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EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER
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AMONG
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
SNTL ACQUISITION CORP.
AND
PAC RIM HOLDING CORPORATION
Dated as of February 17, 1997,
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TABLE OF CONTENTS
PAGE
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ARTICLE 1 - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . 2
2.1 Certificate of Incorporation . . . . . . . . . . . . . . . . 2
2.2 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 - DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Directors . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4 - CONVERSION OF PAC RIM COMMON STOCK
AND OPTIONS; DEBENTURES AND WARRANTS . . . . . . . . . . . . . 3
4.1 Conversion of Pac Rim Common Stock . . . . . . . . . . . . . 3
4.2 Convertible Debentures . . . . . . . . . . . . . . . . . . . 3
4.3 Options . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.4 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 4
4.6 Exchange of Certificates Representing
Pac Rim Common Stock . . . . . . . . . . . . . . . . . . . . 5
4.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF PAC RIM . . . . . . . . . . 7
5.1 Existence; Good Standing; Corporate Authority;
Compliance With Law . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization, Validity and Effect of Agreements . . . . . . 8
5.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 9
5.5 Other Interests . . . . . . . . . . . . . . . . . . . . . 10
5.6 No Violation . . . . . . . . . . . . . . . . . . . . . . . 10
5.7 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Absence of Certain Changes . . . . . . . . . . . . . . . . 12
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.11 Certain Employee Plans . . . . . . . . . . . . . . . . . . 15
5.12 Labor Matters . . . . . . . . . . . . . . . . . . . . . . 16
5.13 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . 16
5.14 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . 16
5.15 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.16 Leased Real Property . . . . . . . . . . . . . . . . . . . 17
5.17 Environment Matters . . . . . . . . . . . . . . . . . . . 17
5.18 Intellectual Property . . . . . . . . . . . . . . . . . . 18
5.19 Powers of Attorney; Guarantees . . . . . . . . . . . . . . 18
5.20 Related Party Transactions . . . . . . . . . . . . . . . . 18
5.21 Information in Proxy Statements . . . . . . . . . . . . . . 19
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ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Existence; Good Standing; Corporate Authority;
Compliance With Law . . . . . . . . . . . . . . . . . . . . 19
6.2 Authorization, Validity and Effect of Agreements . . . . . . 19
6.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Interim Operations of Merger Sub . . . . . . . . . . . . . . 20
6.5 Financing . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 21
6.8 Surviving Corporation After the Merger . . . . . . . . . . . 21
6.9 No Ownership of Company Capital Stock . . . . . . . . . . . 21
6.10 Information in Proxy Statement . . . . . . . . . . . . . . 21
ARTICLE 7 - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . 22
7.2 Conduct of Businesses . . . . . . . . . . . . . . . . . . . 23
7.3 Meeting of Stockholders . . . . . . . . . . . . . . . . . . 26
7.4 Filings; Other Action . . . . . . . . . . . . . . . . . . . 26
7.5 Inspection of Records; Access . . . . . . . . . . . . . . . 27
7.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.7 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . 28
7.8 Further Action . . . . . . . . . . . . . . . . . . . . . . . 28
7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.10 Indemnification and Insurance . . . . . . . . . . . . . . . 28
7.11 Certain Benefits. . . . . . . . . . . . . . . . . . . . . . 30
7.12 Restructuring of Merger . . . . . . . . . . . . . . . . . . 32
7.13 Additional Agreements; Best Efforts . . . . . . . . . . . . 32
7.14 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 8 - CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . 32
8.1 Conditions of Each Party's Obligation to Effect
the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2 Conditions to Obligations of Pac Rim to Effect the
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 9 - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Termination by Mutual Consent . . . . . . . . . . . . . . . 35
9.2 Termination by Either Parent or Pac Rim . . . . . . . . . . 35
9.3 Termination by Pac Rim . . . . . . . . . . . . . . . . . . . 36
9.4 Termination by Parent . . . . . . . . . . . . . . . . . . . 36
9.5 Effect of Termination and Abandonment . . . . . . . . . . . 36
9.6 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 10 - LIQUIDATED DAMAGES AND BREAKUP FEE . . . . . . . . . . . . 37
10.1 Payment of Liquidated Damages by Parent . . . . . . . . . . 37
10.2 Payment of Liquidated Damages by Pac Rim . . . . . . . . . . 37
10.3 Payment of Breakup Fee By Pac Rim . . . . . . . . . . . . . 37
ARTICLE 11 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 38
11.1 Nonsurvival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 38
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11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.3 Assignment; Binding Effect; Benefit . . . . . . . . . . . . 39
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 39
11.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 40
11.7 Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 40
11.9 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 40
11.11 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.12 Incorporation of Exhibits . . . . . . . . . . . . . . . . . 40
11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . 40
11.14 Enforcement of Agreement . . . . . . . . . . . . . . . . . . 41
11.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 41
11.16 Material Adverse Effect . . . . . . . . . . . . . . . . . . 41
11.17 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . 42
11.18 Performance by Merger Sub . . . . . . . . . . . . . . . . . . 42
11.19 Prior Agreement . . . . . . . . . . . . . . . . . . . . . . . 42
SCHEDULE 7.11(e) Severance Program . . . . . . . . . . . . . . . . . . . 44
Exhibit A Certificate of Incorporation of SNTL
Acquisition Corporation . . . . . . . . . . . . . . . . . . . . . . 46
Exhibit B Bylaws of SNTL Acquisition Corp. . . . . . . . . . . . . . 47
Exhibit C Series A Convertible Debentures and Series
1, 2 and 3 Detachable Warrant Purchase Agreement . . . . . . . . . . 48
Exhibit D Option . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Exhibit E Series 3 Warrant Surrender Agreement . . . . . . . . . . . 50
Exhibit F Executed Insurance Partners Stock
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . 51
Exhibit G Voting Agreement . . . . . . . . . . . . . . . . . . . . . 52
Exhibit H Compensation Plan for Senior Management Plan . . . . . . . 53
Exhibit I Xxxxxxx Xxxxx Employment Agreement and
Amendments Thereto . . . . . . . . . . . . . . . . . . . . . . . . . 54
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") is entered into as of February 17, 1997 (the "Effective Date"), by
and among SUPERIOR NATIONAL INSURANCE GROUP, INC., a California corporation
("Parent"), SNTL ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and PAC RIM HOLDING CORPORATION, a
Delaware corporation ("Pac Rim"), with reference to the following recitals:
R E C I T A L S
A. The Boards of Directors of Parent and Pac Rim each have determined
that a business combination between Parent and Pac Rim is in the best interests
of their respective companies and stockholders and presents an opportunity for
their respective companies to achieve long-term strategic and financial
benefits and, accordingly, have agreed to effect the merger provided for herein
upon the terms and subject to the conditions set forth herein.
B. Parent, Merger Sub and Pac Rim entered into that certain Agreement
and Plan of Merger dated as of September 17, 1996 (the "Prior Agreement").
Parent, Merger Sub and Pac Rim desire to amend and restate the Prior Agreement
in accordance with the terms hereof.
C. Parent, Merger Sub and Pac Rim desire to make certain
representations, warranties, covenants and agreements in connection with the
merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall
be merged with and into Pac Rim in accordance with this Agreement and the
separate corporate existence of Merger Sub shall thereupon cease (the
"Merger"). Pac Rim shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"). The Merger shall have
the effects specified in Section 259 of the Delaware General Corporation Law
(the "DGCL").
1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Xxxxxxx & XxXxxxxx, 000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx 00000 at 9:00 a.m., local time, on the first business day
immediately following the day on which the last to be fulfilled or waived of
the conditions set forth in
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Article 8 shall be fulfilled or waived in accordance herewith, or at such other
time, date or place as Parent and Pac Rim may agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of Incorporation
of Merger Sub (a copy of which is attached hereto as Exhibit A) in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance
with applicable law.
2.2 Bylaws. The Bylaws of Merger Sub (a copy of which is attached
hereto as Exhibit B) in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation, until duly amended in accordance with
applicable law.
ARTICLE 3
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
3.2 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
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ARTICLE 4
CONVERSION OF PAC RIM COMMON STOCK AND
OPTIONS; DEBENTURES AND WARRANTS
4.1 Conversion of Pac Rim Common Stock. (a) At the Effective Time,
each share of the common stock, $0.01 par value, of Merger Sub outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock, $0.01 par value, of the Surviving Corporation.
(b) At the Effective Time, each share of the common stock, $0.01 par
value, of Pac Rim (the "Pac Rim Common Stock") issued and outstanding
immediately prior to the Effective Time, other than the Dissenting Shares (as
defined below), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive cash in the
amount of the "Merger Price Per Share" (as defined in Section 4.5(c) hereof),
without interest except for that certain interest payable under Section 9.2
hereof, which interest shall be distributed pro rata on a per share basis.
(c) As a result of the merger and without any action on the part of
the holders thereof, all shares of Pac Rim Common Stock shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of a certificate (a "Certificate") representing any shares of Pac
Rim Common Stock shall thereafter cease to have any rights with respect to such
shares of Pac Rim Common Stock, except the right to receive the merger price
per share upon the surrender of such certificate.
(d) Each share of Pac Rim Common Stock issued and held in Pac Rim's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be cancelled and retired without payment of any
consideration therefor.
4.2 Convertible Debentures. At the Effective Time and in accordance
with the terms of that certain Series A Convertible Debentures and Series 1, 2
and 3 Detachable Warrant Purchase Agreement dated as of September 17, 1996 and
that certain First Amendment to Series 1, 2 and 3 Detachable Warrant Purchase
Agreement of even date herewith, copies of which are attached hereto as Exhibit
C (collectively, the "Purchase Agreement"), the holders of the Convertible
Debentures (as defined in Section 5.3 hereof) shall be entitled to receive the
aggregate consideration of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00)
(the "Debenture Consideration").
4.3 Options. At the Effective Time, each holder of a then
outstanding "In The Money Option" (as defined in Section 4.5(a) hereof) to
purchase shares of Pac Rim Common Stock under the Pac Rim Holding Corporation
1987 Stock Option Plan (the "1987 Plan") and the Pac Rim Holding Corporation
1988 Stock Option Plan (the "1988 Plan") (the 1987 Plan and 1988 Plan,
collectively, the "Pac Rim Stock Option Plans") shall, in settlement thereof,
receive from Pac Rim
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for each share of Pac Rim Common Stock subject to such option an amount
(subject to applicable withholding tax) in cash equal to the excess of the
Merger Price Per Share over the per share exercise or strike price of such
option as of the Effective Time, multiplied by the total number of shares of
Pac Rim Common Stock issuable upon the exercise of such option (such amount
being hereinafter referred to as the "Option Consideration"). At the Effective
Time, each In The Money Option shall be cancelled and converted into the right
to receive the Option Consideration. The surrender of an In The Money Option
shall be deemed a release of any and all rights the holder had or may have had
in respect of such option. Each "Out Of The Money Option" (as defined in
Section 4.5(e) hereof) shall be cancelled without consideration.
4.4 Warrants. At the Effective Time, each holder of a then
outstanding "In The Money Warrant" (as defined in Section 4.5(a) hereof) to
purchase shares of Pac Rim Common Stock pursuant to the terms of the
Debenture/Warrant Agreement (as defined in Section 5.3 hereof) shall, in
settlement thereof and pursuant to the terms of the Purchase Agreement, receive
from Pac Rim for each share of Pac Rim Common Stock subject to such warrant an
amount in cash equal to the excess of the Merger Price Per Share over the per
share exercise or strike price of such warrant as of the Effective Time (after
adjustment of the exercise or strike price, if applicable, under the
Debenture/Warrant Agreement, which adjustments have been finalized), multiplied
by the total number of shares issuable upon the exercise of such warrant (such
amount being hereinafter referred to as the "Warrant Consideration"). At the
Effective Time, each In The Money Warrant shall be cancelled and converted into
the right to receive the Warrant Consideration. The surrender of a warrant
shall be deemed a release of any and all rights the holder had or may have had
in respect of such warrant. Each Out Of The Money Warrant (as defined in
Section 4.5(f) hereof) shall be cancelled without consideration.
4.5 Definitions. The following terms shall, when used in this
Agreement, have the following meanings:
(a) "In The Money Option" means an option issued under the Pac Rim
Stock Option Plans whose exercise price per share as of the Effective Time is
less than the Merger Price Per Share.
(b) "In The Money Warrant" means a warrant issued pursuant to the
Debenture/Warrant Agreement (as defined in Section 5.3 hereof) whose exercise
price per share as of the Effective Time is less than the Merger Price Per
Share.
(c) "Merger Price Per Share" is $22,021,032 (the "Purchase Price")
plus the aggregate exercise price for the In The Money Options and In The Money
Warrants divided by the "Deemed Number of Shares" (as defined in Section 4.5(d)
hereof). The Merger Price Per Share" shall be rounded to the nearest $0.0025.
In no event will the Merger Price Per Share cause the amounts calculated
pursuant to Sections 4.1, 4.2, 4.3 and 4.4 hereof to exceed $42,021,032 in the
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aggregate, subject to the effect of rounding discussed in the preceding
sentence.
(d) "Deemed Number of Shares" is the actual number of outstanding
shares of Pac Rim Common Stock as of the Effective Time plus the total number
of shares of Pac Rim Common Stock that would be issued upon exercising all of
the In The Money Options and In The Money Warrants outstanding as of the
Effective Time.
(e) "Out Of The Money Options" means all options issued under the Pac
Rim Stock Option Plans that are not In The Money Options.
(f) "Out Of The Money Warrants" means all warrants issued under the
Debenture/Purchase Agreement that are not In The Money Warrants.
4.6 Exchange of Certificates Representing Pac Rim Common Stock.
(a) On the Closing Date, Parent shall deposit, or shall cause to be
deposited, with a bank or trust company selected by Parent, which shall be
Parent's paying and transfer agent (the "Exchange Agent"), for the benefit of
the holders of shares of Pac Rim Common Stock and to settle the In The Money
Options, for payment in accordance with this Article 4, $22,021,032 less the
Warrant Consideration, and any amounts attributable to the Dissenting Shares
(as hereinafter defined), such amount being hereinafter referred to as the
"Exchange Fund", to be paid pursuant to this Section 4.6 in exchange for
outstanding shares of Pac Rim Common Stock and pursuant to Section 4.3 upon
settlement of the In The Money Options.
(b) Promptly after the Effective Time, Parent shall cause the
Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that delivery of
such Certificates shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for payment of the Merger Price Per Share
hereunder. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor, in cash, the product of (x) the
Merger Price Per Share and (y) the number of shares of Pac Rim Common Stock
represented by such Certificates so surrendered by such holder, and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Pac Rim Common Stock which is not registered in the
transfer records of Pac Rim, the Exchange Agent may condition payment hereunder
upon the surrender of the Certificate representing such Pac Rim Common Stock to
the Exchange Agent, accompanied by all documents required to evidence and
effect
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such transfer and to evidence that any applicable stock transfer taxes have
been paid.
(c) At or after the Effective Time, there shall be no transfers on
the stock transfer books of Pac Rim of the shares of Pac Rim Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be cancelled and exchanged for payment in accordance with the procedures
set forth in this Article 4.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the former stockholders of Pac
Rim nine (9) months after the Effective Time shall be delivered to the
Surviving Corporation. Any former stockholders of Pac Rim who have not
theretofore complied with this Article 4 shall thereafter look only to the
Surviving Corporation as general creditors thereof for payment of the Purchase
Price in respect of each share of Pac Rim Common Stock that such stockholder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon.
(e) None of Parent, Pac Rim, the Exchange Agent or any other person
shall be liable to any former holder of shares of Pac Rim Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will pay in exchange for such lost, stolen or destroyed Certificate the
Merger Price Per Share as provided in Section 4.6(a), deliverable in respect
thereof pursuant to this Agreement.
4.7 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary,
shares of Pac Rim Common Stock which are held by any recordholder who has not
voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal rights in accordance with Section 262 of the DGCL ("the
Dissenting Shares") shall not be converted into the right to receive the Merger
Price Per Share hereunder but shall become the right to receive such
consideration as may be determined due in respect of such Dissenting Shares
pursuant to the DGCL; provided, however, that any holder of Dissenting Shares
who shall have failed to perfect, or shall have withdrawn or lost, his rights
to appraisal of such Dissenting Shares, in each case under the DGCL, shall
forfeit the right to appraisal of such Dissenting Shares, and such Dissenting
Shares shall be deemed to have been converted into the right to receive, as
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of the Effective Time, the Merger Price Per Share in accordance with this
Article 4, without interest. Notwithstanding anything contained in this
Section 4.7, if (i) the Merger is rescinded or abandoned or (ii) the
stockholders of Pac Rim revoke the authority to effect the Merger, then the
right of any stockholder to be paid the fair value of such stockholder's
Dissenting Shares shall cease. The Surviving Corporation shall be the only
obligor with respect to and shall comply with all of its obligations under the
DGCL with respect to holders of Dissenting Shares.
(b) Pac Rim shall give Parent (i) prompt notice of any demands for
appraisal, and any withdrawals of such demands, received by Pac Rim and any
other related instruments served pursuant to the DGCL and received by Pac Rim,
and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. Pac Rim shall not, except
with the prior written consent of Parent, make any payment with respect to any
demands for appraisal or offer to settle any such demands.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PAC RIM
Except as set forth in the disclosure letter delivered by or on behalf
of Pac Rim to Parent at or prior to the execution hereof in form and substance
satisfactory to Parent (the "Pac Rim Disclosure Letter") and except to the
extent qualified by Section 11.16(b) hereof, Pac Rim represents and warrants to
Parent as of the date of this Agreement as follows:
5.1 Existence; Good Standing; Corporate Authority; Compliance With
Law. Pac Rim is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Pac Rim is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary. Pac Rim has all requisite
corporate power and authority to own, operate and lease its properties and
carry on its business as now conducted. Each of Pac Rim's "Subsidiaries" (as
defined in Section 11.15 hereof) is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation or organization, has the corporate power and authority to own its
properties and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification. The Pac Rim Disclosure Letter sets forth
the states in which Pac Rim and its Subsidiaries are incorporated and licensed
or qualified to do business. Neither Pac Rim nor any of its
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Subsidiaries is in violation of any order of any court, governmental authority
or arbitration board or tribunal. Neither Pac Rim nor any of its Subsidiaries
is in violation of any law, ordinance, governmental rule or regulation to which
Pac Rim or any Pac Rim Subsidiary or any of their respective properties or
assets is subject. Pac Rim and its Subsidiaries have obtained all licenses,
permits and other authorizations and have taken all actions required by
applicable law or governmental regulations in connection with their business as
now conducted. The copies of Pac Rim's Certificate of Incorporation and Bylaws
previously delivered to Parent are true and correct.
