SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
March 14, 2000
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(Date of earliest event reported)
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
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(Exact name of registrant as specified in its charter)
New York 1-12644 13-3261323
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(State or other (Commission (I.R.S. Employer Identification
jurisdiction of File Number)
organization) Number)
350 Park Avenue
New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 826-0100
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(Registrant's telephone number, including area code)
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Item 5. Other Events
On March 14, 2000, Financial Security Assurance Holdings Ltd. (the
"Company") announced that it had entered into an Agreement and Plan of Merger
dated as of March 14, 2000 (the "Merger Agreement"), by and among Dexia S.A.
and Dexia Credit local de France S.A. (each, an "Acquisition Party"), PAJY
Inc. ("Merger Sub") and the Company. Under the terms of the Merger Agreement,
the Company will become a wholly owned subsidiary of the Acquisition Parties
through the merger of Merger Sub with and into the Company (the "Merger").
Under the terms of the Merger Agreement, each common share of the
Company will be converted into the right to receive $76 in cash. The Merger is
subject to various conditions set forth in the Merger Agreement, including the
adoption of the Merger Agreement by the shareholders of the Company, certain
regulatory approvals and other customary conditions.
Copies of the Merger Agreement and the press release dated March 14,
2000, are attached hereto as Exhibits 2.1 and 99.1, respectively, and
incorporated herein by reference in their entirety.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit Description
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2.1 Agreement and Plan of Merger dated as of March 14, 2000, by and
among Dexia S.A., Dexia Credit local de France S.A., PAJY Inc. and
Financial Security Assurance Holdings Ltd.
99.1 Press release of Dexia S.A. and Financial Security Assurance
Holdings Ltd. dated March 14, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.,
by: /s/ Bruce E. Stern
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Name: Bruce E. Stern
Title: Managing Director
Date: March 14, 2000
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Exhibit Index
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Exhibit Description
2.1 Agreement and Plan of Merger dated as of March 14, 2000, by and
among Dexia S.A., Dexia Credit local de France S.A., PAJY Inc. and
Financial Security Assurance Holdings Ltd.
99.1 Press release of Dexia S.A. and Financial Security Assurance
Holdings Ltd. dated March 14, 2000.
Execution Copy
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AGREEMENT AND PLAN OF MERGER
dated as of March 14, 2000
by and among
THE ACQUISITION PARTIES NAMED HEREIN
and
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
===============================================================================
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TABLE OF CONTENTS
Page
RECITALS.....................................................................1
ARTICLE I
Certain Definitions
1.01 Certain Definitions.................................................2
ARTICLE II
The Merger
2.01 The Merger..........................................................7
2.02 Effective Date and Effective Time...................................8
ARTICLE III
Consideration; Exchange Procedures
3.01 Merger Consideration................................................8
3.02 Rights as Shareholders..............................................9
3.03 Exchange Procedures.................................................9
3.04 Options............................................................11
3.05 Plan Continuation..................................................11
ARTICLE IV
Forbearances of the Company
4.01 Forbearances of the Company........................................11
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules...............................................14
5.02 Standard...........................................................15
5.03 Representations and Warranties of the Company......................15
5.04 Representations and Warranties of the Acquisition Parties..........28
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Page
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts............................................30
6.02 Proxy Statement....................................................31
6.03 Shareholder Approvals..............................................31
6.04 Press Releases.....................................................31
6.05 Access; Information................................................32
6.06 Acquisition Proposals..............................................32
6.07 Takeover Laws......................................................34
6.08 Regulatory Submissions.............................................34
6.09 Indemnification....................................................35
6.10 Employee Matters...................................................36
6.11 Notification of Certain Matters....................................36
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger.........36
7.02 Conditions to Obligation of the Company............................37
7.03 Conditions to Obligation of the Acquisition Parties................38
ARTICLE VIII
Termination
8.01 Termination........................................................39
8.02 Effect of Termination and Abandonment..............................40
8.03 Fee................................................................40
8.04 Other Fees.........................................................41
ARTICLE IX
Miscellaneous
9.01 Survival...........................................................42
9.02 Waiver; Amendment..................................................42
9.03 Counterparts.......................................................43
9.04 Governing Law......................................................43
9.05 Waiver of Jury Trial...............................................43
9.06 Expenses...........................................................43
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Page
9.07 Notices............................................................43
9.08 Entire Understanding; No Third Party Beneficiaries.................45
9.09 Interpretation; Effect.............................................45
9.10 CLF May Act for Dexia..............................................45
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Page
EXHIBIT A Form of Voting Agreement
EXHIBIT B Form of Non-Competition and Employment Agreement
EXHIBIT C Form of Holdings Purchase Agreement
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AGREEMENT AND PLAN OF MERGER, dated as of March 14, 2000 (this
"Agreement") by and among Dexia S.A. and Dexia Credit local de France S.A.
(each, an "Acquisition Party", and, collectively, the "Acquisition Parties")
and PAJY Inc. (the "Merger Sub") and Financial Security Assurance Holdings
Ltd. (the "Company").
RECITALS
A. The Acquisition Parties. Dexia S.A. ("Dexia") is a corporation
organized under the laws of Belgium, having its principal place of business in
Brussels. Dexia Credit local de France S.A. ("CLF") is a corporation organized
under the laws of France, having its principal place of business in Paris.
Merger Sub is a New York corporation, having its principal place of business
in New York, New York.
B. The Company. The Company is a New York corporation, having its
principal place of business in New York, New York.
C. Voting Agreements. As a further condition and an inducement to
the Acquisition Parties entering into this Agreement, certain shareholders of
the Company (White Mountains Insurance Group, Ltd. ("WM"), MediaOne Capital
Corporation, and XL Capital Ltd), simultaneously with the execution and
delivery of this Agreement, have entered into agreements (the "Voting
Agreements") with CLF, substantially in the form of Exhibit A hereto,
providing that such shareholders will vote or cause all shares of Company
Stock controlled by them to be voted in favor of the Merger and this
Agreement.
D. Non-Competition and Employment Agreements. As a further condition
and an inducement to the Acquisition Parties entering into this Agreement,
certain employees of the Company and its Subsidiaries have executed and
delivered non-competition and employment agreements (the "Employment
Agreements") with the Company (such agreements to become effective at the
Effective Time), each substantially in the form of Exhibit B.
E. Holdings Purchase. As a further condition and inducement to the
Acquisition Parties entering into this Agreement, the Acquisition Parties have
entered into a purchase agreement with WM and White Mountains Holdings
(Barbados) SRL providing for the purchase by CLF of White Mountains Holdings,
Inc.'s indirect equity interest in the Company, substantially in the form of
Exhibit C.
F. Board Action. The respective Boards of Directors of the Company
and each of the Acquisition Parties have determined that it is in the best
interests of their respective companies and their shareholders to consummate
the strategic business combination transaction provided for herein.
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NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
Certain Definitions
1.01 Certain Definitions. The following terms are used in this
Agreement with the meanings set forth below:
"Acquisition Party" or "Acquisition Parties" has the meaning set
forth in the preamble to this Agreement.
"Acquisition Proposal" has the meaning set forth in Section 6.06(a).
"Acquisition Transaction" has the meaning set forth in Section
6.06(a).
"Agreement" means this Agreement, as amended or modified from time
to time in accordance with Section 9.02.
"Applicable Period" has the meaning set forth in Section 6.06(a).
"Benefit Plan" has the meaning set forth in Section 5.03(n)(i).
"Certificate" has the meaning set forth in Section 3.03(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Company Actuarial Analyses" has the meaning set forth in Section
5.03(w).
"Company Board" means the Board of Directors of Company.
"Company By-Laws" has the meaning set forth in Section 5.03(a).
"Company Certificate" has the meaning set forth in Section 5.03(a).
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"Company Common Stock" means the common stock, par value $.01 per
share, of Company.
"Company Insurance Subsidiaries" has the meaning set forth in
Section 5.03(c)(iii).
"Company Investment Assets" has the meaning set forth in Section
5.03(z).
"Company Lead Insurance Subsidiary" means Financial Security
Assurance Inc.
"Company Meeting" has the meaning set forth in Section 6.03.
"Company Option" has the meaning set forth in Section 3.04.
"Company Preferred Stock" means the Series A Convertible Redeemable
Preferred stock, par value $.01 per share, of the Company.
"Company Registration Rights Agreements" has the meaning set forth
in Section 5.03(bb).
"Company SAP Statements" has the meaning set forth in Section
5.03(g)(ii).
"Company Shareholders' Agreements" has the meaning set forth in
Section 5.03(bb).
"Company Shareholder Approval" has the meaning set forth in Section
5.03(e).
"Company Stock" means, collectively, the Company Common Stock and
the Company Preferred Stock.
"Contingency Reserve" has the meaning set forth in Section
5.03(h)(ii).
"Contract" means any agreement, license, lease, understanding,
contract, loan, note, mortgage, indenture, promise, undertaking or other
commitment or obligation (whether written or oral and express or implied).
"Costs" has the meaning set forth in Section 6.09(a).
"CLF" has the meaning set forth in the preamble to this Agreement.
"Department of State" has the meaning set forth in Section 2.01(d).
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"Designated Employees" has the meaning set forth in Section 7.03(d).
"Designated State Insurance Approvals" has the meaning set forth in
Section 5.03(f)(i).
"Dexia" has the meaning set forth in the preamble to this Agreement.
"Drafts" has the meaning set forth in Section 5.03(g)(ii)
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Merger, as provided
for in Section 2.02.
"Employees" has the meaning set forth in Section 5.03(n)(i).
"Employment Agreement" has the meaning set forth in Recital D.
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and Health Act, each as
amended, regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(n)(iii).
"European Approval" has the meaning set forth in Section 8.04(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.03(b).
"Fee" has the meaning set forth in Section 8.03(a).
"Fee Event" has the meaning set forth in Section 8.03(b).
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"Filed SEC Documents" means the SEC Documents of the Company filed
prior to the date of this Agreement.
"Foreign Approvals" has the meaning set forth in Section 5.03(f)(i).
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Holdings Purchase" means the transactions contemplated by the
Holdings Purchase Agreement.
"Holdings Purchase Agreement" means the purchase agreement dated the
date hereof among WM, White Mountains Holdings, (Barbados) SRL and CLF.
"HSR Act" has the meaning set forth in Section 5.03(f).
"Indemnified Party" has the meaning set forth in Section 6.09(a).
"Insurance Amount" has the meaning set forth in Section 6.09(b).
"Insurance Approvals" has the meaning set forth in Section
5.03(f)(i).
"Insurance Policies" has the meaning set forth in Section 5.03(aa).
"Laws" has the meaning set forth in Section 5.03(k)(i).
"Lien" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to the Company, the
Acquisition Parties or the Surviving Corporation, as the case may be, any
effect that (a) is material and adverse to the financial position, results of
operations or business of Company and its Subsidiaries taken as a whole, the
Acquisition Parties and their Subsidiaries taken as a whole or the Surviving
Corporation and its Subsidiaries taken as a whole, as the case may be, or (b)
would materially impair the ability of either the Company or the Acquisition
Parties to perform their obligations under this Agreement, other than in
either case an effect resulting from (x) changes in general economic or equity
or debt market conditions, (y) general changes or developments in the
industries in which the Company and its Subsidiaries, the Acquisition Parties
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and their Subsidiaries or the Surviving Corporation and its Subsidiaries, as
the case may be, operate and not specifically relating to the Company or its
Subsidiaries, the Acquisition Parties or their Subsidiaries or the Surviving
Corporation or its Subsidiaries, as the case may be, or (z) any developments
in connection with the Massachusetts Health and Education Facility Revenue
Bonds, Harvard Pilgrim Health Care issue.
"Merger" has the meaning set forth in Section 2.01(b).
"Merger Consideration" has the meaning set forth in Section 3.01(a).
"Merger Sub" has the meaning set forth in the preamble to this
Agreement.
"NYBCL" means the New York Business Corporation Law.
"NYSE" means the New York Stock Exchange, Inc.
"Other Fee" has the meaning set forth in Section 8.04.
"Pension Plan" has the meaning set forth in Section 5.03(n)(ii).
"Person" means any individual, bank, corporation, partnership,
association, joint-stock, business trust or unincorporated organization.
"Plans" has the meaning set forth in Section 5.03(n)(ii).
"Preferred Merger Consideration" has the meaning set forth in
Section 3.01(a)(ii).
"Previously Disclosed" by a party shall mean information set forth
in its Disclosure Schedule or in its Filed SEC Documents.
"Proxy Statement" has the meaning set forth in Section 6.02.
"Rabbi Trust" means the trust agreement dated as of November 10,
1994 between Financial Security Assurance Holdings Ltd. and The Bank of New
York, as Trustee.
"Rating Agency" or "Rating Agencies" has the meaning set forth in
Section 4.01(j).
"Regulatory Authority" has the meaning set forth in Section 5.03(j).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
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"Rights" means, with respect to any Person, securities or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, or any options, calls or
commitments relating to, or any stock appreciation right or other instrument
the value of which is determined in whole or in part by reference to the
market price or value of, shares of capital stock of such Person.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.03(g).
"Section 6.06 Notice" has the meaning set forth in Section 6.06(a).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 of Regulation S-X of the SEC.
"Superior Proposal" has the meaning set forth in Section 6.06(b).
"Surviving Corporation" has the meaning set forth in Section
2.01(b).
"Surviving Corporation Common Stock" has the meaning set forth in
Section 3.01(b).
"Takeover Laws" has the meaning set forth in Section 5.03 (p).
"Tax" and "Taxes" mean all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gross receipts, gains,
sales, use, ad valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll, employment,
disability, employer health, excise, estimated, severance, stamp, occupation,
property, environmental, unemployment or other taxes, custom duties, fees,
assessments or charges of any kind what soever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any taxing
authority whether arising before, on or after the Effective Date.
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"Treasury Stock" has the meaning set forth in Section 5.03(b).
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"Voting Agreements" has the meaning set forth in Recital C.
"WM" has the meaning set forth in Recital C.
ARTICLE II
The Merger
2.01 The Merger. (a) Prior to the Effective Time, the Acquisition
Parties shall take any and all action necessary to cause Merger Sub to take
all actions necessary or proper to comply with the obligations of the
Acquisition Parties and Merger Sub to consummate the transactions contemplated
hereby.
(b) At the Effective Time, Merger Sub shall merge with and into the
Company (the "Merger"), the separate corporate existence of Merger Sub shall
cease and the Company shall survive and continue to exist as a New York
corporation (the Company, as the surviving corporation in the Merger,
sometimes being referred to herein as the "Surviving Corporation"). The
Surviving Corporation shall continue to be governed by the NYBCL and its
separate corporate existence with all of its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger.
(c) The Acquisition Parties may at any time prior to the Effective
Time change the method of effecting the combination with the Company
(including, without limitation, the provisions of this Article II) if and to
the extent the Acquisition Parties deem such change to be necessary,
appropriate or desirable; provided, however, that no such change shall (i)
alter or change the Merger Consideration, (ii) adversely affect the tax
treatment of the Company's shareholders as a result of receiving the Merger
Consideration or otherwise materially and adversely affect the Company and its
Subsidiaries taken as a whole or (iii) materially impede or delay consummation
of the transactions contemplated by this Agreement; and provided further, that
CLF, on behalf of the Acquisition Parties, shall provide the Company with
written notice of such change.
(d) Subject to the satisfaction or waiver of the conditions set
forth in Article VII, the Merger shall become effective upon the filing in the
office of the New York Department of State (the "Department of State") of a
certificate of merger in accordance with Section 904 of the NYBCL or such
later date and time as may be set forth in such certificate. The Merger shall
have the effects prescribed in the NYBCL.
(e) Articles of Incorporation and By-Laws. The certificate of
incorporation and by-laws of the Surviving Corporation immediately after the
Merger shall be the certificate of incorporation of the Company and the
by-laws of the Company, each as in effect immediately prior to the Effective
Time.
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2.02 Effective Date and Effective Time. Subject to the satisfaction
or waiver of the conditions set forth in Article VII, the parties shall cause
the effective date of the Merger (the "Effective Date") to occur on (a) the
sixth business day to occur after the last of the conditions set forth in
Article VII shall have been satisfied or waived in accordance with the terms
of this Agreement or (b) such other date to which the parties may agree in
writing. The time on the Effective Date when the Merger shall become effective
is referred to as the "Effective Time".
ARTICLE III
Consideration; Exchange Procedures
3.01 Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any Person:
(a) Outstanding Company Stock. At the Effective Time, automatically
and without any action on the part of any holder thereof, each share of
(i) Company Common Stock issued and outstanding at the Effective Time
(other than Treasury Stock and shares of Company Common Stock owned,
directly or indirectly, by Dexia) shall be converted into the right to
receive US$76.00 in cash, without interest (the "Merger Consideration")
and (ii) each share of Company Preferred Stock issued and outstanding at
the Effective Time (other than shares of Company Preferred Stock owned,
directly or indirectly, by Dexia) shall be converted into the right to
receive US$46.35 in cash, without interest (the "Preferred Merger
Consideration").
(b) At the Effective Time, the shares of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into a number of fully paid and nonassessable shares of common
stock, par value $.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock") such that immediately after the Effective Time
the aggregate number of shares of Surviving Corporation Common Stock
outstanding in respect of such conversion shall be equal to the number of
shares of Company Stock converted under Section 3.01(a).
(c) Treasury Shares. Each share of Company Stock held as Treasury
Stock immediately prior to the Effective Time, shall be canceled and
retired at the Effective Time and no consideration shall be issued in
exchange therefor.
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(d) At the Effective Time, (i) each share of Company Common Stock
owned, directly or indirectly, by Dexia immediately prior to the
Effective Time shall remain outstanding and shall continue as one fully
paid and nonassessable share of Surviving Corporation Common Stock and
(ii) each share of Company Preferred Stock owned, directly or indirectly,
by Dexia immediately prior to the Effective Time shall remain outstanding
and shall continue as one fully paid and nonassessable share of preferred
stock, par value $.01 per share, of the Surviving Corporation.
3.02 Rights as Shareholders. At the Effective Time, holders of
Company Stock other than Dexia and its Subsidiaries shall cease to be, and
shall have no rights as, shareholders of the Company, other than to receive
any dividend or other distribution with respect to such Company Stock with a
record date occurring prior to the Effective Time and the consideration
provided under this Article III.
3.03 Exchange Procedures. (a) At and after the Effective Time, each
certificate (other than certificates held, directly or indirectly, by Dexia)
theretofore representing shares of Company Stock (each, a "Certificate") shall
represent only the right to receive the Merger Consideration or the Preferred
Merger Consideration, as applicable, in cash without interest.
(b) As of the Effective Time, CLF, on behalf of the Acquisition
Parties, shall deposit, or shall cause to be deposited, with such bank or
trust company as the Acquisition Parties shall elect (which shall be
reasonably acceptable to the Company) (the "Exchange Agent"), for the benefit
of the holders of shares of Company Stock, for exchange in accordance with
this Article III, the Merger Consideration and the Preferred Merger
Consideration to be paid pursuant to Section 3.01 and deposited pursuant to
this Section 3.03 in exchange for outstanding shares of Company Stock.
(c) As soon as practicable after the Effective Time, the Acquisition
Parties shall cause the Exchange Agent to mail to each holder of record of a
Certificate or Certificates the following: (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent, which shall be in a form and contain any other customary
provisions as the Acquisition Parties and the Company may reasonably
determine; and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration or the Preferred Merger
Consideration, as applicable. Upon the proper surrender of a Certificate to
the Exchange Agent, together with a properly completed and duly executed
letter of transmittal and evidence that any applicable stock transfer taxes
have been paid, the holder of such Certificate shall receive in exchange
therefor a check representing the Merger Consideration or the Preferred Merger
Consideration, as applicable, which such holder has the right to receive in
respect of the Certifi cate surrendered pursuant to the provisions hereof, and
the Certificate so surrendered shall forthwith be canceled. No interest will
be paid or accrued on the Merger Consideration or the Preferred Merger
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Consideration, as applicable. In the event of a transfer of ownership of any
shares of Company Stock not registered in the transfer records of the Company,
a check for the Merger Consideration or the Preferred Merger Consideration, as
applicable, may be issued to the transferee if the Certificate representing
such Company Stock is presented to the Exchange Agent, accompanied by
documents sufficient, in the reasonable discretion of the Acquisition Parties
and the Exchange Agent, (i) to evidence and effect such transfer and (ii) to
evidence that all applicable stock transfer taxes have been paid.
(d) From and after the Effective Time, there shall be no
registration of transfers on the stock transfer records of the Company of any
shares of Company Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Acquisition Parties or the Surviving Corporation for any reason, they
shall be canceled and exchanged for the Merger Consideration or the Preferred
Merger Consideration, as applicable, deliverable in respect thereof pursuant
to this Agreement in accordance with the procedures set forth in this Section
3.03.
(e) Any portion of the aggregate Merger Consideration or the
Preferred Merger Consideration, as applicable, that remains unclaimed by the
shareholders of the Company for six months after the Effective Time and the
proceeds of any investments thereof shall be repaid by the Exchange Agent to
CLF for the account of the Acquisition Parties. Any shareholder of the Company
who has not theretofore complied with this Section 3.03 shall thereafter be
entitled to look only to the Acquisition Parties for payment of the Merger Con
sideration or the Preferred Merger Consideration, as applicable, deliverable
in respect of each share of Company Stock held by such shareholder without any
interest thereon. If outstanding Certificates are not surrendered or the
payment for them is not claimed prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or
agency, the unclaimed items shall, to the extent permitted by abandoned
property and any other applicable law, become the property of the Acquisition
Parties (and to the extent not in its possession shall be paid over to the
Acquisition Parties), free and clear of all claims or interest of any Person
previously entitled to such claims. Notwithstanding the foregoing, none of the
Acquisition Parties, Merger Sub, the Surviving Corporation, the Exchange Agent
or any other Person shall be liable to any former holder of Company Stock for
any amount delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Exchange Agent, the posting by such Person of a bond in such
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amount as the Exchange Agent 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 a check
for the Merger Consideration or the Preferred Merger Consideration, as
applicable, deliverable in exchange therefor.
3.04 Options. Immediately prior to the Effective Time, each
outstanding stock option under the Company's 1993 Equity Participation Plan
(each, a "Company Option") shall be canceled and only entitle the holder
thereof to receive for each share of Company Stock with respect to such
Company Option an amount in cash equal to the excess, if any, of (i) the
Merger Consideration over (ii) the per share exercise price under such Company
Option. Prior to the Effective Time, the Company shall use its reasonable best
efforts to take all necessary action with respect to such cancellation,
including obtaining any necessary consents from the holders of such Company
Options.
3.05 Plan Continuation. Prior to the Effective Time, (i) the Company
Board has elected pursuant to Section 8(e) of the Company's 1993 Equity
Participation Plan to continue the Plan as provided in the resolution included
in Section 3.04 of the Disclosure Schedule, and (ii) the Company will cause
the determinations with respect to the 1993 Equity Participation Plan set
forth in Section 3.04 of the Disclosure Schedule to be made in accordance with
the methodology set forth in Section 3.04 of the Disclosure Disclosure. Prior
to the Effective Time, the Company shall use its reasonable best efforts to
take all necessary action with respect to such action, including obtaining any
necessary consents from the holders of such awards.
ARTICLE IV
Forbearances of the Company
4.01 Forbearances of the Company. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement or as
specifically set forth in the Company Disclosure Schedule, without the prior
written consent of the Acquisition Parties, the Company will not, and will
cause each of its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of the Company and its
Subsidiaries, including, without limitation, in respect of its
reinsurance and risk- management practices, risk profile, risk exposure
and pricing policies, asset investment practices, reserving and
underwriting practices, other than in the ordinary course or fail to use
commercially reasonable efforts to preserve intact their business
organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, agents, brokers,
reinsurers, employees and business associates, or take any action
reasonably likely to have a material adverse effect upon the Company's
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ability to perform any of its material obligations under this Agreement.
