EXHIBIT (c)(2)
STAND-BY CAPITAL COMMITMENT AGREEMENT
This Stand-By Capital Commitment Agreement (this "Agreement") is made as of
October 26, 1999 (the "Effective Date"), by and between Capital Re Corporation,
a Delaware corporation (the "Borrower"), and ACE Limited, a company incorporated
with limited liability under the Cayman Islands Companies Law (the "Lender").
Certain capitalized terms used in this Agreement are defined in Appendix A
hereto.
The parties hereto agree as follows:
1. Commitment. The Lender agrees, upon the terms and subject to the
condition set forth herein, to provide, or to cause one of its Subsidiaries to
provide, loans to the Borrower in one or more installments (each, a "Loan") in
an aggregate amount not to exceed U.S.$50,000,000 (the "Commitment") at any time
and from time to time during the period from the Effective Date to the
Termination Date (as defined below). Amounts borrowed as Loans may be repaid
and reborrowed by the Borrower in accordance with the provisions hereof.
2. The Loans. The Loans shall be made upon the Borrower's written notice
delivered to the Lender at least five business days prior to the requested
borrowing date, specifying the amount of the Loan and the requested borrowing
date, which shall be a business day (in the United States and Bermuda). The
obligation of the Lender to make Loans hereunder is subject to the condition
that no Event of Default shall be continuing at the time of the making of such
Loan. Each Loan made hereunder shall be made in United States Dollars and same
day funds and shall be paid to such account or accounts as may be directed in
writing by the Borrower. The Loans made by the Lender shall be evidenced by one
or more loan accounts or records maintained by the Lender in the ordinary course
of business. Any failure so to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Borrower hereunder to
pay any amount owing with respect to the Loans.
3. Interest. Interest shall accrue on the outstanding principal amount of
the Loans made hereunder from the applicable borrowing date until paid at a rate
per annum equal to the Applicable Rate and shall be payable quarterly in arrears
on each March 31, June 30, September 30 and December 31 and upon any repayment.
All accrued and unpaid interest shall be due and payable on the Termination
Date. The Borrower additionally agrees to pay interest after the date the Loans
become due (whether at stated maturity, by acceleration or otherwise), on the
principal balance of the Loans outstanding from time to time and, to the extent
not prohibited by law, on accrued interest thereon that is not paid when due, at
a rate per annum equal to all times to the sum of the Applicable Rate plus 2.0%
per annum. Interest accruing after the Loans made hereunder become due shall be
due and payable on demand.
4. Payment; Event of Default. The Borrower may, at any time or from time
to time, prepay Loans in whole or in part without premium or penalty. Both
principal and interest are payable to such account or accounts as the Lender may
direct, in United States Dollars and same day funds, free and clear or, and
without deduction for, any and all taxes, levies, imposts, deductions, charges,
withholdings and liabilities with respect thereto. If any of the following
events (each, an "Event of Default") shall occur: (a) the failure of the
Borrower to pay within 30 days after the date when due any interest owed
hereunder, (b) the failure of the Borrower to observe the covenants in Section 7
hereof, (c) the merger Agreement is terminated pursuant to Section 8.3(a) or
8.4(a) thereof, (d) after any termination of the Merger Agreement, the Borrower
merges or consolidates or there is a sale of all or substantially all assets of
the Borrower and its Subsidiaries, immediately after which merger, consolidation
or sale the stockholders of the Borrower immediately prior to consummation
thereof own less than a majority of the equity of the surviving company or the
company to which such assets shall have been transferred, (e) the Borrower shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors, or (f) any proceeding shall be instituted by or
against the Borrower seeking to adjudicate it as bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
such proceeding shall remain undismissed or unstayed for a period of 60 days, or
the Borrower shall take any action to authorize any of the actions set forth
above in this clause (f); then, in the case of an Event of Default described in
clause (f), the Loans made under this Agreement shall be immediately due and
payable, whereupon all principal of and interest on all Loans made under this
Agreement shall become and be forthwith immediately due and payable; and in the
case of any other Event of Default the Lender may declare all Loans made under
this Agreement to be immediately due and payable and terminate the Commitment
(the date of such declaration and termination, the "Termination Date"),
whereupon all principal of and interest on all Loans made under this Agreement
shall become and be forthwith immediately due and payable.