5.2 Authorization, Validity and Effect of Agreements.
(a) Pac Rim has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents
contemplated hereby. Subject only to the approval of this Agreement and the
transactions contemplated hereby by the affirmative vote of at least seventy
percent (70%) in the aggregate of (i) the issued and outstanding shares of Pac
Rim Common Stock and (ii) the number of shares of Pac Rim Common Stock into
which the outstanding Convertible Debentures (as hereinafter defined) may be
converted, voting together, the consummation by Pac Rim of the transactions
contemplated hereby has been duly authorized by all requisite corporate action.
This Agreement constitutes, and all agreements and documents contemplated
hereby (when executed and delivered pursuant hereto) will constitute, the valid
and legally binding obligations of Pac Rim, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
(b) The provisions of Section 203 of the DGCL do not apply to Pac
Rim's obligations under the transactions contemplated by this Agreement.
5.3 Capitalization. The authorized capital stock of Pac Rim consists
of 35,000,000 shares of Pac Rim Common Stock, and 500,000 shares of preferred
stock (the "Pac Rim Preferred Stock"). As of December 31, 1996, there were
9,528,200 shares of Pac Rim Common Stock issued and outstanding and no shares
of Pac Rim Preferred Stock issued and outstanding. Since such date, no
additional shares of capital stock of Pac Rim have been issued, except pursuant
to the Pac Rim Stock Option Plans. All options outstanding under the Pac Rim
Stock Option Plans and the exercise price and vesting status thereof (assuming
a Closing occurs) are set forth in Exhibit D. In addition, pursuant to the
terms of that certain Agreement to Purchase Series A Convertible Debentures and
Series 1, 2 and 3 Detachable Warrants dated as of April 15, 1994, as amended
(the "Debenture/Warrant Agreement"), Pac Rim has issued and outstanding (i)
TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00) aggregate amount of its
eight percent (8%) Series A Convertible Debentures (the "Convertible
Debentures"); (ii) 1,500,000 detachable warrants each exercisable at the price
of $2.50 for one share of Pac Rim Common Stock (the "Series 1 Warrants"),
which, following all adjustments required under the Debenture/Warrant
Agreement, will be exercisable at the Effective Time for $0.83 per share of Pac
Rim
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Common Stock; (iii) 1,500,000 detachable warrants each exercisable at the price
of $3.00 for one share of Pac Rim Common Stock (the "Series 2 Warrants"); and
(iv) 800,000 detachable warrants each exercisable at the price of $3.50 for one
share of Pac Rim Common Stock (the "Series 3 Warrants"). The Series 1
Warrants, Series 2 Warrants and Series 3 Warrants shall be referred to,
collectively, as the "Warrants." The Series 3 Detachable Warrant Surrender
Agreement dated as of September 17, 1996 and the First Amendment to Series 3
Detachable Warrant Surrender Agreement of even date herewith, both of which are
attached hereto as Exhibit E (collectively, the "Surrender Agreement"), and the
Purchase Agreement will transfer, if consummated, title to all the outstanding
Warrants and Convertible Debentures.
Except as set forth above, Pac Rim has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of Pac Rim on any matter. All such issued
and outstanding shares of Pac Rim Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Other than as
contemplated by this Agreement, the Pac Rim Stock Option Plans, the Convertible
Debentures and the Warrants, there are not at the date of this Agreement any
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate Pac Rim or any of its
Subsidiaries to issue, transfer or sell any shares of capital stock of Pac Rim
or any of its Subsidiaries. As of December 31, 1996, 12,487,730 shares of
Common Stock were reserved for issuance and are issuable upon or otherwise
deliverable in connection with options outstanding under the Pac Rim Stock
Option Plans, the Convertible Debentures and the Warrants; since that date, no
options have been granted under the Pac Rim Stock Option Plans, no new option
plans have been authorized or adopted and no new warrants or convertible
debentures with respect to the Common Stock have been issued. After the
Effective Time, the Surviving Corporation will have no obligation to issue,
transfer or sell any shares of capital stock of Pac Rim or the Surviving
Corporation pursuant to any Pac Rim Benefit Plans (as defined in Section 5.11).
There are no outstanding obligations of Pac Rim or any of its Subsidiaries to
purchase, redeem or otherwise acquire any shares of Pac Rim Common Stock, any
capital voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Pac Rim. No shares of Pac Rim Common
Stock are held in the Pac Rim Benefit Plans.
5.4 Subsidiaries. Pac Rim owns directly or indirectly each of the
outstanding shares of capital stock of each of Pac Rim's Subsidiaries. Each of
the outstanding shares of capital stock of each of Pac Rim's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by Pac Rim free and clear of all liens, pledges,
security interests, claims or other encumbrances. The following information
for each Subsidiary of Pac Rim is set forth in the Pac Rim Disclosure Letter:
(i) its name and jurisdiction of incorporation or organization; (ii)
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its authorized capital stock or share capital; and (iii) the number of issued
and outstanding shares of capital stock or share capital.
5.5 Other Interests. Except for interests in the Pac Rim
Subsidiaries and The Pacific Rim Assurance Company's (the "Assurance Company")
interest in its wholly-owned subsidiary, Regional Benefits Insurance Services,
Inc., a California corporation, neither Pac Rim nor any Pac Rim Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust or entity.
5.6 No Violation. Neither the execution and delivery by Pac Rim of
this Agreement nor the consummation by Pac Rim of the transactions contemplated
hereby in accordance with the terms hereof will: (i) conflict with or result
in a breach of any provisions of the respective certificates of incorporation
or bylaws (or similar governing documents) of Pac Rim or its Subsidiaries; (ii)
except as disclosed in the Pac Rim Reports (as defined in Section 5.7), result
in a breach or violation of, a default under, or the triggering of any payment
or other obligations pursuant to, or accelerate vesting under, any of its
existing Pac Rim Stock Option Plans, or any grant or award made under any of
the foregoing other than accelerated vesting of outstanding options under stock
option agreements in existence on the date hereof with certain employees of Pac
Rim or any of its Subsidiaries by reason of, in whole or in part, the
consummation of the Merger; (iii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of Pac Rim
or its Subsidiaries under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or
obligation to which Pac Rim or any of its Subsidiaries is a party, or by which
Pac Rim or any of its Subsidiaries or any of their properties is bound or
affected; (iv) violate any order, writ, injunction, decree, law, statute, rule
or regulation applicable to Pac Rim or any of its Subsidiaries or any of their
respective properties or assets; or (v) other than the filings provided for in
Article 1, certain federal, state and local regulatory filings, filings
required under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000 (xxx
"XXX Xxx"), xxxxx insurance law (including California Insurance Code Sections
1215 et seq.), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), require any consent,
approval or authorization of, or declaration, filing or registration with, any
domestic governmental or regulatory authority.
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5.7 SEC Documents; Preliminary Documents. (a) Pac Rim has delivered
to Parent each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1993, including, without
limitation, (i) its Annual Report on Form 10-K for the years ended December 31,
1993, 1994 and 1995, (ii) its Quarterly Report on Form 10-Q for the periods
ended March 31, June 30, and September 30, 1996, and (iii) its Proxy Statements
for the Annual Meeting of Stockholders held in 1994, 1995 and on July 10, 1996,
each in the form (including exhibits and any amendments thereto) filed with the
Securities and Exchange Commission (the "SEC") (collectively, the "Pac Rim
Reports"), which constitute all such Reports that were required to be filed
during such period. As of their respective dates, the Pac Rim Reports
(including, without limitation, any financial statements or schedules included
or incorporated by reference therein) (i) were prepared in all respects in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of Pac Rim included in or incorporated by reference
into the Pac Rim Reports (including the related notes and schedules) and the
Preliminary Documents (as defined in Section 5.7(b) hereof) fairly presents the
consolidated financial position of Pac Rim and the Pac Rim Subsidiaries as of
its date and each of the consolidated statements of income, retained earnings
and cash flows of Pac Rim included in or incorporated by reference into the Pac
Rim Reports (including any related notes and schedules) fairly presents the
results of operations, retained earnings or cash flows, as the case may be, of
Pac Rim and the Pac Rim Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as may be noted therein. To the
knowledge of Pac Rim and its Subsidiaries and except as qualified in the Pac
Rim Disclosure Letter, the financial statements of Assurance Company fairly
present the financial condition, results of operations, retained earnings and
cash flows of Assurance Company in accordance with Statutory Accounting
Principles, except as may be noted therein. Except as provided in Section
5.7(b) hereof and reflected or reserved against or disclosed in the financial
statements of Pac Rim (and the notes thereto) included in the Pac Rim Reports
and the Preliminary Documents and incurred subsequent to December 31, 1996 in
the ordinary course of business consistent with past practice, neither Pac Rim
nor any of its Subsidiaries has any liabilities, of any nature, whether
accrued, absolute, contingent or otherwise, whether due or to become due and
whether required to be recorded or reflected on a balance sheet (or the notes
thereto) under GAAP. Except as described in the Pac Rim Disclosure Letter,
since December 31, 1996, neither Pac Rim nor any Subsidiary of Pac Rim has
incurred any liabilities other than liabilities which have
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been incurred in the ordinary course of business consistent with past practice.
(b) Pac Rim has delivered to Parent its Preliminary Draft and
Unadjusted Balance Sheet as of December 31, 1996 and Statement of Operations
for the year ended December 31, 1996, both of which do not reflect the effect
of any increase in loss and loss adjustment expenses of Assurance Company
(collectively, the "Preliminary Documents"). Prior to the issuance of
Assurance Company's financial statements for the year ended December 31, 1996,
Assurance Company will recognize additional reserve strengthening of
approximately $12 million for 1995 and prior accident years.
5.8 Litigation. Except as disclosed in the Pac Rim Reports filed
with the SEC prior to the date hereof and as otherwise set forth in this
Section 5.8, neither Pac Rim nor its Subsidiaries have been notified that any
governmental investigations are being conducted with respect to their
respective properties, assets, permits or licenses, and there are no actions,
suits or proceedings pending against Pac Rim or the Pac Rim Subsidiaries or, to
the knowledge of Pac Rim, threatened against Pac Rim or the Pac Rim
Subsidiaries or any of their respective properties or assets, at law or in
equity, or before or by any federal or state commission, board, bureau, agency
or instrumentality, that would prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as disclosed in the Pac
Rim Reports filed with the SEC prior to the date hereof, neither Pac Rim nor
any of its Subsidiaries are subject to any outstanding order, writ, injunction
or decree which would prevent or delay the consummation of the transactions
contemplated hereby. The California Department of Insurance (the "California
Department") is currently conducting a triennial examination of the Assurance
Company and the Assurance Company was named as a defendant in the following
actions: (1) NPI Medical Group, et al. v. State Compensation Insurance Fund, et
al., Case No. BC 116099, Superior Court of the State of California, Los Angeles
County; and (2) FWHC Medical Group, et al. v. State Compensation Insurance
Fund, et al, Case No. BC 089361, Superior Court of the State of California, Los
Angeles County.
5.9 Absence of Certain Changes. Since December 31, 1996, each of Pac
Rim and its Subsidiaries has conducted its business only in the ordinary course
of such business and there has not been (i) any event or changes with respect
to Pac Rim and its Subsidiaries, excluding changes due to general economic
conditions, (ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to its capital stock or any repurchase,
redemption or other acquisition by Pac Rim or its Subsidiaries of any
outstanding shares of capital stock or other securities in, or other ownership
interests in, Pac Rim or any of its Subsidiaries, (iii) any change in its
accounting principles, practices or methods or (iv) any event or changes or
action taken which would constitute a breach of Section 7.2 of this Agreement
if it had occurred or been taken after the date hereof; provided, however, this
Section 5.9(iv) shall not apply to subsections (c) or (e) of Section 7.2.
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5.10 Taxes.
(a) Filing of Tax Returns. Pac Rim (including, for purposes of this
Section 5.10, each of its Subsidiaries from time to time) has timely filed with
the proper taxing or other governmental authorities all returns (including,
without limitation, information returns and other tax-related information) in
respect of Taxes (as such term is defined in Section 5.10(e)) required to be
filed through the date hereof. Such returns and information filed are, to the
knowledge of Pac Rim, complete, correct and accurate in all respects. Pac Rim
has delivered to Parent complete and accurate copies of all of Pac Rim's
federal, state and local Tax returns filed for its taxable years ended 1991
through 1995. Pac Rim has not filed any federal, state or local tax returns
for its taxable year ended December 31, 1996, or delivered to Parent complete
and accurate copies of all such returns that have been filed for such taxable
year.
(b) Payment of Taxes. All Taxes for which Pac Rim is shown as owing
on any Tax return for any period or portion thereof ending on or before the
Closing Date, shall have been paid, or an adequate reserve (in conformity with
GAAP applied on a consistent basis and in accordance with Pac Rim's past custom
and practice) has been established therefor, and Pac Rim has no liability
(whether or not due and payable) for Taxes in excess of the amounts so paid or
reserves so established. All Taxes that Pac Rim has been required to collect
or withhold have been duly collected or withheld and, to the extent required
when due, have been or will be duly paid to the proper taxing or other
governmental authority. Pac Rim had, as of December 31, 1995, a net operating
loss carryover of $2,676,000 for federal income tax purposes (the "NOL").
(c) Audit History. Except as set forth in the Pac Rim Disclosure
Letter:
(i) No deficiencies for Taxes or adjustments to the NOL of
Pac Rim have been claimed, proposed or assessed by any taxing or other
governmental authority.
(ii) There are no pending or, to the best of Pac Rim's
knowledge, threatened audits, investigations or claims for or relating
to any liability in respect of Taxes of Pac Rim, and there are no
matters under discussion with any taxing or other governmental
authority with respect to Taxes of Pac Rim.
(iii) All audits of federal, state and local returns for
Taxes by the relevant taxing or other governmental authority have been
completed for all periods.
(iv) Pac Rim has not been notified in writing that any taxing
or other governmental authority intends to audit a return for any
other period.
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(v) No extension of a statute of limitations relating to
Taxes is in effect with respect to Pac Rim.
(d) Tax Elections. Except as set forth in the Pac Rim Disclosure
Letter:
(i) There are no material elections with respect to Taxes
affecting Pac Rim.
(ii) Pac Rim has not made an election and is not required to
treat any asset of Pac Rim as owned by another person or as tax-exempt
bond financed property or tax-exempt use property within the meaning
of Section 168 of the Internal Revenue Code of 1986, as amended (the
"Code"), or under any comparable state or local income Tax or other
Tax provision.
(iii) Pac Rim is not a party to or bound by any binding tax
sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other person or entity.
(iv) Pac Rim has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or
any corresponding provision of state or local law) or agreed to have
Section 341(f)(2) of the Code (or any corresponding provision of state
or local law) apply to any disposition of any asset owned by it.
(e) Additional Tax Representations. Except as set forth in the Pac
Rim Disclosure Letter:
(i) There are no liens for Taxes (other than for Taxes not
yet delinquent upon the assets of Pac Rim).
(ii) Pac Rim has never been a member of an affiliated group
of corporations within the meaning of Section 1504 of the Code, nor
has Pac Rim or any present or former Subsidiary of Pac Rim, or any
predecessor or affiliate of any of them, become liable (whether by
contract, as transferee or successor, by law or otherwise) for the
Taxes of any other person or entity under Treasury Regulation Section
1.1502-6 or any similar provision of state, local or foreign law.
(iii) Pac Rim has not made, requested or agreed to make, nor
is it required to make, any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise for any
taxable year.
(iv) Pac Rim is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code or would require
payment of any amount as to which a deduction may be denied under
Section 162(m) of the Code.
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(v) Pac Rim is not a party to any joint venture, partnership,
or other arrangement or contract which could be treated as a
partnership for federal, state, local or foreign Tax purposes.
(vi) Pac Rim has prepared and made available to Parent all of
Pac Rim's books and working papers that clearly demonstrate the income
and activities of Pac Rim for the last full reporting period ending
prior to the date hereof.
(vii) Pac Rim has not been a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section
897(c)(1)(A)(ii).
(f) Definition of Taxes. For purposes of this Agreement, the term
"Taxes" shall mean all federal, state, local, foreign and other taxes,
assessments or other governmental charges, including, without limitation,
income, estimated income, gross receipts, profits, occupation, franchise,
capital stock, real or personal property, sales, use, value added, transfer,
license, commercial rent, payroll, employment or unemployment, social security,
disability, withholding, alternative or add-on minimum, customs, excise, stamp
or environmental taxes, and further including all interest, penalties and
additions in connection therewith for which Pac Rim may be liable.
5.11 Certain Employee Plans.
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and any
bonus, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, vacation, severance,
death benefit, insurance or other plan, arrangement or understanding (whether
or not legally binding), in each case maintained or contributed to for the
benefit of employees of Pac Rim or any of its Subsidiaries (all the foregoing
being herein called the "Pac Rim Benefit Plans"), individually and in the
aggregate, no event has occurred, and to the knowledge of Pac Rim or any of its
Subsidiaries, there exists no condition or set of circumstances, in connection
with which Pac Rim or any of its Subsidiaries could be subject to any liability
(except liability for benefits claims and funding obligations payable in the
ordinary course), under ERISA or any other applicable law.
