Exhibit 99.2
STOCK OPTION AGREEMENT
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STOCK OPTION AGREEMENT, dated May 25, 2000, by and between
Reliance Group Holdings, Inc., a Delaware corporation (the "Company"), and
Leucadia National Corporation, a New York corporation ("Parent").
WHEREAS, concurrently with the execution and delivery of
this Agreement, the Company, Parent and Leucadia Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent ("Sub"), are entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"; capitalized terms used and not otherwise defined in this Agreement
shall have the meanings set forth in the Merger Agreement), which provides that,
among other things, upon the terms and subject to the conditions thereof, Sub
will be merged with the Company; and
WHEREAS, as a condition to Parent's and Sub's willingness
to enter into the Merger Agreement, Parent has requested that the Company agree,
and in order to induce Parent to enter into the Merger Agreement, the Company
has so agreed, to grant to Parent an option with respect to certain shares of
the Company's common stock on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of
the mutual covenants and agreements set forth herein and in the Merger Agreement
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants Parent an
irrevocable option (the "Stock Option") to purchase up to 12,617,830 shares of
common stock, $.10 par value per share, of the Company (the "Company Common
Stock"), or such other higher number of shares of Company Common Stock as equals
9.9% of the issued and outstanding shares of Company Common Stock at the time of
exercise of, and giving effect to, the Stock Option, in the manner set forth
below, at a price of $2.50 per share (the "Exercise Price"), payable in cash.
2. EXERCISE OF OPTION. (a) The Stock Option may be
exercised by Parent, in whole or in part, at any time or from time to time after
the earlier to occur of (i) the termination of the Merger Agreement in
accordance with its terms for reasons other (x) than the failure of Parent or
Merger Sub to fulfill any obligation under the Merger Agreement or (y) as a
result of Parent's failure to vote any Company Common Stock in favor of the
Merger or (ii) the condition set forth in Section 7.2(e) of the Merger Agreement
has been satisfied (the "Triggering Event").
In the event Parent wishes to exercise the Stock Option,
Parent shall deliver to the Company a written notice (an "Exercise Notice")
specifying the total number of shares of Company Common Stock it wishes to
purchase. Each closing of a purchase of shares of Company Common Stock (a
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"Closing") shall occur at a place, on a date and at a time designated by Parent
in an Exercise Notice delivered at least two business days prior to the date of
the Closing.
(b) The Stock Option shall terminate upon the earlier of:
(i) the Effective Time; (ii) on the one-year anniversary date of the end of the
Due Diligence Period or if, at the expiration of such one year period the Stock
Option cannot be exercised by reason of any applicable judgment, decree, order,
law or regulation (including, without limitation, the need for any consent,
approval, exemption, waiting period expiration or similar authorization required
under the insurance laws or regulations of any jurisdiction), or because the
applicable waiting period under the HSR Act has not expired or been terminated
(so long as such failure to expire or terminate is not a result of Parent having
withdrawn its HRS filing and not resubmitting such filing), 10 business days
after such impediment to exercise shall have been removed or shall have become
final and not subject to appeal; or (iii) June 30, 2001.
(c) Notwithstanding the foregoing, the Stock Option may not
be exercised if Parent is in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or in the Merger
Agreement or if Parent withdraws its HRS filing and does not resubmit such
filing within a reasonable time thereafter.
3. CONDITIONS TO CLOSING. The obligation of the Company to
issue shares of Company Common Stock to Parent hereunder is subject to the
conditions (which, other than the conditions described in clauses (i) and (ii)
below, may be waived by the Company in its sole discretion) that (i) all waiting
periods, if any, under the HSR Act applicable to the issuance of shares of
Company Common Stock hereunder shall have expired or have been terminated, and
all authorizations of or filings with any Governmental Entity set forth on
Schedule 7.1 of the Merger Agreement shall have been obtained or made, as the
case may be; (ii) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect; (iii) such shares shall have been approved for
listing on the New York Stock Exchange, Inc. (the "NYSE") upon official notice
of issuance, the Company agreeing that it shall use its best efforts to cause
the shares of Company Common Stock issuable upon exercise of the Stock Option to
be approved for listing on the NYSE as promptly as practicable following
execution of this Agreement, subject to official notice of issuance; and (iv)
Parent and Merger Sub are not in material breach of the Merger Agreement.
4. CLOSING. At any Closing, (a) the Company will deliver to
Parent a single certificate in definitive form representing the number of shares
of the Company Common Stock designated by Parent in its Exercise Notice, such
certificate to be registered in the name of Parent, Sub or such other affiliate
of Parent as Parent shall designate in the Exercise Notice and shall bear the
legend set forth in Section 9, and (b) Parent will deliver to the Company the
aggregate Exercise Price for the shares of the Company Common Stock so
designated and being purchased at such Closing by wire transfer of immediately
available funds.