5. Conversion.
(a) Optional Conversion. At any time and from time to time after the
Effective Date, subject to the required approval ("Regulatory Approval") of any
Governmental Entity having jurisdiction over the Borrower or the Lender, the
Lender shall have the right to convert, in whole or in part, the Loans
outstanding under this Agreement into such number of shares of Common Stock as
is equal to (x) the amount of Loans outstanding (plus any accrued and unpaid
interest) divided by (y) $14.00 (the "Conversion Price"); provided, that if such
conversion is limited by applicable law, only such amount as is permitted
without Regulatory Approval shall be converted, and the Borrower and the Lender
shall use all commercially reasonable efforts to
obtain Regulatory Approval to allow conversion of any remaining portion to be
converted. The Lender shall pay to the Borrower the Conversion Price in cash for
each share of Common Stock converted from any unused portion of the Commitment.
(b) Mandatory Conversion. In the event of the termination of the Merger
Agreement (other than pursuant to Sections 8.3(a) or 8.4(a) thereof), all of the
Loans outstanding under this Agreement shall convert into such number of shares
of Common Stock as is equal to the aggregate amount of the Loans (plus and
accrued and unpaid interest) divided by the lesser of (x) the Conversion Price
or (y) the current market price per share of Common Stock (as defined in Section
5(e)(iv)) on the date of such conversion; provided, that if such conversion is
limited by applicable law, only such amount as is permitted without Regulatory
Approval shall be converted, and the Borrower and the Lender shall use all
commercially reasonable efforts to obtain Regulatory Approval to allow
conversion of the remaining portion of the Loans.
(c) Fractional Shares. The Borrower will not issue any fractional shares
of Common Stock upon conversion and, in lieu thereof, will deliver a check for
the value of any such fractional share, determined by multiplying the Conversion
Price by the fraction, rounded to the nearest cent.
(d) Company to Provide Conversion Stock. The Borrower shall reserve a
sufficient number of shares of authorized but unissued Common Stock or Common
Stock held in treasury to permit the conversion to be effected in full (the
"Conversion Shares"). Upon conversion, the Lender shall provide notice thereof
to the Borrower and the Borrower, no later than the fifth business day after
such notice has been delivered, shall issue and deliver to the Lender a
certificate for the number of full shares of Common Stock issuable upon such
conversion and a check in lieu of any fractional share. The Borrower shall
comply with all securities laws regulating the issuance and delivery of the
Conversion Shares. The holders of the Conversion Shares shall be entitled to
registration rights on the same terms as outlined in that certain Stock Option
Agreement dated as of June 10, 1999 between the Borrower and ACE Limited.
(e) Adjustment.
(i) In case at any time the Borrower shall pay or make a stock
dividend or other distribution in Common Stock on any class of capital
stock of the Borrower, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall
be reduced so that the same shall equal the price determined by multiplying
such Conversion Price by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum
of such number of shares and the total number of shares constituting such
dividend or other distribution, such adjustment to become effective
immediately after the opening of business on the day
following the date fixed for such determination.