(b) With respect to the Pac Rim Benefit Plans, individually and in
the aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, established in
accordance with GAAP, or otherwise properly footnoted in accordance with GAAP,
on the financial statements of Pac Rim or any of its Subsidiaries. Pac Rim has
not
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been nor is it currently obligated under any multi-employer plans as defined in
ERISA.
(c) Except as required by applicable law, neither Pac Rim nor any of
its Subsidiaries provides any health, welfare or life insurance benefits to any
of their former or retired employees.
(d) Except for changes due to increases in the length of employment,
Schedule 5.11(d) of the Pac Rim Disclosure Letter lists the employees of Pac
Rim and its Subsidiaries who are eligible for severance benefits and the
amounts that would be due such employees if they were terminated as of February
7, 1997.
5.12 Labor Matters.
(a) Neither Pac Rim nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
Pac Rim, threatened against Pac Rim or its Subsidiaries relating to their
business. To the knowledge of Pac Rim, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently being
made or threatened involving employees of Pac Rim or any of its Subsidiaries.
(b) Pac Rim has delivered to Parent copies of all employment
agreements, consulting agreements, severance agreements, bonus and incentive
plans, profit-sharing plans and other agreements, plans or arrangements with
respect to compensation of the employees or arrangements with respect to
compensation of the employees of Pac Rim and its Subsidiaries (the
"Compensation Arrangements") and, to the extent required by applicable
regulation, all Compensation Arrangements are described in the Pac Rim Reports.
5.13 No Brokers. Pac Rim has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Pac Rim or Parent to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that Pac Rim has retained Salomon Brothers Inc ("Salomon"), whose fees
and expenses will be paid by Pac Rim, as its financial advisor to render a
fairness opinion with respect to the Purchase Price, which arrangement has been
disclosed in writing to Parent prior to the date hereof. Other than the
foregoing arrangement, Pac Rim is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transaction contemplated hereby.
5.14 Fairness Opinion. Pac Rim has received the opinion of Salomon
to the effect that the consideration to be received in
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the Merger by the stockholders of Pac Rim is fair to such stockholders from a
financial point of view.
5.15 Liens. Other than liens, mortgages, security interests, pledges
and encumbrances which do not materially interfere with Pac Rim's or any of its
Subsidiaries' use and enjoyment of their property or assets or diminish or
detract from the value thereof, neither Pac Rim nor any of its Subsidiaries has
granted, created or suffered to exist with respect to any of its assets, any
mortgage, pledge, charge, hypothecation, collateral, assignment, lien
(statutory or otherwise), encumbrance or security agreement of any kind or
nature whatsoever.
5.16 Leased Real Property. Neither Pac Rim nor any Subsidiary owns
any real property. The Pac Rim Disclosure Letter sets forth a list of all of
the leases and subleases (the "Real Property Leases") under which, as of the
date hereof, Pac Rim or any of its Subsidiaries has the right to occupy space.
Pac Rim has heretofore delivered to the Parent a true, correct and complete
copy of all of the Real Property Leases, including all amendments thereto. All
Real Property Leases and leases pursuant to which Pac Rim or any of its
Subsidiaries leases personal property from others are valid, binding and
enforceable in accordance with their terms; neither Pac Rim nor any Subsidiary
has received notice of any default by Pac Rim or any Subsidiary under any Real
Property Lease; there are no existing defaults, or any condition or event which
with the giving of notice or lapse of time would constitute a default, by any
party to the Real Property Leases.
5.17 Environmental Matters. Attached to the Pac Rim Disclosure
Letter are copies of all environmental audits or other studies or reports that
Pac Rim has in its possession, which were prepared by third parties to assess
Hazardous Material (as hereinafter defined) risks at any site or facility owned
or leased presently or within the last three (3) years by Pac Rim or any of its
Subsidiaries (a "Site"). Pac Rim and each of its Subsidiaries is in compliance
with all, and has no liability under, any Environmental Laws (as defined
below). Neither Pac Rim nor any of its Subsidiaries has been alleged to be in
violation of, or has been subject to any administrative or judicial proceeding
pursuant to, such Environmental Laws either now or any time during the past
three (3) years. There are no facts or circumstances which Pac Rim reasonably
expects could form the basis for the assertion of any Claim (as defined below)
against Pac Rim or any of its Subsidiaries relating to environmental matters
including, but not limited to, any Claim arising from past or present
environmental practices asserted under any Environmental Laws.
For purposes of this Section 5.17, the following terms shall have the
following meanings:
(a) "Hazardous Materials" shall mean asbestos, petroleum products,
underground tanks of any typeand all other materials now or hereafter defined
as "hazardous substances," "hazardous
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wastes," "toxic substances" or "solid wastes," or otherwise now or hereafter
listed or regulated pursuant to (collectively, the "Environmental Laws"): the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C. \9601 et seq., and any amendments thereto; the Resource Conservation
and Recovery Act, 42 U.S.C. \6901 et seq., and any amendments thereto; the
Hazardous Materials Transportation Act, 49 U.S.C. \1801 et seq.; and any other
similar federal, state or local statute, regulation, ordinance, order, decree,
or any other law, common law theory or reported decision of any state or
federal court, as now or at any time hereafter in effect, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material.
(b) "Claim" shall mean any and all claims, demands, causes of
actions, suits, proceedings, administrative proceedings, losses, judgments,
decrees, debts, damages, liabilities, court costs, attorneys' fees and any
other expenses incurred, assessed or sustained by or against Pac Rim or any of
its Subsidiaries.
5.18 Intellectual Property. The Pac Rim Disclosure Letter identifies
all registered trademarks, copyrights and patents owned or licensed by Pac Rim
and its Subsidiaries as of the date hereof. To Pac Rim's best knowledge, Pac
Rim or its Subsidiaries own, or are licensed or otherwise have adequate right
to use, all patents, patent rights, trademarks, trademark rights, service
marks, service xxxx rights, trade names, trade name rights, copyrights,
know-how, technology, trade secrets and other proprietary information
(collectively, the "Intellectual Property") which are material to the conduct
of the business of Pac Rim and its Subsidiaries. Neither Pac Rim nor any of
its Subsidiaries have received any written claims by any person, and neither
Pac Rim nor any of its Subsidiaries has asserted a claim against any person,
with respect to any of the Intellectual Property owned or used by Pac Rim or
its Subsidiaries or challenging or questioning the validity or effectiveness of
any license or agreement relating thereto to which Pac Rim or any Subsidiary is
a party.
5.19 Powers of Attorney; Guarantees. Neither Pac Rim nor any of its
Subsidiaries has any power of attorney outstanding, nor any liability as
guarantor, surety, co-signer, endorser (other than for purposes of collection
in the ordinary course of business) or co-maker in respect of the obligation of
any person, corporation (other than wholly-owned Subsidiaries of Pac Rim),
partnership, joint venture, association, organization or other entity.
5.20 Related Party Transactions. No director, officer, partner,
employee, "affiliate" or "associate" (as such terms are defined in rule 12b-2
under the Exchange Act) of Pac Rim or any of its Subsidiaries (i) has borrowed
any monies from or has outstanding any indebtedness or other similar
obligations to Pac Rim or any of its Subsidiaries; (ii) except as disclosed in
Pac Rim's Proxy
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Statement for its 1996 annual meeting, owns, directly or indirectly, any
interest of any kind in, or is a director, officer, employee, partner,
affiliate or associate of, or consultant or lender to, or borrower from or has
the right to participate in the management, operations or profits of, any
person or entity which is (x) a competitor, supplier, customer, distributor,
lessor, tenant, creditor or debtor of Pac Rim or any of its Subsidiaries, (y)
engaged in a business related to the business of Pac Rim or any of its
Subsidiaries or (z) participating in any transaction to which Pac Rim or any of
its Subsidiaries is a party; or (iii) is otherwise a party to any contract,
arrangement or understanding with Pac Rim or any of its Subsidiaries.
5.21 Information in Proxy Statement. None of the information
supplied by Pac Rim or its Subsidiaries for inclusion or incorporation by
reference in Parent's "Proxy Statement" (as hereinafter defined) for the
special meeting of its stockholders to be called to consider the Stock Purchase
Agreement referred to in Section 6.5 hereof will, at the date mailed to
stockholders and at the time of the meeting of Parent's stockholders to be held
in connection with the such Stock Purchase Agreement, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure letter delivered by or on behalf
of Parent and Merger Sub to Pac Rim at or prior to the execution hereof in form
and substance satisfactory to Pac Rim (the "Parent Disclosure Letter") and
except to the extent qualified by Section 11.16(b) hereof, Parent and Merger
Sub represent and warrant to Pac Rim as of the date of this Agreement as
follows:
6.1 Existence; Good Standing; Corporate Authority; Compliance With
Law. Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Parent has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
6.2 Authorization, Validity and Effect of Agreements. Each of Parent
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of the Stock Purchase Agreement described in
Section 6.5 hereof by the holders of a majority of the outstanding shares of
Parent's common stock, the consummation by Parent and Merger Sub of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements
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and documents contemplated hereby (when executed and delivered pursuant hereto
for value received) will constitute, the valid and legally binding obligations
of Parent and Merger Sub, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
6.3 No Violation. Neither the execution and delivery by Parent and
Merger Sub of this Agreement, nor the consummation by Parent and Merger Sub of
the transactions contemplated hereby in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any provisions of the Articles of
Incorporation of Parent, the Certificate of Incorporation of Merger Sub or
Bylaws of Parent or Merger Sub; (ii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default), under or result
in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of Parent
or its "Subsidiaries" (as defined in Section 11.15 hereof) under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any license, franchise, permit, lease, contact, agreement or other
instrument, commitment or obligation to which Parent or any of its Subsidiaries
is a party, or by which Parent or any of its Subsidiaries or any of their
properties is bound or affected; or (iii) other than the Regulatory Filings,
require any consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority.
6.4 Interim Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations only
as contemplated hereby.
6.5 Financing. In obtaining the funds necessary to enable Parent and
Merger Sub to consummate the Merger on the terms contemplated by this
Agreement, Parent has entered into a Stock Purchase Agreement dated as of
September 17, 1996 (the "Stock Purchase Agreement") with Insurance Partners,
L.P., a Delaware limited partnership ("IP") and Insurance Partners Offshore
(Bermuda), L.P., a Bermuda limited partnership ("IP Bermuda") (IP and IP
Bermuda, collectively, "Insurance Partners"), and the additional equity
investors a party thereto, for the sale of shares of Parent's common stock, an
executed copy of which is attached hereto as Exhibit F. At the Effective Time,
Parent and the Merger Sub will have available all funds necessary (a) for the
acquisition of all the Convertible Debentures and In The Money Warrants, (b)
for the acquisition of all shares of Pac Rim Common Stock and In The Money
Options pursuant to the Merger and (c) to perform their respective obligations
under this Agreement.
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6.6 No Brokers. Parent has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Pac Rim or Parent to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that Parent has retained Donaldson, Lufkin, Xxxxxxxx Securities
Corporation ("DLJ"), whose fees and expenses will be paid by Parent, as its
financial advisor and to render a fairness opinion with respect to the sale of
Parent's common stock pursuant to the Stock Purchase Agreement, which
arrangement has been disclosed in writing to Pac Rim prior to the date hereof.
Other than the foregoing arrangement, Parent is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
6.7 Fairness Opinion. Parent has a received the opinion of DLJ to
the effect that the financing arrangements described in Sections 6.5 and 7.14
hereof are fair to Parent's stockholders from a financial point of view.
6.8 Surviving Corporation After the Merger. Immediately after the
Effective Time and after giving effect to any change in the Surviving
Corporation's assets and liabilities as a result of the Merger, the Surviving
Corporation will not (i) be insolvent (either because its financial condition
is such that the sum of its debts is greater than the fair value of its assets
or because the fair saleable value of its assets is less than the amount
required to pay its probable liability on existing debts as they become
absolute and mature), (ii) have unreasonably small capital with which to engage
in its business or (iii) have incurred liabilities beyond its ability to pay as
they become due.
6.9 No Ownership of Company Capital Stock. Neither Parent nor Merger
Sub own, directly or indirectly, more that five percent (5%) of Pac Rim Common
Stock.
6.10 Information in Proxy Statement. None of the information
supplied by Parent or Merger Sub for inclusion or incorporation by reference in
Pac Rim's "Proxy Statement" (as hereinafter defined) for the special meeting of
its stockholders to be called to consider the Merger will, at the date mailed
to stockholders and at the time of the meeting of Pac Rim's stockholders to be
held in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
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ARTICLE 7
COVENANTS
7.1 Acquisition Proposals. Prior to the Effective Time, Pac Rim
agrees (a) that neither Pac Rim nor any of its Subsidiaries nor its or their
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) shall (except to the extent necessary to comply with
fiduciary duties to stockholders as provided in this Section 7.1) initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger, acquisition,
consolidation, tender offer, exchange offer, business combination or similar
transaction involving, or any purchase of more than forty percent (40%) of the
assets or any equity securities of, Pac Rim or any of its Subsidiaries (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and will inform any individuals or entities with whom
an Acquisition Proposal is currently being discussed or hereinafter making an
Acquisition Proposal of the obligations undertaken in this Section 7.1; and (c)
that it will notify Parent immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations
or discussions are sought to be initiated or continued with Pac Rim or its
Subsidiaries; provided, however, that nothing contained in this Section 7.1
shall, prior to approval of the transaction described herein by the holders of
Pac Rim Common Stock, prohibit the Board of Directors of Pac Rim from (i)
furnishing information to or entering into discussions or negotiations with,
any person or entity that makes an unsolicited bona fide written Acquisition
Proposal, if, and only to the extent that, (A) such Acquisition Proposal is on
terms that the Board of Directors of Pac Rim determines, with the assistance of
its financial advisors, represents a financially superior transaction to the
holders of Pac Rim Common Stock compared with the Merger, (B) such Acquisition
Proposal is not conditioned upon the acquiror obtaining financing, (C) the
Board of Directors of Pac Rim determines in good faith, based as to legal
matters on the written opinion of outside legal counsel, that such action is
required for the Board of Directors to comply with its fiduciary duties to
stockholders imposed by law, (D) two (2) business days prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, Pac Rim provides written notice to Parent to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or
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entity, and furnishes Parent with the terms of and a copy of such Acquisition
Proposal and (E) thereafter, Pac Rim keeps Parent informed of the status (and
the terms) of any such discussions or negotiations; and (ii) to the extent
applicable, complying with Rule 14e-2(a) promulgated under the Exchange Act with
regard to an Acquisition Proposal. Nothing in this Section 7.1 shall (x) permit
any party to terminate this Agreement (except as specifically provided in
Article 9 hereof) or (z) affect any other obligation of any party under this
Agreement.
7.2 Conduct of Businesses. From the date hereof to the Effective
Time, except as set forth in the Pac Rim Disclosure Letter or as contemplated
by any other provision of this Agreement, unless Parent has consented in
writing thereto, Pac Rim and its Subsidiaries:
(a) shall conduct their operations according to their usual, regular
and ordinary course in substantially the same manner as heretofore conducted;
(b) shall use their best commercial efforts to preserve intact their
business organization and goodwill, keep available the services of their
officers and employees and maintain satisfactory relationships with those
persons having business relationships with them;
(c) shall confer on a regular basis with one or more representatives
of Parent to report operational matters of materiality and any proposals to
engage in material transactions;
(d) shall not amend their Certificates of Incorporation or Articles
of Incorporation, as the case may be, or Bylaws;
(e) shall promptly notify Parent of (i) any material emergency or
other material change in the condition (financial or otherwise), of Pac Rim's
or any of its Subsidiary's business, properties, assets, liabilities, prospects
or the normal course of its businesses or in the operation of its properties,
(ii) any material litigation or material governmental complaints,
investigations or hearings, or (iii) the breach in any respect of any
representation or warranty or covenant contained herein;
(f) shall timely file all reports required by applicable securities
laws, rules or regulations to be filed with the SEC and promptly deliver to
Parent true and correct copies of any report, statement or schedule filed by
Pac Rim with the SEC subsequent to the date of this Agreement;
(g) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the date
hereof and disclosed pursuant to this Agreement, issue any shares of its
capital stock, effect
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any stock split or otherwise change its capitalization as it exists on the date
hereof, (ii) grant, confer or award any option, warrant, conversion right or
other right not existing on the date hereof to acquire any shares of its
capital stock from Pac Rim, (iii) increase any compensation or enter into or
amend any employment severance, termination or similar agreement with any of
its present or future officers or directors, except for normal increases in
compensation to employees not earning more than $85,000 in annual base
compensation consistent with past practice and the payment of cash bonuses to
employees pursuant to and consistent with existing plans or programs; provided,
however, any such increases in annual base compensation shall not exceed five
percent (5%) of such employees' current annual base compensation without the
prior consent of Parent, which consent shall not be unreasonably withheld, or
(iv) adopt any new employee benefit plan (including any stock option, stock
benefit or stock purchase plan) or amend any existing employee benefit plan in
any respect, except for changes which may be required by applicable law;
(h) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital stock
for purposes other than satisfying its obligation to pay interest when due
under the Debenture/Warrant Agreement; provided, however, on the Closing Date,
Pac Rim shall pay all interest accrued but unpaid as of such date under the
Debenture/Warrant Agreement; (ii) except in connection with the use of shares
of capital stock to pay the exercise price or tax withholding in connection
with stock-based Pac Rim Benefit Plans, directly or indirectly redeem, purchase
or otherwise acquire any shares of its capital stock or capital stock of any of
its Subsidiaries, or make any commitment for any such action or (iii) split,
combine or reclassify any of its capital stock;
(i) shall not acquire, sell, lease or otherwise dispose of any of its
assets (including capital stock of Subsidiaries) which are material,
individually or in the aggregate, except in the ordinary course of business,
consistent with past practice;
(j) shall not (i) incur or assume any long-term or short-term debt or
issue any debt securities except for borrowings under existing lines of credit
in the ordinary course of business; (ii) except for obligations of wholly-owned
Subsidiaries of Pac Rim; assume, guaranty, endorse or otherwise become liable
or responsible (whether directly, indirectly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business
consistent with past practices in an amount not material to Pac Rim and its
Subsidiaries, taken as a whole; (iii) other than wholly-owned Subsidiaries of
Pac Rim, make any loans, advances or capital contributions to or investments
in, any other person; (iv) pledge or otherwise encumber shares of capital stock
of
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Pac Rim or its Subsidiaries; (v) except for purchase money liens, mortgage or
pledge any of its assets, tangible or intangible, or create or suffer to create
any mortgage, lien, pledge, charge, security interest or encumbrance of any
kind of respect to such asset; or (vi) forgive any loans to officers,
directors, employees or their affiliates and associates;
(k) Except as provided in Section 7.1 hereof, enter into any
commitment, contract or transaction outside the ordinary course of business
consistent with past practices which would be material to Pac Rim and its
Subsidiaries taken as a whole;
(l) except as may be required as a result of a change in law or in
GAAP shall not change any of the accounting principles or practices used by Pac
Rim;
(m) shall not (i) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract
or agreement other than in the ordinary course of business consistent with past
practice which would be material to Pac Rim and its Subsidiaries taken as a
whole; (iii) without the prior consent of Parent, which consent shall not be
unreasonably withheld, authorize any new capital expenditure or expenditures
which, individually, is in excess of $25,000 or, in the aggregate, are in
excess of $750,000; provided, that none of the foregoing shall limit any
capital expenditure within the aggregate amount previously authorized by Pac
Rim's Board of Directors for capital expenditures; or (iv) enter into or amend
any contract, agreement, commitment or arrangement providing for the taking of
any action which would be prohibited hereunder;
(n) shall not make any tax election or settle or compromise any
income tax liability material to Pac Rim and its Subsidiaries taken as a whole;
(o) shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of business of
liabilities reflected or reserved against in, and contemplated by, the
consolidated financial statements (or the notes thereto) of Pac Rim and its
Subsidiaries or incurred in the ordinary course of business consistent with
past practice;
(p) shall not settle or compromise any pending or threatened suit,
action or claim relating to the transaction contemplated hereby; or
(q) shall not take, or agree in writing or otherwise to take, any of
the actions described in Sections 7.2(a) through 7.2(p) or any action that
would make any of the representations
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and warranties of Pac Rim contained in this Agreement untrue and incorrect as
of the date when made.
