of capital stock of the Company.
4.3. Company Subsidiaries.
(a) Section 4.3(a)(i) of the Company Disclosure Schedule sets forth the name
and jurisdiction of incorporation of each of the Company's Subsidiaries. The
Company conducts its insurance operations through
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the Subsidiaries set forth in Section 4.3(a)(ii) of the Company Disclosure
Schedule (collectively, the "Company Insurance Subsidiaries"). Each of the
Company Insurance Subsidiaries is (1) duly licensed or authorized as an
insurance company or reinsurer in its jurisdiction of incorporation, (2) duly
licensed or authorized as an insurance company or reinsurer in each other
jurisdiction where it is required to be so licensed or authorized, and (3) duly
authorized in its jurisdiction of incorporation and each other applicable
jurisdiction to write each line of business reported as being written in the
Company SAP Statements (as hereinafter defined), except, in any such case,
where the failure to be so licensed or authorized would not, individually or in
the aggregate, be reasonably expected to have a Company Material Adverse
Effect. The Company has made all required filings under applicable holding
company statutes except where the failure to file would not be reasonably
expected to have a Company Material Adverse Effect.
(b) Except for the Company's Subsidiaries, securities held in the Company's
investment portfolio and except as set forth on Section 4.3(b) of the Company
Disclosure Schedule, the Company does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
4.4. Corporate Authority; Approval and Fairness.
(a) The Company has all requisite power and authority and has taken all
corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement, and subject
only to approval of the Merger by the holders of at least a majority of the
outstanding Shares (the "Company Requisite Vote"), to consummate the Merger.
This Agreement and the Stock Option Agreement have been duly executed and
delivered by the Company and (assuming the due authorization, execution and
delivery hereof and thereof by Parent and the Company) constitute legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as enforceability may be limited
or affected by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws and equitable principles now or hereafter in
effect and affecting the rights and remedies of creditors generally.
(b) The Board of Directors of the Company has duly and validly approved and
taken all corporate action required to be taken by the Board of Directors (in
each case by a unanimous vote of all the directors in office at such time) for
the consummation of the transactions contemplated by this Agreement and the
Stock Option Agreement, including, but not limited to, (i) having determined
that this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby, taken together, are advisable and are fair to
and in the best interests of the stockholders of the Company, and (ii) having
resolved to recommend that the holders of the Shares adopt this Agreement and
approve the Merger. The affirmative vote in favor of the adoption of this
Agreement by the Company Requisite Vote is the only vote of the holders of any
class or series of Company capital stock necessary to approve this Agreement
and the Merger. No vote of the stockholders of the Company is required to
approve the Stock Option Agreement. The Board of Directors of the Company has
received the opinion of its financial advisor Goldman, Sachs & Co., to the
effect that, as of the date of such opinion, the Exchange Ratio is fair from a
financial point of view to the holders of Shares.
4.5. Governmental Filings; No Violations.
Subject to obtaining the Private Consents (as defined below) and except for
all filings, permits, authorizations, consents and approvals as may be required
under, and compliance with other applicable requirements of, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), state
securities or "blue sky" laws, state takeover laws, state and foreign insurance
regulatory laws and commissions, including Lloyd's of London and the U.K.
Treasury Department, and for the approval of this Agreement by the Company's
stockholders and the filing and recordation of this Agreement or the
Certificate of Merger as required by the DGCL, and except as may result from
any facts or circumstances relating solely to the Parent or its Affiliates,
neither the
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execution, delivery or performance of this Agreement or the Stock Option
Agreement nor the consummation by the Company of the transactions contemplated
hereby or thereby nor compliance by the Company with any of the provisions
hereof or thereof will (i) result in any breach or violation of any provision
of the certificate of incorporation or by-laws or similar organizational
documents of the Company or of any of its Subsidiaries, (ii) require any filing
with, or permit, authorization, consent or approval of, any United States or
foreign court, arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority, body, commission or agency,
including the Corporation of Lloyd's (a "Governmental Entity"), except where
the failure to obtain such permits, authorizations, consents or approvals or to
make such filings would not have a Company Material Adverse Effect, (iii)
result in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation, acceleration or increase in the rate of interest)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, guarantee, other evidence of indebtedness, lease, license, contract,
agreement or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound (a "Contract") or result in the creation of a lien upon any
of the properties or assets of the Company or any of its Subsidiaries or (iv)
violate any order, writ, injunction, judgment, decree, statute, rule,
regulation or other Law applicable to the Company, any of its Subsidiaries or
any of their properties or assets, except in the case of clauses (iii) and (iv)
for violations, breaches, defaults, or rights of termination, amendment,
cancellation or acceleration or liens, which would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Section 4.5 of the Company Disclosure Schedule sets forth, to the knowledge of
the Responsible Executive Officers of the Company (as defined in Section
9.12(b)), a list of contracts (by category and type, where applicable) material
to the Company and its Subsidiaries, taken as a whole, pursuant to which
consents or waivers ("Private Consents") are or may be required prior to
consummation of the transactions contemplated by this Agreement (subject to the
exception set forth above).
4.6. Company Reports; Financial Statement.
(a) The Company has delivered or made available to Parent true and complete
copies of each registration statement, report, proxy statement or information
statement prepared by it since January 1, 1996, including (i) the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, (ii) the
Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, and (iii) the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999, each in the form (including exhibits,
annexes and any amendments thereto) filed with the Securities and Exchange
Commission (the "SEC") (collectively, including any such reports filed
subsequent to the date hereof, the "Company Reports"). Each Company Report
complied in all material respects with the applicable requirements of the
Securities Act of 1933 (the "Securities Act") and the rules and regulations
promulgated thereunder, or the Exchange Act and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. Each report
filed by the Company with the SEC subsequent to the date hereof and prior to
the Effective Time will comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations promulgated
thereunder, or the Exchange Act and the rules and regulations promulgated
thereunder, each as in effect on the date so filed. No Subsidiary of the
Company is required to file any form, report, statement, schedule, registration
statement or other document with the SEC. As of their respective dates, the
Company Reports did not, and any Company Reports filed with the SEC subsequent
to the date hereof will not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Company Reports (including
the related notes and schedules) fairly presents, or will fairly present, the
consolidated financial position of the Company and its Subsidiaries as of its
date and each of the consolidated statements of income and of changes in
financial position included in or incorporated by reference into the Company
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the consolidated results of operations, retained earnings and
changes in financial position, as the case may be, of the Company and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal
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year-end audit adjustments that will not be material in amount or effect), in
each case in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved, except as may be noted
therein.
(b) The Company has delivered or made available to Parent true and complete
copies of the annual and quarterly statements of each of the Company Insurance
Subsidiaries as filed with the applicable insurance regulatory authorities for
the three years ended December 31, 1998 and the quarterly period ended March
31, 1999, including all exhibits, interrogatories, notes, schedules and any
actuarial opinions, affirmations or certifications or other supporting
documents filed in connection therewith (collectively, the "Company SAP
Statements"). The Company SAP Statements were prepared in conformity with
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority consistently applied for the periods covered
thereby and present fairly the statutory financial position of such Company
Insurance Subsidiaries for the respective periods then ended. The Company SAP
Statements complied in all material respects with all applicable laws, rules
and regulations when filed, and no material deficiency has been asserted with
respect to any Company SAP Statements by the applicable insurance regulatory
body or any other governmental agency or body. The annual statutory balance
sheets and income statements included in the Company SAP Statements have been
audited by Ernst & Young LLP and the Company has delivered or made available to
Parent true and complete copies of all audit opinions related thereto. The
Company has delivered or made available to Parent true and complete copies of
all examination reports of insurance departments and any insurance regulatory
agencies since January 1, 1995 relating to the Company Insurance Subsidiaries.
4.7. Absence of Certain Changes.
Except as disclosed in the Company Reports filed prior to the date hereof or
as set forth on Section 4.7 of the Company Disclosure Schedule and except as
otherwise provided in or contemplated by this Agreement, since December 31,
1998 (the "Company Audit Date"), the Company and its Subsidiaries have
conducted their respective businesses only in, and have not engaged in any
material transaction other than according to, the ordinary and usual course of
such businesses and there has not been: (a) any change in the financial
condition, properties, business or results of operations of the Company and its
Subsidiaries, or any transaction, commitment, dispute or other event, or any
other development or combination of developments that, individually or in the
aggregate, has had or is reasonably likely to result in a Company Material
Adverse Effect; (b) any material damage, destruction or other casualty loss
with respect to any material asset or property owned, leased or otherwise used
by the Company or any of its Subsidiaries, whether or not covered by insurance;
(c) any authorization, declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of the Company, except as
permitted by Section 6.1 hereof; (d) any change by the Company in accounting
principles, practices or methods other than as required by changes in
applicable GAAP or statutory accounting principles; (e) any material addition
to the Company's consolidated reserves for unpaid losses and loss adjustment
expenses prior to the date of this Agreement; (f) any material change in the
accounting, actuarial, investment, reserving, underwriting or claims
administration policies, practices, procedures, methods, assumptions or
principles of any Company Insurance Subsidiary; or (g) any repurchase or
redemption of any Shares. Since the Company Audit Date, except as provided for
herein or as disclosed in the Company Reports filed prior to the date hereof or
as set forth on Section 4.7 of the Company Disclosure Schedule, there has not
been any increase in the compensation payable or that could become payable by
the Company or any of its Subsidiaries to officers at the senior vice president
level or above or key employees or any amendment of any of the Company
Compensation and Benefit Plans (as defined in Section 4.9(a)).
4.8. Litigation and Liabilities.
Except as disclosed in the Company Reports filed prior to the date hereof or
as set forth on Section 4.8 of the Company Disclosure Schedule, there are no
(a) actions, suits, claims, proceedings or investigations (or, to the knowledge
of the Responsible Executive Officers of the Company, any basis for any person
to assert any claim reasonably likely to result in liability or any other
adverse determination) pending against, or to the
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knowledge of the Responsible Executive Officers of the Company, threatened
against or affecting, the Company or any of its Subsidiaries or any of their
respective properties before any Governmental Entity or otherwise that (i)
individually or in the aggregate would be expected to have a Company Material
Adverse Effect, (ii) in any manner challenges or seeks to prevent, enjoin,
alter or delay the transactions contemplated hereby or (iii) alleges criminal
action or inaction or (b) liabilities, debts, claims or obligations of any
nature on the date of this Agreement, whether accrued, absolute, direct or
indirect, contingent or otherwise, whether due or to become due, that would be
required to be included on a balance sheet prepared in accordance with GAAP,
and there is no existing condition or set of circumstances that would
reasonably be expected to result in such a liability ("Company Liabilities"),
except (i) Company Liabilities incurred in the ordinary and usual course of
business and consistent with past practice since December 31, 1998, (ii)
Company Liabilities incurred in connection with or as a result of the
transactions contemplated by this Agreement and (iii) Company Liabilities that
would not reasonably be expected to have a Company Material Adverse Effect.
As of the date hereof, neither the Company, its Subsidiaries nor any of
their respective properties is subject to any order, writ, judgment,
injunction, decree, determination or award having, or that would reasonably be
expected to have, a Company Material Adverse Effect or that would prevent or
delay the consummation of the transactions contemplated hereby. Except as
disclosed in the Company Reports, there are no pending or, to the knowledge of
the Responsible Executive Officers of the Company, threatened claims for
indemnification by the Company or any of its Subsidiaries in favor of
directors, officers, employees and agents of the Company or any of its
Subsidiaries.
4.9. Employee Benefits.
(a) Except as set forth in Section 4.9(a) of the Company Disclosure
Schedule, none of the Company or any of its Subsidiaries maintains, is a party
to, participates in or has any liability or contingent liability with respect
to:
(i) any "employee welfare benefit plan" or "employee pension benefit
plan" (as those terms are defined in sections 3(1) and 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
respectively), other than a "multiemployer plan" (as defined in section
3(37) of ERISA);
(ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangements for any
current or former employee, director, consultant or agent, whether pursuant
to contract, arrangement, custom or informal understanding, which does not
constitute an employee benefit plan (as defined in section 3(3) of ERISA);
or
(iii) any employment agreement or consulting agreement.
(b) A true and correct copy of each of the plans, arrangements, and
agreements listed on Section 4.9(b) of the Company Disclosure Schedule
(referred to hereinafter as "Employee Benefit Plans"), and all contracts
relating thereto, or to the funding thereof, including, without limitation, all
trust agreements, insurance contracts, administration contracts, investment
management agreements, subscription and participation agreements, and record
keeping agreements, each as in effect on the date hereof, has been supplied to
the Parent. In the case of any Employee Benefit Plan which is not in written
form, the Parent has been supplied with an accurate description of such
Employee Benefit Plan as in effect on the date hereof. A true and correct copy
of the most recent annual report, actuarial report, accountant's opinion of the
plan's financial statements, summary plan description and Internal Revenue
Service determination letter with respect to each Employee Benefit Plan, to the
extent applicable, and a current schedule of assets (and the fair market value
thereof assuming liquidation of any asset which is not readily tradable) held
with respect to any funded Employee Benefit Plan has been supplied to the
Purchaser, and there have been no material changes in the financial condition
in the respective plans from that stated in the annual reports and actuarial
reports supplied.
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(c) As to all Employee Benefit Plans:
(i) All Employee Benefit Plans comply and have been administered in form
and in operation in all material respects with all applicable requirements
of Law, and no event has occurred which will or could cause any such
Employee Benefit Plan to fail to comply with such requirements and no
notice has been issued by any governmental authority questioning or
challenging such compliance.
(ii) All Employee Benefit Plans which are employee pension benefit plans
comply in all material respects in form and in operation with all
applicable requirements of sections 401(a) and 501(a) of the Code; there
have been no amendments to such plans which are not the subject of a
favorable determination letter issued with respect thereto by the Internal
Revenue Service or for which the time to file a timely request for a
determination letter has lapsed; and no event has occurred which will or
could give rise to disqualification of any such plan under such sections or
to a tax under section 511 of the Code.
(iii) None of the assets of any Employee Benefit Plan are invested in
employer securities or employer real property.
(iv) There have been no "prohibited transactions" (as described in
section 406 of ERISA or section 4975 of the Code) with respect to any
Employee Benefit Plan and none of the Company or any of its Subsidiaries
has engaged in any prohibited transaction.
(v) There have been no acts or omissions by the Company which have given
rise to or may give rise to fines, penalties, taxes or related charges
under section 502 of ERISA or Chapters 43, 47 or 68 of the Code for which
the Company or any of its Subsidiaries may be liable.
(vi) Except as set forth in Section 4.9(c) of the Company Disclosure
Schedule, none of the payments contemplated by the Employee Benefit Plans
would, in the aggregate, constitute excess parachute payments (as defined
in section 280G of the Code (without regard to subsection (b)(4) thereof)).
(vii) There are no actions, suits or claims (other than routine claims
for benefits) pending or threatened involving any Employee Benefit Plan or
the assets thereof and no facts exist which could give rise to any such
actions, suits or claims (other than routine claims for benefits).
(viii) No Employee Benefit Plan is subject to Title IV of ERISA.
(ix) Each Employee Benefit Plan which constitutes a "group health plan"
(as defined in section 607(i) of ERISA or section 4980B(g)(2) of the Code),
including any plans of current and former Affiliates which must be taken
into account under sections 4980B and 414(t) of the Code or section 601 of
ERISA, have been operated in material compliance with applicable law,
including coverage requirements of section 4980B of the Code and section
601 of ERISA to the extent such requirements are applicable, except where
failure to do so would not have a Company Material Adverse Effect.
(x) None of the Company or any of its Subsidiaries has any liability or
contingent liability for providing, under any Employee Benefit Plan or
otherwise, any post-retirement medical or life insurance benefits, other
than statutory liability for providing group health plan continuation
coverage under Part 6 of Title I of ERISA and section 4980B of the Code.
(xi) Actuarially adequate accruals for all obligations under the
Employee Benefit Plans are reflected in the financial statements of the
Company and such obligations include a pro rata amount of the contributions
and PBGC premiums which would otherwise have been made in accordance with
past practices and applicable law for the plan years which include the
Closing Date.
(d) None of the Company nor any of its Subsidiaries contributes to, has
contributed to, or has any liability or contingent liability with respect to a
multiemployer plan (as defined in section 3(37) of ERISA).
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(e) Section 4.9(e) of the Company Disclosure Schedule describes in all
material respects all employment contracts and similar arrangements between the
Company or any of its Subsidiaries and their respective executive officers, and
all plans and arrangements pursuant to which the Company or any of its
Subsidiaries is obligated to make any payment or confer any benefit upon any
officer, director, employee or agent of the Company or any of its Subsidiaries
as a result of or in connection with any of the transactions contemplated by
this Agreement or any transaction or transactions resulting in a change in
control of the Company or any of its Subsidiaries. Except as set forth in
Section 4.9(e) of the Company Disclosure Schedule, the Merger will not (i)
entitle any employees of the Company or its Subsidiaries to severance pay, (ii)
accelerate the time of payment or vesting or trigger any payment of
compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any Employee Benefit Plan, or (iii)
result in any breach or violation of, or default under, any Employee Benefit
Plan.
(f) All Employee Benefit Plans covering current or former non-U.S. employees
of the Company and its Subsidiaries comply in all material respects with
applicable local law. The Company and its Subsidiaries have no material
unfunded liabilities with respect to any Employee Benefit Plan that covers such
non-U.S. employees.
4.10. Compliance with Laws; Permits.
Except as set forth in the Company Reports filed prior to the date hereof or
on Section 4.10 of the Company Disclosure Schedule, the businesses of each of
the Company and its Subsidiaries have been, and are being, conducted in
compliance with all applicable federal, state, local or foreign laws, statutes,
ordinances, rules, regulations, judgments, orders, injunctions, decrees,
arbitration awards, agency requirements, licenses or permits (including
insurance laws and regulations) of any Governmental Entity ("Laws"), and all
notices, reports, documents and other information required to be filed
thereunder within the last three years were properly filed and were in
compliance with such Laws, except in any such case for noncompliance that,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect or prevent or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement.
Except as set forth in the Company Reports filed prior to the date hereof or on
Section 4.10 of the Company Disclosure Schedule and except for routine
examinations by state governmental entities charged with supervision of
insurance companies ("Insurance Regulators"), no investigation or review by any
governmental entity with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Responsible Executive Officers of the
Company, threatened, nor has any governmental entity indicated an intention to
conduct the same, except for those the outcome of which would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect or prevent or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement. No material change is required
in the Company's or any of its Subsidiaries' processes, properties or
procedures in connection with any such Laws, and the Company has not received
any notice or communication of any material noncompliance with any such Laws
that has not been cured as of the date hereof. The Company and its Subsidiaries
each has all permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals necessary to conduct
its business as presently conducted except those the absence of which would
not, individually or in the aggregate, have a Company Material Adverse Effect
or prevent or materially impair the ability of the Company to consummate the
Merger and the other transactions contemplated by this Agreement.
4.11. Intellectual Property.
The Company and its Subsidiaries own or possess, or have all necessary
rights and licenses in, all patents, patent rights, licenses, inventions
(whether or not patentable or reduced to practice), copyrights (whether
registered or unregistered), know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), registered and unregistered trademarks, service marks and trade
names and other intellectual property rights (collectively, "Intellectual
Property") necessary to
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conduct their business as conducted and proposed to be conducted, except such
Intellectual Property the failure to own, possess, have all rights and licenses
in would not have a Company Material Adverse Effect. Neither the Company nor
any of its Subsidiaries has received any unresolved notice of, or is aware of
any fact or circumstance that would give any Person a right to assert,
infringement or misappropriation of, or conflict with, asserted rights of
others or invalidity or unenforceability of any Intellectual Property owned by
the Company or any of its Subsidiaries. To the knowledge of the Responsible
Executive Officers of the Company, the use of such Intellectual Property to
conduct the business and operations of the Company and its Subsidiaries as
conducted or proposed to be conducted does not infringe on the rights of any
Person, except such infringement that would not have a Company Material Adverse
Effect. To the knowledge of the Responsible Executive Officers of the Company,
no Person is challenging, infringing on or otherwise violating any right of the
Company or any of its Subsidiaries with respect to any Intellectual Property
owned by or licensed to the Company or any of its Subsidiaries. Neither the
execution of this Agreement nor the consummation of the transactions
contemplated hereby will result in a loss or limitation in the rights and
licenses of the Company to use or enjoy the benefit of any Intellectual
Property employed by the Company or any of its Subsidiaries in connection with
its business as conducted or proposed to be conducted, except for such loss or
limitation which would not have a Company Material Adverse Effect.
4.12. Year 2000 Compliance.
The Company has established an implementation plan and budgeted a reasonably
sufficient amount of capital and resources to institute software systems which
include design, performance and functionality and which are intended to ensure
(it being acknowledged and agreed by the parties hereto that such intention may
never be realized) that such software systems do not cause the Company to
experience invalid or incorrect results or abnormal software operation related
to calendar year 2000, except where such invalid or incorrect results or
abnormal software operation would not, individually or in the aggregate, have a
Company Material Adverse Effect. Such plan and budget envision the creation of
software systems which include calendar year 2000 date conversion and
compatibility capabilities. As of the date of this Agreement, such plan, in
respect of the business of the Company, is generally proceeding on schedule.
4.13. Environmental Laws.
Except to the extent that any inaccuracy in any of the following
representations, individually or in the aggregate with any other inaccuracy
under the following representations, would not reasonably be expected to have a
Company Material Adverse Effect, (a) each of the Company and each of its
Subsidiaries is in compliance with all Environmental Laws applicable to the
properties, assets or businesses of the Company and its Subsidiaries, and
possesses and complies with and has possessed and complied with all
Environmental Permits required under such laws; (b) none of the Company and its
Subsidiaries has received any Environmental Claim, and none of the Company and
its Subsidiaries is aware, after reasonable inquiry, of any threatened
Environmental Claim or of any Environmental Claim pending or threatened against
any entity for which the Company or any of its Subsidiaries may be responsible;
(c) none of the Company and its Subsidiaries has assumed, contractually or by
operation of law, any liabilities or obligations under any Environmental Laws;
(d) there are no present or, to the best knowledge of the Company, past events,
conditions, circumstances, practices, plans or legal requirements that would
reasonably be expected to result in liability to the Company or any of its
Subsidiaries under Environmental Laws, or reasonably be expected to increase
the burden on the Company or any of its Subsidiaries of complying with
Environmental Laws or of obtaining, renewing, or complying with all
Environmental Permits required under such laws; (e) there are and, to the best
knowledge of the Company, there have been no Hazardous Materials or other
conditions at or from any property owned, operated or otherwise used by the
Company or any of its Subsidiaries now or, to the best knowledge of the
Company, in the past that would reasonably be expected to give rise to
liability of the Company or any of its Subsidiaries under any Environmental Law
and (f) the Company has provided to Parent all Environmental Reports in the
possession or control of the Company or any of its Subsidiaries.
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4.14. Investment Company.
Neither the Company nor any of its Subsidiaries is an "investment company"
as defined under the Investment Company Act of 1940, as amended, and neither
the Company nor any of its Subsidiaries sponsors any person that is such an
investment company.
4.15. Takeover Statutes.
No restrictive provision of any "fair price," "moratorium," "control share"
or other similar anti-takeover statute or regulation, including, but not
limited to, (S) 203 of the DGCL, (each a "Takeover Statute") or restrictive
provision of any applicable anti-takeover provision in the Certificate of
Incorporation or Bylaws of the Company, is, or at the Effective Time will be,
applicable to the Company, Parent, the Shares, the Merger or any other
transaction contemplated by this Agreement.
4.16. Taxes.
Except as set forth on Section 4.16 of the Company Disclosure Schedule:
(a) the Company and each of its Subsidiaries have timely and accurately
filed all Tax Returns (as defined in Section 9.12 (b)) which are required
by all applicable laws to be filed by them, and have paid, or made adequate
provision for the payment of, all Taxes (as defined in Section 9.12 (b))
which have or may become due and payable pursuant to said Tax Returns and
all other Taxes, governmental charges and assessments received to date
other than those Taxes being contested in good faith for which adequate
provision has been made on the most recent balance sheet included in the
Company Reports. The Tax Returns of the Company and its Subsidiaries have
been prepared, in all material respects, in accordance with all applicable
laws consistently applied;
(b) all Taxes which the Company and its Subsidiaries are required by law
to withhold and collect have been duly withheld and collected, and have
been paid over, in a timely manner, to the proper Taxing Authorities (as
defined in Section 9.12 (b)) to the extent due and payable;
(c) no liens for Taxes exist with respect to any of the assets or
properties of the Company or its Subsidiaries, except for statutory liens
for Taxes not yet due or payable or that are being contested in good faith;
and
(d) there is no audit, examination, deficiency, or refund litigation
pending with respect to any Taxes and during the past three years no Taxing
Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes.
