<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )
TIG HOLDINGS, INC.
- -------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK, $0.01 PAR VALUE
- -------------------------------------------------------------------------------
(Title of Class of Securities)
872469101
- -------------------------------------------------------------------------------
(CUSIP Number)
ERIC P. SALSBERG
VICE PRESIDENT, CORPORATE AFFAIRS
FAIRFAX FINANCIAL HOLDINGS LIMITED
95 WELLINGTON STREET WEST, SUITE 800
TORONTO, ONTARIO, CANADA, M5J 2N7
TELEPHONE: (416) 367-4941
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
-With a copy to-
BRICE T. VORAN
SHEARMAN & STERLING
COMMERCE COURT WEST
199 BAY STREET, SUITE 4405
TORONTO, ONTARIO M5L 1E8
TELEPHONE: (416) 360-8484
MARCH 8, 1999
- -------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
<PAGE> 2
CUSIP NO. 872469101 13D PAGE 2 OF 17 PAGES
<TABLE>
<CAPTION>
<S> <C>
(1) Name of Reporting Person FAIRFAX FINANCIAL HOLDINGS
LIMITED
___________________________________________________________________________________________
(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [X]
___________________________________________________________________________________________
(3) SEC use only
___________________________________________________________________________________________
(4) Source of Funds OO
___________________________________________________________________________________________
(5) Check box if Disclosure of Legal Proceedings is Required Pursuant
to Item 2(d) or 2(e). [ ]
___________________________________________________________________________________________
(6) Citizenship or Place of Organization CANADA
___________________________________________________________________________________________
Number of (7) Sole Voting Power
Shares Beneficially 0
Owned ____________________________________
by Each (8) Shared Voting Power
Reporting 51,316,567
Person With ____________________________________
(9) Sole Dispositive Power
0
____________________________________
(10)Shared Dispositive Power
51,316,567
___________________________________________________________________________________________
(11) Aggregate Amount Beneficial Owned by each Reporting Person 51,316,567
___________________________________________________________________________________________
(12) Check Box if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions) [ ]
___________________________________________________________________________________________
(13) Percent of Class Represented by Amount in Row (11) 100%
___________________________________________________________________________________________
(14) Type of Reporting Person (See Instructions) HC and CO
___________________________________________________________________________________________
</TABLE>
<PAGE> 3
CUSIP NO. 872469101 13D PAGE 3 OF 17 PAGES
<TABLE>
<CAPTION>
<S> <C>
(1) Name of Reporting Person FFHL INC.
___________________________________________________________________________________________
(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [X]
___________________________________________________________________________________________
(3) SEC use only
___________________________________________________________________________________________
(4) Source of Funds OO
___________________________________________________________________________________________
(5) Check box if Disclosure of Legal Proceedings is Required Pursuant
to Item 2(d) or 2(e). [ ]
___________________________________________________________________________________________
(6) Citizenship or Place of Organization DELAWARE
___________________________________________________________________________________________
Number of (7) Sole Voting Power
Shares Beneficially 0
Owned ____________________________________
by Each (8) Shared Voting Power
Reporting 51,316,567
Person With ____________________________________
(9) Sole Dispositive Power
0
____________________________________
(10)Shared Dispositive Power
51,316,567
___________________________________________________________________________________________
(11) Aggregate Amount Beneficial Owned by each Reporting Person 51,316,567
___________________________________________________________________________________________
(12) Check Box if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions) [ ]
___________________________________________________________________________________________
(13) Percent of Class Represented by Amount in Row (11) 100%
___________________________________________________________________________________________
(14) Type of Reporting Person (See Instructions) CO
___________________________________________________________________________________________
</TABLE>
<PAGE> 4
CUSIP NO. 872469101 13D PAGE 4 OF 17 PAGES
<TABLE>
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(1) Name of Reporting Person V. PREM WATSA
___________________________________________________________________________________________
(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [X]
___________________________________________________________________________________________
(3) SEC use only
___________________________________________________________________________________________
(4) Source of Funds OO
___________________________________________________________________________________________
(5) Check box if Disclosure of Legal Proceedings is Required Pursuant
to Item 2(d) or 2(e). [ ]
___________________________________________________________________________________________
(6) Citizenship or Place of Organization CANADA
___________________________________________________________________________________________
Number of (7) Sole Voting Power
Shares Beneficially 0
Owned ____________________________________
by Each (8) Shared Voting Power
Reporting 51,316,567