7.3 Meeting of Stockholders. Pac Rim and Parent (to the extent and
if required on the part of Parent) shall each take all action necessary in
accordance with applicable law and their Certificate of Incorporation or
Articles of Incorporation, as the case may be, and Bylaws to convene a meeting
of their stockholders as promptly as practicable to consider and vote upon the
approval, in the case of Pac Rim, of this Agreement and the transactions
contemplated hereby, and, in the case of Parent, the Stock Purchase Agreement
in connection with the transaction contemplated hereby. The Boards of
Directors of Pac Rim and Parent shall each recommend such approval and take all
lawful action to solicit such approval, including, without limitation, timely
mailing of the Proxy Statements (as defined in Section 7.7); provided, however,
that Pac Rim's Board of Directors' recommendation or solicitation is subject to
any action taken by, or upon authority of, the Board of Directors of Pac Rim in
the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law and consistent with Section 7.1 hereof. Following
approval of this Agreement by Pac Rim's Board of Directors in connection with
the vote of Pac Rim Common Stock, holders of the Convertible Debentures shall
execute that certain Voting Agreement as of the date hereof, a copy of which
will then be attached hereto as Exhibit G (the "Voting Agreement"). Pursuant
to the terms thereof, the parties to the Voting Agreement shall agree to vote
in favor of this Agreement and the Merger at a meeting of Pac Rim's
stockholders.
7.4 Filings; Other Action. Subject to the terms and conditions
herein provided, Pac Rim and Parent shall: (a) promptly, to the extent
necessary, make their respective filings and thereafter make any other required
submissions under the HSR Act with respect to the Merger; (b) use all
reasonable efforts to cooperate with one another in (i) determining which
Regulatory Filings are required to be made prior to the Effective Time with,
and which consents, approvals, permits or authorizations are required to be
obtained prior to the Effective Time from, third parties or governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
making all such filings and timely seeking all such consents, approvals,
permits or authorizations; and (c) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. Each of Parent and Pac Rim will
use its best efforts to resolve such objections, if any, as may be asserted
with respect to the Merger under the HSR Act or other antitrust laws. In the
event a suit is instituted challenging the Merger as violative of the HSR Act
or other antitrust laws, each of Parent and Pac Rim will use its best efforts
to resist or resolve such suit. Each of Parent and Pac Rim and will use its
best efforts to take such action
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as may be required (a) by the Antitrust Division of the Department of Justice
or the Federal Trade Commission in order to resolve such objections as either
of them may have to the Merger under the HSR Act or other antitrust Laws or (b)
by any federal or state court of the United States, in any suit challenging the
Merger as violative of the HSR Act or other antitrust laws, in order to avoid
the entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order which has the effect of preventing the
consummation of the Merger. In complying with the foregoing, each of Parent
and Pac Rim shall use all reasonable and appropriate measures available to
them, including, if appropriate, "hold-separate" agreements or divestitures of
Subsidiaries, assets or operations if necessary to consummate the transactions
contemplated hereby, so long as such actions do not, in the aggregate, have a
Pac Rim Material Adverse Effect (after giving effect to the Merger). If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purpose of this Agreement, the proper officers and directors
of Parent and Pac Rim shall take all such necessary action. Within four (4)
days following the date of this Agreement, Parent and Merger Sub shall make all
necessary filings with state insurance regulatory authorities, including the
filing with the California Department of a Form A Information Statement (the
"Form A") pursuant to California Insurance Code Section 1215 et seq. or
supplementing or amending the Form A that was filed with the California
Department in connection with the Prior Agreement. Parent and Merger Sub shall
use their respective best efforts to promptly resolve any objections and
respond to any inquiries that may arise in connection with any such filings.
Pac Rim shall cooperate with Parent in connection with the preparation and
filing of the Form A.
7.5 Inspection of Records; Access. From the date hereof to the
Effective Time, Pac Rim shall allow all designated officers, attorneys,
accountants and other representatives of Parent ("Parent's Representatives")
access, during normal business hours during the period prior to the Effective
Time, to all employees, offices and other facilities and to the records and
files, including claim files and litigation files, correspondence, audits and
properties, to the accountants and auditors of Pac Rim and their work-papers,
and to all information relating to commitments, contracts, titles and financial
position (including, without limitation, results of operations and financial
condition in fiscal year 1997), or otherwise pertaining to the business and
affairs, of Pac Rim and its Subsidiaries; provided, however, Parent's
Representatives shall use their reasonable best efforts to avoid interfering
with, hindering or otherwise disrupting the employees of Pac Rim in the
execution of their employment duties during any visit to, or inspection of, Pac
Rim's facilities or offices; provided, further, that with respect to the
work-papers of Pac Rim's accountants and auditors, Parent's Representatives
shall execute all necessary documents reasonably required and satisfy all
conditions reasonably imposed by such accountants and auditors in order to
obtain such documentation.
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7.6 Publicity. Pac Rim and Parent shall, subject to their respective
legal obligations (including requirements of stock exchanges and other similar
regulatory bodies), consult with each other, and use reasonable efforts to
agree upon the text of any press release, before issuing any such press release
or otherwise making public statements with respect to the transactions
contemplated hereby and in making any filings with any federal or state
governmental or regulatory agency or with any national securities exchange with
respect thereto; provided, however, without Pac Rim's prior written consent,
any such press release or public statement by Parent shall not contain
discussions concerning or references to the reserves or financial condition of
Pac Rim or any of its Subsidiaries.
7.7 Proxy Statement. Pac Rim and Parent (to the extent and if
required on the part of Parent) shall each promptly prepare and then file with
the SEC their respective proxy statements with respect to the meetings of their
respective stockholders as provided in Section 7.3 hereof (collectively, the
"Proxy Statements"). Pac Rim and Parent shall each cause their respective
Proxy Statements to comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
thereunder. Pac Rim and Parent each agree that their respective Proxy
Statements and each amendment or supplement thereto at the time of mailing
thereof and at the time of the meeting of the stockholders of Pac Rim or
Parent, as the case may be, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
7.8 Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
7.9 Expenses. Whether or not the Merger is consummated, except as
provided in Article 10 hereof, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
7.10 Indemnification and Insurance.
(a) For a period of three (3) years from and after the Effective
Time, Parent and the Surviving Corporation shall indemnify, defend and hold
harmless to the fullest extent permitted under applicable law, which law shall
be reflected in the Certificate of Incorporation and Bylaws (as amended or
restated, as the case may be) of Pac Rim, and any indemnification agreement
among Pac Rim, its Subsidiaries and their respective officers and directors
(whether current or former) (such Certificate of Incorporation, Bylaws and
indemnification agreements, collectively, the "Indemnification Documents") and
each person who is now, or has
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been at any time prior to the date hereof, an officer or director of Pac Rim
(or any Subsidiary or division thereof), including, without limitation, each
person controlling any of the foregoing persons (individually, an "Indemnified
Party" and collectively, the "Indemnified Parties"), against all losses to
which they are indemnified under the Indemnification Documents, whether
commenced, asserted or claimed before or after the Effective Time and
including, without limitation, liabilities arising under the Securities Act of
1933, the Exchange Act and state corporation laws in connection with the
Merger. In the event of any indemnifiable claim, action, suit, proceeding or
investigation, the Indemnified Party shall promptly notify the Surviving
Corporation thereof (the failure to give notice, however, shall not relieve the
Surviving Corporation of its duty to indemnify the Indemnified Party unless the
failure to give notice causes the Surviving Corporation to be unable to assume
the defense of such claim, action, suit, proceeding or investigation reasonably
promptly or otherwise prejudices the Surviving Corporation). Upon receipt of
notice (i) the Surviving Corporation shall have the right to assume the defense
thereof and shall not be liable to such Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof, except that if the
Surviving Corporation elects not to assume the defense thereof or counsel for
the Indemnified Party advises in writing that there are issues which raise
conflicts of interest between Parent or Surviving Corporation and the
Indemnified Party, the Indemnified Party may retain counsel satisfactory to it,
and the Surviving Corporation shall pay all reasonable fees and expenses of
such counsel for the Indemnified Party; provided, however, that in no event
shall the Surviving Corporation be required to pay fees and expenses, including
disbursements or other charges, for more than one firm of attorneys in any one
legal action or group of related legal actions unless (A) counsel for the
Indemnified Party advises that there is a conflict of interest that requires
more than one firm of attorneys, or (B) local counsel of record is needed in
any jurisdiction in which any such action is pending, (ii) the Surviving
Corporation and the Indemnified Party shall cooperate in the defense of any
matter, and (iii) the Surviving Corporation shall not be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided, further, that the Surviving
Corporation shall not have any obligation hereunder to any Indemnified Party if
and to the extent a court of competent jurisdiction ultimately determines, and
such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law or beyond the scope of this Agreement.
(b) For a period of three (3) years from and after the Effective
Time, Parent shall cause the Surviving Corporation to keep in effect provisions
in its Certificate of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification of the Indemnified Parties
to the fullest extent permitted under the DGCL, which provisions shall not be
amended except as required by applicable law or except to make changes
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permitted by law that would enlarge the Indemnified Parties' right of
indemnification.
(c) For a period of three (3) years after the Effective Time, Parent
shall cause to be maintained officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their capacities
as officers and directors, by Pac Rim and its Subsidiaries' existing officers'
and directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance; provided,
however, for a period of three (3) years after the Effective Time, the policy
limits of such coverage shall not be less than the higher of $15 million or
such policy limits then provided by Parent for its officers and directors.
(d) Parent shall pay all expenses, including attorneys' fees, that
may be incurred by any Indemnified Parties in enforcing the indemnity and other
obligations provided for in this Section 7.10.
(e) The provisions of this Section shall survive the consummation of
the Merger and expressly are intended to benefit each of the Indemnified
Parties.
7.11 Certain Benefits.
(a) From and after the Effective Time, subject to applicable law, and
except as contemplated hereby with respect to the Pac Rim Stock Option Plans,
Parent and its Subsidiaries will honor in accordance with their terms, all Pac
Rim Benefit Plans; provided, however, that nothing herein shall preclude any
change effected on a prospective basis following the Effective Time in any Pac
Rim Benefit Plan in accordance with applicable law. With respect to the
employee benefit or compensation plan or arrangement, including each "employee
benefit plan" as defined in Section 3(3) of ERISA maintained by Parent or any
of its Subsidiaries (the "Parent Benefit Plans"), Parent and the Surviving
Corporation shall grant all Pac Rim employees from and after the Effective Time
credit for all service with Pac Rim and its affiliates and predecessors prior
to the Effective Time for all purposes for which such service was recognized by
Pac Rim. To the extent Parent Benefit Plans provide medical or dental welfare
benefits after the Effective Time to Pac Rim and its Subsidiaries' employees,
Parent or the Surviving Corporation, as the case may be, shall use reasonable
and best efforts to ensure that such plan shall waive any pre-existing
conditions and actively-at-work exclusions and shall provide that any expenses
incurred on or before the Effective Time shall be taken into account under
Parent Benefit Plans for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions.
(b) Parent agrees to employ at the Effective Time all employees of
Pac Rim and its Subsidiaries who are employed on the Closing Date, with all
material terms of their employment at Pac Rim, under Parent's then-current
employment practices and policies.
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Such employment shall be at-will and Parent shall be under no obligation to
continue to employ any such individuals.
(c) For purposes of this Section 7.11, the term "employees" shall
mean all current employees of Pac Rim and its Subsidiaries (including those on
lay-off, disability or leave of absence, paid or unpaid).
(d) Notwithstanding the provisions of Section 7.11(a), at the
Effective Time, Surviving Corporation shall perform its obligations as the
surviving corporation of the Merger under:
(i) the "Pac Rim Holding Corporation and The Pacific Rim
Assurance Company Compensation Plan For Senior Management" (the "SMT
Plan") (a copy of which is attached hereto as Exhibit H);
(ii) Immediately following the Closing, Assurance Company
shall make a contribution to its "401K Plan" in the amount of
$200,000.00, which amount shall be for the benefit of all eligible
plan participants of Assurance Company's 401K Plan who are employees
of Assurance Company as of the Closing Date and such contributions
shall be made in accordance with all applicable laws and regulations
and the terms of the 401K Plan and the parties hereto shall take all
necessary action to effect the intent and purpose of this Section
7.11(d)(ii) (the "401K Supplemental Program").
(iii) that certain Employment Agreement dated as of April 15,
1994 (the "Employment Agreement") by and among Pac Rim, Assurance
Company and Xxxxxxx Xxxxx ("Xxxxx"), the Amendment to Employment
Agreement dated as of March 27, 1995 (the "First Amendment") and the
Second Amendment to Employment Agreement dated as of March 30, 1996
(the "Second Amendment") with respect thereto (copies of which are
attached hereto as Exhibit I). The Employment Agreement, the First
Amendment and the Second Amendment shall hereinafter be referred to,
collectively, as the "Employment Documents." Parent and its
Subsidiaries unconditionally guaranty the obligations of Pac Rim,
Assurance Company, Surviving Corporation and any successors to any of
them (each, an "Employer") under the Employment Documents. If any
Employer breaches any of its obligations or otherwise fails to perform
under the Employment Documents, Parent and its Subsidiaries
unconditionally promises to perform such obligations. Upon a change
in control of more than fifty-one percent (51%) of Parent's voting
securities, whether effected by reorganization, consolidation, merger,
sale or otherwise, all amounts unpaid (including amounts for services
or obligations to be performed after the change of control date) to
Xxxxx under the Employment Documents shall be accelerated and
immediately due and payable to Xxxxx on the date of such change in
control (excepting the proposed sale of Parent's common stock to
Insurance Partners, L.P. previously announced). Xxxxx shall be a
third party beneficiary with respect to the immediately preceding
sentence.
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On and following the Closing Date and for a period of one (1) year
thereafter, neither Parent nor the Surviving Corporation shall, without the
prior written consent of each of the respective parties or participants
thereto, amend or modify the terms of the SMT Plan, 1996 Incentive Plan or
Severance Program (as defined in Section 7.11(e) hereof).
(e) At the Closing, Pac Rim shall provide Parent with a list of all
persons employed by Pac Rim and its Subsidiaries on the Closing Date (each, a
"Pac Rim Employee" and, collectively, the "Pac Rim Employees"). In accordance
with Pac Rim and its Subsidiaries' Severance Program, a copy of which is
attached hereto as Schedule 7.11(e) (the "Severance Program"), Parent or
Surviving Corporation, as appropriate, shall pay funds due thereunder in order
to satisfy the severance obligations with respect to any Pac Rim Employees.
7.12 Restructuring of Merger. Upon the mutual agreement of Parent
and Pac Rim, the Merger shall be restructured in the form of a forward
triangular merger of Pac Rim into Merger Sub, with Merger Sub being the
surviving corporation, or as a merger of Pac Rim into Parent, with Parent being
the surviving corporation. In such event, this Agreement shall be deemed
appropriately modified to reflect such form of merger.
7.13 Additional Agreements; Best Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperating fully with the other party, including by
provision of information and making of all necessary filings under the HSR Act
and state insurance laws. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either Pac
Rim or Merger Sub, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
7.14 Financing. Parent and Merger Sub shall take all action
necessary prior to the Closing in order to obtain financing from Chase
Manhattan Bank N.A. and/or other financial institutions in order to raise the
funds required to consummate the transaction contemplated hereunder.