4.17. Labor Matters.
The Company is not aware that any officer, director, executive or key
employee of the Company or any of its Subsidiaries or any group of employees of
the Company or any of its Subsidiaries has any plans to terminate his, her or
its employment with the Company or any of its Subsidiaries (other than as
previously described to Parent in writing). Except as described in Section 4.17
of the Company Disclosure Letter, (a) the Company and its Subsidiaries have
complied with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, and collective
bargaining, and (b) no labor dispute with employees of the Company or any of
its Subsidiaries exists or, to the knowledge of the Responsible Executive
Officers of the Company, is threatened. Neither the Company nor any of its
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization. There are no strikes, work stoppages or labor disputes
pending or, to the knowledge of the Responsible Executive Officers of the
Company, threatened with respect to the employees of the Company or any of its
Subsidiaries. There is no representation claim or petition or complaint pending
before the National Labor Relations Board or any state or local labor agency
and, to the knowledge of the Responsible Executive Officers of the Company, no
question concerning representation has been raised or threatened. No charges
with
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respect to or relating to the business of the Company or any its Subsidiaries
are pending before the Equal Employment Opportunity Commission, or any state or
local agency responsible for the prevention of unlawful employment practices,
which would if adversely determined have a Company Material Adverse Effect.
4.18. Title to Property.
Except as set forth in the Company Reports or on Section 4.18 of the Company
Disclosure Schedule, the Company and each of its Subsidiaries have good and
indefeasible title to all of their properties and assets, free and clear of all
material defects and all encumbrances, except liens for taxes not yet due and
payable and such encumbrances or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby or which would not reasonably be expected to have
a Company Material Adverse Effect, and except for encumbrances which secure
indebtedness reflected in the financial statements included in the Company
Reports.
4.19. Material Contracts.
All of the material Contracts of the Company and its Subsidiaries are in
full force and effect and are valid, binding and enforceable against the
Company or its Subsidiaries in accordance with their respective terms. True and
complete copies of all such material Contracts have been delivered or otherwise
made available by the Company to Parent. Except as set forth in Section 4.19 of
the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is, has received any notice or has any knowledge that any other
party is, in default in any respect under any Contract to which the Company or
any of its Subsidiaries is a party or the assets, business or operations
thereof may be bound or affected or under which it or its Subsidiaries'
respective assets, business or operations receives benefits, except for those
defaults that have not had or would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and there
has not occurred any event that with the lapse of time or the giving of notice
would constitute such a default. Neither the Company nor any of its
Subsidiaries is party to any agreement containing any provision or covenant
that would reasonably be expected to have a Company Material Adverse Effect on
the ability of the Company or any of its Subsidiaries, assuming the
consummation of the transactions contemplated by this Agreement, to (a) sell
any products or services of or to any other person, (b) engage in any line of
business or (c) compete with or to obtain products or services from any person
or limiting the ability of any person to provide products or services to the
Company or any of its Subsidiaries.
Subject to obtaining the Private Consents and except as set forth in Section
4.19 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to or bound by any contract, agreement or arrangement
which would cause the rights or obligations of any party thereto to change upon
the consummation of the Merger, except for any such contract, agreement or
arrangement which would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
4.20. Brokers and Finders.
Neither the Company nor any of its executive officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or
the other transactions contemplated in this Agreement, except that the Company
has employed Goldman, Sachs & Co. as its financial advisor, the arrangements
with respect to which have been disclosed to Parent prior to the date hereof.
4.21. Insurance Matters.
(a) The Company has heretofore provided or otherwise made available to
Parent true, complete and correct copies of all material fire and casualty,
general liability, business interruption, product liability and other insurance
policies maintained by the Company and its Subsidiaries. All such policies are
in full force and effect and no event has occurred that would give any
insurance carrier a right to terminate any such policy. Neither
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the Company nor any of its Subsidiaries has been denied or had any policy of
insurance revoked or rescinded. All such policies are adequate to insure
against risks to which the Company and its properties are exposed in such
amounts and subject to such terms as are commercially reasonable.
(b) Except as otherwise would not, individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect, all policies,
binders, slips, certificates, annuity contracts and participation agreements
and other agreements of insurance, whether individual or group, in effect as of
the date hereof (including all applications, supplements, endorsements, riders
and ancillary agreements in connection therewith) that are issued by the
Company Insurance Subsidiaries (the "Company Insurance Contracts") and any and
all marketing materials, are, to the extent required under applicable law, on
forms approved by applicable insurance regulatory authorities or which have
been filed and not objected to by such authorities within the period provided
for objection, and such forms comply in all material respects with the
insurance statutes, regulations and rules applicable thereto and, as to premium
rates established by the Company or any Company Insurance Subsidiary which are
required to be filed with or approved by insurance regulatory authorities, the
rates have been so filed or approved, the premiums charged conform thereto in
all material respects, and such premiums comply in all material respects with
the insurance statutes, regulations and rules applicable thereto.
(c) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which the Company or any Company Insurance
Subsidiary is a party or under which the Company or any Company Insurance
Subsidiary has any existing rights, obligations or liabilities are in full
force and effect except for such treaties or agreements the failure to be in
full force and effect as individually or in the aggregate are not reasonably
likely to have a Company Material Adverse Effect. Neither the Company nor any
Company Insurance Subsidiary, nor, to the knowledge of the Responsible
Executive Officers of the Company, any other party to a reinsurance or
coinsurance treaty or agreement to which the Company or any Company Insurance
Subsidiary is a party, is in default in any material respect as to any
provision thereof, and no such agreement contains any provision providing that
the other party thereto may terminate such agreement by reason of the
transactions contemplated by this Agreement. The Company has not received any
notice to the effect that the financial condition of any other party to any
such agreement is impaired with the result that a default thereunder may
reasonably be anticipated, whether or not such default may be cured by the
operation of any offset clause in such agreement. No insurer or reinsurer or
group of affiliated insurers or reinsurers accounted for the direction to the
Company and the Company Insurance Subsidiaries or the ceding by the Company and
the Company Insurance Subsidiaries of insurance or reinsurance business in an
aggregate amount equal to two percent or more of the consolidated gross premium
income of the Company and the Company Insurance Subsidiaries for the year ended
December 31, 1998.
(d) Prior to the date hereof, the Company has delivered or made available to
Parent a true and complete copy of any actuarial reports prepared by actuaries,
independent or otherwise, with respect to the Company or any Company Insurance
Subsidiary since December 31, 1995, and all attachments, addenda, supplements
and modifications thereto (the "Company Actuarial Analyses"). The information
and data furnished by the Company or any Company Insurance Subsidiary to its
independent actuaries in connection with the preparation of the Company
Actuarial Analyses were accurate in all material respects. Furthermore, to the
knowledge of the Responsible Executive Officers of the Company, each Company
Actuarial Analysis was based upon an accurate inventory of policies in force
for the Company and the Company Insurance Subsidiaries, as the case may be, at
the relevant time of preparation, was prepared using appropriate modeling
procedures accurately applied and in conformity with generally accepted
actuarial standards consistently applied, and the projections contained therein
were properly prepared in accordance with the assumptions stated therein.
4.22. Liabilities and Reserves.
(a) The reserves carried on the Company SAP Statements of each Company
Insurance Subsidiary for the year ended December 31, 1998 for future insurance
policy benefits, losses, claims and similar purposes (including claims
litigation) are in compliance in all material respects with the requirements
for reserves
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established by the insurance departments of the state of domicile of such
Company Insurance Subsidiary, were determined in all material respects in
accordance with generally accepted actuarial standards and principles
consistently applied, were determined in accordance with SAP and are fairly
stated in all material respects in accordance with sound actuarial and
statutory accounting principles. Such reserves were adequate in the aggregate
to cover the total amount of all reasonably anticipated liabilities of the
Company and each Company Insurance Subsidiary under all outstanding insurance,
reinsurance and other applicable agreements as of the respective dates of such
Company SAP Statements. The admitted assets of the Company and each Company
Insurance Subsidiary as determined under applicable Laws are in an amount at
least equal to the minimum amounts required by applicable Laws. In addition,
the Company has delivered or made available to Parent copies of all work papers
used as the basis for establishing the reserves for the Company and the Company
Insurance Subsidiaries at December 31, 1997 and December 31, 1998,
respectively. With respect to the quarterly period ended June 30, 1999, the
Company will establish the reserves set forth in Section 4.22 of the Company
Disclosure Schedule.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of the Responsible Executive Officers
of the Company, no claim or assessment is pending or threatened against any
Company Insurance Subsidiary which is peculiar or unique to such Company
Insurance Subsidiary by any state insurance guaranty associations in connection
with such association's fund relating to insolvent insurers which if determined
adversely would, individually or in the aggregate, be reasonably likely to have
a Company Material Adverse Effect.
4.23. Accounting and Tax Matters.
As of the date hereof, neither the Company nor any of its Affiliates has
taken or agreed to take any action, nor do the Responsible Executive Officers
of the Company have any knowledge of any fact or circumstance, that would
prevent the Merger from qualifying as a "reorganization" within the meaning of
Section 368(a) of the Code.
ARTICLE V
Representations and Warranties of
Parent and Merger Subsidiary
Except as set forth in the corresponding sections or subsections of the
Parent Disclosure Schedule attached to this Agreement (the "Parent Disclosure
Schedule"), Parent and Merger Subsidiary hereby, jointly and severally,
represent and warrant to the Company that:
5.1. Merger Subsidiary.
(a) Merger Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The authorized capital stock of Merger Subsidiary consists of 1,000
shares of common stock, par value $.01 per share, all of which are validly
issued and outstanding and are, and at the Effective Time will be, owned solely
by Parent, and there are (i) no other voting securities of Merger Subsidiary,
(ii) no securities of Merger Subsidiary convertible into or exchangeable for
shares of common stock or other voting securities of Merger Subsidiary and
(iii) no options or other rights to acquire from Merger Subsidiary, and no
obligations of Merger Subsidiary to issue or deliver, shares of common stock or
other voting securities or securities convertible into or exchangeable for
shares of common stock or other voting securities of Merger Subsidiary.
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(c) Merger Subsidiary has not conducted any business prior to the date
hereof and has no, and prior to the Effective Time will have no, assets,
liabilities or obligations of any nature other than those incident to its
formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
5.2. Organization, Good Standing and Qualification.
Parent is a company incorporated with limited liability, validly existing
and in good standing under the Cayman Islands Companies Law, and each of its
Subsidiaries is a corporation or other entity duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
organization. Neither Parent nor Merger Subsidiary is required to be
authorized, qualified, licensed or domesticated as a foreign corporation under
any United States federal, state or local corporate law. Parent has made
available to the Company a complete and correct copy of Parent's and each
Subsidiaries' charter and by-laws or other organizational documents, each as
amended to and as in effect as of the date hereof.
5.3. Capitalization.
The authorized capital stock of Parent consists of 300 million Parent
Shares, of which 194,018,456 shares were outstanding as of the close of
business on June 9, 1999, and 10 million other shares, none of which are
outstanding. All of the outstanding Parent Shares have been duly authorized and
are validly issued, fully paid and nonassessable. Parent has no commitments to
issue or deliver Parent Shares, except that, as of June 9, 1999, there were an
aggregate of 23,576,886 Parent Shares reserved for issuance pursuant to
Parent's employee benefit plans existing on the date hereof (the "Parent Stock
Plans"), and 500,000 shares of Parent preferred stock subject to issuance
pursuant to the Parent Rights Agreement. Each of the outstanding shares of
capital stock or other securities of each of Parent's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and owned by Parent or
a direct or indirect wholly-owned subsidiary of Parent, free and clear of any
lien, pledge, security interest, claim or other encumbrance. There are no
preemptive or other outstanding rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of Parent or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of Parent or any of
its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. Parent does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or, except as referred to in this Section 5.3, convertible into or
exercisable for securities having the right to vote) with the stockholders of
Parent on any matter.
5.4. Corporate Authority; Approval and Fairness.
(a) Each of Parent and Merger Subsidiary has all requisite corporate power
and authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement, the Stock Option
Agreement and to consummate the Merger. This Agreement is a valid and binding
obligation of each of Parent and Merger Subsidiary, as the case may be,
enforceable against Parent and Merger Subsidiary in accordance with its terms,
except as enforceability may be limited or affected by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws and
equitable principles now or hereafter in effect and affecting the rights and
remedies of creditors generally.
(b) The Board of Directors of Parent (at a meeting duly called and held) has
approved this Agreement and the Merger and the other transactions contemplated
hereby and thereby. The Parent Shares, when issued in connection with the
consummation of the transactions contemplated hereby, will be validly issued,
fully paid and nonassessable, and no stockholder of Parent will have any
preemptive right of subscription or purchase is respect thereof. The Parent
Shares, when so issued, will be registered under the Securities Act and
Exchange Act and registered or exempt from registration under any applicable
state securities or "blue sky" laws.
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5.5. Governmental Filings; No Violations.
(a) Except for all filings, permits, authorizations, consents and approvals
as may be required under, and compliance with other applicable requirements of,
the Securities Act, the Exchange Act, the HSR Act, state securities or "blue
sky" laws, state takeover laws, state and foreign insurance regulatory laws and
commissions, including Lloyd's of London and the U.K. Treasury Department, and
except as may result from any facts or circumstances relating solely to the
Company or its Affiliates, in connection with the execution and delivery of
this Agreement by Parent and Merger Subsidiary and the consummation by Parent
and Merger Subsidiary of the Merger and the other transactions contemplated
hereby and thereby, there are no filings, authorizations, consents, approvals
or notices required with or by any Court, administrative agency, commission,
government or regulatory authority, domestic or foreign, except those that the
failure to make or obtain would not, individually or in the aggregate, have a
Parent Material Adverse Effect or prevent, materially delay or materially
impair the ability of Parent or Merger Subsidiary to consummate transactions
contemplated by this Agreement.
(b) Subject to compliance with the filings described in Section 5.5(a), the
execution, delivery and performance of the Stock Option Agreement by Parent and
this Agreement by Parent and the Merger Subsidiary, as the case may be, does
not, and the consummation by Parent or Merger Subsidiary of the Merger and the
other transactions contemplated hereby or thereby will not, constitute or
result in (i) a breach or violation of, or a default under, the certificate of
incorporation or bylaws of Parent or Merger Subsidiary, or the comparable
governing instruments of any of Parent's other Subsidiaries, or (ii) a breach
or violation of, or a default under, the acceleration of any obligations (with
or without notice, lapse of time or both) pursuant to, any Contracts binding
upon Parent or any of its Subsidiaries, except for any conflict, breach,
violation, default or acceleration that would not reasonably be expected to
have a Parent Material Adverse Effect or prevent, materially delay or
materially impair the ability of Parent or Merger Subsidiary to consummate the
transactions contemplated by this Agreement, as the case may be.
5.6. Parent Reports; Financial Statements.
Parent has delivered or made available to the Company true and complete
copies of each registration statement, report, proxy statement or information
statement prepared by it since September 30, 1998 (the "Parent Audit Date"),
including (a) Parent's Annual Report on Form 10-K for the year ended September
30, 1998, (b) Parent's definitive Proxy Statement for its 1999 Annual Meeting
of Stockholders, and (c) Parent's Quarterly Reports on Form 10-Q for the
quarterly periods ended December 31, 1998, and March 31, 1999, each in the form
(including exhibits, annexes and any amendments thereto) filed with the SEC
(collectively, including any such reports filed between the date hereof and the
Effective Time, the "Parent Reports"). As of their respective dates, the Parent
Reports complied, and any Parent Reports filed with the SEC between the date
hereof and the Effective Time will comply, as to form in all material respects
with the requirements of the Securities Act or the Exchange Act, as applicable,
and the rules and regulations of the SEC. As of their respective dates, the
Parent Reports did not, and any Parent Reports filed with the SEC between the
date hereof and the Effective Time will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets included in or incorporated by reference into the Parent Reports
(including the related notes and schedules) fairly presents, or will fairly
present, the consolidated financial position of Parent and its Subsidiaries as
of its date and each of the consolidated statements of income and of changes in
financial position included in or incorporated by reference into the Parent
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the consolidated results of operations, retained earnings and
changes in financial position, as the case may be, of Parent and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.
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5.7. Absence of Certain Changes.
Except as disclosed in the Parent Reports filed prior to the date hereof and
except as otherwise provided in or contemplated by this Agreement, since the
Parent Audit Date, Parent and its Subsidiaries have conducted their respective
businesses only in, and have not engaged in any material transaction other than
according to, the ordinary and usual course of such businesses and there has
not been any change in the financial condition, properties, business or results
of operations of Parent and its Subsidiaries, or any transaction, commitment,
dispute or other event, or any other development or combination of developments
that, individually or in the aggregate, has had or is reasonably likely to
result in a Parent Material Adverse Effect.
5.8. Litigation and Liabilities.
Except as disclosed in the Parent Reports filed prior to the date hereof,
there are no (a) civil, criminal or administrative actions, suits, claims,
hearings, investigations, proceedings, judgments, decrees, orders or
injunctions outstanding, pending or, to the knowledge of the Responsible
Executive Officers of Parent, threatened against Parent or any of its
Subsidiaries or (b) obligations or liabilities of any nature, whether or not
accrued, contingent or otherwise and whether or not required to be disclosed
("Parent Liabilities") other than (i) Parent Liabilities incurred since
December 31, 1998 in the ordinary and usual course of business and consistent
with past practice, (ii) Parent Liabilities incurred in connection with or as a
result of the transactions contemplated by this Agreement, (iii) Parent
Liabilities incurred in connection with or as a result of the acquisition of
the property and casualty business of Cigna and (iv) Parent Liabilities that
would not reasonably be expected to have a Parent Material Adverse Effect.
5.9. Brokers and Finders.
Neither Parent nor any of its executive officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the Merger or the other
transactions contemplated in this Agreement, except that Parent has employed
Credit Suisse First Boston Corporation as its financial advisors, the
arrangements with respect to which have been disclosed to the Company prior to
the date hereof.
ARTICLE VI
Covenants
6.1. Interim Operations of the Company.
Except as expressly contemplated by this Agreement or the Stock Option
Agreement or consented to in writing by Parent (in its sole discretion), during
the period from the date of this Agreement to the Effective Time, the Company
and its Subsidiaries will conduct their operations only in, and neither the
Company nor any of its Subsidiaries shall take any action except in, the
ordinary and usual course of business and consistent with past practice, and
the Company and its Subsidiaries will use their best efforts to preserve intact
their business organization, to keep available the services of their officers
and key employees and to maintain advantageous relationships with ceding
companies, customers, licensors, licensees, suppliers, contractors,
distributors, business partners and others having business relationships with
the Company or its Subsidiaries, as the case may be. Without limiting the
generality of the foregoing, prior to the Effective Time, neither the Company
nor any of its Subsidiaries will, without the prior written consent of Parent
(such consent to be given or withheld in Parent's sole discretion):
(a) except as expressly contemplated by this Agreement, split, combine
or reclassify any shares of its capital stock or other securities, declare,
pay, set aside for payment or consummate any dividend or other distribution
payable in cash, stock, property or otherwise in respect of its capital
stock or other securities, or directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or other securities other
than regular quarterly cash dividends paid by the Company not in excess of
$0.04 per share;
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(b) authorize for issuance, issue, sell, pledge, dispose of, encumber,
deliver or agree or commit to issue, sell, pledge or deliver (whether
through the issuance or granting of any options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any capital stock of any
class of the Company or any Subsidiary or any securities convertible into
or exercisable or exchangeable for shares of capital stock of any class of
the Company or any Subsidiary, except as required by agreements disclosed
in Section 4.9(a) of the Company Disclosure Schedule, or amend any of the
terms of any such securities or agreements outstanding as of the date
hereof;
(c) (i) incur any material indebtedness not previously approved by
Parent, (ii) incur any other indebtedness except in the ordinary course of
business, (iii) pledge or otherwise encumber shares of capital stock of the
Company or its Subsidiaries or (iv) mortgage or pledge any of its material
assets, tangible or intangible, or create any lien thereupon other than (A)
liens for Taxes or other assessments or charges of Governmental Authorities
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings, in each case, with respect to which adequate
reserves or other appropriate provisions are being maintained to the extent
required by GAAP; (B) statutory liens of landlords and mortgagees of
landlords and liens of carriers, warehousemen, mechanics, materialmen and
other liens imposed by Law and created in the ordinary course of business
for amounts not yet more than 30 days overdue or that are being contested
in good faith by appropriate proceedings, in each case, with respect to
which adequate reserves or other appropriate provisions are being
maintained to the extent required by GAAP; (C) leases or subleases,
easements, rights-of-way, covenants and consents that do not interfere
materially with the ordinary conduct of the business of the Company or
detract materially from the value of the property to which they attach or
materially impair the use thereof to the Company; and (D) liens granted by
the Company to lenders pursuant to credit agreements in existence on the
date hereof;
(d) except as may be required by Law or as contemplated by this
Agreement, enter into, adopt, amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment,
severance or other Employee Benefit Plan; or enter into or amend any
employment or severance agreement with, increase in any material manner the
salary, wages, bonus, commission, or other compensation or benefits of any
director or executive officer of the Company or any of its Subsidiaries,
except with respect to new employees employed in the ordinary course of
business and those agreements with key employees previously disclosed to
Parent; or increase in any manner the salary, wages, bonus, commission, or
other compensation or benefits of any other officer, employee or agent of
the Company or any of its Subsidiaries except for increases in the ordinary
course of business and consistent with past practice; or pay any benefit
not required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights or performance units);
(e) acquire (by merger, amalgamation, consolidation or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof or make any material investment either by
purchase of stock or securities, contributions to capital, property
transfer or acquisition (including by lease) of any material amount of
properties or assets of any other individual or entity;
(f) except as expressly required herein, pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against on the consolidated balance sheet
of the Company dated March 31, 1999 (the "Latest Balance Sheet") or
incurred in connection with the transactions contemplated by this Agreement
or in the ordinary course of business and consistent with past practice;
(g) amend the certificate of incorporation or any similar document of
the Company or any of its Subsidiaries;
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(h) adopt a plan of complete or partial liquidation or resolutions
providing for the complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
the Company or any of its Subsidiaries;
(i) enter into any new lines of business (whether or not part of the
insurance or reinsurance business), change any policy forms, change the
pricing formula for insurance policies, change its investment policies or
guidelines or otherwise make material changes to the operation of its
business or change its loss reserve methodology other than as expressly
provided in this Agreement;
(j) invest any investment securities of the Company in investments that
are not rated in one of the four highest categories by a "nationally
recognized statistical rating agency," as defined in the rules or
regulations of the SEC;
(k) sell (whether by merger, consolidation or otherwise), lease,
encumber, transfer or dispose of any assets outside the ordinary course of
business consistent with past practices or any assets that are material to
the Company or any of its Subsidiaries, or enter into any material
commitment or transaction outside the ordinary course of business
consistent with past practices (provided that with respect to any
disposition of RGB Underwriting Agencies, Ltd., such consent of Parent
shall not be unreasonably withheld);
(l) authorize or make or commit to make any capital expenditures, except
for transactions in the ordinary course of business consistent with past
practice (but in no event in excess of $100,000 in the aggregate) or
pursuant to agreements or commitments entered into by the Company or any of
its Subsidiaries prior to the date hereof, unless otherwise reserved
against in the Latest Balance Sheet, it being understood that without the
prior written consent of Parent, no such settlement or compromise shall be
entered into involving non-monetary obligations;
(m) make any Tax elections or settle or compromise any material United
States federal, state, local or other foreign income tax liability, or
waive or extend the statute of limitations in respect of any such Taxes;
(n) pay or agree to pay in settlement or compromise of any suits or
claims of liability against the Company or any of its Subsidiaries, its
directors, officers, employees or agents more than an aggregate of $50,000
for all such suits and claims;
(o) except as expressly contemplated by this Agreement or pursuant to
agreements or commitments entered into by the Company or any of its
Subsidiaries prior to the date hereof and disclosed in Section 6.1 of the
Company Disclosure Schedule, take any action likely to materially decrease
or diminish the assets or net worth of the Company or any of its
Subsidiaries;
(p) except as may be required as a result of a change in law or in GAAP,
change any of the accounting principles or practices used by it;
(q) enter into any agreement providing for the acceleration or payment
or performance or other consequence as a result of a change in control of
the Company or any of its Subsidiaries; or
(r) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action that would make any representation or
warranty in Article IV hereof materially untrue or incorrect.
