Exhibit 99(i)
AMENDMENT NO. 2 dated as of February 20, 2001 (this "Amendment"), to the
Stock Purchase Agreement, dated as of September 24, 2000, as amended by
Amendment No. 1 thereto dated as of October 15, 2000 (as amended, the "Purchase
Agreement"), among CGU International Holdings Luxembourg S.A., a Luxembourg
corporation ("CGUIHL"), CGU Holdings LLC, a Delaware limited liability company
("CGULLC"), CGNU plc, a company incorporated under the laws of England and Wales
("CGNU"), White Mountains Insurance Group, Ltd., a company existing under the
laws of Bermuda ("Buyer"), TACK Holding Corp., a Delaware corporation
("Holdco"), and TACK Acquisition Corp., a Delaware corporation ("Newco").
WHEREAS, the parties hereto are parties to the Purchase Agreement;
WHEREAS, the parties have agreed to certain pre-closing adjustments,
including among others the contributions or payments by CGNU or Sellers
described herein, changes to the Holdco Notes (as defined in the Purchase
Agreement), the related purchase of certain reinsurance as described herein and
the other matters described herein, all in the context of the current position
of the Company and its Subsidiaries; and
WHEREAS, the parties desire to amend the Purchase Agreement as provided
herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties agree as follows:
1. The following Sections 4.17, 4.18 and 4.19 are hereby inserted in the
Purchase Agreement immediately following Section 4.16:
"SECTION 4.17. CERTAIN TRANSACTIONS. (a) At or immediately prior to the
Closing, Sellers shall contribute to the Company, in cash, (i) $20,000,000,
which is an amount equal to the reinsurance deposit paid by Buyer to National
Indemnity Company to purchase an option to purchase reinsurance with respect to
certain of the Company's operations in connection with the transactions
contemplated hereby pursuant to a reinsurance placement slip and attached
facsimile memorandum dated July 18, 2000 from National Indemnity Company to
Buyer, and (ii) $30,000,000, which is an amount approximately equal to the out
of pocket expenses incurred by Buyer and its Subsidiaries in connection with the
transactions contemplated by this Agreement. If and when such contributions are
made, the Company shall deliver to Sellers a receipt for such contributions in
form reasonably satisfactory to Sellers.
(b) At or immediately prior to the Closing, Sellers shall contribute to
the Company, in cash, $44.2 million, which amount equals the sum of (i) $24.8
million, which is an amount approximately equal to the amount of management
incentive expenses incurred by the Company in connection with the transactions
contemplated by this Agreement, (ii) $11.3 million, which is an estimate of the
amount to be accrued by the Company in 2001 for a cost of living adjustment for
existing retirees under the Company's defined benefit pension plan, and (iii)
$8.1 million, which is an amount approximately equal to the amount of additional
benefits accrued by the Company under the CGU Supplemental Pension and Savings
Plan in 2000. If and when such contribution is made, the Company shall deliver
to Sellers a receipt for such contribution in form reasonably satisfactory to
Sellers.
(c) At or immediately prior to the Closing, CGNU shall contribute to the
Company, in cash, $20,000,000, which is an amount approximately equal to the
amount of gain received by CGU International Insurance plc upon settlement of a
currency option contract purchased by it to hedge currency exposure of CGNU and
its affiliates in connection with the transactions contemplated hereby. If and
when such contribution is made, the Company shall deliver to CGNU a receipt for
such contribution in form reasonably satisfactory to CGNU.
(d) At or immediately prior to the Closing, CGNU shall contribute to the
Company, in cash, $12,000,000, which is an amount approximately equal to the
amount of management fees that CGNU has collected or will collect from the
Company with respect to the period from January 1, 2000 through the Closing. If
and when such contribution is made, the Company shall deliver to CGNU a receipt
for such contribution in form reasonably satisfactory to CGNU.
(e) At or immediately prior to the Closing, CGNU shall contribute to the
Company, in cash, $67,600,000, which is an amount approximately equal to the
amount of a dividend that Pilot could declare and pay following the consummation
of the transactions contemplated by Section 4.15(a) and prior to the
consummation of the transactions contemplated by Section 4.7(a). If and when
such contribution is made, the Company shall deliver to CGNU a receipt for such
contribution in form reasonably satisfactory to CGNU.