Person With ____________________________________
(9) Sole Dispositive Power
0
____________________________________
(10)Shared Dispositive Power
51,316,567
___________________________________________________________________________________________
(11) Aggregate Amount Beneficial Owned by each Reporting Person 51,316,567
___________________________________________________________________________________________
(12) Check Box if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions) [ ]
___________________________________________________________________________________________
(13) Percent of Class Represented by Amount in Row (11) 100%
___________________________________________________________________________________________
(14) Type of Reporting Person (See Instructions) IN
___________________________________________________________________________________________
</TABLE>
<PAGE> 5
CUSIP NO. 872469101 13D PAGE 5 OF 17 PAGES
<TABLE>
<CAPTION>
<S> <C>
(1) Name of Reporting Person THE SIXTY TWO INVESTMENT
COMPANY LIMITED
___________________________________________________________________________________________
(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [X]
___________________________________________________________________________________________
(3) SEC use only
___________________________________________________________________________________________
(4) Source of Funds OO
___________________________________________________________________________________________
(5) Check box if Disclosure of Legal Proceedings is Required Pursuant
to Item 2(d) or 2(e). [ ]
___________________________________________________________________________________________
(6) Citizenship or Place of Organization BRITISH COLUMBIA, CANADA
___________________________________________________________________________________________
Number of (7) Sole Voting Power
Shares Beneficially 0
Owned ____________________________________
by Each (8) Shared Voting Power
Reporting 51,316,567
Person With ____________________________________
(9) Sole Dispositive Power
0
____________________________________
(10)Shared Dispositive Power
51,316,567
___________________________________________________________________________________________
(11) Aggregate Amount Beneficial Owned by each Reporting Person 51,316,567
___________________________________________________________________________________________
(12) Check Box if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions) [ ]
___________________________________________________________________________________________
(13) Percent of Class Represented by Amount in Row (11) 100%
___________________________________________________________________________________________
(14) Type of Reporting Person (See Instructions) CO
___________________________________________________________________________________________
</TABLE>
<PAGE> 6
CUSIP NO. 872469101 13D PAGE 6 OF 17 PAGES
<TABLE>
<CAPTION>
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(1) Name of Reporting Person 810679 ONTARIO LTD.
___________________________________________________________________________________________
(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [X]
___________________________________________________________________________________________
(3) SEC use only
___________________________________________________________________________________________
(4) Source of Funds OO
___________________________________________________________________________________________
(5) Check box if Disclosure of Legal Proceedings is Required Pursuant
to Item 2(d) or 2(e). [ ]
___________________________________________________________________________________________
(6) Citizenship or Place of Organization ONTARIO, CANADA
___________________________________________________________________________________________
Number of (7) Sole Voting Power
Shares Beneficially 0
Owned ____________________________________
by Each (8) Shared Voting Power
Reporting 51,316,567
Person With ____________________________________
(9) Sole Dispositive Power
0
____________________________________
(10)Shared Dispositive Power
51,316,567
___________________________________________________________________________________________
(11) Aggregate Amount Beneficial Owned by each Reporting Person 51,316,567
___________________________________________________________________________________________
(12) Check Box if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions) [ ]
___________________________________________________________________________________________
(13) Percent of Class Represented by Amount in Row (11) 100%
___________________________________________________________________________________________
(14) Type of Reporting Person (See Instructions) CO
___________________________________________________________________________________________
</TABLE>
<PAGE> 7
CUSIP NO. 872469101 13D PAGE 7 OF 17 PAGES
This Statement relates to the Agreement and Plan of Merger dated as of December
3, 1998 (the "Merger Agreement"), among Fairfax Financial Holdings Limited, a
Canadian corporation, ("Fairfax"), FFHL Inc., a Delaware corporation and a
wholly owned subsidiary of Fairfax ("FFHL") and TIG Holdings, Inc., a Delaware
corporation ("TIG") providing for the acquisition of TIG. On March 8, 1999, a
special meeting of stockholders of TIG was held to consider and vote upon a
proposal to adopt the Merger Agreement. At this meeting TIG stockholders
approved the Merger Agreement. The acquisition of TIG is expected by Fairfax to
occur by the spring of 1999 and is subject to various closing conditions,
including the receipt of applicable insurance regulatory approvals. If the
closing has not occurred on or before September 30, 1999, the Merger Agreement
provides that either party may terminate the Merger Agreement.
ITEM 1. SECURITY AND ISSUER.