(b) Capital Stock. Other than pursuant to Rights Previously
Disclosed, (i) issue, sell or otherwise permit to become outstanding, or
authorize the creation of, any additional shares of Company Stock or any
Rights, (ii) enter into any agreement with respect to the foregoing, or
(iii) permit any shares of Company Stock to become subject to grants of
employee or director stock options, other Rights or similar stock-based
employee rights.
(c) Dividends, Etc. (i) Make, declare, pay or set aside for payment
any dividend (other than (A) quarterly cash dividends on Company Stock in
an amount not to exceed $0.12 per share (or, for dividends declared on or
after August 1, 2000, $0.14 per share) with record and payment dates
consistent with past practice and (B) dividends declared and paid by any
Subsidiary of the Company) on or in respect of, or declare or make any
distribution on any shares of, Company Stock or (ii) directly or
indirectly adjust, split, combine, redeem, reclassify, purchase (other
than shares of Company Common Stock held by the Rabbi Trust or pursuant
to existing agreements Previously Disclosed in Section 4.01(c) of the
Company's Disclosure Schedule) or otherwise acquire, any shares of
Company stock.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of the Company or its
Subsidiaries or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except (i) for
changes that are required by applicable law, (ii) to satisfy Previously
Disclosed contractual obligations existing as of the date hereof, (iii)
as Previously Disclosed or (iv) except for agreements or arrangements
(other than with directors or management committee members) or increases
in the ordinary course of business consistent with past practice that, in
the aggregate, do not materially increase benefits or compensation
expenses of the Company or its Subsidiaries.
(e) Benefit Plans. Enter into, establish, adopt or amend (except (i)
as may be required by applicable law, (ii) as specifically contemplated
hereby, or (iii) to satisfy Previously Disclosed contractual obligations
existing as of the date hereof) any pension, retirement, stock option,
stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive
or welfare contract, plan or arrangement, or any trust agreement (or
similar arrangement) related thereto, in respect of any director,
officer, agent or employee of the Company or its Subsidiaries, or take
any action to accelerate the vesting or exercisability of equity bonuses,
performance shares or other compensation or benefits payable thereunder.
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(f) Dispositions. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its
assets, deposits, business or properties except in the ordinary course of
business.
(g) Acquisitions. Except as Previously Disclosed, acquire all or any
portion of, the assets, business, deposits or properties of any other
entity except in the ordinary course of business and in a transaction
that is not material to the Company and its Subsidiaries taken as a
whole.
(h) Governing Documents. Amend the Company Certificate or the
Company By-laws other than the amendment to the Company Certificate to
remove the transfer restrictions on the Company Preferred Stock.
(i) Licences and Regulatory Authorizations. Take any action that is
intended to or reasonably likely to result in, or fail to take any action
reasonably necessary to prevent the occurrence of, the revocation or
limitation of any licence or authorization granted to the Company of any
of its Subsidiaries, including, without limitation, the licences and
authorizations referred to in Section 5.03(c)(iii), unless management of
the Company determines in good faith that such action or inaction is in
the best interests of the Company.
(j) Ratings. Take any action that is intended to or reasonably
likely to result in, or fail to take any action reasonably necessary to
prevent the occurrence of, an announcement by either Standard & Poor's
Ratings Service or Moody's Investors Service, Inc. (each, a "Rating
Agency, and, collectively, the "Rating Agencies") that such Rating Agency
has decided to downgrade, have under surveillance or review its rating of
the financial strength or claims-paying ability of the Company Lead
Insurance Subsidiary, unless management of the Company determines in good
faith that such action or inaction is in the best interests of the
Company.
(k) Accounting Methods. Except as Previously Disclosed, implement or
adopt any change in its accounting principles, practices or methods,
other than as may be required by generally accepted accounting principles
or regulatory authorities.
(l) Contracts. (i) Enter into any contract of a type referred to in
Section 5.03(l)(ii), or (ii) except in the ordinary course of business,
(x) enter into or terminate any contract of a type referred to in Section
5.03(l)(i) or amend or modify in any material respect any such contract
or (y) enter into any contract, or amend any existing contract, between
the Company or any of its Subsidiaries, on the one hand, and any
shareholder of
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the Company, on the other hand.
(m) Claims. Except in the ordinary course of business, settle any
claim, action or proceeding, except for any claim, action or proceeding
involving solely money damages in an amount, individually or in the
aggregate for all such settlements, that is not material to the Company
and its Subsidiaries taken as a whole.
(n) Adverse Actions. Knowingly take any action that is intended or
is reasonably likely to result in (i) any of its representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect at any time at or prior to the Effective Time, (ii) any
of the conditions to the Merger set forth in Article VII not being
satisfied or (iii) a material violation of any provision of this
Agreement.
(o) Indebtedness. Incur any indebtedness for borrowed money other
than in the ordinary course of business.
(p) Capital Expenditures. Authorize or make any capital expenditures
other than in the ordinary and usual course of business and, in any
event, in amounts not exceeding $4,000,000 in the aggregate.
(q) Commitments. Agree or commit to do any of the foregoing.
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules. On or prior to the date hereof, CLF, on
behalf of the Acquisition Parties, has delivered to the Company a schedule,
and the Company has delivered to CLF, a schedule (respectively, their or its
"Disclosure Schedule") setting forth, among other things, items the disclosure
of which is necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to
one or more representations or warranties contained in Section 5.03 or 5.04 or
to one or more of its covenants contained in Article IV; provided that (a) no
such item is required to be set forth in a Disclosure Schedule as an exception
to a representation or warranty if its absence would not be reasonably likely
to result in the related representation or warranty being deemed untrue or
incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that
such item represents a material exception or fact, event or circumstance or
that such item is reasonably likely to result in a Material Adverse Effect on
the relevant party.
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<PAGE>
5.02 Standard. No representation or warranty of the Company or the
Acquisition Parties contained in Section 5.03 (other than (X) those contained
in Section 5.03(a) (with the exception of the second sentence thereof ), (b),
(c)(i), (c)(ii), (c)(iii) (with the exception of the third and fourth
sentences thereof), and (n)(i) and other than (Y) those contained in Section
5.03(d), (e), (f)(i), (g), (i)(i), (k)(ii) (A), (k)(ii)(B) and (k)(ii)(C),
which in the case of (Y) shall not be deemed untrue or incorrect unless they
are not true and correct in all material respects) or 5.04 (other than (X)
those contained in Section 5.04(a)(i)(A) and other than (Y) those contained in
Section 5.04(b), (c) and (d)(i), which in the case of (Y) shall not be deemed
untrue or incorrect unless they are not true and correct in all material
respects) shall be deemed untrue or incorrect, and no party hereto shall be
deemed to have breached a representation or warranty, as a consequence of the
existence of any fact, event or circumstance unless such fact, circumstance or
event, individually or taken together with all other facts, events or
circumstances inconsistent with any representation or warranty contained in
Section 5.03 or 5.04, has had or is reasonably likely to have a Material
Adverse Effect on the relevant party.
5.03 Representations and Warranties of the Company. Subject to
Sections 5.01 and 5.02 and except as Previously Disclosed in a paragraph of
its Disclosure Schedule corresponding to the relevant paragraph below, the
Company hereby represents and warrants to the Acquisition Parties:
(a) Organization, Standing and Authority. The Company is a
corporation duly organized and validly existing under the laws of the
State of New York. The Company is duly qualified or licensed to do
business in the states of the United States and any foreign jurisdictions
where its ownership or leasing of property or assets or the conduct of
its business requires it to be so qualified or licensed. The Company has
made available to the Acquisition Parties prior to the date hereof
complete and correct copies of its Restated Certificate of Incorporation
(the "Company Certificate") and its Amended and Restated By-laws (the
"Company By-Laws") and the certificates of incorporation and by-laws of
its Subsidiaries, in each case as amended to the date hereof.
(b) Company Stock. As of the date hereof, the authorized capital
stock of the Company consists solely of (i) 220,000,000 shares of the
Company Common Stock, of which 33,518,017 shares were outstanding as of
the date hereof (including 508,064 shares held by the Rabbi Trust) and
(ii) 20,000,000 shares of the Company Preferred Stock, of which 2,000,000
shares were outstanding as of the date hereof. As of the date hereof,
158,306 shares of the Company Common Stock and no shares of the Company
Preferred Stock were held in treasury (which for purposes of this
Agreement shall not include shares held by the Rabbi Trust, the "Treasury
Stock"). The outstanding shares of Company Stock have been duly
authorized and are validly issued and outstanding, fully
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paid and nonassessable, and, except as Previously Disclosed, subject to
no preemptive rights (and were not issued in violation of any preemptive
rights). Each share of Company Preferred Stock is convertible into one
share of Company Common Stock upon surrender of such share and the
payment of a conversion price of $29.65. As of the date hereof, except
pursuant to the Company's 1993 Equity Participation Plan or as Previously
Disclosed in its Disclosure Schedule, there are no shares of Company
Stock authorized and reserved for issuance, the Company does not have any
Rights issued or outstanding with respect to Company Stock, and the
Company does not have any commitment to authorize, issue or sell any
Company Stock or Rights, except pursuant to this Agreement. The number of
shares of the Company Common Stock which are issuable and reserved for
issuance pursuant to the Company's 1993 Equity Participation Plan and
other plans as of the date hereof are Previously Disclosed in the
Company's Disclosure Schedule.
(c) Subsidiaries. (i)(A) The Company has Previously Disclosed a list
of all of its Subsidiaries together with the jurisdiction of organization
of each such Subsidiary, (B) except as Previously Disclosed and except
for directors' qualifying shares, the Company owns, directly or
indirectly, all the issued and outstanding equity securities of each of
its Subsidiaries, (C) except as Previously Disclosed, no equity
securities of any of its Subsidiaries are or may become required to be
issued (other than to the Company or its wholly-owned Subsidiaries) by
reason of any Right or otherwise, (D) except as Previously Disclosed,
there are no contracts, commitments, understandings or arrangements by
which any of such Subsidiaries is or may be bound to sell or otherwise
transfer any equity securities of any such Subsidiaries (other than to
the Company or its wholly-owned Subsidiaries), (E) except as Previously
Disclosed, there are no contracts, commitments, understandings, or
arrangements relating to its rights to vote or to dispose of such
securities and (F) except as Previously Disclosed, all the equity
securities of each Subsidiary held by the Company or its Subsidiaries are
fully paid and nonassessable and are owned by the Company or its
Subsidiaries free and clear of any Liens.
(ii) The Company does not own beneficially, directly or indirectly,
any equity securities or similar interests of any Person, or any interest
in a partnership, joint venture or other entity of any kind, other than
its Subsidiaries or as Previously Disclosed or equity securities or other
interests acquired in compliance with Section 4.01.
(iii) The Company conducts its insurance operations through the
Subsidiaries listed in Section 5.03(c)(iii) of its Disclosure Schedule
(collectively, the "Company Insurance Subsidiaries"). The Company's
Disclosure Schedule sets forth the states or jurisdictions where the
Company Insurance Subsidiaries are domiciled or "commercially domiciled"
for insurance regulatory purposes and such other states where the
transactions contemplated by this Agreement will require the Acquisition
Parties to obtain "change in
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control" approvals from state insurance regulators. The Company and each
of the Company Insurance Subsidiaries is, where required, (A) duly
licensed or authorized as an insurance company or reinsurer in its
jurisdiction of incorporation, (B) duly licensed or authorized as an
insurance company and, where applicable, a reinsurer in each other
jurisdiction where it is required to be so licensed or authorized, and
(C) duly authorized in its jurisdiction of incorporation and each other
applicable jurisdiction to write each line of business reported as being
written in the Company SAP Statements (as hereinafter defined). The
Company has made all required filings under applicable insurance holding
company statutes.
(iv) (A) Each of the Company's other Subsidiaries has been duly
organized and is validly existing under the laws of the jurisdiction of
its organization, and (B) is duly qualified or licensed to do business in
the jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified.
(d) Corporate Power. The Company and each of its Subsidiaries has
the corporate power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; and the Company
has the corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(e) Corporate Authority, Approval and Fairness. Subject (A) in the
case of this Agreement, to receipt of the requisite approval of the plan
of merger set forth in this Agreement by (i) the holders of at least
two-thirds of all outstanding shares of Company Stock entitled to vote
thereon, including the holders of Company Preferred Stock voting as a
single class with the holders of Company Common Stock, and (ii) the
holders of at least two-thirds of the outstanding shares of Company
Preferred Stock, voting separately (which are the only shareholder votes
required thereon) (collectively, the "Company Shareholder Approval"), and
(B) in the case of the Holdings Purchase Agreement, to an amendment to
the Company Certificate to remove the transfer restrictions on the
Company Preferred Stock, this Agreement, the Voting Agreements, the
Holdings Purchase Agreement and the transactions contemplated hereby and
thereby have been authorized by all necessary corporate action of the
Company and the Company Board, and approved by the Company Board by
unanimous vote of all members prior to the date hereof. Assuming the due
authorization, execution and delivery of this Agreement by the other
parties hereto, this Agreement is a valid and legally binding obligation
of the Company, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by
general equity principles). The Company Board has received the written
opinion of Goldman, Sachs & Co. to the effect that, as of the date
hereof, the Merger Consideration
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is fair to the holders of the Company Common Stock from a financial point
of view.
(f) Regulatory Filings; No Defaults. (i) No consents or approvals
of, or filings or registrations with (other than informational filings),
any Governmental Authority are required to be made or obtained by the
Company or any of its Subsidiaries in connection with the execution,
delivery or performance by the Company of this Agreement, the Holdings
Purchase Agreement or the Voting Agreements or to consummate the Merger
except for (A) the filing of a notice or applications, and related
approvals and clearances, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (B) filings with the SEC and
state securities authorities, (C) the filing of a certificate of merger
with the Department of State of the State of New York pursuant to the
NYBCL, (D) filings in respect of, and approvals and authorizations of,
and, as applicable, the expiration of applicable waiting periods of, the
respective Commissioners of Insurance of the States listed in Section
5.03(f)(D) of the Company's Disclosure Schedule (the "Designated State
Insurance Approvals") and (E) such other filings in respect of, and to
the extent necessary, approvals and authorizations of, or notifications
to, similar foreign regulatory authorities to satisfy the requirements of
applicable foreign laws (the "Foreign Approvals", and together with the
Designated State Insurance Approvals, the "Insurance Approvals").
(ii) Subject to receipt of the regulatory approvals and the making
of filings referred to in the preceding paragraph, and expiration of
related waiting periods, and required filings under federal and state
securities laws, and the receipt of Company Shareholder Approval, the
execution, delivery and performance of this Agreement, the Holdings
Purchase Agreement and the Voting Agreements (to the extent that the
Company must take action to render effective the rights conferred by the
Holdings Purchase Agreements and the Voting Agreements), and the
consummation of the transactions contemplated hereby and thereby do not
and will not (A) except as Previously Disclosed, constitute a breach or
violation of, or a default under, or give rise to any Lien, any
acceleration of remedies, or any right of termination under, any law,
rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of the Company or of any
of its Subsidiaries or to which the Company or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation of,
or a default under, the Company Certificate or the Company By- Laws, or
(C) require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument.
(g) Financial Reports, SEC Documents and SAP Statements. (i) The
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997,
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the Company's amended Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1998 and the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 in draft form disclosed in
Section 5.03(g) of the Company's Disclosure Schedule and (except for the
inclusion of information typically included in the proxy statement) in
substantially the form to be filed, and all other reports, registration
statements, definitive proxy statements or information statements filed
or to be filed by it or any of its Subsidiaries subsequent to December
31, 1999 under the Securities Act, or under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, in the form filed or to be filed
(collectively, the Company's "SEC Documents") with the SEC, as of the
date filed, (A) complied or will comply in all material respects as to
form with the applicable requirements under the Securities Act or the
Exchange Act, as the case may be, and (B) did not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and each of the balance sheets contained in or
incorporated by reference into any such SEC Document (including the
related notes and schedules thereto) fairly presents, or will fairly
present, the financial position of the Company and its Subsidiaries as of
its date, and each of the statements of income and changes in
shareholders' equity and cash flows or equivalent statements in such SEC
Documents (including any related notes and schedules thereto) fairly
presents, or will fairly present, the results of operations, changes in
shareholders' equity and changes in cash flows, as the case may be, of
the Company and its Subsidiaries for the periods to which they relate, in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as
may be noted therein and subject to normal year-end audit adjustments.
(ii) The Company has delivered or made available to the Acquisition
Parties Representative true and complete copies of the annual statements
of each of the Company Insurance Subsidiaries as filed with the
applicable insurance regulatory authorities for the years ended December
31, 1996, 1997, 1998, the quarterly statements for the periods ended
March 31, 1999, June 30, 1999 and September 30, 1999, including all
exhibits, interrogatories, notes, schedules and any actuarial opinions,
affirmations or certifications or other supporting documents filed in
connection therewith and the most recent drafts (the "Drafts") of the
annual statements of each of the Company Insurance Subsidiaries to be
filed with the applicable insurance regulatory authorities for the year
ended December 31, 1999 (collectively, the "Company SAP Statements"). The
Company SAP Statements were prepared in conformity with statutory
accounting practices prescribed or permitted by the applicable insurance
regulatory authority consistently applied for the periods covered thereby
except, in each case, as may be noted therein, and present fairly the
statutory financial position of the Company and such Company Insurance
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Subsidiaries as at the respective dates thereof and the results of
operations of such Subsidiaries for the respective periods then ended.
The Company SAP Statements complied in all material respects with all
applicable laws, rules and regulations when filed, and no material
deficiency has been asserted with respect to any Company SAP Statements
by the applicable insurance regulatory body or any other governmental
agency or body. The annual statutory balance sheets and income statements
included in the Company SAP Statements other than the Drafts have been
audited by PricewaterhouseCoopers LLP, and the Company has delivered or
made available to the Acquisition Parties true and complete copies of all
audit opinions related thereto. The Company has delivered or made
available to the Acquisition Parties true and complete copies of all
examination reports of insurance departments and any insurance regulatory
agencies since January 1, 1996 relating to the Company or the Company
Insurance Subsidiaries.
(h) Absence of Certain Changes. Except as Previously Disclosed,
since January 1, 2000:
(i) to the date of this Agreement, the Company and its Subsidiaries
(A) have not incurred any liability other than in the ordinary course of
business and (B) have conducted their respective businesses in the
ordinary course;
(ii) to the date of this Agreement, there has not been (A) any
declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company, except for
dividends or other distributions on its capital stock publicly announced
prior to the date hereof; (B) any material addition, or any development
involving a prospective material addition, to the Company's consolidated
reserves, including the contingency reserve maintained pursuant to
Article 69 of the New York Financial Guaranty Insurance Law (the
Company's "Contingency Reserve"); (C) any material change in the
accounting, actuarial, investment, reserving, underwriting or claims
administration policies, practices or principles of the Company or any of
the Company Insurance Subsidiaries; and
(iii) there has not been any event or circumstance that,
individually or taken together with all other facts, circumstances and
events (described in any paragraph of Section 5.03 or otherwise), has had
or is reasonably likely to have a Material Adverse Effect with respect to
the Company.
(i) Litigation and Liabilities. As of the date of this Agreement,
except as Previously Disclosed, (i) no litigation, claim or other
proceeding before any court or governmental agency is pending against the
Company or any of its Subsidiaries and, to
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the Company's knowledge, no such litigation, claim or other proceeding
has been threatened.
(ii) There are no obligations or liabilities, whether or not
accrued, contingent or otherwise, including those relating to matters
involving any Environmental Laws and occupational safety and health
matters, required by generally accepted accounting principles to be set
forth on a consolidated balance sheet of the Company that are reasonably
likely to result in a Material Adverse Effect.
(j) Regulatory Matters. Except as Previously Disclosed, (i) neither
the Company nor any of its Subsidiaries or properties is a party to or is
subject to any order, decree, supervisory agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from, any
foreign, federal or state governmental agency or authority charged with
the supervision or regulation of insurance companies or issuers of
securities or the supervision or regulation of it or any of its
Subsidiaries (collectively, the "Regulatory Authorities").
(ii) Neither the Company nor any of its Subsidiaries has been
advised by any Regulatory Authority that such Regulatory Authority is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
supervisory agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(k) Compliance with Laws; Permits. (i) Except as Previously
Disclosed, the businesses of each of the Company and its Subsidiaries
have not been, and are not being, conducted in violation of any federal,
state, local or foreign law, statute, ordinance, rule, regulation,
judgment, order, injunction, decree, arbitration award, agency
requirement, license or permit of any Governmental Authority
(collectively, "Laws"). Except as Previously Disclosed, no investigation,
examination or review other than in the ordinary course by any
Governmental Authority with respect to the Company or any of its
Subsidiaries is pending or, to the knowledge of the Company, has any
Governmental Authority indicated an intention to conduct the same. The
Company and each of its Subsidiaries each has all permits, licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business
as presently conducted.
(ii) Prior to the Effective Time, (A) the Company and its Insurance
Subsidiaries do not receive a subsidy or other competitive advantage, as
a result of any indirect control by a political subdivision of a foreign
government, (B) the Company and
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its Insurance Subsidiaries are not entitled to claim sovereign immunity
as result of such control, or will waive such sovereign immunity, (C) the
use of the Company and its Insurance Subsidiaries as insurer is not
detrimental to the interests of the people of the State of New York or
any other state in which such entities conduct business and (D) each of
the Company and its Insurance Subsidiaries otherwise satisfies all
applicable requirements for the renewal of its licence to transact
insurance business in each jurisdiction in which it is currently
authorized to transact on insurance business.
(l) Material Contracts; Defaults. Except as Previously Disclosed,
neither the Company nor any of its Subsidiaries is a party to, bound by
or subject to any agreement, contract, arrangement, commitment or
understanding (whether written or oral) (i) that is a "material contract"
within the meaning of Item 601(b)(10) of the SEC's Regulation S-K, (ii)
that prohibits or restricts the Company or any of its Subsidiaries from
engaging in any business activity in any geographic area, line of
business or otherwise in competition with any other Person or (iii) that
provides for the management of any assets, other than investment
securities, of the Company or any of its Subsidiaries by a party not
majority owned by the Company. Except as Previously Disclosed, neither
the Company nor any of its Subsidiaries is in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its respective assets,
business, or operations may be bound or affected, or under which it or
its respective assets, business, or operations receives benefits, and
there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default.
(m) No Brokers. No action has been taken by the Company that would
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, except as may be payable
pursuant to a Previously Disclosed engagement letter with Goldman, Sachs
& Co.
(n) Employee Benefit Plans. (i) All benefit and compensation plans,
contracts, policies or arrangements covering current or former employees
of the Company and its Subsidiaries (the "Employees") and current or
former directors of the Company, including, but not limited to, "employee
benefit plans" within the meaning of Section 3(3) of ERISA, and deferred
compensation, stock option, stock purchase, stock appreciation rights,
stock based, incentive and bonus plans (the "Benefit Plans"), are listed
in Schedule 5.03(n). True and complete copies of all Benefit Plans,
including, but not limited to, any trust instruments and insurance
contracts forming a part of any Benefit Plans, and all amendments thereto
have been provided or made available to the Acquisition Parties.
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(ii) All employee benefit plans covering Employees (the "Plans"), to
the extent subject to ERISA, are in substantial compliance with ERISA.
Each Plan which is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA ("Pension Plan") and which is intended to be
qualified under Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service with respect to
"TRA" (as defined in Section 1 of Rev. Proc. 93-39), and the Company is
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. There is no material pending or, to the
knowledge of the Company threatened, litigation relating to the Plans.
Neither the Company nor any of its Subsidiaries has engaged in a
transaction with respect to any Plan that, assuming the taxable period of
such transaction expired as of the date hereof, could subject the Company
or any Subsidiary to a tax or penalty imposed by either Section 4975 of
the Code or Section 502(i) of ERISA in an amount which would be material.
