EXHIBIT 1
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EXECUTION COPY
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STOCK OPTION AND VOTING AGREEMENT
BETWEEN
DAI-TOKYO INTERNATIONAL CO., LTD.
AND
FAIRFAX FINANCIAL HOLDINGS LIMITED
DATED AS OF JUNE 23, 1997
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NYFS08...:\62\34662\0003\1751\AGR6217R.420
STOCK OPTION AND VOTING AGREEMENT dated as of June 23, 1997,
between Dai-Tokyo International Co., Ltd. (the "Stockholder"), a stockholder of
Sphere Drake Holdings Limited, a Bermuda corporation (the "Company"), and
Fairfax Financial Holdings Limited, a Canadian corporation ("Fairfax").
WHEREAS, the Agreement and Plan of Merger dated the date hereof
between the Company, Fairfax and a wholly owned subsidiary Fairfax, Summerfield
Limited ("Summerfield") as amended from time to time (the "Merger Agreement"),
provides, among other things, that the Company and Summerfield will amalgamate
as contemplated by the Merger Agreement (the "Merger");
WHEREAS, as of the date hereof, the Stockholder is the record and
beneficial owner of 2,677,783 Common Shares, par value U.S.$.01 per share, of
the Company (the "Common Shares") (the Stockholder's 2,677,783 Common Shares are
referred to as the "Existing Shares" and, together with any Common Shares
acquired after the date hereof, including upon the exercise of warrants or
options, the conversion of convertible securities or otherwise, are referred to
as the "Shares");
WHEREAS, as a condition to the willingness of Fairfax to enter
into the Merger Agreement, Fairfax has requested that the Stockholder agree, and
in order to induce Fairfax to enter into the Merger Agreement, the Stockholder
has agreed, to enter into this Agreement; and
WHEREAS, as of the date hereof, Fairfax and certain other holders
of Common Shares are entering into stock option and voting agreements whereby,
among other things, such stockholders are granting options to Fairfax (the
"Remaining Options") for the Common Shares held by such stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, and intending to
be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
VOTING AGREEMENT
SECTION 1.01. Voting Agreement. The Stockholder, from and after
the date hereof and until this Agreement shall have been terminated in
accordance with Article VI hereof, at any meeting of the stockholders of the
Company, however called, and in any action by consent of the stockholders of the
Company, will vote (or cause to be voted) the
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Shares in favor of the approval and adoption of the Merger Agreement, the
Amalgamation Agreement (as defined in the Merger Agreement), the Merger and all
the transactions contemplated by the Merger Agreement, the Amalgamation
Agreement and this Agreement and any other proposal as may be necessary to
consummate the Merger if such proposal is neutral or advantageous to the
Stockholder and such proposal is reasonably feasible and is not contrary to
applicable laws and regulations. The Stockholder shall not enter into any
agreement or commitment with any person or entity to vote or give instructions
in any manner inconsistent with this Section 1.01.
ARTICLE II
THE OPTION
SECTION 2.01. Grant of Option. The Stockholder hereby grants to
Fairfax an irrevocable option (the "Option") to purchase the Shares in the
manner and for the consideration set forth below.
SECTION 2.02. Exercise of Option. (a) The Option may be exercised
by Fairfax as a whole together with the Remaining Options but not in part, at
any time prior to 5:00 p.m. (Toronto time) on the seventh calendar day following
the termination of the Merger Agreement, provided, that Fairfax may not exercise
the Option if the Company has terminated the Merger Agreement after notice to
Fairfax of a breach by Fairfax of the Merger Agreement which has not been cured
by Fairfax within the time specified in the Merger Agreement (a "Fairfax
Termination Event").
(b) If prior to the termination of the Merger Agreement,
there shall have been made an announcement by a third party or notice by the
Company to Fairfax of a Competing Offer, as that term is defined in Section
8.01(d) of the Merger Agreement, and the Merger Agreement is terminated, Fairfax
may elect to (i) exercise the Option pursuant to paragraph (a) of this Section
2.02 or (ii) within seven calendar days after such termination inform the
Stockholder in writing that it will not exercise the Option but will participate
in the proceeds received by the Stockholder from any consummation of any sale of
the Stockholder's Shares (pursuant to such Competing Offer or otherwise) that
closes within one year after termination of the Merger Agreement by receiving
from the Stockholder the Participation Amount as defined in this paragraph (b).
