SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported)
December 3, 1998
TIG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-11856 94-3172455
(State or other (Commission File (IRS Employer
jurisdiction Number) Identification
of incorporation) Number)
65 East 55th Street, 28th Floor, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)
446-2700
None
(Former name or former address, if changed since last
report)
<PAGE>
2
Item 5. Other Events.
On December 3, 1998, TIG Holdings, Inc. (the "Registrant")
entered into an Agreement and Plan of Merger dated as of December 3, 1998
(the "Agreement"), among Fairfax Financial Holdings Limited ("Fairfax"),
FFHL, Inc. ("FFHL") and the Registrant, providing for the merger of FFHL (a
wholly owned subsidiary of Fairfax) with and into the Registrant. The
Agreement is filed herewith as Exhibit 2.1.
The Registrant issued a press release announcing the Merger
Agreement on December 3, 1998, which press release was filed as Exhibit
99.1 to the Registrant's Current Report on Form 8-K dated December 4, 1998.
Item 7. Financial Statements.
(c) Exhibits:
Exhibit
No. Description
2.1 Agreement and Plan of Merger dated as of December 3, 1998, among
Fairfax Financial Holdings Limited, FFHL, Inc. and TIG Holdings,
Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
TIG Holdings, Inc.
----------------------------
(Registrant)
Date December 16, 1998 By: /s/ Peter Acton
----------------- -----------------
(Signature)
Name: Peter Acton
Title: Senior Vice President and
General Counsel
<PAGE>
3
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Exhibit Page
2.1 Agreement and Plan of Merger dated as of December 3, 1998
among Fairfax Financial Holdings Limited, FFHL, Inc.
and TIG Holdings, Inc.[FN1]
- ------------------------------
[FN1] Filed herewith.
EXECUTION COPY
===========================================================================
AGREEMENT AND PLAN OF MERGER
Among
FAIRFAX FINANCIAL HOLDINGS LIMITED
FFHL INC.
and
TIG HOLDINGS, INC.
Dated as of December 3, 1998
===========================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
THE MERGER
1.01. The Merger ...................................................... 1
1.02. Effective Time; Closing ......................................... 1
1.03. Effect of the Merger ............................................ 2
1.04. Certificate of Incorporation; By-Laws ........................... 2
1.05. Directors and Officers .......................................... 2
ARTICLE II
EXCHANGE AND CONVERSION OF SECURITIES
2.01. Conversion of Securities ........................................ 2
2.02. Payment for Company Common Stock ................................ 3
2.03. Stock Transfer Books ............................................ 5
2.04. Dissenting Shares ............................................... 5
2.05. Stock Options; Restricted Stock ................................. 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Qualification; Subsidiaries .................... 7
3.02. Certificate of Incorporation and By-Laws ........................ 8
3.03. Capitalization .................................................. 8
3.04. Authority Relative to this Agreement ............................ 9
3.05. No Conflict; Required Filings and Consents ...................... 9
3.06. Permits; Regulation ............................................. 10
3.07. SEC Filings; Financial Statements ............................... 10
3.08. Absence of Certain Changes or Events ............................ 11
3.09. Absence of Litigation ........................................... 12
3.10. Employee and Labor Matters ...................................... 12
3.11. Intellectual Property ........................................... 14
3.12. Taxes ........................................................... 14
3.13. Material Contracts .............................................. 14
3.14. Recommendation of Board of Directors; Vote Required ............. 15
3.15. Opinion of Financial Advisors ................................... 15
3.16. Brokers ......................................................... 15
<PAGE>
ii
Section Page
3.17 Proxy Statement .................................................. 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FAIRFAX
AND MERGER SUB
4.01. Organization and Qualification .................................. 15
4.02. Authority Relative to this Agreement ............................ 16
4.03. No Conflict; Required Filings and Consents ...................... 16
4.04. Brokers ......................................................... 17
4.05. Proxy Statement ................................................. 17
4.06. Interim Operations of Merger Sub ................................ 17
4.07. Financing ....................................................... 17
4.08. Insurance Regulatory Approvals .................................. 17
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
5.01. Conduct of Business by the Company Pending the Merger ........... 18
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. Stockholders' Meeting ........................................... 20
6.02. Proxy Statement ................................................. 20
6.03. Appropriate Action; Consents; Filings ........................... 21
6.04. Access to Information; Confidentiality .......................... 23
6.05. No Solicitation ................................................. 23
6.06. Directors' and Officers' Indemnification and Insurance .......... 25
6.07. Notification of Certain Matters ................................. 26
6.08. Public Announcements ............................................ 26
6.09. Employee Matters ................................................ 26
<PAGE>
iii
Section Page
ARTICLE VII
CONDITIONS TO THE MERGER
7.01. Conditions to the Obligations of Each Party ...................... 27
7.02. Conditions to the Obligations of Fairfax and Merger Sub .......... 28
7.03. Conditions to the Obligations of the Company ..................... 28
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01. Termination ..................................................... 29
8.02. Effect of Termination ........................................... 30
8.03. Fees and Expenses ............................................... 30
8.04. Amendment ....................................................... 31
8.05. Waiver .......................................................... 31
ARTICLE IX
GENERAL PROVISIONS
9.01. Non-Survival of Representations, Warranties and Agreements ...... 31
9.02. Notices ......................................................... 31
9.03. Certain Definitions ............................................. 33
9.04. Severability .................................................... 33
9.05. Entire Agreement; Assignment .................................... 33
9.06. Parties in Interest ............................................. 34
9.07. Governing Law ................................................... 34
9.08. Headings ........................................................ 34
9.09. Obligations of Fairfax .......................................... 34
9.10. Counterparts .................................................... 34
9.11. Further Assurances .............................................. 34
9.12. Enforcement ..................................................... 34
<PAGE>
Index of Defined Terms
Defined Term Location of Definition
acquisition proposal Section 6.05(a)
affiliate Section 9.03(a)
Agreement Recitals
Blue Sky Laws Section 3.05(b)
business day Section 9.03(b)
capital securities Section 3.01
Certificate of Merger Section 1.02
Certificates Section 2.01(a)
Code Section 2.02(f)
Company Recitals
Company Class A Stock Section 3.03
Company Common Stock Section 2.01(a)
Company Disclosure Schedule Article III
Company Financial Advisor Section 3.15
Company Indemnified Parties Section 6.06 (a)
Company Material Adverse Effect Section 3.01
Company Option Section 2.05(a)
Company Permits Section 3.06
Company Preferred Stock Section 2.01(b)
Company Representatives Section 6.05(a)
Company SEC Reports Section 3.07(a)
Company Stock Option Plans Section 2.05(a)
Company Stockholder Approval Section 3.14
Confidentiality Agreement Section 6.04(c)
control Section 9.03(c)
D&O Insurance Section 6.06(a)
Delaware Law Recitals
Dissenting Shares Section 2.04(a)
Effective Time Section 1.02
ERISA Section 3.10(a)
ESOP Section 6.09(c)
Exchange Act Section 3.05(b)
Exchange Agent Section 2.02(a)
Exchange Fund Section 2.02(a)
Expenses Section 8.03(c)
Fairfax Recitals
Fairfax Material Adverse Effect Section 4.01
Governmental Authority Section 3.05(b)
HSR Act Section 3.05(b)
<PAGE>
v
independent counsel Section 6.01
IRS Section 3.10
Laws Section 3.05(a)
Maximum Premium Section 6.06(a)
Material Contracts Section 3.13
Merger Recitals
Merger Consideration Section 2.01(a)
Merger Sub Recitals
Notice of Superior Proposal Section 6.05(b)
Payment Time Section 2.05(d)
person Section 9.03(d)
Per Share Amount Section 2.05(a)
Plans Section 3.10(a)
Pre-Transaction Service Section 6.09(b)
Proxy Statement Section 6.02(a)
Recommendation Section 3.14
Representatives Section 6.04(a)
Restricted Share Section 2.05(b)
Restricted Share Unit Section 2.05(c)
SEC Section 3.01
Securities Act Section 3.05(b)
Shares Section 2.01(a)
Significant Subsidiary Section 3.01
Stockholders' Meeting Section 6.01
subsidiary/subsidiaries Section 9.03(e)
Subsidiary/Subsidiaries Section 3.01
Successor Program Section 6.09(c)
Superior Proposal Section 6.05(b)
Surviving Corporation Section 1.01
Surviving Corporation Preferred Stock Section 2.01(b)
Tax/Taxes Section 3.12(a)
Terminating Company Breach Section 8.01(g)
Terminating Fairfax Breach Section 8.01(f)
Termination Fee Section 8.03(b)
1993 Plan Section 2.05(a)
1996 Directors Plan Section 2.05(a)
1996 Plan Section 2.05(a)
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of December 3, 1998
(this "Agreement") among Fairfax Financial Holdings Limited, a Canadian
corporation ("Fairfax"), FFHL Inc., a Delaware corporation and a wholly
owned subsidiary of Fairfax ("Merger Sub"), and TIG Holdings, Inc., a
Delaware corporation (the "Company").
WHEREAS, upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the
State of Delaware ("Delaware Law"), Fairfax and the Company propose to
enter into a business combination transaction pursuant to which Merger Sub
will merge with and into the Company (the "Merger");
WHEREAS, the Board of Directors of the Company has (i)
determined that the Merger is fair to, and in the best interests of, the
Company and its stockholders, (ii) approved this Agreement and the other
transactions contemplated hereby and declared their advisability and (iii)
recommended that the stockholders of the Company adopt this Agreement; and
WHEREAS, Fairfax, as the sole stockholder of Merger Sub, has
approved and adopted this Agreement and the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained and intending to be
legally bound hereby, Fairfax, Merger Sub and the Company hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Delaware
Law, at the Effective Time (as defined below in Section 1.02), Merger Sub
shall be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and the Company
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation").