(f) At or immediately prior to the Closing, CGNU shall contribute to the
Company, in cash, $6,200,000, which is an amount approximately equal to the
amount expected to be paid by the Company to CGNU at the Closing in connection
with the CGU Integration Incentive Plan, as described in Section 4.9 of the
Disclosure Schedule. If and when such contribution is made, the Company shall
deliver to CGNU a receipt for such contribution in form reasonably satisfactory
to CGNU.
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(g) (i) Notwithstanding the provisions of Sections 4.17(a), (b), (c),
(d), (e) and (f), CGNU or Sellers, as the case may be, may choose to not make
one or more of the contributions specified in such Sections (each contribution
specified in any of such Sections, a "Specified Contribution"); PROVIDED, that
if any Specified Contribution is not made, in whole or in part, then Sellers
shall subscribe for and purchase for cash, at or prior to the Closing,
additional shares of Common Stock of the Company, in respect of and in
proportion to the shares of Common Stock in the Company held by each of them at
that time, at a price per share equal to the Subscription Price (as defined
below), such that the aggregate subscription price equals the aggregate amount
of the Specified Contributions that CGNU or Sellers, as the case may be, did not
make, such additional shares being not redeemable.
(ii) If any shares of Common Stock are subscribed for and purchased
pursuant to this Section 4.17(g), then, for all purposes of this Agreement, (A)
the term "CGULLC Shares" shall be deemed to include any shares subscribed for
and purchased by CGULLC and the number of CGULLC Shares specified in Section 2.1
shall be adjusted accordingly, (B) the term "CGUIHL Shares" shall be deemed to
include any shares subscribed for and purchased by CGUIHL and the number of
CGUIHL Shares specified in Section 2.1 shall be adjusted accordingly, (C) the
term "Shares" shall be deemed to include all shares so subscribed for and
purchased by Sellers and (D) for the avoidance of doubt, there shall be no
adjustment to the Purchase Price as a result of this Section 4.17(g). The
"Subscription Price" shall mean a price per share in cash equal to (x) the
Purchase Price to be paid at the Closing divided by (y) 16,021.
(h) For the avoidance of doubt, the amounts of the Specified
Contributions will not be adjusted in the event that any amount by reference to
which any such Specified Contribution was determined is actually higher or lower
than the amount of the Specified Contribution (for example, the Specified
Contribution under Section 4.17(d) shall be $12,000,000 notwithstanding whether
the amount of management fees collected during the period described is greater
or less than such amount).
SECTION 4.18. CERTAIN CAPITAL CONTRIBUTIONS BY BUYER. Immediately prior
to the Closing, Buyer shall contribute to Holdco and Holdco shall contribute to
Newco, in addition to the $250 million in cash (prior to receipt of proceeds of
the Buyer Financing) to be contributed by Buyer to Holdco and by Holdco to Newco
as originally described in the commitment letters for the Financings, as amended
as of October 16, 2000, $125 million in cash. Buyer, Holdco and Newco hereby
agree that all of the cash described in the immediately preceding sentence,
together with the proceeds of the Buyer Financing (all of which shall be
contributed to Newco as described in the commitment letters for the Buyer
Financing), shall be available to pay the Purchase Price or to be retained by
Newco or contributed to the Company
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for use in connection with the transactions contemplated hereby, and shall be so
shown in all related regulatory approval filings.
SECTION 4.19. CERTAIN REINSURANCE MATTERS. (a) Buyer, Holdco and Newco
have requested, and Sellers have agreed, that the obligations of Buyer, Holdco
and Newco to effect the purchase and sale of the Shares and the other actions to
be taken at the Closing shall be subject to the condition that Buyer, Holdco and
Newco be indemnified and guaranteed, effective as of the Closing Date, against
an amount of adverse development in the reserves for losses and loss adjustment
expenses of the Company and its Subsidiaries, and that such indemnity and
guarantee be accomplished by the Company and its Subsidiaries obtaining the
Reinsurance (as defined below). Accordingly, prior to the Closing, CGNU and
Sellers shall use their commercially reasonable efforts to cause the Company to
seek to obtain, in each case effective as of immediately prior to the Closing:
(i) reinsurance on substantially the terms described in the Reinsurance Option
Term Sheet dated August 16, 2000, between National Indemnity Company and the
Company, with such changes therein as have prior to February 20, 2001 been
approved by Buyer or as are approved by Buyer after such date, such approval not
to be unreasonably withheld (the "Discontinued Operations Reinsurance"); and
(ii) excess of loss reinsurance for accident years 2000 and prior (relating to
certain continuing operations) with a limit of $550 million to $600 million and
otherwise as described below and as set forth on Section 4.19 of the Disclosure
Schedule (the "Continuing Operations Reinsurance," and collectively with the
Discontinued Operations Reinsurance, the "Reinsurance").