The Stockholder will promptly upon receipt by it pay to Fairfax all of the
proceeds (net of expenses and transfer taxes) it receives from the closing of a
sale of the Stockholder's Shares in excess of U.S.$7.50 per Share subject to a
maximum payment of U.S.$2.00 per Share (the "Participation Amount").
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(c) If Fairfax decides to exercise the Option, Fairfax
shall send a written notice to the Stockholder of its intention to exercise the
Option, specifying the place, the time and the date (the "Closing Date") of the
closing (the "Closing") of the purchase. The Closing Date shall occur on the
fifth business day after the date on which such notice is delivered.
(d) At the Closing, the Stockholder shall deliver to
Fairfax (or its designee) all of the Shares by delivery of a certificate or
certificates evidencing the Shares duly endorsed to Fairfax or accompanied any
stock powers duly executed in favor of Fairfax, with all necessary stock
transfer stamps and signature guarantees affixed.
SECTION 2.03. Purchase Price. (a) The purchase price for each
Share shall be U.S.$7.50 payable in cash at the Closing.
(b) In the event that, subsequent to the Closing, the
Merger, or any other acquisition (including by way of amalgamation or merger) of
the Company Common Stock (in whole or in part), or all or any substantial
portion of the assets or business of the Company, in any case by Fairfax or any
of its affiliates, is consummated, Fairfax shall distribute to the Stockholder
the consideration per Share in excess of the Purchase Price that would have been
paid to the Stockholder if the Option were not exercised. Such consideration
shall be paid by Fairfax at the same time and in the same manner as such
consideration is paid to the stockholders of the Company.
(c) If Fairfax shall have exercised its Option pursuant to
Section 2.02(b) and shall have received cash or securities with a value (net of
expenses and transfer taxes) in excess of U.S.$7.50 per Share ("Excess
Proceeds") acquired hereunder and disposed of as a result of the Competing
Offer, Fairfax shall distribute to the Stockholder securities or cash with a
value per Share equal to the lesser of (i) the Excess Proceeds and (ii)
U.S.$2.00. If the consideration received by Fairfax in the Competing Offer
includes securities, the portion of the Excess Proceeds that is paid over to the
Stockholder will be satisfied as follows: (x) firstly, with any securities
received by Fairfax in the Competing Offer which provide that payment of any
amount thereunder is contingent upon the happening of one or more events and (y)
thereafter, with securities and cash in the same proportion as the portion of
securities and cash received by Fairfax that constitutes Excess Proceeds
(provided that cash consideration shall not constitute Excess Proceeds except to
the extent that the cash consideration exceeds U.S.$7.50). For purposes of the
foregoing only, the value of any security with terms substantially identical to
the CVRs (as defined in the Merger Agreement) issuable under the Merger
Agreement shall be deemed to be U.S.$2.00 and the value of any other security
shall, except as may be agreed between the Stockholder and Fairfax, be deemed to
be the fair value determined by an independent investment banker of recognized
standing in the United States appointed by Fairfax.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Fairfax as
follows:
SECTION 3.01. Due Organization, etc.. The Stockholder is duly
organized and validly existing under the laws of the jurisdiction of its
incorporation or organization. The Stockholder has all necessary corporate or
partnership power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action (corporate or partnership) on the part of the
Stockholder. This Agreement has been duly executed and delivered by or on behalf
of the Stockholder.
SECTION 3.02. No Conflict. The execution and delivery of this
Agreement by the Stockholder do not, and the performance of this Agreement by
the Stockholder shall not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws or similar organizational document of the Stockholder
or any law, rule or regulation to which the Stockholder is subject or (ii)
result in the creation of a lien or encumbrance on any of the Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument to which the Stockholder is a party or by
which the Stockholder or the Shares is bound or affected.