(iii) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Company or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the single-
employer plan of any entity which is considered one employer with the
Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither the Company, any of its Subsidiaries nor an ERISA
Affiliate has contributed to a "multiemployer plan", within the meaning
of Section 3(37) of ERISA, at any time on or after September 26, 1980. No
notice of a "reportable event", within the meaning of Section 4043 of
ERISA for which the 30-day reporting requirement has not been waived, has
been required to be filed for any Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof or will be required
to be filed in connection with the transactions contemplated by this
Agreement.
(iv) All contributions required to be made under the terms of any
Benefit Plan have been timely made or have been reflected on the Audited
Financial Statements or the Preliminary Financial Statements. Neither any
Pension Plan nor any single-employer plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA
Affiliate has an outstanding funding waiver. Neither the Company nor any
of its Subsidiaries has provided, or is required to provide, security to
any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date hereof,
the actuarially determined
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present value of all "benefit liabilities", within the meaning of Section
4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the Plan's most recent actuarial valuation), did
not exceed the then current value of the assets of such Plan, and there
has been no material change in the financial condition of such Plan since
the last day of the most recent plan year.
(vi) Neither the Company nor any of its Subsidiaries has any obligations
for retiree health and life benefits under any Benefit Plan, except as
set forth on Schedule 5.03(n). The Company or the Subsidiaries may amend
or terminate any such Benefit Plan at any time without incurring any
liability thereunder.
(vii) Except as contemplated by the 1993 Equity Participation Plan, in
and of itself, the consummation of the transactions contemplated by this
Agreement will not (x) entitle any employees of the Company or any of the
Subsidiaries to severance pay, (y) accelerate the time of payment or
vesting or trigger any payment or funding (through a grantor trust or
otherwise) of compensation or benefits under, increase the amount payable
or trigger any other material obligation pursuant to, any of the Benefit
Plans or (z) result in any payments under, any of the Benefit Plans which
would not be deductible under Section 162(m) or Section 280G of the Code.
(o) Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor
organization, nor is the Company or any of its Subsidiaries the subject
of a proceeding asserting that it or any such Subsidiary has committed an
unfair labor practice (within the meaning of the National Labor Relations
Act) or seeking to compel the Company or any such Subsidiary to bargain
with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or threatened, nor is the Company aware of any
activity involving its or any of its Subsidiaries' employees seeking to
certify a collective bargaining unit or engaging in other organizational
activity.
(p) Takeover Laws; Dissenters' Rights. The Company has taken all action
required to be taken by it in order to exempt this Agreement, the
Holdings Purchase Agreement and the Voting Agreements and the
transactions contemplated hereby and thereby from, and this Agreement,
the Holdings Purchase Agreement and the Voting Agreements and the
transactions contemplated hereby and thereby are exempt from, the
requirements of any "moratorium", "control share", "fair price",
"affiliate transaction", "business combination" or other antitakeover
laws and regulations (including Section 912 of the NYBCL) of any state
(collectively, "Takeover Laws"), including, without limitation, the State
of New York. Holders of Company Common Stock and holders of
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Company Preferred Stock do not have dissenters' rights in connection with
the Merger.
(q) Environmental Matters. Except as Previously Disclosed, neither
the conduct nor operation of the Company or its Subsidiaries nor any
condition of any property presently or previously owned, leased or
operated by any of them (including, without limitation, in a fiduciary or
agency capacity), or on which any of them holds a Lien, violates or
violated Environmental Laws and no condition has existed or event has
occurred with respect to any of them or any such property that, with
notice or the passage of time, or both, is reasonably likely to result in
liability to the Company or its Subsidiaries under Environmental Laws.
Except as Previously Disclosed, neither the Company nor any of its
Subsidiaries has received any notice from any Person or entity that the
Company or its Subsidiaries or the operation or condition of any property
ever owned, leased, operated, or held as collateral or in a fiduciary
capacity by any of them are or were in violation of or otherwise are
alleged to have liability under any Environmental Law, including, but not
limited to, responsibility (or potential responsibility) for the cleanup
or other remediation of any pollutants, contaminants, or hazardous or
toxic wastes, substances or materials at, on, beneath, or originating
from any such property.
(r) Tax Matters. Except as Previously Disclosed, (i) all Tax Returns
that are required to be filed by or with respect to the Company and its
Subsidiaries for the periods ending on or prior to the Effective Date
have been duly filed, or, in the case of Tax returns that are required to
be filed by or with respect to the Company and its Subsidiaries for
periods ending after the date of this Agreement but on or before the
Effective Date, will be duly filed, and such Tax Returns were or will be
true and complete in all respects, (ii) all Taxes shown to be due on the
Tax Returns referred to in clause (i) have been or will be paid in full,
(iii) the Federal Income Tax Returns referred to in clause (i) have been
examined by the Internal Revenue Service for the years through 1996, (iv)
all deficiencies asserted or assessments made as a result of any
examination by any taxing authority (Federal, state, local or foreign)
have been paid in full, (v) no issues that have been raised by the
relevant taxing authority in connection with the examination of any of
the Tax Returns referred to in clause (i) are currently pending, (vi) no
waivers of statutes of limitation have been given by or requested with
respect to any Taxes of the Company or its Subsidiaries, (vii) neither
the Company nor any of its Subsidiaries will be required, as a result of
(A) a change in accounting method for a Tax period beginning on or before
the Closing, to include any adjustment under Section 481(c) of the Code
(or any similar provision of state, local or foreign law) in taxable
income for any Tax period beginning on or after the Closing Date (except
as a result of regulations that became effective on January 1, 2000,
under Section 832 of the Code), or (B) any "closing agreement" as
described in Section 7121 of the Code (or any similar provision of state,
local or foreign Tax law), to include any item of income in or exclude
any item of deduction from any
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Tax period beginning on or after the Closing, (viii) no closing
agreements, private letter rulings, technical advance memoranda or
similar agreement or rulings have been entered into or issued by any
taxing authority with respect to the Company or any of its Subsidiaries,
(ix) neither the Company nor any of its Subsidiaries has ever been a
member of an affiliated, combined, consolidated or unitary Tax group for
purposes of filing any Tax Return, other than, for purposes of filing
consolidated U.S. Federal income tax returns, a group of which the
Company was the common parent, except with MediaOne Capital Corporation,
(x) neither the Company nor any of its Subsidiaries has any liability for
Taxes of any other corporation (other than the Company or its
Subsidiaries) as a result of transferee liability, Treasury Regulations
Section 1.1502-6 or otherwise, (xi) other than with MediaOne Capital
Corporation and Capital Re Corporation, neither the Company nor any of
its Subsidiaries is a party to any tax allocation, sharing or
indemnification agreement (other than an agreement the parties to which
consist solely of the Company and its Subsidiaries), (xii) there are no
Liens on any of the assets of the Company or its Subsidiaries that arose
in connection with any failure (or alleged failure) to pay any Tax,
(xiii) neither the Company nor any of its Subsidiaries has in the past
two years made a distribution that qualified under Section 355 of the
Code and (xiv) no tax is required to be withheld pursuant to Section 1445
of the Code as a result of the transfer contemplated by this Agreement.
The Company has made available to the Acquisition Parties true and
correct copies of the United States federal income Tax Returns filed by
the Company and its Subsidiaries for each of the three most recent fiscal
years ended on or before December 31, 1998. Neither the Company nor any
of its Subsidiaries has any liability with respect to income, franchise
or similar Taxes that accrued on or before the end of the most recent
period covered by the Company's Filed SEC Documents in excess of the
amounts accrued with respect thereto as reported on such Filed SEC
Documents.
(s) Risk Management Instruments. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar
risk management arrangements, whether entered into for the Company's own
account, or for the account of one or more of the Company's Subsidiaries, were
entered into (i) in accordance with the Company's regular business practices
and all applicable laws, rules, regulations and regulatory policies and (ii)
with counterparties believed to be financially responsible at the time; and
each of them constitutes the valid and legally binding obligation of the
Company or one of its Subsidiaries, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and are in full force and effect. Neither the Company nor its
Subsidiaries, nor to the Company's knowledge any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement.
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(t) Books and Records. The books and records of the Company and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or
discrepancies of any kind contained or reflected therein.
(u) Insurance Issued by the Company and the Company Insurance
Subsidiaries. Except as Previously Disclosed:
(i) All benefits claimed by any Person under any insurance Contract
issued by the Company or any Company Insurance Subsidiary have in all
material respects been paid (or provision for payment thereof has been
made or such amounts are being contested in good faith) in accordance
with the terms of the Contracts under which they arose, such payments
were not materially delinquent and were paid (or will be paid) without
fines or penalties.
(ii) The underwriting standards utilized and ratings applied by the
Company and each Company Insurance Subsidiary with respect to insurance
Contracts outstanding as of the date hereof have been Previously
Disclosed or made available to the Acquisition Parties and, with respect
to any such Contract reinsured in whole or in part, conform in all
material respects to the standards and ratings required pursuant to the
terms of the related reinsurance, coinsurance or other similar Contracts.
(v) Reinsurance and Coinsurance. The Company has made available to
the Acquisition Parties information regarding all reinsurance or
coinsurance treaties or agreements, including retrocessional agreements,
to which the Company or any Company Insurance Subsidiary is a party or
under which the Company or any Company Insurance Subsidiary has any
existing rights, obligations or liabilities. As of the date hereof, all
such treaties or agreements are in full force and effect. Except as set
forth in Section 5.03(v) of the Company's Disclosure Schedule, neither
the Company nor any Company Subsidiary, nor, any other party to a
reinsurance or coinsurance treaty or agreement to which the Company or
any Company Insurance Subsidiary is a party, is in default in any
material respect as to any material provision thereof, and no such
agreement contains any provision providing that the other party thereto
may terminate such agreement by reason of the transactions contemplated
by this Agreement and the Voting Agreements. Except as set forth in
Section 5.03(v) of the Company's Disclosure Schedule, as of the date
hereof, there is no reason to believe that the financial condition of any
other party to any such agreement is impaired with the result that a
default thereunder may reasonably be anticipated, whether or not such
default may be cured by the operation of any offset clause in such
agreement, and the Company has no reason to believe that any material
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amounts recoverable under reinsurance, coinsurance or other similar
Contracts to which the Company or any Company Insurance Subsidiary is a
party (including, but not limited to, amounts based on paid and unpaid
losses) are not fully collectible. As of the date hereof, the Company and
each Company Insurance Subsidiary are entitled to take full credit in
their respective SAP Statements (to the extent credit has been taken in
such SAP Statements) pursuant to applicable Laws for all reinsurance and
coinsurance ceded pursuant to any reinsurance or coinsurance treaty or
agreement to which the Company or any Company Insurance Subsidiary is
party.
(w) Actuarial Reports. The Company has delivered or made available
to the Acquisition Parties a true and complete copy of any actuarial
reports prepared by actuaries, independent or otherwise, with respect to
the Company or any Company Insurance Subsidiary in the twelve (12) months
prior to the date of this Agreement, and all attachments, addenda,
supplements and modifications thereto (the "Company Actuarial Analyses").
To the knowledge of the Company, the information and data furnished by
the Company to its independent actuaries in connection with the
preparation of the Company Actuarial Analyses were accurate in all
material respects.
(x) Ratings. (i) The insurance and insurer financial strength of the
Company Lead Insurance Subsidiary is rated AAA by Standard & Poor's
Ratings Service, Aaa by Moody's Investors Service, Inc. and; (ii) no
rating organization named in clause (i) above has announced that it has
under surveillance or review its rating of the insurance and insurer
financial strength of the Company Lead Insurance Subsidiary; and (iii)
the Company has no reason to believe that any rating specified in clause
(i) above is likely to be modified, qualified, lowered or placed under
such surveillance or review for any reason, including as a result of the
transactions contemplated hereby.
(y) Reserves. The Company SAP Statements include all reserves
required by statutory accounting practices and the financial statements
contained in the SEC Documents include or will include all reserves
required by generally accepted accounting principles. The admitted assets
of the Company and each Company Insurance Subsidiary as determined under
applicable Laws are in an amount at least equal to the minimum amounts
required by applicable Laws.
(z) Company Investment Assets. The Company has made available to the
Acquisition Parties a true and complete list of all Company Investment
Assets (as defined below) as of December 31, 1999, with information
included therein as to the cost of each such Company Investment Asset and
the market value thereof as of December 31, 1999. Except as set forth in
Section 5.03(z) of the Company's Disclosure Schedule, the Company or a
Subsidiary of the Company has good and marketable title to all Company
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Investment Assets, in the case of marketable securities, free and clear,
in the case of marketable securities, of any Lien. Except as set forth in
Section 5.03(z) of the Company's Disclosure Schedule, none of the Company
Investment Assets is in default in the payment of principal or interest
or dividends or, to the knowledge of the Company, permanently impaired to
any extent. For purposes of this Agreement, "Company Investment Assets"
means any investment assets (whether or not required by GAAP or SAP to be
reflected on a balance sheet) beneficially owned (within the meaning of
Rule 13d-3 under the Exchange Act), by the Company or any Subsidiary of
the Company, including, without limitation, bonds, notes, debentures,
mortgage loans, real estate, collateral loans and all other instruments
of indebtedness, stocks, partnership or joint venture interests and all
other equity interests, certificates issued by or interests in trusts,
derivatives and all other assets acquired for investment purposes.
(aa) Insurance Purchased by the Company. The Company has made
available to the Acquisition Parties all material insurance policies,
binders, or bonds maintained by the Company or its Subsidiaries
("Insurance Policies"). The Company and its Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the
management of the Company reasonably has determined to be prudent in
accordance with industry practices. All the Insurance Policies are in
full force and effect; the Company and its Subsidiaries are not in
material default thereunder; and all material claims thereunder have been
filed in due and timely fashion.
(bb) Certain Agreements. Section 5.03(bb) of the Company's
Disclosure Schedule sets forth a complete list of all registration right
agreements (the "Company Registration Rights Agreements") and all
shareholder agreements (the "Company Shareholders' Agreements") relating
to Company Stock. In connection with the entering into of this Agreement,
the Company has obtained all consents or waivers and has taken all other
action necessary, under the Company Registration Rights Agreements and
the Company Shareholders' Agreements, to permit the transactions
contemplated hereby.
(cc) Employment Agreements. The Company has entered into
non-competition and employment agreements with each of Robert Cochran,
Roger Taylor and Sean McCarthy.
5.04 Representations and Warranties of the Acquisition Parties.
Subject to Sections 5.01 and 5.02 and except as Previously Disclosed in a
paragraph of its Disclosure Schedule corresponding to the relevant paragraph
below, the Acquisition Parties hereby represent and warrant to the Company as
follows:
(a) Organization, Standing and Authority. (i) Each of Dexia, CLF and
Merger
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Sub (A) is a corporation duly organized and validly existing under the
laws of its jurisdiction of incorporation, (B) is duly qualified or
licensed to do business in each jurisdiction where its ownership or
leasing of property or assets or the conduct of its business requires it
to be so qualified or licensed and (C) has in effect all governmental or
administrative authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now
conducted.
(b) Corporate Power. Each Acquisition Party, each of their
Significant Subsidiaries and the Merger Sub has the corporate power and
authority to carry on its business as it is now being conducted and to
own all its properties and assets; and each Acquisition Party and the
Merger Sub has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and to consummate the
transactions contemplated hereby.
(c) Corporate Authority and Approval. This Agreement and the Voting
Agreements and the transactions contemplated hereby and thereby have been
authorized by all necessary corporate action of each Acquisition Party
and the Merger Sub and each of their respective Boards of Directors and
does not require any vote of shareholders. This Agreement is a valid and
legally binding agreements of each Acquisition Party and the Merger Sub
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to
or affecting creditors' rights or by general equity principles).
(d) Regulatory Filings; No Defaults. (i) No consents or approvals
of, or filings or registrations with, any Governmental Authority or with
any third party are required to be made or obtained by any of the
Acquisition Parties or any of their respective Subsidiaries in connection
with the execution, delivery or performance by each Acquisition Party of
this Agreement and the Voting Agreements or to consummate the Merger
except for (A) the filing of a notice or applications, and related
approvals and clearances, under the HSR Act and under applicable European
Union antitrust laws and as listed in Schedule 5.04(d) of the Acquisition
Parties' Disclosure Schedule, (B) the filing of applications and notices,
as applicable, with the foreign governmental, federal and state
Governmental Authorities governing banking and insurance in the
jurisdictions or states where each of the Acquisition Parties operate
their respective businesses which are listed in Schedule 5.04(d) of the
Acquisition Parties' Disclosure Schedule, and the approval of such
applications or the grant of required licenses by such Governmental
Authorities as listed in Schedule 5.04(d) of the Acquisition Parties'
Disclosure Schedule, (C) the filing of articles of merger with the
Department of State of the State of New York pursuant to the NYBCL, (D)
filings in respect of, and approvals and authorizations of,
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and, as applicable, the expiration of applicable waiting periods of, the
Designated State Insurance Approvals and (E) filings and notifications in
respect of, and, to the extent necessary, approvals and authorizations in
respect of, Foreign Approvals.
(ii) Subject to receipt of the regulatory approvals, filings and
notifications referred to in the preceding paragraph and expiration of
the related waiting periods, and required filings under federal and state
securities laws, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do
not and will not (A) constitute a breach or violation of, or a default
under, or give rise to any Lien, any acceleration of remedies or any
right of termination under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or agreement, indenture or
instrument of each Acquisition Party or of any of its Subsidiaries or to
which each Acquisition Party or any of its Subsidiaries or properties is
subject or bound, (B) constitute a breach or violation of, or a default
under, the certificate of incorporation or by-laws (or similar governing
documents) of each Acquisition Party or any of its Subsidiaries, or (C)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument.
(e) Access to Funds. Prior to the Effective Time, the Acquisition
Parties shall have all funds necessary to consummate the Merger and pay
the aggregate Merger Consideration.
(f) No Brokers. No action has been taken by any Acquisition Party
that would give rise to any valid claim against any party hereto for a
brokerage commission, finder's fee or other like payment with respect to
the transactions contemplated by this Agreement, excluding a fee to be
paid to Lazard Freres & Cie.
(g) Information Supplied. None of the information supplied or to be
supplied by the Acquisition Parties or Merger Sub for inclusion in the
Proxy Statement and any amendment or supplement thereto (including any
material incorporated by reference), at the date of mailing to
shareholders of the Company and the date of the meeting of the Company's
shareholders to be held in connection with the Merger, will contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(h) 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.
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ARTICLE VI
Covenants
6.01 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, the Company and the Acquisition Parties agree to use their
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall cooperate fully with the other
party hereto to that end.
6.02 Proxy Statement. As soon as practicable after the date hereof,
the Company shall prepare a proxy statement to take shareholder action on the
Merger (the "Proxy Statement"), file the Proxy Statement with the SEC, respond
to comments of the staff of the SEC and promptly thereafter mail the Proxy
Statement to all holders of record (as of the applicable record date) of
shares of the Company's Stock. The Company represents and covenants that the
Proxy Statement and any amendment or supplement thereto (including any
material incorporated by reference), at the date of mailing to shareholders of
the Company and the date of the meeting of the Company's shareholders to be
held in connection with the Merger, will conform in all material respects to
the requirements of the Exchange Act and all relevant rules and regulations of
the SEC, 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
were made, not misleading, except that no representation or warranty is made
by the Company with respect to statements made or incorporated by reference
therein based on information supplied by an Acquisition Party specifically for
inclusion or incorporation by reference in the Proxy Statement. The
Acquisition Parties and the Company shall cooperate with each other in the
preparation of the Proxy Statement. The Company will promptly supply the
Acquisition Parties with all correspondence between the Company or its
Representatives, on the one hand, and the SEC or its staff, on the other,
after the date hereof. If requested by the Acquisition Parties, the Company
shall, at its expense, employ professional proxy solicitors to assist it in
contacting shareholders in connection with the vote on the Merger. The Company
will not mail any Proxy Statement, or make any amendment or supplement
thereto, to which the Acquisition Parties reasonably object.
6.03 Shareholder Approvals. The Company agrees to take, in
accordance with applicable law or NYSE rules and the Company Certificate and
the Company By-Laws, all action necessary to convene an appropriate meeting of
shareholders of the Company to consider
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and vote upon the approval and adoption of this Agreement and any other
matters required to be approved by the Company's shareholders for consummation
of the Merger and the transactions contemplated hereby (including any
adjournment or postponement, the "Company Meeting") as promptly as
practicable, subject to the Company's right to terminate this Agreement
pursuant to Section 6.06(b) and 8.01(f). The Company Board shall recommend
such approval, and the Company shall take all reasonable, lawful action to
solicit such approval by its shareholders, in each case subject to the right
of the Company Board to withdraw, modify or change its approval or
recommendation of the Merger and this Agreement as set forth in Section
6.06(b). Prior to the Effective Time and in order to permit the Holdings
Purchase, the Company shall take all action necessary to amend the Company
Certificate to remove the transfer restrictions on the Company Preferred
Stock.
6.04 Press Releases. The Company and the Acquisition Parties agree
that they will not, without the prior approval of the other party, issue any
press release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by applicable
law or regulation or NYSE rules.
6.05 Access; Information. (a) The Company agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, it shall afford the Acquisition Parties and their officers,
employees, counsel, accountants and other authorized Representatives,
reasonable access during normal business hours throughout the period prior to
the Effective Time to the books, records (including, without limitation, tax
returns and work papers of independent auditors), properties, personnel and to
such other information as any party may reasonably request and, during such
period, it shall furnish promptly to the Acquisition Parties (i) a copy of
each material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities or insurance laws, and (ii) all
other information concerning the business, properties and personnel of it as
the Acquisition Parties may reasonably request.
(b) Each party agrees that it will not, and will cause its
Representatives not to, use any information obtained pursuant to this Section
6.05 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement. Each
party will keep confidential, and will cause its Representatives to keep
confidential, all information and documents obtained pursuant to this Section
6.05 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) unless such information
(i) was already known to such party, (ii) becomes available to such party on a
non-confidential basis from other sources not known by such party to be bound
by a confidentiality obligation, (iii) is disclosed with the prior written
approval of the party to which such information pertains, (iv) is or becomes
readily ascertainable from published
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information or trade sources other than as a result of a disclosure by such
party or its Representatives or (v) must, in the opinion of such party, upon
advice of counsel, be disclosed in order to avoid violating any applicable
law. In the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be consummated, each
party shall promptly cause all copies of documents or extracts thereof
containing information and data as to another party hereto to be returned to
the party which furnished the same or to be destroyed. No investigation by
either party of the business and affairs of the other shall affect or be
deemed to modify or waive any representation, warranty, covenant or agreement
in this Agreement, or the conditions to either party's obligation to
consummate the transactions contemplated by this Agreement.
6.06 Acquisition Proposals. (a) The Company shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or permit any of its
or its Subsidiaries' directors, officers or employees to, and shall use
commercially reasonable efforts to cause any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its Subsidiaries not to, directly or indirectly through another person, (i)
solicit, initiate or encourage (including by way of furnishing information),
or knowingly take any other action designed to facilitate, the making of any
proposal which constitutes an Acquisition Proposal or (ii) participate
(including by way of furnishing of information) in any discussions or
negotiations regarding any Acquisition Proposal; provided, however, that if,
at any time prior to the date of receipt of the Company Shareholder Approval
(the "Applicable Period"), the Company Board determines in good faith, after
consultation with its financial and legal advisors, that a proposal that was
not solicited by it after the date of this Agreement is, or is reasonably
likely to result in, a Superior Proposal (as defined in Section 6.06(b)), and
subject to providing prior written notice of its decision to take such action
to the Acquisition Parties (a "Section 6.06 Notice") and compliance with
Section 6.06(c), the Company may (x) furnish information with respect to the
Company and its Subsidiaries to any person making such proposal pursuant to a
confidentiality agreement generally at least as restrictive as the
confidentiality agreement to which one of the Acquisition Parties or an
affiliate of the Acquisition Parties was a party and (y) participate in
discussions or negotiations regarding such proposal. For purposes of this
Agreement, "Acquisition Proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of a
business that constitutes 20% or more of the net revenues, net income or the
assets of the Company and its Subsidiaries, taken as a whole, or 20% or more
of any class of equity securities of the Company or any of its Subsidiaries,
any tender offer or exchange offer that if consummated would result in any
person beneficially owning 20% or more of any class of equity securities of
the Company or any of its Subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries, other than the transactions
contemplated by this Agreement. Any such transaction is referred to herein as
an "Acquisition Transaction".
