EXHIBIT 1
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EXECUTION COPY
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STOCK OPTION AND VOTING AGREEMENT
Between
CENTRE CAPITAL INVESTORS L.P.
and
FAIRFAX FINANCIAL HOLDINGS LIMITED
Dated as of June 23, 1997
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STOCK OPTION AND VOTING AGREEMENT dated as of June 23,
1997 between Centre Capital Investors L.P. (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 2,505,296 Common Shares, par value U.S.$.01 per
share, of the Company (the "Common Shares") (the Stockholder's 2,505,296 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
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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 Agreement (as defined in
the Merger Agreement), the Merger and all the transactions
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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 reasons. 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
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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").
(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
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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
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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
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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 5.01. 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 5.02. 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
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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
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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
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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 Centre Partners Management L.C.C.
00 Xxxxxxxxxxx Xxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx Xxxxxxx
Managing Director
(b) if to Fairfax:
00 Xxxxxxxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx X0X 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 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 patties
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.
CENTRE CAPITAL INVESTORS L.P.
By: CENTRE PARTNERS LP, AS GENERAL PARTNER
By: PARK ROAD CORPORATION, AS GENERAL PARTNER
By: /s/ Xxxxxx Xxxxxxx
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Name: Xxxxxx Xxxxxxx
Title: President, Chief Executive Officer
FAIRFAX FINANCIAL HOLDINGS LIMITED
By: /s/ Xxxx Xxxxxxxx
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Name: Xxxx Xxxxxxxx
Title: Vice President Corporate Affairs
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