(ii) In case at any time the Borrower shall (A) subdivide its
outstanding Common Stock, (B) combine its outstanding Common Stock into a
smaller number of shares, or (C) issue by reclassification of its Common
Stock (including any such reclassification in connection with a
consolidation or merger in which the Borrower is the surviving corporation)
any shares, the Conversion Price in effect at the effective date of such
subdivision, combination or reclassification shall be proportionately
adjusted so that the Lender shall be entitled to receive after such time
the aggregate number and kind of shares which, if the Loans or the unused
portion of the Commitment had been converted immediately prior to such
time, the Lender would have owned upon such conversion and been entitled to
receive upon such subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(iii) In case at any time the Borrower shall fix a record date for
the making of a distribution, by dividend or otherwise, to all holders of
its Common Stock, of evidences of its indebtedness or assets (including
securities (including warrant, options and rights), but excluding any
dividend or distribution referred to in Section 5(e)(i) and any regular
quarterly cash dividend), then in each such case the Conversion Price in
effect after such record date shall be determined by multiplying the
Conversion Price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the total number of outstanding
shares of Common Stock multiplied by the current market price per share of
Common Stock (as defined in Section 5(e)(iv)) on such record date, less the
fair market value (as determined by the Board of Directors of the borrower
of the portion of the assets or evidences of indebtedness so to be
distributed, and of which the denominator shall be the total number of
outstanding shares of Common Stock multiplied by such current market price
per share of Common Stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such
distribution is not so made, the Conversion Price shall again be adjusted
to be the Conversion Price which would then be in effect if such record
date has not been fixed.
(iv) For the purpose of any computation under Sections 5(b) and
5(e)(iii), the current market price per share of Common Stock on any date
shall be deemed to be the average of the closing prices on the New York
Stock Exchange Composite Transaction Reporting System, as reported in the
Wall Street Journal, for the 20 trading days immediately preceding the
second trading day prior to the day in question.
(v) If the Borrower is a party to a merger, combination or other
transaction which reclassifies or changes its outstanding Common Stock, the
successor corporation shall enter into a supplemental agreement which shall
provide that the Lender may convert into the kind and amount of securities,
cash or other assets which the Lender would have owned after such
transaction if the Lender had converted immediately prior
to the consummation of such transaction.
(vi) The Borrower may make such downward adjustments in the
Conversion Price as it considers to be advisable in order that any event
treated for United States Federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
6. Representations and Warranties.
(a) Organization, Good Standing and Qualification. The Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and each of its Subsidiaries is a corporation or other
entity duly organized, validly existing and in good standing under the laws of
its respective jurisdiction of organization. The Borrower and each of its
Subsidiaries has full power and authority (corporate and other) to own, lease
and operate its respective properties and assets and to carry on its business as
presently conducted and as proposed to be conducted, except where the failure to
hold such franchises, grants, licenses, certificates, permits, consents and
orders, or to have such power and authority, would not, when taken together with
all other such failures, reasonably be expected to have a Borrower Material
Adverse Effect.
(b) Corporate Authority; Approval. The Borrower has all requisite power
and authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement. This Agreement has
been duly executed and delivered by the Borrower and (assuming the due
authorization, execution and delivery hereof by the Lender) constitutes the
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms.
(c) No Violations. Neither the execution, delivery or performance of this
Agreement nor the consummation by the Borrower of the transactions contemplated
hereby nor compliance by the Borrower with any of the provisions hereof will (i)
result in any breach or violation of any provision of the certificate of
incorporation or bylaws or similar organizational documents of the Borrower,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation, acceleration or increase in the rate of
interest) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, guarantee, other evidence of indebtedness, lease, license,
contract agreement or other instrument or obligation to which the Borrower or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound (a "Contract") or result in the creation of a
lien upon any of the properties or assets of the Borrower or any of its
Subsidiaries or (iii) violate any order, writ, injunction, judgment, decree,
statute, rule, regulation or other Law applicable to the Borrower, any of its
Subsidiaries or any of their properties or assets, except in the case of clause
(ii) or (iii) for violations, breaches, defaults, or rights of termination,
amendment, cancellation or acceleration
or liens, which would not, individually or in the aggregate, reasonably be
expected to have a Borrower Material Adverse Effect.
(d) Conversion Shares. The Borrower has reserved a sufficient number of
shares of authorized but unissued Common Stock or Common Stock held in treasury
to permit the conversion contemplated in Section 5 hereof to be effected in
full. All of the Conversion Shares, when issued, will be validly issued, fully
paid and non-assessable.