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(b) Notwithstanding anything in this Agreement to the contrary, in
response to an Acquisition Proposal that was not solicited by it after the
date of this Agreement, the Company Board shall be permitted during the
Applicable Period, but only to the extent required by its fiduciary
obligations under applicable law as determined in good faith by the Company
Board after considering advice of outside counsel, to (i) withdraw, modify or
change, or propose publicly to withdraw, modify or change, the approval or
recommendation by such Board of the Merger or this Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or
(iii) terminate this Agreement pursuant to Section 8.01(f) with respect to any
Superior Proposal, but only if, in the case of each of clauses, (i), (ii) or
(iii), the Company Board determines in good faith that such Acquisition
Proposal constitutes a Superior Proposal. For purposes of this Agreement, a
"Superior Proposal" means any written Acquisition Proposal that the Company
Board determines in its good faith judgment (following receipt of the advice
of a financial advisor of nationally recognized reputation and its legal
advisors), if accepted, is reasonably capable of being consummated, taking
into account all legal, financial and regulatory aspects of the proposal and
would, if consummated, result in a transaction more favorable to the Company
and its shareholders than the transactions contemplated by this Agreement,
except that the reference to "20%" in the definition of "Acquisition Proposal"
in Section 6.06(a) shall be deemed to be a reference to "50%" and "Acquisition
Proposal" shall only be deemed to refer to a transaction involving the Company
or the Company Lead Insurance Subsidiary, or with respect to assets (including
the shares of any Subsidiary), the Company and its Subsidiaries, taken as a
whole.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.06, (i) the Company shall immediately
cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of this Agreement with any parties other than the
Acquisition Parties with respect to any of the foregoing and shall use its
reasonable best efforts to enforce any confidentiality or similar agreement
relating to an Acquisition Proposal; (ii) the Company shall immediately advise
the Acquisition Parties orally and in writing of any request for information
or of any Acquisition Proposal, the material terms and conditions of such
request or Acquisition Proposal and the identity of the person making such
request or Acquisition Proposal; and (iii) the Company will keep the
Acquisition Parties informed of the status and details (including amendments
or proposed amendments) of any such request or Acquisition Proposal.
(d) Nothing contained in this Section 6.06 shall prohibit the
Company from taking and disclosing to its shareholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's shareholders if, in the good faith judgment of the
Company Board, after consultation with outside counsel, failure so to disclose
would violate its obligations under applicable law.
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6.07 Takeover Laws. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement, the Holdings Purchase
Agreement or the Voting Agreements to be subject to requirements imposed by
any Takeover Law and each of them shall take all necessary and reasonable
steps within its control to exempt (or ensure the continued exemption of) the
transactions contemplated by this Agreement, the Holdings Purchase Agreement
or the Voting Agreements from, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect.
6.08 Regulatory Submissions. (a) The Acquisition Parties and the
Company and their respective Subsidiaries shall cooperate and use their
respective reasonable best efforts to prepare all documentation, to take all
actions, to effect all filings and to obtain all permits, consents, approvals,
confirmations and authorizations of all third parties and Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement. The Acquisition Parties and the Company shall have the
right to review in advance, subject to applicable laws relating to the
exchange of information, with respect to all material written information
submitted to any third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other
party hereto with respect to the obtaining of all material permits, consents,
approvals, confirmations and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other party
appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with
all information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or
advisable in connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any third party or
Governmental Authority.
6.09 Indemnification. (a) The Acquisition Parties shall indemnify,
defend and hold harmless the present and former directors and officers of the
Company and its Subsidiaries (each, an "Indemnified Party") against all costs
or expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions contemplated by this Agreement) to the fullest extent that
the Company or such Subsidiary is permitted to indemnify (and advance expenses
to) its directors and officers under the laws of the jurisdiction of its
incorporation, its
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certificate of incorporation or its by-laws (or comparable organizational
documents) as in effect on the date hereof. The Acquisition Parties
acknowledge and agree that, without any further action, the indemnification
agreements of the Company Previously Disclosed shall continue in full force
and effect in accordance with their terms as in effect prior to the Effective
Time.
(b) For a period of six years from the Effective Time, the
Acquisition Parties shall maintain in effect the Company's current of
directors' and officers' liability insurance that serves to reimburse the
present and former officers and directors of the Company or any of its
Subsidiaries (determined as of the Effective Time) (as opposed to the Company)
with respect to claims against such directors and officers arising from facts
or events which occurred before the Effective Time, which insurance shall
contain at least the same coverage and amounts, and contain terms and
conditions no less advantageous, as that coverage currently provided by the
Company; provided, however, that in no event shall the Acquisition Parties be
required to expend more than 200 percent of the current amount expended by the
Company (the "Insurance Amount") to maintain or procure such directors and
officers insurance coverage; provided, further, that if the Acquisition
Parties are unable to maintain or obtain the insurance called for by this
Section 6.09(b), the Acquisition Parties shall obtain as much comparable
insurance as is available for the Insurance Amount; provided, further, that
officers and directors of the Company or any Subsidiary may be required to
make application and provide customary representations and warranties to the
Acquisition Parties' insurance carrier for the purpose of obtaining such
insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.09(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify CLF thereof; provided
that the failure so to notify shall not affect the obligations of the
Acquisition Parties under Section 6.09(a) unless and to the extent that the
Acquisition Parties is actually and materially prejudiced as a result of such
failure.
(d) If any Acquisition Party or any of its successors or assigns
shall consolidate with or merge into any other entity and shall not be the
continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any entity, then and in
each case, proper provision shall be made so that the successors and assigns
of such Acquisition Party shall assume the obligations set forth in this
Section 6.09.
(e) The provisions of this Section 6.09 (i) are intended to be for
the benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
6.10 Employee Matters. (a) The agreement of the parties with respect
to
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employee matters is set forth in the memorandum dated March 13, 2000 prepared
by Johnson Associates, Inc. included in the Disclosure Schedule.
(b) The Acquisition Parties will honor, and cause the Surviving
Corporation to honor, pursuant to their terms, all employee severance plans
(as amended or contemplated herein) and employment or severance agreements of
the Company or its Subsidiaries that are specifically identified in the
Company's Disclosure Schedule (including any amendments described in the
Disclosure Schedule).
(c) The Company shall not amend or waive any right under the non-
competition and employment agreements with Robert Cochran, Roger Taylor and
Sean McCarthy.
6.11 Notification of Certain Matters. The Company and the
Acquisition Parties shall give prompt notice to the other of any fact, event
or circumstance known to it that (i) is reasonably likely, individually or
taken together with all other facts, events and circumstances known to it, to
result in any Material Adverse Effect with respect to it or (ii) would cause
or constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein.
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the Acquisition Parties and the Company to
consummate the Merger is subject to the fulfillment or written waiver by the
Acquisition Parties and the Company prior to the Effective Time of each of the
following conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall
have been obtained.
(b) Regulatory Approvals. All regulatory approvals, notifications
and filings required to consummate the Holdings Purchase and the Merger
(including the acquisition by the Acquisition Parties of all of the
capital stock of the Company by virtue of the Merger), including, without
limitation, the Designated State Insurance Approvals, shall have been
obtained or made and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired and no
such approvals shall contain any conditions, restrictions or requirements
which would have, or are reasonably likely to
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have, a Material Adverse Effect on the Surviving Corporation and its
Subsidiaries taken as a whole or a Material Adverse Effect on the
Acquisition Parties and their Subsidiaries taken as a whole.
(c) No Injunction. No Governmental Authority of competent
jurisdiction shall have:
(A) enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in
effect and prohibits consummation of the Holdings Purchase and the
Merger (including the acquisition by the Acquisition Parties of all
of the capital stock of the Company by virtue of the Merger); or
(B) indicated that the Holdings Purchase and the Merger
(including the acquisition by the Acquisition Parties of all of the
capital stock of the Company by virtue of the Merger) would
adversely affect the licenses necessary to carry on the insurance
business of any of the Company's Insurance Subsidiaries (X) in a
manner that would have, or is reasonably likely to have, a Material
Adverse Effect on the Surviving Corporation and its Subsidiaries
taken as a whole or a Material Adverse Effect on the Acquisition
Parties and their Subsidiaries taken as a whole or (Y) in a material
way in states representing in the aggregate net municipal par
amounts outstanding at December 31, 1999 in excess of 12.5% of the
Company's total net municipal par amount outstanding at December 31,
1999.
7.02 Conditions to Obligation of the Company. The obligation of the
Company to consummate the Merger is also subject to the fulfillment or written
waiver by the Company prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. Subject to the standard set
forth in Section 5.02, the representations and warranties of the
Acquisition Parties set forth in this Agreement shall be true and correct
as of the date of this Agreement and as of the Effective Date as though
made on and as of the Effective Date (except that representations and
warranties that by their terms speak as of the date of this Agreement or
some other date shall be true and correct as of such date), and the
Company shall have received a certificate, dated the Effective Date,
signed on behalf of each Acquisition Party by the Chief Executive Officer
and the Chief Financial Officer of each Acquisition Party to such effect.
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(b) Performance of Obligations of the Acquisition Parties. The
Acquisition Parties shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Effective Time, and the Company shall have received a
certificate, dated the Effective Date, signed on behalf of each
Acquisition Party by the Chief Executive Officer and the Chief Financial
Officer of each Acquisition Party to such effect.
(c) Holdings Purchase. The Holdings Purchase shall have been
consummated.
7.03 Conditions to Obligation of the Acquisition Parties. The
obligation of the Acquisition Parties to consummate the Merger is also subject
to the fulfillment or written waiver by the Company prior to the Effective
Time of each of the following conditions:
(a) Representations and Warranties. Subject to the standard set
forth in Section 5.02, the representations and warranties of the Company
set forth in this Agreement shall be true and correct as of the date of
this Agreement and as of the Effective Date as though made on and as of
the Effective Date (except that representations and warranties that by
their terms speak as of the date of this Agreement or some other date
shall be true and correct as of such date) and the Acquisition Parties
shall have received a certificate, dated the Effective Date, signed on
behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time,
and the Acquisition Parties shall have received a certificate, dated the
Effective Date, signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to such effect.
(c) Conversion of Rights. At the Effective Time, any Right to
Company Common Stock shall be converted into a right to receive the
Merger Consideration.
(d) Continual Employment. At the Effective Time, (i) at least two of
the Designated Employees shall be employees of the Company with the same
executive responsibilities held as of the date of this Agreement and (ii)
the Employment Agreements entered into with each of such Designated
Employees employed by the Company at the Effective Time shall be in full
force and shall not have been amended or modified. "Designated Employees"
means Robert Cochran, Roger Taylor and Sean McCarthy.
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(e) Non-Control Determinations. The Acquisition Parties shall have
received the confirmations in a form reasonably satisfactory to such
parties from the insurance regulatory authorities, as specified in
Disclosure Schedule 7.03(e).
(f) Holdings Purchase. The Holdings Purchase shall have been
consummated (provided that this condition shall be deemed to be waived if
the Acquisition Parties would otherwise acquire all of the capital stock
of the Company by virtue of the Merger).
ARTICLE VIII
Termination
8.01 Termination. This Agreement may be terminated, and the Merger
may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of the Company and CLF
(b) Breach. At any time prior to the Effective Time, by the Company
or CLF, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein (subject to the standard set
forth in Section 5.02), which breach cannot be or has not been cured
within 30 days after the giving of written notice to the breaching party
of such breach, and provided such breach would result in a failure to
satisfy Section 7.02(a) or 7.03(a), as the case may be; or (ii) a breach
by the other party of any of the covenants or agreements contained
herein, which breach cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach, and
provided such breach would result in a failure to satisfy Section 7.02(b)
or 7.03(b), as the case may be.
(c) Delay. At any time prior to the Effective Time, by the Company
or CLF, in the event that the Merger is not consummated by January 1,
2001, except to the extent that the failure of the Merger then to be
consummated arises out of or results from the knowing action or inaction
of the party seeking to terminate pursuant to this Section 8.01(c).
(d) No Approval. By the Company, or CLF, in the event (i) the
approval or action of any Governmental Authority required for
consummation of the Merger shall
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have been denied by final nonappealable action of such Governmental
Authority, provided that the right to terminate this Agreement under this
Section 8.01(d)(i) shall not be available to any party whose failure to
comply with Section 6.01 has resulted in such action or inaction or (ii)
the Company Shareholder Approval is not obtained at the Company Meeting.
(e) Failure to Recommend, Etc. At any time prior to the Company
Meeting, by CLF if the Company Board shall have failed to make its
recommendation referred to in Section 6.03 (or, if requested by CLF Bank,
failed to indicate that it will make such indication), withdrawn such
recommendation or modified or changed such recommendation in a manner
adverse in any respect to the interests of the Acquisition Parties or
shall have approved or recommended to its shareholders an Acquisition
Proposal other than the Merger (it being understood that taking actions
permitted under Section 6.06(a) shall not be deemed to be a failure to
make, a withdrawal of or a modification or change in such
recommendation).
(f) Superior Proposal. At any time prior to the receipt of the
Company Shareholder Approval, by the Company, in accordance with Section
6.06(b)(iii), provided that, in order for the termination of this
Agreement pursuant to this paragraph (f) to be deemed effective, the
Company shall have complied with all provisions of Section 6.06,
including the notice provisions therein and the Fee contemplated by
Section 8.03 shall have been paid.
8.02 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to
this Article VIII, no party to this Agreement shall have any liability or
further obligation to any other party hereunder except (a) as set forth in
Section 6.12, this Section 8.02, Section 8.03 and Article IX and (b) that
termination will not relieve a breaching party from liability for any willful
breach of this Agreement giving rise to such termination.
8.03 Fee.
(a) Upon the occurrence of a Fee Event, the Company shall pay CLF,
and CLF shall be entitled to payment of, a fee of US$78 million (the
"Fee"). The payment of the Fee shall be made to CLF in immediately
available funds upon the occurrence of the Fee Event.
(b) The term "Fee Event" shall mean any of the following events or
transactions occurring on or after the date hereof: (i) this Agreement is
terminated by CLF pursuant to Section 8.01(e) or by the Company pursuant
to Section 8.01(f); (ii) this
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Agreement is terminated by CLF pursuant to Section 8.01(b) as a result of
a willful breach by the Company and, within 12 months after such
termination, the Company or any Subsidiary shall have entered into an
agreement to engage in a transaction that constitutes an Acquisition
Transaction with any Person or the Company Board shall have recommended
that the shareholders of the Company approve or accept any Acquisition
Transaction; or (iii) this Agreement is terminated by either CLF or the
Company pursuant to Section 8.01(c) (provided that no approval or action
of a Governmental Authority required to be obtained for the consummation
of the Merger shall have been denied by action of such Governmental
Authority and such denial did not result from the Company's failure to
comply with Section 6.01) or 8.01(d)(ii) after a bona fide Acquisition
Proposal shall have been made or any Person shall have publicly announced
an intention (whether or not conditional) to make an Acquisition Proposal
and, within 12 months thereof, the Company or any Subsidiary shall have
entered into an agreement to engage in a transaction that constitutes an
Acquisition Transaction with any Person or the Company Board shall have
recommended that the shareholders of the Company approve or accept any
Acquisition Transaction.
For purposes of this Section 8.03(b), the definitions of Acquisition
Transaction and Acquisition Proposal shall be deemed to utilize 50% as
opposed to 20% and shall only be deemed to refer to a transaction
involving the Company or the Company Lead Insurance Subsidiary, or with
respect to assets (including the shares of any Subsidiary), the Company
and its Subsidiaries, taken as a whole.
(c) The Company shall notify CLF promptly in writing of the
occurrence of any Fee Event.
(d) If the Company fails to promptly pay when due the amounts that
become payable pursuant to this Section 8.03, and, in order to obtain any
such payment, CLF commences a suit which results in a judgment against
the Company for the Fee, the Company shall pay to CLF its costs and
expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of the Fee at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be
made.
8.04 Other Fees.
(a) (X) In the event that this Agreement is terminated by either
CLF or the Company pursuant to Section 8.01(d) solely due to
the denial by a final non-appealable action of an approval or
action required of a Governmental Authority of a European
nation (excluding Bermuda, if applicable, and the United
Kingdom, a "European Approval") required to be obtained by the
Acquisition Parties for the consummation of the Merger and the
other transactions contemplated by this Agreement (provided
that the cause of such denial is not the Company's breach of
Section 6.01); or
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(Y) (i) this Agreement is terminated by either CLF or the
Company pursuant to Section 8.03(c) and (ii) at the time of any
such termination all conditions to the consummation of the
Merger other than Section 7.01(b) and Section 7.01(c)(A) shall
have been satisfied or waived (or were capable of being
satisfied had the Effective Time occurred on the date of such
termination) and Section 7.01(b) and Section 7.01(c)(A) shall
not have been satisfied solely as a result of (x) the failure
to obtain a European Approval (provided that the cause of such
failure is not the Company's breach of Section 6.01) or (y) an
injunction issued by a Governmental Authority of a European
nation (excluding Bermuda, if applicable, and the United
Kingdom) (provided that the cause of such injunction is not a
breach by the Company of this Agreement),
then CLF shall promptly pay, but in no event later than the date of such
termination, the Company a fee of $7.5 million (the "Other Fee"), payable
by wire transfer of same day funds.
(b) If CLF fails to promptly pay when due the amounts that become
payable pursuant to this Section 8.04, and, in order to obtain any such
payment, the Company commences a suit which results in a judgment against
CLF for the Fee, CLF shall pay to the Company its costs and expenses
(including attorneys' fees) in connection with such suit, together with
interest on the amount of the Other Fee at the prime rate of Citibank,
N.A. in effect on the date such payment was required to be made.
ARTICLE IX
Miscellaneous
9.01 Survival. No representations, warranties, agreements and
covenants contained in this Agreement shall survive the Effective Time (other
than Section 6.09 and this Article IX which shall survive the Effective Time)
or the termination of this Agreement if this Agreement is terminated prior to
the Effective Time (other than Sections 6.05(b), 8.02, 8.03, 8.04 and this
Article IX which shall survive such termination).
9.02 Waiver; Amendment. Prior to the Effective Time, any provision
of this
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Agreement may be (a) waived by the party benefitted by the provision (other
than the condition set forth in Section 7.02(c), which may not be waived
without the consent of WM) or (b) amended or modified at any time, by an
agreement in writing between the parties hereto executedin the same manner as
this Agreement, except that, after the Company Meeting, this Agreement may not
be amended if it would violate the NYBCL.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of New York applicable
to contracts made and to be performed entirely within such State.
9.05 Waiver of Jury Trial. Each party hereto acknowledges and agrees
that any controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a
trial by jury in respect of any litigation directly or indirectly arising out
of or relating to this agreement, or the transactions contemplated by this
Agreement. Each party certifies and acknowledges that (a) no representative,
agent or attorney of any other party has represented, expressly or otherwise,
that such other party would not, in the event of litigation, seek to enforce
the foregoing waiver, (b) each party understands and has considered the
implications of this waiver, (c) each party makes this waiver voluntarily, and
(d) each party has been induced to enter into this agreement by, among other
things, the mutual waivers and certifications in this Section 9.05.
9.06 Expenses. Except as otherwise set forth herein, all fees and
expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that the
Acquisition Parties, on the one hand, and the Company, on the other hand,
shall bear and pay one-half of the costs and expenses incurred in connection
with the filing, printing and mailing of and the Company Proxy Statement
(including SEC filing fees) and soliciting proxies.
9.07 Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if
personally delivered, telecopied (with confirmation) or mailed by registered
or certified mail (return receipt requested) to such party at its address set
forth below or such other address as such party may specify by notice to the
parties hereto.
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If to the Company, to:
Financial Security Assurance Holdings Ltd.
350 Park Avenue
New York, New York 10022
Attention: Bruce E. Stern, Esq.
Telephone: (212) 826-0100
Facsimile: (212) 688-3107
With a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Attention: Philip A. Gelston, Esq.
Telephone: (212) 474-1000
Facsimile: (212) 474-3700
Dexia S.A.
7 a 11 quai Andre Citroen BP-1002
75 901 Paris Cedex 15
Attention: Jean-Paul Gauzes
Telephone: 331 43 92 81 64
Facsimile: 331 43 92 81 50
Dexia Credit local de France
7 a 11 quai Andre Citroen BP-1002
75 901 Paris Cedex 15
Attention: Jean-Paul Gauzes
Telephone: 331 43 92 81 64
Facsimile: 331 43 92 81 50
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With a copy to:
Dexia Credit local de France, New York Agency
445 Park Avenue
New York, New York 10022
Attention: Agency Manager
Telephone: (212) 515-7000
Facsimile: (212) 753-5522
With a copy (which shall not constitute notice) to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498
Attention: Mark J. Menting, Esq.
Telephone: (212) 558-4000
Facsimile: (212) 558-3588
9.08 Entire Understanding; No Third Party Beneficiaries. This
Agreement represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and thereby and this
Agreement supersedes any and all other oral or written agreements heretofore
made (other than the Voting Agreements and the Holdings Purchase Agreement).
Except for Sections 3.04, 3.05, 6.09 and 9.02, nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.09 Interpretation; Effect. When a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of, or Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". All
references herein to "$" shall be to U.S. dollars.
9.10 CLF May Act for Dexia. Any action that Dexia may take with
respect to this Agreement may be taken by CLF on its behalf and the Company
may rely on any action taken by CLF as action by Dexia as well.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers, all as of the
day and year first above written.
FINANCIAL SECURITY ASSURANCE
HOLDINGS LTD.
By:
---------------------------------
Name:
Title:
DEXIA S.A.
By:
---------------------------------
Name:
Title:
DEXIA CREDIT LOCAL DE FRANCE S.A.
By:
---------------------------------
Name:
Title:
PAJY Inc.
By:
---------------------------------
Name:
Title:
-49-
<PAGE>
EXHIBIT A
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 14, 2000 (this "Agreement"), by
and between Dexia Credit local de France S.A. (the "Acquiring Party") and the
shareholder of Financial Security Assurance Holdings Ltd. (the "Company")
identified as the signatory hereto (the "Shareholder").
WHEREAS, the Acquiring Party is prepared to enter into an agreement
and plan of merger dated as of March 14, 2000 with the Company (the "Merger
Agreement") simultaneously with the execution of this Agreement;
WHEREAS, the Acquiring Party would not enter into the Merger
Agreement unless the Shareholder enters into this Agreement;
WHEREAS, the Shareholder will benefit directly and substantially
from the Merger Agreement; and
WHEREAS, the Shareholder has, after consultation with the Company as
to the process (and the results thereof) the Company has undertaken regarding
a possible sale of the Company and the nature of the Acquiring Party's
proposal, advised the Board of Directors of the Company that it desires that
the Company and the Board of Directors accept the Acquiring Party's proposal
embodied in the Merger Agreement, terminate any further activities with third
parties regarding a sale of the Company and approve and adopt the Merger
Agreement and authorize the execution and delivery thereof.
NOW, THEREFORE, in consideration of the Acquiring Party's entry into
the Merger Agreement, the Shareholder agrees with the Acquiring Party as
follows:
1. The Shareholder represents and warrants that (i) it owns (of
record and beneficially) and controls, or controls with exclusive power to
vote, the number and class of shares of the Company set forth on the signature
page hereof (including any shares acquired on the conversion of any other
shares, the "Owned Shares") free from any lien, encumbrance or restriction
whatsoever and with full power to vote the Owned Shares without the consent or
approval of any other person, (ii) this Agreement has been duly authorized,
executed and delivered by it and constitutes the legally binding obligation of
the Shareholder, enforceable in accordance with its terms, and (iii) the
execution, delivery and performance by the Shareholder of this Agreement does
not and will not (a) conflict with any provision of its certificate or
articles of incorporation or by-laws or any similar corporate document, or any
agreement, indenture or instrument to which it is a party or (b) require the
consent or approval of any governmental authority having jurisdiction over it
or of any third party. For all purposes of this Agreement, Owned Shares shall
include any shares of the Company as to which beneficial ownership is acquired
after the execution hereof.