This Statement relates to the shares of common stock, $0.01
par value (the "Shares") of TIG. The address of the
principal executive offices of TIG is 65 East 55th Street,
8th Floor, New York, New York 10022.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is being filed by Fairfax, a corporation
incorporated under the laws of Canada, and by FFHL, a
Delaware corporation and a wholly-owned subsidiary of
Fairfax. Fairfax is a financial services holding company
which, through its subsidiaries, is engaged in property,
casualty and life insurance and reinsurance, investment
management and insurance claims management. Fairfax's
principal executive offices are located at 95 Wellington
Street West, Suite 800, Toronto, Ontario, Canada M5J 2N7, and
its telephone number is (416) 367-4941. FFHL is a wholly
owned subsidiary of Fairfax formed solely for the purpose of
engaging in the merger of FFHL with and into TIG (the
"Merger"). Mr. Watsa, directly and indirectly through The
Sixty Two Investment Company Limited and 810679 Ontario Ltd.
owns the controlling equity voting interest of Fairfax. The
principal executive offices of Fairfax, FFHL, The Sixty Two
Investment Company Limited and 810679 Ontario Ltd. and the
principal business office of Mr. Watsa (collectively, the
"Reporting Persons") are located at 95 Wellington Street
West, Suite 800, Toronto, Ontario, Canada M5J 2N7, and the
telephone number of the Reporting Persons is (416) 367-4941.
The filing of this Statement and the statements herein shall
not be construed as an admission that Mr. Watsa, The Sixty
Two Investment Company Limited or 810679 Ontario are for the
purposes of
<PAGE> 8
CUSIP NO. 872469101 13D PAGE 8 OF 17 PAGES
Sections 13(d) or 13(g) of the Securities Exchange Act of
1934 the beneficial owners of the Shares or have any
percuniary interest therein.
The directors of Fairfax are V. Prem Watsa, Winslow W.
Bennett, Robbert Hartog, Kenneth R. Polley and John C.
Puddington and its executive officers are V. Prem Watsa,
Trevor J. Ambridge, Sam Chan, Francis Chou, J. Paul T. Fink,
Brenda Harvey, Bradley P. Martin, Eric P. Salsberg, Ronald
Schokking and John C. Varnell. The directors and executive
officers of FFHL are V. Prem Watsa and Eric P. Salsberg. The
principal business address and telephone number of each of
the directors and executive officers of Fairfax and FFHL is
95 Wellington Street West, Suite 800, Toronto, Ontario,
Canada M5J 2N7, telephone number (416) 367-4941. Mr. Watsa
is Chairman and Chief Executive Officer of Fairfax and Vice
President of Hamblin Watsa Investment Counsel Ltd., an
investment management company and a wholly owned subsidiary
of Fairfax; Mr. Ambridge is Vice President and Chief
Financial Officer of Fairfax; Mr. Bennett is President of
Winwood Holdings Ltd., a private investment company; Mr. Chan
is Vice President of Fairfax; Mr. Chou is Vice President of
Fairfax; Mr. Fink is Vice President of Fairfax; Mr. Hartog
is President of Robhar Investments Ltd., a private investment
company; Ms. Harvey is Vice President and Secretary of
Fairfax; Mr. Martin is Vice President of Fairfax; Mr. Polley
is President and Chief Executive Officer of Lindsey Morden
Group Inc., a publicly traded claims adjustment holding
company controlled by Fairfax; Mr. Puddington is President of
Trilwood Investments Limited, a private investment company;
Mr. Salsberg is Vice President, Corporate Affairs of Fairfax;
Mr. Schokking is Vice President, Finance of Fairfax; and Mr.
Varnell is Vice President of Fairfax. Each such director and
executive officer of Fairfax and FFHL is a Canadian citizen.
During the last five years, neither the Reporting Persons,
and, to the best knowledge of the Reporting Persons, none of
the directors and executive officers listed above has been
(i) convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) a party to a
civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was
or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of
such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
<PAGE> 9
CUSIP NO. 872469101 13D PAGE 9 OF 17 PAGES
The purchase price for the Shares is approximately $847
million (excluding the cost of raising capital). On December
22, 1998, Fairfax issued 2.0 million subscription receipts,
each representing the right to receive one subordinate voting
share of Fairfax, at an issue price of Cdn$500 per
subscription receipt. on March 10, 1999 Fairfax announced it
had sold $275 million of 7 3/8% unsecured notes due March 15,
2006 in a transaction exempt from registration under the
Securities Act of 1933, as amended. Net proceeds of
approximately Cdn$959.7 million from the subscription receipt
offering along with net proceeds of approximately $271.6
million from the unsecured notes offering will be sufficient
to finance completely The acquisition of TIG.
ITEM 4. PURPOSE OF TRANSACTION.