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5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to Parent that:
(a) the Company has taken all necessary corporate action to
authorize and reserve for issuance and to permit it to issue, upon exercise of
the Stock Option, and at all times from the date hereof through the expiration
of the Stock Option will have so reserved, such number of unissued shares of
Company Common Stock equal to not less than 9.9% of the shares of Company Common
Stock then outstanding; and
(b) upon issuance and delivery of such shares of Company
Common Stock to Parent upon exercise of the Stock Option in accordance with the
terms of this Agreement, such shares shall be duly authorized, validly issued,
fully paid and non-assessable and Parent will acquire valid title to all of such
shares, free and clear of any and all Liens of any nature whatsoever.
6. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent
represents and warrants to the Company that any shares of the Company Common
Stock acquired upon exercise of the Stock Option will be, and the Stock Option
is being, acquired by Parent for its own account for investment purposes only
and not with a view to the public distribution or resale thereof in any manner
which would be in violation of applicable United States securities laws.
7. REGISTRATION RIGHTS. In the event that Parent shall
desire to sell any of the shares of Company Common Stock purchased pursuant to
the Stock Option or pursuant to the Stockholders Agreement as defined in the
Merger Agreement within three years after such purchase, and such sale requires,
in the opinion of counsel to Parent, which opinion shall be reasonable
satisfactory to the Company and its counsel, registration of such shares under
the Securities Act, Parent may, by written notice (the "Registration Notice") to
the Company or any successor entity of the Company (the "Registrant"), request
the Registrant to register under the Securities Act all or any part of the
shares purchased pursuant to the Stock Option or Stockholder Agreement
("Restricted Shares") beneficially owned by Parent (the "Registrable
Securities") pursuant to a bona fide firm commitment underwritten public
offering in which the Parent and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use their best efforts to prevent any person (including any group) and its
affiliates from purchasing through such offering Restricted Shares representing
more than 5% of the outstanding shares of common stock of the Registrant on a
fully diluted basis (a "Permitted Offering"). The Registration Notice shall
include a certificate executed by the Parent and its proposed managing
underwriter, which underwriter shall be an investment banking firm of nationally
recognized standing reasonably acceptable to the Registrant (the "Manager"),
stating that (i) they have a good faith intention to commence promptly a
Permitted Offering and (ii) the Manager in good faith believes that, based on
the then prevailing market conditions, it will be able to sell the Registrable
Securities at a per share price to be specified in such Registration Notice (the
"Fair Market Value"). The Registrant (and/or any person designated by the
Registrant) shall thereupon have the option exercisable by written notice
delivered to Parent within 10 business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
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Registrable Securities for cash at a price (the "Option Price") equal to the
product of (i) the number of Registrable Securities and (ii) the Fair Market
Value of such Registrable Securities. Any such purchase of Registrable
Securities by the Registrant hereunder shall take place at a closing to be held
at the principal executive offices of the Registrant or its counsel at any
reasonable date and time designated by the Registrant and its designee in such
notice within 20 business days after delivery of such notice. Any payment for
the shares to be purchased shall be made by delivery at the time of such closing
of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option
pursuant to this Section 7 with respect to all Registrable Securities designated
in the Registration Notice, it shall use its commercially reasonable efforts to
effect, as promptly as practicable, the registration under the Securities Act of
the unpurchased Registrable Securities; provided, however, that (i) Parent shall
not be entitled to more than an aggregate of three effective registration
statements hereunder and (ii) the Registrant will not be required to file any
such registration statement during any period of time (not to exceed 90 days
after such request in the case of clause (B) below or 120 days in the case of
clause (A) and 150 days in the case of clause (C) below) when (A) the Registrant
is in possession of material non-public information which it reasonably believes
would be detrimental to be disclosed at such time and, in the judgment of the
board of directors of the Registrant, such information would have to be
disclosed if a registration statement were filed at that time; (B) the
Registrant is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement;
or (C) the Registrant determines, in its reasonable judgment, that such
registration would interfere with any financing, acquisition or other material
transaction involving the Registrant or any of its affiliates. Parent shall not
be entitled to request more than two registrations pursuant to this Section 7 in
any 18 month period. The Registrant shall use its commercially reasonable
efforts to cause all Registrable Securities registered pursuant to this Section
7 to be qualified for sale under the securities or blue-sky laws of such
jurisdictions as Parent may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; provided, however,
that the Registrant shall not be required to qualify to do business, subject
itself to general taxation or consent to general service of process in, any
jurisdiction by reason of this provision.
The registration rights set forth in this Section 7 are
subject to the condition that Parent shall provide the Registrant with such
information with respect to Parent's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Parent as, in
the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in such registration statement all material facts
required by applicable law to be disclosed with respect to a registration
thereunder.
A registration effected under this Section 7 shall be
effected at the Registrant's expense, except for underwriting discounts and
commissions and the fees and the expenses of counsel to Parent, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and accountants' "comfort" letters from
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auditors) as are customary in connection with underwritten public offerings as
such underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the underwriters
in the customary manner and (ii) to enter into an underwriting agreement in form
and substance customary to transactions of this type with the Manager and the
other underwriters participating in such offering.