SECTION 1.02. Effective Time; Closing. As promptly as
practicable, and in no event later than the fifth business day following
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII (or such other date as may be agreed in writing by each of the
parties hereto) the parties hereto shall cause the Merger to be consummated
by filing this Agreement or a certificate of merger or other appropriate
documents (in any case, the "Certificate of Merger") with the Secretary of
State of the State of Delaware in such form as is required by, and executed
in accordance with, the relevant provisions of Delaware Law and shall make
all other filings or recordings required under Delaware Law. The term
"Effective Time" means the date and time of the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware (or such
later time as may be agreed in writing by each of the parties hereto and
specified in the Certificate of Merger). Immediately prior to the filing of
the Certificate of Merger, a closing will be held at the offices of
<PAGE>
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022 (or
such other place as the parties may agree).
SECTION 1.03. Effect of the Merger. At the Effective Time,
the effect of the Merger shall be as provided in the applicable provisions
of Delaware Law, including Section 259 thereof. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time,
all the property, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of each of
the Company and Merger Sub shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving
Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws.
(a) At the Effective Time the Restated Certificate of
Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such
Certificate of Incorporation.
(b) Unless otherwise determined by Fairfax prior to the
Effective Time, at the Effective Time the By-Laws of the Company, as in
effect immediately prior to the Effective Time, shall, subject to Section
6.06(a) of this Agreement, be the By-Laws of the Surviving Corporation
until thereafter amended as provided by law, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.05. Directors and Officers. The directors of
Merger Sub immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and By-Laws of the Surviving
Corporation, and the officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation,
in each case until their respective successors are duly elected or
appointed and qualified.
ARTICLE II
EXCHANGE AND CONVERSION OF SECURITIES
SECTION 2.01. Conversion of Securities. At the Effective
Time, by virtue of the Merger and without any action on the part of Merger
Sub, the Company or the holders of any of the following securities:
(a) each share of common stock, $0.01 par value, of the
Company (the "Company Common Stock"; all issued and outstanding shares
of Company Common Stock being
<PAGE>
hereinafter collectively referred to as the "Shares") issued and
outstanding immediately prior to the Effective Time (other than any
Shares to be canceled pursuant to Section 2.01(c) and any Dissenting
Shares (as hereinafter defined)) shall be converted into the right to
receive $16.50 per Share in cash, without interest thereon (the
"Merger Consideration"), payable to the holder thereof upon surrender
of the certificate or certificates which immediately prior to the
Effective Time represented outstanding Shares (the "Certificates") in
accordance with Section 2.02. As of the Effective Time, each such
share of Company Common Stock shall cease to be outstanding and shall
automatically be canceled and retired and shall cease to exist, and
each holder of a Certificate shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration
to be paid in consideration therefor upon surrender of such
Certificate in accordance with Section 2.02, without interest thereon;
(b) each issued and outstanding share of $7.75 cumulative
preferred stock, $0.01 par value, of the Company (the "Company
Preferred Stock") (other than any Dissenting Shares) shall be
converted into the right to receive one share of preferred stock,
$0.01 par value, of the Surviving Corporation (the "Surviving
Corporation Preferred Stock") which shall have terms that are
identical to the Company Preferred Stock outstanding immediately prior
to the Effective Time;
(c) each Share held in the treasury of the Company and each
Share owned by Fairfax or any direct or indirect wholly owned
subsidiary of Fairfax or of the Company immediately prior to the
Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto;
and
(d) each share of capital stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted
into one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
SECTION 2.02. Payment for Company Common Stock.
(a) Exchange Agent. At or prior to the Effective Time,
Merger Sub shall deposit, or shall cause to be deposited, with First
Chicago Trust Company of New York or such other bank or trust company that
may be designated by Merger Sub and is reasonably satisfactory to the
Company (the "Exchange Agent"), for the benefit of the holders of Shares,
for exchange in accordance with this Article II through the Exchange Agent,
cash necessary to make the payments of the Merger Consideration
contemplated by Section 2.01(a) hereof (the "Exchange Fund"). The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the funds
contemplated to be issued pursuant to Section 2.01(a) out of the Exchange
Fund. Except as contemplated by Section 2.02(d) hereof, the Exchange Fund
shall not be used for any other purpose.
(b) Payment Procedures. As promptly as practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of a Certificate whose
<PAGE>
Shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.01(a) (i) a letter of transmittal (which shall be in
customary form and shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a Certificate for
cancellation, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and such other
documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange
therefor the Merger Consideration which such holder has the right to
receive in respect of the Shares formerly represented by such Certificate
and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of Shares which is not registered in the
transfer records of the Company, the Merger Consideration may be paid to a
transferee if the Certificate representing such Shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at all times after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration without interest thereon.
(c) Further Ownership Rights in Company Common Stock. The
Merger Consideration paid upon the surrender for exchange of Certificates
in accordance with the terms of this Article II shall be deemed to have
been paid in full satisfaction of all rights pertaining to the Shares
theretofore represented by such Certificates, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time that may have
been declared or made by the Company on such Shares in accordance with the
terms of this Agreement or prior to the date of this Agreement and which
remain unpaid at the Effective Time. If, after the Effective Time,
Certificates are presented to Fairfax or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in this Article II.
(d) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of Shares for one
year after the Effective Time shall be delivered to Fairfax, upon demand,
and any holders of Shares who have not theretofore complied with this
Article II shall thereafter look only to Fairfax for payment of their claim
for Merger Consideration without interest thereon. Any portion of the
Exchange Fund remaining unclaimed by holders of Shares as of a date which
is immediately prior to such time as such amounts would otherwise escheat
to or become property of any government entity shall, to the extent
permitted by applicable law, become the property of Fairfax free and clear
of any claims or interest of any person previously entitled thereto.
(e) No Liability. Neither Fairfax, Merger Sub, the Company
nor the Surviving Corporation shall be liable to any person in respect of
cash delivered to a public official pursuant to any abandoned property,
escheat or similar Law.
<PAGE>
(f) Withholding Rights. Each of the Surviving Corporation
and Fairfax shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Shares such
amounts as it is required to deduct and withhold with respect to the
"backup withholding" requirements under the United States Internal Revenue
Code of 1986, as amended and the rules and regulations thereunder (the
"Code"), or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Fairfax, as
the case may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the Shares in respect
of which such deduction and withholding was made by the Surviving
Corporation or Fairfax, as the case may be.
(g) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and,
if required by the Surviving Corporation, the posting by such person of a
bond, in such reasonable amount as the Surviving Corporation may direct, 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 Merger Consideration, without interest
thereon, to which the holders thereof are entitled.
SECTION 2.03. Stock Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and there shall be
no further registration of transfers of Shares thereafter on the records of
the Company. From and after the Effective Time, the holders of Certificates
representing Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares, except as
otherwise provided in this Agreement or by Law. On or after the Effective
Time, any Certificates presented to the Exchange Agent or Fairfax for any
reason shall be converted into the Merger Consideration, without interest
thereon.
SECTION 2.04. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, (i) Shares that are outstanding immediately prior to the
Effective Time and which are held by persons who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have
demanded properly in writing appraisal for such Shares and (ii) shares of
Company Preferred Stock that are outstanding immediately prior to the
Effective Time and which are held by persons who shall have demanded
properly in writing appraisal for such Company Preferred Stock, in each
such case in accordance with Section 262 of Delaware Law (collectively, the
"Dissenting Shares"), shall not, in the case of Shares, be converted into
or represent the right to receive the Merger Consideration or, in the case
of Company Preferred Stock, be converted into or represent the right to
receive Surviving Corporation Preferred Stock as provided in Section
2.01(b). Such persons shall be entitled to receive payment of the appraised
value of such Shares or shares of Company Preferred Stock, as applicable,
held by them in accordance with the provisions of such Section 262, except
that all Dissenting Shares held by persons who shall have failed to perfect
or who effectively shall have withdrawn or lost their right to appraisal of
such Shares or shares of Company Preferred Stock, as applicable, under such
<PAGE>
Section 262, in the case of the Shares shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the Merger Consideration, without any
interest thereon, upon surrender, in the manner provided in Section 2.02,
of the certificate or certificates that formerly evidenced such Shares,
and, in the case of Company Preferred Stock, shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive Surviving Corporation Preferred Stock
as provided in Section 2.01(b).
(b) The Company shall give Fairfax (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands,
and any other instruments served pursuant to Delaware Law and received by
the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. The
Company shall not, except with the prior written consent of Fairfax, make
any payment with respect to any demands for appraisal or offer to settle or
settle any such demands.
SECTION 2.05. Stock Options; Restricted Stock.
(a) Each holder of a stock option (a "Company Option") to
purchase shares of Company Common Stock pursuant to any of the Company's
1993 Long Term Incentive Plan (the "1993 Plan"), the Company's 1996 Long
Term Incentive Plan (the "1996 Plan") or the Company's 1996 Non-Employee
Directors Compensation Program (the "1996 Directors Plan" and together with
the 1993 Plan and the 1996 Plan, the "Company Stock Option Plans"), which
Company Option is outstanding immediately prior to the Effective Time
(whether or not then presently exercisable), shall be entitled to receive,
and shall receive, in settlement and cancellation thereof, an amount in
cash equal to the product of (i) the excess, if any, of the average of the
highest and lowest market prices of a Share, as reported on the NYSE on the
last trading day immediately prior to the Effective Time (the "Per Share
Amount"), over the exercise price of each such Company Option, and (ii) the
number of shares of Company Common Stock covered by such Company Option.
(b) Each unvested share of restricted Company Common Stock
(a "Restricted Share") granted pursuant to the 1993 Plan or the 1996 Plan,
which Restricted Share is outstanding immediately prior to the Effective
Time, shall be canceled and the holder thereof shall be entitled to receive
in settlement an amount in cash equal to the Merger Consideration.
(c) Each holder of an unvested restricted share unit granted
pursuant to the 1996 Directors Plan (a "Restricted Share Unit") which
Restricted Share Unit is outstanding immediately prior to the Effective
Time, shall be entitled to receive, and shall receive, in settlement and
cancellation thereof, an amount in cash equal to the Merger Consideration.