(b) The Continuing Operations Reinsurance shall be with such third party
reinsurer and have such terms and conditions as shall be reasonably satisfactory
to Buyer; PROVIDED, that the premium or other cost of the Continuing Operations
Reinsurance shall not exceed the amount set forth in Section 4.19 of the
Disclosure Schedule; PROVIDED, FURTHER, that Buyer may not assert that the terms
and conditions of any such Continuing Operations Reinsurance are not reasonably
satisfactory to it solely based on the premium or other cost thereof if such
premium or other cost does not exceed the amount shown in Section 4.19 of the
Disclosure Schedule. All costs of the Continuing Operations Reinsurance shall be
paid by the Company and/or its Subsidiaries, as Sellers' designees. Buyer,
Holdco and Newco shall use their reasonable best efforts to assist the Company
and its Subsidiaries in obtaining quotes for and arranging the Continuing
Operations Reinsurance.
(c) Notwithstanding the first sentence of Section 4.19(b), if the Company
and its Subsidiaries receive a firm offer from a third party reinsurer to
provide the Continuing Operations Reinsurance that Buyer prefers the Company and
its Subsidiaries to accept over other possible transactions and that would be
sufficient to obtain the Financings or any alternative financings
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and otherwise to permit the consummation of the transactions contemplated hereby
(such Continuing Operations Reinsurance, a "Preferred Transaction"), then CGNU
and Sellers shall use their commercially reasonable efforts to cause the Company
and its Subsidiaries to enter into such Preferred Transaction, in order to
effectuate the indemnity and guaranty referred to in Section 4.19(a). If such
Preferred Transaction cannot be effected, then the provisions of the first
sentence of Section 4.19(b) shall again apply."
2. Section 4.16 of the Purchase Agreement is hereby amended by replacing
the text of paragraph (a)(ii) thereof in its entirety with the words
"[Intentionally omitted]."
3. Section 3.2(j) of the Purchase Agreement is hereby amended by deleting
the second sentence thereof and replacing it with the following two sentences:
"The Financings, together with available cash of Newco, Holdco and Buyer,
available cash of the Company (after giving effect to the Preclosing
Transactions, the Restructuring Transactions and the payment of $369 million of
dividends to the Company during the period from January 1, 2000 through January
8, 2001 and assuming the representation made by CGNU and Sellers in the last two
sentences of Section 3.1(b) is true), the Holdco Notes and the funds provided by
the transactions described in Section 4.17 of this Agreement, are sufficient,
subject to the satisfaction of the conditions of the Financings, to provide the
funds required by Newco to pay the Purchase Price hereunder, to repay in full
the outstanding principal and interest on the Term Note, to purchase the
Continuing Operations Reinsurance and to pay all fees and expenses required to
be paid by Newco, Holdco or Buyer in connection with the transactions
contemplated by this Agreement. The representation and warranty made in the
immediately preceding sentence shall be deemed made as of February 20, 2001 and
as of the Closing Date."
4. Section 10.1(b) of the Purchase Agreement is hereby amended by
deleting the phrase "March 31" and replacing it with the phrase "April 13".
5. Section 1.1 of the Purchase Agreement is hereby amended by adding to
the list of other defined terms in the appropriate alphabetical order (1) the
terms "Continuing Operations Reinsurance", "Discontinued Operations Reinsurance"
and "Reinsurance", which shall each cross-refer to Section 4.19(a) of the
Purchase Agreement, (2) the term "Preferred Transaction", which shall
cross-refer to Section 4.19(c) of the Purchase Agreement, and (3) the terms
"Specified Contributions" and "Subscription Price", which shall each cross-refer
to Section 4.17(g) of the Purchase Agreement.