ARTICLE 8
CONDITIONS
8.1 Conditions of Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the
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Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved in the manner required by applicable law or
by applicable regulations of any stock exchange or other regulatory
body by the holders of the issued and outstanding shares of capital
stock of Pac Rim entitled to vote thereon and the issuance of Parent's
common stock under the Stock Purchase Agreement shall have been
approved in the manner required by applicable law or by applicable
regulations of any stock exchange or other regulatory body by the
holders of the issued and outstanding shares of capital stock of
Parent entitled to vote thereon.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) The required state insurance regulatory approvals,
including the California Department's approval of the consummation of
the transaction contemplated hereunder pursuant to California
Insurance Code Section 1215 et seq., shall have been obtained.
(d) Neither of the parties hereto shall be subject to any
order or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by this
Agreement. In the event any such order or injunction shall have been
issued, each party agrees to use its reasonable efforts to have any
such injunction lifted.
(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or
made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except
where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have
a Pac Rim Material Adverse Effect following the Effective Time.
8.2 Conditions to Obligations of Pac Rim to Effect the Merger. The
obligation of Pac Rim to effect the Merger shall be subject to the fulfillment
at or prior to the Closing Date of the following condition:
(a) Parent shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of Parent and Merger Sub
contained in this Agreement and in any document delivered in
connection herewith shall be true and correct as of the Closing Date,
and Pac Rim shall have received a
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certificate of the President or a Vice President of Parent, dated the
Closing Date, certifying to such effect; provided, however, that
notwithstanding anything herein to the contrary, this Section 8.2(a)
shall be deemed to have been satisfied even if such representations or
warranties are not true and correct, unless the failure of the
representations or warranties to be so true and correct, individually
or in the aggregate, would have or would be reasonably likely to have
a Parent Material Adverse Effect.
(b) Pac Rim shall have received the opinion of Salomon, dated
as of the date of delivery of Pac Rim's Proxy Statement, to the effect
that, as of such date, the consideration to be received in the Merger
by the stockholders of Pac Rim is fair to such stockholders from a
financial point of view.
(c) Pac Rim shall have received, on and as of the Closing
Date, an opinion of Xxxxxxx & XxXxxxxx, counsel to Parent and Merger
Sub, in usual and customary form reasonably acceptable to Pac Rim.
8.3 Conditions to Obligation of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Pac Rim shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of Pac Rim contained in
this Agreement and in any document delivered in connection herewith
shall be true and correct as of the Closing Date and Parent shall have
received a certificate of the President or a Vice President of Pac
Rim, dated the Closing Date, certifying to such effect; provided,
however, that notwithstanding anything herein to the contrary, this
Section 8.3(a) shall be deemed to have been satisfied even if such
representations or warranties are not true and correct, unless the
failure of the representations or warranties to be so true and
correct, individually or in the aggregate, would have or would be
reasonably likely to have a Pac Rim Material Adverse Effect.
(b) From the date of this Agreement through the Effective
Time, there shall not have occurred any changes in the financial
condition, business, operations or prospects of Pac Rim and its
Subsidiaries, taken as a whole, which changes taken together, would
have or would be reasonably likely to have a Pac Rim Material Adverse
Effect.
(c) The parties to the Purchase Agreement shall have sold and
transferred to Parent all of such parties' right, title and interest
in and to the Convertible Debentures and Warrants and the parties to
the Surrender Agreement shall have surrendered and transferred to Pac
Rim all of their right, title and
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interest in and to the Series 3 Warrants, and Parent, thereby, upon
the Effective Time, will own or control all of the Convertible
Debentures and Warrants.
(d) Parent and Merger Sub shall have received, on and as of
the Closing Date, an opinion of Xxxxxx & Wolen LLP, counsel to Pac
Rim, in usual and customary form reasonably acceptable to Parent and
Merger Sub.
ARTICLE 9
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the stockholders of Pac Rim, by the
mutual consent of Parent and Pac Rim.
9.2 Termination by Either Parent or Pac Rim. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or Pac Rim if (a) the Merger shall not have been consummated
by May 15, 1997 (the "Termination Date") or (b) the required approval of Pac
Rim and Parent's respective stockholders required by Section 7.3 shall not have
been obtained at meetings duly convened therefor or at any adjournments
thereof, or (c) a United States or state court of competent jurisdiction or
United States federal or state governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and nonappealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause (c) shall
have used all reasonable efforts to remove such injunction, order or decree;
and provided, in the case of a termination pursuant to clause (a) above, that
the terminating party shall not have breached in any material respect its
representations or obligations under this Agreement in any manner that shall
have proximately contributed to the occurrence of the failure referred to in
said clause. If the Merger shall not have been consummated on or before April
15, 1997 and as of such date Pac Rim has satisfied its conditions to effect the
Merger set forth in Article 8 hereof and is prepared to consummate the Merger,
Parent shall pay interest of $5,000.00 per day, without offset or deduction for
amounts Parent claims owed to it by Pac Rim or any of its Subsidiaries, for the
benefit of the holders of shares of Pac Rim Common Stock (the "Extension
Consideration") for each day commencing on April 16, 1997 and ending with the
earlier to occur of the Closing Date or the termination of this Agreement.
Parent shall pay the Extension Consideration to the Exchange Agent on the
Closing Date in order to effect pro rata distribution of such amount to the
holders of shares of Pac Rim Common Stock, or if the Closing does not occur and
this
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Agreement is terminated, Parent shall promptly, but in no event later than two
(2) days after such termination, pay the same by wire transfer to Pac Rim of
same day funds.
9.3 Termination by Pac Rim. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before the
adoption and approval by the stockholders of Pac Rim referred to in Section
7.3, by action of the Board of Directors of Pac Rim, if (i) in the exercise of
its good faith judgment as to its fiduciary duties to its stockholders imposed
by law the Board of Directors of Pac Rim determines that such termination is
required by reason of an Acquisition Proposal complying with Section 7.1 hereof
being made, or (ii) there have been breaches by Parent or Merger Sub of
representations or warranties contained in this Agreement which, in the
aggregate, would have or would be reasonably likely to have a Parent Material
Adverse Effect, or (iii) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of Parent,
which breach is not curable or, if curable, is not cured within twenty (20)
days after written notice of such breach is given by Pac Rim to Parent.
9.4 Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of
the Board of Directors of Parent, if (a) there have been breaches by Pac Rim of
representations or warranties contained in this Agreement which, in the
aggregate, would have or would be reasonably likely to have a Pac Rim Material
Adverse Effect, (b) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of Pac Rim, which breach is
not curable or, if curable, is not cured within twenty (20) days after written
notice of such breach is given by Parent to Pac Rim or (c) the holders of more
than 1,500,000 shares of Pac Rim Common Stock have demanded appraisal rights in
accordance with Section 4.7 hereof.
9.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to
this Article 9, all obligations of the parties hereto shall terminate, except
the obligations of the parties pursuant to this Section 9.5 and Sections 7.9,
Article 10 and Sections 11.3, 11.4, 11.6, 11.10, 11.13 and 11.17 and the
Confidentiality Agreement referred to in Section 11.4.
9.6 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if
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set forth in an instrument in writing signed by or on behalf of the party
granting such extension or waiver.
ARTICLE 10
LIQUIDATED DAMAGES AND BREAKUP FEE
10.1 Payment of Liquidated Damages by Parent. The parties hereto
agree that if this Agreement shall not be consummated in accordance with its
terms and conditions as a result of: (a) the occurrence of the events described
in Section 9.3(ii) and (iii); (b) Parent or Merger Sub's failure to comply with
the covenants described in Sections 7.3, 7.4, 7.7, 7.8, 7.13 or 7.14 or the
conditions described in Section 8.2(a) or (c); (c) the failure of Parent to
obtain approval for the issuance of Parent's common stock under the Stock
Purchase Agreement by the holders of the issued and outstanding shares of
capital stock of Parent entitled to vote thereon in the manner required by
applicable law or by applicable regulations of any stock exchange or other
regulatory body; or (d) Parent refusing to consummate the transaction
contemplated hereunder after satisfying each of the covenants, conditions and
events referred to in subsections (a), (b) and (c) of this Section 10.1, then
the resulting damages would be impracticable or extremely difficult to
determine. Because of the difficulty in determining the damages resulting from
the acts described in subsections (a), (b), (c) and (d) of this Section 10.1,
the parties hereto agree that in such event, Parent must pay the sum of
$5,000,000.00 to Pac Rim immediately upon demand therefor as liquidated
damages.
10.2 Payment of Liquidated Damages by Pac Rim. The parties hereto
agree that if this Agreement shall not be consummated in accordance with its
terms and conditions as a result of: (a) the occurrence of the events described
in Section 9.4(a) or (b); (b) Pac Rim's failure to comply with the covenants
described in Sections 7.2, 7.3, 7.4, 7.5, 7.7, 7.8 or 7.13, or the conditions
described in Section 8.3(a) or (d); or (c) Pac Rim refusing to consummate the
transaction contemplated hereunder after satisfying each of the covenants,
conditions or events referred to in subsections (a) and (b) of this Section
10.2, then the resulting damages would be impracticable or extremely difficult
to determine. Because of the difficulty in determining the damages resulting
from the acts described in subsections (a), (b) and (c) of this Section 10.2,
the parties hereto agree that in the event of such breach, Pac Rim must pay the
sum of $2,500,000.00 to Parent immediately upon demand therefor as liquidated
damages.
10.3 Payment of Breakup Fee By Pac Rim. In the event that (a) Pac
Rim's Board of Directors terminates this Agreement pursuant to Section 9.3(i)
hereof by reason of an Acquisition Proposal or (b) following public
announcement of an Acquisition Proposal, Pac Rim's Board of Directors
terminates this Agreement pursuant to Section 9.2(b) due to the failure to
obtain the required vote in favor of this Agreement from the holders of Pac Rim
Common Stock and
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Convertible Debentures at a meeting duly called therefor, and, in either event,
the definitive transaction document with respect to such Acquisition Proposal
is executed by Pac Rim within six (6) months following any such termination,
Pac Rim shall pay Parent a breakup fee of $5 million (the "Breakup Fee"). The
Breakup Fee is not separately payable in the event that liquidated damages are
due and paid under Section 10.2 hereof.
ARTICLE 11
GENERAL PROVISIONS
11.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger, provided, however, that the agreements contained in Article 4 and
in Sections 7.10, 7.11 and 7.13 and this Article 11 and the agreements
delivered pursuant to this Agreement shall survive the Merger.
11.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(a) if to Parent or Merger Sub, to
Superior National Insurance
Group, Inc.
00000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Telecopy No.: 000-000-0000
with a copy to
Xxxx X. Xxxxxx, Esq.
Xxxxxxx & XxXxxxxx
0000 Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Telecopy No.: 000-000-0000
if to Pac Rim, to
Pac Rim Holding Corporation
0000 Xxxxxx Xxxxxx
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Telecopy No.: 000-000-0000
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with a copy to
Xxxxxx X. Xxxxxxx, Esq.
Xxxxxx & Wolen LLP
00000 XxxXxxxxx Xxxxxxxxx
0xx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telecopy No. 000-000-0000
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
in Article 4 and Sections 7.10, 7.11, and 7.13 (collectively, the "Third Party
Provisions"), nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, and no Third
Party Provision shall be enforceable until after the Effective Time.
11.4 Entire Agreement. This Agreement, the Exhibits, the Pac Rim
Disclosure Letter, the Parent Disclosure Letter, the Confidentiality Agreement
between Pac Rim and Parent and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto. No
addition to or modification of any provision of this Agreements shall be
binding upon any party hereto unless made in writing and signed by all parties
hereto. During the term of this Agreement, neither party hereto shall
terminate the foregoing Confidentiality Agreement.
11.5 Amendment. This Agreement may be amended by the parties hereto,
by action taken by their respective Board of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of Pac Rim, but after any such stockholder approval, no amendment
shall be made which by law requires the further approval of stockholders
without obtaining such further approval. This Agreement may not be amended
except by an instrument in writing signed by or on behalf of each of the
parties hereto.
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11.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to its rules of conflict of laws.
11.7 Venue. Any action concerning or dispute arising out of or
concerning this Agreement, regarding the interpretation of this Agreement, or
regarding the relationships among the parties created pursuant to this
Agreement shall be filed only in the United States District Court for the
Central District of California or in the Superior Court of the State of
California for the County of Los Angeles.
11.8 Counterparts. This Agreements may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies of
this Agreement, each of which may be signed by less than all of the parties
hereto, but together all such copies are signed by all of the parties hereto.
11.9 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
11.10 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
11.11 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitations, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
11.12 Incorporation of Exhibits. The Pac Rim Disclosure Letter, the
Parent Disclosure Letter and all Exhibits and Schedules attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for
all purposes as if fully set forth herein.
11.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
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provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
11.14 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any California
Court, this being in addition to any other remedy to which they may be entitled
at law or in equity.
11.15 Subsidiaries. As used in this Agreement, the word "Subsidiary"
when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization, or any organization of which
such party is a general partner. When a reference is made in this Agreement to
Significant Subsidiaries, the words "Significant Subsidiaries" shall refer to
Subsidiaries (as defined above) which constitute "significant subsidiaries"
under Rule 405 promulgated by the SEC under the Securities Act.
11.16 Material Adverse Effect. (a) As used in this Agreement, the
term "Pac Rim Material Adverse Effect" means an adverse effect on the business,
results of operations, prospects or financial condition of Pac Rim and its
Subsidiaries, taken as a whole, which results or is reasonably expected to
result in a decrease in the GAAP book value of Pac Rim at the Effective Date or
Effective Time versus the GAAP book value of Pac Rim at December 31, 1996, of
more than $2,500,000.00; provided, however, the following items shall not be
included in determining if a Pac Rim Material Adverse Effect exists: (1)
adverse development in Assurance Company's reserves for loss and loss
adjustment expenses incurred on or before December 31, 1996, after taking into
account the $12 million in reserve strengthening referred to in Section 5.7(b)
hereof; provided, further, however, that to the extent the ultimate loss and
loss adjustment expenses used by Pac Rim to book its reserves for loss and loss
adjustment expenses at December 31, 1996 exceed the ultimate loss and loss
adjustment expenses for accident years prior to 1997 used by Pac Rim to book
its reserves for loss and loss adjustment expenses in its then most recently
available financial statements prior to the Effective Date or the Effective
Time, such benefit, if any, shall be disregarded in calculating a Pac Rim
Material Adverse Effect; (2) changes resulting from market fluctuation of the
Assurance Company's investment portfolio; (3) any amounts that may be payable
under the SMT Plan, the Employment Documents, the Severance Program or the 401k
Supplemental Program that are not reflected in Pac Rim's financial statements
or the
-41-
46
Preliminary Documents; and (4) any reduction in deferred taxes as of December
31, 1996, as reflected in the balance sheet of the Preliminary Documents. As
used in this Agreement, the term "Parent Material Adverse Effect" means an
adverse effect on the business, results of operations, prospects or financial
condition of Parent and its Subsidiaries, taken as a whole, having an economic
value of $1,000,000 or more; provided, however, any change in the book value of
Parent or any of its Subsidiaries based on an adjustment of the market value of
securities valued at book value on such companies' books and records shall not
be included in determining if a Parent Material Adverse Effect exists.
(b) The existence of facts or circumstances which would constitute a
breach of the representations and warranties set forth in Article 5 hereof
shall not be considered to be a breach of any representation and warranty if
all such facts and circumstances do not have, individually or in the aggregate,
a Pac Rim Material Adverse Effect. The existence of facts or circumstances
which would constitute a breach of the representations and warranties set forth
in Article 6 hereof shall not be considered to be a breach of any
representation and warranty if all such facts and circumstances do not have,
individually or in the aggregate, a Parent Material Adverse Effect.
11.17 Attorney's Fees. In any legal action to enforce this Agreement
or any provision hereof, the prevailing party in such action shall, in addition
to any other remedy to which it may be entitled hereunder, receive from the
party from which enforcement was sought reasonable attorney's fees and its
court costs in connection with such action.
11.18 Performance by Merger Sub. Parent hereby agrees to cause
Merger Sub to comply with its obligations hereunder and to cause Merger Sub to
consummate the Merger as contemplated herein.
11.19 Prior Agreement. Parent, Merger Sub and Pac Rim hereby rescind
and terminate the Prior Agreement, and such agreement shall have no further
force or effect as of the Effective Date.
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47
IN WITNESS WHEREOF, the parties have caused this Agreement and caused
the same to be duly delivered on their behalf as of the day and year first
written above.
PARENT: SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. XXXXX XXXXXX
--------------------------------
Name: J. Xxxxx Xxxxxx
Title: Executive Vice President and
Chief Financial Officer
MERGER SUB: SNTL ACQUISITION CORP.
By: /s/ J. XXXXX XXXXXX
--------------------------------
Name: J. Xxxxx Xxxxxx
Title: Executive Vice President and
Chief Financial Officer
PAC RIM: PAC RIM HOLDING CORPORATION
By: /s/ XXXXXXX XXXXX
--------------------------------
Name: Xxxxxxx Xxxxx
Title: President and Chief
Executive Officer
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48
EXHIBIT A
CERTIFICATE OF INCORPORATION OF SNTL ACQUISITION CORP.
Previously filed on September 26, 1996 with the Securities and Exchange
Commission as Exhibit A to Exhibit 2 of SNIG's Statement on Schedule 13D, and
incorporated herein by reference.
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49
EXHIBIT B
BYLAWS OF SNTL ACQUISITION CORP.
Previously filed on September 26, 1996 with the Securities and Exchange
Commission as Exhibit B to Exhibit 2 of SNIG's Statement on Schedule 13D, and
incorporated herein by reference.
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50
EXHIBIT C
SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2
AND 3 DETACHABLE WARRANT PURCHASE AGREEMENT
and
FIRST AMENDMENT TO SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2
AND 3 DETACHABLE WARRANT PURCHASE AGREEMENT
Filed concurrently herewith as Exhibit 3 to this Statement on Schedule 13D.
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51
EXHIBIT D
OPTIONS
Previously filed on September 26, 1996 with the Securities and Exchange
Commission as Exhibit D to Exhibit 2 of SNIG's Statement on Schedule 13D, and
incorporated herein by reference.