(d) All payments in respect of Company Options, Restricted
Share Units and Restricted Shares shall be made as soon as practicable
following the Effective Time, but not later than ten days after the
Effective Time (the "Payment Time") and no person shall be entitled to
receive any
<PAGE>
of such payments until the Payment Time. The Company Stock Option Plans
shall terminate as of the Effective Time. Prior to the Effective Time, the
Company shall, to the extent necessary, cause each holder of an outstanding
Company Option, Restricted Share or Restricted Share Unit to consent to the
cancellation of such Company Option, Restricted Share or Restricted Share
Unit in consideration for the payment provided herein, and shall take such
other action as may be necessary to carry out the terms of this Section
2.05.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company SEC Reports (as defined
in Section 3.07(a)) or in a separate disclosure schedule referring to the
specific representations, warranties and covenants contained in this
Agreement, which has been delivered by the Company to Fairfax prior to the
execution of this Agreement (the "Company Disclosure Schedule"), the
Company hereby represents and warrants to Fairfax and Merger Sub that:
SECTION 3.01. Organization and Qualification; Subsidiaries.
Each of the Company and each subsidiary of the Company (each, a
"Subsidiary" and collectively, the "Subsidiaries") is a corporation duly
incorporated, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
incorporated, validly existing or in good standing or to have such power or
authority would not, individually or in the aggregate, have a Company
Material Adverse Effect (as defined below). Each of the Company and each
Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing (with respect to jurisdictions which
recognize such concept), in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures
to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Company Material Adverse Effect.
The term "Company Material Adverse Effect" means any change in or effect on
the Company and the Subsidiaries that is or is reasonably likely to be
materially adverse to the business, results of operations or financial
condition of the Company and the Subsidiaries taken as a whole, or to
prevent or materially delay the consummation of the Merger; provided that
for all purposes of this Agreement the occurrence of any of the following
shall be deemed not to have a Company Material Adverse Effect: any change,
effect, event or occurrence relating to or resulting from the execution of
this Agreement or the consummation of the transactions contemplated hereby
or the announcement thereof except as expressly provided for otherwise in
this Agreement, any diminution in the amount of insurance or reinsurance
business written (whether resulting from non-renewal by the other party or
otherwise), any termination or amendment of existing insurance or
reinsurance programs written by any Subsidiary, any adverse development in
claims reserves or in reserves for unrecoverable
<PAGE>
reinsurance, any depreciation in the value of any portfolio investments, or
any downgrade in the ratings assigned by any rating agency to the Company
or any Subsidiary (unless such downgrade would result in any breach of or
constitute a default, or an event which with notice or lapse of time or
both would become a default, or give to others any right of termination,
amendment, acceleration or cancellation of, any instrument or security
relating to indebtedness of the Company or any Subsidiary for borrowed
money of the Company or any Subsidiary (including (i) the Company Preferred
Stock and (ii) the mandatorily redeemable 8.597% capital securities, the
Company's guarantee thereo and the underlying junior subordinated
debentures of the Company (collectively, the "capital securities"). Exhibit
21 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 includes all Subsidiaries which as of the date of this
Agreement are Significant Subsidiaries. As used in this Agreement, a
"Significant Subsidiary" means any Subsidiary that would constitute a
"significant subsidiary" of the Company within the meaning of Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC") or any
Subsidiary that is licensed as an insurance company.
SECTION 3.02. Certificate of Incorporation and By-Laws. The
Company has heretofore made available to Fairfax complete and correct
copies of the Restated Certificate of Incorporation and the By-laws, each
as amended to date, of the Company, each of which is in full force and
effect. The Company is not in violation of its Restated Certificate of
Incorporation or By-laws.
SECTION 3.03. Capitalization. The authorized capital stock
of the Company consists of 180,000,000 shares of Company Common Stock,
856,591 shares, $0.01 par value, of Class A common stock ("Company Class A
Stock") and 15,000,000 shares, $0.01 par value, of Company Preferred Stock.
As of the close of business on December 2, 1998, 67,574,664 shares of
Company Common Stock were issued and outstanding, all of which were validly
issued, fully paid and nonassessable, of which 16,258,097 were owned by the
Company and the Subsidiaries, 11,011,373 shares of Company Common Stock
were reserved for future issuance pursuant to employee stock options
granted pursuant to the Company Stock Option Plans, 17,301 shares of
Company Common Stock were reserved for future issuance pursuant to the 1996
Directors Plan, no shares of Company Class A Stock were issued, outstanding
or reserved for future issuance and 250,000 shares of Company Preferred
Stock were issued and outstanding, all of which were validly issued, fully
paid and nonassessable. Except as set forth in this Section 3.03, there are
no options, warrants or other rights, agreements, arrangements or
commitments of any character to which the Company or any Significant
Subsidiary is a party relating to the issuance of capital stock of the
Company or any Significant Subsidiary or obligating the Company or any
Significant Subsidiary to issue or sell any shares of capital stock of, or
other equity interests in, the Company or any Significant Subsidiary. All
shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully
paid and nonassessable. There are no outstanding contractual obligations of
the Company or any Subsidiary to repurchase, redeem or otherwise acquire
any Shares or any capital stock of or any equity interests in any
Subsidiary. Each outstanding share of capital
<PAGE>
stock of each Significant Subsidiary is duly authorized, validly issued,
fully paid and nonassessable and each such share owned by the Company or
any Subsidiary is free and clear of all security interests, liens, claims,
pledges, options, rights of first refual, agreements, limitations on the
Company's or such other Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever (excluding any effects of the
provisions of applicable insurance laws).
SECTION 3.04. Authority Relative to this Agreement. The
Company has all necessary corporate power and authority to execute and
deliver this Agreement and, subject to the Company Stockholder Approval (as
defined in Section 3.14), to consummate the Merger. The execution and
delivery of this Agreement by the Company, and the consummation by the
Company of the Merger have been duly and validly authorized by all
necessary corporate action on the part of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the Merger (other than, with respect to the
Merger, the Company Stockholder Approval). This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Fairfax and Merger Sub,
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will
not, (i) conflict with or violate the certificate of incorporation or
by-laws or equivalent organizational documents of the Company or any
Subsidiary, (ii) subject to compliance with the actions contemplated by
Section 3.05(b), conflict with or violate any U.S. (federal, state or
local) or foreign law, rule, regulation, order, judgment or decree
(collectively, "Laws") applicable to the Company or any Subsidiary or by
which any property or asset of the Company or any Subsidiary is bound or
affected, except for such conflicts or violations which would not,
individually or in the aggregate, have a Company Material Adverse Effect,
or (iii) result in any breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give
to others any right of termination, amendment, acceleration or cancellation
of, the capital securities, the Company Preferred Stock, the Company's
8.125% notes due 2005, or any instrument or security relating to
indebtedness of the Company or any Subsidiary for borrowed money with a
principal amount in excess of $10 million.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, agency
or commission, domestic, foreign or supranational ("Governmental
Authority"), except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended and the rules and regulations
thereunder (the "Exchange Act"), including the filing of the Proxy
Statement (as defined in Section 6.02(a)) with the SEC, the Securities Act
of 1933, as amended and the rules and regulations thereunder (the
"Securities Act"), state securities or "blue sky" laws ("Blue Sky Laws")
<PAGE>
and state takeover laws, (ii) the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder (the "HSR Act") and requirements of
other applicable competition laws, (iii) filing and recordation of the
Certificate of Merger with the Delaware Secretary of State as required by
Delaware Law and appropriate documents with the relevant authorities of
other states or jurisdictions in which the Company is qualified to do
business, (iv) requisite approvals of insurance regulatory authorities, (v)
such other filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification,
disclosure or required approval necessitated by the Merger or the other
transactions contemplated by this Agreement, and (vi) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications would not, individually or in the aggregate, have
a Company Material Adverse Effect.
SECTION 3.06. Permits; Regulation. Each of the Company and
the Subsidiaries is in possession of all governmental authorizations,
licenses, permits, consents, certificates, approvals and orders necessary
for the Company or any of its Subsidiaries, to own, lease and operate its
properties or to carry on its business as it is now being conducted (the
"Company Permits"), the Company Permits have no restrictions that are not
generally applicable in the relevant jurisdiction and no suspension or
cancellation of any of the Company Permits is pending or, to the Company's
knowledge, threatened, except where the failure to have, any restrictions
with respect to or any suspension or cancellation of, any of the Company
Permits would not have a Company Material Adverse Effect. Neither the
Company nor any Subsidiary is in conflict with, or in default or violation
of, any Laws applicable to the Company or any Subsidiary or by which any
property or asset of the Company or any Subsidiary is bound or affected or
any of the Company Permits, except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a Company
Material Adverse Effect. This Section 3.06 does not relate to matters with
respect to taxes, which are the subject of Section 3.12, or employee and
labor matters, which are the subject of Section 3.10.
SECTION 3.07. SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 1998 (the "Company
SEC Reports"). As of their respective dates, the Company SEC Reports
complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, applicable to such Company SEC
Reports, and none of the Company SEC Reports when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and did not when filed omit any material documents required to
be filed as exhibits thereto. Except to the extent that information
contained in any Company SEC Report has been revised or superseded by a
later filed Company SEC Report filed prior to the date of this Agreement,
none of the Company SEC Reports contains any untrue statement of a material
fact or omits 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.
<PAGE>
(b) No Subsidiary is required to file any form, report or
other document with the SEC pursuant to the reporting requirements of
Section 13(a) or 15(d) of the Exchange Act (except any such requirements of
any Subsidiary resulting from the issuance of the capital securities).
(c) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the Company SEC
Reports was prepared in accordance with United States generally accepted
accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis throughout
the periods indicated (except as may be indicated in the notes thereto) and
each fairly presented in all material respects the consolidated financial
position, results of operations and cash flows of the Company and its
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein in accordance with United States
generally accepted accounting principles (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments).