6. Buyer, Newco and Holdco represent and warrant to CGNU and Sellers that
(i) they have obtained all consents, if
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any, to this Amendment required to be obtained under the Financings, (ii) they
have provided a complete copy of the commitment letter supplement dated February
19, 2001 which is referred to in Section 3.2(j) of the Disclosure Schedule to
CGNU and Sellers and (iii) the commitments to provide the Financings, as
described in Section 3.2(j) of the Disclosure Schedule, remain in full force and
effect as of the date hereof.
7. Exhibit G to the Purchase Agreement is hereby amended and restated in
its entirety to read as set forth in Annex A hereto.
8. Section 4.9 of the Disclosure Schedule is hereby amended by amending
and restating the final sentence of the first paragraph under the caption
"Management Services and Fee; Intergroup Charges" to read as follows:
"Fees will be charged on a pro rata basis in accordance with past practice
through the Closing Date and paid at the Closing and then trued up in accordance
with past practice through the Closing Date following the Closing, with any
outstanding amounts settled as promptly after the Closing as practicable."
9. Section 4.9 of the Disclosure Schedule is hereby further amended by
adding, after item 6. under the heading "Reinsurance arrangements," the
following:
"7. Immediately prior to the Closing, the Stop Loss Reinsurance Agreement, as
amended, between Curepool and CGU Insurance Company (on behalf of itself
and the other Insurance Subsidiaries referenced therein), a complete copy
of which has previously been provided to Buyer, will be commuted and
terminated in consideration of the payment by Curepool to CGU Insurance
Company of $170 million."
10. Buyer, Holdco and Newco each hereby consent to (i) the sale of the
Insurance Subsidiaries' surety business and (ii) certain amendments to the
charters of those Insurance Subsidiaries that are domiciled in New York as
required by the New York Insurance Department in connection with its review of
the Reinsurance (Pooling) Agreement dated as of January 1, 1999 by and among
certain of the Insurance Subsidiaries, in each case as previously disclosed to
Buyer.
11. Section 8.4 of the Purchase Agreement is hereby amended by deleting
the words "the provisions of Section 8.1(b)(iii) and".
12. Section 3.1(e) of the Disclosure Schedule is hereby amended by (i)
amending and restating the first item to read as follows:
"1. Under a Stockholders Agreement dated August 6, 1993, as amended, relating
to the A.W.G. Dewar, Inc. insurance agency
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("Dewar"), certain individual stockholders of the agency have the right
to sell the shares of Dewar common stock owned by them to the Company,
and the right to require the Company to sell to them the shares of Dewar
common stock owned by the Company, in each case at a specified calculated
value if a Change in Control (as defined) with respect to the Company
occurs."
and (ii) renumbering the second item as no. 2.
13. The following paragraph (y) is hereby inserted in the Purchase
Agreement immediately following Section 3.1(x):
"(y) DIVIDENDS. The Insurance Subsidiaries declared an aggregate of $369
million of dividends to the Company between September 24, 2000 and December 31,
2000, of which $334 million was paid during such period and $35 million was paid
during the period September 24, 2000 to January 8, 2001. The representation and
warranty made in the immediately preceding sentence shall be deemed made as of
February 20, 2001 and as of the Closing Date."
14. The following paragraphs (h) and (i) are hereby inserted in the
Purchase Agreement following Section 6.2(g):
"(h) SPECIFIED CONTRIBUTIONS. The Company shall have received from CGNU
and/or Sellers the aggregate amount of cash required to be contributed or paid
to the Company pursuant to Section 4.17.
(i) CONTINUING OPERATIONS REINSURANCE. The Insurance Subsidiaries shall
have obtained the Continuing Operations Reinsurance."
15. Section 4.19 is hereby added to the Disclosure Schedule in the form
attached as Annex B hereto.
16. The last sentence of Section 2.1 of the Purchase Agreement is hereby
amended by replacing the figure "$1,960,434,000" with the figure
"$1,910,434,000" and replacing the figure "$210,000,000" with the figure
"$260,000,000".