SECTION 3.03. Title to the Shares. As of the date hereof, the
Stockholder is the record and beneficial owner of the number of Common Shares
set forth in the second recital. Such Shares are all the securities of the
Company owned, either of record or beneficially, by the Stockholder. The Shares
are owned by the Stockholder free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
such Stockholder's voting rights, charges and other encumbrances of any nature
whatsoever except under applicable securities laws. The Stockholder has not
appointed or granted any proxy, which appointment or grant is still effective,
with respect to the Shares. At the Closing, such Stockholder will deliver good
and valid title to the Shares free and clear of any pledge, lien, security
interest. charge, claim, equity, option, proxy, voting restriction, right of
first refusal or other limitation on disposition or encumbrance of any kind,
other than pursuant to this Agreement or applicable securities laws,
SECTION 3.04. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Stockholder.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Fairfax hereby represents and warrants to the Stockholder as
follows:
SECTION 4.01. Due Organization, Etc. Fairfax is a corporation
duly organized and validly existing under the laws of Canada. Fairfax has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Fairfax have been duly authorized by all necessary corporate action on
the part of Fairfax. This Agreement has been duly executed and delivered by
Fairfax.
SECTION 4.02. No Conflict; Required Filings and Consents. The
execution and delivery of this Agreement by Fairfax do not, and the performance
of this Agreement by Fairfax will not, conflict with or violate the Articles of
Incorporation or By-laws of Fairfax or any law, rule or regulation to which
Fairfax is subject.
SECTION 4.03. Investment Intent. The purchase of Shares from the
Stockholder pursuant to this Agreement is for the account of Fairfax solely for
the purpose of investment and not with a view to an offer or sale in connection
with any distribution thereof within the meaning of the Securities Act of 1933,
as amended.
SECTION 4.04. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Fairfax.
ARTICLE V
COVENANTS OF THE STOCKHOLDER
SECTION 5.01. No Disposition or Encumbrance of Shares. The
Stockholder, except as contemplated by this Agreement, will not (i) sell,
transfer, tender, assign, contribute to the capital of any entity, hypothecate
or otherwise dispose of, grant a proxy or power of attorney with respect to,
deposit into any voting trust, or create or permit to exist any security
interest, lien, claim, pledge, option, right of first refusal, agreement,
limitation on the Stockholder's voting rights, charge or other encumbrance of
any nature whatsoever with respect to, any of the Shares (or agree or consent
to, or offer to do, any of the foregoing), (ii) take any action that would have
the effect of preventing or disabling the
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Stockholder from performing its obligations hereunder, or (iii) directly or
indirectly, initiate, solicit or encourage any person to take actions that could
reasonably be expected to lead to the occurrence of any of the foregoing.
SECTION 5.02. No Solicitation of Transactions. The Stockholder,
between the date of this Agreement and the date of termination of this
Agreement, will not and will not authorize or, to the extent it is within its
power, permit any of its related or subsidiary companies and trusts, its
partners, management, shareholders or trustees of it, its partners, or any of
its related or subsidiary companies and trusts, and financial advisers,
investment dealers or others (including Xxxxx Xxxxxx Inc.) acting as agent or
otherwise for it or any of the foregoing, except in dealing with Fairfax and
Summerfield or otherwise in furtherance of the Merger, to provide information or
access for review, enter into any agreement, have any discussions, negotiations
or correspondence or take any other action related to or with a view to
soliciting, encouraging, assisting in or cooperating with any offer or proposal
for, or which would have an effect comparable to any acquisition (including by
way of amalgamation or a merger) of Common Shares (in whole or in part) or any
material portion of the Company's or any subsidiary of the Company's assets or
business, any financing of any acquisition thereof or financing of the Company
or any subsidiary of the Company or any material change in the management or
operation (including by way of material divestiture, partnership or joint
venture) of the business of the Company or any subsidiary of the Company. The
Stockholder immediately shall cease and cause to be terminated all existing
discussions, conversations, negotiations and other communications with any
persons conducted heretofore with respect to any of the foregoing.