(d) Except (i) as reflected in the financial statements
described in paragraph (c) above or in the notes thereto, (ii) as
contemplated hereunder, (iii) for liabilities incurred in connection with
this Agreement or the transactions contemplated hereby and (iv) for
liabilities and obligations incurred since September 30, 1998 in the
ordinary course of business consistent with past practice, neither the
Company nor any Subsidiary has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise, including, without
limitation, with respect to prior purchases or sales of shares, assets or
businesses or the funding of any pension, benefit or similar plan) that
would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with United States generally accepted
accounting principles, except for liabilities and obligations which would
not, individually or in the aggregate, have a Company Material Adverse
Effect.
SECTION 3.08. Absence of Certain Changes or Events. Since
September 30, 1998, except as contemplated by this Agreement, the Company
and the Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since September
30, 1998, there has not been (a) any event, change, effect or development
that, individually or in the aggregate, has had a Company Material Adverse
Effect; (b) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any
capital stock of the Company or any repurchase for value by the Company of
any capital stock of the Company, other than the payment of quarterly
dividends of $0.15 per Share and the payment of quarterly dividends on the
Company Preferred Stock in accordance with the terms thereof; (c) any
split, combination or reclassification of any capital stock of the Company
or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of
capital stock of the Company; (d) (i) any granting by the Company or any
Subsidiary to any director or executive officer of the Company or any
Subsidiary of any increase in compensation, except in the ordinary course
of business consistent with past practice or as was required under
employment agreements in effect as of September 30, 1998, (ii) any granting
by the Company or any Subsidiary to any such director or executive officer
of any increase in severance or termination pay, except as was required
under any employment, severance or termination agreements
<PAGE>
in effect as of September 30, 1998, or (iii) any entry by the Company or
any Subsidiary into any employment, severance or termination agreement with
any such director or executive officer; or (e) any change in accounting
methods, principles or practices by the Company materially affecting the
consolidated assets, liabilities or results of operations of the Company,
except insofar as may have been required by a change in statutory or United
States generally accepted accounting principles.
SECTION 3.09. Absence of Litigation. Except as may arise in
the ordinary course of the insurance and reinsurance business of the
Company and its Subsidiaries in connection with insurance or reinsurance
policies or agreements issued or entered into by the Company or its
Subsidiaries, there is no claim, action, proceeding or investigation
pending or, to the Company's knowledge, threatened against the Company or
any Subsidiary before any court, arbitrator or Governmental Authority,
which (a) individually or in the aggregate, is reasonably likely to have a
Company Material Adverse Effect or (b) seeks to delay or prevent the
consummation of the Merger. Neither the Company nor any Subsidiary nor any
property or asset of the Company or any Subsidiary is subject to any order,
writ, judgment, injunction, decree, determination or award having,
individually or in the aggregate, a Company Material Adverse Effect.
SECTION 3.10. Employee and Labor Matters.
(a) Section 3.10(a) of the Company Disclosure Schedule sets
forth a true and complete list of each employee benefit plan, program,
arrangement and contract (including without limitation, any "employee
benefit plan", as defined in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, and the regulations promulgated
thereunder ("ERISA")), any severance, change in control, or employment
agreements or arrangements and any equity-based compensation, bonus, or
other incentive plans or arrangements maintained or contributed to by the
Company or any Subsidiary, or with respect to which the Company or any
Subsidiary is a party or could incur liability under section 4069, 4212(c)
or 4204 of ERISA (the "Plans"). With respect to each Plan, the Company has
heretofore made available to Fairfax a true and complete copy of (i) such
Plan, (ii) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), (iii) the most recent actuarial
report or valuation (if any) relating to any Plan and (iv) the most recent
determination letter, if any, issued by the IRS with respect to any Plan
qualified under Section 401(a) of the Code.
(b) None of the Plans is subject to Title IV of ERISA, and
neither the Company nor any Subsidiary has incurred, or reasonably expects
to incur, any direct or indirect liability under or by operation of Title
IV of ERISA.
(c) With respect to the Plans, no event has occurred, and to
the knowledge of the Company there exists no condition or set of
circumstances, in connection with which the Company or any Subsidiary could
be subject to any liability under the terms of such Plans, ERISA, the Code
or any other applicable Laws which, individually or in the aggregate, would
have a Company Material Adverse Effect. Each of the Plans has been operated
and administered in all respects in accordance
<PAGE>
with applicable Laws, including, but not limited to, ERISA and the Code,
except where a violation of any such Law would not have, individually or in
the aggregate, a Company Material Adverse Effect. Each of the Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code
has received a favorable determination letter as to such qualification from
the IRS, and no event has occurred, either by reason of any action or
failure to act, which would cause the loss of any qualification, except
where such loss of qualification would not have, individually or in the
aggregate, a Company Material Adverse Effect. No Plan provides benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees of the Company or any
Subsidiary beyond their retirement or other termination of service, other
than (i) coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan" (as such term is
defined in Section 3(2) of ERISA), (iii) deferred compensation benefits
accrued as liabilities on the books of the Company or any Subsidiary or
(iv) benefits the full cost of which is borne by the current or former
employee (or his beneficiary).
(d) Neither the Company nor any Subsidiary is a party to any
collective bargaining or other labor union contract applicable to persons
employed by the Company or any Subsidiary and no collective bargaining
agreement or other labor union contract is being negotiated by the Company
or any Subsidiary. There is no labor dispute, strike, slowdown or work
stoppage against the Company or any Subsidiary pending or, to the knowledge
of the Company, threatened which may interfere with the respective business
activities of the Company or any Subsidiary, except where such dispute,
strike, slowdown or work stoppage would not have, individually or in the
aggregate, a Company Material Adverse Effect. To the knowledge of the
Company, none of the Company, any Subsidiary or their respective
representatives or employees has committed any unfair labor practices in
connection with the operation of the respective businesses of the Company
or any Subsidiary, and there is no charge or complaint against the Company
or any Subsidiary by the National Labor Relations Board or any comparable
state or foreign agency pending or, to the knowledge of the Company,
threatened, except where such unfair labor practice, charge or complaint
would not have, individually or in the aggregate, a Company Material
Adverse Effect.
(e) The Company has identified in Section 3.10(e) of the
Company Disclosure Schedule and has heretofore made available to Fairfax
true and complete copies of (i) all severance and employment agreements
with directors, executive officers, key employees or material consultants
of the Company; (ii) all severance programs and policies of each of the
Company and each Subsidiary with or relating to its employees; and (iii)
all plans, programs, agreements and other arrangements of each of the
Company and each Subsidiary with or relating to its employees which contain
change in control provisions. Except as set forth in Section 3.10(e) of the
Company Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any material payment (including, without limitation,
severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director or any employee of the Company or any
Subsidiary from the Company or any Subsidiary under any Plan or otherwise,
(ii) materially increase any benefits otherwise payable under any Plan or
(iii) result in any acceleration of the time of payment or vesting of any
material benefits.
<PAGE>
(f) None of the Plans would result, separately or in the
aggregate (including, without limitation, as a result of this Agreement or
the transactions contemplated hereby), in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
SECTION 3.11. Intellectual Property. The Company and each
Subsidiary have the right to the use of their names, except as set forth in
the Settlement Agreement dated September 5, 1995 between American
International Group, Inc. and the Company.
SECTION 3.12. Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" means
all income, gross receipts, gains, sales, use, employment, franchise,
profits, excise, property, value added and other taxes, stamp taxes and
duties, assessments or similar charges of any kind imposed by any taxing
authority, including estimated payments in respect thereof (together with
any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto).
(b) (i) All returns and reports in respect of Taxes required
to be filed by or with respect to the Company and each Subsidiary have been
timely filed (taking into account any extensions of time to file) and are
true, correct and complete in all material respects; (ii) the Company and
each Subsidiary have paid all Taxes due, and (iii) there are no audits,
examinations, investigations or other proceedings in respect of a material
amount of Taxes pending or threatened in writing against the Company or any
Subsidiary, and there are no deficiencies or claims for any material amount
of Tax that have been asserted or proposed in writing by any Tax authority
against the Company or any Subsidiary.
SECTION 3.13. Material Contracts. All contracts listed as
exhibits to the Company's 1997 Annual Report on Form 10-K other than
contracts filed pursuant to Item 6.01(b)(10)(iii) of Regulation S-K under
the Securities Act (the "Material Contracts") are valid and in full force
and effect except to the extent they have previously expired in accordance
with their terms and except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect and
neither the Company nor any Subsidiary has violated any provision of, or
committed or failed to perform any act which, with or without notice, lapse
of time, or both, could reasonably be expected to constitute a default
under the provisions of, any such Material Contract, except for defaults
which, individually or in the aggregate, could not reasonably be expected
to have a Company Material Adverse Effect.
SECTION 3.14. Recommendation of Board of Directors; Vote
Required. The Board of Directors of the Company has approved (there being
no votes against such approval) this Agreement, the Merger and the other
transactions contemplated hereby and declared their advisability and,
subject to Section 6.05 hereof, has determined to recommend to its
stockholders (the "Recommendation") that its stockholders vote in favor of
the adoption of this Agreement. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock
<PAGE>
(the "Company Stockholder Approval") in favor of the adoption of this
Agreement is the only vote of the holders of any class or series of capital
stock of the Company necessary to approve and adopt this Agreement, the
Merger and the other transactions contemplated by this Agreement.
SECTION 3.15. Opinion of Financial Advisors. The Company has
received the oral opinion of Goldman, Sachs & Co. (the "Company Financial
Advisor") to be confirmed in writing to the effect that, as of the date of
such opinion, the Merger Consideration is fair to the Company's
stockholders from a financial point of view, and the Company will promptly
deliver a copy of the written opinion to Fairfax after its receipt.
SECTION 3.16. Brokers. No broker, finder or investment
banker (other than the Company Financial Advisor) is entitled to any
brokerage, finder's or other fee or commission in connection with the
Merger based upon arrangements made by or on behalf of the Company.