6.2. Interim Operations of Merger Subsidiary.
During the period from the date of this Agreement to the Effective Time,
Merger Subsidiary shall not engage in any activities of any nature except as
provided in or contemplated by this Agreement.
6.3. No Solicitation.
From and after the date hereof, neither the Company nor any of its
Subsidiaries shall (whether directly or indirectly through its or their
officers, directors, agents, representatives, advisors or other intermediaries
(collectively, "Representatives")), nor shall the Company or any of its
Subsidiaries authorize or permit any of
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its or their Representatives to, (a) solicit, initiate, encourage (including by
way of furnishing information) or take any action knowingly to facilitate the
submission of any inquiries, proposals or offers (whether or not in writing)
from any person relating to, other than the transactions contemplated by this
Agreement and the Stock Option Agreement, (i) any acquisition or purchase of
15% or more of the consolidated assets of the Company and its Subsidiaries or
of 15% or more of any class of equity securities of the Company or any of its
Subsidiaries, (ii) any tender offer (including a self tender offer) or exchange
offer that if consummated would result in any person beneficially owning 15% or
more of any class of equity securities of the Company or any of its material
Subsidiaries (including through the ownership of securities convertible or
exercisable into or exchangeable for equity securities of the Company), (iii)
any merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries whose assets, individually or
in the aggregate, constitute 15% or more of the consolidated assets of the
Company or (iv) any other transaction the consummation of which would or would
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger (any of the foregoing, a "Transaction Proposal"), or agree to or
endorse any Transaction Proposal, or (b) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to any
other person any information with respect to its business, properties or assets
in connection with any of the foregoing, or otherwise cooperate in any way
with, or knowingly assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that the foregoing shall not prohibit the Company, prior to
the receipt of the Company Stockholder Approval, (A) from complying with Rule
14e-2 and Rule 14d-9 under the Exchange Act with regard to a bona fide tender
offer or exchange offer or (B) from participating in negotiations or
discussions with or furnishing information to any person in connection with an
unsolicited bona fide Transaction Proposal which is submitted in writing by
such person to the Board of Directors of the Company after the date of this
Agreement and prior to the Company Stockholder Approval; provided further,
however, that prior to participating in any such discussions or negotiations or
furnishing any information, (i) the Company receives from such person an
executed confidentiality agreement on terms not less favorable to the Company
than the Confidentiality Agreement, a copy of which shall be provided only for
informational purposes to Parent, and (ii) the Board of Directors of the
Company shall have concluded in good faith, based on the advice of its outside
financial advisors, that such Transaction Proposal is reasonably likely to be
or to result in a Superior Proposal, and based on the written advice of its
outside legal counsel, that participating in such negotiations or discussions
or furnishing such information is required in order to prevent the Board of
Directors of the Company from breaching its fiduciary duties to its
stockholders under the DGCL; and provided, further, that the Board of Directors
of the Company shall not take any of the foregoing actions unless it provides
Parent with contemporaneous notice thereof. If the Board of Directors of the
Company receives a Transaction Proposal, then the Company shall promptly inform
Parent in writing of the terms and conditions of such proposal and the identity
of the person making it. The Company agrees that it will keep Parent informed,
on a current basis, of the terms of any such proposals or offers and, to the
extent disclosure is not prohibited by the terms of any confidentiality
agreement with the party making such Transaction Proposal, the status of any
such material discussions or negotiations. The Company agrees to immediately
cease and cause its Representatives to cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and shall use its reasonable best efforts to cause any
such parties in possession of confidential information about the Company that
was furnished by or on behalf of the Company to return or destroy all such
information in the possession of any such party or in the possession of any
agent or advisor of any such party. The Company agrees not to release any third
party from, or waive any provisions of, any confidentiality or standstill
agreement to which such party or its Subsidiaries is a party. The Company shall
ensure that its officers, directors and employees and any investment banker or
other Representative retained by it are aware of the restrictions described in
this Section 6.3. "Superior Proposal" means any of the transactions described
in clause (i), (ii) or (iii) of the definition of Transaction Proposal (with
all of the percentages included in the definition of such term raised to 51%
for purposes of this definition) with respect to which any required financing
is committed or, in the good faith judgment of the Board of Directors of the
Company, based on the written advice of its outside financial advisors, is
reasonably capable of being financed by the person making the proposal, and
with respect to which the Board of Directors of the Company shall have
concluded in good faith, based on the written advice of its outside legal
counsel and financial
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advisors, is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the Transaction Proposal and
the person making the proposal, and would, if consummated, result in a
transaction more favorable to the Company's stockholders from a financial point
of view than the transactions contemplated by this Agreement.
6.4. Information Supplied.
Each of the Company and Parent agree, as to itself and its Subsidiaries,
that none of the information supplied or to be supplied by it or its
Subsidiaries for inclusion or incorporation by reference in (a) the
Registration Statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Shares in the Merger (including the
proxy statement and prospectus (the "Prospectus/Proxy Statement") constituting
a part thereof) (the "S-4 Registration Statement") will, at the time the S-4
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, not
misleading, and (b) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the
times of the meetings of stockholders of the Company and Parent to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
6.5. Stockholders Meeting.
Whether or not the Board of Directors of the Company shall take any action
permitted by the third sentence of this Section 6.5, the Company shall cause a
meeting of its stockholders (the "Stockholders Meeting") to be duly called and
held as soon as practicable after the date of this Agreement for the purpose of
voting on the adoption of this Agreement. The Board of Directors of the Company
shall (i) include in the Proxy Statement/Prospectus the recommendation
described in Section 4.4 (the "Company Board Recommendation") and the written
opinion of Goldman, Sachs & Co., dated the date of this Agreement, to the
effect that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Company Common Stock and (ii) use
its reasonable best efforts to obtain the necessary vote in favor of the
adoption of this Agreement by its stockholders. The Board of Directors of the
Company shall not withdraw, amend, modify or qualify in a manner adverse to
Parent the Company Board Recommendation (or announce publicly its intention to
do so), except that prior to the receipt of the Company Stockholder Approval,
the Board of Directors of the Company shall be permitted to withdraw, amend,
modify or materially qualify in a manner adverse to Parent the Company Board
Recommendation (or publicly announce its intention to do so), upon three
business days' prior notice to Parent, but only if (i)(A) the Company has
complied with Section 6.1, (B) an unsolicited bona fide written Transaction
Proposal with respect to the Company shall have been made after the date of
this Agreement by any person other than Parent or its affiliates and such
proposal is pending at the time of such action and (C) the Board of Directors
of the Company shall have concluded in good faith, on the basis of the advice
of its outside financial advisors (confirmed in writing to the Board of
Directors), that such Transaction Proposal is a Superior Proposal (as defined
in Section 6.1), or (ii) there has been any change in the financial condition,
properties, business or results of operations of Parent and its Subsidiaries,
or any transaction, commitment, dispute or other event, or any other
development or combination of developments that, individually or in the
aggregate, has had or is reasonably likely to result in a Parent Material
Adverse Effect, and, on the basis of advice of its outside legal counsel
(confirmed in writing to the Board of Directors), that the Board of Directors
is required to withdraw, amend or modify the Company Board Recommendation in
order to prevent it from breaching its fiduciary duties to the stockholders of
the Company under the DGCL.
6.6. Filings; Other Actions; Notification.
(a) Parent and the Company shall promptly prepare and file with the SEC the
Prospectus/Proxy Statement, and Parent shall prepare and file with the SEC the
S-4 Registration Statement as promptly as practicable. Parent and the Company
each shall use its reasonable best efforts to have the S-4 Registration
Statement declared
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effective under the Securities Act as promptly as practicable after such
filing, and promptly thereafter mail the Prospectus/Proxy Statement to the
respective stockholders of each of the Company and Parent. Parent shall also
use its reasonable best efforts to obtain prior to the effective date of the S-
4 Registration Statement all necessary state securities law or "blue sky"
permits and approvals required in connection with the Merger and to consummate
the other transactions contemplated by this Agreement and will pay all expenses
incident thereto.
(b) The Company and Parent each shall use all reasonable efforts to cause to
be delivered to the other party and its directors a letter of its independent
auditors, dated (i) the date on which the S-4 Registration Statement shall
become effective and (ii) the Closing Date, and addressed to the other party
and its directors, in form and substance customary for "comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the S-4 Registration Statement.
(c) The Company and Parent each shall from the date hereof until the
Effective Time cooperate with the other and use (and shall cause their
respective Subsidiaries to use) its reasonable best efforts to cause to be done
all things necessary, proper or advisable on its part under this Agreement and
applicable Laws to cause the conditions to closing set forth in Article VI to
be satisfied and otherwise to consummate and make effective the Merger and the
other transactions contemplated by this Agreement as soon as practicable,
including preparing and filing as promptly as practicable all documentation to
effect all necessary notices, reports and other filings and to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party
(including rating agencies) and/or any governmental entity in order to
consummate the Merger or any of the other transactions contemplated by this
Agreement; provided, however, that nothing in this Section 6.6 shall require,
or be construed to require, Parent, in connection with the receipt of any
regulatory approval, to proffer to, or agree to (i) sell or hold separate and
agree to sell or to discontinue or limit, before or after the Effective Time,
any assets, businesses, or interest in any assets or businesses of Parent, the
Company or any of their respective Affiliates (or to consent to any sale, or
agreement to sell, or discontinuance or limitation by the Company of any of its
assets or businesses) or (ii) agree to any conditions relating to, or changes
or restriction in, the operations of any such asset or businesses which, in
either case would be reasonably expected to materially and adversely impact the
economic or business benefits to Parent of the transactions contemplated by
this Agreement. Subject to applicable laws relating to the exchange of
information, Parent and the Company shall have the reasonable opportunity to
review in advance and comment on, and to the extent practicable each will
consult the other on, all the information relating to Parent or the Company, as
the case may be, and any of their respective Subsidiaries, that appear in any
filing made with, or written materials submitted to, any third party and/or any
governmental entity in connection with the Merger and the other transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
Company and Parent shall act reasonably and as promptly as practicable.
(d) The Company and Parent each shall, upon request by the other, furnish
the other with all information concerning itself, its Subsidiaries, directors,
executive officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Prospectus/ Proxy Statement, the
S-4 Registration Statement or any other statement, filing, notice or
application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any third party and/or any governmental entity in
connection with the Merger and the transactions contemplated by this Agreement.
(e) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any governmental entity with
respect to the Merger and the other transactions contemplated by this
Agreement. The Company and Parent each shall give prompt notice to the other of
any change that is reasonably likely to result in a Company Material Adverse
Effect or Parent Material Adverse Effect, respectively.
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6.7. Taxation and Accounting.
Neither Parent nor the Company shall, nor shall they permit either of their
respective Subsidiaries or Affiliates to, take or cause to be taken any action,
whether before or after the Effective Time, that would disqualify the Merger as
a "reorganization" within the meaning of Section 368(a) of the Code. Each of
Parent and the Company agrees to use its reasonable best efforts to cure any
impediment to the qualification of the Merger as a "reorganization" within the
meaning of Section 368(a) of the Code.
6.8. Access.
Between the date of this Agreement and the Effective Time, Parent and the
Company will each (and shall cause its Subsidiaries to) afford access to
authorized representatives (including, without limitation, attorneys, auditors,
financial advisors and actuaries) of the other during normal business hours to
all its books and records, facilities, accountants and key employees and will
permit such party and its authorized representatives to make such inspections
as they may reasonably require and will cause its officers and employees to
furnish such party and its authorized representatives such financial and
operating data and other information with respect to its business and
properties as such party and its authorized representatives may from time to
time reasonably request. No investigation pursuant to this Section shall affect
or be deemed to modify any representation or warranty made by the Company,
Parent or Merger Subsidiary, and provided, further, that the foregoing shall
not require the Company or Parent to permit any inspection, or to disclose any
information, that (i) in the reasonable judgment of the Company or Parent, as
the case may be, would result in the disclosure of any trade secrets of third
parties or violate any of its obligations with respect to confidentiality if
the Company or Parent, as the case may be, shall have used all reasonable
efforts to obtain the consent of such third party to such inspection or
disclosure or (ii) would violate any attorney-client privilege of the Company
or Parent, as the case may be. All requests for information made pursuant to
this Section 6.8 shall be directed to such Person as may be designated by the
Company and Parent, as the case may be, pursuant to Section 9.6 hereof. All
such information shall be governed by the terms of the Confidentiality
Agreement (as hereinafter defined).
6.9. Affiliates.
At least 45 days prior to the Effective Time, the Company shall deliver to
Parent a list of names and addresses of those Persons who will be, in the
opinion of the Company, "affiliates" of the Company within the meaning of Rule
145 under the Securities Act. The Company shall exercise its best efforts to
deliver or cause to be delivered to Parent, at least 5 days prior to the
Effective Time, from each affiliate of the Company identified in the foregoing
list, a letter in the form attached as Exhibit B. The certificates representing
Parent Common Stock received by such affiliates shall bear a customary legend
regarding applicable Securities Act restrictions.
6.10. Stock Exchange Listing.
Parent shall use its best efforts to cause the Parent Shares to be issued in
the Merger to be approved for listing on the NYSE subject to official notice of
issuance, prior to the Closing Date.
6.11. Publicity.
The Company and Parent shall consult with each other prior to issuing, and
will provide each other with a meaningful opportunity to review, comment upon
and concur with, any press releases or otherwise making public announcements
with respect to the Merger and the other transactions contemplated by this
Agreement, and prior to making any filings with any third party and/or any
governmental entity with respect thereto, except as may be required by law,
court process or by obligations pursuant to any listing agreement with or rules
of any national securities exchange or interdealer quotation service.
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6.12. Benefits.
(a) At the Effective Time, each outstanding Company Option shall be
canceled, and each outstanding Company Option identified in Section 4.2 of the
Company Disclosure Schedule (the "Roll-Over Options") shall be replaced by an
option (a "Parent Option") to acquire Parent Shares under Parent's existing
stock option plan.
(b) The cancellation of the Roll-Over Options and replacement with Parent
Options shall comply in all respects with, and shall be performed in accordance
with, the methodology prescribed by the provisions of Section 424(a) of the
Code and the regulations thereunder, and each Parent Option shall provide the
option holder with vesting and termination rights that are no less favorable to
him than were provided under the Roll-Over Option for which it was replaced as
of the Effective Time. The parties contemplate that, consistent with the
methodology prescribed by Section 424(a) of the Code and the applicable
regulations thereunder, (i) the number of Parent Shares subject to such Parent
Option will be determined by applying the Exchange Ratio to the number of
Shares subject to the Roll-Over Options and (ii) the exercise price under such
Parent Option will be determined by dividing the exercise price per share under
the Roll-Over Option in effect immediately prior to the Effective Time of the
Merger by the Exchange Ratio, and rounding the exercise price thus determined
to the nearest whole cent (a half-cent shall be rounded to the next higher
whole cent).
(c) As promptly as practicable after the Effective Time, Parent shall issue
to each holder of an outstanding Company Option a document evidencing the
foregoing cancellation and the issuance by Parent of a Parent Option having the
terms provided for in Section 6.12(b) and effective as of the Effective Time.
(d) If the Parent Options issued pursuant to Section 6.12(a) above are not
already covered by an effective registration statement, Parent will file a
registration statement as promptly as practicable after the Effective Time,
which registration statement will cover the Parent Shares issuable upon
exercise of the Parent Options granted in substitution of the Roll-Over
Options, and Parent will use its reasonable best efforts to cause such
registration statement to become effective under the Securities Act and to
maintain such registration statement in effect until the exercise or
termination of all such Parent Options.
(e) Parent agrees that, during the period commencing at the Effective Time
and ending on the first anniversary thereof, the employees of the Company and
its Subsidiaries will continue to be provided with benefits under employee
benefit plans (other than plans involving the issuance of Shares) that are no
less favorable in the aggregate than those benefits currently provided by the
Company and its Subsidiaries to such employees. For a period of one year
following the Effective Time, Parent shall provide, or cause the Surviving
Company to provide, severance benefits for Company employees whose employment
is terminated during such period which are at least equal to the severance
benefits provided on Section 6.12(e) of the Company Disclosure Schedule.
Following the Effective Time, Parent shall honor, or shall cause the Surviving
Company to honor, all individual employment or severance agreements in effect
for employees (or former employees) of the Company as of the date hereof to the
extent that such individual agreements are listed in Section 6.12(e) of the
Company Disclosure Schedule; provided, however, that nothing contained herein
shall prevent Parent from amending or terminating any such agreement in
accordance with its terms.
(f) As promptly as possible after the Effective Time, Parent shall grant up
to 80,000 Ordinary Shares under its 1998 Long-Term Incentive Plan to employees
of the Company and its Subsidiaries designated by the Company's Executive
Committee (subject to the approval by Parent). All such Ordinary Shares shall
be granted as restricted stock awards subject to vesting over the three year
period commencing with the grant date, and shall be covered by an appropriate
registration statement under the Securities Act.
6.13. Certain Change in Control Matters.
From and after the date hereof, except as set forth on Schedule 6.13 of the
Company Disclosure Schedule, as generally or specifically designated in writing
by Parent or as contemplated by this Agreement, the Company shall take all
action necessary, to the extent permitted under any Employee Benefit Plan or
employment
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agreement, so that the execution and delivery of this Agreement and the
consummation of the transactions contemplated thereby will not (a) result in
any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any employees
under any Employee Benefit Plan or otherwise, (b) increase any benefits
otherwise payable under any Employee Benefit Plan or otherwise or (c) result in
any acceleration of the time of payment or vesting of any such benefits;
provided that to the extent the Company has entered into agreements with
respect to stock option awards or stock appreciation rights that provide for
acceleration of vesting upon a change in control, such agreements may remain in
effect notwithstanding this Section 6.13.
6.14. Expenses.
Except as otherwise provided in Sections 8.5(b)-(e), whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement, the Stockholder Agreements and the Merger and the other transactions
contemplated hereby and thereby shall be paid by the party incurring such
expense, except that expenses incurred in connection with the filing fee for
the S-4 Registration Statement and printing and mailing the Prospectus/Proxy
Statement shall be shared equally by Parent and the Company.
6.15. Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time for a period of six years, Parent
agrees that it will indemnify and hold harmless each present and former
director and officer of the Company, (when acting in such capacity) determined
as of the Effective Time (each, an Indemnified Party and, collectively, the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees and expenses), judgments, fines, losses, amounts paid in
settlement claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, actual or
threatened, whether civil, criminal, administrative or investigative, in whole
or in part based on or arising in whole or in part out of matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent that the Company
would have been permitted under Delaware law and its certificate of
incorporation or bylaws in effect on the date hereof to indemnify such Person
(and Parent shall also advance expenses as incurred to the fullest extent
permitted under applicable law provided the Person to whom expenses are
advanced provides (i) a written affirmation of his or her good faith belief
that the standard of conduct necessary for indemnification has been met, and
(ii) an undertaking to repay such advances if it is ultimately determined that
such Person is not entitled to indemnification).
(b) Parent shall cause to be maintained, for a period of not less than one
year from the Effective Time, the Company's current directors' and officers'
liability insurance policy to the extent that it provides coverage for events
occurring prior to the Effective Time (the "D&O Insurance") for all present and
former directors and officers of the Company or any subsidiary thereof, so long
as the annual premium therefor would not be in excess of 150% of the last
annual premium paid for the D&O Insurance prior to the date of this Agreement
(150% of such premium, the "Maximum Premium"); provided that Parent may, in
lieu of maintaining such existing D&O Insurance as provided above, cause no
less favorable coverage to be provided under any policy maintained for the
benefit of the directors and officers of Parent or a separate policy provided
by the same insurer. If the existing D&O Insurance expires, is terminated or
canceled by the insurer or if the annual premium would exceed the Maximum
Premium during such period, Parent shall obtain, in lieu of such D&O Insurance,
such comparable directors' and officers' liability insurance as can be obtained
for the remainder of such period for an annualized premium not in excess of the
Maximum Premium and on terms and conditions no less advantageous than the
existing D&O Insurance.
(c) The provisions of this Section are in addition to the rights that an
Indemnified Party may have under the certificate of incorporation, bylaws or
agreements of or with the Company or any of its Subsidiaries or under
applicable law. Parent agrees to pay all costs and expenses (including fees and
expenses of counsel) that may be incurred by any Indemnified Party in
successfully enforcing the indemnity or other obligations under this Section.
The provisions of this Section shall survive the Merger and are intended to be
for the benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives.
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6.16. Purchase of Ordinary Shares.
Prior to the Effective Time, neither the Company, its Subsidiaries nor any
of their directors, officers, employees or affiliates shall, directly or
indirectly, purchase, otherwise acquire, sell or otherwise dispose of any
Ordinary Shares or any other security convertible or exchangeable into or
exercisable for Ordinary Shares or take any other action, except as expressly
set forth in this Agreement, that could reasonably be expected to have any
influence on the price of the Ordinary Shares. The Company shall promptly
notify Parent of, to the extent that the Company has actual knowledge thereof,
any action on the part of any third party to influence the price of the
Ordinary Shares or the intention of any third party to influence the price of
the Ordinary Shares.
6.17. Other Actions by the Company and Parent.
(a) Takeover Statute. If any Takeover Statute is or may become applicable to
the Merger or the other transactions contemplated by this Agreement and the
Stockholder Agreements, each of Parent and the Company and its board of
directors shall grant such approvals and take such actions as are necessary so
that such transactions may be consummated as promptly as practicable on the
terms contemplated by this Agreement, the Stockholder Agreements or by the
Merger and otherwise act to eliminate or minimize the effects of such statute
or regulation on such transactions.
(b) Notification of Certain Matters. The Company shall give prompt notice to
Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would cause any representation or warranty of the Company or Parent and
Merger Subsidiary, as the case may be, contained in this Agreement to be untrue
or inaccurate in any material respect at or prior to the Effective Time and
(ii) any material failure of the Company or Parent, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 6.17(b) shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
(c) Letters of Accountants. (i) The Company shall use its reasonable best
efforts to cause to be delivered to Parent a letter of Ernst & Young LLP, the
Company's independent public accountants, dated a date within two business days
before the date on which the Form S-4 shall become effective and addressed to
Parent, in form and substance reasonably satisfactory to Parent and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Form S-4. In
connection with the Company's efforts to obtain such letter, if requested by
Ernst & Young LLP, Parent shall provide a representation letter to Ernst &
Young LLP complying with SAS 72, if then required.
(ii) Parent shall use its reasonable best efforts to cause to be delivered
to the Company a letter of PricewaterhouseCoopers LLP, Parent's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and addressed to the Company, in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4. In connection with
Parent's efforts to obtain such letter, if requested by PricewaterhouseCoopers
LLP, the Company shall provide a representation letter to
PricewaterhouseCoopers LLP complying with SAS 72, if then required.
(d) Consents and Approvals. (i) Each of the Company, Parent and Merger
Subsidiary will use its reasonable best efforts to comply promptly with all
legal requirements which may be imposed on it with respect to this Agreement
and the transactions contemplated hereby, which actions shall include
furnishing all information in connection with approvals of or filings with any
Governmental Entity, including any schedules or reports required to be filed
with the SEC, and including any approvals or filings which are not compulsory
but are desirable to obtain in the reasonable opinion of Parent, Merger
Subsidiary and the Company, and will promptly cooperate with and furnish
information to each other in connection with any such requirements
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imposed upon any of them or any of their Subsidiaries in connection with this
Agreement and the transactions contemplated hereby. Each of the Company, Parent
and Merger Subsidiary will, and will cause its Subsidiaries to, take all
reasonable actions necessary to obtain any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by Parent, Merger
Subsidiary, the Company or any of their Subsidiaries or necessary in the
reasonable opinion of Parent, Merger Subsidiary or the Company in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement.