2. The Shareholder represents and warrants that the agreements
listed in Appendix I to this Agreement are the only written agreements or
arrangements between the Shareholder (or any subsidiary of the Shareholder)
and the Company (or any subsidiary of the Company) relating to any capital
stock of the Company (or any Subsidiary of the Company) (the "Covered
Agreements").
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<PAGE>
3. The Shareholder irrevocably and unconditionally agrees that it
will (a) vote all of the Owned Shares in favor of the Merger Agreement and the
merger provided for therein (the "Merger") at any meeting or meetings of the
Company's shareholders called to vote upon the Merger Agreement and the Merger
and (b) will not vote such shares (or otherwise provide a proxy, consent,
voting agreement or similar arrangement with respect thereto) in favor of any
other Acquisition Proposal as defined below, provided that, in the case of
each of clauses (a) and (b), the terms of the Merger Agreement shall not have
been amended in a manner that adversely affects the Shareholder in a material
way (with a change in the amount of the merger consideration being material).
4. The Shareholder agrees that it will not (a) directly or
indirectly, sell, transfer, pledge, assign or otherwise dispose of (other than
by exercising any conversion right), or enter into any contract, option,
commitment or other arrangement or understanding with respect to the sale,
transfer, pledge, assignment or other disposition of, any of the Owned Shares,
unless it receives (i) a proxy, in form and substance substantially similar to
the provisions of Section 3 hereof, irrevocable so long as this Agreement is
effective, to vote or not to vote such Owned Shares as provided in Section 3
of this Agreement, and the Shareholder will so vote or not vote such Owned
Shares and (ii) an agreement identical in all material respects to this
Agreement executed by the buyer of the Owned Shares the subject thereof; (b)
exercise any appraisal rights available to such Shareholder pursuant to
Section 910 of the New York Business Corporation Law in connection with the
Merger; and (c) take any action or omit to take any action which would
prohibit, prevent or preclude Shareholder from performing its obligations
under this Agreement.
5. The Shareholder agrees, at the request of the Acquiring Party,
(i) to terminate, or cause the termination of, any or all Covered Agreements
(other than the rights of the holders of any shares of preferred stock under
the Company's certificate of incorporation) designated by the Acquiring Party
immediately prior to, and subject to, the effectiveness of the Merger and (ii)
to execute, or cause the execution of, any other documents or instruments
necessary to effect the foregoing termination. In addition, effective upon
consummation of the Merger, the Shareholder, for itself and on behalf of any
subsidiary, hereby releases the Company and any of its subsidiaries from any
obligations they may have under any Covered Agreement and any claims the
Shareholder or any of its subsidiaries may have with respect to the Covered
Agreements.
6. The Shareholder agrees to take all reasonable actions and make
such reasonable efforts to consummate the Merger and effect the other
transactions contemplated by the Merger Agreement, provided that the terms of
the Merger Agreement shall not have been amended in a manner that adversely
affects the Shareholder in a material way (with a change in the amount of the
merger consideration being material).
7. The Shareholder agrees to waive any pre-emptive right that it may
have with respect to capital stock of the Company pursuant to any of the
transactions contemplated by the Merger Agreement or any voting agreement
similar to this Agreement and consents to the transactions contemplated hereby
and thereby.
8. The Shareholder shall not, nor shall it permit any of its
subsidiaries to, nor shall it permit any of its or its Subsidiaries' directors
or officers to, and shall use its
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<PAGE>
commercially reasonable efforts to cause its employees, agents and
representatives (including, without limitation, any investment banker,
financial advisor, attorney or accountant retained by it or any of its
subsidiaries or affiliates) not to (i) solicit, initiate or encourage
(including by way of furnishing information), or knowingly take any other
action designed to facilitate, the making of any proposal which constitutes an
Acquisition Proposal (as defined in the Merger Agreement) or (ii) participate
in any discussions or negotiations (including by way of furnishing
information) regarding any Acquisition Proposal; provided, however, that this
Section 8 shall not be deemed to prohibit any person acting in such person's
capacity as a director or officer of the Company from engaging in any such
activities to the extent the Company may so engage without violating the
Merger Agreement.
9. The Shareholder agrees that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed by it in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Acquiring Party shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement by the Shareholder to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which it is entitled at law or in equity and that the
Shareholder waives the posting of any bond or security in connection with any
proceeding related thereto.
10. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original. This Agreement shall
become effective when one counterpart signature page has been signed by each
party hereto and delivered to the other party (which delivery may be by
facsimile).
11. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as it is enforceable.
12. The Shareholder agrees to execute and deliver all such further
documents, certificates and instruments and take all such further reasonable
action as may be necessary or appropriate, in order to consummate the
transactions contemplated hereby.
13. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without regard to principles of
conflict of laws), except to the extent that the Federal laws of the United
States govern the matters set forth herein.
14. To the extent that the Shareholder is ultimately controlled by
another entity, such entity is identified below and, by its duly authorized
execution and delivery of this Agreement in the space provided for below,
hereby agrees (a) to be bound by this Agreement as if it were the Shareholder
and (b) to cause the Shareholder to perform its obligations hereunder.
-3-
<PAGE>
15. The Shareholder agrees not to exercise any registration rights
or similar rights regarding the Company's shares.
16. This Agreement shall terminate upon the earlier to occur of (a)
the date of termination of the Merger Agreement and (b) the effective time of
the Merger, provided that termination shall not relieve a breaching party of
liability for any breach prior to the termination.
17. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
DEXIA CREDIT LOCAL DE FRANCE S.A.
By:
------------------------------
Name:
Title:
[ ]
a subsidiary of
[ ]
By:
------------------------------
Name:
Title:
[ ]
parent of
[ ]
By:
------------------------------
Name:
Title:
Number of "Owned Shares" of Common Stock of the Company: [ ]
Number of "Owned Shares" of Preferred Stock of the Company: [ ]
-5-
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of March 14, 2000 by and between Financial
Security Assurance Holdings Ltd., a New York corporation ("Company"), and [ ]
("Employee").
WHEREAS, Dexia S.A. ("Dexia") and Company are entering into an
Agreement and Plan of Merger dated as of March 14, 2000 (the "Merger
Agreement"), whereby Company will become a wholly-owned subsidiary of Dexia;
and
WHEREAS, Company desires to employ Employee and Employee is willing
to serve as an employee of Company, subject to the terms and conditions of
this Agreement;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. Employment. Company hereby employs Employee, and Employee agrees
to serve as an employee of Company, on the terms and conditions set forth in
this Agreement.
2. Term. Employee's employment shall commence at the Effective Time
(as defined in the Merger Agreement) and end on the fourth anniversary of the
Effective Time (the "Term").
3. Duties During Employment. During Employee's employment with
Company, Employee shall serve as Chairman and Chief Executive Officer of
Company and shall have such duties and responsibilities as are assigned to him
by the Board of Directors of Company (the "Board") and as are consistent with
the magnitude and scope of his duties and responsibilities as of the Effective
Time. The Employee shall report directly to the Board.
Employee shall devote Employee's full business time and attention
and best efforts to the affairs of Company during his period of employment,
provided, however, that Employee may continue to engage in other activities,
such as activities involving professional, charitable, educational, religious
and similar types of organizations, speaking engagements, membership on the
board of directors of such other organizations, provided that such activities
do not interfere with the performance of his duties for Company.
<PAGE>
4. Current Cash Compensation.
(1) Base Salary. As compensation for his services hereunder, Company
will pay to Employee during the period of his employment a base salary at the
annual rate in effect immediately prior to the Effective Time, payable in
accordance with Company's payroll practices for senior executives. Company
shall review the base salary bi-annually (with the next review to take place
January 2001) and in light of such review may, in the discretion of the Board
(but shall not be obligated to), increase such base salary taking into account
any change in Employee's then responsibilities, performance by Employee, and
other pertinent factors.
(2) Annual Bonus. Company shall maintain a bonus pool (the "Bonus
Pool") for the benefit of Company employees equal to seven percent (7%) of the
after-tax growth in adjusted book value, excluding realized and unrealized
gains/losses on investments and including a return on equity ("ROE") modifier
that is consistent with the Company's practice as of the date hereof. The
Company shall also maintain a reserve bonus pool (the "Reserve Pool") made up
of previously earned but undistributed Bonus Pool allocations from prior
years, equal to approximately $7 million, which shall be distributable at the
discretion of the management of the Company in consultation with Dexia.
Employee shall receive an annual cash bonus equal to at least 5.6% of each of
the Bonus Pool and the Reserve Pool, if applicable. An additional 2.9% of the
Bonus Pool and Reserve Pool, if applicable, shall be allocated among Employee,
[ ] and [ ] as determined by Company's Human Resources Committee;
provided, however, that such percentage shall be reduced to (i) 1.75% in the
event Employee is no longer employed by the Company and (ii) 2.02% in the
event either [ ] or [ ] is no longer employed by Company. It should be
noted that the above described percentages are minimum percentages and that it
is anticipated that the actual percentages of each of the Bonus Pool and
Reserve Pool to be allocated among Employee, [ ] and [ ] will be in the
range of 17% to 20%, based on each employee's individual performance and the
performance of Company.
(3) Performance Shares. In each calendar year in the Term, beginning
in 2001, Employee shall receive an annual Performance Share grant under the
Company's 1993 Equity Participation Plan (the "Performance Share Plan"), as
presently in effect or as may be modified or added to by Company from time to
time, equal to no less than 50% of such Employee's 2000 Performance Share
grant. Such awards shall comply with the terms of the compensation program
included in the post-transaction compensation program prepared by Johnson
Associates, Inc. included in the Merger Agreement, except as provided herein.
Except as provided herein, such Performance Shares shall vest according to the
terms of the Performance Share Plan.
5. Other Employee Benefits. In addition to the cash compensation
provided for in Section 4 hereof, Employee, subject to meeting eligibility
provisions thereof, shall be entitled to participate in Company's employee
benefit plans, as presently in effect or as they may be modified or added to
by Company from time to time to the same extent as are otherwise enjoyed by
the senior executives of Company, which shall not be reduced in any material
respect from plans in existence as of the Effective Time. In addition,
Employee shall be required to continue the deferral of outstanding equity
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<PAGE>
bonus balances into alternative investments under the Company's Deferred
Compensation Plan.
6. Termination.
(a) Termination by Company Without Cause; Termination by
Employee for Good Reason.
(i) During the Term. If, during the Term, Company should
terminate Employee's employment without Cause (as defined below), or
if Employee should terminate his employment for Good Reason (as
defined below), Company shall pay to Employee an amount equal to two
times the sum of (A) Employee's annual base salary at the rate in
effect immediately prior to the date of termination and (B) the
average annual bonus payable to Employee for the two (2) years
immediately prior to the year during which termination occurred (the
"Severance Payment"). The Severance Payment, which shall be in lieu
of any amount payable to Employee under the Company's Severance
Policy for Senior Management, shall be payable in monthly
installments over the Restricted Period (as defined in Section 7(b)
below). Notwithstanding any provision of the Performance Share Plan
to the contrary, in the event the Employee's employment is
terminated pursuant to this Section 6(a)(i), (x) all Performance
Shares then outstanding shall vest pro rata in proportion to the
percentage of the performance cycle for such Performance Shares
during which Employee was employed by Company, (y) Employee shall
vest in two-thirds of such Performance Shares that are then
outstanding which have not vested pursuant to clause (x), and (z)
Employee shall be deemed to have been awarded and to have vested in
two-thirds of the minimum annual Performance Share grant(s) provided
for in Section 4(c) to which he is otherwise entitled and for which
a Performance Share grant has not otherwise been made. Employee
shall receive a cash payment with respect to all such Performance
Shares valued pursuant to the valuation mechanism provided in the
Performance Share Plan (which provides a mechanism for determining
the number of Performance Shares and the price per share) as
applicable to Performance Shares outstanding at the Effective Time
and Performance Shares granted subsequent to the Effective Time,
respectively. If the performance cycle includes at least one
completed year, the payout for each such completed year shall be
based on the actual results for the completed year(s) and 100% will
be used for uncompleted years; or if the performance cycle does not
include any completed years, 100% payout. The value which is
obtained by multiplying the number of Performance Shares determined
under (x), (y) and (z) above by, the applicable share price
determined under the valuation mechanism in the Performance Share
Plan at the time of the termination will be increased with interest
at 8% per year, compounded semi-annually, from the date of
termination to the date of payment. Such cash payment shall be made
within five (5) days after the end of the Restricted Period (as
defined in Section 7(b)). Such cash payment shall be forfeited in
the event Employee breaches his obligations under Section 7(b) and
(c) of this Agreement.
(ii) After the Term. If, at any time after the Term, Company
should terminate Employee's employment without Cause, or if Employee
should
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<PAGE>
terminate his employment for Good Reason, Company shall pay to
Employee the Severance Payment, which shall be in lieu of any amount
payable to Employee under the Company's Severance Policy for Senior
Management, payable in a lump sum within five (5) days of
termination. Notwithstanding any provision of the Performance Share
Plan to the contrary, in the event Employee's employment is
terminated pursuant to this Section 6(a)(ii), (A) all Performance
Shares granted during the Term shall vest pro rata in proportion to
the percentage of the performance cycle for such Performance Shares
during which Employee was employed by Company and (B) Employee shall
vest in two-thirds of the Performance Shares granted during the Term
which have not vested pursuant to clause (A). All Performance Shares
granted after the Term shall be treated according to the terms of
the Performance Share Plan as then in effect. Within five (5) days
of a termination pursuant to this Section 6(a)(ii), Employee shall
receive a lump sum cash payment with respect to all such Performance
Shares at a value of such shares multiplied by the applicable share
price determined under the valuation mechanism in the Performance
Share Plan.
"Cause" shall mean (i) conviction or plea of nolo contendere (or
similar plea) in a criminal proceeding for commission of a misdemeanor or
a felony that is materially injurious to the Company; (ii) willful and
continued failure by Employee to perform substantially his duties with
Company (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance is
delivered to Employee by Company which specifically identifies the manner
in which Company believes Employee has not substantially performed his
duties; or (iii) Employee engages in willful misconduct in carrying out
his duties with Company which is directly and materially harmful to the
business or reputation of Company. Employee shall not be terminated for
Cause unless he is provided with notice stating in reasonable detail the
alleged misconduct and if such misconduct is reasonably susceptible to
cure, he is allowed a period of time (not less than ten (10) days) to
cure the misconduct; and a resolution is adopted by the Board at a
scheduled meeting at which Employee shall be entitled to attend and speak
to the Board.
"Good Reason" shall mean, without Cause: (i) a diminution of any of
Employee's significant duties or responsibilities; (ii) breach by the
Company of its obligations hereunder; (iii) Company's requiring Employee
to be based at an office that is greater than twenty-five (25) miles from
the location of Employee's office as of the Effective Time; or (iv) after
the Term and prior to January 1, 2008, a material adverse change in
Employee's total compensation as in effect at the Effective Time. Notwith
standing the foregoing, Employee shall not be deemed to have terminated
his employment for Good Reason unless he gives 60 days' prior written
notice to Company stating in reasonable detail the basis upon which "Good
Reason" is asserted, such notice is given within 120 days of the later of
the occurrence of the event or the date Employee knows or should have
known of the event which would otherwise constitute Good Reason and, if
such failure or breach is reasonably susceptible to cure, Company does
not effect a cure within such 60-day period.
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<PAGE>
(b) Termination by Company for Cause; Termination by Employee
without Good Reason.
(i) During the Term. If, during the Term, Company should
terminate Employee's employment for Cause or Employee should
terminate his employment without Good Reason, Employee will be
entitled only to be paid the pro-rata annual base salary
otherwise payable to Employee under paragraph (a) of Section 4
through the date of termination. All Performance Shares that
are unvested on the date of termination shall be forfeited.
(ii) After the Term. If, after the Term, Company should
terminate Employee's employment for Cause or Employee should
terminate his employment without Good Reason, Employee will be
entitled to be paid the pro- rata annual base salary otherwise
payable to Employee under paragraph (a) of Section 4 through
the date of termination and a pro-rata annual bonus through the
date of termination. Notwithstanding any provision of the
Performance Share Plan to the contrary, in the event Employee's
employment is terminated pursuant to this Section 6(b)(ii), all
outstanding Performance Shares granted during the Term shall
vest pro rata in proportion to the percentage of the
performance cycle for such Performance Shares during which
Employee was employed by Company. All Performance Shares
granted after the Term shall be treated according to the terms
of the Performance Share Plan then in effect. Within five (5)
days of a termination pursuant to this Section 6(b)(ii),
Employee shall receive a lump sum cash payment with respect to
all such Performance Shares at a value of such shares
multiplied by the applicable share price determined under the
valuation mechanism in the Performance Share Plan.
(c) Additional Payments. If applicable, Employee shall be eligible
to receive the additional payments set forth on Annex A.
(d) No Disparaging Statements. In the event of termination of
Employee's employment for any reason by Company or Employee, Employee will not
at any time publicly denigrate, ridicule or intentionally criticize Company or
any of its affiliates including, without limitation, by way of news
interviews, or the expression of personal views, opinions or judgments to the
news media. Similarly, neither Company nor any of its affiliates will publicly
denigrate, ridicule or intentionally criticize Employee.
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<PAGE>
7. Restrictive Covenants.
(a) Confidential Information. Employee agrees to keep secret and
retain in the strictest confidence all confidential matters which relate to
Company or any affiliate of Company, including, without limitation, customer
lists, client lists, trade secrets, pricing policies and other nonpublic
business affairs of Company and any affiliate of Company learned by him from
Company or any such affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone outside
Company or any of its affiliates, whether during or after his period of
service with Company, except as may be required by a court of law, by any
governmental agency having supervisory authority over the business of Company
or by any administrative or legislative body (including a committee thereof)
with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. Employee agrees to give Company advance written
notice of any disclosure pursuant to the preceding sentence and to cooperate
at the Company's expense with any efforts by Company to limit the extent of
such disclosure. Upon request by Company, Employee agrees to deliver promptly
to Company upon termination of his services for Company, or at any time
thereafter as Company may request, all Company or affiliate memoranda, notes,
records, reports, manuals, drawings, designs, computer files in any media and
other documents (and all copies thereof) relating to Company's or any
affiliate's business and all property of Company or any affiliate associated
therewith, which he may then possess or have under his control, other than
personal notes, diaries, rolodexes and correspondence.
(b) Covenant Not to Compete. During the term of this Agreement and
for the remainder of the Term, upon a termination of Employee's employment for
any reason (the "Restricted Period"), Employee shall not directly or
indirectly, own, manage, operate, join, control, or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with, any competing business, whether for compensation or
otherwise, without the prior written consent of Company (excluding less than
5% stakes in public vehicles). For the purposes of this Agreement, a
"competing business" shall be any financial services business which is a
significant competitor of Company or its affiliates. Should Employee, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with, any competing business, all payments under this Agreement
shall cease.
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<PAGE>
(c) Covenant Not to Solicit Company Clients or Employees. During the
term of this Agreement, and for the Restricted Period, Employee shall not, in
any manner, directly or indirectly, (i) raid or solicit any client or
prospective client of Company or its affiliates to whom Employee provided
services, or for whom Employee transacted business, or whose identity became
known to Employee in connection with Employee's employment with Company, to
transact business with a competing business or reduce or refrain from doing
any business with Company or its affiliates or (ii) interfere with or damage
(or attempt to interfere with or damage) any relationship between Company or
its affiliates and any such client or prospective client. During the term of
this Agreement, and for the Restricted Period, Employee further agrees that
Employee shall not, in any manner, directly or indirectly, solicit any person
who is an employee of Company or its affiliates to apply for or accept
employment with any competing business. The term "solicit" as used in this
Agreement means any communication of any kind whatsoever, regardless of by
whom initiated, inviting, encouraging or requesting any person or entity to
take or refrain from taking any action.
(d) Employee agrees that during his employment and thereafter
Employee shall be available to Company and Parent and shall assist Company and
Parent in connection with any litigation brought by or against Company or its
affiliates and Parent relating to the period during which Employee was
employed by Company; provided, however, that all costs and expenses in
connection with the foregoing shall be borne by Company and/or Parent and
advanced to the Employee.
(e) The provisions of this Section 7 shall survive the termination
or expiration of this Agreement in accordance with the terms hereof. It is the
intention of the parties hereto that the restrictions contained in this
Section 7 be enforceable to the fullest extent permitted by law. Therefore, to
the extent any court of competent jurisdiction shall determine that any
portion of the foregoing restrictions is excessive, such provision shall not
be entirely void, but rather shall be limited or revised only to the extent
necessary to make it enforceable.
8. Remedy. Should Employee engage in or perform, either directly or
indirectly, any of the acts prohibited by Section 7 hereof, it is agreed that
Company shall be entitled to full injunctive relief, to be issued by any
competent court of equity, enjoining and restraining Employee and each and
every other person, firm, organization, association, or corporation concerned
therein, from the continuance of such violative acts. The foregoing remedy
available to Company shall not be deemed to limit or prevent the exercise by
Company of any or all further rights and remedies which may be available to
Company hereunder or at law or in equity.
9. Prior Notice to Prospective Employer. Prior to accepting
employment with any other person or entity during Employee's employment or the
Restricted Period, Employee shall provide such prospective employer with
written notice of the provisions of this Agreement.
10. Arbitration. If a dispute arises between the parties respecting
the terms of this Agreement or Employee's employment by Company, such dispute
shall be settled only by binding arbitration in New York, New York, in
accordance with the commercial arbitration rules of the American Arbitration
Association. Company will pay
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<PAGE>
the costs of arbitration and reasonable legal fees, provided that the claim is
determined not to be frivolous.
11. Directors' and Officers' Insurance. During the Employee's
employment, Company shall maintain directors' and officers' liability
insurance covering Employee, which contains at least the same coverage and
amounts and contains terms and conditions no less advantageous than that
coverage provided by Company as of the Effective Time.
12. Governing Law. This Agreement is governed by and is to be
construed and enforced in accordance with the laws of the State of New York,
without reference to principles relating to conflict of laws. If under such
law, any portion of this Agreement is at any time deemed to be in conflict
with any applicable statute, rule, regulation or ordinance, such portion shall
be deemed to be modified or altered to conform thereto or, if that is not
possible, to be omitted from this Agreement; the invalidity of any such
portion shall not affect the force, effect and validity of the remaining
portion hereof.
13. Notices. All notices under this Agreement shall be in writing
and shall be deemed effective when delivered in person, or five (5) days after
deposit thereof in the U.S. mails, postage prepaid, for delivery as registered
or certified mail, addressed to the respective party at the address set forth
below or to such other address as may hereafter be designated by like notice.
Unless otherwise notified as set forth above, notice shall be sent to each
party as follows:
(a) Employee, to:
[ ]
(b) Company, to:
7 a quai Andre Citroen BP-1002
75 901 Paris Cedex 15
Attention: Jean-Paul Gauzes
In lieu of personal notice or notice by deposit in the U.S. mail, a
party may give notice by confirmed telegram, telex or fax, which shall be
effective upon receipt.
14. Entire Agreement. This Agreement constitutes the entire
understanding between Company and Employee relating to the terms of employment
of Employee by Company and supersedes and cancels all prior written and oral
agreements and understandings with respect to the subject matter of this
Agreement. This Agreement may be amended but only by a subsequent written
agreement of the parties. This Agreement shall be binding upon and shall inure
to the benefit of Employee, Employee's heirs, executors, administrators and
beneficiaries, and Company and its successors.
15. Successors. This Agreement is personal to Employee and without
the prior written consent of Company shall not be assignable by Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the
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benefit of and be enforceable by Employee's legal representatives. This
Agreement shall inure to the benefit of and be binding upon Company and its
successors and assigns.
16. Withholding Taxes. All amounts payable to Employee under this
Agreement shall be subject to applicable withholding of income, wage and other
taxes.