SECTION 3.17 Proxy Statement. On the date the Proxy
Statement (as defined below) is first mailed to the Company's stockholders
and at the time of the Stockholders' Meeting (as defined below), the Proxy
Statement will comply as to form in all material respects with the
requirements of the Exchange Act and will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in or omissions from the Proxy Statement made in
reliance upon and in conformity with information furnished to the Company
in writing by or on behalf of Fairfax or Merger Sub specifically for use in
the Proxy Statement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FAIRFAX
AND MERGER SUB
Fairfax and Merger Sub hereby, jointly and severally,
represent and warrant to the Company that:
SECTION 4.01. Organization and Qualification. Each of
Fairfax and Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the Canada Business Corporations Act, in the
case of Fairfax, or Delaware Law, in the case of Merger Sub, and has the
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted,
except where the failure to be so incorporated, validly existing or in good
standing or to have such power or authority would not, individually or in
the aggregate, have a Fairfax Material Adverse Effect (as defined below).
The term "Fairfax Material Adverse Effect" means any change in or effect on
Fairfax and its subsidiaries that is or is reasonably likely to
<PAGE>
be materially adverse to the business, result of operations or financial
condition of Fairfax and its subsidiaries, taken as a whole, or to prevent
or materially delay consummation of the Merger.
SECTION 4.02. Authority Relative to this Agreement. Each of
Fairfax and Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the Merger. No vote of Fairfax shareholders is required
to approve this Agreement or the transactions contemplated hereby. The
execution and delivery of this Agreement by Fairfax and Merger Sub, the
performance by Fairfax and Merger Sub of their obligations hereunder and
the consummation by Fairfax and Merger Sub of the Merger have been duly and
validly authorized by all necessary corporate action on the part of Fairfax
and Merger Sub and no other corporate proceedings on the part of Fairfax or
Merger Sub are necessary to authorize this Agreement, to perform Fairfax's
or Merger Sub's obligations hereunder or to consummate the Merger. This
Agreement has been duly and validly executed and delivered by Fairfax and
Merger Sub and, assuming the due authorization, execution and delivery by
the Company, constitutes a legal, valid and binding obligation of each of
Fairfax and Merger Sub enforceable against each of Fairfax and Merger Sub
in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Fairfax
and Merger Sub do not, and the performance of this Agreement by Fairfax and
Merger Sub will not, (i) conflict with or violate the Articles of
Incorporation, Certificate of Incorporation or By-laws of Fairfax or Merger
Sub, (ii) subject to compliance with the actions contemplated by Section
4.03(b), conflict with or violate any Law applicable to Fairfax or Merger
Sub or by which any property or asset of either of them is bound or
affected, except for such conflicts or violations which would not,
individually or in the aggregate, have a Fairfax Material Adverse Effect,
or (iii) result in any breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, any instrument or security relating to indebtedness of
Fairfax or Merger Sub for borrowed money with a principal amount in excess
of $10 million.
(b) The execution and delivery of this Agreement by Fairfax
and Merger Sub do not, and the performance of this Agreement by Fairfax and
Merger Sub will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, except
for (i) applicable requirements, if any, of the Exchange Act, the
Securities Act, Blue Sky Laws and state takeover laws, (ii) the pre-merger
notification requirements of the HSR Act and the requirements of other
applicable competition laws, (iii) filing and recordation of the
Certificate of Merger with the Delaware Secretary of State as required by
Delaware Law and appropriate documents with the relevant authorities of
other states or jurisdictions in which Fairfax or Merger Sub is qualified
to carry on business, (iv) requisite approvals of insurance regulatory
authorities having jurisdiction over the Subsidiaries and (v) such other
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or
required
<PAGE>
approval necessitated by the Merger or the other transactions contemplated
by this Agreement and (vi) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not individually or in the aggregate, have a Fairfax
Material Adverse Effect.
SECTION 4.04. Brokers. No broker, finder or investment
banker, other than Merrill Lynch & Co., is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger based
upon arrangements made by or on behalf of Fairfax or Merger Sub.
SECTION 4.05. Proxy Statement. The information supplied in
writing by each of Fairfax and Merger Sub specifically for inclusion in the
Proxy Statement will not, on the date the Proxy Statement is first mailed
to stockholders of the Company and at the time of the Stockholders' Meeting
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
SECTION 4.06. Interim Operations of Merger Sub. Merger Sub
was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
SECTION 4.07. Financing. At the Effective Time, Fairfax will
have sufficient funds available to pay, or to cause Merger Sub to pay, the
aggregate Merger Consideration in connection with the Merger and to pay the
fees and expenses of Fairfax, Merger Sub and the Surviving Corporation
related to the transactions contemplated by this Agreement.
SECTION 4.08. Insurance Regulatory Approvals. Based upon
prior experience and upon actual knowledge, Fairfax has no reason to expect
that the requisite approvals of insurance regulatory authorities referred
to in Section 7.01(b) cannot be obtained by June 30, 1999.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the
Merger.
(a) The Company covenants and agrees that, between the date
of this Agreement and the Effective Time, it will keep Fairfax informed
generally about the proposed conduct of its business (including generally
renewals of its reinsurance business) and except as set forth in this
Section 5.01 or Section 5.01 of the Company Disclosure Schedule, or unless
Fairfax shall otherwise agree in writing, the businesses of the Company and
the Subsidiaries shall be conducted only in the
<PAGE>
ordinary course of business and in a manner consistent with past practice;
and the Company shall use all reasonable efforts to preserve substantially
intact its business organization, to keep available the services of the
current officers, key employees and consultants of the Company and the
Subsidiaries and to preserve the current relationships of the Company and
the Subsidiaries with customers, suppliers and other persons with which the
Company or any Subsidiary has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement,
or as set forth in Section 5.01 of the Company Disclosure Schedule, neither
the Company nor any of the Subsidiaries shall, between the date of this
Agreement and the Effective Time, directly or indirectly do, or agree to
do, any of the following without the prior written consent of Fairfax (such
consent not to be unreasonably withheld or delayed):
(i) amend or otherwise change its certificate of
incorporation or by-laws or equivalent organizational documents;
(ii) issue, sell, pledge, dispose of, grant or encumber to
or in favor of any person other than the Company or a Subsidiary,
or authorize the issuance, sale, pledge, disposition, grant or
encumbrance to or in favor of any person other than the Company
or a Subsidiary of, (X) any shares of capital stock of any class
of the Company or any Subsidiary, or any options, warrants,
convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of the
Company or any Subsidiary (except for the issuance of a maximum
of 11,011,373 Shares issuable pursuant to Company Options
outstanding on the date hereof and 17,301 Shares reserved for
future issuance pursuant to the 1996 Directors Plan) or (Y) any
assets other than immaterial assets of the Company or any
Subsidiary, except for sales of portfolio investments and sales
in the ordinary course of business and in a manner consistent
with past practice;
(iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock to or in favor of any person
other than the Company or a Subsidiary other than the payment of
quarterly dividends of $0.15 per Share and the payment of
quarterly dividends on the Company Preferred Stock in accordance
with the terms thereof;
(iv) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of the
Company's capital stock;
(v) (A) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership, limited liability company, other business
organization or any division thereof, or any material amount of
assets (except portfolio investments); (B) incur any indebtedness
for borrowed money (except by way of temporary bank borrowings in
the ordinary course of business) or issue any debt securities or
(except in the ordinary course of business) assume, guarantee or
endorse, or otherwise as
<PAGE>
an accommodation become responsible for, the obligations of any
person, or, except for portfolio investments, make any loans or
advances (except in the ordinary course consistent with past
practice); or (C) make any capital expenditures which are, in the
aggregate, in excess of $1,000,000 for the Company and the
Subsidiaries taken as a whole;
(vi) except as required under contractual agreements
existing as of the date hereof, increase the compensation payable
or to become payable to its directors, officers or employees
generally or to any individual or group of employees, or grant
any bonus, except in the ordinary course of business and
consistent with past practice, grant any equity-based
compensation, severance or termination pay (other than pursuant
to the normal severance policy of the Company or any Subsidiary
as in effect as of the date hereof) to, or enter into any
employment or severance agreement with any director, officer or
other employee of the Company or any Subsidiary;
(vii) establish, adopt, or enter into any collective
bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee or amend or modify any Plan;
(viii) take any action, other than reasonable and usual
actions in the ordinary course of business and consistent with
past practice or required actions pursuant to a change in
applicable statutory or generally accepted accounting principles,
with respect to accounting policies; or
(ix) pay, discharge or satisfy any material claim, liability
or obligation (absolute, accrued, asserted or unasserted,
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
in the Company's balance sheet as at September 30, 1998 included
in the Company SEC Reports, or subsequently incurred in the
ordinary course of business and consistent with past practice.
(b) From the date hereof to the Effective Time, the Company
shall not issue any equity based compensation (including, without
limitation, any Stock Options, Restricted Shares or Restricted Share Units)
pursuant to the Company Stock Option Plans, or otherwise, or amend any
Company Stock Option Plans except to provide for the accelerated
exercisability of the Company Options.
(c) From the date hereof to the Effective Time, the Company
shall consult with Fairfax with respect to any proposed filing with the SEC
pursuant to Section 13(a) or 15(d) of the Exchange Act and shall provide
Fairfax with a reasonable opportunity to review such filings prior to their
being filed with the SEC.
<PAGE>
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting. As soon as reasonably
practicable following the execution of this Agreement, the Company shall
(i) use its reasonable best efforts to duly call, give notice of, convene
and hold an annual or special meeting of its stockholders for the purpose
of obtaining the Company Stockholder Approval (the "Stockholders' Meeting")
and (ii) subject to its fiduciary duties under applicable Laws as advised
by independent counsel (which may be the Company's regularly engaged
outside counsel) ("independent counsel") (A) include in the Proxy Statement
the recommendation of the Board of Directors that the stockholders of the
Company entitled to vote on the Merger Agreement adopt this Agreement and
the transactions contemplated hereby and (B) use its reasonable best
efforts to obtain such adoption.
SECTION 6.02. Proxy Statement.