(ii) The Company and Parent will (i) take all actions necessary to make the
filings required of it or its Affiliates under the HSR Act with respect to the
transactions contemplated by this Agreement as promptly as practicable
following the date of this Agreement, (ii) comply with any request for
additional information received from the Federal Trade Commission or the
Antitrust Division of the Department of Justice pursuant to the HSR Act, (iii)
cooperate with each other in connection with filings under the HSR Act and (iv)
request early termination of the applicable waiting period.
(iii) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of Parent and the Surviving Corporation shall use all
reasonable efforts to take, or cause to be taken, all such necessary actions.
6.18. Coordination of Dividends.
After the date of this Agreement, Parent and the Company will coordinate
with each other regarding the declaration of dividends in respect of the Parent
Ordinary Shares and the Company Common Stock and the record dates and payment
dates relating thereto, it being the intention of the parties that holders of
Parent Ordinary Shares and shares of Company Common Stock will not receive two
dividends, or receive no dividends, for any single calendar quarter with
respect to their shares of Company Common Stock and/or the Parent Ordinary
Shares any such holder receives in exchange therefor in the Merger.
ARTICLE III
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to
the satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. The Merger shall have been duly approved by
holders of Shares constituting the Company Requisite Vote and shall have
been duly approved by the sole member of Merger Subsidiary in accordance
with applicable law.
(b) NYSE Listing. The Parent Shares issuable to the Company stockholders
pursuant to this Agreement shall have been authorized for listing on the
NYSE upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated. All regulatory approvals and other actions or approvals by any
Governmental Entity required to permit the consummation of the Merger
(including those that are not compulsory but are desirable to obtain in the
reasonable opinion of Parent, Merger Subsidiary and the
Company)(collectively, "Governmental Consents"), shall have been obtained
(provided that any such Governmental Consents shall have been obtained
without any conditions, restrictions or limitations which would reasonably
be expected to materially limit or diminish the benefits to be derived from
the Merger by Parent) and such approvals shall be in full force and effect.
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(d) Litigation. No court or governmental entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any law, statute, ordinance, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) that is in
effect and restrains, enjoins or otherwise prohibits consummation of the
Merger (collectively, an "Order") and no governmental entity shall have
instituted any proceeding which continues to be pending seeking any such
Order; provided, however, that the parties hereto shall use their
reasonable best efforts to have any such injunction, order, restraint or
prohibition vacated.
(e) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued, and no proceeding for
that purpose shall have been initiated or be threatened by the SEC.
7.2. Conditions to Obligations of Parent and Merger Subsidiary.
The obligations of Parent and Merger Subsidiary to effect the Merger are
also subject to the satisfaction or waiver by Parent at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company shall have been true and accurate as of the Effective Time
as if made at and as of such time (except for those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time which need only be true and accurate
as of such date or with respect to such period), except where the failure
of such representations and warranties to be so true and correct (without
giving effect to any limitation as to "materiality," "material adverse
effect" or similar qualification) would not have, and is not reasonably
likely to have, individually or in the aggregate, a Company Material
Adverse Effect; and Parent shall have received a certificate signed on
behalf of the Company by an executive officer of the Company to the effect
stated in the foregoing.
(b) Absence of Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any event, change or effect
having, or that would reasonably likely have, individually or in the
aggregate, a Company Material Adverse Effect (other than changes in
insurance laws and regulations affecting the reinsurance industry
generally).
(c) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(d) Consents. The Company shall have obtained the consent or approval of
each Person whose consent or approval shall be required under any Contract
to which the Company or any of its Subsidiaries is a party, except those
for which the failure to obtain such consents or approvals, individually or
in the aggregate, is not reasonably likely to have a Company Material
Adverse Effect or is not reasonably likely to prevent or materially impair
the ability of the Company to consummate the transactions contemplated by
this Agreement.
(e) Tax Opinion. Parent shall have received the opinion of Mayer, Brown
& Platt, counsel to Parent, dated the Closing Date, to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of Parent,
Merger Subsidiary and the Company will be a party to that reorganization
within the meaning of Section 368(b) of the Code. In rendering such
opinion, Mayer, Brown & Platt shall require delivery of and rely upon the
representation letters delivered by Parent, Merger Subsidiary and the
Company substantially in the form of Exhibit C and Exhibit D prior to the
Closing Date.
(f) Employment Agreements. Each of the employment agreements identified
in Section 7.2(f) of the Parent Disclosure Schedule shall be in full force
and effect.
(g) Rating Agencies. There shall not have occurred any downgrading of
the financial strength rating of Capital Reinsurance Company below Aa3 by
Moody's Investor Services, Inc. ("Moody's") or below
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<PAGE>
AAA by Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc. ("S&P"), nor the current financial strength ratings of
Capital Mortgage Reinsurance Company and KRE Reinsurance Ltd. below the
double AA category by the S&P; provided that (i) announcement of a credit
watch or credit review action with respect to the foregoing ratings by
either such rating agency shall be considered a downgrade if Parent
reasonably believes, based upon discussions with any such rating agency,
that immediately subsequent to the consummation of the Merger or as a
result thereof there shall occur any such downgrade and (ii) each such
rating agency may condition maintenance of ratings upon consummation of the
Merger. At the Closing Date, the Company shall not have received any
notification from Moody's of its determination not to provide to Capital
Reinsurance Company's financial guaranty ceding companies at least 85%
capital credit in respect of the Company's reinsurance.
7.3. Conditions to Obligation of the Company.
The obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Subsidiary shall be true and accurate as of the
Effective Time as if made at and as of such time (except for those
representations and warranties that address matters only as of a particular
date or only with respect to a specific period of time which need only be
true and accurate as of such date or with respect to such period), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality,"
"material adverse effect" or similar qualifications) would not have, and is
not reasonably likely to have, individually or in the aggregate, a Parent
Material Adverse Effect; and the Company shall have received a certificate
signed on behalf of Parent by an executive officer of the Parent and on
behalf of Merger Subsidiary by an executive officer of Merger Subsidiary to
the effect stated in the foregoing.
(b) Absence of Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any event, change or effect
having, or that would reasonably likely have, individually or in the
aggregate, a Parent Material Adverse Effect (other than changes in
insurance laws and regulations affecting the insurance industry generally).
(c) Performance of Obligations of Parent and Merger Subsidiary. Each of
Parent and Merger Subsidiary shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or
prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Parent by an executive officer of Parent
and on behalf of Merger Subsidiary by an executive officer of Merger
Subsidiary to such effect.
(d) Tax Opinion. The Company shall have received the opinion of Hogan &
Hartson L.L.P., counsel to the Company, to the effect that the Merger will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that each of Parent, Merger
Subsidiary and the Company will be a party to that reorganization within
the meaning of Section 368(b) of the Code. In rendering such opinion, Hogan
& Hartson L.L.P. shall require delivery of and rely upon the representation
letters delivered by Parent, Merger Subsidiary and the Company
substantially in the form of Exhibit C and Exhibit D prior to the Closing
Date.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, whether before or after the approval by
stockholders of the Company and Parent referred to in Section 7.1(a), by mutual
written consent of the Company by action of their respective Boards of
Directors.
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<PAGE>
8.2. Termination by Either Parent or the Company.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time by action of the Board of Directors of either
Parent or the Company if (a) the Merger shall not have been consummated by
February 28, 2000, whether such date is before or after the date of approval by
the stockholders of the Company (the "Termination Date"), provided, however,
that the Termination Date shall be extended by 60 days if the sole reason for
the failure to consummate the Merger is the failure to obtain the Government
Consents described in Section 7.1(c); (b) the approval of the Company's
stockholders required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof;
or (c) any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable; provided,
that the right to terminate this Agreement pursuant to clause (a) or (b) above
shall not be available to any party that has breached in any material respect
its obligations under this Agreement in any manner that shall have caused the
occurrence of the failure of the Merger to be consummated or the stockholder
approval to be obtained.
8.3. Termination by the Company.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, whether before or after the approval by
stockholders of the Company referred to in Section 7.1(a), by action of the
Board of Directors of the Company if:
(a) (i) the Company is not in material breach of any of the terms of
this Agreement, (ii) the Merger shall not have been approved by the
Company's stockholders as required by Section 7.1(a), (iii) the Board of
Directors of the Company authorizes the Company, subject to complying with
the terms of this Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal and the
Company notifies Parent in writing that it intends to enter into such an
agreement, attaching the most current version of such agreement to such
notice, (iv) Parent does not make, prior to five business days after
receipt of the Company's written notification of its intention to enter
into a binding agreement for a Superior Proposal (the "Alternative
Transaction Notice"), an offer that the Board of Directors of the Company
determines, in good faith after consultation with its financial advisors,
is at least as favorable, as the Superior Proposal, taking into account the
long term prospects and interests of the Company and its stockholders and
(v) the Company prior to such termination pays to Parent in immediately
available funds the fees required to be paid pursuant to Section 8.5; or
(b) there is a breach by the Parent of any representation, warranty,
covenant or agreement contained in this Agreement that (i) is not curable
or, if curable, is not cured within 20 days after written notice of such
breach is given by the Company to Parent and (ii) would cause a condition
set forth in Section 7.3(a) or 7.3(b) to be incapable of being satisfied.
Without limiting the generality of the foregoing Section 8.3(a), the Company
agrees and acknowledges (x) that it cannot terminate this Agreement pursuant to
Section 8.3(a) in order to enter into a binding agreement referred to in clause
(iii) of Section 8.3(a) until at least the date falling six business days after
receipt of the Alternative Transaction Notice and (y) to notify Parent promptly
if its intention to enter into a written agreement referred to in its
Alternative Transaction Notice shall change at any time after giving such
notification.
8.4. Termination by Parent.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, by action of the Board of Directors of Parent if:
(a) the Company enters into a binding agreement for a Superior Proposal;
(b) there is a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement that (i) is not curable
or, if curable, is not cured within 20 days after written
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<PAGE>
notice of such breach is given by the Parent to the Company and (ii) would
cause a condition set forth in Section 7.2(a) or 7.2(b) to be incapable of
being satisfied; or
(c) the Company or its Board of Directors shall have (i) withdrawn,
modified or amended in any respect adverse to Parent its recommendation of
the adoption of this Agreement or failed to reconfirm its recommendation of
this Agreement or the Merger within five business days after a written
request by Parent to do so, (ii) failed as promptly as practicable after
the Form S-4 is declared effective to mail the Proxy Statement/Prospectus
to its stockholders, unless such failure was caused by the actions or
inactions of Parent or its representatives, or failed to include in such
statement the Company Board Recommendation, (iii) approved, recommended or
entered into an agreement with respect to, or consummated, any Transaction
Proposal from a person other than Parent or any of its affiliates, (iv)
resolved to do any of the foregoing or (v) in response to the commencement
of any tender offer or exchange offer for 10% or more of the outstanding
Company Common Stock, not recommended rejection of such tender offer or
exchange offer within ten business days after the commencement thereof (as
such term is defined in Rule 14d-2 under the Exchange Act).
8.5. Effect of Termination and Abandonment.
(a) In the event of the termination of this Agreement and the abandonment of
the Merger pursuant to this Article VIII, this Agreement (other than as set
forth in Section 9.1) shall become void and of no effect with no liability on
the part of any party hereto (or of any of its directors, officers, employees,
agents, legal and financial advisors or other representatives); provided,
however, except as otherwise provided herein, no such termination shall relieve
any party hereto of any liability or damages resulting from any willful or
grossly negligent breach of this Agreement
(b) In the event that this Agreement is terminated (i) by the Company
pursuant to Section 8.3(a) or (ii) by Parent pursuant to Section 8.4(a), then
the Company shall promptly, but in no event later than two days after the date
of such termination or date of entrance into an agreement concerning a
transaction that constitutes an Acquisition Proposal or such earlier time as
required by this Agreement, pay to Parent a termination fee of $25 million
payable by wire transfer of same day funds.
(c) In the event that this Agreement is terminated by Parent pursuant to
Section 8.2(b) and prior to, or at the time of, the meeting referred to therein
any Person shall have made an Acquisition Proposal to the Company or any of its
Subsidiaries or any of its stockholders or shall have publicly announced an
intention (whether or not conditional to make an Acquisition Proposal with
respect to the Company or any of its Subsidiaries and, if within 12 months of
such termination, the Company enters into an agreement concerning a transaction
that constitutes an Acquisition Proposal, the Company at the time of entering
into such agreement, shall pay to Parent the termination fee of $25 million
payable by wire transfer of same day funds.
(d) In the event this Agreement is terminated by Parent pursuant to Section
8.4(b), then the Company shall promptly, but in no event later than two
business days after Parent shall have requested payment of its charges and
expenses incurred in connection with the transactions contemplated hereby
("Expenses"), pay to Parent the amount of such Expenses up to a maximum of
$3,000,000 payable by wire transfer of same day funds.
(e) In the event this Agreement is terminated by the Company pursuant to
Section 8.3(b), then Parent shall promptly, but in no event later than two
business days after the Company shall have requested payment of its Expenses,
pay to the Company the amount of such Company Expenses up to a maximum of
$3,000,000 payable by wire transfer of same day funds.
(f) The Company and Parent each acknowledge that the agreements contained in
Sections 8.5(b)-(e) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the Company, Parent and
Merger Subsidiary would not enter into this Agreement; accordingly, if the
Company fails to promptly pay the amount due pursuant to Section 8.5(b),
Section 8.5(c) or Section 8.5(d), or Parent
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<PAGE>
fails to promptly pay the amount due pursuant to Section 8.5(e), and, in order
to obtain such payment, Parent or the Company, as the case may be, commences a
suit which results in a judgment against Parent or the Company, as the case may
be, for the fee set forth in this Section 8.5, the Company shall pay to Parent
or Parent shall pay to the Company, as the case may be, its costs and expenses
(including attorneys' fees) in connection with such suit, together with
interest from the date of termination of this Agreement on the amounts owed at
the prime rate of Morgan Guaranty Trust Company of New York in effect from time
to time during such period plus two percent.
ARTICLE IX
Miscellaneous and General
9.1. Survival.
This Article IX and the agreements of the Company, Parent and Merger
Subsidiary contained in Sections 6.7 (Taxation and Accounting), Sections 6.12
(Benefits), and 6.15 (Indemnification; Directors' and Officers' Insurance)
shall survive the consummation of the Merger. This Article IX and the
agreements of the Company, Parent and Merger Subsidiary contained in Sections
6.14 (Expenses), and Section 8.5 (Effect of Termination and Abandonment) shall
survive the termination of this Agreement. All other representations,
warranties, covenants and agreements in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
9.2. Modification or Amendment.
Subject to the provisions of the applicable law, at any time prior to the
Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties.
9.3. Waiver of Conditions.
Any failure of Parent or Merger Subsidiary, on the one hand, or the Company,
on the other hand, to comply with any obligation, covenant, agreement or
condition herein may be waived in writing by the Company or Parent,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 9.3.
9.4. Counterparts.
This Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
9.5. Governing Law; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all respects shall
be interpreted, construed and governed by and in accordance with the law of the
state of Delaware without regard to the conflict of law principles thereof.
(b) Each party acknowledges and agrees that any controversy which may arise
under this agreement or the stock option agreements is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly arising out of or
relating to this agreement or the stock option agreements,
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<PAGE>
or the transactions contemplated by this agreement or the stock option
agreements. Each party certifies and acknowledges that (i) no representative,
agent or attorney of any other party has represented, expressly or otherwise,
that such other party would not, in the event of litigation, seek to enforce
the foregoing waiver, (ii) each party understands and has considered the
implications of this waiver, (iii) each party makes this waiver voluntarily,
and (iv) each party has been induced to enter into this agreement and the stock
option agreements by, among other things, the mutual waivers and certifications
in this SECTION 9.5.
9.6. Notices.
Any notice, request, instruction or other document to be given hereunder by
any party to the others shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier or by facsimile to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Parent or Merger Subsidiary: ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Facsimile: (441) 295-3997
Attention: General Counsel
Copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Facsimile: (312) 701-7711
Attention: Edward S. Best
If to the Company: Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 581-3268
Attention: General Counsel
Copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
Facsimile: (410) 539-6981
Attention: Michael J. Silver
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement; No Other Representations.
This Agreement (including any exhibits hereto), the Stock Option Agreement,
the Company Disclosure Schedule, the Parent Disclosure Schedule, the
Stockholder Agreements and the Confidentiality Agreement dated February 5,1998,
between Parent and the Company (the "Confidentiality Agreement") constitute the
entire agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof. The parties hereto agree that the
Confidentiality Agreement shall be hereby amended to provide that any provision
therein which in any manner would be inconsistent with this Agreement or the
transactions contemplated hereby or thereby shall terminate as of the date
hereof; provided, however, that such provisions of the Confidentiality
Agreement other than subparagraph (a) of the fourth paragraph thereof shall be
reinstated in the event of any termination of this Agreement.
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<PAGE>
9.8. No Third Party Beneficiaries.
Except as provided in Section 6.12 (Benefits) and Section 6.15
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. Severability.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity
or enforceability or the other provisions hereof. If any provision of this
Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision
to other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in
any other jurisdiction.
9.10. Interpretation.
The table of contents and headings herein are for convenience of reference
only, do not constitute part of this Agreement and shall not be deemed to limit
or otherwise affect any of the provisions hereof. Where a reference in this
Agreement is made to a Section or Exhibit, such reference shall be to a Section
of or Exhibit to this Agreement unless otherwise indicated. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
9.11. Assignment.
This Agreement shall not be assignable by operation of law or otherwise;
provided, however, that Parent may designate, by written notice to the Company,
another wholly-owned direct or indirect Subsidiary to be a party to the Merger
in lieu of Merger Subsidiary, in which event all references herein to Merger
Subsidiary shall be deemed references to such other Subsidiary, except that all
representations and warranties made herein with respect to Merger Subsidiary as
of the date of this Agreement shall be deemed representations and warranties
made with respect to such other Subsidiary as of the date of such designation.
9.12. Definitions.
(a) Location of Certain Definitions.
<TABLE>
<CAPTION>
Section
--------
<S> <C>
Affiliate.............................................................. 9.12(b)
Agreement.............................................................. Preamble
Alternative Transaction Notice......................................... 8.3(a)
Average Closing Price.................................................. 3.1(a)
Bylaws................................................................. 2.2
Certificate............................................................ 3.1(a)
Certificate of Incorporation........................................... 2.1
Certificate of Merger.................................................. 1.3
Closing................................................................ 1.2
Closing Date........................................................... 1.2
Code................................................................... Recitals
Company................................................................ Preamble
Company Actuarial Analyses............................................. 4.21(d)
Company Audit Date..................................................... 4.7
Company Board Recommendation........................................... 6.5
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section
-----------
<S> <C>
Company Common Stock................................................ Recitals
Company Disclosure Schedule......................................... Preamble to
Article IV
Company Insurance Contracts......................................... 4.21(b)
Company Insurance Subsidiaries...................................... 4.3(a)
Company Liabilities................................................. 4.8
Company Material Adverse Effect..................................... 9.12(b)
Company Option...................................................... 4.2
Company Reports..................................................... 4.6(a)
Company Requisite Vote.............................................. 4.4(a)
Company SAP Agreements.............................................. 4.6(b)
Company Stock Plans................................................. 4.2
Confidentiality Agreement........................................... 9.7
Contracts........................................................... 4.5
Costs............................................................... 6.15(a)
D&O Insurance....................................................... 6.15(b)
DGCL................................................................ 1.1
Effective Time...................................................... 1.3
Employee Benefit Plans.............................................. 4.9(b)
Environmental Claim................................................. 9.12(b)
Environmental Laws.................................................. 9.12(b)
Environmental Permits............................................... 9.12(b)
Environmental Report................................................ 9.12(b)
ERISA............................................................... 4.9(a)(i)
ERISA Affiliate..................................................... 4.9(c)
Exchange Act........................................................ 4.5
Exchange Agent...................................................... 3.2(a)
Exchange Fund....................................................... 3.2(a)
Exchange Ratio...................................................... 3.1(a)
Expenses............................................................ 8.5(d)
GAAP................................................................ 4.6(a)
Governmental Consents............................................... 7.1(c)
Governmental Entity................................................. 4.5
Hazardous Materials................................................. 9.12(b)
HSR Act............................................................. 4.5
Indemnified Parties................................................. 6.15(a)
Insurance Regulators................................................ 4.10
Intellectual Property............................................... 4.11
Latest Balance Sheet................................................ 6.1(f)
Laws................................................................ 4.10
Maximum Premium..................................................... 6.15(b)
Merger.............................................................. Recitals
Merger Consideration................................................ 3.1(a)
Merger Subsidiary................................................... Preamble
NYSE................................................................ 3.1(a)
Order............................................................... 7.1(d)
Parent.............................................................. Preamble
Parent Audit Date................................................... 5.6(a)
Parent Disclosure Schedule.......................................... Preamble to
Article V
Parent Liabilities.................................................. 5.8
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section
--------
<S> <C>
Parent Material Adverse Effect......................................... 9.12(b)
Parent Option.......................................................... 6.12(a)
Parent Reports......................................................... 5.6(a)
Parent Rights Agreement................................................ 3.1(a)
Parent SAP Statements.................................................. 5.6(b)
Parent Shares.......................................................... Recitals
Parent Stock Plans..................................................... 5.3
Person................................................................. 3.2(b)
Preferred Shares....................................................... 4.2
Private Consents....................................................... 4.5
Prospectus/Proxy Statement............................................. 6.4
Representatives........................................................ 6.3
Responsible Executive Officers of Parent............................... 9.12(b)
Responsible Executive Officers of the Company.......................... 9.12(b)
Roll-Over Options...................................................... 6.12(a)
S-4 Registration Statement............................................. 6.4
SEC.................................................................... 4.6(a)
Secretary.............................................................. 1.3
Securities Act......................................................... 4.6(a)
Share, Shares.......................................................... 3.1(a)
Stockholder Agreements................................................. Recitals
Stockholders Meeting................................................... 6.5
Subsidiary............................................................. 9.12(b)
Superior Proposal...................................................... 6.3
Surviving Corporation.................................................. 1.1
Takeover Statute....................................................... 4.15
Tax, Taxes, Taxable.................................................... 9.12(b)
Taxing Authority....................................................... 9.12(b)
Tax Return............................................................. 9.12(b)
Termination Date....................................................... 8.2
Transaction Proposal................................................... 6.3
</TABLE>
(b) Certain Other Definitions
"Affiliate" of a Person means any other Person who (i) directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with, such Person or (ii) owns more than 5% of the capital
stock or equity interest in such Person. "Control" means the possession of the
power, directly or indirectly, to direct or cause the direction of the
management and policies of a Person whether through the ownership of voting
securities, by contract or otherwise.
"Company Material Adverse Effect" means a material adverse effect on the
properties, business, assets, conditions (financial or otherwise), liabilities
or results of operations of the Company and its Subsidiaries taken as a whole,
other than effects caused by changes in general economic conditions or
conditions generally affecting the insurance or reinsurance industry.
"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability arising out of, relating to, based on
or resulting from (i) the presence, discharge, emission, release or threatened
release of any Hazardous Materials at any location, whether or not owned,
leased or operated by the Company or any of its Subsidiaries or (ii)
circumstances forming the basis of any violation or alleged violation of any
Environmental Law or Environmental Permit or (iii) otherwise relating to
obligations or liabilities under any Environmental
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<PAGE>
Laws; provided, however, that the term "Environmental Claim" shall not include
any such claim, demand, action, suit, complaint, proceeding or other
communication under an insurance or reinsurance policy issued by the Company.
"Environmental Laws" means all applicable statutes, rules, regulations,
ordinances, orders, decrees and common law, in each case of any Governmental
Entity, as they exist at the date hereof, relating in any manner to
contamination, pollution or protection of human health or the environment,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, the Solid Waste Disposal Act, the Resource
Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the
Toxic Substances Control Act, the Occupational Safety and Health Act, the
Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water
Act, all as amended, and similar state laws.