17. Waiver of Breach. The waiver by either party of a breach of any
term of this Agreement shall not operate nor be construed as a waiver of any
subsequent breach thereof. Any waiver must be in writing and signed by the
Executive or an authorized officer of the Company, as the case may be.
18. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of the Executive's employment
to the extent necessary to the intended preservation of such rights and
obligations.
19. Severability. If any one or more of the provisions contained in
this Agreement shall be invalid, illegal or unenforceable in any respect under
any applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
20. Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
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<PAGE>
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the year and day first above written.
Financial Security Assurance Holdings Ltd.
By: ______________________________________
Title:
--------------------------------------
[ ]
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<PAGE>
ANNEX A
Additional Payments
(a) Except as set forth below, in the event it shall be determined
that any payment or distribution by Company to or for the benefit of Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of the Agreement or otherwise, but determined without regard to any additional
payments required under this Annex A) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any interest or penalties are incurred by Employee
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Employee of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of paragraph (c), all determinations
required to be made under this Annex A, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Company's independent auditors or such other certified public accounting firm
reasonably acceptable to Employee as may be designated by Company (the
"Accounting Firm") which shall provide detailed supporting calculations both
to Company and Employee within 15 business days of the receipt of notice from
Employee that there has been a Payment, or such earlier time as is requested
by Company. All fees and expenses of the Accounting Firm shall be borne solely
by Company. Any Gross-Up Payment, as determined pursuant to this Annex A,
shall be paid by Company to Employee not later than the due date for the
payment of any Excise Tax. Any determination by the Accounting Firm shall be
binding upon Company and Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that Company exhausts its remedies pursuant to
paragraph (c) and Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by Company
to or for the benefit of Employee. In the event the amount of the Gross-up
Payment exceeds the amount necessary to reimburse Employee for the Excise Tax
(the "Overpayment"), the Accounting Firm shall determine the amount of the
Overpayment that has been made and any such Overpayment shall be promptly paid
by Employee (to the extent Employee has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for the
benefit of the Company. Employee shall cooperate, to the extent expenses are
reimbursed by the Company, with any reasonable
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requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
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EXHIBIT C
==============================================================================
STOCK PURCHASE AND INDEMNITY AGREEMENT
by and among
WHITE MOUNTAINS INSURANCE GROUP, LTD.,
WHITE MOUNTAINS HOLDINGS (BARBADOS) SRL
and
DEXIA CREDIT LOCAL DE FRANCE S.A.
for
all of the outstanding capital stock of
WHITE MOUNTAINS HOLDINGS, INC.
and
indirectly for certain of the outstanding capital stock of
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
dated as of
March 14, 2000
==============================================================================
<PAGE>
STOCK PURCHASE AND INDEMNITY AGREEMENT (the "Agreement"), dated as
of March 14, 2000, by and among WHITE MOUNTAINS INSURANCE GROUP, LTD., a
corporation organized under the laws of Bermuda ("White Mountains"), WHITE
MOUNTAINS HOLDINGS (BARBADOS) SRL, a society with restricted liability
organized under the laws of Barbados ("Sub 1") (each a "Seller" and,
collectively, the "Sellers"), and DEXIA CREDIT LOCAL DE FRANCE S.A., a
corporation organized under the laws of France ("CLF") (each a "Party" and,
collectively, the "Parties").
IN CONSIDERATION of the respective representations, warranties,
covenants, agreements, undertakings and obligations set forth herein, and
intending to be legally bound hereby, the Parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1 Certain Definitions. The following terms are used in
this Agreement with the meanings set forth below and other terms are later
defined:
"Berkshire Hathaway Stock" has the meaning given to it in Section
2.3(c).
"Effective Date" has the meaning given to it in the Merger
Agreement.
"Effective Time" has the meaning given to it in the Merger
Agreement.
"FSA" means Financial Security Assurance Holdings Ltd., a New York
corporation.
"FSA Common Stock" has the meaning given to it in the definition of
FSA Shares.
"FSA Shares" means 6,020,807 of issued and outstanding shares of
common stock of FSA, par value $0.01 per share (the "FSA Common Stock"), and
2,000,000 of issued and outstanding shares of Series A Convertible Redeemable
Preferred Stock of FSA, par value $0.01 per share (the "FSA Preferred Stock"),
subject in each case to adjustment to reflect the conversion of any shares of
FSA Preferred Stock into shares of FSA Common Stock. Any shares received
pursuant to such conversion shall be FSA Shares.
"FSA Preferred Stock" has the meaning given to it in the definition
of FSA Shares.
"Governmental Authorization" means any approval, franchise,
certificates of authority, order, consent, judgment, decree, license, permit,
waiver or other authorization issued, granted given or otherwise made
available under the authority of any Governmental Entity (as defined in
Section 3.4) or pursuant to any Law (as defined in Section 3.2(d)).
<PAGE>
"Holdings" means White Mountains Holdings, Inc, a Delaware
corporation, all of the issued and capital stock of which comprises the
Holdings Shares.
"Holdings Shares" means all of the issued and outstanding shares of
capital stock of Holdings, comprising common stock, par value $1.00 per share.
"LLC Transactions" means (1) the contribution by Sub 1 to Holdings
of the Services Shares, (2) pursuant to Section 266 of the Delaware General
Corporation Law, the conversion of Services into a Delaware limited liability
company, (3) the distribution by Services to Holdings (the sole member of
Services) of the FSA Shares and (4) the transfer by Holdings to a wholly owned
subsidiary of White Mountains that is not owned, directly or indirectly, by
Holdings of all the membership interests in Services.
"Majority Services Shares" means all of the issued and outstanding
shares of common stock of Services, par value $0.01 per share, owned by
Holdings as at the date of this Agreement, which shares comprise all of the
issued and outstanding shares of capital stock of Services (except for the
Services Shares).
"Material Adverse Effect" means, with respect to White Mountains,
Sub 1, Services or Holdings, as the case may be, any effect that (a) is
material and adverse to the financial position, results of operations (if any)
or business of White Mountains and its Subsidiaries taken as a whole, or (b)
would materially impair the ability of White Mountains or Sub 1 to perform its
obligations under this Agreement or the ability of White Mountains, Sub 1,
Services or Holdings to consummate the transactions contemplated herein.
"Merger" has the meaning given to it in the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger, dated as
of March 14, 2000 by and among Dexia S.A., Dexia Credit Local de France S.A.,
PAJY, Inc. and FSA, as it may be amended from time to time.
"Merger Consideration" has the meaning given to it in the Merger
Agreement.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, Governmental Entity (as defined in Section 3.4), joint venture,
estate, trust, association, organization or other entity of any kind or
nature.
"Pre-Closing Balance Sheet" means a balance sheet of Services dated
as of the last day of the month of the month immediately preceding the month
in which the Closing occurs prepared in accordance with U.S. generally
accepted accounting principles.
"Pre-Closing Tax Period" means any taxable year or period
that ends on or before the Effective Date and, with respect to any taxable
year or period beginning before and ending after the Effective Date, the
portion of such taxable year or period ending on and including the Effective
Date. For this purpose, the Taxes of Holdings for the portion of the taxable
year or period ending on, and for the portion of a taxable year or period
beginning after, the Effective Date shall be determined by assuming that
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Holdings had a taxable year or period which ended at the close of the
Effective Date, except that exemptions, allowances or deductions that are
calculated on an annual basis (such as the deduction for depreciation) shall
be apportioned on a time basis.
"Quarter Date" shall mean each successive three month anniversary
date of the Effective Date occurring after the thirteenth month after the
Effective Date and prior to the eight and a half year anniversary of the
Effective Date.
"Related Person" means, with respect to any Person, (a) any Person
which, directly or indirectly, controls, is controlled by, or is under common
control with, such Person, (b) each Person that serves as a director, officer,
partner, executor, trustee or agent of such Person (or in any other similar
capacity), or (c) any Person with respect to which such Person serves as a
general partner or trustee (or in any other similar capacity).
"Representatives" means, with regard to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Repurchase Securities" means all Repurchase Shares, all U.S.
Treasury obligations sold to CLF by Sub 1 pursuant to Section 2.3 hereof and
any securities obtained by CLF pursuant to Section 2.3 hereof.
"Repurchase Shares" shall mean all shares of Berkshire Hathaway
Stock sold to CLF by Sub 1 pursuant to Section 2.3 hereof (whether pursuant to
Section 2.3(c)(i) or 2.3(c)(vii)).
"Security Purchase Price" shall mean as of any date (i) with respect
to shares of Berkshire Hathaway Stock (A) purchased and sold pursuant to
Section 2.3(c)(i), the "Original Price Per Share" (as defined in Section
2.3(c)(i)), and (B) purchased and sold pursuant to Section 2.3(c)(vii), the
"Adjusted Price Per Share" (as defined in Section 2.3(c)(vii)) and (ii) with
respect to any U.S. treasury obligations, the principal amount thereof.
"Semi-Annual Date" shall mean each six month anniversary of the
Effective Date.
"Services" means White Mountains Services Corporation, a Delaware
corporation, all of the issued and outstanding capital stock of which
comprises common stock.
"Services Shares" means all of the issued and outstanding shares of
common stock of Services, par value $0.01 per share, owned beneficially by
White Mountains.
"Sub 1 Shares" means all of the issued and outstanding common quotas
of Sub 1.
"Subsidiary" has the meaning given to it in Rule 1-02 of Regulation
S-X of the Securities and Exchange Commission.
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<PAGE>
"Taxes" has the meaning given to it in Section 3.9(n).
"U.S. dollar" or "$" means the lawful currency of the United States
of America.
SECTION 1.2 Merger Agreement Definitions. Capitalized terms used but
not defined herein have the meanings ascribed to them in the Merger Agreement.
ARTICLE II
SALE AND PURCHASE OF SHARES
SECTION 2.1 Sale and Purchase of Holdings Shares.
(a) Sale and Purchase of Holdings Shares. Upon the terms and subject
to the conditions set forth in this Agreement and on the basis of the
representations, warranties, covenants, agreements, undertakings and
obligations contained herein, immediately prior to the Merger on the Effective
Date, White Mountains shall cause Sub 1 to sell to CLF, and Sub 1 shall sell
to CLF, and CLF shall purchase from Sub 1, all of the Holdings Shares, free
and clear of any and all Liens, for the consideration specified in this
Article II. For purposes of this Agreement, the term "Liens" shall mean any
charges, claims, community property interests, covenants, encumbrances,
equitable interests, exceptions, liens, mortgages, options, pledges,
reservations, rights of first refusal, security interests, statutory liens,
warrants, or restrictions of any kind, including any restrictions on voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
SECTION 2.2 Purchase Price.
(a) Purchase Price for Holdings Shares. The purchase price for the
Holdings Shares shall be an amount in cash in U.S. dollars equal to the sum of
(i) the product of (A) the number of shares of FSA Common Stock included in
the FSA Shares and being sold hereunder and (B) the per share Merger
Consideration and (ii) the product of (A) the number of shares of FSA
Preferred Stock included in the FSA Shares and being sold hereunder and (B)
the per share Preferred Merger Consideration (as defined in the Merger
Agreement) (the "Purchase Price"). The Purchase Price shall be paid in
accordance with Section 2.3 hereof.
SECTION 2.3 Payment of Purchase Price, Holdback Amount and
Repurchase Shares.
(a) On the Effective Date and subject to the terms and conditions
set forth in this Agreement, in reliance on the representations, warranties,
covenants and agreements of the Parties contained herein and in consideration
of the sale, assignment, transfer and delivery of the Holdings Shares to CLF,
CLF shall pay the Purchase Price (less the Holdback Amount (as defined in
Section 2.3(b)(i)) for the Holdings Shares to White Mountains (for Sub 1's
account in respect of the Holdings Shares) by wire transfer of immediately
available funds to an account or accounts designated by White Mountains.
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<PAGE>
(b) Holdback Amount.
(i) Notwithstanding anything to the contrary contained herein, CLF
shall withhold an amount equal to $50,000,000 plus, if the increase in the
liabilities of Services from December 31, 1999 ($42,200,000) to the date of
the Pre-Closing Balance Sheet is greater than $2,000,000, an additional amount
equal to such increase, from the Purchase Price payable on the Effective Date
(as it may be reduced pursuant to Section 2.3, the "Holdback Amount").
(ii) Except as set forth in Section 2.3(d), on each date on which
Sub 1 repurchases Repurchase Securities pursuant to clauses (ii), (iii) and
(iv) of Section 2.3(c), CLF shall pay to Sub 1 an amount equal to the
aggregate Security Purchase Price paid for all Repurchase Securities being
repurchased on such date less an amount attributable to the Security Purchase
Price paid for Repurchase Securities sold by CLF pursuant to Section 2.3(d)
and deemed sold pursuant to Section 2.3(c) and less any reductions in the
Holdback Amount pursuant to Section 2.3(d) not previously reduced against such
a payment and the Holdback Amount shall be reduced by such amount.
(c) Security Purchases.
(i) At the Effective Time, Sub 1 shall sell to CLF, and CLF shall
purchase for an amount equal to the Holdback Amount from Sub 1, a number of
Class A shares of common stock (the "Berkshire Hathaway Stock") of Berkshire
Hathaway Inc. ("Berkshire Hathaway"), equal to the Holdback Amount divided by
the average closing price per share of Berkshire Hathaway Stock reported on
the New York Stock Exchange for the ten trading days ending on and including
the second day prior to the Effective Date (the "Original Price Per Share"),
and Sub 1 shall, at the Effective Time and to effectuate the foregoing
purchase and sale, deliver and transfer to CLF a certificate or certificates
evidencing the Berkshire Hathaway Stock duly endorsed in blank or accompanied
by stock powers duly executed in blank, in proper form for transfer, with all
signatures guaranteed and with any requisite stock transfer tax stamps
properly affixed thereto. Such stock shall not be subject to any restrictions
on transfer except as set forth herein.
(ii) On the thirteenth month anniversary of the Effective Date, Sub
1 shall repurchase from CLF half the number or amount of Repurchase Securities
then held by CLF for a per security price equal to the Security Purchase
Price.
(iii) On each Quarter Date, Sub 1 shall repurchase from CLF
Repurchase Securities in an amount equal to the quotient of half the number of
Repurchase Securities then held by CLF divided by the number of Quarter Dates
then remaining (including the Quarter Date on which such determination is
being made) for a per security price equal to the relevant Security Purchase
Price as of such date.
(iv) On the eight and a half year anniversary of the Effective Date,
Sub 1 shall repurchase from CLF all Repurchase Securities then held by CLF for
a per security price equal to the Security Purchase Price in effect on such
date.
(v) On each Semi-Annual Date, if the average closing price of
Berkshire Hathaway Stock reported on the New York Stock Exchange for the ten
trading days ending on and including the sixth business day prior to such
Semi-Annual Date is
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<PAGE>
less than 90% of the Security Purchase Price for any Berkshire Hathaway Stock
held by CLF pursuant to this Agreement, CLF may, by giving written notice to
Sub 1 at least five business days prior to the Semi-Annual Date, require Sub 1
to repurchase all of such shares of Berkshire Hathaway Stock held by CLF for a
price per security equal to the Security Purchase Price in effect with respect
thereto.
(vi) On each Semi-Annual Date, if the average closing price of
Berkshire Hathaway Stock reported on the New York Stock Exchange for the ten
trading days ending on and including the sixth business day prior to such
Semi-Annual Date is greater than 110% of the Security Purchase Price for any
Berkshire Hathaway Stock held by CLF pursuant to this Agreement, then Sub 1
may, by giving written notice to CLF at least five business days prior to the
Semi-Annual Date, require CLF to sell to Sub 1 all of such shares of Berkshire
Hathaway Stock held by CLF for a price per security equal to the Security
Purchase Price then in effect with respect thereto.
(vii) Simultaneously with any sale and repurchase of Repurchase
Shares pursuant to clause (v) or (vi) above or under Section 2.3(e) and in
substitution therefor, Sub 1 shall sell to CLF, and CLF shall purchase from
Sub 1, at Sub 1's discretion, either (i) United States treasury obligations
with an aggregate principal value equal to the Holdback Amount as of the date
of such sale and repurchase (after giving effect to any reduction thereof on
the date of such sale and repurchase) or (ii) a number of shares of Berkshire
Hathaway Stock equal to the quotient of the Holdback Amount as of the date of
such sale and repurchase (after giving effect to any reduction thereof on the
date of such sale and repurchase) divided by the average closing price per
share (the "Adjusted Price Per Share") of Berkshire Hathaway Stock reported on
the New York Stock Exchange for the ten trading days ending on and including
the second day prior to the date of such sale and repurchase.
(d) CLF may, at its option, withhold an amount equal to the amount
of any unsatisfied claims (whether or not finally determined) made by CLF
against White Mountains or Sub 1, or a Related Person of White Mountains or
Sub 1, under this Agreement, from the Holdback Amount on the due date for
payment thereof and may satisfy any such claim, in whole or in part as the
case may be, from the amount withheld. Additionally, or alternatively, CLF
may, at its option, satisfy any such claim by selling on the date such claim
becomes payable that number of Repurchase Securities yielding proceeds (after
taxes, commissions and all other related transaction expenses) in an amount
closest in equivalent value to the amount of such claim. In such case, the
Holdback Amount shall be reduced by the Security Purchase Price of the
Repurchase Securities so sold, although for purposes of the repurchase
provisions herein payments shall be made by Sub 1 as if it were purchasing the
Repurchase Securities so sold, if CLF so satisfies any such claim, Sub 1 shall
have no right or claims, under this Agreement or otherwise, in respect of the
sold Repurchase Securities. If CLF has a substantial reason to believe that
there are other similar claims that will be made, CLF may similarly withhold
amounts from the Holdback Amount or sell Repurchase Securities.
Notwithstanding the foregoing, there shall be no obligation on CLF to satisfy
any such claims as are referred to in this Section 2.3(d) first from the
Holdback Amount or any Repurchase Securities and in no event shall the
Holdback Amount or the value of the Repurchase Securities represent a cap on
the amount of any such claim. If CLF withholds any amount pursuant to this
Section 2.3(d) and the claim or potential claims which gave rise to such
withholding is withdrawn, settled, terminated by final judgment or otherwise
determined to be for less than the amount so withheld, CLF shall promptly
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pay to Sub 1 an amount equal to the difference between the amount so withheld
and the actual final amount of the claim.
(e) CLF shall pass through to Sub 1 all interest, dividends and
distributions paid on the Repurchase Securities. If an extraordinary
distribution or dividend is made on the Repurchase Shares, CLF may, by giving
written notice to Sub 1 at least five business days prior to the date of
payment of such dividend or such distribution, require Sub 1 to repurchase, on
the date of payment of such dividend or such distribution, all of the
Repurchase Shares then held by CLF for a price per security equal to the
relevant Security Purchase Price. Concurrently with such repurchase and in
substitution therefor, Sub 1 shall sell to CLF, and CLF shall purchase from
Sub 1, new Repurchase Securities as set forth in Section 2.3(c)(vii) hereof.
CLF shall vote the Repurchase Shares at each annual or special meeting of
Berkshire Hathaway shareholders in person or by proxy as instructed by Sub 1
so long as CLF receives reasonable advance written notice of such
instructions. If there shall be a liquidation, merger, consolidation, sale of
the assets, or other combination or similar transaction with respect to
Berkshire Hathaway such that the Repurchase Shares are no longer outstanding
or are not exchanged for outstanding common stock of the acquiring or
successor corporation, the proceeds of such transaction shall be distributed
to Sub 1 as consideration therefor and Sub 1 and CLF shall enter into a
similar repurchase arrangement with respect to such other publicly traded
securities as the parties hereto otherwise agree or, if the parties cannot so
agree, Sub 1 shall replace such securities with U.S. treasury obligations, and
all such securities shall be deemed to be "Repurchase Securities" hereunder.
SECTION 2.4 Closing. The sale and delivery of the Holdings Shares by
White Mountains and Sub 1 and the payment of the Purchase Price (less the
Holdback Amount) to White Mountains (the "Closing") shall take place on the
Effective Date; provided that for the purposes of the Merger and this
Agreement, the Closing shall be deemed to be effective immediately before the
Effective Time.
SECTION 2.5 Substitute Buyer. CLF may at any time prior to the
Closing substitute as buyer under this Agreement any other Person; provided,
however, that such other Person shall be a Subsidiary of CLF and CLF shall
remain fully responsible for the obligations set forth herein and, provided
further, that CLF shall provide White Mountains with written notice of such
substitution.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLERS
Except as may be set forth on a schedule delivered by White
Mountains to CLF ("Disclosure Schedule") prior to the execution hereof that
sets forth, among other things, items the disclosure of which is necessary or
appropriate in response to an express disclosure requirement contained in a
provision hereof or as an exception to one or more representations and
warranties in Article III or to one or more of the covenants in Article V (the
disclosure of any such item in the Disclosure Schedule shall be disclosure for
the purposes of only that particular Section of this Agreement identified and
not for any other Section), each Seller hereby jointly and severally
represents and warrants to CLF as follows:
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SECTION 3.1 Organization and Good Standing.
(a) Each of Holdings, Services, White Mountains and Sub 1 is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full power and authority to conduct its
business as it is now being conducted, to own or use the properties (except
for Holdings and Services, which do not own any properties) or assets that it
purports to own or use, and to perform all of its respective obligations under
this Agreement.
(b) White Mountains has made available or delivered to CLF a true,
complete and correct copy of the certificate of incorporation and by-laws (or
equivalent documents including memorandum and articles of association, a
certificate of organization or articles of organization), each as amended to
date, of White Mountains, Sub 1, Services and Holdings (collectively, the
"Organizational Documents") . The Organizational Documents so delivered are in
full force and effect.
SECTION 3.2 Capitalization and Ownership of Shares.
(a) The authorized capital stock of Holdings consists solely of
200,000 shares of common stock, par value $1.00 per share, of which only
106,552 shares of common stock are issued and outstanding. As of the date
hereof, the authorized capital stock of Services consists solely of 5,000,000
shares of common stock, par value $0.01 per share, of which only 3,211,481
shares of common stock are issued and outstanding. All of the issued and
outstanding shares of capital stock of Holdings and all of the shares of
authorized capital stock of Services referred to in this paragraph (a) have
been duly authorized and is validly issued, fully paid and nonassessable.
(b) White Mountains is the indirect and beneficial owner of the Sub
1 Shares and (at the date hereof) of the Services Shares, free and clear of
all Liens. Sub 1 is the sole record and beneficial owner and holder of the
Holdings Shares, free and clear of all Liens. Holdings shall, at the Closing
and pursuant solely to the LLC Transactions, be the sole record and beneficial
owner and holder of the FSA Shares, free and clear of all Liens and shall not
own, directly or indirectly, any shares of capital stock of Services. Services
is, at the date hereof, the sole record and beneficial owner and holder of the
FSA Shares, free and clear of all Liens. Sub 1 shall, immediately before the
transfer and delivery to CLF of the Repurchase Shares or other Repurchase
Securities (as the case may be), be the sole record and beneficial owner and
holder of the Repurchase Shares or other Repurchase Securities (as the case
may be), free and clear of all Liens.
(c) There are no shares of capital stock or other securities of
Holdings (i) reserved for issuance or (ii) subject to preemptive rights or any
outstanding subscrip tions, options, warrants, calls, rights, convertible
securities or other agreements or other instruments outstanding or in effect
giving any Person the right to acquire any shares of capital stock or other
securities of Holdings or any commitments of any character relating to the
issued or unissued capital stock or other securities of Holdings. Holdings
does not have outstanding any bonds, debentures, notes or other obligations
the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the stockholders
Holdings on any matter.
(d) No legend or other reference to any purported Lien appears upon
any certificate representing the Holdings Shares or the FSA shares. The
Holdings Shares
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were not issued in violation of (i) the Securities Act of 1933, as amended
(the "Securities Act"), the securities laws of any state, or any other
federal, state, local, municipal, foreign, international, multinational, or
other constitution, law, rule, standard, requirement, administrative ruling,
order, ordinance, principle of common law, legal doctrine, code, regulation,
statute, treaty or process ("Law") or (ii) any award, decision, injunction,
judgment, decree, settlement, order, process, ruling, subpoena or verdict
(whether temporary, preliminary or permanent) entered, issued, made or
rendered by any court, administrative agency, arbitrator, Governmental Entity
(as defined in Section 3.4) or other tribunal of competent jurisdiction
("Order").