7. Covenants. So long as there are any Loans outstanding or the Lender
has any Commitment hereunder, none of the Borrower, or its Subsidiaries will (a)
declare or pay any dividends or return any capital to its stockholders or
authorize or make any other distribution, payment or delivery of property or
cash to its stockholders as such (other than (x) to the Borrower and (y) the
Borrower's regular quarterly cash dividend of $0.04 per share), or redeem,
retire, purchase or otherwise acquire, directly or indirectly, for any
consideration, any shares of any class of capital stock of the Borrower now or
hereafter outstanding (or any warrants for or options or stock appreciation
rights in respect of any of such shares) (other than management stock
repurchases required by agreements in effect on the Effective Date), or set
aside any funds for any of the foregoing purposes (all of the foregoing,
"Dividends"), or (b) merge or consolidate with or into another entity (provided
that a Subsidiary of the Borrower may merge with or into the Borrower or another
Subsidiary of the Borrower so long as no Event of Default shall have occurred
and be continuing or would result therefrom) or sell, assign, transfer, convey
or otherwise dispose of all or substantially all of the properties or assets of
the Borrower and its Subsidiaries.
8. Miscellaneous. The parties hereto agree to negotiate in good faith for
any amendments to this Agreement necessary for regulatory purposes. No amendment
or waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by the Borrower and the Lender. None of the
rights, duties and obligations of any party hereunder may be assigned except
with the consent of the other party hereto; provided that the Lender may assign,
in whole or in part, any Loans to any of its Subsidiaries. Any notice required
or permitted to be delivered hereunder shall be deemed to have been given when
given in writing by overnight carrier or facsimile to the address or number
listed on the signature page hereto. This Agreement may be executed in any
number of separate counterparts, each of which, when so executed, shall be
deemed an original, and all of said counterparts taken together shall be deemed
to constitute but one and the same instrument. The illegality or
unenforceability of any provision of this Agreement shall not in any way affect
or impair the legality or enforceability of the remaining provisions of this
Agreement. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date and year first above written.
Borrower: CAPITAL RE CORPORATION
By:/s/ Xxxxxx X. Xxxxxxxx
----------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Chairman and Chief Executive Officer
Address for Notices: 0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
Lender: ACE LIMITED
By:/s/ Xxxxxx Xxxxxx
----------------------------
Name: Xxxxxx Xxxxxx
Title: Vice Chairman
Address for Notices: The ACE Building
30 Woodbourne Avenue
Xxxxxxxx, XX 08 Bermuda
Appendix A
Certain Defined Terms. As used in the Agreement, the following terms shall
have the following meanings:
"Applicable Rate" means 6% per annum.
"Borrower Material Adverse Effect" means a material adverse effect on the
properties, business, assets, conditions (financial or otherwise), liabilities
or results of operations of the Borrower and its Subsidiaries taken as a whole,
other than effects caused by changes in general economic conditions or
conditions generally affecting the insurance or reinsurance industry.
"Common Stock" means the common stock, par value $.01 per share, of the
Borrower.
"Governmental Entity" means any United States of foreign court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority, body, commission or agency, including the Corporation of
Lloyd's.
"Law" means any applicable federal, state, local or foreign laws, statutes,
ordinances, rules, regulations, judgments, orders, injunctions, decrees,
arbitration awards, agency requirements, licenses or permits (including
insurance laws and regulations) of any Governmental Entity.
"Merger Agreement" means that certain Agreement and Plan of Merger dated as
of the date hereof among the Borrower, the Lender and CapRe Acquisition Corp.
"Subsidiary" means, with respect to any person, any entity, whether
incorporated or unincorporated, of which at least a majority of the securities
or ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
is directly or indirectly owned or controlled by such person or by one or more
of its respective Subsidiaries or by such person and any one or more of its
respective Subsidiaries.