SECTION 5.03. Regulatory and Other Authorizations; Notices and
Consents. The Stockholder agrees to use all reasonable efforts to cooperate with
Fairfax in obtaining all authorizations, consents, orders and approvals of all
governmental authorities and officials that may be or become necessary for the
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement.
ARTICLE VI
TERMINATION
SECTION 6.01. Termination. This Agreement, except for Section
2.02(b), if applicable, shall terminate, and no party shall have any rights or
obligations hereunder and this Agreement shall become null and void and have no
further effect upon the earliest of (a) the effective time of the Merger, (b)
the seventh calendar day following the date of termination of the Merger
Agreement, other than a termination in connection with a Terminating Fairfax
Breach and (c) the date of termination of the Merger Agreement in
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connection with a Terminating Fairfax Breach. Notwithstanding the foregoing, in
the event any Option shall have been exercised in accordance with Article II,
but the Closing shall not have occurred, the provisions of Articles I and III
shall survive until the Closing. Nothing in this Section 6.01 shall relieve any
party of liability for any breach of this Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of this Agreement is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to the
fullest extent possible.
SECTION 7.02. Further Assurances. The Stockholder and Fairfax
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. Each party will consent to any proposal by one or more of
the other parties for structuring any aspect of the Merger in a manner which is
advantageous to the party making the proposal if such proposal is neutral or
advantageous to the party whose consent is sought, provided that such proposal
is reasonably feasible and is not contrary to applicable laws and regulations.
SECTION 7.03. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
breached, and in the event of such breach the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy at law
or in equity.
SECTION 7.04. Entire Agreement. This Agreement constitutes the
entire agreement between Fairfax and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Fairfax and the Stockholder with respect to the
subject matter hereof.
SECTION 7.05. Amendment; Waiver. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto. Any
party to this Agreement
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may (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered by
the other xxxxx pursuant hereto or (c) waive compliance with any of the
agreements or conditions of the other party contained herein. Any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party to be bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition, of this
Agreement. The failure of any party to assert any of its rights hereunder shall
not constitute a waiver of any of such rights.
SECTION 7.06. Governing Law. This Agreement shall be governed by,
and construed in accordance with the laws of the State of New York applicable to
contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined exclusively in any Federal or state court sitting in the Borough of
Manhattan, The City of New York.
SECTION 7.07. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Merger
shall have occurred.
SECTION 7.08. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
or by telecopy to the respective parties at the following addresses or telecopy
numbers (or at such other address for a party as shall be specified in a notice
given in accordance with this Section 7.08):
(a) if to the Stockholder:
c/o Dai Tokyo International Co.
Clarendon House
Church Street West
Xxxxxxxx, HMEX Bermuda
Telephone: 000 000-0000
Telecopy: 000 000-0000
Attention: Xxxxx Xxxxxx
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(b) if to Fairfax:
00 Xxxxxxxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx X0X 0X0
Telephone: (000) 0000000 Ext. 203
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx
Vice President, Corporate Affairs
SECTION 7.09. Currency. All amounts in this Agreement are stated
and shall be paid in United States dollars.
SECTION 7.10. Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 7.11. Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the
Stockholder and Fairfax (which consent may be granted or withheld in the sole
discretion of the Stockholder or Fairfax); provided, however, that Fairfax may
assign this Agreement to an affiliate of Fairfax without the consent of the
Stockholder, in which event Fairfax will remain jointly and severally liable
with such affiliate for all of such affiliate's obligations hereunder.
SECTION 7.12. No Third Party Beneficiaries. This Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 7.13. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year first above written.
DAI-TOKYO INTERNATIONAL CO., LTD.
By: /s/ Yugi Imai
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Name: Yugi Imai
Title: President
FAIRFAX FINANCIAL HOLDINGS LIMITED
By: /s/ Xxxx Xxxxxxxx
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Name: Xxxx Xxxxxxxx
Title: Vice President Corporate Affairs
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