17. Section 3.2(j) of the Disclosure Schedule is hereby amended by
amending and restating the first bullet point under the heading "NEWCO
FINANCING" to read as follows:
"- $875 million of senior credit facilities to be provided pursuant to
the commitment letter dated September 24, 2000, as amended by the
letter agreement dated October 15, 2000, and as supplemented by the
commitment letter supplement dated February 19, 2001, among Buyer,
Lehman Brothers Inc. and Lehman Commercial Paper Inc. previously
provided to CGNU and Sellers."
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18. Except as expressly amended hereby, the Purchase Agreement remains in
full force and effect in accordance with its terms.
19. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of New York, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
20. This Amendment may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CGNU PLC
By
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Name:
Title:
CGU INTERNATIONAL HOLDINGS
LUXEMBOURG S.A.
By
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Name:
Title:
CGU HOLDINGS LLC
By
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Name:
Title:
WHITE MOUNTAINS INSURANCE GROUP, LTD.
By
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Name:
Title:
TACK HOLDING CORP.
By
------------------------------------
Name:
Title:
TACK ACQUISITION CORP.
By
------------------------------------
Name:
Title:
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ANNEX B
SECTION 4.19: CONTINUING OPERATIONS REINSURANCE
The premium or other cost of the Continuing Operations Reinsurance shall not
exceed $350 million and the amount of such premium or other cost to be funded
from sources other than the Insurance Subsidiaries shall not exceed $155
million.
CGNU, Sellers, Buyer, Holdco and Newco shall keep, and shall cause their
respective Subsidiaries to keep, the provisions of this Section 4.19
confidential except as may required by applicable law or regulatory
requirements.
ANNEX A
EXHIBIT G
Term Sheet for Holco Notes
Issuer: Holdco (TACK Holding Corp)
Holders: Sellers, pro rata to their pre-closing equity interest
in the Company
Security: Subordinated Note
Subordination: Subordinated to senior debt of Holdco
Principal Amount: $260 million
Maturity: Eighteen months from Closing Date
Interest Rate: 50 basis points over the rate from time to time in
effect under the Lehman Senior Bank Loan, payable upon
maturity
Settlement: Principal and interest to be settled at maturity in
cash. However, Buyer (White Mountains Insurance
Group, Ltd.) shall have the option (unless an event
of default shall have occurred and be continuing,
and subject to "Vote" below) to purchase the Holdco
Notes at maturity for a purchase price equal to the
principal amount thereof plus accrued interest,
such purchase price to be paid by delivery of
shares of common stock of Buyer. Such settlement
shall only be permitted if such common stock shall
be validly issued, fully paid and nonassessable,
and free and clear of all liens. If purchased for
shares of Buyer common stock, such common stock
shall be valued for such purpose at $245 per share.
In no event, however, will Sellers receive an
aggregate amount of common stock of Buyer that
would require Sellers or any parent of any of them
to file a request for approval of acquisition of
control with any U.S. insurance regulator; to the
extent such limit would be exceeded, the purchase
option may not be exercised for the applicable
portion of the Holdco Notes and the remaining
amount must be settled in cash. However, Sellers
will use their commercially reasonable efforts to
file and seek approval of disclaimers of control;
if all necessary disclaimers are approved, the full
amount may be purchased for common stock.
Stockholder Protections: If purchased for Buyer common stock as described
above, Sellers shall not be entitled to any
governance rights. However, Sellers will be
entitled to 3 demand and (subject to normal
cutbacks) unlimited piggyback registration rights
under a customary registration rights agreement to
be entered into in such event between Buyer and
Sellers, the form of which will be an exhibit to an
option agreement reflecting the Buyer purchase
option to be entered into concurrently with
issuance of the Holdco Notes. Buyer will pay the
registration expenses in connection with any such
demand and piggyback rights other than any
underwriting discounts and commissions. Such
registration rights may be exercised at any time
after settlement.
Vote: Purchase of the Holdco Notes for Buyer common stock
would require approval of the shareholders of Buyer
under the NYSE rules Shareholder approval of
issuance of Buyer common stock upon purchase of the
Holdco Notes will not be a condition precedent to
Closing under the Agreement.
Anti-Dilution: Customary anti-dilution protection.
Events of Default: Failure to pay when due; bankruptcy events;
cross-acceleration to other debt.
Other: Holdco Notes are freely transferable (subject to
applicable law).