"Environmental Permits" means all permits, licenses, registrations and other
governmental authorizations required for the Company and its Subsidiaries and
the operations of the Company's and its Subsidiaries' facilities to conduct its
business under Environmental Laws.
"Environmental Report" means any report, study, assessment, audit, or other
similar document that addresses any issue of noncompliance with, or liability
under, any Environmental Law that may affect the Company or any of its
Subsidiaries.
"Hazardous Materials" means any gasoline or petroleum (including crude oil
or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos, pollutants, contaminants,
radioactivity, and any other substances of any kind, whether or not any such
substance is defined as hazardous or toxic under any Environmental Law, that is
regulated pursuant to or could give rise to liability under any Environmental
Law.
"Parent Material Adverse Effect" means a material adverse effect on the
properties, business, assets, conditions (financial or otherwise), liabilities
or results of operations of Parent and its Subsidiaries taken as a whole, other
than effects caused by changes in general economic conditions or conditions
generally affecting the insurance or reinsurance industry.
"Responsible Executive Officers of the Company" shall mean the persons
designated as such in the preamble to the Company Disclosure Schedule.
"Responsible Executive Officers of Parent" shall mean the persons designated
as such in the preamble to the Parent Disclosure Schedule.
"Subsidiary" means, with respect to the Company, Parent or Merger
Subsidiary, as the case may be, any entity, whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions is
directly or indirectly owned or controlled by such party or by one or more of
its respective Subsidiaries or by such party and any one or more of its
respective Subsidiaries.
"Tax" (including, with correlative meaning, the terms "Taxes" and "Taxable")
shall mean, with respect to any Person, (i) all taxes, domestic or foreign,
including without limitation any income (net, gross or other, including
recapture of any tax items such as investment tax credits), alternative or add-
on minimum tax, gross income, gross receipts, gains, sales, use, leasing,
lease, user, ad valorem, transfer, recording, franchise, profits, property
(real or personal, tangible or intangible), fuel, license, withholding on
amounts paid to or by such Person, payroll, employment, unemployment, social
security, excise, severance, stamp, occupation, premium, environmental or
windfall profit tax, custom, duty or other tax, or other like assessment or
charge of any kind whatsoever, together with any interest, levies, assessments,
charges, penalties, additions to tax or additional amounts imposed by any
Taxing Authority, (ii) any joint or several liability of such Person with any
other
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<PAGE>
Person for the payment of any amounts of the type described in (a) of this
definition and (iii) any liability of such Person for the payment of any
amounts of the type described in (i) as a result of any express or implied
obligation to indemnify any other Person.
"Tax Return(s)" shall mean all returns, consolidated or otherwise (including
without limitation informational returns), required to be filed with any Taxing
Authority.
"Taxing Authority" shall mean any authority responsible for the imposition
of any Tax.
In Witness Whereof, this Agreement has been duly executed and delivered by
the duly authorized officers or managers of the parties hereto as of the date
first written above.
Capital Re Corporation
/s/ Jerome F. Jurschak
By: _________________________________
ACE Limited
/s/ Brian Duperreault
By: _________________________________
CapRe Acquisition Corp.
/s/ Brian Duperreault
By: _________________________________
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APPENDIX B
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN RESTRICTIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
This Stock Option Agreement, dated as of June 10, 1999 (the "Agreement"), is
between ACE Limited, a Cayman Islands company (the "Grantee"), and Capital Re
Corporation, a Delaware corporation (the "Grantor").
Whereas, Grantee, CapRe Acquisition Corp., a Delaware corporation and a
wholly owned, direct subsidiary of Grantee (the "Merger Subsidiary"), and
Grantor have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), pursuant to which Grantee and Grantor intend
to effect a merger of Merger Subsidiary with and into Grantor (the "Merger");
Whereas, as a condition and inducement to Grantee's and Merger Subsidiary's
willingness to enter into the Merger Agreement, Grantee and Merger Subsidiary
have requested that Grantor grant to Grantee an option to purchase up to
3,220,135 fully paid and nonassessable shares of common stock, par value $0.01
per share, of Grantor (the "Common Stock"), upon the terms and subject to the
conditions hereof; and
Whereas, in order to induce Grantee and Merger Subsidiary to enter into the
Merger Agreement, and in consideration thereof, Grantor is willing to grant
Grantee the Option (as defined below).
Now, Therefore, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Adjustments.
(a) Subject to the other terms and conditions set forth herein, Grantor
hereby grants to Grantee an irrevocable option (the "Option") to purchase up to
3,220,135 fully paid and nonassessable shares of Common Stock (the "Shares") at
a cash purchase price equal to $17.40 per share (the "Option Price"); provided,
however, that in no event shall the number of shares for which the Option is
exercisable exceed 9.9% of the shares of Common Stock issued and outstanding at
the time of exercise (without giving effect to the shares of Common Stock
issued or issuable pursuant to the Option) (the "Maximum Applicable
Percentage"). The number of shares of Common Stock purchasable upon exercise of
the Option and the Option Price are subject to adjustment as set forth in this
Agreement.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the aggregate number of shares of Common Stock
purchasable upon exercise of the Option (inclusive of shares, if any,
previously purchased upon exercise of the Option) shall automatically be
increased (without any further action on the part of Grantor or Grantee being
necessary) so that, after such issuance, it equals the Maximum Applicable
Percentage. Any such increase shall not affect the Option Price.
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other person that
shall become a holder of all or part of the Option in accordance with the terms
of this Agreement (each such person being referred to in this Agreement as a
"Holder") may exercise the Option, in whole or in part, by delivering a written
notice thereof as provided in Section 2(d) within 180 days following the
occurrence of a Triggering Event (as defined in Section 2(b)) unless prior to
such Triggering Event the Effective Time (as defined in the Merger Agreement)
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shall have occurred. If no notice pursuant to the preceding sentence has been
delivered prior thereto, the Option shall terminate upon either (i) the
occurrence of the Effective Time or (ii) the close of business on the earlier
of (x) the day 180 days after the date that Grantee becomes entitled to receive
the Termination Fee (as defined in the Merger Agreement) under Section 8.5(b)
or (c) of the Merger Agreement and (y) the date that Grantee is no longer
potentially entitled to receive the Termination Fee under Section 8.5(b) or (c)
of the Merger Agreement for a reason other than that Grantee has already
received the Termination Fee.
(b) Triggering Event. A "Triggering Event" shall have occurred if the Merger
Agreement is terminated and Grantee then or thereafter becomes entitled to
receive the Termination Fee pursuant to Section 8.5(b) or (c) of the Merger
Agreement.
(c) Notice of Triggering Event by Grantor. Grantor shall notify Grantee
promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Grantor shall not be a condition
to the right of a Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If a Holder shall be entitled to and
wishes to exercise the Option, it shall send to Grantor a written notice (the
date of which is referred to in this Agreement as the "Notice Date") specifying
(i) the total number of shares the Holder will purchase pursuant to such
exercise and (ii) a place and date (a "Closing Date") not earlier than three
business days nor later than 20 business days from the Notice Date for the
closing of such purchase (a "Closing"); provided, that if a filing is required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), or any other notice, report, filing or approval is required with
respect to any governmental or regulatory authority, court, agency, commission,
body or other governmental entity (a "Governmental Entity") in connection with
such purchase, (x) the Holder or Grantor, as required, promptly after the
giving of such notice shall file the required notice, report, filing or
application for approval and shall expeditiously process the same and (y) the
period of time referred to in clause (ii) above shall commence on the date on
which the Grantee furnishes to Grantor a supplemental written notice setting
forth the Closing Date, which notice shall be furnished as promptly as
practicable after all required notification, reporting or filing periods shall
have expired or been terminated, all required approvals shall have been
obtained and all requisite waiting periods shall have passed. Each of Grantee
and Grantor agrees to use all commercially reasonable efforts to cooperate with
and provide information to Grantor or the Holder, as the case may be, for the
purpose of any required notice, report, filing or application for approval.
(e) Payment of Purchase Price. At each Closing, the Holder shall pay to
Grantor the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a wire
transfer to a bank account designated by Grantor; provided, that failure or
refusal of Grantor to designate such a bank account shall not preclude the
Holder from exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously with the
payment of the purchase price by the Holder, Grantor shall deliver to the
Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option shall be exercised in
part only, a new Option evidencing the rights of the Holder to purchase the
balance (as adjusted pursuant to Section 1(b)) of the shares of Common Stock
then purchasable under this Agreement.
(g) Restrictive Legend. Certificates for Common Stock delivered at a Closing
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is subject
to resale restrictions arising under the Securities Act of 1933, as
amended."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the Holder shall have
delivered to Grantor a copy of a letter from the staff of the Securities and
Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Grantor, to the effect that such legend is not
required for purposes of the Securities Act of 1933,
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as amended (the "Securities Act"). In addition, such certificates shall bear
any other legend as may be required by applicable law.
(h) Ownership of Record; Tender of Purchase Price; Expenses. Upon the giving
by the Holder to Grantor of a written notice of exercise referred to in Section
2(d) and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Grantor shall then be closed or that certificates
representing such shares of Common Stock shall not have been delivered to the
Holder. Grantor shall pay all expenses, and any and all United States federal,
state and local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this Section 2
in the name of the Holder or its assignee, transferee or designee.
3. Covenants of Grantor. In addition to its other agreements and covenants
in this Agreement, Grantor agrees:
(a) Shares Reserved for Issuance. It will maintain, free from preemptive
rights, sufficient authorized but unissued or treasury shares of Common
Stock to issue the appropriate number of shares of Common Stock pursuant to
the terms of this Agreement so that the Option may be fully exercised
without additional authorization of Common Stock after giving effect to all
other options, warrants, convertible securities and other rights of third
parties to purchase shares of Common Stock from Grantor.
(b) No Avoidance. It will not avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of
rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions
to be observed or performed under this Agreement by Grantor.
(c) Further Assurances. Promptly after the date of this Agreement, it
will take all actions as may from time to time be required (including (i)
complying with all applicable premerger notification, reporting and waiting
period requirements under the HSR Act and (ii) in the event that prior
notice, report, filing or approval with respect to any Governmental Entity
is necessary under any applicable foreign or United States federal, state
or local law before the Option may be exercised, cooperating fully with the
Holder in preparing and processing the required applications or notices) in
order to permit the Holder to exercise the Option and purchase shares of
Common Stock pursuant to such exercise and to take all action necessary to
protect the rights of the holder against dilution.
(d) Stock Exchange Listing. Subject to applicable law and the rules and
regulations of the New York Stock Exchange, Inc. (the "NYSE"), it will
promptly file an application to list the Shares on the NYSE (to the extent
they are not already listed) and will use all commercially reasonable
efforts to obtain approval of such listing and to effect all necessary
filings by Grantor under the HSR Act and the applicable insurance laws of
each state and foreign jurisdiction; provided, however, that if it is
unable to effect such listing on the NYSE by the Closing Date, it will
nevertheless be obligated to deliver the Shares upon the Closing Date.
4. Representations and Warranties of Grantor.
(a) Merger Agreement. Grantor hereby makes each of the representations and
warranties contained in Sections 4.1, 4.2, 4.4, 4.5 and 4.15 of the Merger
Agreement as they relate to Grantor and this Agreement, as if such
representations were set forth in this Agreement.
(b) Shares Reserved for Issuance; Capital Stock. Grantor has taken all
necessary corporate action to authorize and reserve, free from preemptive
rights, and permit it to issue, sufficient authorized but unissued or treasury
shares of Common Stock so that the Option may be fully exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock from Grantor, and all such shares, upon
issuance pursuant to the Option, will be duly authorized, validly issued, fully
paid and nonassessable, and will be delivered free and
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clear of all claims, liens, encumbrances, and security interests (other than
those created by this Agreement) and not subject to any preemptive rights.
(c) The Shares. No "fair price," "moratorium," "control share acquisition,"
"interested shareholder" or other form of antitakeover statute or regulation,
including without limitation Section 203 of the Delaware General Corporation
Law, or similar provision contained in the certificate of incorporation or by-
laws of Grantor, is or shall be applicable to the acquisition of the Shares
pursuant to this Agreement.
5. Representations and Warranties of Grantee. Grantee represents and
warrants to Grantor that (a) the execution and delivery of this Agreement by
Grantee and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Grantee
and this Agreement has been duly executed and delivered by a duly authorized
officer of Grantee and constitutes a valid and binding obligation of Grantee;
and (b) Grantee is acquiring the Option and, if and when it exercises the
Option, will be acquiring the Shares issuable upon the exercise thereof for its
own account and not with a view to distribution or resale in any manner which
would be in violation of the Securities Act.
6. Exchange; Replacement. This Agreement and the Option granted by this
Agreement are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of
Grantor, for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable at such time under this Agreement, subject
to corresponding adjustments in the number of shares of Common Stock
purchasable upon exercise so that the aggregate number of such shares under all
stock option agreements issued in respect of this Agreement shall not exceed
the Maximum Applicable Percentage. Unless the context shall require otherwise,
the terms "Agreement" and "Option" as used in this Agreement include any stock
option agreements and related Options for which this Agreement (and the Option
granted by this Agreement) may be exchanged. Upon (i) receipt by Grantor of
evidence reasonably satisfactory to it of the loss, theft, destruction of this
Agreement, or mutilation of this Agreement, (ii) receipt by Grantor of
reasonably satisfactory indemnification in the case of loss, theft or
destruction of this Agreement and (iii) surrender and cancellation of this
Agreement in the case of mutilation, Grantor will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement executed and delivered
shall constitute an additional contractual obligation on the part of Grantor,
whether or not the Agreement so lost, stolen, destroyed or mutilated shall at
any time be enforceable by any person other than the holder of the new
Agreement.
7. Adjustments. In addition to the adjustment to the total number of shares
of Common Stock purchasable upon exercise of the Option pursuant to Section
1(b), the total number of shares of Common Stock purchasable upon the exercise
of the Option and the Option Price shall be subject to adjustment from time to
time as follows:
(a) In the event of any change in the outstanding shares of Common Stock
by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares or the like,
the type and number of shares of Common Stock purchasable upon exercise of
the Option shall be appropriately adjusted, and proper provision shall be
made in the agreements governing any such transaction, so that (i) any
Holder shall receive upon exercise of the Option the number and class of
shares, other securities, property or cash that such Holder would have
received in respect of the shares of Common Stock purchasable upon exercise
of the Option if the Option had been exercised and such shares of Common
Stock had been issued to such Holder immediately prior to such event or the
record date therefor, as applicable, and (ii) in the event any additional
shares of Common Stock are to be issued or otherwise become outstanding as
a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of Common Stock purchasable upon exercise of
the Option shall be increased so that, after such issuance and together
with shares of Common Stock previously issued pursuant to the exercise of
the Option (as adjusted on account of any of the foregoing changes in the
Common Stock), the number of shares so purchasable equals the Maximum
Applicable Percentage of the
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number of shares of Common Stock issued and outstanding immediately after
the consummation of such change.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise of the Option is adjusted as provided in this Section 7, the
Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which is equal to the number of shares of Common
Stock purchasable prior to the adjustment and the denominator of which is
equal to the number of shares of Common Stock purchasable after the
adjustment.
8. Registration.
(a) Upon the occurrence of a Triggering Event, Grantor shall, at the request
of Grantee delivered in the written notice of exercise of the Option provided
for in Section 2(d), as promptly as practicable prepare, file and keep current
a shelf registration statement under the Securities Act covering any or all
shares issued and issuable pursuant to the Option and shall use all
commercially reasonable efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition
of any shares of Common Stock issued upon total or partial exercise of the
Option ("Option Shares") in accordance with any plan of disposition requested
by Grantee; provided, however, that Grantor may postpone filing a registration
statement relating to a registration request by Grantee under this Section 8
for a period of time (not in excess of 60 days) if in its judgment such filing
would require the disclosure of material information that Grantor has a bona
fide business purpose for preserving as confidential. Grantor will use all
commercially reasonable efforts to cause such registration statement first to
become effective as soon as practicable and then to remain effective for 270
days from the day such registration statement first becomes effective or until
such earlier date as all shares registered shall have been sold by Grantee. In
connection with any such registration, Grantor and Grantee shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. If requested by
Grantee in connection with such registration, Grantor shall become a party to
any underwriting agreement relating to the sale of such shares, but only to the
extent of obligating Grantor in respect of representations, warranties,
indemnities, contribution and other agreements customarily made by issuers in
such underwriting agreements.
(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 8(a) shall occur substantially
simultaneously with the exercise of the Option.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a Triggering Event,
(i) at the request of a Holder, delivered in writing within 180 days of such
occurrence (or such later period as provided in Section 2(d) with respect to
any required notice or application or in Section 10), Grantor shall repurchase
the Option from the Holder, in whole or in part, at a price (the "Option
Repurchase Price") equal to the number of shares of Common Stock then
purchasable upon exercise of the Option (or such lesser number of shares as may
be designated in the Repurchase Notice (as defined below)) multiplied by the
amount by which the market/offer price (as defined below) exceeds the Option
Price and (ii) at the request of a Holder or any person who has been a Holder
(for purposes of this Section 9 only, each such person being referred to as a
"Holder"), delivered in writing within 180 days of such occurrence (or such
later period as provided in Section 2(d) with respect to any required notice or
application or in Section 10), Grantor shall repurchase such number of Option
Shares from such Holder as the Holder shall designate in the Repurchase Notice
at a price (the "Option Share Repurchase Price") equal to the number of shares
designated multiplied by the market/offer price. The term "market/offer price"
shall mean the highest of (x) the price per share of Common Stock at which a
tender or exchange offer for Common Stock has been made, (y) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Grantor and (z) the highest trading price for shares of Common Stock on
the NYSE (or, if the Common Stock is not then listed on the NYSE, any other
national securities exchange or automated quotation system on which the Common
Stock is then listed or quoted) within the six-month
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period immediately preceding the delivery of the Repurchase Notice. In the
event that a tender or exchange offer is made for the Common Stock or an
agreement is entered into for a merger, share exchange, consolidation or
reorganization involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the Common
Stock shall (I) if such consideration is in securities and such securities are
listed on a national securities exchange, be determined to be the highest
trading price for such securities on such national securities exchange within
the six-month period immediately preceding the delivery of the Repurchase
Notice or (II) if such consideration is not securities, or if in securities and
such securities are not traded on a national securities exchange, be determined
in good faith by a nationally recognized investment banking firm selected by an
investment banking firm designated by Grantee and an investment banking firm
designated by Grantor.
(b) Method of Repurchase. A Holder may exercise its right to require Grantor
to repurchase the Option, in whole or in part, and/or any Option Shares then
owned by such Holder pursuant to this Section 9 by surrendering for such
purpose to Grantor, at its principal office, this Agreement or certificates for
Option Shares, as applicable, accompanied by a written notice or notices
stating that the Holder elects to require Grantor to repurchase the Option
and/or such Option Shares in accordance with the provisions of this Section 9
(each such notice, a "Repurchase Notice"). As promptly as practicable, and in
any event within two business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of the Repurchase
Notice relating thereto, Grantor shall deliver or cause to be delivered to the
Holder the applicable Option Repurchase Price and/or the Option Share
Repurchase Price. Any Holder shall have the right to require that the
repurchase of Option Shares shall occur immediately after the exercise of all
or part of the Option. In the event that the Repurchase Notice shall request
the repurchase of the Option in part, Grantor shall deliver with the Option
Repurchase Price a new Stock Option Agreement evidencing the right of the
Holder to purchase that number of shares of Common Stock purchasable pursuant
to the Option at the time of delivery of the Repurchase Notice minus the number
of shares of Common Stock represented by that portion of the Option then being
repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Grantor is
prohibited under applicable law or regulation from repurchasing the Option (or
portion thereof) and/or any Option Shares subject to such Repurchase Notice
(and Grantor will undertake to use all commercially reasonable efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase),
Grantor shall immediately so notify the Holder in writing and thereafter
deliver or cause to be delivered, from time to time, to the Holder the portion
of the Option Repurchase Price and the Option Share Repurchase Price that
Grantor is no longer prohibited from delivering, within two business days after
the date on which it is no longer so prohibited; provided, however, that upon
notification by Grantor in writing of such prohibition, the Holder may, within
five days of receipt of such notification from Grantor, revoke in writing its
Repurchase Notice, whether in whole or to the extent of the prohibition,
whereupon, in the latter case, Grantor shall promptly (i) deliver to the Holder
that portion of the Option Repurchase Price and/or the Option Share Repurchase
Price that Grantor is not prohibited from delivering; and (ii) deliver to the
Holder, as appropriate, (A) with respect to the Option, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of shares
of Common Stock for which the surrendered Stock Option Agreement was
exercisable at the time of delivery of the Repurchase Notice less the number of
shares as to which the Option Repurchase Price has theretofore been delivered
to the Holder, and/or (B) with respect to Option Shares, a certificate for the
Option Shares as to which the Option Share Repurchase Price has not theretofore
been delivered to the Holder. Notwithstanding anything to the contrary in this
Agreement, including, without limitation, the time limitations on the exercise
of the Option, the Holder may give notice of exercise of the Option for 180
days after a notice of revocation has been issued pursuant to this Section 9(c)
and thereafter exercise the Option in accordance with the applicable provisions
of this Agreement.
(d) Acquisition Transactions. In addition to any other restrictions or
covenants, Grantor agrees that, in the event that a Holder delivers a
Repurchase Notice, Grantor shall not enter or agree to enter into an agreement
or
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series of agreements relating to a merger with or into or the consolidation
with any other person or entity, the sale of all or substantially all of the
assets of Grantor or any similar disposition unless the other party or parties
to such agreement or agreements agree to assume in writing Grantor's
obligations under Section 9(a) and, notwithstanding any notice of revocation
delivered pursuant to the proviso to Section 9(c), a Holder may require such
other party or parties to perform Grantor's obligations under Section 9(a)
unless such party or parties are prohibited by law or regulation from such
performance, in which case such party or parties shall be subject to the
obligations of Grantor under Section 9(c).
10. Extension of Exercise Periods. The 180-day periods for exercise of
certain rights under Sections 2 and 9 shall be extended in each such case at
the request of the Holder to the extent necessary to avoid liability by the
Holder under Section 16(b) of the Securities Exchange Act of 1934, as amended,
by reason of such exercise.
11. Limitation of Holder Profit. (a) Notwithstanding any other provision
herein, in no event shall Grantee's Total Profit (as defined below) exceed
$25,000,000, exclusive of any reimbursement of expenses pursuant to Section
8.5(e) of the Merger Agreement (the "Maximum Profit"), and, if it otherwise
would exceed such amount, Grantee, at its sole discretion, shall either (1)
reduce the number of shares subject to the Option (and any Substitute Option),
(2) deliver to Grantor for cancellation shares of Common Stock (or other
securities into which such Option Shares are converted or exchanged), (3) pay
cash to the Grantor or (4) any combination of the foregoing, so that Grantee's
actually realized Total Profit shall not exceed the Maximum Profit after taking
into account the foregoing actions.
(b) For purposes of this Agreement, "Total Profit" shall mean: (1) the
aggregate amount of (a) the excess of (x) the net cash amounts received by
Grantee pursuant to a sale of Option Shares (or securities into which such
shares are converted or exchanged) to any unaffiliated third party within 12
months after the exercise of the Option, over (y) the Grantee's aggregate
purchase price for such Option Shares (or other securities), plus (b) all
amounts received by Grantee on the transfer of the Option (including pursuant
to Section 9), plus (c) all amounts received by Grantee pursuant to Section
8.5(b) or (c) of the Merger Agreement (other than reimbursement in respect of
Expenses), minus (2) all amounts of cash previously paid to Grantor pursuant to
this Section 11 plus the value of the Option Shares (or other securities)
previously delivered to the Grantor for cancellation pursuant to this Section
11.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Grantor's
obligation to pay, any payment provided for in Section 8.5(b) and (c) of the
Merger Agreement; provided that if and to the extent the Total Profit received
by Grantee would exceed the Maximum Profit following receipt of such payment,
Grantee shall be obligated to comply with the terms of Section 11(a) within 30
days of the latest of (1) the date of receipt of such payment, (2) the date of
receipt of the net cash by Grantee pursuant to the sale of Option Shares (or
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party within 12 months after the exercise of this Option with
respect to such Option Shares and (3) the date of receipt of net cash from the
disposition of the Option.