The registration rights set forth in this Section 7
terminate upon the Registrable Securities becoming saleable pursuant to Rule 144
of the Securities Act of 1933, as amended.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event
of any change in Company Common Stock by reason of stock dividends, stock
splits, mergers (other than the Merger), recapitalizations, combinations,
exchange of shares or the like, the type and number of shares or securities
subject to the Stock Option, and the Exercise Price per share, shall be adjusted
appropriately.
9. RESTRICTIVE LEGENDS. Each certificate representing
shares of Company Common Stock issued to Parent hereunder shall initially be
endorsed with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION AND
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE. SUCH
SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED
MAY 25, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE
ISSUER HEREOF.
Certificates representing shares sold in a registered
public offering pursuant to Section 7 shall not be required to bear such legend.
10. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, and permitted assigns. Except as expressly provided in this
Agreement, neither this Agreement nor the rights or the obligations of either
party hereto are assignable, except by operation of law, or with the written
consent of the other party, except that Parent may assign its rights hereunder
to any wholly-owned subsidiary of Parent. Nothing contained in this Agreement,
express or implied, is intended to confer upon any person other than the parties
hereto and their respective permitted assigns any rights or remedies of any
nature whatsoever by reason of this Agreement.
11. SPECIFIC PERFORMANCE. The parties recognize and agree
that if for any reason any of the provisions of this Agreement are not performed
in accordance with their specific terms or are otherwise breached, immediate and
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irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law.
12. ENTIRE AGREEMENT. This Agreement and the Specified
Agreements (together with the other documents and instruments referred to in the
Merger Agreement, and the exhibits and disclosure schedules thereto) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter
hereof.
13. FURTHER ASSURANCES. Each party will execute and deliver
all such further documents and instruments and take all such further action as
may be necessary in order to consummate the transactions contemplated hereby.
14. NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees
that, should any court or other competent authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and enforceability of the
remaining provisions and obligations contained or set forth herein shall not in
any way be affected or impaired thereby, unless the foregoing inconsistent
action or the failure to take an action constitutes a material breach of this
Agreement or makes the Agreement impossible to perform in which case this
Agreement shall terminate. Except as otherwise contemplated by this Agreement,
to the extent that a party hereto took an action inconsistent herewith or failed
to take action consistent herewith or required hereby pursuant to an order or
judgment of a court or other competent authority, such party shall incur no
liability or obligation unless such party did not in good faith seek to resist
or object to the imposition or entering of such order or judgment.
15. NOTICES. Any notice or communication required or
permitted hereunder shall be in writing and shall be deemed given, (i) five
business days following sending by registered or certified mail, postage
prepaid, (ii) when received by the recipient's facsimile machine if sent by
facsimile; provided that the fax is promptly confirmed by telephone confirmation
thereof, (iii) when delivered, if delivered personally to the intended recipient
and (iv) one business day following sending by overnight delivery via a national
courier service, and in each case, addressed to a party at the following address
for such party:
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(a) if to Parent, to:
Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Attn: President
Facsimile: (212) 598-3241
with a copy (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Stephen E. Jacobs, Esq.
Facsimile: (212) 310-8007
(b) if to the Company, to:
Reliance Group Holdings, Inc.
29th Floor
55 East 52nd Street
New York, New York 10055
Attn: General Counsel
Facsimile: (212) 909-1864
with a copy (which shall not constitute notice) to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY
Attn: Jonathan L. Freedman, Esq.
Facsimile: (212) 209-6333
16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state.
17. DESCRIPTIVE HEADINGS. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original, but all
of which, taken together, shall constitute one and the same instrument.
19. EXPENSES. Except as otherwise expressly provided herein
or in the Merger Agreement, all costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
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20. PROFIT LIMITATION. Notwithstanding any other provision,
in no event shall Parent's Profit on the sale within one year after the
Effective Date of shares of Company Common Stock acquired on exercise of the
Stock Option exceed $12.5 million and, if it otherwise would exceed that amount,
Parent, at its election, shall either (a) deliver to the Company for
cancellation shares of Company Common Stock previously purchased by Parent, (b)
pay cash to the Company or (c) undertake any combination thereof, so that
Parent's Profit shall not exceed $12.5 million after taking into account the
foregoing actions. As used herein, "Parent's Profit" shall mean the aggregate of
the net cash amounts received by Parent pursuant to the sale of such shares of
Company Common Stock to any unaffiliated party, less Parent's purchase price for
such shares.
21. AMENDMENTS; WAIVER. This Agreement may be amended by
the parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
LEUCADIA NATIONAL CORPORATION
By: /s/ Joseph A. Orlando
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Name: Joseph A. Orlando
Title: Vice President
RELIANCE GROUP HOLDINGS, INC.
By: /s/ Lowell C. Freiberg
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Name: Lowell C. Freiberg
Title: Executive Vice President and
Chief Financial Officer
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