(a) As soon as reasonably practicable following the
execution of this Agreement, with all reasonable and necessary assistance
from Fairfax and Merger Sub, the Company shall prepare and file a proxy
statement with the SEC under the Exchange Act relating to the Stockholders'
Meeting (together with any amendments thereof or supplements thereto, the
"Proxy Statement"), and shall use its reasonable best efforts to have the
Proxy Statement cleared by the SEC. The Proxy Statement shall comply in all
material respects with all applicable provisions of the Exchange Act,
including, without limitation, Rule 14a-9 thereunder. Fairfax, Merger Sub
and the Company shall cooperate with each other in the preparation of the
Proxy Statement, and the Company shall notify Fairfax of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests
by the SEC for any amendment or supplement thereto or for additional
information and shall provide to Fairfax promptly copies of all
correspondence between the Company or any representative of the Company and
the SEC. The Company shall give Fairfax and its counsel reasonable
opportunity to review the Proxy Statement prior to its being filed with the
SEC, and shall give Fairfax and its counsel reasonable opportunity to
review all amendments and supplements to the Proxy Statement and all
responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. The Company agrees to
use its reasonable best efforts, after consultation with Fairfax and Merger
Sub, to respond promptly to all such comments of and requests by the SEC
and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of Shares entitled to vote
at the Stockholders' Meeting at the earliest practicable time. Fairfax and
Merger Sub shall furnish any information reasonably requested by the
Company which is necessary to prepare the Proxy Statement in accordance
with this Section 6.02(a).
(b) If any event shall occur as a result of which it is
necessary, in the opinion of legal counsel to the Company, to amend the
Proxy Statement so that it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are
<PAGE>
made, not misleading, the Company shall promptly amend the Proxy Statement
(in form and substance reasonably satisfactory to legal counsel to Fairfax)
so that, as so amended, the Proxy Statement will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Fairfax and Merger Sub shall furnish any information reasonably requested
by the Company which is necessary to amend the Proxy Statement in
accordance with this Section 6.02(b).
SECTION 6.03. Appropriate Action; Consents; Filings.
(a) Upon the terms and subject to the conditions set forth
in this Agreement, the Company, Fairfax and Merger Sub shall use their best
efforts to (i) take, or cause to be taken, all action, and do, or cause to
be done, all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the Merger as promptly as
practicable, (ii) obtain from any Governmental Authorities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by Fairfax, Merger Sub or the Company or any of their
subsidiaries in connection with the authorization, execution and delivery
of this Agreement and the consummation of the Merger including those listed
in Section 3.05(b), (iii) defend any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated by this Agreement, including
seeking to have any stay or temporary restrainin order entered by any court
or other Governmental Authorities vacated or reversed, (iv) execute and
deliver any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement and
(v) make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under
(A) the Exchange Act and any other applicable federal or state securities
Laws, (B) the HSR Act and other competition laws and any related
governmental request thereunder and (C) any other applicable Law including
insurance regulatory laws; provided that Fairfax, Merger Sub and the
Company shall cooperate with each other in connection with the making of
all such filings, including providing copies of all such documents to the
non-filing party and its advisors prior to filing, and, if requested, to
accept all reasonable additions, deletions or changes suggested by the
other party in connection therewith; provided, in respect of each of the
foregoing, it would not materially increase the cost of the Merger to
Fairfax or result in material expenditures by the Company. The Company,
Fairfax and Merger Sub shall furnish to each other all information required
for any application or other filing to be made pursuant to the rules and
regulations of any applicable Law (including all information required to be
included in the Proxy Statement) in connection with the transactions
contemplated by this Agreement.
(b) Each of Fairfax, Merger Sub and the Company shall give
(or shall cause its respective subsidiaries to give) any notices to third
parties, and use, and cause its respective subsidiaries to use, their best
efforts to obtain any third party consents, (A) necessary, proper or
advisable to consummate the transactions contemplated in this Agreement or
(B) disclosed or
<PAGE>
required to be disclosed in the Company Disclosure Schedule unless, in each
case, it would materially increase the cost of the Merger to Fairfax or
result in material expenditures by the Company.
(c) From the date of this Agreement until the Effective
Time, each party shall promptly notify the other party in writing of any
pending or, to the knowledge of the first party, threatened action,
proceeding or investigation by any Governmental Authority or any other
person (i) challenging or seeking material damages in connection with the
Merger or the exchange of the Company Common Stock into the Merger
Consideration pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of
Fairfax or, to the knowledge of such party, Fairfax's subsidiaries to own
or operate all or any portion of the businesses or assets of the Company or
its Subsidiaries.
(d) In connection with and without limiting the foregoing,
the Company and Fairfax shall (i) take all action necessary to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger, this Agreement, or any of the other transactions
contemplated by this Agreement and (ii) if any state takeover statute or
similar statute or regulation becomes applicable to the Merger, this
Agreement, or any other transaction contemplated by this Agreement, take
all action necessary to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and the
other transactions contemplated by this Agreement.
(e) Nothing set forth in this Section 6.03 shall limit or
affect actions permitted to be taken pursuant to Section 6.05.
SECTION 6.04. Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, the Company
shall: (i) provide to Fairfax and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, the "Representatives") access at reasonable times upon prior
notice to the officers, employees, agents, properties, offices and other
facilities of the Company and its Subsidiaries and to the books and records
thereof and (ii) furnish promptly such information concerning the business,
properties, contracts, assets, liabilities, personnel and other aspects of
the Company and its Subsidiaries as Fairfax or its Representatives may
reasonably request.
(b) No investigation pursuant to this Section 6.04 shall
affect any representation or warranty in this Agreement of any party hereto
or any condition to the obligations of the parties hereto.
(c) The confidentiality agreement dated August 28, 1998
between Fairfax and the Company Financial Advisor, on behalf of the
Company, (the "Confidentiality Agreement") remains in full force and effect
from the date hereof.
<PAGE>
(d) Subject to its fiduciary duties under applicable laws as
advised by independent counsel, the Company agrees that it will enforce any
rights it may have, and that the Company and its directors will not approve
or consent to any actions which are prohibited without the approval or
consent of the Company or its directors, under any confidentiality
agreements to which the Company (or the Company Financial Advisor or
another person on behalf of the Company) is a party.
SECTION 6.05. No Solicitation. (a) The Company shall, and
shall cause its Subsidiaries and their respective officers, directors,
employees, consultants, investment bankers, accountants, attorneys and
other advisors, representatives and agents ("Company Representatives") to
immediately cease any discussions or negotiations with any parties that may
be ongoing with respect to any acquisition proposal (as defined below in
this Section 6.05(a)). The Company shall not, nor shall it permit any of
its Subsidiaries to, nor shall it authorize or permit any Company
Representative to, directly or indirectly, (i) solicit or initiate, or
knowingly encourage the submission of, any acquisition proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to any proposal that constitutes, or
may reasonably be expected to lead to, an acquisition proposal; provided,
however, that if, at any time prior to the Company Stockholder Approval the
Board of Directors of the Company determines in good faith, based upon
advice of independent counsel, that not to do so would be inconsistent with
its fiduciary duties under applicable Law, the Company may, in response to
an unsolicited acquisition proposal by a party which the Board of Directors
of the Company believes in good faith may lead to a Superior Proposal (as
defined below), and subject to compliance with Section 6.05(c), (X) furnish
information to such party pursuant to a customary confidentiality agreement
and (Y) participate in discussions or negotiations with such party
regarding an acquisition proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the
preceding sentence by any Subsidiary or any Company Representative, whether
or not such person is purporting to act on behalf of the Company or any
Subsidiary or otherwise, shall be deemed to be a breach of this Section
6.05(a) by the Company. For purposes of this Agreement, "acquisition
proposal" means any proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a substantial part of
the assets of the Company on a consolidated basis or of over 15% of the
outstanding Company Common Stock, any tender offer or exchange offer that
if consummated would result in any person beneficially owning 15% or more
of the outstanding Company Common Stock, any merger, consolidation,
business combination, sale of all or substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction involving
the Company or any Subsidiary that owns a substantial portion of the assets
of the Company on a consolidated basis, other than the transactions
contemplated by this Agreement.
(b) Except as set forth in this Section 6.05, neither the
Board of Directors of the Company nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Fairfax, the approval or recommendation by the Board of Directors or any
such committee of this Agreement or the Merger, (ii) approve or recommend,
or propose to approve or recommend, any acquisition proposal other than the
Merger or (iii) enter into any agreement with respect to any acquisition
proposal other than the Merger. Notwithstanding the foregoing, in the
<PAGE>
event that at any time prior to the Company Stockholder Approval the Board
of Directors of the Company determines in good faith, based upon advice of
independent counsel, that it is necessary to do so in order to comply with
its fiduciary duties under applicable Laws, the Board of Directors of the
Company may (subject to this and the following sentences of this Section
6.05(b)) (x) withdraw or modify (or propose to withdraw or modify) its
approval or recommendation of the Merger and this Agreement or (y) approve
or recommend (or propose to approve or recommend) a Superior Proposal (as
defined below) or terminate (or propose to terminate) this Agreement (and
concurrently with or after such termination, if it so chooses, cause the
Company to enter into any agreement with respect to any Superior Proposal),
but in each of the cases set forth in this clause (y), only at a time that
is at least three business days after Fairfax's receipt of written notice
(a "Notice of Superior Proposal") advising Fairfax that the Board of
Directors of the Company has received a Superior Proposal. The Notice of
Superior Proposal shall specify the amount and type of consideration to be
paid and such other terms and conditions of the Superior Proposal as the
Company determines in good faith to be material and identifying the person
making such Superior Proposal. For purposes of this Agreement, a "Superior
Proposal" means any bona fide proposal made by a third party to acquire,
directly or indirectly, for consideration consisting of cash and/or
securities, 85% of the combined voting power of the shares of Company
Common Stock then outstanding or all or substantially all of the assets of
the Company on a consolidated basis and otherwise on terms which the Board
of Directors of the Company determines in its good faith judgment (based on
the advice of a financial advisor of nationally recognized reputation) to
be more favorable to the Company's shareholders than the Merger and for
which financing, to the extent required, is then committed or which, in the
good faith judgment of the Board of Directors of the Company (based on the
advice of a financial advisor of nationally recognized reputation), is
reasonably capable of being financed by such third party.