Pursuant to the Merger Agreement, at the Effective Time
FFHL will be merged with and into TIG, with TIG continuing as
the surviving corporation. The "Effective Time" will be upon
the filing of the certificate of merger (the "Certificate of
Merger") or other appropriate documents with the Secretary of
State of the State of Delaware, or at such time thereafter,
as may be agreed to in writing by TIG, Fairfax and FFHL and
specified in the Certificate of Merger. Upon the Merger, each
holder of Shares (other than certain Shares owned by TIG,
Fairfax or their respective subsidiaries, which would be
canceled, and other than Shares properly dissenting from the
Merger pursuant to Section 262 of the General Corporation Law
of Delaware) Will be converted into the right to receive
$16.50 per Share in cash, without interest thereon.
Consummation of the Merger is subject to various conditions,
including, among other things: (i) the obtaining of all
requisite insurance regulatory approvals; and (ii) the
absence of any order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction 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.
<PAGE> 10
CUSIP NO. 872469101 13D PAGE 10 OF 17 PAGES
At the Effective Time, TIG would become a wholly owned
subsidiary of Fairfax. The Shares are currently registered
under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and are listed and trading on the New York
Stock Exchange, Inc. (The "NYSE"). Following consummation of
the Merger Fairfax intends to terminate registration of the
Shares pursuant to Rule 12(g)(4) of the Exchange Act and to
cause the Shares to be delisted from the NYSE. The description
herein of the Merger Agreement is qualified in its entirety by
reference to such Merger Agreement, a copy of which is
attached hereto as Exhibit 2.1.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Based on the most recent information available, the Reporting
Persons are deemed to beneficially own the number of Shares
and the percentage of outstanding Shares listed in responses
to Items 11 and 13, respectively, on their respective cover
page filed herewith and such responses are incorporated by
reference herein. In addition, the number of Shares with
respect to which each of the Reporting Persons: (i) has sole
voting power, (ii) shares voting power, (iii) has sole
dispositive power, and (iv) shares dispositive power, are
listed in responses to Items 7, 8, 9 and 10, respectively, on
its respective cover page filed herewith, and such responses
are incorporated by reference herein.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Except for the Merger Agreement, none of the persons named in
Item 2 has any contracts, arrangements, understandings or
relationships (legal or otherwise) with any person with
respect to any securities of TIG , including, but not limited
to, transfer or voting of any securities, finder's fees,
joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits or loss, or the
giving or withholding of proxies.
<PAGE> 11
CUSIP NO. 872469101 13D PAGE 11 OF 17 PAGES
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
2.1 Agreement and Plan of Merger dated as
of December 3, 1998, among Fairfax Financial Holdings
Limited, FFHL Inc. and TIG Holdings, Inc.
2.2 Press release of Fairfax Financial
Holdings Limited dated March 11, 1999
<PAGE> 12
CUSIP NO. 872469101 13D PAGE 12 OF 17 PAGES
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
Fairfax Financial Holdings Limited certifies that the information set forth in
this statement is true, complete and correct.
FAIRFAX FINANCIAL HOLDINGS LIMITED
Dated: March 15, 1999. By: /s/ ERIC P. SALSBERG
-----------------------------------
Name: Eric P. Salsberg
Title: Vice President, Corporate Affairs
<PAGE> 13
CUSIP NO. 872469101 13D PAGE 13 OF 17 PAGES
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, FFHL
Inc. certifies that the information set forth in this statement is true,
complete and correct.
FFHL INC.
Dated: March 15, 1999. By: /s/ ERIC P. SALSBERG
------------------------------
Name: Eric P. Salsberg
Title: Secretary
<PAGE> 14
CUSIP NO. 872469101 13D PAGE 14 OF 17 PAGES
SIGNATURE
---------
After reasonable inquiry and to the best of its knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 15, 1999. /s/ V. PREM WATSA
---------------------------------
Name: V. Prem Watsa
<PAGE> 15
CUSIP NO. 872469101 13D PAGE 15 OF 17 PAGES
SIGNATURE
---------
After reasonable inquiry and to the best of its knowledge and belief, The
Sixty Two Investment Company Limited certifies that the information set forth
in this statement is true, complete and correct.
THE SIXTY TWO INVESTMENT
COMPANY LIMITED
Dated: March 15 , 1999. By: /s/ V. PREM WATSA
-----------------------------------
Name: V. Prem Watsa
Title: President
<PAGE> 16
CUSIP NO. 872469101 13D PAGE 16 OF 17 PAGES
SIGNATURE
---------
After reasonable inquiry and to the best of its knowledge and belief,
810679 Ontario Ltd. certifies that the information set forth in this statement
is true, complete and correct.