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52
EXHIBIT E
SERIES 3 WARRANT SURRENDER AGREEMENT
Previously filed on September 26, 1996 with the Securities and Exchange
Commission as Exhibit E to Exhibit 2 of SNIG's Statement on Schedule 13D, and
incorporated herein by reference.
FIRST AMENDMENT TO SERIES 3 WARRANT SURRENDER AGREEMENT
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53
EXHIBIT E
FIRST AMENDMENT TO SERIES 3 DETACHABLE WARRANT
SURRENDER AGREEMENT
This FIRST AMENDMENT TO SERIES 3 DETACHABLE WARRANT SURRENDER
AGREEMENT (this "Amendment") is entered into as of February 17, 1997 (the
"Effective Date") by and among PAC RIM HOLDING CORPORATION, a Delaware
corporation ("Pac Rim"), and XXXXXX X. XXXXXXX, an individual ("Xxxxxxx"), THE
LENAWEE TRUST DATED DECEMBER 30, 1992, Xxxxxxx X. Xxxxx and Xxxxx Xxxxxxxx,
Trustees (the "Lenawee Trust"), XXXXXX X. XXXXXXXX, an individual
("Xxxxxxxx"), and XXXX X. XXXXXX, an individual ("Xxxxxx") (Xxxxxxx, the
Lenawee Trust, Xxxxxxxx and Xxxxxx, each a "Warrant Holder" and collectively,
the "Warrant Holders")
WHEREAS, the parties hereto have heretofore entered into a Series 3
Detachable Warrant Surrender Agreement dated as of September 17, 1996 (the
"Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement to provide
for changes in certain definitions, covenants, representations and warranties,
and certain other changes.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby. All references to the "Effective Date" in the
Agreement and this Amendment shall mean February 17, 1997. All reference in
the Agreement to "The Xxxxx Family Trust" shall be amended to and replaced with
the "Lenawee Trust Dated December 30, 1992, Xxxxxxx X. Xxxxx and Xxxxx
Xxxxxxxx, Trustees" and all references to the "Xxxxx Trust" shall be amended to
and replaced with the "Lenawee Trust."
Section 2. Amendment to Recital B of the Agreement. Recital B of the
Agreement is amended to read in its entirety as follows:
"B. Superior National Insurance Group, Inc., a California
corporation ("Superior") and Pac Rim have entered into an Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement") dated
as of February 17, 1997, pursuant to the terms of which Superior will
acquire substantially all the issued and outstanding shares of Pac
Rim's common stock. Capitalized terms used but not defined herein
have the respective meanings set forth in the Merger Agreement."
54
Section 3. Amendment to Recital D of the Agreement. Recital D of the
Agreement is amended to read in its entirety as follows:
"X. Xxxxxxx, Xxxxxx and Xxxxxxx X. Xxxxx, a beneficiary of
the Lenawee Trust, are currently members of Pac Rim's Board of
Directors and Xxxxxxxx was formerly a member of such board."
Section 4. Representations and Warranties. The parties hereto hereby
represent and warrant to one another that their execution, delivery and
performance of this Amendment have been duly authorized by all necessary
corporate and other action. None of the parties hereto are required to obtain
any consent, approval or authorization of, or to make any registration,
declaration or filing with, any governmental authority in order for this
Amendment to be effective and enforceable. The Agreement as amended by this
Amendment constitutes the legal, valid and binding obligation of such party,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights and
subject to the application of equitable principles and availability of
equitable remedies. The execution, delivery and performance of this Amendment
and the Agreement as amended by this Amendment do not and will not, with or
without the giving of notice or the passage of time or both, violate or
conflict with, or result in a breach or termination of any provisions of, or
constitute a default under, the charter or by-laws of any party hereto, or any
agreement, commitment, or any order, judgment, decree, statute, regulation or
other restriction of any kind or description to which such party is a party or
by which it or any of its assets may be bound.
Section 5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Delaware.
Section 6. Counterparts. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
PAC RIM: PAC RIM HOLDING CORPORATION
By: /s/ XXXXXXX XXXXX
------------------------
Name: Xxxxxxx Xxxxx
Title: President and Chief
Executive Officer
WARRANT HOLDERS:
/s/ XXXXXX X. XXXXXXX /s/ XXXXXX X. XXXXXXXX
--------------------------- ---------------------------
XXXXXX X. XXXXXXX XXXXXX X. XXXXXXXX
/s/ XXXX X. XXXXXX
---------------------------
XXXX X. XXXXXX XXXXXXX X. XXXXX and XXXXX
XXXXXXXX, as Trustees of the
LENAWEE TRUST DATED
DECEMBER 30, 1992:
/s/ XXXXXXX X. XXXXX
---------------------------
XXXXXXX X. XXXXX
/s/ XXXXX XXXXXXXX
---------------------------
XXXXX XXXXXXXX
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EXHIBIT F
-------------------------------------------------------------------------------
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
INSURANCE PARTNERS, L.P.,
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
AND
THE PERSONS OR ENTITIES ON THE SIGNATURE PAGES TO
THE SUBSCRIPTION AGREEMENTS ATTACHED HERETO
-----------------------------------------------------------------
Dated as of September 17, 1996, as amended and
restated effective as of February 17, 1997
-----------------------------------------------------------------
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57
TABLE OF CONTENTS
Page
----
ARTICLE I THE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Funds Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Securities Act Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Participation by Xxxxxx X. Spass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Newly Issued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 No Material Adverse Change; Ordinary Course of Business . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 Private Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.12 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Proxy Statement and Meeting of Company's Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Board Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 IP Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.7 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.8 Indemnification by the Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.9 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
i.
58
TABLE OF CONTENTS (Continued)
Page
----
4.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 IP Consent to Amending and Restating of Original Merger Agreement . . . . . . . . . . . . . . . . . . . 17
ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 Conditions to Each Party's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Conditions to the Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Conditions to the Obligations of Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 Headings; Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.7 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 Conveyance Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.10 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.13 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.14 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ii.
59
EXHIBITS
Exhibit A Form of Subscription Agreement
Exhibit B Purchasers of the Shares of Common Stock
Exhibit C Registration Rights Agreement
iii.
60
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") dated as of
September 17, 1996, as amended and restated effective as of February 17, 1997,
is entered into by and among Superior National Insurance Group, Inc., a
California corporation (the "Company"), Insurance Partners, L.P., a Delaware
limited partnership ("IP Delaware"), Insurance Partners Offshore (Bermuda),
L.P., a Bermuda limited partnership ("IP Bermuda" and together with IP
Delaware,"IP"), and such other persons or entities that execute the form of
Stock Subscription Agreement (the "Subscription Agreement") attached hereto as
Exhibit A (the "Subscribing Shareholders" and together with IP, the
"Purchasers"). This Agreement amends, restates and supersedes in its entirety
the Stock Purchase Agreement dated as of September 17, 1996, by and among the
same parties hereto, as amended by Amendment No. 1 to Stock Purchase Agreement
dated as of September 20, 1996, by and between the Company and IP (the "Original
Stock Purchase Agreement").
R E C I T A L S:
WHEREAS, the Merger Agreement dated as of September 17, 1996
(the "Original Merger Agreement") among the Company, Pac Rim Holding
Corporation ("Pac Rim") and SNTL Acquisition Corp. ("SNTL") has been amended
pursuant to the Amended and Restated Merger Agreement dated as of February 17,
1997 (the "Amended Merger Agreement") among the Company, Pac Rim and SNTL;
WHEREAS, the parties to the Original Stock Purchase Agreement
have entered into this Agreement in order to reaffirm their commitments under
the Original Stock Purchase Agreement, to evidence their consent to the changes
set forth in the Amended Merger Agreement, and to reflect changes to the
Original Stock Purchase Agreement necessitated by the amending of the Original
Merger Agreement;
WHEREAS, the Purchasers wish to purchase from the Company, and
the Company wishes to issue and sell to the Purchasers, the number of shares of
common stock, no par value, of the Company (the "Common Stock") as is set forth
in Section 1.1 below, on the terms and subject to the conditions set forth
herein;
WHEREAS, it is a standard and customary practice of IP, in
connection with transactions substantially similar to those contemplated
herein, to require certain members of management of the issuer to make a
contemporaneous, personal, financial commitment to the issuer;
WHEREAS, in order to comply with such practice of IP, certain
members of management of the Company have agreed to make a contemporaneous,
personal, financial commitment to the Company by purchasing shares of Common
Stock and by consummating the transactions contemplated herein on the terms and
conditions set forth below;
61
WHEREAS, the Company, the Purchasers, Pac Rim, SNTL, The Chase
Manhattan Bank, N.A. and Chase Securities Inc. (collectively, "Chase") have
entered or shall enter into among themselves certain agreements relevant
thereto as set forth below; and
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") has approved this Agreement and the transactions contemplated
hereby, upon the terms and subject to the conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
contained herein, the sufficiency of which is hereby acknowledged, and in order
to set forth the terms and conditions of the transactions described herein and
the mode of carrying the same into effect, the parties hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale. Subject to the terms and
conditions of this Agreement, each of the Purchasers agrees to purchase from
the Company and the Company agrees to issue and sell to each of the Purchasers
(the "Purchase") at the Closing (as defined below) the aggregate number of
shares of Common Stock (the "Shares") set forth opposite such Purchaser's name
on Exhibit B hereto, for the aggregate purchase price set forth opposite such
Purchaser's name on Exhibit B hereto. Each Subscription Agreement executed by
a Purchaser shall be attached hereto and become part of this Agreement.
1.2 Purchase Price. The purchase price to be paid for
each Share of Common Stock shall be Seven Dollars and Fifty-Three Cents ($7.53)
(the "Share Price"), constituting an aggregate purchase price for the Shares of
Eighteen Million Dollars ($18,000,000) (the "Purchase Price").
1.3 Closing Matters. At the Closing each of the
Purchasers shall wire transfer or otherwise make available in same day funds to
the Company its portion of the Purchase Price and the Company shall cause the
Company's transfer agent to deliver promptly to such Purchaser certificates
representing the Shares purchased by such Purchaser.
1.4 The Closing. Subject to the fulfillment of the
conditions precedent specified in Article V (any or all of which may be waived
in writing by the respective parties whose performance is conditioned upon
satisfaction of such conditions precedent), the
2.
62
purchase and sale of the Shares shall be consummated at a closing (the
"Closing") to be held at the offices of Xxxxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000 at 9:00 a.m., local time, or
as soon as practicable, following the satisfaction or waiver of all conditions
precedent specified in Article V, or, subject to Section 6.1, at such other
place and time as the Company and IP shall mutually agree in writing after the
satisfaction or waiver of all conditions precedent specified in Article V (such
date and time being herein referred to as the "Closing Date").
1.5 Fee. At the Closing, the Company shall pay to
Insurance Partners Advisors, L.P. ("IPA") a transaction fee of Six Hundred and
Twenty-Five Thousand Dollars ($625,000), by wire transfer of immediately
available funds to an account or accounts designated by IPA. If Pac Rim shall
pay to the Company the Breakup Fee (as defined in Section 10.3 of the Amended
Merger Agreement) in accordance with Section 10.3 of the Amended Merger
Agreement, then the Company shall pay to IPA, promptly following the Company's
receipt of the Breakup Fee, that portion of the Breakup Fee equal to the
percentage of voting securities of the Company owned by IP (the "IPA Fee
Ratio") on a fully diluted basis (excluding the Voting Notes, as hereinafter
defined) as if the purchase by IP of the Shares shall have occurred
(notwithstanding that no such purchase shall have taken place). In addition,
if the Company shall receive the payments (the "Disgorgement Payments") owed to
it under Section 1.2 of the Voting Agreement dated as of February 17, 1997 by
and among the Company and the holders listed on the signature pages thereto,
then the Company shall pay to IPA, promptly after receipt of all Disgorgement
Payments, the amount that results from multiplying the aggregate Disgorgement
Payments received by the Company by the IPA Fee Ratio (notwithstanding that no
purchase by IP of the Shares shall have taken place hereunder).
Notwithstanding the provisions of Section 6.4 hereof, this Section 1.5 shall
survive the termination of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each of the Purchasers, severally but not jointly, represents
and warrants to the Company, solely as to such Purchaser, as to all matters
relevant thereto, as follows:
2.1 Organization. Each of the Purchasers is either (a) a
limited partnership duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of formation or (b) a natural person
(or nominee of a natural person) who is a resident of the State of California.
2.2 Authority. With respect to the Purchasers that are
limited partnerships (the "Partnerships"), (i) each such Partnership has full
partnership power and authority to
3.
63
execute and deliver this Agreement and each other agreement contemplated hereby
to which it is a party, to carry out its obligations hereunder and thereunder
and to consummate the transactions contemplated on its part hereby and thereby,
(ii) the execution, delivery and performance by such Partnership of this
Agreement and each other agreement contemplated hereby to which it is a party
have been duly authorized by all necessary partnership action on the part of
such Partnership and (iii) no other action on the part of such Partnership or
its respective partners is necessary to authorize the execution and delivery of
this Agreement and each other agreement contemplated hereby by such Partnership
or the performance by such Partnership of its obligations hereunder and
thereunder. With respect to all Purchasers, this Agreement has been duly
executed and delivered by such Purchaser and constitutes a legal, valid and
binding agreement of such Purchaser, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and
subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Each other
agreement to be executed by such Purchaser to which it is a party in connection
with this Agreement on or prior to the Closing Date will be duly executed and
delivered by such Purchaser, and (assuming due execution and delivery by the
other party or parties thereto) will constitute a legal, valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization
or similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
2.3 No Violation. The execution and delivery of this
Agreement and each other agreement contemplated hereby, the performance by each
Purchaser of his, her or its obligations hereunder and thereunder and the
consummation by such Purchaser of the transactions contemplated hereby and
thereby will not (a) violate any provision of law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to such
Purchaser, (b) require the consent, waiver, approval, license or authorization
of or any filing by such Purchaser with any person or governmental authority
except for, (i) filings to be made in connection with or in compliance with the
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Regulation D as promulgated under the Securities Act of 1933, as amended
(the Securities Act"), and applicable state securities laws, (ii) with respect
to IP, the filing of a pre-merger notification report under the Xxxx-
Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (an "HSR Report"),
and (iii) with respect to TJS Partners, L.P. ("TJS"), if required, and IP, the
filing of a Form A Information Statement ("Form A") with the California
Department of Insurance under Section 1215.2 of the California Insurance Code
and Title 10, California Code of Regulations Section 2683 et seq., or (c)
violate, result (with or without notice or the passage of time, or both) in a
breach of or give rise to the right to accelerate, terminate or cancel any
obligation under or constitute (with or without notice or the passage of time,
or both) a default under, any of the terms or provisions of any charter or
bylaw, partnership agreement, indenture, mortgage, agreement, contract, order,
judgment, ordinance, regulation or decree to which
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such Purchaser is subject or by which such Purchaser is bound, except for any
of the foregoing matters which would not have, individually or in the
aggregate, a material and adverse effect upon the operations, financial
condition, prospects or results of operations of such party (a "Material
Adverse Effect").
2.4 Brokers. Such Purchaser has not paid or become
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with this Agreement.
2.5 Funds Available. Such Purchaser has funds available,
or commitments from third parties to provide funds, sufficient to pay such
Purchaser's respective portion of the Purchase Price.
2.6 Securities Act Representation. Such Purchaser is an
"accredited investor" as defined in Rule 501 promulgated as part of Regulation
D under the Securities Act and an "excluded purchaser" under Title 10,
California Code of Regulations Section 260.102.13. Such Purchaser is not
purchasing such Purchaser's respective portion of the Shares with a view to a
distribution or resale of any of such securities in violation of any applicable
securities laws.
2.7 Participation by Xxxxxx X. Spass. Xxxxxx X. Spass
abstained from the formal partnership approval process by IP of its investment
in the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Purchasers as
follows:
3.1 Corporate Organization. Each of the Company and its
Subsidiaries is a corporation or limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, with all requisite corporate power and authority to
lease the properties it operates as lessee and to carry on its business as it
is now being conducted as described in the SEC Filings (as defined herein), and
is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which it currently carries on business, except where the
failure to be so qualified or licensed or be in good standing would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on the Company. With respect to the Company, a "Material
Adverse Effect" shall refer to the Company and its Subsidiaries on a
consolidated basis. True and complete copies of the Amended and Restated
Articles of Incorporation and the Bylaws of the Company, each as amended to
date, have been delivered to IP. A
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"Subsidiary" means, with respect to the Company, a corporation or other entity
of which 50% or more of the voting power of the outstanding voting securities
or 50% or more of the outstanding equity interests is held, directly or
indirectly, by the Company.
3.2 Capital Stock. The authorized capital stock of the
Company consists in its entirety of 25,000,000 shares of Common Stock, of
which, as of the date hereof, 3,446,706 are issued and outstanding. All of the
outstanding shares of Common Stock have been duly and validly authorized and
issued, are fully paid and nonassessable and were issued in compliance with all
applicable federal and state securities laws. Except for warrants described in
the SEC Filings and except for options and other stock rights authorized for
issuance pursuant to the Company's stock plans and employee stock purchase
plans described in the SEC Filings, there are no options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of capital stock or other securities
of the Company or any of the Subsidiaries.
3.3 Newly Issued Shares. The Shares to be sold and
issued by the Company to the Purchasers in accordance with the terms of this
Agreement have been duly authorized and, when issued as contemplated hereby at
the Closing, will be validly issued, fully paid and non-assessable and no other
person has any preemptive right, option, warrant, subscription agreement or
other right with respect to such Shares, other than the preemptive rights held
by the holders of the Common Stock Purchase Warrants issued under each of the
Note Purchase Agreement dated as of March 31, 1992 (the "Note Purchase
Agreement") and the Preferred Securities Purchase Agreement dated as of June
30, 1994 (the "Preferred Securities Purchase Agreement"). At the Closing, the
Purchasers will acquire good and marketable title to the Shares free and clear
of any and all liens, encumbrances, security interests, preemptive rights,
adverse claims or equities or rights in favor of another ("Encumbrances"),
except such Encumbrances as may be created pursuant to this Agreement.