(e) Assuming CLF has the requisite corporate power and authority to
be the lawful owner of the Holdings Shares, upon delivery to CLF at the
Effective Time of certificates representing the Holdings Shares, duly endorsed
by Sub 1 for transfer to CLF, and upon the payment of the Purchase Price (less
the Holdback Amount) by CLF to White Mountains, good title in the Holdings
Shares shall pass to CLF, free and clear of all Liens, other than those
arising from acts of CLF or its affiliates. Assuming CLF has the requisite
corporate power and authority to be the lawful owner of the Repurchase Shares
or other Repurchase Securities, upon delivery to CLF at the Effective Time of
certificates representing the Repurchase Shares or other Repurchase Securities
(as the case may be), duly endorsed by White Mountains for transfer to CLF,
good title in the Repurchase Shares or Repurchase Securities (as the case may
be) shall pass to CLF, free and clear of all Liens, other than those arising
from acts of each of CLF or its affiliates and other than from the
arrangements set out in Section 2.3. The Repurchase Shares and the Repurchase
Securities shall be registered under the Securities Act and shall be freely
transferable and tradeable without transfer restrictions of any sort, other
than for restrictions on transfer resulting from the circumstances of CLF.
SECTION 3.3 Authority. Each of White Mountains and Sub 1 has the
full legal right, requisite power and authority (corporate or otherwise) and
has taken all action (including corporate action) necessary in order to
execute, deliver and perform fully its obligations under this Agreement and to
consummate the transactions contem plated hereby and each of White Mountains,
Sub 1, Holdings and Services has such authority to consummate fully the LLC
Transactions. This Agreement has been duly executed and delivered by each of
White Mountains and Sub 1 and constitutes, assuming the due authorization,
execution and delivery of this Agreement by CLF, a valid and binding agreement
of each of White Mountains and Sub 1, enforceable against each of White
Mountains and Sub 1 in accordance with its terms.
SECTION 3.4 Consents and Approvals. Except for the notification and
report form required to be filed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") (such filings, the "HSR Filing"), and except as set
forth in Schedule 3.4 of the Disclosure Schedule, no notices, reports or other
filings are required to be made by White Mountains, Sub 1, Services or
Holdings with, nor are any consents, registrations, approvals, declarations,
permits, expiration of any applicable waiting periods or authorizations
required to be obtained by White Mountains, Sub 1, Services or Holdings from,
any foreign, federal, state, local, municipal, county or other governmental,
quasi- governmental, administrative or regulatory authority, body, agency,
court, tribunal, commission or other similar entity (including any branch,
department or official thereof) ("Governmental Entity"), in connection with
the execution or delivery of this Agreement
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by White Mountains or Sub 1, the performance by each of White Mountains or Sub
1 of its obligations hereunder and the consummation by White Mountains, Sub 1,
Services or Holdings of the transactions contemplated herein (including the
LLC Transactions) other than those the failure of which to obtain would not
prevent or materially delay the Closing or the consummation of the
transactions contemplated herein.
SECTION 3.5 No Violations. The execution and delivery of this
Agreement by White Mountains or Sub 1 does not, and the performance and
consummation of any of the transactions contemplated herein (including the LLC
Transactions), shall not with respect to each of White Mountains, Sub 1,
Services and Holdings, directly or indirectly (with or without the giving of
notice or the lapse of time or both):
(a) violate the Organizational Documents;
(b) conflict with or result in a default (or give rise to any right
of reimbursement, termination, cancellation, modification or acceleration)
under any of the provisions of any contract, note, bond, lease, mortgage,
indenture, license, franchise, permit, agreement or other instrument or
obligation ("Contract") to which White Mountains, Sub 1, any of White
Mountains' Subsidiaries is a party, or by which White Mountains, Sub 1, any of
White Mountains' Subsidiaries or the properties or assets of White Mountains,
Sub 1 or any of White Mountains' Subsidiaries may be bound or affected other
than any such conflict, breach, default or other occurrence that, individually
or in the aggregate, would not have a Material Adverse Effect or would not
adversely affect the ability to transfer good title to the Holdings Shares to
CLF free and clear of all Liens or the ability to cause Holdings to become the
owner with good title of the FSA Shares free and clear of all Liens or result
in the creation or imposition of any Lien on the Holdings Shares or FSA Shares
or any property or assets owned or used by Holdings.
(c) violate any Law (as defined in Section 3.2(d)), Order (as
defined in Section 3.2(d)) or Governmental Authorization (as defined in
Section 1.1) applicable to White Mountains, Sub 1, Services or Holdings or the
properties or assets of White Mountains, Sub 1, Services or Holdings or result
in the creation or imposition of any Lien upon any of the properties or assets
owned or used by White Mountains, Sub 1, Services or Holdings, other than any
such violation or other occurrence that, individually or in the aggregate,
would not have a Material Adverse Effect or would not adversely affect the
ability to transfer good title to the Holdings Shares to CLF free and clear of
all Liens or the ability to cause Holdings to become the owner with good title
of the FSA Shares free and clear of all Liens or result in the creation or
imposition of any Lien on the Holdings Shares or FSA Shares or any property or
assets owned or used by Holdings.
SECTION 3.6 Financial Statements, Financial Reports, SEC Documents
and SAP Statements.
(a) Schedule 3.6 of the Disclosure Schedule contains the following
financial statements (collectively, the "Financial Statements"): (i) an
unaudited balance sheet of Holdings as at December 31, 1999, and the related
statement of income, (ii) an unaudited balance sheet of Services as at
December 31, 1999, and the related statement of income, and (iii) an unaudited
consolidated balance sheet of White Mountains as at
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December 31, 1999, and the related statements of income and comprehensive
income and statement of shareholders' equity.
(b) The Financial Statements present the financial condition and the
results of operations, of each of Holdings, Services and White Mountains (and
the changes in stockholders' equity and cash flow of White Mountains) as at
the respective dates of and for the periods referred to in such Financial
Statements, all in accordance with generally accepted U.S. accounting
principles consistently applied, subject, in the case of unaudited financial
statements, to normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be material in amount or effect) and
the absence of notes (that, if presented, would not differ materially from
those included in audited financial statements). The Financial Statements
reflect the consistent application of such accounting principles throughout
the periods involved.
(c) White Mountains's Annual Reports on Form 10-K for the fiscal
years ended December 31, 1997 and 1998 and all other reports, registration
statements, definitive proxy statements or information statements filed by
White Mountains or any of its Subsidiaries subsequent to December 31, 1998
under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934 (the "Exchange Act"), in the form filed
(collectively, "SEC Documents") with the Securities and Exchange Commission,
as of the date filed, (A) complied in all material respects as to form with
the applicable requirements under the Securities Act or the Exchange Act, as
the case may be, and (B) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and each of the balance sheets
contained in or incorporated by reference into any such SEC Document
(including the related notes and schedules thereto) fairly presents the
financial position of White Mountains and its Subsidiaries as of its date, and
each of the statements of income and changes in shareholders' equity and cash
flows or equivalent statements in such SEC Documents (including any related
notes and schedules thereto) fairly presents the results of operations,
changes in shareholders' equity and changes in cash flows, as the case may be,
of White Mountains and its Subsidiaries for the periods to which they relate,
in each case in accordance with generally accepted U.S. accounting principles
consistently applied during the periods involved, except in each case as may
be noted therein and subject to normal year-end audit adjustments.
(d) The Pre-Closing Balance Sheet shall, when delivered in
accordance with the terms hereof, present the financial condition of Services
as at its date, in accordance with generally accepted U.S. accounting
principles consistently applied, subject to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate,
be material in amount or effect) and the absence of notes (that, if presented,
would not differ materially from those included in audited financial
statements).
SECTION 3.7 Absence of Certain Changes and Events. Since December
31, 1999 to the date of this Agreement, there has not been any event or
circumstance that, individually, or taken together with other facts,
circumstances and events has had or is reasonably likely to have a Material
Adverse Effect with respect to White Mountains and its Subsidiaries taken as a
whole.
SECTION 3.8 Assets and Liabilities.
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(a) Except as set forth in Schedule 3.8(a), Holdings has no
Liabilities. For purposes of this Agreement, the term "Liability" shall mean
any debt, liability, commitment or obligation of any kind, character or nature
whatsoever, whether known or unknown, choate or inchoate, secured or
unsecured, accrued, fixed, absolute, contingent or otherwise, and whether due
or to become due.
(b) Except as set forth in Schedule 3.8(b) and except for Holdings'
ownership of the Majority Services Shares, Holdings does not own any property
or assets including any real property, leaseholds or other interest in land or
any tangible or intangible personal property. At Closing, Holdings shall have
no assets or Liabilities except for the FSA Shares.
SECTION 3.9 Taxes
(a) All material Tax Returns (as defined in paragraph (n) below)
that are required to be filed on or before the Effective Date by or with
respect to Holdings, have been or will be timely filed on or before the
Effective Date, and all such Tax Returns are or will be true and complete in
all material respects.
(b) All Taxes as (defined in paragraph (n) below) shown to be due on
the Tax Returns referred to in paragraph (a) above have been or will be timely
paid in full.
(c) Except as set forth in Schedule 3.9(c), the Tax Returns referred
to in paragraph (a) above have been examined by the Internal Revenue Service
or the appropriate state, local or foreign taxing authority or the period for
assessment of the Taxes in respect of which such Tax Returns were required to
be filed has expired.
(d) All material deficiencies asserted or assessments made as a
result of such examinations have been paid in full.
(e) Except as set forth in Schedule 3.9(e), no issues that have been
raised by the relevant taxing authority in connection with the examination of
any of the Tax Returns referred to in paragraph (a) above are currently
pending.
(f) Except as set forth in Schedule 3.9(f), no waivers of statutes
of limitation have been given by or requested with respect to any Taxes of
Services or Holdings.
(g) Holdings will not be required, as a result of (A) a change in
accounting method for a Tax period beginning on or before the Effective Date,
to include any adjustment under Section 481(c) of the Code (as defined in
paragraph (n) below) (or any similar provision of state, local or foreign law)
in taxable income for any Tax period beginning on or after the Effective Date,
or (B) any "closing agreement" as described in Section 7121 of the Code (or
any similar provision of state, local or foreign Tax law), to include any item
of income in or exclude any item of deduction from any Tax period beginning on
or after the Effective Date.
(h) There are no material Liens on any of the assets of Holdings
that arose in connection with any failure (or alleged failure) to pay any Tax.
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(i) Holdings has never been a member of an affiliated, combined,
consolidated or unitary Tax group for purposes of filing any Tax Return, other
than, for purposes of filing consolidated U.S. Federal income tax returns, a
group of which White Mountains was the common parent.
(j) No closing agreements, private letter rulings, technical advance
memoranda or similar agreement or rulings have been entered into or issued by
any taxing authority with respect to Holdings.
(k) None of White Mountains, Sub 1, any of White Mountains or Sub
1's affiliates, Holdings or any predecessor to Holdings has made with respect
to any Seller, Holdings, or any predecessor of Holdings any consent under
Section 341 of the Code.
(l) No Tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfer contemplated by this Agreement.
(m) As a result of CLF's purchase of the Holdings Shares, neither
Holdings nor CLF will be obligated to make a payment to an individual that
would be a "parachute payment" to a "disqualified individual" as those terms
are defined in Section 280G of the Code without regard to whether such payment
is reasonable compensation for personal services performed or to be performed
in the future.
(n) For the purposes of this Agreement, (i) "Code" shall mean the
Internal Revenue Code of 1986, as amended, (ii) "Tax Returns" shall mean all
reports and returns required to be filed with respect to the Taxes and (iii)
"Taxes" shall mean all federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes together
with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
SECTION 3.10 Employee Benefits; ERISA.
(a) Holdings does not maintain and has never maintained any benefit
or compensation plans, contracts, policies, arrangements, or "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(b) Except as set forth in Schedule 3.10(b), each of Services and
Holdings has not incurred and does not expect to incur any liability under
Subtitle IV of ERISA with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by an entity which is considered one employer
with Services or Holdings under Section 4001 of ERISA or Section 414 of the
Code.
SECTION 3.11 Contracts. White Mountains has delivered or made
available to CLF a true, complete and correct copy of each Contract to which
Services or Holdings is bound.
SECTION 3.12 Business of Services and Runoff. Except for the runoff
of its previous business (the "Runoff Business"), Services has no business or
operations
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and the Runoff Business is conducted in accordance with the Runoff Business
Plan disclosed in Schedule 3.12 of the Disclosure Schedule.
SECTION 3.13 Holdings Activities. Except as set forth in Schedule
3.13, Holdings has no business or operations, and has had no business or
operations, and its activities are limited, and have always been limited,
solely to its being a holding company engaged in holding and owning shares of
subsidiaries and other public companies.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CLF
Except as may be set forth on a schedule delivered by CLF to White
Mountains prior to the execution hereof that sets forth ("CLF's Disclosure
Schedule"), among other things, items the disclosure of which is necessary or
appropriate in response to an express disclosure requirement contained in a
provision hereof or an exception to one or more representations and warranties
in Article IV or to one or more of the covenants in Article V (the disclosure
of any such item in CLF's Disclosure Schedule shall be disclosure for the
purposes of only that particular Section of this Agreement identified and not
for any other Section). CLF hereby represents and warrants to the Sellers as
follows:
SECTION 4.1 Organization and Good Standing. CLF is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization.
SECTION 4.2 Corporate Authority. CLF has the full legal right,
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform fully, its obligations
under this Agreement and to consummate the transactions contemplated herein.
This Agreement has been duly executed and delivered by CLF and constitutes a
valid and binding agreement of CLF, enforceable against CLF in accordance with
its terms.
SECTION 4.3 Consents and Approvals; No Violations.
(a) Except for the HSR Filing and except as set forth in Schedule
4.3 of CLF's Disclosure Schedule, no material notices, reports or other
filings are required to be made by CLF with, nor are any material consents,
registrations, approvals, declarations, permits, expiration of any applicable
waiting periods or authorizations required to be obtained by CLF from any
Governmental Entity in connection with the execution or delivery of this
Agreement by CLF, the performance by CLF of its obliga tions hereunder or the
consummation by CLF of the transactions contemplated herein.
(b) Assuming the making of the HSR Filing and the making of the
other filings and the receipt of the necessary clearances or approvals set
forth in Schedule 4.3 of CLF's Disclosure Schedule, the execution and delivery
of this Agreement by CLF does not, and the performance and consummation by CLF
of any of the transactions contemplated herein will not, with respect to CLF,
directly or indirectly (with or without the giving of notice or the lapse of
time or both):
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(i) violate (A) any provision of the certificate of incorporation or
by-laws (or equivalent documents) of CLF or (B) any resolution adopted by
the Board of Directors (or similar governing body) of CLF;
(ii) require CLF to obtain the consent, waiver, authorization or
approval of, or give notice to, any Person under any Contract binding
upon CLF; or
(iii) contravene, conflict with, or constitute or result in a breach
or violation of, any material Law or material Order.
SECTION 4.4 Securities Act. CLF is acquiring the Holdings Shares for
its own account and not with a view to their distribution within the meaning
of the Securities Act in any manner that would be in violation of the
Securities Act.
ARTICLE V
COVENANTS
SECTION 5.1 LLC Transactions.
(a) Each Seller shall cause, and each jointly and severally
covenants and agrees to cause, the outright sale, conveyance, transfer and
assignment of all of the assets and Liabilities of Holdings (except for the
FSA Shares) prior to the Closing.
(b) Each Seller shall cause, and each jointly and severally
covenants and agrees to cause, the LLC Transactions to be fully consummated
prior to the Closing and shall cause Holdings to limit its activities from the
date hereof until the Closing solely to the holding and ownership of shares
which holding and ownership shall, as a result of the LLC Transactions, be
limited to the FSA Shares. Each Seller shall ensure that at the time of the
LLC Transactions and the Closing, Services is adequately capitalized in light
of its obligations and that it has equity capital of not less than $15,000,000
and that it has the capacity to pay its debts as they become due.
SECTION 5.2 No Sale. Each Seller agrees that it will not, and White
Mountains agrees that it will cause each of Sub 1, Services and Holdings not
to, directly or indirectly, sell, transfer, pledge, assign or otherwise
dispose of, or enter into any contract, option, commitment or other
arrangement or understanding with respect to the sale, transfer, pledge,
assignment or other disposition of, any of the Services Shares, the Sub 1
Shares, the Holdings Shares, the Majority Services Shares or the FSA Shares
(except for this Agreement or pursuant to the LLC Transactions).
SECTION 5.3 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, the Parties agree to use their reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or desirable, or advisable
under applicable laws, so as to permit the sale and purchase of the Holdings
Shares as promptly as practicable and otherwise to enable consummation of the
transactions contemplated hereby and shall cooperate fully with the other
Parties hereto to that end.
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SECTION 5.4 Press Releases. White Mountains and CLF agree that they
will not (and White Mountains agrees that it will cause its Subsidiaries not
to), without the prior approval of the other, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable Law or NYSE
rules.
SECTION 5.5 Access; Information; Confidentiality.
(a) White Mountains agrees that upon reasonable notice and subject
to applicable Laws relating to the exchange of information, it shall afford
CLF and its officers, employees, counsel, accountants and other authorized
Representatives, reasonable access during normal business hours throughout the
period prior to the Effective Date to White Mountains', Services' and
Holdings' books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as CLF may reasonably request and, during such period, White
Mountains shall furnish promptly to CLF such other information concerning its
business as CLF may reasonably request.
(b) Each Party agrees that it will not, and will cause its
Representatives not to, use any information obtained pursuant to this Section
5.5 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement.
Subject to the requirements of Law, each Party will keep confidential, and
will cause its Representatives to keep confidential, all information and
documents obtained pursuant to this Section 5.5 (as well as any other
information obtained prior to the date hereof in connection with the entering
into of this Agreement)
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unless such information (i) was already known to such Party, (ii) becomes
available to such Party from other sources not known by such Party to be bound
by a confidentiality obligation, (iii) is disclosed with the prior written
approval of the Party to which such information pertains, (iv) is or becomes
readily ascertainable from published information or trade sources or (v) must,
in the opinion of such Party, upon written advice of counsel, be disclosed in
order to avoid violating any applicable Law. In the event that this Agreement
is terminated or the transactions contemplated by this Agreement shall
otherwise fail to be consummated, each Party shall promptly cause all copies
of documents or extracts thereof containing information and data as to another
Party hereto to be returned to the Party which furnished the same or to be
destroyed. No investigation by either Party of the business and affairs of the
other shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement, or the conditions to either
Party's obligation to consummate the transactions contemplated by this
Agreement.
SECTION 5.6 Tax Matters.
(a) Adjustment to Purchase Price. Any payment by the Sellers under
Section 8.1(d) will be an adjustment to the Purchase Price.
(b) Tax Returns. CLF shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to Holdings and
that are due to be filed after the Effective Date and shall remit any Taxes
due in respect of such Tax Returns. The Sellers shall pay CLF the Taxes for
which the Sellers are liable pursuant to Section 8.1(d) but which are payable
with Tax Returns to be filed by CLF pursuant to the previous sentence within
10 days prior to the due date for the filing of such Tax Returns.
(c) Termination of Tax Allocation Agreements. Any tax allocation or
sharing agreement or arrangement, whether or not written, that may have been
entered into by any Seller or any affiliate of any Seller and Holdings shall
be terminated as to Holdings as of the Effective Date, and no payments which
are owed by or to Holdings pursuant thereto shall be made thereunder.
(d) Transfer Taxes. The Sellers shall be liable for all transfer
taxes arising from the sale of the Holdings Shares.
(e) Services Reorganization or Contribution. Sellers shall ensure
that Services is not re-organized as a corporation and is not otherwise
treated as an association taxable as a corporation for U.S. Federal tax
purposes, and that it shall not contribute substantially all of its assets to
any corporation or association taxable as a corporation for U.S. Federal tax
purposes.
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(f) FIRPTA Certificate. The Sellers shall deliver at Closing a
FIRPTA Certificate as required by Section 1445 of the Code in form and
substance reasonably satisfactory to CLF.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 Conditions to Obligations of CLF. The obligations of CLF
to consummate the sale and purchase of the Holdings Shares and to take the
other actions to be taken by CLF at the Closing is subject to the
satisfaction, at or prior to the Closing (except for Section 6.1(c) which
shall have to be satisfied at all times up to and including the Effective
Date), of each of the following conditions (any of which may be waived in
whole or in part by CLF):
(a) Representations and Warranties. All of the representations and
warranties of each of White Mountains and Sub 1 set forth in this Agreement
shall be true and correct in all material respects (except for Sections
3.1(a), 3.2, 3.3, 3.4, 3.5, 3.7 and 3.13 as to which in all material respects
shall not apply) as of the date of this Agreement. The representations and
warranties of each of White Mountains and Sub 1 set forth in Sections 3.1(a),
3.2, 3.3, 3.4, 3.5, and 3.13 of this Agreement shall be true and correct as of
the Effective Date.
(b) Covenants. All of the covenants, agreements, undertakings and
obligations that each of White Mountains and Sub 1 is required to perform or
to comply with pursuant to this Agreement at or prior to the Closing, and each
of these covenants, agreements, undertakings and obligations, shall have been
duly performed and complied with in all material respects.
(c) No Material Impairment. Since December 31, 1999, there shall not
have occurred any event or circumstance (other than any event or circumstance
that has resulted in an increase in the liabilities of Services from December
31, 1999 to the date of the Pre-Closing Balance Sheet) that, individually, or
taken together with other facts, circumstances and events, has resulted in, or
would be reasonably likely to result in, (i) White Mountains' credit rating
(x) by Standard & Poor's Ratings Service ("S&P") falling below the lowest
investment grade rating awarded by S&P (which at the date hereof is BBB-) or
(y) by Moody's Investors Service ("Moody's") falling below the lowest
investment grade rating awarded by Moody's (which at the time hereof is Baa3),
or (ii) a decrease in White Mountains consolidated stockholders' equity,
determined in accordance with U.S. generally accepted accounting principles,
to less than $500,000,000 (the calculation of which shall include the gain on
a sale of the FSA Shares at the per share Merger Consideration less applicable
taxes as computed under U.S. generally
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accepted accounting principles per share (each such event or circumstance a
"Downgrade Condition")).
(d) Officer's Certificates. Each of White Mountains and Sub 1 shall
have delivered to CLF a certificate, dated as of the Effective Date and signed
by a senior executive officer or officers of White Mountains (in the case of
the officer's certificate to be delivered by White Mountains) or Sub 1 (in the
case of the officer's certificate to be delivered by Sub 1), representing that
the conditions referred to in Sections 6.1(a), 6.1(b) 6.1(c) and 6.1(i) as it
relates to the LLC Transactions have been satisfied.
(e) Secretary's Certificate. CLF shall have received copies of the
resolutions of the Board of Directors (or other similar governing body) of
each of White Mountains, Sub 1, and Holdings, authorizing the execution,
delivery and performance of this Agreement and certificates of the secretaries
or assistant secretaries of such corporations dated as of the Effective Date,
to the effect that such resolutions were duly adopted and are in full force
and effect, together with copies of the articles or certificate of
incorporation and by-laws (or equivalent documents) of each such corporation
certified by such officers, and certifying the status, authority and signature
of each of their respective officers who executed and delivered this
Agreement.
(f) No Prohibition. No applicable Law or Order preventing or
impairing the purchase and sale of the Holding Shares by Sub 1 to CLF on the
terms and conditions of this Agreement or preventing or impairing in a
material way the performance by White Mountains or Sub 1 of their obligations
hereunder shall be in effect.