(d) For purposes of paragraph (a) of this Section and clause (b)(ii) of this
Section, the value of any Option Shares delivered to the Grantor shall be the
market/offer price of such Option Shares.
12. Assignment. Neither party may assign any of its rights or obligations
under this Agreement or the Option to any other person without the express
written consent of the other party except that, (i) Holder may assign this
Agreement to a wholly-owned subsidiary of Holder and (ii) in the event that a
Triggering Event shall have occurred, Grantee may assign the Option, in whole
or in part. Any attempted assignment in contravention of the preceding sentence
shall be null and void.
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13. Filings; Other Actions. Grantor will use all commercially reasonable
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement.
14. Specific Performance. Grantor acknowledges that if Grantor fails to
perform any of its obligations under this Agreement immediate and irreparable
harm or injury would be caused to Grantee and/or the Holder for which money
damages would not be an adequate remedy. In such event, Grantor agrees that
Grantee or a Holder shall have the right, in addition to any other rights it
may have, to specific performance of this Agreement. Accordingly, if Grantee or
a Holder should institute an action or proceeding seeking specific enforcement
of the provisions hereof, Grantor hereby waives the claim or defense that
Grantee or a Holder has an adequate remedy at law and hereby agrees not to
assert in any such action or proceeding the claim or defense that such a remedy
at law exists. Grantor further agrees to waive any requirements for the
securing or posting of any bond in connection with obtaining any such equitable
relief.
15. Severability. If any term, provision, covenant, or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void, or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected,
impaired, or invalidated. If for any reason such court or regulatory agency
determines that the Holder is not permitted to acquire, or Grantor is not
permitted to repurchase pursuant to Section 9, the full number of shares of
Common Stock provided in Section 1(a) of this Agreement (as adjusted pursuant
to Sections 1(b) and 7 of this Agreement), it is the express intention of
Grantor to allow the Holder to acquire or to require Grantor to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification of this Agreement.
16. Notice. Notices, requests, instructions, or other documents to be given
under this Agreement shall be in writing and shall be deemed given (i) three
business days following sending by registered or certified mail, postage
prepaid, (ii) when sent, if sent by facsimile, provided that receipt of the fax
is promptly confirmed by telephone, (iii) when delivered, if delivered
personally to the intended recipient, and (iv) one business day later, if sent
by overnight delivery via a national courier service, in each case at the
addresses of the parties set forth below, or such other address as may be
designated in writing hereafter, in the same manner, by such party:
If to Grantee or a Holder:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Attn: Chief Executive Officer
Facsimile: (441) 295-3997
With a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Edward S. Best, Esq.
Facsimile: (312) 701-7711
If to Grantor:
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Attn: Alan S. Roseman
Facsimile: 212-578-3268
B-8
<PAGE>
With a copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street, Suite 1600
Baltimore, Maryland 21202
Attn: Michael J. Silver, Esq.
Facsimile: 410-539-6981
17. Expenses. Except as otherwise expressly provided in this Agreement or in
the Merger Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
18. Entire Agreement. This Agreement, the Stockholder Support Agreement (as
defined in the Merger Agreement) and the Merger Agreement constitute the entire
agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties,
with respect to the subject matter of this Agreement. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
and their respective successors and permitted assigns. Nothing in this
Agreement, is intended to confer upon any person or entity, other than the
parties to this Agreement, and their respective successors and permitted
assigns, any rights or remedies under this Agreement.
19. Governing Law and Venue; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all respects shall
be interpreted, construed and governed by and in accordance with Delaware law
without regard to the conflict of law principles thereof. The parties
irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the courts of the State of Delaware and of the United States of America
located in Wilmington, Delaware (the "Delaware Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
by this Agreement (and agree not to commence any litigation relating thereto
except in such Delaware Courts), waive any objection to the laying of venue of
any such litigation in the Delaware Courts and agree not to plead or claim in
any Delaware Court that such litigation brought therein has been brought in an
inconvenient forum.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 19.
20. Captions. The Section and paragraph captions in this Agreement are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
21. Amendments. This Agreement may not be changed, amended or modified
orally, but may be changed only by an agreement in writing signed by the party
against whom any waiver, change, amendment, modification or discharge may be
sought.
B-9
<PAGE>
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
23. Public Announcement. Grantee and Grantor shall consult with each other
prior to issuing, and will provide each other with a meaningful opportunity to
review and comment upon, any press releases or otherwise making public
announcements with respect to the Option and prior to making any filings with
any third party and/or Governmental Entity (as defined in the Merger Agreement)
(including any national securities exchange) with respect thereto, except as
may be required by law, court process or by obligations pursuant to any listing
agreement with or rules of any national securities exchange or interdealer
quotation system.
24. Survival. All representations and warranties contained in this Agreement
shall survive delivery of and payment for the Shares.
In Witness Whereof, Grantee and Grantor have caused this Agreement to be
duly executed and delivered on the day and year first above written.
Capital Re Corporation
By: /s/ Jerome F. Jurschak
Name: Jerome F. Jurschak
Title: Chief Executive Officer
Ace Limited
By: /s/ Brian Duperreault
Name: Brian Duperreault
Title:Chairman, President and
Chief Executive Officer
B-10
<PAGE>
[LETTERHEAD OF GOLDMAN, SACHS & CO.]
APPENDIX C
June 10, 1999
Board of Directors
Capital Re Corporation
1325 Avenue of the Americas
New York, NY 10019
Gentlemen and Madame:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $.01
per share (the "Shares"), of Capital Re Corporation (the "Company") of the
exchange ratio for ordinary shares, par value of $.041666667 per share ("ACE
Shares"), of ACE Limited ("ACE") to be received for each Share (the "Exchange
Ratio") pursuant to the Agreement and Plan of Merger dated as of June 10, 1999
among ACE, CapRe Acquisition Corp., a wholly-owned subsidiary of ACE, and the
Company (the "Agreement"). The Exchange Ratio will equal 0.60 unless the
average closing price of the ACE Shares reported on the New York Stock Exchange
for the twenty consecutive trading days ending three trading days prior to the
closing under the Agreement is equal to or greater than $36.67 per share, in
which case, the Exchange Ratio will equal 22 divided by such average closing
price.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
to the Company from time to time, including acting as managing underwriter of
the initial public offering of 6,325,000 Shares in April 1992, managing
underwriter for a public offering of $100 million of 7.75% debentures due
November 1, 2002 in December 1992, managing underwriting for a public offering
of $75 million of 7.65% company obligated mandatorily redeemable preferred
securities of Capital Re LLC in May 1994 and managing underwriting of a public
offering of 3,450,000 Shares in February 1996. We also advised the Company on
the currently proposed sale of $75 million of Shares to ACE (the "Financing")
and we acted as financial advisor in connection with the Agreement. Goldman,
Sachs & Co. provides a full range of financial advisory and securities
services, may in the future provide financial advisory services to ACE, and, in
the course of its normal trading activities may from time to time effect
transactions and hold securities, including derivative securities, of the
Company or ACE for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company and ACE for the five fiscal years ended December 31, 1998 and
September 30, 1998, respectively; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company and ACE; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
have also reviewed a liquidation analysis for the Company prepared by its
management assuming a downgrade of the outstanding financial strength ratings
of the Company's principal operating subsidiaries Capital Reinsurance Company
and KRE Reinsurance Ltd. (the "Ratings"). We also have held discussions with
members of the senior management of the Company and ACE regarding the strategic
rationale for, and the potential benefits of, the transaction contemplated by
the Agreement, and the
C-1
<PAGE>
Capital Re Corporation
June 10, 1999
Page 2
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the Shares and the ACE Shares, compared certain
financial and stock market information for the Company and ACE with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the financial guaranty insurance and mortgage guaranty insurance industries and
performed such other studies and analyses as we considered appropriate.
You have informed us that you believe, and you have instructed us to assume
for purposes of this opinion, that without the Financing and the transaction
contemplated by the Agreement, the Company's reinsurance exposure to entities
affiliated with International Financial Services Life Insurance Company would
result in a downgrade of the Ratings in the immediate future and that such
downgrade would have a profound negative impact on the business operations and
the financial condition of the Company. We also have assumed that all material
governmental, regulatory or other consents and approvals, including rating
agency confirmation of the Ratings, necessary for the consummation of the
transaction contemplated by the Agreement will be obtained without any adverse
effect on the Company or ACE or on the contemplated benefits of the transaction
contemplated by the Agreement. As you are aware, we were not requested to
solicit, and did not solicit, interest from third parties with respect to an
acquisition or other business combination with the Company.
We have relied upon the accuracy and completeness of all of the financial
and other information, including the liquidation analysis, reviewed by us and
have assumed such accuracy and completeness for purposes of rendering this
opinion. As you are aware, ACE did not make available to us in writing its
forecasts of expected future performance. Accordingly, our review with respect
to such information was limited to discussions with senior managers of ACE and
the earnings and growth estimates of research analysts. We are not actuaries
and our services did not include any actuarial determinations or an attempt to
evaluate actuarial assumptions for the Company or ACE. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of
the Company or ACE or any of their subsidiaries and we have not been furnished
with any such evaluation or appraisal. Our advisory services and the opinion
expressed herein are provided for the information and assistance of the Board
of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute
a recommendation as to how any holder of Shares should vote with respect to
such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of the Shares.
Very truly yours,
-------------------------------------
(GOLDMAN, SACHS & CO.)
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
ACE is a Cayman Islands company. Section 100 of ACE's Articles of
Association contains provisions with respect to indemnification of ACE's
officers and directors. Such provisions provide that ACE shall indemnify, in
accordance with and to the full extent now or hereafter permitted by law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, an
action by or in the right of ACE), by reason of his acting as a director,
officer, employee or agent of, or his acting in any other capacity for or on
behalf of, ACE, against any liability or expense actually and reasonably
incurred by such person in respect thereof. ACE may also advance the expenses
of defending any such act, suit or proceeding in accordance with and to the
full extent now or hereafter permitted by law.
Such indemnification and advancement of expenses are not exclusive of any
other right to indemnification or advancement of expenses provided by law or
otherwise. The Companies Law (Revised) of the Cayman Islands does not set out
any specific restrictions on the ability of a company to indemnify officers or
directors. However, the application of basic principles and certain
Commonwealth case law which is likely to be persuasive in the Cayman Islands
would indicate that indemnification is generally permissible except in the
event that there has been fraud or wilful default on the part of the officer or
director or reckless disregard of his duties and obligations to the company.
Directors and officers of ACE are also provided with indemnification against
certain liabilities pursuant to a directors and officers liability insurance
policy. Coverage is afforded for any loss that the insureds become legally
obligated to pay by reason of any claim or claims first made against the
insureds or any of them during the policy period from any wrongful acts that
are actually or allegedly caused, committed or attempted by the insureds prior
to the end of the policy period. Wrongful acts are defined as any actual or
alleged error, misstatement, misleading statement or act, omission, neglect or
breach of duty by the insureds while acting in their individual or collective
capacities as directors or officers of ACE, or any other matter claimed against
them by reason of their being directors or officers of ACE. Certain of ACE's
directors are provided, by their employer, with indemnification against certain
liabilities incurred as directors of ACE.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 10, 1999, among ACE, CapRe
Acquisition Corp. and Capital Re (included as Appendix A to the Proxy
Statement/Prospectus contained in this registration statement).
2.2 Stock Option Agreement, dated as of June 10, 1999 by and between Capital
Re as issuer and ACE as grantee (included as Appendix B to the Proxy
Statement/Prospectus contained in this registration statement).
2.3 Stockholder Support Agreement, dated as of June 10, 1999, between ACE and
MP Investments, Inc.
2.4 Stockholder Support Agreement, dated as of June 10, 1999, between ACE and
Constellation Investments, Inc.
5 Opinion of Maples and Calder regarding the legality of the ACE ordinary
shares to be registered under this registration statement.
8.1 Opinion of Mayer, Brown & Platt regarding certain United States federal
income tax consequences of the merger.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
8.2 Opinion of Hogan & Hartson L.L.P. regarding certain United States federal
income tax consequences of the merger.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Mayer, Brown & Platt (included in the opinion filed as Exhibit
8.1 to this registration statement).
23.4 Consent of Hogan & Hartson L.L.P. (included in the opinion filed as
Exhibit 8.2 to this registration statement).
23.5 Consent of Maples and Calder (included in the opinion filed as Exhibit 5
to this registration statement).
23.6 Consent of Goldman, Sachs & Co.
24.1 Power of Attorney (see Signature Page)
99.1 Form of Proxy for holders of Capital Re common stock.
99.2 Form of Agreement to Amend Employment Agreement dated June 10, 1999, among
Capital Re, ACE and each of David A. Buzen, Laurence C.D. Donnelly, Jerome
F. Jurschak, Alan S. Roseman and Joseph W. Swain, III.
</TABLE>
Item 22. Undertakings.
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d)
of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned registrant also hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the provisions described
II-2
<PAGE>
under Item 20 above, or otherwise, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expense incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted against the registrant by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(2) To respond to requests for information that is incorporated by
reference into the proxy statement/prospectus pursuant to Items 4, 10(b),
11 or 13 of Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request; and
(3) To supply by means of a post-effective amendment all information
concerning the transaction and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hamilton, Bermuda, on
September 3, 1999.
ACE Limited
/s/ Brian Duperreault
By: ________________________________
Name: Brian Duperreault
Title: Chairman, President and
Chief Executive Officer
Each person whose signature appears below constitutes and appoints, Brian
Duperreault, Christopher Z. Marshall, Peter N. Mear and Keith White and each of
them, the true and lawful attorneys-in-fact and agents of the undersigned, with
full power of substitution and resubstitution, for and in the name, place and
stead of the undersigned, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, and
hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, full to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Brian Duperreault Chairman, President and September 3, 1999
____________________________________ Chief Executive Officer;
Brian Duperreault Director
/s/ Christopher Z. Marshall Chief Financial Officer; September 3, 1999
____________________________________ (Principal Financial
Christopher Z. Marshall Officer)
/s/ Robert A. Blee Chief Accounting Officer; September 3, 1999
____________________________________ (Principal Accounting
Robert A. Blee Officer)
/s/ Donald Kramer Vice Chairman; Director September 3, 1999
____________________________________
Donald Kramer
/s/ Michael G. Atieh Director September 3, 1999
____________________________________
Michael G. Atieh
/s/ Bruce L. Crockett Director September 3, 1999
____________________________________
Bruce L. Crockett
/s/ Jeffrey W. Greenberg Director September 3, 1999
____________________________________
Jeffrey W. Greenberg
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Meryl D. Hartzband Director September 3, 1999
____________________________________
Meryl D. Hartzband
/s/ Robert M. Hernandez Director September 3, 1999
____________________________________
Robert M. Hernandez
/s/ Peter Menikoff Director September 3, 1999
____________________________________
Peter Menikoff
/s/ Thomas J. Neff Director September 3, 1999
____________________________________
Thomas J. Neff
/s/ Glen M. Renfrew Director September 3, 1999
____________________________________
Glen M. Renfrew
/s/ Robert Ripp Director September 3, 1999
____________________________________
Robert Ripp
/s/ Walter A. Scott Director September 3, 1999
____________________________________
Walter A. Scott
/s/ Dermott F. Smurfit Director September 3, 1999
____________________________________
Dermott F. Smurfit
/s/ Robert W. Staley Director September 3, 1999
____________________________________
Robert W. Staley
/s/ Gary M. Stuart Director September 3, 1999
____________________________________
Gary M. Stuart
/s/ Sidney F. Wentz Director September 3, 1999
____________________________________
Sidney F. Wentz
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.3 Stockholder Support Agreement, dated as of June 10, 1999, between ACE
and MP Investments, Inc.
2.4 Stockholder Support Agreement, dated as of June 10, 1999, between ACE
and Constellation Investments, Inc.
5 Opinion of Maples and Calder regarding the legality of the ACE
ordinary shares to be registered under this registration statement.
8.1 Opinion of Mayer, Brown & Platt regarding certain United States
federal income tax consequences of the merger.
8.2 Opinion of Hogan & Hartson L.L.P. regarding certain United States
federal income tax consequences of the merger.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
23.6 Consent of Goldman, Sachs & Co.
99.1 Form of Proxy for holders of Capital Re common stock.
99.2 Form of Agreement to Amend Employment Agreement dated June 10, 1999,
among Capital Re, ACE and each of David A. Buzen, Laurence C.D.
Donnelly, Jerome F. Jurschak, Alan S. Roseman and Joseph W. Swain,
III.
</TABLE>
<PAGE>
Exhibit 2.3
STOCKHOLDER SUPPORT AGREEMENT
STOCKHOLDER SUPPORT AGREEMENT, dated as of June 10, 1999 (this
"Agreement"), by the undersigned stockholder (the "Stockholder") of CAPITAL RE
CORPORATION, a Delaware corporation (the "Company"), for the benefit of ACE
LIMITED, a company incorporated with limited liability under the Cayman Islands
Companies Law ("ACE").
RECITALS
--------
WHEREAS, concurrently with the execution and delivery of this
Agreement, ACE, Pacer Acquisition Corp., a Delaware corporation and a wholly
owned direct subsidiary of ACE ("Merger Subsidiary"), and the Company, have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which provides for, among other things, the merger of the
Company and Merger Subsidiary (the "Merger"); and
WHEREAS, the Stockholder owns of record and/or holds stock options,
warrants or convertible securities to acquire (whether or not vested) that
number and class of shares of outstanding capital stock of the Company ("Company
Capital Stock") appearing on the signature page hereof (such shares of Company
Capital Stock, together with any other shares of capital stock of the Company
acquired by such Stockholder after the date hereof and during the term of this
Agreement, being collectively referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, ACE has required that the Stockholder agree, and in order to induce
ACE to enter into the Merger Agreement, the Stockholder has agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Stockholder agrees as follows:
1. Agreement to Vote. Until the termination of this Agreement in
accordance with Section 14, Stockholder agrees as follows:
(a) At the Company's stockholders' meeting to vote on approval
and adoption of the Merger Agreement, including any adjournment or
postponement thereof (the "Stockholders' Meeting") or in any other
circumstances upon which a vote, consent or other approval with respect to
the Merger and the Merger Agreement is sought, the Stockholder hereby
irrevocably and unconditionally agrees to vote (or cause to be voted) the
Subject Shares in favor of the Merger, the adoption of the Merger Agreement
and the approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement.
<PAGE>
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, the Stockholder
hereby irrevocably and unconditionally agrees to vote (or cause to be
voted) the Subject Shares against (i) approval of any proposal made in
opposition to or in competition with the Merger Agreement or the
transactions contemplated by the Merger Agreement, (ii) any merger,
consolidation, merger of assets, business combination, share exchange,
reorganization or recapitalization of the Company or any of its
subsidiaries, with or involving any party other than ACE or one of its
subsidiaries, (iii) any liquidation, dissolution or winding up of the
Company, (iv) any change in the capital structure of the Company (other
than pursuant to the Merger Agreement) and (v) any other action including,
without limitation, any amendment of the Company's Certificate of
Incorporation or Bylaws, which such action reasonably may be expected to
impede, frustrate, interfere with, delay, postpone, attempt to discourage,
prevent or nullify the consummation of the transactions contemplated by the
Merger Agreement or this Agreement or result in a breach of any of the
covenants, representations, warranties or other obligations or agreements
of the Company under the Merger Agreement which would materially and
adversely affect the Company or its ability to consummate the transactions
contemplated by the Merger Agreement. The Stockholder further agrees not to
commit or agree to take any action inconsistent with the foregoing.
(c) Any such vote shall be cast or consent shall be given in
accordance with such procedures relating thereto as shall ensure that it is
duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of such vote or consent. The Stockholder
agrees to deliver to ACE upon request a proxy in such form as ACE may
reasonably request, which proxy shall be coupled with an interest and
irrevocable to the extent permitted under Delaware law, with the total
number of Shares correctly stated thereon.
2. Restriction on Transfer of Company Capital Stock. The Stockholder
agrees (other than pursuant to the Merger Agreement) not to (a) sell, transfer,
pledge, assign or otherwise dispose of (including by gift) (collectively,
"Transfer"), or enter into any contract, option or other arrangement (including
any profit-sharing arrangement) with respect to the Transfer of the Subject
Shares to any person or (b) enter into any voting arrangement, whether by proxy,
voting agreement or otherwise, in relation to the Subject Shares, and agrees not
to commit or agree to take any of the foregoing actions.
3. No-Shop. The Stockholder shall not, nor shall the Stockholder
permit any affiliate, director, officer, employee, investment banker, attorney
or other advisor or representative of the Stockholder to, (i) directly or
indirectly solicit, initiate or knowingly encourage the submission of, any
Acquisition Proposal or (ii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes or may reasonably be expected to lead
to, any Acquisition Proposal; provided,
2
<PAGE>
that the foregoing shall not restrict any director of the Company from taking
any action permitted by Section 6.3 of the Merger Agreement.
4. No Proxy Solicitations. The Stockholder agrees that it will not,
nor will it permit any entity under its control to, (a) solicit proxies or
become a "participant" in a "solicitation" (as such terms are defined in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) in opposition to or competition with the consummation of the
Merger or otherwise encourage or assist any party in taking or planning any
action which would compete with or otherwise could serve to materially interfere
with, delay, discourage, adversely affect or inhibit the timely consummation of
the merger in accordance with the terms of the Merger Agreement, (b) directly or
indirectly encourage, initiate or cooperate in a stockholders' vote or action by
consent of the Company's stockholders in opposition to or in competition with
the consummation of the Merger, or (c) become a member of a "group" (as such
term is used in Section 13(d)(3) of the Exchange Act) with respect to any voting
securities of the Company for the purpose of opposing or competing with the
consummation of the Merger; provided, that the foregoing shall not restrict any
director of the Company from taking any action such director believes is
necessary to satisfy such director's fiduciary duty to stockholders of the
Company.
5. Support of Merger. The Stockholder shall use the Stockholder's best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with ACE in doing, all things necessary,
proper or advisable to support and to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement.
6. Legend. As soon as practicable after the execution of this
Agreement, the Stockholder shall surrender to the Company the certificates
representing the Subject Shares in its possession (and within 30 days the
Subject Shares not in its possession), shall cause the following legend to be
placed on the certificates representing such Subject Shares and shall request
that such legend remain thereon until the earlier of (i) the termination hereof
or (ii) the consummation of the Merger:
"The shares of capital stock represented by this certificate are subject to
a Stockholder Support Agreement, dated as of June 10, 1999, among the
Stockholder named herein and ACE Limited, which, among other things, (a)
restricts the sale or transfer of such shares except in accordance
therewith, and (b) restricts the voting of such shares except in accordance
therewith."
In the event that ACE requests that a proxy be executed and delivered by the
Stockholder to it pursuant to Section 1(c) hereof, the Stockholder shall
promptly surrender to the Company the certificates representing the Shares
covered by such proxy and cause the foregoing legend to be revised to add to the
end of such legend the following words:
", and such shares are also subject to an irrevocable proxy."
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The Stockholder shall provide ACE with reasonably satisfactory evidence of its
compliance with this Section 6 on or prior to the date five business days after
the execution hereof with respect to Subject Shares in its possession (or within
30 days with respect to Subject Shares not in its possession) or of the request
relating to the Stockholder's proxy, as the case may be.
7. Restriction on Transfer of Ordinary Shares. The Stockholder agrees,
until the date which is 180 days after the date of the consummation of the
Merger, not to Transfer or enter into any contract, option or other arrangement
(including any profit-sharing arrangement) with respect to the Transfer of the
ordinary shares, par value $0.041666667 per share, of ACE to be received as
consideration in the Merger, and agrees not to commit or agree to take any of
the foregoing actions; provided, that the Stockholder may sell all or
substantially all of such shares to a single person who agrees in writing (in
form and substance reasonably satisfactory to ACE) to abide by the foregoing
restrictions.