(c) In addition to the obligations of the Company set forth
in paragraphs (a) and (b) of this Section 6.05, the Company shall forthwith
advise Fairfax orally and in writing of the Company's receipt of any bona
fide acquisition proposal and any request for information that may
reasonably be expected to lead to or is otherwise related to any such
acquisition proposal and the identity of the person making such request or
acquisition proposal. The Company will keep Fairfax informed on reasonable
basis of the status and details (including amendments) of any such request
or acquisition proposal, unless the Board of Directors determines in good
faith, based upon advice of independent counsel, that to do so would be
inconsistent with its fiduciary duties under applicable Law.
(d) Nothing contained in this Section 6.05 shall prohibit
the Company from taking and disclosing to it stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from
making any disclosure to the Company's stockholders if, in the good faith
judgment of the Company, after consultation with outside counsel, failure
so to disclose would be inconsistent with its legal duties under applicable
law; provided, however, that neither the Company nor its Board of Directors
nor any committee thereof shall, except as permitted by Section 6.05(b),
withdraw or modify, or propose publicly to withdraw or modify, its position
with respect to this
<PAGE>
Agreement or the Merger or approve or recommend, or propose publicly to
approve or recommend, an acquisition proposal other than the Merger.
SECTION 6.06. Directors' and Officers' Indemnification and
Insurance.
(a) Fairfax and Merger Sub agree that all rights to
indemnification for acts or omissions occurring prior to the Effective Time
now existing in favor of current or former directors or officers of the
Company and its subsidiaries ("Company Indemnified Parties"), as provided
in their respective certificates of incorporation, by-laws, similar
organizational documents, indemnification agreements or otherwise, shall
survive the Merger and shall continue in full force and effect in
accordance with their terms for a period of not less than six years from
the Effective Time. Fairfax shall cause to be maintained for a period of
not less than six years from the Effective Time the Company's current
directors' and officers' insurance and indemnification policy to the extent
that it provides coverage for events occurring prior to the Effective Time
(the "D&O Insurance") for all persons who are directors and officers of the
Company on the date of this Agreement, so long as the annual premium
therefor would not be in excess of 150% of the last annual premium paid
prior to the date of this Agreement (such 150% amount, the "Maximum
Premium"). If the existing D&O Insurance expires, is terminated or canceled
during such six-year period, Fairfax shall use all reasonable efforts to
cause to be obtained as much D&O Insurance from insurance companies with
comparable credit ratings as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium, on
terms and conditions no less advantageous than the existing D&O Insurance.
The Company represents to Fairfax that the Maximum Premium is approximately
$1,500,000.
(b) This Section 6.06 is intended to benefit the Company
Indemnified Parties and shall be binding on all successors and assigns of
Fairfax, Merger Sub, the Company and the Surviving Corporation. Fairfax
hereby guarantees the performance of the Surviving Corporation's
obligations pursuant to this Section 6.06.
SECTION 6.07. Notification of Certain Matters. From and
after the date of this Agreement until the Effective Time, each party
hereto shall promptly notify the other parties hereto of (a) the
occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence of which would be likely to cause (i) any representations or
warranties made in this Agreement, or any information furnished in the
Company Disclosure Schedule (A) which is not qualified as to materiality,
not to be accurate in any material respect, or (B) which is qualified as to
materiality, not to be accurate, in each case, at the time such
representation or warranty is made or such information is furnished, or
(ii) any condition to the obligations of any party to effect the Merger not
to be satisfied, or (b) the failure of the Company, Fairfax or Merger Sub,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it pursuant to this Agreement
which would be likely to result in any condition to the obligations of any
party to effect the Merger not to be satisfied; provided, however, that the
delivery of any notice pursuant to this Section 6.07 shall not be deemed to
be an amendment of this Agreement or any Section in the
<PAGE>
Company Disclosure Schedule and shall not cure any breach of any
representation or warranty requiring disclosure of such matter prior to the
date of this Agreement. No delivery of any notice pursuant to this Section
6.07 shall limit or affect the remedies available hereunder to the party
receiving such notice, including the rights of Fairfax under Section 7.02
and those of the Company under Section 7.03 in the event that a
representation or warranty made by the Company or Fairfax herein shall not
be true and correct as of the date hereof or as of the date when made (if a
different date).
SECTION 6.08. Public Announcements. Fairfax and the Company
shall each use reasonable efforts to consult with each other before issuing
any press release or otherwise making any public statements with respect to
this Agreement or any transaction contemplated hereby. Neither Fairfax nor
the Company shall issue any such press release or make any such public
statement without the prior consent of the other (which consent shall not
be unreasonably withheld or delayed), except as may be required by Law or
any listing agreement with the NYSE, the National Association of Securities
Dealers, Inc. or any securities exchange to which Fairfax or the Company is
a party.
SECTION 6.09. Employee Matters.
(a) Fairfax shall honor, or shall cause the Surviving
Corporation to honor, in accordance with its terms, each employment and
severance agreement of the Company in effect as of the Effective Time.
(b) For a period of no less than one year after the
Effective Time, Fairfax shall cause the Surviving Corporation to provide to
each employee of the Company and its Subsidiaries salary or wage levels and
incentive compensation opportunities and benefit plans and arrangements
that are, in the aggregate, substantially similar (other than with respect
to equity based compensation plans) to those in effect as of the Effective
Time; provided that nothing herein shall require the Surviving Corporation
to continue the employment of any employee of the Company and its
Subsidiaries for any period of time after the Effective Time. After the
Effective Time, employees of the Company and the Subsidiaries shall be
credited with their service before the Effective Time with the Company and
its Subsidiaries ("Pre-Transaction Service") for eligibility, vesting and
benefits purposes under all benefits programs covering such employees of
the Company and the Subsidiaries after the Effective Time; provided that
(i) Pre-Transaction Service shall not be so credited to the extent it would
result in a duplication of benefits provided to employees of the Company
and the Subsidiaries and (ii) employees of the Company and the Subsidiaries
need not be credited with Pre-Transaction Service for benefit accrual
purposes under any defined benefit pension plan in which they subsequently
participate after the Effective Time.
(c) Following the Effective Time, Fairfax shall undertake a
review of the Company's Employee Stock Ownership Plan (the "ESOP") and
shall implement a modified or replacement employee benefit program (the
"Successor Program"), for the benefit of those employees of the Company and
its Subsidiaries who are participating in the ESOP, that is reasonably
anticipated
<PAGE>
at the time of implementation to provide a level of benefits that is
substantially similar (from an economic standpoint) to the level of
benefits provided under the ESOP; provided, however, that Fairfax shall not
be required to provide equity-based compensation under the Successor
Program.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party.
The obligations of the Company, Fairfax and Merger Sub to consummate the
Merger are subject to the satisfaction or, if permitted by applicable Law,
waiver by each of the Company, Fairfax and Merger Sub of the following
conditions:
(a) the Company Stockholder Approval shall have been
obtained;
(b) any applicable waiting period under the HSR Act relating
to the Merger shall have expired or been terminated and all
requisite insurance regulatory and other competition law
approvals (other than any such approvals which, if not obtained,
would not reasonably be expected to materially increase the cost
of the Merger to Fairfax), shall have been obtained, (i) which
approvals shall be unconditional or on conditions which would not
reasonably be expected to materially increase the cost of the
Merger to Fairfax or result in a Company Material Adverse Effect
and (ii) in connection with which no conditions shall have been
imposed which would reasonably be expected to materially increase
the cost of the Merger to Fairfax or result in a Company Material
Adverse Effect; and
(c) no order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction shall have been enacted,
entered, issued, promulgated or enforced by any Governmental
Authority or a court of competent jurisdiction which has the
effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
SECTION 7.02. Conditions to the Obligations of Fairfax and
Merger Sub. The obligations of Fairfax and Merger Sub to consummate the
Merger are subject to the satisfaction or waiver by Fairfax and Merger Sub
of the condition that (i) the Company shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Effective Time; (ii) each of the representations and
warranties of the Company contained in this Agreement which is qualified as
to materiality shall be true and correct and each such representation and
warranty that is not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement, except that those
representations and warranties which address matters only as of a
particular date prior to the date of this Agreement shall be true and
correct as of such
<PAGE>
date; and (iii) Fairfax shall have received a certificate signed by an
executive officer of the Company to the foregoing effect.
SECTION 7.03. Conditions to the Obligations of the Company.
The obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver by the Company of the condition that (i) Fairfax and
Merger Sub shall have performed in all material respects all of their
respective obligations hereunder required to be performed by them at or
prior to the Effective Time; (ii) each of the representations and
warranties of Fairfax contained in this Agreement which is qualified as to
materiality shall be true and correct and each such representation and
warranty that is not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement, except that those
representations and warranties which address matters only as of a
particular date prior to the date of this Agreement shall be true and
correct as of such date; and (iii) the Company shall have received a
certificate signed by an executive officer of Fairfax to the foregoing
effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of this Agreement and
the transactions contemplated hereby by the stockholders of the Company:
(a) by written consent of each of Fairfax, Merger Sub and
the Company;
(b) by any of Fairfax, Merger Sub or the Company if either
(i) the Effective Time shall not have occurred on or before
September 30, 1999; provided that the right to terminate this
Agreement under this Section 8.01(b) shall not be available to
any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date; or (ii) there
shall be any Law that makes consummation of the Merger illegal or
otherwise prohibited or if any court of competent jurisdiction or
Governmental Authority shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and nonappealable;
(c) by either Fairfax or the Company, if the Company
Stockholder Approval shall not have been obtained at a
Stockholders' Meeting duly convened therefor or at any
adjournment or postponement thereof;
<PAGE>
(d) by Fairfax, if the Board of Directors of the Company
shall withdraw, modify or change the Recommendation in a manner
adverse to Fairfax;
(e) by the Company in accordance with Section 6.05(b),
provided it has complied in all material respects with all
provisions thereof, including the notice provisions therein;
(f) by the Company, if Fairfax or Merger Sub shall have
breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements
contained in this Agreement, which breach of failure to perform
(i) would give rise to the failure of a condition set forth in
Section 7.03, and (ii) cannot be or has not been cured within 30
days after the giving of written notice to Fairfax of such breach
(a "Terminating Fairfax Breach") (provided that the Company is
not then in Terminating Company Breach (as defined in Section
8.01(g)) of any representation, warranty, covenant or other
agreement contained in this Agreement); or
(g) by Fairfax, if the Company shall have breached or failed
to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (i) would give rise
to the failure of a condition set forth in Section 7.02, and (ii)
cannot be or has not been cured within 30 days after the giving
of written notice to the Company of such breach (a "Terminating
Company Breach") (provided that Fairfax or Merger Sub is not then
in Terminating Fairfax Breach of any representation, warranty,
covenant or other agreement contained in this Agreement).
