EXHIBIT 1
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EXECUTION COPY
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STOCK OPTION AND VOTING AGREEMENT
BETWEEN
ELECTRA INVESTMENT TRUST P.L.C.
AND
FAIRFAX FINANCIAL HOLDINGS LIMITED
DATED AS OF JUNE 23, 1997
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NYFS08...:\62\34462\0003\1751\AGR6217L.360
STOCK OPTION AND VOTING AGREEMENT dated as of June 23, 1997, between
Electra Investment Trust P.L.C. (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 of 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 2,181,502 Common Shares, par value U.S.$.01 per share, of
the Company (the "Common Shares") (the Stockholder's 2,181,502 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 Shares in favor of the approval and
adoption of the Merger Agreement, the Amalgamation
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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
(1) 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").
(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.
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(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 by 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 FAIRFAX
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 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.
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SECTION 5.02. No Solicitation of Transactions. The Stockholder,
between the dare 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 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.
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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 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 party 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
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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 Electra Investment Trust PLC
00 Xxxxxxxx, 0xx Xxxxx
Xxxxxx
XX0X0XX Xxxxxx Xxxxxxx
Telephone: 00 (000) 000 0000
Telecopy: 00 (000) 000 0000
Attention: Xxxxxxx X. Xxxxxxxx
(b) if to Fairfax:
00 Xxxxxxxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx XXX 0X0
Telephone: (000) 000-0000 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.
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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 consist 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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
ELECTRA INVESTMENT TRUST P.L.C.
By: /s/ Xxxxxxx X. Xxxxxxxx
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Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman
FAIRFAX FINANCIAL HOLDINGS LIMITED
By: /s/ Xxxx Xxxxxxxx
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Name: Xxxx Xxxxxxxx
Title: Vice President Corporate Affairs
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