8. Standstill. The Stockholder agrees that, for a period of three
years following the date hereof (the "Standstill Period"), it will not (and it
will ensure that its affiliates (and any person acting on behalf of or in
concert with it or any affiliate) will not), without ACE's prior written
approval, (a) purchase or otherwise acquire (or enter into any agreement or make
any proposal, including any proposal which is made public, to purchase or
otherwise acquire) any securities of ACE, any warrant or option to purchase such
securities, any security convertible into any such securities, or any other
right to acquire such securities if upon any such purchase or acquisition the
Stockholder owns or has the right to acquire (whether or not presently) five
percent or more of the outstanding voting shares of ACE, (b) solicit proxies
from stockholders of ACE or otherwise seek to influence or control the
management or policies of ACE or any of its affiliates, (c) form, join or in any
way participate in a "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) with respect to any voting securities of ACE or any of its
subsidiaries, (d) otherwise act, alone or in concert with others, to seek to
control or influence the management, Board of Directors or policies of ACE, (e)
disclose any intention, plan or arrangement inconsistent with the foregoing or
(f) assist, advise or encourage any other person in doing any of the foregoing;
provided, however, that this Section 8 shall not prohibit the purchase or other
acquisition of securities of ACE by any person described in Rule 13d-1(b)(1)(i)
and (ii) of the Exchange Act. The Stockholders also agree during such period not
to request ACE (or its directors, officers, employees or agents), directly or
indirectly, to amend or waive any provisions of this Section 8 (including this
sentence) or take any action which might require ACE to make a public
announcement regarding the possibility of a business combination, merger or
extraordinary transaction.
9. Confidentiality. The Stockholder acknowledges that, in relation to
the negotiation of the Merger Agreement and the consummation of the transactions
contemplated thereby, it may have access to material non-public information
concerning ACE. The Stockholder also recognizes that successful consummation of
the transactions contemplated by this Agreement and the Merger Agreement may be
dependent upon confidentiality with respect to the matters referred to herein.
In this connection, pending public disclosure thereof,
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the Stockholder hereby agrees not to disclose or discuss such matters with
anyone not a party to this Agreement (other than its counsel and advisors, if
any) without the prior written consent of ACE, except for filings required
pursuant to the Exchange Act and the rules and regulations thereunder or
disclosures its counsel advises are necessary in order to fulfill its
obligations imposed by law, in which case the Stockholder shall give notice of
such disclosure to ACE as promptly as practicable so as to enable ACE to seek a
protective order from a court of competent jurisdiction with respect thereto.
10. Additional Shares. If, after the date hereof, the Stockholder
acquires beneficial ownership (as such term is defined in the Exchange Act) of
any shares of the capital stock of the Company (any such shares, "Additional
Shares"), including, without limitation, upon exercise of any option, warrant or
right to acquire shares of capital stock or through any stock dividend or stock
split, the provisions of this Agreement (other than those set forth in Section
13(a)) applicable to the Subject Shares shall be applicable to such Additional
Shares as if such Additional Shares had been Subject Shares as of the date
hereof. The provisions of the immediately preceding sentence shall be effective
with respect to Additional Shares without action by any person or entity
immediately upon the acquisition by either Stockholder of beneficial ownership
of such Additional Shares.
11. Action by Written Consent. If, in lieu of the Stockholders'
Meeting, stockholder action in respect of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement is taken by written consent,
the provisions of this Agreement imposing obligations in respect of or in
connection with the Stockholders' Meeting shall apply mutatis mutandis to such
action by written consent.
12. Stockholders Certificates. Stockholder agrees to execute and
deliver a certificate containing such representations as are reasonably
necessary and customary for tax counsel to ACE on the one hand, and the Company
on the other hand, to render an opinion to the effect that the Merger Agreement
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and that no gain or loss will be
recognized by the stockholders of the Company to the extent they receive
Ordinary Shares solely in exchange for their Common Stock.
13. Representations and Warranties. The Stockholder represents and
warrants to ACE as follows:
(a) As of the date hereof, Stockholder is the beneficial and
registered owner of the Subject Shares. As of the date hereof, the
Stockholder does not beneficially own (as such term is defined in the
United States Securities Exchange Act of 1934, as amended (the "Exchange
Act")) any shares of any class or series of capital stock of the Company
other than the Subject Shares or any securities convertible into or
exercisable for shares of any class or series of the Company's capital
stock or have any options or other rights to acquire any shares of any
class or series of capital stock of the Company or any securities
convertible into or exercisable
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for shares of any class of the Company's capital stock. The Subject Shares
and certificates representing such Subject Shares are now, and at all times
during the term hereof will be, held by the Stockholder, or by a nominee or
custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except
for any such encumbrances or proxies arising hereunder.
(b) The Stockholder has full legal power, authority and right to
vote all of the Subject Shares in favor of approval and adoption of the
Merger Agreement without the consent or approval of, or any other action on
the part of, any other person or entity. Without limiting the generality of
the foregoing, except for this Agreement, the Stockholder has not entered
into any voting agreement or any other agreement with any person or entity
with respect to any of the Subject Shares, granted any person or entity any
proxy (revocable or irrevocable) or power of attorney with respect to any
of the Subject Shares, deposited any of the Subject Shares in a voting
trust or entered into any arrangement or agreement with any person or
entity limiting or affecting the Stockholder's ability to enter into this
Agreement or legal power, authority or right to vote its Subject Shares in
favor of the approval and adoption of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement, and the Stockholder will
not take any such action after the date of this Agreement and prior to the
Stockholders' Meeting.
(c) This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement
enforceable against the Stockholder in accordance with its terms except to
the extent (i) such enforcement may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
The representations and warranties contained in this Section 13 shall be made as
of the date hereof and as of each date from the date hereof through and
including the date the Merger is consummated.
14. Termination. The obligations of the Stockholder hereunder shall
terminate upon the earlier of the termination of the Merger Agreement pursuant
to Article 8 thereof or the Effective Time.
15. Further Assurances. The Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as ACE may reasonably request
for the purpose of effectively carrying out the transactions contemplated by
this Agreement.
16. Successors, Assigns and Transferees Bound. Any successor, assignee
or
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transferee (including a successor, assignee or transferee as a result of the
death of the Stockholder, such as an executor or heir) shall be bound by the
terms hereof, and the Stockholder shall take any and all actions necessary to
obtain the written confirmation from such successor, assignee or transferee that
it is bound by the terms hereof.
17. Remedies. The Stockholder acknowledges that money damages would be
both incalculable and an insufficient remedy for any breach of this Agreement by
it, and that any such breach would cause ACE irreparable harm. Accordingly, the
Stockholder agrees that in the event of any breach or threatened breach of this
Agreement, ACE, in addition to any other remedies at law or in equity it may
have, shall be entitled, without the requirement of posting a bond or other
security, to equitable relief, including injunctive relief and specific
performance.
18. Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.
19. Amendment. This Agreement may be amended only by means of a
written instrument executed and delivered by both the Stockholder and ACE.
20. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to ACE:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Facsimile: (441) 295 3997
Attention: Peter N. Mear, Esq.
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Facsimile: (312) 701-7711
Attention: Edward S. Best
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(b) if to the Stockholder:
Constellation Investments, Inc.
250 West Pratt Street
Baltimore, Maryland 21201
Facsimile: (410) 783-2862
Attention: Steve Kesler
21. Governing Law. This Agreement shall be governed by, and construed
in accordance in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
22. Capitalized Terms. Capitalized terms used in this Agreement that
are not defined herein shall have such meanings as set forth in the Merger
Agreement.
23. Counterparts. For the convenience of the parties, this Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
CONSTELLATION INVESTMENTS, INC.
By: /s/ Steven D. Kesler
--------------------------
Name: Steven D. Kesler
Title: President
Number and class of shares of Company Capital
Stock owned or subject to acquisition on the date
hereof:
Number Class
------ -----
4,973,340 common
Accepted and Agreed to as of the
date set forth above:
ACE LIMITED
By: /s/ Brian Duperreault
------------------------------
Name: Brian Duperreault
Title: Chairman, President and
Chief Executive Officer
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EXHIBIT 2.4
STOCKHOLDER SUPPORT AGREEMENT
STOCKHOLDER SUPPORT AGREEMENT, dated as of June 10, 1999 (this
"Agreement"), by the undersigned stockholder (the "Stockholder") of CAPITAL RE
CORPORATION, a Delaware corporation (the "Company"), for the benefit of ACE
LIMITED, a company incorporated with limited liability under the Cayman Islands
Companies Law ("ACE").
RECITALS
--------
WHEREAS, concurrently with the execution and delivery of this
Agreement, ACE, Pacer Acquisition Corp., a Delaware corporation and a wholly
owned direct subsidiary of ACE ("Merger Subsidiary"), and the Company, have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which provides for, among other things, the merger of the
Company and Merger Subsidiary (the "Merger"); and
WHEREAS, the Stockholder owns of record and/or holds stock options,
warrants or convertible securities to acquire (whether or not vested) that
number and class of shares of outstanding capital stock of the Company ("Company
Capital Stock") appearing on the signature page hereof (such shares of Company
Capital Stock, together with any other shares of capital stock of the Company
acquired by such Stockholder after the date hereof and during the term of this
Agreement, being collectively referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, ACE has required that the Stockholder agree, and in order to induce
ACE to enter into the Merger Agreement, the Stockholder has agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Stockholder agrees as follows:
1. Agreement to Vote. Until the termination of this Agreement in
accordance with Section 14, Stockholder agrees as follows:
(a) At the Company's stockholders' meeting to vote on approval
and adoption of the Merger Agreement, including any adjournment or
postponement thereof (the "Stockholders' Meeting") or in any other
circumstances upon which a vote, consent or other approval with respect to
the Merger and the Merger Agreement is sought, the Stockholder hereby
irrevocably and unconditionally agrees to vote (or cause to be voted) the
Subject Shares in favor of the Merger, the adoption of the Merger Agreement
and the approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement.
<PAGE>
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, the Stockholder
hereby irrevocably and unconditionally agrees to vote (or cause to be
voted) the Subject Shares against (i) approval of any proposal made in
opposition to or in competition with the Merger Agreement or the
transactions contemplated by the Merger Agreement, (ii) any merger,
consolidation, merger of assets, business combination, share exchange,
reorganization or recapitalization of the Company or any of its
subsidiaries, with or involving any party other than ACE or one of its
subsidiaries, (iii) any liquidation, dissolution or winding up of the
Company, (iv) any change in the capital structure of the Company (other
than pursuant to the Merger Agreement) and (v) any other action including,
without limitation, any amendment of the Company's Certificate of
Incorporation or Bylaws, which such action reasonably may be expected to
impede, frustrate, interfere with, delay, postpone, attempt to discourage,
prevent or nullify the consummation of the transactions contemplated by the
Merger Agreement or this Agreement or result in a breach of any of the
covenants, representations, warranties or other obligations or agreements
of the Company under the Merger Agreement which would materially and
adversely affect the Company or its ability to consummate the transactions
contemplated by the Merger Agreement. The Stockholder further agrees not to
commit or agree to take any action inconsistent with the foregoing.
(c) Any such vote shall be cast or consent shall be given in
accordance with such procedures relating thereto as shall ensure that it is
duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of such vote or consent. The Stockholder
agrees to deliver to ACE upon request a proxy in such form as ACE may
reasonably request, which proxy shall be coupled with an interest and
irrevocable to the extent permitted under Delaware law, with the total
number of Shares correctly stated thereon.
2. Restriction on Transfer of Company Capital Stock. The Stockholder
agrees (other than pursuant to the Merger Agreement) not to (a) sell, transfer,
pledge, assign or otherwise dispose of (including by gift) (collectively,
"Transfer"), or enter into any contract, option or other arrangement (including
any profit-sharing arrangement) with respect to the Transfer of the Subject
Shares to any person or (b) enter into any voting arrangement, whether by proxy,
voting agreement or otherwise, in relation to the Subject Shares, and agrees not
to commit or agree to take any of the foregoing actions; provided, however that
Stockholder may pledge the Subject Shares pursuant to agreements the same in all
material respects to Exhibit A attached hereto (the "Pledge Agreement")
prohibiting the pledgee from Transferring the Subject Shares or taking any other
action prohibited above, except that the pledgee may liquidate the Subject
Shares if neither Stockholder or ACE provide further security as required under
the Pledge Agreement after three business (3) days written notice of the need to
provide such security pursuant to the Pledge Agreement and subject to ACE's
right of first refusal to purchase the Subject Shares. In the event Stockholder
does not meet the requirements for additional security within two (2) business
days of receiving such notice,
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<PAGE>
ACE may provide such security. Stockholder hereby agrees to immediately
reimburse ACE for the amount of any additional security provided and to
indemnify ACE against any losses, costs and/or expenses, including reasonable
attorneys' fees and any difference in the price at which ACE purchase Subject
Shares pursuant to the aforementioned right of first refusal and the purchase
price paid in the Merger. Stockholder's obligation shall be secured by a
Guaranty from Minnesota Power in the form of Exhibit B attached hereto delivered
to ACE at the time this Agreement is executed.
3. No-Shop. The Stockholder shall not, nor shall the Stockholder
permit any affiliate, director, officer, employee, investment banker, attorney
or other advisor or representative of the Stockholder to, (i) directly or
indirectly solicit, initiate or knowingly encourage the submission of, any
Acquisition Proposal or (ii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes or may reasonably be expected to lead
to, any Acquisition Proposal; provided, that the foregoing shall not restrict
any director of the Company from taking any action permitted by Section 6.3 of
the Merger Agreement.
4. No Proxy Solicitations. The Stockholder agrees that it will not,
nor will it permit any entity under its control to, (a) solicit proxies or
become a "participant" in a "solicitation" (as such terms are defined in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) in opposition to or competition with the consummation of the
Merger or otherwise encourage or assist any party in taking or planning any
action which would compete with or otherwise could serve to materially interfere
with, delay, discourage, adversely affect or inhibit the timely consummation of
the merger in accordance with the terms of the Merger Agreement, (b) directly or
indirectly encourage, initiate or cooperate in a stockholders' vote or action by
consent of the Company's stockholders in opposition to or in competition with
the consummation of the Merger, or (c) become a member of a "group" (as such
term is used in Section 13(d)(3) of the Exchange Act) with respect to any voting
securities of the Company for the purpose of opposing or competing with the
consummation of the Merger; provided, that the foregoing shall not restrict any
director of the Company from taking any action such director believes is
necessary to satisfy such director's fiduciary duty to stockholders of the
Company.
5. Support of Merger. The Stockholder shall use the Stockholder's
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with ACE in doing, all things necessary,
proper or advisable to support and to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement.
6. Legend. As soon as practicable after the execution of this
Agreement, the Stockholder shall surrender to the Company the certificates
representing the Subject Shares in its possession (and within 30 days the
Subject Shares not in its possession), shall cause the following legend to be
placed on the certificates representing such Subject Shares
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<PAGE>
and shall request that such legend remain thereon until the earlier of (i) the
termination hereof or (ii) the consummation of the Merger:
"The shares of capital stock represented by this certificate are subject to
a Stockholder Support Agreement, dated as of June 10, 1999, among the
Stockholder named herein and ACE Limited, which, among other things, (a)
restricts the sale or transfer of such shares except in accordance
therewith, and (b) restricts the voting of such shares except in accordance
therewith."
In the event that ACE requests that a proxy be executed and delivered by the
Stockholder to it pursuant to Section 1(c) hereof, the Stockholder shall
promptly surrender to the Company the certificates representing the Shares
covered by such proxy and cause the foregoing legend to be revised to add to the
end of such legend the following words:
", and such shares are also subject to an irrevocable proxy."
The Stockholder shall provide ACE with reasonably satisfactory evidence of its
compliance with this Section 6 on or prior to the date five business days after
the execution hereof with respect to Subject Shares in its possession (or within
30 days with respect to Subject Shares not in its possession) or of the request
relating to the Stockholder's proxy, as the case may be.
7. Restriction on Transfer of Ordinary Shares. The Stockholder
agrees, until the date which is 180 days after the date of the consummation of
the Merger, not to Transfer or enter into any contract, option or other
arrangement (including any profit-sharing arrangement) with respect to the
Transfer of the ordinary shares, par value $0.041666667 per share, of ACE to be
received as consideration in the Merger, and agrees not to commit or agree to
take any of the foregoing actions; provided, that the Stockholder may sell all
or substantially all of such shares to a single person who agrees in writing (in
form and substance reasonably satisfactory to ACE) to abide by the foregoing
restrictions; and provided, further, that the Stockholder may pledge the
Ordinary Shares pursuant to the Pledge Agreement and other provisions of
Paragraph 2 hereof.
8. Standstill. The Stockholder agrees that, for a period of three
years following the date hereof (the "Standstill Period"), it will not (and it
will ensure that its affiliates (and any person acting on behalf of or in
concert with it or any affiliate) will not), without ACE's prior written
approval, (a) purchase or otherwise acquire (or enter into any agreement or make
any proposal, including any proposal which is made public, to purchase or
otherwise acquire) any securities of ACE, any warrant or option to purchase such
securities, any security convertible into any such securities, or any other
right to acquire such securities if upon any such purchase or acquisition the
Stockholder owns or has the right to acquire (whether or not presently) five
percent or more of the outstanding voting shares of ACE, (b) solicit proxies
from stockholders of ACE or otherwise seek to influence or control the
management or policies of ACE or any of its affiliates, (c) form, join or in any
way participate in a "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) with
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respect to any voting securities of ACE or any of its subsidiaries, (d)
otherwise act, alone or in concert with others, to seek to control or influence
the management, Board of Directors or policies of ACE, (e) disclose any
intention, plan or arrangement inconsistent with the foregoing or (f) assist,
advise or encourage any other person in doing any of the foregoing; provided,
however, that this Section 8 shall not prohibit the purchase or other
acquisition of securities of ACE by any person described in Rule 13d-1(b)(1)(i)
and (ii) of the Exchange Act. The Stockholders also agree during such period not
to request ACE (or its directors, officers, employees or agents), directly or
indirectly, to amend or waive any provisions of this Section 8 (including this
sentence) or take any action which might require ACE to make a public
announcement regarding the possibility of a business combination, merger or
extraordinary transaction.
9. Confidentiality. The Stockholder acknowledges that, in relation
to the negotiation of the Merger Agreement and the consummation of the
transactions contemplated thereby, it may have access to material non-public
information concerning ACE. The Stockholder also recognizes that successful
consummation of the transactions contemplated by this Agreement and the Merger
Agreement may be dependent upon confidentiality with respect to the matters
referred to herein. In this connection, pending public disclosure thereof, the
Stockholder hereby agrees not to disclose or discuss such matters with anyone
not a party to this Agreement (other than its counsel and advisors, if any)
without the prior written consent of ACE, except for filings required pursuant
to the Exchange Act and the rules and regulations thereunder or disclosures its
counsel advises are necessary in order to fulfill its obligations imposed by
law, in which case the Stockholder shall give notice of such disclosure to ACE
as promptly as practicable so as to enable ACE to seek a protective order from a
court of competent jurisdiction with respect thereto.
10. Additional Shares. If, after the date hereof, the Stockholder
acquires beneficial ownership (as such term is defined in the Exchange Act) of
any shares of the capital stock of the Company (any such shares, "Additional
Shares"), including, without limitation, upon exercise of any option, warrant or
right to acquire shares of capital stock or through any stock dividend or stock
split, the provisions of this Agreement (other than those set forth in Section
13(a)) applicable to the Subject Shares shall be applicable to such Additional
Shares as if such Additional Shares had been Subject Shares as of the date
hereof. The provisions of the immediately preceding sentence shall be effective
with respect to Additional Shares without action by any person or entity
immediately upon the acquisition by either Stockholder of beneficial ownership
of such Additional Shares.
11. Action by Written Consent. If, in lieu of the Stockholders'
Meeting, stockholder action in respect of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement is taken by written consent,
the provisions of this Agreement imposing obligations in respect of or in
connection with the Stockholders' Meeting shall apply mutatis mutandis to such
action by written consent.
12. Stockholders Certificates. Stockholder agrees to execute and
deliver a
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<PAGE>
certificate containing such representations as are reasonably necessary and
customary for tax counsel to ACE on the one hand, and the Company on the other
hand, to render an opinion to the effect that the Merger Agreement will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and that no gain or loss will be recognized by
the stockholders of the Company to the extent they receive Ordinary Shares
solely in exchange for their Common Stock.
13. Representations and Warranties. The Stockholder represents and
warrants to ACE as follows:
(a) As of the date hereof, Stockholder is the beneficial and
registered owner of the Subject Shares. As of the date hereof, the
Stockholder does not beneficially own (as such term is defined in the
United States Securities Exchange Act of 1934, as amended (the "Exchange
Act")) any shares of any class or series of capital stock of the Company
other than the Subject Shares or any securities convertible into or
exercisable for shares of any class or series of the Company's capital
stock or have any options or other rights to acquire any shares of any
class or series of capital stock of the Company or any securities
convertible into or exercisable for shares of any class of the Company's
capital stock. Except as permitted in Paragraph 2 herein relating to
pledges, the Subject Shares and certificates representing such Subject
Shares are now, and at all times during the term hereof will be, held by
the Stockholder, or by a nominee or custodian for the benefit of the
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder.
(b) The Stockholder has full legal power, authority and right to vote
all of the Subject Shares in favor of approval and adoption of the Merger
Agreement without the consent or approval of, or any other action on the
part of, any other person or entity. Without limiting the generality of
the foregoing, except for this Agreement, the Stockholder has not entered
into any voting agreement or any other agreement with any person or entity
with respect to any of the Subject Shares, granted any person or entity any
proxy (revocable or irrevocable) or power of attorney with respect to any
of the Subject Shares, deposited any of the Subject Shares in a voting
trust or entered into any arrangement or agreement with any person or
entity limiting or affecting the Stockholder's ability to enter into this
Agreement or legal power, authority or right to vote its Subject Shares in
favor of the approval and adoption of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement, and the Stockholder will
not take any such action after the date of this Agreement and prior to the
Stockholders' Meeting.
(c) This Agreement has been duly and validly executed and delivered by
the Stockholder and constitutes a valid and binding agreement enforceable
against the Stockholder in accordance with its terms except to the extent
(i) such enforcement may
6
<PAGE>
be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
The representations and warranties contained in this Section 13 shall be made as
of the date hereof and as of each date from the date hereof through and
including the date the Merger is consummated.
14. Termination. The obligations of the Stockholder hereunder shall
terminate upon the earlier of the termination of the Merger Agreement pursuant
to Article 8 thereof or the Effective Time.
15. Further Assurances. The Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as ACE may reasonably request
for the purpose of effectively carrying out the transactions contemplated by
this Agreement.
16. Successors, Assigns and Transferees Bound. Any successor,
assignee or transferee (including a successor, assignee or transferee as a
result of the death of the Stockholder, such as an executor or heir) shall be
bound by the terms hereof, and the Stockholder shall take any and all actions
necessary to obtain the written confirmation from such successor, assignee or
transferee that it is bound by the terms hereof.
17. Remedies. The Stockholder acknowledges that money damages would
be both incalculable and an insufficient remedy for any breach of this Agreement
by it, and that any such breach would cause ACE irreparable harm. Accordingly,
the Stockholder agrees that in the event of any breach or threatened breach of
this Agreement, ACE, in addition to any other remedies at law or in equity it
may have, shall be entitled, without the requirement of posting a bond or other
security, to equitable relief, including injunctive relief and specific
performance.
18. Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.
19. Amendment. This Agreement may be amended only by means of a
written instrument executed and delivered by both the Stockholder and ACE.
20. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice) :
7
<PAGE>
(a) if to ACE:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08 Bermuda
Facsimile: (441) 295 3997
Attention: Peter N. Mear, Esq.
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Facsimile: (312) 701-7711
Attention: Edward S. Best
(b) if to the Stockholder:
MP Investments, Inc.
30 West Superior Street
Duluth, Minnesota 55802
Facsimile: (218) 723-3960
Attention: Vice President, General Counsel and Secretary
21. Governing Law. This Agreement shall be governed by, and
construed in accordance in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
22. Capitalized Terms. Capitalized terms used in this Agreement that
are not defined herein shall have such meanings as set forth in the Merger
Agreement.
23. Counterparts. For the convenience of the parties, this Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
8
<PAGE>
MP INVESTMENTS, INC.