3.4 Authority. The Company has full corporate power and
authority to execute and deliver this Agreement and each other agreement
contemplated hereby, to carry out its obligations hereunder and thereunder and
to consummate the transactions contemplated on its part hereby and thereby.
The execution, delivery and performance by the Company of this Agreement and
each other agreement contemplated hereby and the consummation of the
transactions contemplated on its part hereby have been duly authorized by the
Board of Directors, and no other corporate proceedings on the part of the
Company, except for the approval by the shareholders of the Company of those
matters for which such approval is required as specified in Article V hereof,
are necessary to authorize the execution and delivery of this Agreement and
each other agreement contemplated hereby by the Company or the performance by
the Company of its obligations hereunder or thereunder. This Agreement has
been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization or
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similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law). Each other agreement to be executed by
the Company in connection with this Agreement on or prior to the Closing Date
will be duly executed and delivered by the Company, and (assuming due execution
and delivery by the other party or parties thereto) will constitute a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization, or similar laws affecting creditors'
rights generally and subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.5 No Violation. The execution, delivery and
performance of this Agreement and each other agreement contemplated hereby by
the Company and the consummation by it of the transactions contemplated hereby
and thereby do not (a) violate any provision of law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award (collectively,
"Requirements of Law") applicable to the Company or any of the Subsidiaries,
(b) require the consent, waiver, approval, license or authorization of or any
notice or filing by the Company or any of the Subsidiaries with any person or
governmental authority except for, (i) filings to be made in connection with or
in compliance with the provisions of the Exchange Act, Regulation D as
promulgated under the Securities Act and applicable state securities laws and
(ii) the filing of (A) HSR Reports by Pac Rim and the Company in connection
with the transactions contemplated by the Amended Merger Agreement (the
"Merger"), (B) HSR Reports by IP and the Company in connection with this
Agreement, (C) a Form A by the Company in connection with the Merger and (D) a
Form A by each of TJS (if required) and IP in connection with this Agreement or
(c) violate, result (with or without notice or the passage of time, or both) in
a breach of or give rise to the right to accelerate, terminate or cancel any
obligation under or constitute (with or without notice or the passage of time,
or both) a default under, any of the terms or provisions of any charter or
bylaw, indenture, mortgage, agreement, contract, order, judgment, ordinance,
regulation or decree to which the Company or any of its Subsidiaries is subject
or by which the Company or any of its Subsidiaries is bound, except for any of
the foregoing matters which would not have, individually or in the aggregate, a
Material Adverse Effect on the Company. Neither the Company nor any of the
Subsidiaries previously entered into any agreement which is currently in
effect, or by which the Company or any of the Subsidiaries is currently bound,
granting any rights to any person which are inconsistent with the rights to be
granted by the Company in this Agreement and each other agreement contemplated
hereby, other than the registration rights granted to the holders of the Common
Stock Purchase Warrants issued pursuant to the Note Purchase Agreement and the
Preferred Securities Purchase Agreement.
3.6 SEC Filings. The Company has filed all SEC Filings
required to be filed by it since the date of its Registration Statement (as
hereinafter defined) under the Securities Act or the Exchange Act, and all
amendments thereto. The Company heretofore
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has delivered to IP true and complete copies of (a) its audited consolidated
financial statements of the Company and the Subsidiaries (balance sheet and
statements of operations, cash flows and shareholders' equity, together with
the notes thereto) for the fiscal year ended and as at December 31, 1995 (as
such financial statements appear in the Company's Form 10-K for the fiscal year
ended December 31, 1995, which was filed with the Commission on April 1, 1996,
the "Audited Financial Statements"), and the unaudited consolidated financial
statements (balance sheet and statement of operations) for the nine (9) months
ended and as at September 30, 1996 (as such financial statements appear in the
Company's Form 10-Q for the fiscal quarter ended September 30, 1996, which was
filed with the Commission on November 14, 1996, the "Unaudited Financial
Statements"; the Audited Financial Statements and Unaudited Financial
Statements being collectively referred to as the "Financial Statements"), (b)
the final form, including all amendments, of the Company's Registration
Statement on Form 10 (the "Registration Statement"), (c) its Quarterly Reports
on Form 10-Q for the quarters ended June 30, 1995 and September 30, 1995 and
March 31, 1996 and June 30, 1996 and Xxxxxxxxx 00, 0000, (x) its Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, (e) its Proxy
Statement on Schedule 14A under the Exchange Act, dated April 26, 1996 and (f)
all other reports, statements, registration statements and other documents
(including Current Reports on Form 8-K) filed by it with the Securities and
Exchange Commission (the "Commission") under the Securities Act or the Exchange
Act, and all amendments and supplements thereto, subsequent to the filing of
the Registration Statement, if any (the foregoing subsections (a) through (f),
including all exhibits and Schedules thereto and documents incorporated by
reference therein, are referred to in this Agreement as the "SEC Filings"). As
of the respective date that it was filed with the Commission, each of the SEC
Filings complied as to form and content, in all material respects, with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations promulgated thereunder, and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Financial
Statements included in the SEC Filings were prepared in accordance with
generally accepted accounting principles, consistently applied, and (except as
may be indicated therein or in the notes thereto) present fairly the
consolidated financial position, results of operations and cash flows of
Company as of the dates and for the respective periods indicated (subject, in
the case of Unaudited Financial Statements, to normal recurring year-end
adjustments and any other adjustments described therein). The Company has (i)
delivered to IP true and complete copies of (x) all correspondence relating to
the Company between the Commission and the Company or its legal counsel and, to
the Company's knowledge, accountants since the date of the Registration
Statement (other than routine filing package cover letters) and (y) all
correspondence between the Company or its counsel and the Company's auditors
since the date of the Registration Statement, relating to any audit, financial
review or preparation of financial statements of the Company (other than
correspondence which the Company reasonably believes is subject to a
privilege), and (ii) disclosed to IP the content of all material discussions
between the Commission and the Company or its legal counsel and, to the
Company's knowledge, accountants concerning the
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adequacy or form of any SEC Filings filed with the Commission since the date of
its Registration Statement. The Company is not aware of any issues raised by
the Commission with respect to any of the SEC Filings, other than those
disclosed to IP pursuant to this paragraph.
3.7 Litigation. Except as set forth in the SEC Filings,
there are no actions, suits, proceedings, claims, complaints, disputes or
investigations pending or, to the knowledge of the Company, threatened, at law,
in equity, in arbitration or before any governmental authority against the
Company or any of its Subsidiaries and with respect to which the Company or any
of its Subsidiaries is responsible by way of indemnity or otherwise, that
would, if adversely determined, (a) have a Material Adverse Effect on the
Company or (b) have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement and each other agreement
contemplated hereby. No injunction, writ, temporary restraining order, decree
or order of any nature has been issued by any court or other governmental
authority against the Company or any of its Subsidiaries purporting to enjoin
or restrain the execution, delivery or performance of this Agreement or each
other agreement contemplated hereby.
3.8 Compliance with Laws.
(a) Each of the Company and the Subsidiaries is
in compliance with all Requirements of Law in all respects, except to the
extent that the failure to comply with such Requirements of Law would not have
a Material Adverse Effect on the Company.
(b) (i) Each of the Company and the Subsidiaries
has all licenses, permits, orders or approvals of any governmental authority
(collectively, "Permits") that are material to or necessary for the conduct of
the business of the Company in the manner described in the SEC Filings filed
with the SEC prior to the date hereof, except to the extent that the failure to
have such Permits would not have a Material Adverse Effect on the Company; (ii)
such Permits are in full force and effect; and (iii) no material violations are
recorded in respect to any Permit.
3.9 No Material Adverse Change; Ordinary Course of
Business. Except as set forth in the SEC Filings and except as previously
disclosed to IP in writing, since September 30, 1996, (i) there has not been
any material adverse change in operations, financial condition, prospects or
results of operations of the Company and the Subsidiaries, taken as a whole,
and (ii) neither the Company nor any of the Subsidiaries has participated in
any transaction or acted outside the ordinary course of business.
3.10 Private Offering. No form of general solicitation or
general advertising was used by the Company or the Subsidiaries or their
respective representatives in connection with the offer or sale of the Shares.
No registration of the Shares, pursuant to the provisions
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of the Securities Act or any state securities or "blue sky" laws, will be
required by the offer, sale or issuance of the Shares.
3.11 Taxes. The Company and its Subsidiaries have filed
or caused to be filed, or have properly filed extensions for, all income tax
returns that are required to be filed and have paid or caused to be paid all
taxes as shown on said returns and on all assessments received by it to the
extent that such taxes have become due, except taxes the validity or amount of
which is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves, in accordance with generally accepted
accounting principles, have been set aside. The Company and its Subsidiaries
have paid or caused to be paid, or have established reserves in accordance with
generally accepted accounting principles that the Company or such Subsidiaries
reasonably believes to be adequate in all material respects, for all income tax
liabilities applicable to the Company and its Subsidiaries for all fiscal years
that have not been examined and reported on by the taxing authorities (or
closed by applicable statutes). United States federal income tax returns of
the Company and its Subsidiaries have been examined and closed through the
fiscal year ended December 31, 1991. The Company has delivered to IP (a)
copies of any tax sharing agreements to which it or any of its Subsidiaries is
party and such agreements have not been amended in any manner and (b) an
analysis of the ownership of capital stock of the Company by "5-percent
shareholders" as such term is defined in Section 382 of the Internal Revenue
Code of 1986, as amended, and the Treasury regulations promulgated thereunder
(collectively, "Section 382").
3.12 Brokers. Except with respect to any investment
banking fee due to Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation ("DLJ"),
the Company has not paid or become obligated to pay any fee or commission to
any broker, finder, investment banker or other intermediary in connection with
this Agreement.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Proxy Statement and Meeting of Company's
Shareholders.
(a) As soon as reasonably practicable following
the date hereof, the Company shall (i) prepare and file with the Commission,
(ii) use its reasonable best efforts to cause to be cleared by the Commission
and (iii) within five (5) business days following clearance with the
Commission, mail to its shareholders the Proxy Statement (as defined below)
with respect to a meeting of the Company's shareholders (the "Shareholders
Meeting") to consider and vote, among other things, upon (A) the issuance of
the Shares as contemplated hereby and (B) the amending or adopting of the
Company's charter, the amending of its Bylaws and the election of certain
nominees to be directors that are referred
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to in Section 5.3(e) and Section 5.3(l). The Board of Directors shall
recommend such approval and take all reasonable lawful action to solicit such
approval. Each Purchaser agrees to assist and cooperate with the Company in
the preparation of the Proxy Statement with respect to information therein
concerning any such Purchaser.
(b) The Company, on the one hand, and each
Purchaser, on the other hand, hereby represents, warrants and agrees with the
other that the Proxy Statement will not, at the time the Proxy Statement is
mailed, and at the date of the Shareholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, or to correct any
statement made in any earlier communication with respect to the solicitation of
any proxy or approval of the transactions contemplated by this Agreement in
connection with which the Proxy Statement shall be mailed, except that no
representation or warranty is being made by either with respect to information
supplied in writing by the other for inclusion in the Proxy Statement. The
Company further represents, warrants and agrees that the Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act. The letter to shareholders, notice of meeting, proxy statement and form
of proxy, or any information statement filed under the Exchange Act, as the
case may be, that may be provided to shareholders of the Company in connection
with the transactions contemplated by this Agreement (including any
supplements), and any schedules required to be filed with the Commission in
connection therewith, as from time to time amended or supplemented, are
collectively referred to as the "Proxy Statement."
(c) The Company shall take all actions necessary
in accordance with the California Corporations Code and the bylaws of the
Company to duly call, give notice of, convene and hold the Shareholders Meeting
within forty-five (45) calendar days after the mailing of the Proxy Statement
to approve the matters set forth therein.
4.2 Standstill.
(a) Each of IP's "Associates" (which term shall
be defined for this purpose to include CentreLine Reinsurance Limited
("CentreLine"), Centre Reinsurance Limited, International Insurance Investors,
L.P. ("III"), International Insurance Advisors, Inc. ("IIA") and any person or
entity that controls, is under common control with, or is controlled by IP or
such persons or entities, and all individuals who are officers, directors or
control persons of any such entities, including IP) that is a signatory hereto
covenants and agrees with respect to itself, and IP covenants and agrees with
respect to itself and its Associates that are not signatories hereto, that it
or they will not (i) acquire or offer or agree to acquire, directly or
indirectly, by purchase or otherwise, any shares of Common Stock or voting
securities of the Company (or direct or indirect rights or options to acquire
any such securities); (ii) enter, agree to enter into or propose to enter into,
directly or indirectly, any merger or business combination involving the
Company; (iii) make, or in any way
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participate, directly or indirectly, in any "solicitation" of "proxies" (as
such terms are used in the rules of the Commission) or consent to vote, or seek
to advise or influence any person or entity with respect to the voting of, any
voting securities of the Company; or (iv) form, join or in any way participate
in a "group" (within the meaning of Section 13d-3 of the Exchange Act) with any
persons not referred to herein with respect to any of the foregoing; provided,
however, that nothing in this Section 4.2(a) shall restrict IP or any of its
Associates from (A) acquiring shares of Common Stock or voting securities as a
result of a stock split, stock dividend or similar recapitalization of the
Company, (B) exercising the warrant issued to IIA pursuant to the Note Purchase
Agreement and the warrant issued to CentreLine pursuant to the Preferred
Securities Purchase Agreement, (C) making, or in any way participating,
directly or indirectly, in any "solicitation" of "proxies" (as such terms are
defined in Rule 14a-1 under the Exchange Act) in connection with the election
to the Board of Directors of directors nominated by IP or any of its Associates
(to the extent not otherwise inconsistent with this Agreement) or (D) with
respect to a tender or exchange offer or a merger or other business combination
involving the Company (a "Business Combination"), which was initiated without
the encouragement by or the participation of IP or any of its Associates,
making a tender or exchange offer or a proposal with respect to a Business
Combination, or forming, joining or participating as a "group" to make such
offer or proposal, in either case upon more favorable terms than those of the
unsolicited tender or exchange offer or Business Combination; and provided
further, that nothing contained in this Section 4.2(a) shall affect or impair
the right of any director of the Company to (x) act as a member of the Board of
Directors or any committee thereof or (y) take any action necessary or
advisable to carry out his obligations and duties as a director of the Company.
Notwithstanding anything to the contrary contained in this Agreement, nothing
in this Section 4.2(a) shall prohibit or restrict any Associate who is a
director of the Company from acquiring, in one or more transactions, in his
individual capacity, an aggregate of 25,000 shares of Common Stock so long as
such acquisition does not violate any provision of the Company's charter as in
effect from time to time.
(b) The limitations set forth in Section 4.2(a)
above and Section 4.3 below may be waived by the affirmative vote of the
nearest whole number representing 66 2/3% or more of (i) the directors of the
Company, excluding from the total number of directors voting, those who are
Associates of IP and those who are employees of the Company or (ii) the shares
of the Company, not including in such total number of shares voting, those
beneficially owned by those executive officers of the Company subject to the
reporting requirements of Section 16 of the Exchange Act and those owned by IP
and its Associates.
(c) In furtherance of the standstill covenants
set forth in this Section 4.2, each of the Company and IP covenants and agrees
that any material business relationship between the Company and IP or any
Associate of IP must be approved in the manner provided in Section 4.2(b)
above.
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(d) Other than with respect to the election of
directors of the Company, IP covenants and agrees that, with respect to any
vote of the shareholders of the Company on a particular matter, if the
aggregate number of all shares that are voted in like manner by IP and its
Associates shall be greater than 35% of the total number of shares voted, then
those votes that exceed such 35% threshold shall be voted in the same
proportion as the other shareholders voted their shares with respect to such
matter.
(e) IP covenants and agrees that IP and its
Associates will not vote their shares of Common Stock, the Voting Notes issued
pursuant to the Note Purchase Agreement (the "Voting Notes") or shares of
Common Stock issued upon exercise of the Common Stock Purchase Warrants issued
to them under the Note Purchase Agreement and the Preferred Securities Purchase
Agreement, to elect a total of more than five (5) persons (or the highest
number that is less than a majority of the Board of Directors, as the case may
be), including the person nominated pursuant to Section 4.4 below, who are
Associates of IP or its Associates to be directors of the Company.
(f) The agreements set forth in this Section 4.2
shall continue so long as the shares of Common Stock owned by IP and its
Associates, directly or indirectly, represent 15% or more of the outstanding
shares of the Company on a fully diluted basis (including, without limitation,
the Voting Notes).
4.3 Transfer of Shares. So long as the shares of Common
Stock owned by IP and its Associates, directly or indirectly, represent 15% or
more of the shares of Common Stock outstanding on a fully diluted basis
(including, without limitation, the Voting Notes), IP shall not transfer,
assign, sell or otherwise dispose of (each, a "Transfer") any of its shares of
Common Stock, except for Transfers made in accordance with this Section 4.3.
IP may at any time Transfer any or all of its shares of Common Stock (i) to any
Associate of IP, if such Associate executes and delivers to the Company, prior
to any such Transfer, an instrument in form and substance reasonably
satisfactory to the Company pursuant to which such Associate agrees to be bound
by the provisions of Section 4.2 above and this Section 4.3, (ii) pursuant to
Rule 144 under the Securities Act or any successor to such rule, (iii) pursuant
to a tender offer or exchange offer made by the Company or any "Affiliate" (as
such term is defined in Rule 12b-2 of the Exchange Act) of the Company, (iv)
pursuant to a tender offer or exchange offer initiated by any person or "group"
(within the meaning of Section 13d-3 of the Exchange Act) other than IP or any
Associate thereof or a Business Combination, which is approved or recommended
by the Board of Directors or with respect to which the Board of Directors has
announced its intention to remain neutral, (v) so long as the shares of Common
Stock to be Transferred represent, in the aggregate, not greater than 10% of
the outstanding Common Stock, in a transaction or series of transactions exempt
from the registration and prospectus delivery requirements of the Securities
Act, (vi) by the Transfer of greater than 10% of the outstanding shares of
Common Stock in a transaction or series of transactions exempt from the
registration and prospectus delivery requirements of the Securities Act to (x)
one purchaser, (y) one purchaser and its Affiliates or (z) a "group"
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of purchasers, if such purchaser or purchasers of Common Stock in any such
transaction or series of transactions execute and deliver to the Company prior
to any such purchase or purchases an instrument in form satisfactory to the
Company pursuant to which such purchaser or purchasers agree to be bound by the
provisions of Section 4.2 above and this Section 4.3 (treating such purchaser
or purchasers as an "Associate" for purposes of such sections) or (vii)
pursuant to a registration statement filed under the Securities Act pursuant to
the Registration Rights Agreement, in the form attached hereto as Exhibit C
(the "Registration Rights Agreement"), or otherwise.