(g) Receipt of Shares. CLF shall have received from Sub 1 a
certificate or certificates evidencing all of the then issued and outstanding
Holdings Shares, duly endorsed in blank or accompanied by stock powers duly
executed in blank, in proper form of transfer, with all signatures guaranteed
and with any requisite stock transfer tax stamps properly affixed thereto. CLF
shall have received from Sub 1 certificates or certificates evidencing the FSA
Shares registered in the name of Holdings. There shall not have been made or
threatened by any Person any claim having a material likelihood of success
asserting that such Person (i) is the holder or the beneficial owner of, or
has the right to acquire or to obtain beneficial ownership of, any stock of,
or any other voting, equity, or ownership interest in, Holdings, or (ii) is
entitled to all or any portion of the Purchase Price payable for the Holdings
Shares.
(h) HSR Act. The waiting period required by the HSR Act, and any
extensions thereof obtained by request or other action by the FTC and/or the
Antitrust Division, shall have expired or been terminated by the FTC and the
Antitrust Division.
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(i) LLC Transactions, Repurchase Shares and Pre-Closing Balance
Sheet. The LLC Transactions shall have been consummated and White Mountains
shall have delivered and transferred the Repurchase Shares to CLF by delivery
and transfer of a certificate or certificates evidencing the same registered
in the name of CLF and shall have delivered to CLF the Pre-Closing Balance
Sheet.
SECTION 6.2 Conditions to Obligations of Sellers. The obligations of
each Seller to consummate the sale and purchase of the Holdings Shares and to
take the other actions to be taken by each Seller at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived in whole or in part by White
Mountains):
(a) No Prohibition. No applicable Law or Order preventing the sale
of the Holdings Shares by the Sellers to CLF shall be in effect.
(b) Receipt of Purchase Price. White Mountains shall have received
from CLF the payments required to be made on the Effective Date pursuant to
Section 2.3 hereof.
(c) HSR Act. The waiting period required by the HSR Act, and any
extensions thereof obtained by request or other action by the FTC and/or the
Antitrust Division, shall have expired or been terminated by the FTC and the
Antitrust Division.
SECTION 6.3 Conditions to Obligations of Sellers and CLF. The
obligations of CLF and each Seller to consummate the sale and purchase of the
Holdings Shares and to take the other action to be taken by them at Closing is
subject to all conditions to the consummation of Merger set forth in the
Merger Agreement (excluding the conditions set forth in Section 7.02(c) and
Section 7.03(f) thereof) having been satisfied or waived, it being understood
that the Merger shall become effective immediately after the Closing.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. With the exception of the Excepted
Provisions (as defined below), which shall survive the termination of this
Agreement, this Agreement shall terminate simultaneously with the termination
of the Merger Agreement and the abandonment of the Merger; provided that
termination of this Agreement will not relieve a breaching party from
liability for any willful breach of this Agreement.
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"Excepted Provisions" means Article V, Article VII, Article VIII , and Article
IX of this Agreement.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Indemnification and Reimbursement by Sellers. Each
Seller, jointly and severally, shall indemnify and hold harmless CLF and its
affiliates, Holdings, and their respective successors, permitted assigns,
stockholders, controlling persons, Related Persons and Representatives (each,
a "CLF Indemnified Party") from and against, and shall reimburse the CLF
Indemnified Parties for, any and all losses, liabilities, claims, damages,
advances to be made, repurchase obligations and expenses (including costs of
investigation and defense and attorneys' and accountants' fees and all costs
of any in-house personnel and resources) of any kind or nature whatsoever,
whether or not involving a third-party claim (all of the foregoing,
collectively, "Damages"), as incurred, arising out of, due to or directly or
indirectly in connection with:
(a) any (i) breach of or inaccuracy in any representation made by a
Seller in this Agreement, including the Disclosure Schedule, or any other
certificate or document delivered in connection with this Agreement, or
(ii) breach or violation of or failure to perform any covenant,
agreement, undertaking or obli gation of White Mountains or Sub 1,
whether or not in relation to Holdings or Services, set forth in this
Agreement or any other certificate or document delivered in connection
with this Agreement;
(b) any sale or disposition of any assets, shares or business prior
to the Effective Time by, or on behalf of, White Mountains, Sub 1,
Services, Holdings or any of their respective Related Persons and any
obligations of Services or Holdings or any of their respective Related
Persons to indemnify or hold harmless, or make any advances or
repurchases in respect of any obligation (in the case of Holdings, prior
to the Effective Time) owed to, any Person, including in connection with
the Asset Purchase Agreement, dated as of March 23, 1999, by and among
Source One Mortgage Services Corporation, as Seller, Fund American
Enterprises Holdings, Inc., as Parent, and Citicorp Mortgage, Inc. as
Purchaser;
(c) any conduct, activity, business, acts, omissions, liabilities or
obligations of White Mountains, Sub 1, Services or Holdings occurring or
incurred prior to the Effective Time, including the LLC Transactions, or
any Damages sought (directly or indirectly) from Services or Holdings by
any Person in connection therewith (whether based on any agency, express
or implied
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partnership or joint venture, respondent superior, vicarious liability,
piercing the corporate veil, conspiracy or other legal theory whereby
liability is asserted on one Person for or on account of the actions or
omissions of any other Person) whether or not known by CLF or disclosed
to CLF prior to the Closing (other than Damages relating to Taxes, which
are dealt with in paragraph (d) below); and
(d) any Taxes (including any obligation to contribute to the payment
of a Tax determined on a consolidated, combined or unitary basis with
respect to a group of corporations that includes or included Holdings)
(i) imposed on any Seller for any taxable year or (ii) imposed on
Holdings or Services or for which Holdings or Services may otherwise be
liable for any Pre-Closing Tax Period or in respect of events arising on
or before the Effective Date.
It is understood and agreed that the foregoing indemnity does not
relate to changes in value of the FSA Shares.
SECTION 8.2 No Expiration of Indemnification. The rights of any CLF
Indemnified Party pursuant to Article VIII hereof shall survive the execution
and delivery of this Agreement and the Closing indefinitely as shall all the
representations and warranties and the covenants, undertakings or obligations
set forth in this Agreement. The provisions of this Article VIII are (a)
intended to be for the benefit of, and will be enforceable by, each CLF
Indemnified Party, and (b) are not in addition to or substitution for any
other right to indemnification or contribution that any such Person may have
by contract or otherwise.
SECTION 8.3 Computation of Losses Subject to Indemnification.
Damages for which a CLF Indemnified Party would be entitled to indemnification
hereunder shall be quantified on an after-tax basis grossed-up for any
withholding taxes deducted from the indemnity payment and for any taxes
incurred by the CLF Indemnified Party on the indemnity payment.
SECTION 8.4 Notice and Payment of Claims.
(a) Notice. A CLF Indemnified Party shall notify White Mountains in
writing as soon as practicable, but not later than twenty (20) days, after
acquiring actual knowledge of, and shall provide to White Mountains as soon as
practicable thereafter reasonable information and documentation necessary to
support and verify, any Damages that the CLF Indemnified Party shall have
determined to have given, or is reasonably likely to give rise to, a claim for
indemnification hereunder (including by virtue of any Third Party Claim (as
defined in Section 8.5)). Notwithstanding the foregoing, the failure to so
notify White Mountains shall not relieve White Mountains or Sub 1 of any
liability that it may have to any CLF Indemnified Party, except to the extent
that White Mountains
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demonstrates that it is materially prejudiced by the CLF Indemnified Party's
failure to give such notice (unless White Mountains or any of its Subsidiaries
knew of such liability).
(b) Payment. Upon receipt of the notice referred to in Section
8.4(a), White Mountains (without prejudice to each Seller's joint and several
liability hereunder) shall promptly pay any Damages as shall have been claimed
by the CLF Indemnified Party in immediately available funds in U.S. dollars.
(c) Interest. Any amounts not paid when due pursuant to this Article
VIII shall bear interest from the date thereof until the date paid at a rate
equal to 5% above the "prime rate" as published in The Wall Street Journal.
SECTION 8.5 Procedure for Conduct of Third Party Claims.
(a) Upon receipt by a CLF Indemnified Party of notice of the
commencement of any Action by a third party (a "Third Party Claim") against
it, such CLF Indemnified Party shall, if a claim is to be made under this
Article VIII, give notice to White Mountains in writing of the commencement of
such Third Party Claim as soon as practicable, but in no event later than
twenty (20) days after the CLF Indemnified Party shall have been served;
provided that the failure to so notify White Mountains shall not relieve White
Mountains of any liability that it or Sub 1 may have to any CLF Indemnified
Party, except to the extent that White Mountains demonstrates that the defense
of such Third Party Claim is materially prejudiced by the CLF Indemnified
Party's failure to give such notice (unless White Mountains or any of its
Subsidiaries knew of such Third Party Claim). Thereafter, the CLF Indemnified
Party shall deliver to White Mountains, promptly following the CLF Indemnified
Party's receipt thereof, copies of all notices and documents (including court
papers) received by the CLF Indemnified Party relating to the Third Party
Claim.
(b) If a Third Party Claim is brought against a CLF Indemnified
Party and the CLF Indemnified Party gives notice to White Mountains of the
commencement of such Third Party Claim in accordance with paragraph (a) above,
White Mountains shall promptly and in a timely manner and at its sole expense,
assume all aspects of the defense of such Third Party Claim (on behalf of
itself or the relevant Person) with counsel selected by White Mountains that
is reasonably satisfactory to the CLF Indemnified Party. White Mountains shall
not be liable to the CLF Indemnified Party for any legal expenses incurred by
the CLF Indemnified Party in connection with the defense of a Third Party
Claim subsequent to White Mountains's assumption of the defense thereof. The
CLF Indemnified Party shall have the right to participate in the defense
thereof and to employ counsel (not reasonably objected to by White Mountains),
at its own expense, separate from the counsel employed by White Mountains, it
being understood that White
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Mountains shall control such defense. No CLF Indemnified Party shall admit any
liability with respect to, or settle, compromise or discharge, any such Third
Party Claim without White Mountains's prior written consent. No compromise,
discharge or settlement of, or admission of liability in connection with, such
claims may be effected by White Mountains (or the relevant Person) without the
CLF Indemnified Party's written consent in its sole discretion unless (A)
there is no finding or admission of any violation of Law or any violation of
the rights of any Person and no effect on any other claims that may be made
against the CLF Indemnified Party and (B) the sole relief provided is monetary
damages that are paid in full by White Mountains. The CLF Indemnified Party
shall cooperate (at White Mountains's sole expense) in all reasonable respects
with White Mountains in connection with such defense.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Waiver; Amendment. Prior to the Closing, any provision
of this Agreement may be (a) waived by the Party benefitted by the provision
or (b) amended or modified at any time, by an agreement in writing between the
Parties hereto executed in the same manner as this Agreement.
SECTION 9.2 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original.
SECTION 9.3 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of New York applicable
to contracts made and to be performed entirely within such State.
SECTION 9.4 Waiver of Jury Trial. Each Party hereto acknowledges and
agrees that any controversy which may arise under this Agreement is likely to
involve complicated and difficult issues, and therefore each such Party hereby
irrevocably and unconditionally waives any right such Party may have to a
trial by jury in respect of any litigation directly or indirectly arising out
of or relating to this agreement, or the transactions contemplated by this
Agreement. Each Party certifies and acknowledges that (a) no representative,
agent or attorney of any other Party has represented, expressly or otherwise,
that such other Party would not, in the event of litigation, seek to enforce
the foregoing waiver, (b) each Party understands and has considered the
implications of this waiver, (c) each Party makes this waiver voluntarily, and
(d) each Party has been induced to enter into this agreement by, among other
things, the mutual waivers and certifications in this Section 9.4.
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SECTION 9.5 Notices. All notices, requests and other communications
hereunder to a Party shall be in writing and shall be deemed given if
personally delivered, telecopied (with confirmation) or mailed by registered
or certified mail (return receipt requested) to such Party at its address set
forth below or such other address as such Party may specify by notice to the
parties hereto.
If to White Mountains or Sub 1, to:
[ ]
With a copy (which shall not constitute notice) to:
[ ]
With a copy (which shall not constitute notice) to:
[ ]
If to CLF, to:
[ ]
With a copy to:
[ ]
With a copy (which shall not constitute notice) to:
[ ]
SECTION 9.6 Entire Understanding; No Third Party Beneficiaries. This
Agreement represents the entire understanding of the Parties hereto with
reference to the transactions contemplated hereby and this Agreement
supersedes any and all other oral or written agreements heretofore made.
Except as set forth in Article VIII, nothing in this Agreement expressed or
implied, is intended to confer upon any Person, other than the Parties hereto
or their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement. All CLF Indemnified Parties
are express third party beneficiaries of Article VIII and are entitled to
directly enforce the provisions thereof.
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<PAGE>
SECTION 9.7 Expenses. Except as otherwise expressly provided herein,
whether or not the transactions contemplated herein are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated herein shall be paid by the Party incurring such expense. Without
limiting the generality of the foregoing, each Party shall pay all legal,
accounting and investment banking fees, and other fees to consultants and
advisors incurred by it, relating to this Agreement and the transactions
contemplated herein. White Mountains shall cause Holdings not to incur any
out-of-pocket expenses in connection with this Agreement. In the event of
termination of this Agreement, the obligation of each Party to pay its own
expenses will be subject to any rights of such Party arising from a breach of
this Agreement by another Party. White Mountains shall be liable for, and
shall pay prior to Closing, all transfer taxes arising from the sale of the
Holdings Shares and the Repurchase Shares or other Repurchase Securities.
SECTION 9.8 Specific Performance. Each Seller agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed by it in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that CLF shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement by any
Seller to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, this being in addition to
any other remedy to which it is entitled at law or in equity and each Seller
waives the posting of any bond or security in connection with any proceeding
related thereto.
SECTION 9.9 Purpose. It is the intention of White Mountains and Sub
1, jointly and severally, to convey Holdings without any liabilities and
obligations, whether fixed or contingent. To the extent that Holdings is
conveyed with any such liabilities or obligations, White Mountains and Sub 1
shall, in addition to being responsible and liable for all such liabilities
and obligations in accordance with Article VIII, also be responsible for any
and all acts required with respect to such liabilities and obligations and
shall discharge such liabilities and obligations as if they were their own
with a view towards minimizing the acts required on the part of CLF and its
affiliates. This Agreement shall at all times be interpreted in a manner
consistent with, and in direct furtherance of this purpose.
SECTION 9.10 Interpretation; Effect. When a reference is made in
this Agreement to Sections, or Schedules, such reference shall be to a Section
of, or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation".
SECTION 9.11 Certain Events. Prior to entering into any agreement or
arrangement with respect to, or effecting, any proposed sale, exchange,
dividend or other distribution or liquidation of all or a significant portion
of its assets in one or a series of
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transactions or if any significant recapitalization or reclassification of its
outstanding securities as a result of which either White Mountains or a person
that becomes the successor to White Mountains' obligations hereunder suffers,
or is reasonably likely to suffer, a Downgrade Condition, White Mountains
shall notify CLF in writing thereof (if not previously so notified) and, if
requested by CLF, shall arrange in connection therewith alternative means of
providing for the obligations of White Mountains set forth in this Agreement,
including the assumption of such obligations by another party, insurance,
surety bonds or the creation of an escrow, in each case in an amount and upon
terms and conditions reasonably satisfactory to CLF.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers duly authorized as of the date first written
above.
WHITE MOUNTAINS INSURANCE
GROUP, LTD.
By:
------------------------
Name:
Title:
WHITE MOUNTAINS HOLDINGS
(BARBADOS) SRL
By:
------------------------
Name:
Title:
DEXIA CREDIT LOCAL DE FRANCE S.A.
By:
------------------------
Name:
Title:
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TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1 Certain Definitions ....................................... 1
SECTION 1.2 Merger Agreement Definitions................................. 4
ARTICLE II
SALE AND PURCHASE OF SHARES
SECTION 2.1 Sale and Purchase of Holdings Shares.......................... 5
SECTION 2.2 Purchase Price ....................................... 5
SECTION 2.3 Payment of Purchase Price, Holdback Amount and Repurchase
Shares...................................................... 5
SECTION 2.4 Closing....................................................... 8
SECTION 2.5 Substitute Buyer.............................................. 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLERS
SECTION 3.1 Organization and Good Standing................................ 9
SECTION 3.2 Capitalization and Ownership of Shares........................ 10
SECTION 3.3 Authority..................................................... 11
SECTION 3.4 Consents and Approvals........................................ 11
SECTION 3.5 No Violations................................................. 12
SECTION 3.6 Financial Statements, Financial Reports, SEC Documents and SAP
Statements.................................................. 12
SECTION 3.7 Absence of Certain Changes and Events......................... 14
SECTION 3.8 Assets and Liabilities ....................................... 14
SECTION 3.9 Taxes......................................................... 14
SECTION 3.10 Employee Benefits; ERISA...................................... 16
SECTION 3.11 Contracts..................................................... 16
SECTION 3.12 Business of Services and Runoff............................... 16
SECTION 3.13 Holdings Activities........................................... 16
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Page
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CLF
SECTION 4.1 Organization and Good Standing................................ 17
SECTION 4.2 Corporate Authority........................................... 17
SECTION 4.3 Consents and Approvals; No Violations......................... 17
SECTION 4.4 Securities Act................................................ 18
ARTICLE V
COVENANTS
SECTION 5.1 LLC Transactions.............................................. 18
SECTION 5.2 No Sale...................................................... 18
SECTION 5.3 Reasonable Best Efforts...................................... 19
SECTION 5.4 Press Releases............................................... 19
SECTION 5.5 Access; Information; Confidentiality......................... 19
SECTION 5.6 Tax Matters.................................................. 20
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 Conditions to Obligations of CLF.............................. 21
SECTION 6.2 Conditions to Obligations of Sellers.......................... 23
SECTION 6.3 Conditions to Obligations of Sellers and CLF.................. 23
ARTICLE VII
TERMINATION
SECTION 7.1 Termination................................................... 23
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Indemnification and Reimbursement by Sellers.................. 24
SECTION 8.2 No Expiration of Indemnification.............................. 25
SECTION 8.3 Computation of Losses Subject to Indemnification.............. 25
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<PAGE>
SECTION 8.4 Notice and Payment of Claims.................................. 25
SECTION 8.5 Procedure for Conduct of Third Party Claims................... 26
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Waiver; Amendment............................................. 27
SECTION 9.2 Counterparts.................................................. 27
SECTION 9.3 Governing Law................................................. 27
SECTION 9.4 Waiver of Jury Trial.......................................... 27
SECTION 9.5 Notices............. ....................................... 27
SECTION 9.6 Entire Understanding; No Third Party Beneficiaries............ 29
SECTION 9.7 Expenses...................................................... 30
SECTION 9.8 Specific Performance.......................................... 30
SECTION 9.9 Purpose....................................................... 30
SECTION 9.10 Interpretation; Effect........................................ 30
SECTION 9.11 Certain Events................................................ 31
FOR IMMEDIATE RELEASE: Contacts: Betsy Castenir -- 212-339-3424
Francoise Lefebvre -- 33-1-43-92-80-20
DEXIA TO ACQUIRE FSA
STRATEGIC COMBINATION SUPPORTS DEXIA'S WORLD LEADERSHIP ROLE
IN PUBLIC FINANCE AND BROADENS FSA'S EUROPEAN OPPORTUNITIES
Brussels, Paris and New York, March 14, 2000--Dexia, Europe's largest
municipal lender with assets of over $230 billion, and Financial Security
Assurance Holdings Ltd. (FSA Holdings; NYSE:FSA), holding company for the
U.S-based bond insurer Financial Security Assurance Inc.(FSA), today announced
that Dexia and FSA Holdings have signed a definitive agreement providing for
the acquisition of FSA Holdings by Dexia for $76.00 per FSA share in cash, or
approximately $2.6 billion. The transaction has been approved by the boards of
both companies and is subject to FSA Holdings' shareholder and regulatory
approvals. The companies expect to close the transaction in the second quarter
of 2000.
White Mountains Insurance Group, Ltd., XL Capital Ltd, and MediaOne Capital
Corporation, have each entered into voting agreements in support of the
transaction. FSA expects Tokio Marine and Fire Insurance Co. to enter into a
similar agreement. These four shareholders in the aggregate control
approximately 44% of the voting shares of FSA.
Pierre Richard, Chief Executive Officer, Dexia, said "a combination of Dexia
and FSA will create a global leader in public finance and specialized
financing for corporations. In the U.S., Dexia's financial backing will
further enhance FSA's ability to compete successfully in the municipal and
asset-backed insurance sectors. In Europe, FSA will be able to take advantage
of Dexia's broad client network to leverage its core expertise in the rapidly
growing municipal infrastructure finance and securitization markets. The
significant financial strength and broad-based expertise of the combined
entity should also facilitate active participation in Japan and other
countries.
"In addition to the obvious benefits of global leadership, we believe that a
combination of our companies would represent a true partnership of two
focused, dynamic, professional organizations with complementary cultures. This
belief is based on our understanding of FSA's unique corporate identity, as
well as our significant, personal interaction with the Company's management.
We attribute the highest importance to these factors because they, in addition
to the strategic and financial aspects of a combination, will ultimately
determine our ability to succeed together," he added.
Robert P. Cochran, FSA Holdings Chairman and Chief Executive Officer, said:
"FSA has built strong franchises in the U.S. municipal and asset-backed
businesses and has developed the core expertise to significantly expand its
participation in international markets. This merger provides our shareholders
with solid value and will help us to expand our business globally and develop
new financial guaranty products. Equally important, our expertise in the
insured markets will support Dexia's goal of world leadership in public
finance.
"We are very enthusiastic about this combination, which is also a great
opportunity for our customers and our employees. We are joining forces with a
large, financially strong and forward-looking financial services
<PAGE>
leader that shares our commitment to building core competencies, providing the
highest level of service and maintaining credit underwriting discipline."
FSA guarantees principal and interest on municipal bonds and asset-backed
securities. Its Triple-A guaranty helps issuers lower their funding costs and
provides bondholders with the highest quality investments. FSA is
headquartered in New York and has additional offices in San Francisco and
Dallas. It also has a U.K. subsidiary, Financial Security Assurance (U.K.)
Limited; a Bermuda-based subsidiary, Financial Security Assurance
International Ltd.; and representative offices in Paris, Madrid, Singapore,
Sydney and Tokyo.
After the transaction closes, FSA's claims-paying ability will continue to be
rated Triple-A by Fitch IBCA, Inc., Moody's Investors Service, Inc., Standard
and Poor's Ratings Services (S&P) and Japan Rating and Investment Information,
Inc. (R&I).
Lazard acted as financial advisor to Dexia, and Goldman, Sachs & Co. acted as
financial advisor to FSA.
Dexia , the European leader in financial services to the public sector,
operates through Credit Local de France, which specializes in lending to local
authorities and public sector project finance, Credit Communal de Belgique, a
Belgian retail bank, and Banque Internationale a Luxembourg, active in asset
management, private banking and fund administration. In addition to France,
Belgium and Luxembourg, the company has operations throughout Europe, as well
as offices in the Americas, Asia and Australia. Dexia is rated Aa1 by Moody's
and AA+ by Fitch IBCA and S&P. Dexia is listed on the Brussels, Paris and
Luxembourg Stock Exchanges.
###
FSA EXPECTS TO FILE A PROXY STATEMENT IN CONNECTION WITH ITS UPCOMING ANNUAL
SHAREHOLDERS MEETING CONTAINING INFORMATION ABOUT THE MERGER AND RELATED
TRANSACTIONS. SECURITY HOLDERS SHOULD READ THE PROXY STATEMENT WHEN IT IS
AVAILABLE BECAUSE IT CONTAINS IMPORTANT INFORMATION. INVESTORS CAN GET THE
PROXY STATEMENT AND OTHER FILED DOCUMENTS FOR FREE AT THE SECURITIES AND
EXCHANGE COMMISSION'S WEBSITE AT WWW.SEC.GOV. FSA WILL ALSO MAKE A COPY OF THE
PROXY STATEMENT AND RELATED DOCUMENTS AVAILABLE TO FSA STOCKHOLDERS, AT NO
EXPENSE TO THEM.