By: /s/ Philip R. Halverson
------------------------------------
Name: Philip R. Halverson
Title: Vice President, General Counsel &
Secretary
Number and class of shares of Company Capital
Stock owned or subject to acquisition on the date
hereof:
Number Class
------ -----
7,280,480 common
Accepted and Agreed to as of the
date set forth above:
ACE LIMITED
By: Brian Duperreault
------------------------------------
Name: Brian Duperreault
Title: Chairman, President and
Chief Executive Officer
9
<PAGE>
EXHIBIT 5
Effective Date:
30 August, 1999
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton IIM 08
Bermuda.
Dear Sirs,
Re: ACE Limited (the "Company") - Form S-4 Registration Statement
Agreement and Plan of Merger
You have asked us to render this opinion in our capacity as your counsel as to
Cayman Islands law in connection with the registration pursuant to a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as Amended (the "Act") of up to 19,214,471 ordinary
shares of $.041666667 each (the "Ordinary Shares") in the Company to be issued
in connection with the merger of CapRe Acquisition Corp., a Delaware corporation
and a direct wholly owned subsidiary of the Company, with and into Capital Re
Corporation, a Delaware corporation, pursuant to the Agreement and Plan of
Merger dated as of 10th June, 1999 (the "Merger Agreement") between the Company,
CapRe Acquisition Corp. and Capital Re Corporation, approved by a Board
resolution dated June 2, 1999.
We have reviewed the Company's Memorandum and Articles of Association (as
amended) and copies of the Registration Statement and the Merger Agreement. We
have relied in giving this opinion on certifications from the Company's
Officers.
We assume that all subscription monies due in respect of shares issued by the
Company have been or will be duly received by the Company. We further assume
that all Ordinary Shares to be newly issued in accordance with the Merger
Agreement have been reserved for issuance and that there are no intervening
changes in the Merger Agreement, the Company's Memorandum and Articles of
Association, the laws of the cayman Islands or any other relevant matter.
We have also assumed without independent verification the genuineness of all
signatures, authenticity of all documents submitted to us as originals and the
conformity with original documents of all documents submitted to us by telefax
or as copies or conformed copies.
On the basis of the foregoing, we would advise as follows:
1. The Company's authorised capital includes 100,000,000 Ordinary Shares of
US$0.041666667 each and 10,000,000 "Other Shares" of US$1.00 each.
<PAGE>
To: ACE Limited 30 August, 1999
- - Opinion - Page 2
- --------------------------------------------------------------------------------
2. The Company has sufficient authorised share capital to issue the Ordinary
Shares and the issue thereof is within the power of the Company's Board of
Directors. The Ordinary Shares to be issued in accordance with the Merger
Agreement have been duly authorised and when issued and registered in the
Company's Share Register in accordance with the terms of the Merger
Agreement will be legally and validly issued.
3. On the basis that the contractual subscription price (being not less than
the par value) of the Ordinary Shares is fully paid in cash or other
consideration approval by the Board of Directors or a duly established
Committee thereof, such Ordinary shares issued or to be issued may properly
be credited as fully paid under Cayman Islands law.
4. Fully paid shares are not subject to further calls or assessments by the
Company.
5. The Company has been incorporated as an exempted company under the
Companies Law of the Cayman Islands and the liability of its shareholders
is limited to the amount, if any, unpaid on their shares (see Clause 5 of
the Memorandum of Association). On the basis that all such shares are fully
paid, there is no rule of Cayman Islands law that would impose any further
liability on persons holding shares in the Company, merely by reason of
such shareholding.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Yours faithfully,
/s/ Maples and Calder
-------------------------------
Maples and Calder
<PAGE>
Exhibit 8.1
September 3, 1999
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton, HM 08, Bermuda
Re: Merger of CapRe Acquisition Corp.
with and into Capital Re Corporation
Ladies and Gentlemen:
You have requested our opinion, as counsel to ACE Limited, a Cayman Islands
company ("ACE"), as to the material United States federal income tax
consequences of the merger (the "Merger") of CapRe Acquisition Corp., a Delaware
corporation and a direct, wholly owned subsidiary of ACE ("Merger Sub"), with
and into Capital Re Corporation, a Delaware corporation ("Capital Re"), pursuant
to the terms and provisions of the Agreement and Plan of Merger, dated as of
June 10, 1999 (the "Merger Agreement"), by and among ACE, Merger Sub and Capital
Re. This opinion is being delivered as an exhibit to the registration statement
on Form S-4 (the "Registration Statement") filed by ACE with the Securities and
Exchange Commission on September 3, 1999 containing the proxy statement of
Capital Re and the prospectus of ACE relating to the Merger (the "Proxy
Statement/Prospectus"). All capitalized terms used but not defined herein shall
have the meaning ascribed to such terms in the Merger Agreement.
In delivering this opinion letter, we have examined and relied upon the
accuracy and completeness of the facts, information, covenants and
representations contained in originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement and the Proxy
Statement/Prospectus, representations made by ACE, Capital Re and certain
shareholders of Capital Re and such other documents as we have deemed necessary
or appropriate to form the basis for the opinions expressed herein. Our opinions
are conditioned upon, among other things, the accuracy and completeness, as of
the date hereof and as of the Effective Time, of the facts, information,
covenants and representations referred to above.
In rendering our opinions, we also have assumed that the Merger and the
transactions related to the Merger or contemplated by the Merger Agreement will
be consummated (a) in accordance with the terms of the Merger Agreement and that
none of the terms and conditions contained therein has been or will be waived or
modified in any respect and (b) as described in the Proxy Statement/Prospectus.
Any change in the facts set forth or assumed herein could affect our
conclusions. We have not independently verified any factual matters relating to
the Merger in connection with or apart from our preparation of this opinion.
Consequently, our opinion does not take into account any matters not set forth
herein which might have been disclosed by independent verification.
Based upon and subject to the foregoing, we are of the opinion that subject
to the qualifications set forth in the Proxy Statement/Prospectus, the
statements set forth in the Proxy Statement/Prospectus under the caption "The
Proposed Merger--Material United States Federal Income Tax Consequences,"
insofar as they purport to constitute summaries of United States federal income
tax law or legal conclusions with respect thereto, constitute accurate summaries
of the matters described therein in all material respects.
Our opinions are based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations promulgated thereunder and other relevant
judicial and administrative rulings or pronouncements, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect.
We are members of the Bar of the State of Illinois and we do not express
any opinions herein concerning any law other than the federal law of the United
States.
We hereby consent to the filing this opinion letter as an exhibit to the
Proxy Statement/Prospectus and to the use of our name in the Proxy
Statement/Prospectus under the captions "The Proposed Merger--Material United
States Federal Income Tax Consequences" and "Legal Matters."
Very truly yours,
/s/ MAYER, BROWN & PLATT
-----------------------------------
MAYER, BROWN & PLATT
<PAGE>
EXHIBIT 8.2
September 3, 1999
Capital Re Corporation
1325 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section
7.3(e) of the Agreement and Plan of Merger (the "Agreement"), dated as of June
10, 1999, by and among Ace Limited ("Ace"), a Cayman Islands corporation, CapRe
Acquisition Corp. ("MergerSub"), a Delaware corporation and wholly-owned
subsidiary of Ace, and Capital Re Corporation ("Capital Re"), a Delaware
corporation. Pursuant to the Agreement, MergerSub will be merged with and into
Capital Re (the "Merger").
In connection with the preparation of this opinion, we have examined
and with your consent relied upon (without any independent investigation or
review thereof) the following documents (including all exhibits and schedules
thereto): (1) the Agreement; (2) the Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission (the "Registration Statement"),
including the Proxy Statement/Prospectus of Ace and Capital Re; (3)
representations and certifications made to us by Ace (attached hereto as Exhibit
A); (4) representations and certifications made to us by Capital Re (attached
hereto as Exhibit B); (5) such other instruments and documents related to the
formation, organization and operation of Ace, MergerSub and Capital Re or to the
consummation of the Merger and the transactions contemplated thereby as we have
deemed necessary or appropriate. In addition, we have reviewed the form of
opinion of counsel, to be received by Ace from Mayer, Brown & Platt, counsel
to Ace with respect to the tax consequences of the proposed transaction (the
"Mayer, Brown & Platt Opinion")./1/
The Proposed Transaction
------------------------
Based solely upon our review of the documents set forth above, and
upon such information as Ace, MergerSub and Capital Re have provided to us
(which we have not attempted to verify in any respect), and in reliance upon
such documents and information, we understand that the proposed transaction and
the relevant facts with
- ----------------
/1/ All capitalized terms used herein and not otherwise defined shall have
the same meaning as they have in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
<PAGE>
respect thereto are as follows:
Ace is the owner of all of the outstanding stock of MergerSub, a
Delaware corporation. Ace is a publicly owned holding company that, through its
Bermuda-based operating subsidiaries, provides a broad range of insurance and
reinsurance products to a diverse group of international clients. MergerSub was
organized solely for the purpose of accomplishing the merger described below.
Capital Re is a holding company that through its subsidiaries provides
value-added reinsurance products for several specialty insurance markets.
Because Capital Re and Ace believe that their businesses will be
complementary, it is proposed that pursuant to the Agreement and the laws of the
State of Delaware, Merger Sub merge with and into Capital Re. MergerSub's
separate corporate existence will cease and Capital Re will be the surviving
corporation (the "Surviving Corporation"). As the Surviving Corporation, Capital
Re will succeed to all of the assets and liabilities of MergerSub under Delaware
corporate law.
By virtue of the Merger, each share of Capital Re Common Stock issued
and outstanding immediately prior to the Effective Time (other than any shares
of Capital Re Common Stock owned by Capital Re, Ace or any direct or indirect
Subsidiary of Ace or Capital Re, which will be canceled, unless such shares are
owned on behalf of third parties) will be converted into and become exchangeable
for the right to receive .60 of an ordinary share, par value $.041666667 per
share, of Ace ("Ace Shares"); provided however that if the Average Closing Price
for the twenty consecutive trading days ending three trading days prior to the
Effective Time is equal to or greater than $36.67 per Ace Share, the Exchange
Ratio will be equal to 22 (twenty-two) divided by the Average Closing Price.
Cash will be paid in lieu of the issuance of any fractional Ace Shares. Except
with respect to payments of cash to Capital Re shareholders in lieu of
fractional shares of ACE Stock, no consideration will be paid or received
(directly or indirectly, actually or constructively) for Capital Re Common Stock
other than ACE Stock.
In addition, at the Effective Time, each share of common stock of
MergerSub issued and outstanding immediately prior to the Effective Time will be
converted into one validly issued, fully-paid and nonassessable share of common
stock, $0.01 par value, of Capital Re.
Assumptions and Representations
-------------------------------
In connection with rendering this opinion, we have assumed or obtained
representations (and, with your consent, are relying thereon, without any
independent investigation or review thereof, although we are not aware of any
material facts or circumstances contrary to or inconsistent therewith) that:
1. All information contained in each of the documents we have
examined and relied upon in connection with the preparation of this opinion is
accurate and completely describes all material facts relevant to our opinion,
all copies are accurate and all signatures are genuine. We have also assumed
that there has been (or will be by
<PAGE>
the Effective Time of the Merger) due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.
2. The Merger will be consummated in accordance with applicable state
law and will qualify as a statutory merger under applicable state law.
3. All representations made in the exhibits hereto are true, correct,
and complete in all material respects. Any representation or statement made "to
the best of knowledge" or similarly qualified is correct without such
qualification.
4. The Merger will be consummated in accordance with the Agreement
and as described in the Proxy Statement/Prospectus (including satisfaction of
all covenants and conditions to the obligations of the parties without amendment
or waiver thereof); each of Ace, Merger Sub and Capital Re will comply with all
reporting obligations with respect to the Merger required under the Code and the
Treasury Regulations thereunder; and the Agreement and all other documents and
instruments referred to therein or in the Proxy Statement/Prospectus are valid
and binding in accordance with their terms.
Opinion - Federal Income Tax Consequences
-----------------------------------------
Based upon and subject to the assumptions and qualifications set forth
herein, it is our opinion, as of the date hereof, that for Federal income tax
purposes:
(a) the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code and
(b) each of Capital Re, Ace and MergerSub will be a party to that
reorganization with in the meaning of Section 368(b) of the Code.
These opinions will not be applicable in determining the federal
income tax consequences of the Merger to any Capital Re shareholder who is a
U.S. person and a "five percent transferee shareholder" within the meaning of
Treasury Regulations Section 1.367(a)-3(c)(5)(ii), unless such "five percent
transferee shareholder" enters into a "gain recognition agreement" as described
in Treasury Regulations Section 1.367(a)-8.
In addition to the assumptions set forth above, these opinions are
subject to the exceptions, limitations and qualifications set forth below:
1. These opinions represent and are based upon our best judgment
regarding the application of relevant current provisions of the Code and
interpretations of
<PAGE>
the foregoing as expressed in existing court decisions, administrative
determinations (including the practices and procedures of the Internal Revenue
Service (the "IRS") in issuing private letter rulings, which are not binding on
the IRS except with respect to the taxpayer that receives such a ruling) and
published rulings and procedures all as of the date hereof. An opinion of
counsel merely represents counsel's best judgment with respect to the probable
outcome on the merits and is not binding on the Internal Revenue Service or the
courts. There can be no assurance that positions contrary to our opinions will
not be taken by the IRS, or that a court considering the issues would not hold
contrary to such opinions. Ace has not requested a ruling from the IRS (and no
ruling will be sought) as to any of the federal income tax consequences
addressed in these opinions. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the opinions
expressed herein. Nevertheless, we undertake no responsibility to advise you of
any new developments in the law or in the application or interpretation of the
federal income tax laws.
2. This letter addresses only the specific tax opinions set forth
above. This letter does not address any other federal, state, local or foreign
tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger).
3. We express no opinion regarding, among other things, the tax
consequences of the Merger (including the opinions set forth above) as applied
to specific stockholders of Capital Re that may be relevant to particular
classes of Capital Re shareholders, such as dealers in securities, corporate
shareholders subject to the alternative minimum tax, foreign persons, and
holders of shares acquired upon exercise of stock options or in other
compensatory transactions. Furthermore, we express no opinion regarding the tax
consequences of the receipt of Ace Shares by Capital Re shareholders pursuant to
the exercise of employee stock options.
4. Our opinions set forth herein are based upon the description of
the contemplated transactions as set forth above in the section captioned "The
Proposed Transaction," the Agreement and the Proxy Statement/Prospectus. If the
actual facts relating to any aspect of the transactions differ from this
description in any material respect, our opinions may become inapplicable. No
opinion is expressed as to any transaction other than those set forth in the
section captioned "The Proposed Transaction," the Agreement and the Proxy
Statement/Prospectus or to any transaction whatsoever, including the Merger, if
all the transactions described in the section captioned "The Proposed
Transaction," the Agreement and the Proxy Statement/Prospectus are not
consummated in accordance with the terms of the section captioned "The Proposed
Transaction," the Agreement and the Proxy Statement/Prospectus and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue these opinions is incorrect, our opinions might be adversely affected
and may not be relied
<PAGE>
upon.
This opinion is provided to Capital Re Corporation only, and without
our prior consent, may not be relied upon, used, circulated, quoted or otherwise
referred to in any manner by any person, firm, governmental authority or entity
whatsoever other than reliance thereon by the holders of Capital Re Common
Stock. Notwithstanding the prior sentence, we hereby consent to the use of the
opinion letter as an exhibit to the Registration Statement and to the use of our
name in the Registration Statement. In giving the consent, we do not thereby
admit that we are an "expert" within the meaning of the Securities Act of 1933,
as amended.
Sincerely yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of our reports dated November 4, 1998, relating to the consolidated
financial statements and financial statement schedules of ACE Limited, which
reports are incorporated by reference or included in ACE Limited's Annual Report
on Form 10-K for the year ended September 30, 1998.
/s/ PricewaterhouseCoopers LLP
- -------------------------------------------
PricewaterhouseCoopers LLP
New York, New York
August 30, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of our report dated April 2, 1999, relating to the combined financial
statements of the CIGNA Corporation Property and Casualty Businesses, which
report is included in ACE Limited's Current Report on Form 8-K (dated of
earliest event reported: May 19, 1999) for the year ended September 30, 1998.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------------
PricewaterhouseCoopers LLP
Philadelphia, PA
August 30, 1999
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement of Capital Re Corporation that is made a part of the
Registration Statement (Form S-4) and related Prospectus of ACE Limited for the
registration of up to 19,214,471 shares of its ordinary shares and to the
incorporation by reference therein of our report dated February 22, 1999, except
for Note 7, as to which the date is March 10, 1999, with respect to the
consolidated financial statements of Capital Re Corporation included in its
Annual Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
New York, New York
August 31, 1999
<PAGE>
[Letterhead of Goldman, Sachs & Co.]
Exhibit 23.6
August 30, 1999
Board of Directors
Capital Re Corporation
1325 Avenue of the Americas
New York, NY 10019
Re: Registration Statement on Form S-4 of Ace Limited relating to the below-
referenced Agreement and Plan of Merger
Gentlemen and Madame:
Reference is made to our opinion letter dated June 10, 1999 with respect to the
fairness from a financial point of view to the holders of the outstanding shares
of Common Stock, par value $.01 per share (the "Shares"), of Capital Re
Corporation (the "Company") of the exchange ratio for ordinary shares, par value
$.041666667 per share, of ACE Limited ("ACE") to be received for each Share
pursuant to the Agreement and Plan of Merger dated as of June 10, 1999 among
ACE, CapRe Acquisition Corp., a wholly-owned subsidiary of ACE, and the Company.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance without prior
written consent. We understand that the Company has determined to include our
opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions "SUMMARY -- CONDITIONS TO THE MERGER", "SUMMARY -- OPINION OF
FINANCIAL ADVISOR", "THE PROPOSED MERGER -- BACKGROUND OF THE MERGER", "THE
PROPOSED MERGER -- Capital Re's Reasons for the Merger", "THE PROPOSED MERGER
- -- Opinion of Capital Re's Financial Advisor" and to the inclusion of the
foregoing opinion as Appendix C in the above-mentioned Proxy Statement/
Prospectus included in the above-mentioned Registration Statement. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ----------------------------
(GOLDMAN, SACHS & CO.)
<PAGE>
Exhibit 99.1
Form of Proxy
Capital Re Corporation
1325 Avenue of the Americas, New York, New York 10019
This Proxy is Solicited on behalf of the Board of Directors
The undersigned hereby appoints Jerome F. Jurschak, Joseph W. Swain III and
Alan S. Roseman, and each of them acting solely, proxies with full power of
substitution and with all powers the undersigned would possess if personally
present, to represent and to vote at the Special Meeting of Stockholders to be
held on October 4, 1999 at 1325 Avenue of the Americas, New York, New York
10019 at 10:00 A.M. and at any adjournment or postponement thereof, as
designated on the reverse side hereof and in their discretion with respect to
any matters as may properly come before such meeting, all of the shares of
Common Stock of Capital Re Corporation held of record by the undersigned as of
the close of business on September 2, 1999. All proxies previously given with
respect to the shares covered hereby are hereby revoked.
(Continued and to be signed on reverse side.)
<PAGE>
Please date, sign and mail your proxy card back as soon as possible!
Special Meeting of Stockholders
Capital Re Corporation
October 4, 1999
Please mark your
votes as in this
example: [X]
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
FOLLOWING PROPOSAL.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder and at the discretion of the Proxyholders
as to any other matters that may properly come before the meeting and at any
adjournment or postponement thereof. If no direction is made, this Proxy will
be voted FOR the following proposal and at the discretion of the Proxyholders
as to any other matters that may properly come before the meeting.
FOR AGAINST ABSTAIN
1. Proposal to adopt the Agreement [_] [_] [_]
and Plan of Merger, dated as of
June 10, 1999 among ACE Limited,
CapRe Acquisition Corp. and
Capital Re Corporation and Dated: ____________________________________
approve the merger described in
that agreement.
Signature: ________________________________
Signature: ________________________________
Title: ____________________________________
Please sign exactly as name appears.
When shares are held by joint
tenants, both should sign. When
signing as attorney-in-fact,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign
in full corporate name by the
president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
<PAGE>
Exhibit 99.2
Form of
Agreement
To Amend
Employment Agreement
THIS AGREEMENT (the "Agreement"), made and entered into as of June 10, 1999
(the "Effective Date") by and among Capital Re Corporation, a Delaware
corporation (the "Company"), ACE Limited, a holding company incorporated with
limited liability under the Cayman Islands Company Law ("ACE"), and _______ (the
"Executive");
WITNESSETH THAT:
WHEREAS, the Executive is currently employed by the Company, and the
Company, and the Executive have entered into an employment agreement dated
February 2, 1999 (the "Employment Agreement");
WHEREAS, the Company, ACE, and CapRe Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of ACE, are concurrently entering into
an agreement and plan of merger, dated the date hereof (the "Merger Agreement");
and
WHEREAS, the parties hereto wish to agree to amend the Employment Agreement
in accordance with the following terms, with such amendment to be contingent
upon the closing of the Merger and to be effective upon the Closing Date, as
such terms are defined in the Merger Agreement;
NOW, THEREFORE, IT IS AGREED, by and among the parties hereto as follows,
effective as of the Effective Date, that the Employment Agreement shall be
amended, effective as of the Closing Date, to incorporate the following terms:
1. Section 2 of the Employment Agreement will be amended to provide that the
initial term of the Employment Agreement will be extended to January 31,
2003 and each reference to a date in said section shall be increased by two
years.
2. Section 3 of the Employment Agreement will be amended to provide that the
Executive shall serve as ______ or in a comparable position based on
responsibility, compensation, duties and authority, as determined by ACE
and the Company.
3. Subsection 5(a) of the Employment Agreement will be amended to the extent
necessary to clarify that a bonus will be payable to the Executive in
accordance with the 1999 Capital Re Bonus Plan, based on targets for the
period June 30, 1999 through December 31, 1999, and based on six months of
Base Salary Earnings.
4. Subsection 5(b) of the Employment Agreement will be amended to provide
that, in addition to the Retention Bonuses payable under that subsection
(which payments include $250,000 on January 1, 2000 and $225,000 on January
31, 2001), and to delete clauses (a) and (b). Executive will receive
additional payments of $200,000 on January 1, 2002 and $200,000 on January
1, 2003; provided,
<PAGE>
however, that each such additional payment is contingent upon the
Executive's continued employment with the Company on the date designated
for payment.
5. Subsection 5(f) of the Employment Agreement will be amended to provide the
following:
(a) The Executive will be granted the option to purchase 50,000 shares of
common stock of ACE on the Closing Date such options exercisable at
the market price of an ACE share in effect at the close of trading on
the Closing Date (the "Grant Date"); provided, however, that if the
average of the closing prices for ACE shares for the five trading days
immediately prior to the Grant Date (the "Grant Date Price") is higher
than the average of the closing prices for ACE shares for the five
trading days immediately prior to June 10, 1999 (the "Execution Date
Price"), then the Executive shall also be awarded shares of ACE
restricted stock; the number of which shall be determined by (i)
multiplying by 50,000 the difference between the Grant Date Price and
the Execution Date Price, and (ii) dividing that product by the Grant
Date Price. The foreging award of opinion and restricted stock shall
vest ratably over three years, and shall be subject to the terms and
conditions of the ACE 1995 Long-Term Incentive Plan or the ACE 1998
Long-Term Incentive Plan ("ACE's Long Term Incentive Plans"), as
designated by ACE; and
(b) The Executive will be granted 20,000 restricted shares of common stock
of ACE on the Closing Date. Such award of restricted stock shall vest
ratably over three years, and shall be subject to the terms and
conditions of ACE's Long Term Incentive Plans, as designated by ACE;
and
(c) The Executive shall be eligible to receive future awards under ACE's
Long Term Incentive Plans in accordance with ACE's usual practice for
similarly-situated executives, including for ACE's 1999 fiscal year if
the Merger is completed prior to ACE's 1999 fiscal year.
6. Section 10 of the Employment Agreement will be amended, to the extent
necessary, to clarify that ACE and its business are included within the
protections relating to non-competition and non-solicitation.
7. Section 11 of the Employment Agreement will be amended, to the extent
necessary, to clarify that the Company, as the Surviving Corporation under
the Merger Agreement, continues to be party to the Employment Agreement,
and that the Merger does not result in a breach of the Employment
Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
ACE LIMITED
By: _____________________________
CAPITAL RE CORPORATION
By: _____________________________
__________________________________
Executive