810679 ONTARIO LTD.
Dated: March 15, 1999. By: /s/ V. PREM WATSA
-------------------------------
Name: V. Prem Watsa
Title: President
<PAGE> 17
CUSIP NO. 872469101 13D PAGE 17 OF 17 PAGES
EXHIBIT INDEX
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.
2.2 Press release of Fairfax Financial Holdings Limited
dated March 11, 1999
<PAGE> 1
Exhibit 2.1
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> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
ARTICLE I THE MERGER
<S> <C> <C>
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..............................................14
---------------------------------------------------
3.15. Opinion of Financial Advisors....................................................................15
-----------------------------
3.16. Brokers..........................................................................................15
-------
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
---------------
</TABLE>
<PAGE> 3
<TABLE>
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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............................................17
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...........................................................22
--------------------------------------
6.05. No Solicitation..................................................................................23
---------------
6.06. Directors= and Officers= Indemnification and Insurance...........................................25
------------------------------------------------------
6.07. Notification of Certain Matters..................................................................25
-------------------------------
6.08. Public Announcements.............................................................................26
--------------------
6.09. Employee Matters.................................................................................26
----------------
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..........................................27
-------------------------------------------------------
7.03. Conditions to the Obligations of the Company.....................................................28
--------------------------------------------
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
8.01. Termination......................................................................................28
-----------
8.02. Effect of Termination............................................................................29
---------------------
8.03. Fees and Expenses................................................................................29
-----------------
8.04. Amendment........................................................................................30
---------
8.05. Waiver...........................................................................................30
------
ARTICLE IX GENERAL PROVISIONS
9.01. Non-Survival of Representations, Warranties and Agreements.......................................31
----------------------------------------------------------
9.02. Notices..........................................................................................31
-------
9.03. Certain Definitions..............................................................................32
-------------------
9.04. Severability.....................................................................................33
------------
9.05. Entire Agreement; Assignment.....................................................................33
----------------------------
9.06. Parties in Interest..............................................................................33
-------------------
9.07. Governing Law....................................................................................33
-------------
9.08. Headings.........................................................................................33
--------
9.09. Obligations of Fairfax...........................................................................34
----------------------
9.10. Counterparts.....................................................................................34
------------
9.11. Further Assurances...............................................................................34
------------------
9.12. Enforcement......................................................................................34
-----------
</TABLE>
<PAGE> 4
Index of Defined Terms
<TABLE>
<CAPTION>
Defined Term Location of Definition
<S> <C>
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)
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
HSR Act Section 3.05(b)
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)
</TABLE>
<PAGE> 6
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
<PAGE> 7
2
offices of 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> 8
3
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> 9
4
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> 10
5
(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> 11
6
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> 12
7
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> 13
8
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 thereof 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> 14
9
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 refusal, 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> 15
10
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> 16
11
(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> 17
12
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> 18
13
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> 19
14
(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> 20
15
(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> 21
16
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> 22
17
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> 23
18
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> 24
19
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> 25
20
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> 26
21
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 restraining 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> 27
22
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> 28
23
(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> 29
24
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 a 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> 30
25
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> 31
26
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> 32
27
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> 33
28
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> 34
29
(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> 35
30
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> 36
31
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> 37
32
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> 38
33
(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> 39
34
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> 40
35
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
<PAGE> 1
Exhibit 2.2
FAIRFAX News Release
Stock Symbol: FFH
TORONTO, March 11, 1999
FAIRFAX ADVISES THAT IT MAY PURCHASE
SHARES OF TIG IN THE MARKET
Fairfax Financial Holdings Limited announces that pending completion of its
previously announced acquisition of TIG Holdings, Inc. through a merger
transaction, which has been approved by the shareholders of TIG but remains
subject to various regulatory approvals, it may from time to time purchase
shares of TIG in the market. Pending such approvals. Fairfax may not purchase
more than 10% of the outstanding shares of TIG.
Fairfax Financial Holdings Limited is a financial services holding company
which, through its subsidiaries, is engaged in property, casualty and life
insurance and reinsurance, investment management and insurance claims
management.
-30-
For further information contact: John C. Varnell, Vice President
at (416) 367-4941
FAIRFAX FINANCIAL HOLDINGS LIMITED
95 Wellington Street West, Suite 800, Toronto, Ontario, M5J 2N7
Telephone (416) 367-4941 Telecopier 367-4946