SECTION 8.02. Effect of Termination. Except as provided in
Section 9.01, in the event of the termination of this Agreement pursuant to
Section 8.01, this Agreement shall forthwith become void, there shall be no
liability under this Agreement on the part of Fairfax, Merger Sub or the
Company or any of their respective officers or directors and all rights and
obligations of any party hereto shall cease; provided, however, that
nothing herein shall relieve any party from liability for the breach of any
of its representations, warranties, covenants or agreements set forth in
this Agreement.
SECTION 8.03. Fees and Expenses.
(a) Except as provided below, all fees and expenses incurred
in connection with the Merger, this Agreement and the other transactions
contemplated by this Agreement shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that
each of Fairfax and the Company shall bear and pay one-half of the third
party costs and expenses incurred in connection with the filing, printing
and mailing of the Proxy Statement (including SEC filing fees).
(b) The Company shall reimburse Fairfax for all Expenses (up
to a maximum aggregate amount of $2,000,000) if this Agreement is
terminated other than pursuant to Section
<PAGE>
8.01(a), (b), (c) (except if an acquisition proposal shall have been made
public prior to the stockholder vote giving rise to such termination) or
(f), and in addition, the Company shall pay Fairfax a fee of $25,500,000
(the "Termination Fee") if this Agreement is terminated other than pursuant
to Section 8.01(a), (b), (c) (except if an acquisition proposal shall have
been made public prior to the stockholder vote giving rise to such
termination), (f), (g) or solely by reason of the failure to obtain
requisite regulatory approvals otherwise than by default of the Company.
(c) As used herein, "Expenses" means all out-of-pocket
expenses and fees actually incurred by Fairfax or Merger Sub or on their
behalf in connection with the Merger prior to the termination of this
Agreement (including, without limitation, all fees and expenses of counsel,
financial advisors and accountants, to Fairfax and its affiliates).
(d) Any payment required to be made pursuant to Section
8.03(b) shall be made as promptly as practicable but not later than five
business days after the final determination by Fairfax of such amount and
shall be made by wire transfer of immediately available funds to an account
designated by Fairfax.
(e) In the event that the Company shall fail to pay the
Termination Fee or any Expenses when due, the term "Expenses" shall be
deemed to include the costs and expenses actually incurred by Fairfax and
its affiliates (including, without limitation, fees and expenses of
counsel) in connection with the collection under and enforcement of this
Section 8.03, together with interest on such unpaid Termination Fee and
Expenses, commencing on the date that the Termination Fee or such Expenses
became due, at a rate equal to the rate of interest publicly announced by
Citibank, N.A., from time to time, in the City of New York, as such bank's
Base Rate plus 2%.
SECTION 8.04. Amendment. This Agreement may be amended by
the parties hereto by action taken by or on behalf of their respective
Boards of Directors at any time prior to the Effective Time; provided that,
after the receipt of the Company Stockholder Approval, no amendment may be
made that by law requires further approval by the stockholders of the
Company without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 8.05. Waiver. At any time prior to the Effective
Time, any party hereto may (a) extend the time for the performance of any
obligation or other act of any other party hereto, (b) waive any inaccuracy
in the representations and warranties of any other party contained herein
or in any document delivered by the other party pursuant hereto and (c)
subject to the proviso to Section 8.04 waive compliance with any agreement
of the other party or condition of the waiving party contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties
and Agreements. The representations, warranties and agreements in this
Agreement and any certificate delivered pursuant hereto by any person shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements
set forth in Articles I and II and Section 6.06 and 6.09 shall survive the
Effective Time indefinitely and those set forth in Sections 6.04(c), 6.08,
8.02, 8.03 and this Article IX shall survive termination indefinitely.
SECTION 9.02. Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given upon delivery as
hereinafter set out) by delivery in person or by facsimile to the
respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this
Section 9.02):
if to Fairfax or Merger Sub:
95 Wellington Street West
Suite 800
Toronto, Ontario M5J 2N7
Facsimile: (416) 367-2201
Attention: Eric P. Salsberg
Vice President, Corporate Affairs
with a copy to:
Shearman & Sterling
Commerce Court West
Suite 4405
Toronto, Canada M5L 1E8
Facsimile: (416) 360-2958
Attention: Brice T. Voran, Esq.
<PAGE>
if to the Company:
TIG Holdings, Inc.
5205 North O'Connor Blvd.
P. O. Box 152870
Irving, Texas 75015
Facsimile: (972) 831-6261
Attention: President
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Facsimile: (212) 474-3700
Attention: Peter S. Wilson, Esq.
SECTION 9.03. Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with, such
specified person;
(b) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept
filings, or, in the case of determining a date when any payment
is due, any day on which banks are not required or authorized to
close in the City of New York, New York;
(c) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the
ownership of voting securities, as trustee or executor, by
contract or credit arrangement or otherwise;
(d) "person" means an individual, corporation, limited
liability company, partnership, limited partnership, person
(including, without limitation, a "person" as defined in Section
13(d)(3) of the Exchange Act), trust, association or entity or
government, political subdivision, agency or instrumentality of a
government;
<PAGE>
(e) "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of
which such person (either above or through or together with any
other subsidiary), owns, directly or indirectly, more than 50% of
the stock or other equity interests, the holders of which are
generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other
legal entity.
SECTION 9.04. Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of Law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Merger is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the Merger be consummated as
originally contemplated to the fullest extent possible.
SECTION 9.05. Entire Agreement; Assignment. This Agreement
(including the Company Disclosure Schedule) and the Confidentiality
Agreement constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof. This Agreement and the rights,
interests or obligations under this Agreement shall not be assigned by
operation of law or otherwise, except that with the consent of the Company
(not to be unreasonably withheld or delayed) Fairfax and Merger Sub may
assign all or any of their rights and obligations hereunder to any
wholly-owned subsidiary of Fairfax provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee
does not perform such obligations.
SECTION 9.06. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, other than Article II and
Section 6.06 (which is intended to be for the benefit of the persons
covered thereby and may be enforced by such persons).
SECTION 9.07. Governing Law. This Agreement shall be
governed by, and construed in accordance with the laws of the State of New
York applicable to contracts executed in and to be performed in that State
except to the extent that the laws of State of Delaware are mandatorily
applicable to the Merger.
SECTION 9.08. Headings. The descriptive headings contained
in this Agreement are included for convenience of reference only and shall
not affect in any way the meaning or interpretation of this Agreement.
<PAGE>
SECTION 9.09. Obligations of Fairfax. All obligations of
Merger Sub set forth in this Agreement shall be deemed to include an
undertaking on the part of Fairfax to cause Merger Sub to perform such
obligations and a guarantee of the performance thereof.
SECTION 9.10. Counterparts. This Agreement may be executed
and delivered (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed and delivered shall be deemed to be an original
but all of which taken together shall constitute one and the same
agreement.
SECTION 9.11. Further Assurances. The parties will execute
and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby.
SECTION 9.12. Enforcement. Each party hereto agrees that the
state and Federal courts sitting in the City of New York shall have sole
and exclusive jurisdiction of any action related to or arising out of this
Agreement or seeking the enforcement of this Agreement. In addition, each
party hereto (a) consents to the personal jurisdiction of any state or
Federal court sitting in the City of New York, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring
any action related to or arising out of this Agreement in any other court.
Each party hereto agrees that in any action related to or arising out of
this Agreement service of process may be effected upon it by certified mail
addressed as specified in Section 9.02. Each of the parties hereto agrees
that if any such action is commenced and such party is served in accordance
with the provisions of this Section 9.12, it will not attempt to deny or
defeat personal jurisdiction or service of process, it will not challenge
the venue, and it waives any rights to a jury trial in such action. The
parties hereto acknowledge and agree that any breach of or failure to
perform any representation, warranty, covenant or other agreement contained
in this Agreement would cause irreparable injury to the other parties
hereto, that damages would provide an insufficient remedy, that no adequate
remedy at law would be available, and that the injured parties shall,
therefore, be entitled to specific performance or other injunctive relief
in addition to any other remedy to which they might be entitled at law or
in equity. It is accordingly agreed that, in any action commenced in
accordance with this Section 9.12 seeking specific performance or
injunctive relief, no party will assert that the party seeking such relief
has an adequate remedy at law.
<PAGE>
IN WITNESS WHEREOF, Fairfax, Merger Sub and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized,
FAIRFAX FINANCIAL HOLDINGS
LIMITED
By: /s/ ERIC P. SALSBERG
-----------------------------
Name: Eric P. Salsberg
Title: Vice President, Corporate
Affairs
FFHL INC.
By: /s/ ERIC P. SALSBERG
-----------------------------
Name: Eric P. Salsberg
Title: President
TIG HOLDINGS, INC.
By: /s/ JON W. ROTENSTREICH
------------------------------
Name: Jon W. Rotenstreich
Title: Chairman of the Board
and Chief Executive Officer