4.4 Board Representation. The Company shall present two
proposals relating to the Board of Directors to its shareholders at the
Shareholders Meeting, one of which shall provide for the amendment of the
Bylaws of the Company to increase the size of the Board of Directors from nine
(9) members to eleven (11) members and the other of which shall nominate for
election to such newly created vacancies, an independent director of the
Company and a director who is a designee of IP. The Board of Directors shall
recommend approval of each proposal and take all reasonable lawful action to
solicit approval of them. During the term of this Agreement, the Board of
Directors shall nominate one individual designated by IP (provided that such
individual is reasonably acceptable to the Board of Directors) for election as
a director of the Company at each annual meeting of shareholders, provided that
the person nominated to be director shall not be in addition to the number of
directors that IP has agreed to elect pursuant to Section 4.2(e) hereof. If
the director designated by IP shall cease to be a director of the Company for
any reason, the Board of Directors shall, promptly upon the request of IP,
elect a replacement designated by IP, provided that such individual is
reasonably acceptable to the Board of Directors.
4.5 IP Management. Xxxxxx Spass will abstain from the
votes of the Investment Committees of each of IP Delaware and IP Bermuda with
respect to their investment in the Company.
4.6 Best Efforts. Upon the terms and subject to the
conditions herein provided, each of the Purchasers and the Company agrees to
use its reasonable best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement and each other
agreement contemplated hereby including (a) to lift or rescind any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby and (b) to fulfill
all conditions on its part to be fulfilled under this Agreement and each other
agreement contemplated hereby. In case at any time after the Closing Date any
further action is reasonably necessary or desirable to carry out the purposes
of this Agreement and each other agreement contemplated hereby, each party to
this Agreement who is a natural person and the proper partners, officers or
directors of all other parties to this Agreement shall take all such reasonably
necessary action. No party hereto will take any action for the purpose of
delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any required filing.
14.
74
Each party hereto shall give prompt notice to all other parties of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty of such party contained in
this Agreement, as the case may be, to be untrue or inaccurate in any material
respect any time from the date hereof to the Closing Date and (ii) any material
failure of such party, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, and such party shall use all reasonable efforts to remedy such
failure.
4.7 Indemnification by the Company.
(a) The Company agrees to indemnify the Purchasers,
and each of the Purchaser's respective partners, employees, agents and
representatives, against and hold the Purchasers, and each of the Purchaser's
respective partners, employees, agents and representatives, harmless from all
claims, obligations, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses incurred by the Purchasers in any
action between the Purchasers and the Company or between the Purchasers and any
third party or otherwise) and liabilities of and damages to the Purchasers
arising out of the material breach of any representation, warranty, covenant or
agreement of the Company in this Agreement.
(b) The Purchasers agree to give the Company
prompt written notice of any claim, assertion, event or proceeding by or in
respect of a third party of which they have knowledge concerning any liability
or damage as to which they may request indemnification hereunder. The Company
shall have the right to direct, through counsel of its own choosing, the
defense or settlement of any such claim, assertion, event or proceeding
(provided that the Company shall have first acknowledged its indemnification
obligations hereunder specifically in respect of such claim, assertion, event
or proceeding) at its own expense, which counsel shall be reasonably
satisfactory to the Purchasers. If the Company elects to assume the defense of
any such claim, assertion, event or proceeding, the Purchasers may participate
in such defense, but in such case the expenses of the Purchasers incurred in
connection with such participation shall be paid by the Purchasers. The
Purchasers shall cooperate with the Company in the defense or settlement of any
such claim, assertion, event or proceeding. If the Company elects to direct
the defense of any such claim or proceeding, the Purchasers shall not pay, or
permit to be paid, any part of any claim or demand arising from such asserted
liability, unless the Company consents in writing to such payment or unless the
Company withdraws from the defense of such asserted liability, or unless a
final judgment from which no appeal may be taken by or on behalf of the Company
is entered against the Purchasers for such liability. If the Company shall
fail to defend, or if, after commencing or undertaking any such defense, the
Company fails to prosecute or withdraws from such defense, the Purchasers shall
have the right to undertake the defense or settlement thereof at the Company's
expense.
4.8 Indemnification by the Purchasers.
15.
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(a) Each of the Purchasers, severally and not
jointly, agrees to indemnify the Company, and each of the Company's officers,
directors, employees, agents and representatives, against and hold the Company,
and each of the Company's officers, directors, employees, agents and
representatives, harmless from all claims, obligations, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses
incurred by the Company in any action between the Company and such Purchaser or
between the Company and any third party or otherwise) and liabilities of and
damages to the Company arising out of the material breach of any
representation, warranty, covenant or agreement of such Purchaser in this
Agreement.
(b) The Company agrees to give the Purchasers
prompt written notice of any claim, assertion, event or proceeding by or in
respect of a third party of which it has knowledge concerning any liability or
damage as to which it may request indemnification hereunder. The indemnifying
Purchasers shall have the right to direct, through counsel of their own
choosing, the defense or settlement of any such claim, assertion, event or
proceeding (provided that such Purchasers shall have first acknowledged their
indemnification obligations hereunder specifically in respect of such claim,
assertion, event or proceeding) at their own expense, which counsel shall be
reasonably satisfactory to the Company. If the indemnifying Purchasers elect
to assume the defense of any such claim, assertion, event or proceeding, the
Company may participate in such defense, but in such case the expenses of the
Company incurred in connection with such participation shall be paid by the
Company. The Company shall cooperate with the indemnifying Purchasers in the
defense or settlement of any such claim, assertion, event or proceeding. If
the indemnifying Purchasers elect to direct the defense of any such claim,
assertion, event or proceeding, the Company shall not pay, or permit to be
paid, any part of any claim or demand arising from such asserted liability,
unless such Purchasers consent in writing to such payment or unless such
Purchasers withdraw from the defense of such asserted liability, or unless a
final judgment from which no appeal may be taken by or on behalf of such
Purchasers is entered against the Company for such liability. If the
indemnifying Purchasers shall fail to defend, or if, after commencing or
undertaking any such defense, such Purchasers fail to prosecute or withdraw
from such defense, the Company shall have the right to undertake the defense or
settlement thereof at such Purchaser's expense.
4.9 Consents. The Company and each of the Purchasers
will use its reasonable best efforts to obtain all necessary waivers, consents
and approvals of all third parties and governmental authorities necessary to
the consummation of the transactions contemplated by this Agreement and each
agreement contemplated hereby, including, but not limited to, those required in
connection with the filing of any required HSR Reports and Forms A and any
filings to be made in connection with or in compliance with the provisions of
each of the Securities Act, the Exchange Act and any applicable state
securities laws.
16.
76
4.10 Use of Proceeds. The Company covenants and agrees
that it will use the proceeds from the sale of the Shares hereunder to
consummate the transactions contemplated by the Amended Merger Agreement.
4.11 IP Consent to Amending and Restating of Original
Merger Agreement. Pursuant to Section 5.1(c) of the Original Stock Purchase
Agreement, IP consents to each and every amendment, modification or waiver by
the Company of the provisions of the Original Merger Agreement and all
agreements contemplated thereby, as evidenced by the provisions of the Amended
Merger Agreement and all agreements contemplated thereby.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The
respective obligations of each party to effect the transactions contemplated by
this Agreement shall be subject to the fulfillment or waiver by IP and the
Company on or prior to the Closing Date of the following conditions:
(a) No United States or state governmental
authority or other agency or commission or United States or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, injunction or other order (whether
temporary, preliminary, or permanent) which is in effect and has the effect of
prohibiting consummation of the transactions contemplated by this Agreement or
restricting the operation of the business of the Company and the Subsidiaries
as conducted on the date hereof in a manner that would have a Material Adverse
Effect on the Company.
(b) Any waiting period applicable to the
transactions contemplated by this Agreement and each agreement contemplated
hereby, including, without limitation, those applicable to any HSR Report or
Form A or any filing in connection with or in compliance with the provisions of
each of the Securities Act, the Exchange Act and any applicable state
securities laws shall have expired or been terminated.
(c) The Amended Merger Agreement shall not have
been materially amended or modified, nor any material provision thereof waived
by the Company, except upon the consent of IP in its sole discretion (such
consent not to be unreasonably withheld), and the Closing provided for in
Section 1.4 hereof shall occur simultaneously with the closing of the
transactions contemplated by the Amended Merger Agreement.
5.2 Conditions to the Obligations of the Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement shall be subject to the
17.
77
fulfillment or waiver by the Company on or prior to the Closing Date of the
following additional conditions:
(a) The Purchasers shall have performed in all
material respects their obligations under this Agreement required to be
performed by them on or prior to the Closing Date pursuant to the terms hereof.
(b) The representations and warranties of the
Purchasers contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date as if made at and as of such
date, except to the extent that any such representation or warranty is made as
of a specified date in which case such representation or warranty shall have
been true and correct as of such date. Each of the Purchasers shall have
delivered a certificate to the effect set forth in Sections 5.2(a) and (b).
(c) The Company shall have received fully
executed copies of the Amended Merger Agreement, the Subscription Agreements,
the Registration Rights Agreement and any and all other agreements, documents,
certificates or instruments contemplated by this Agreement and any of the
foregoing.
(d) All of the conditions to Closing set forth in
Article 8 of the Amended Merger Agreement shall have been satisfied or waived.
(e) The warrants issued to III and held by IIA as
its agent shall be distributed to all partners of III.
(f) The shareholders of the Company (including,
without limitation, the holders of the Voting Notes) shall have duly approved
at the Shareholders Meeting (i) the issuance of the Shares pursuant to this
Agreement, (ii) the amendment of the Bylaws of the Company, in form and
substance reasonably satisfactory to IP, to increase the size of the Board of
Directors from nine (9) to eleven (11) members, (iii) the election to such
newly created vacancies of one independent director of the Company and a
director designated by IP and (iv) the amendment to, or adoption of, its
charter as contemplated by Section 5.3(l) hereof; provided, however, that a
majority of shares held by persons not party to this Agreement or Associates of
Purchasers shall have voted in favor of each of such proposals.
(g) The Company shall have received, in a form
reasonably satisfactory to the Company, the favorable opinions of Xxxx, Weiss,
Rifkind, Xxxxxxx & Xxxxxxxx, counsel to IP.
(h) The Company shall have received the favorable
written opinion of DLJ, financial advisor to the Company, dated as of February
17, 1997 as to the fairness on a financial basis of the terms of the Purchase
and the transactions contemplated by this Agreement.
18.
78
(i) All necessary waivers or consents to,
approvals of and notices or filings with respect to the transactions
contemplated by this Agreement and each agreement contemplated hereby shall
have been obtained or made.
(j) The Company shall have received such other
documents and instruments in connection with the Closing as are reasonably
requested by it.
5.3 Conditions to the Obligations of Purchasers. The
obligations of the Purchasers to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver by IP on or prior to
the Closing Date of the following additional conditions:
(a) The Company shall have performed in all
material respects its obligations under this Agreement required to be performed
by it on or prior to the Closing Date pursuant to the terms hereof.
(b) The representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of such date,
except to the extent that any such representation or warranty is made as of a
specified date in which case such representation or warranty shall have been
true and correct as of such date. The Company shall have delivered to IP a
certificate to the effect set forth in Sections 5.3(a) and (b).
(c) Since September 30, 1996, there shall have
been no Material Adverse Effect on the Company.
(d) The Company shall have caused the transfer
agent to deliver promptly to each of the Purchasers stock certificates in
definitive form representing the number of Shares set forth opposite such
Purchaser's name on Exhibit B hereto, registered in the name of such Purchaser.
(e) The shareholders of the Company (including,
without limitation, the holders of the Voting Notes) shall have duly approved
at the Shareholders Meeting (i) the issuance of the Shares pursuant to this
Agreement, (ii) the amendment of the Bylaws of the Company, in form and
substance reasonably satisfactory to IP, to increase the size of the Board of
Directors from nine (9) to eleven (11) members and (iii) the election to such
newly created vacancies of one independent director of the Company and a
director designated by IP; provided, however, that a majority of shares held by
persons not party to this Agreement or Associates of Purchasers shall have
voted in favor of each of such proposals.
(f) IP shall have received fully executed copies
of the Amended Merger Agreement, a term loan facility with terms that are
generally consistent with or better for the Company than the terms set forth in
the commitment letter from Chase to the
19.
79
Company dated September 14, 1996, the Registration Rights Agreement and any and
all other agreements, documents, certificates or instruments contemplated by
this Agreement and any of the foregoing.
(g) The Purchasers shall have received fully
executed copies of this Agreement and the Subscription Agreements.
(h) The Purchasers shall have received, in a form
reasonably satisfactory to the Company, the favorable opinions of Xxxxxxx &
XxXxxxxx, counsel to the Company.
(i) The Purchasers shall have received such other
documents and instruments in connection with the Closing as are reasonably
requested by them.
(j) All necessary waivers or consents to,
approvals of and notices or filings with respect to the transactions
contemplated by this Agreement and each other agreement contemplated hereby and
thereby shall have been obtained, including, without limitation, the waiver of
all preemptive rights arising under the Common Stock Purchase Warrants issued
pursuant to the Note Purchase Agreement and the Preferred Securities Purchase
Agreement.
(k) No action, suit, proceeding, claim or dispute
shall have been brought or otherwise arisen at law, in equity, in arbitration
or before any governmental authority against the Company or any of its
Subsidiaries which would, if adversely determined, (a) have a Material Adverse
Effect on the Company or (b) have a material adverse effect on the ability of
the Company to perform its obligations under this Agreement or each of the
agreements contemplated hereby.
(l) (i) The Company shall have amended its
Restated Articles of Incorporation or adopted a charter, in each case in a
manner satisfactory to IP and its counsel, to restrict the issuance or transfer
of any Common Stock by the Company or any of its shareholders so as to reduce,
to the extent practicable, the risk of an "ownership change" within the meaning
of Section 382 of the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder (collectively, "Section 382") and
(ii) the Company shall have entered into agreements, in form and substance
reasonably satisfactory to IP and its counsel, with all of its warrant holders
in which such holders shall agree not to exercise any of their warrants in a
manner that would cause, or increase the risk of, an "ownership change" within
the meaning of Section 382 or otherwise conflict with the restrictions
described in the immediately preceding subsection (i).
(m) The Company shall have delivered to IP at the
Closing a schedule that has been prepared by the Company solely in reliance
upon its review of its stock ledger, public filings of Schedules 13D and 13G
under the Exchange Act as they relate
20.
80
to ownership in the capital stock of the Company, and other matters to which it
has actual knowledge, presenting information reasonably satisfactory to IP as
of the Closing Date that there has been no increase in the Common Stock owned
directly, indirectly or constructively by a "5-percent shareholder" (as such
term is defined in Section 382) over the three-year period immediately
preceding the Closing Date.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement shall terminate and the
transactions contemplated hereby may be abandoned simultaneous with the
termination of the Amended Merger Agreement (as the same may be amended from
time to time pursuant to Section 5.1(c) hereof). In the event the Closing
shall occur, this Agreement shall thereafter terminate at such time as, by
their terms, all of the obligations under Sections 4.2 and 4.3 are no longer in
effect.
6.2 Amendment. This Agreement may be amended by the
parties hereto. This Agreement may be amended by an instrument in writing
without each party's written agreement, but no such amendment shall be
enforceable against any party which has not signed such amendment.
6.3 Waiver. At any time prior to the Closing Date, the
Company or IP may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
or conditions herein, provided that any such waiver of or failure to insist on
strict compliance with any such representation, warranty, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Any agreement on the part of the Company or IP to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
6.4 Survival. The representations, warranties, covenants
and agreements set forth in Articles II, III and IV shall survive the Closing.
6.5 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
given or made if in writing and delivered personally, sent by commercial
carrier or registered or certified mail (postage prepaid, return receipt
requested) or transmitted by facsimile with automated receipt confirmation to
the parties at the following addresses and numbers:
21.
81
If to the Company, to:
Superior National Insurance Group, Inc.
00000 Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: J. Xxxxx Xxxxxx
with copies to:
Xxxxxxx & XxXxxxxx
0000 Xxxxx Xxxxxx, Xxxxx #000
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
If to IP, to:
Insurance Partners, L.P.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, XX 00000
Fax: (000) 000-0000
Attention: Mr. Xxxxxxx Xxxxx
and
Insurance Partners Offshore (Bermuda), L.P.
Xxxxx Xxxxx
00 Xxxxx Xxxxxx
P.O. Box HM 1179
Xxxxxxxx, XX-EX, Bermuda
Fax: (000) 000-0000
Attention: Xxxxxxx E.T. Xxxxxxxx, Esq.
with copies to:
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
and
22.
82
Insurance Partners Advisors, L.P.
Xxx Xxxxx Xxxxxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Attention: Xx. Xxxxxx X. Xxxxxx
If to the Purchasers who executed the Subscription
Agreements, to the address and facsimile number set forth in their respective
Subscription Agreement, or at such other addresses as shall be furnished by the
parties by like notice, and such notice or communication shall be deemed to
have been given or made as of the date actually received.
6.6 Headings; Agreement. The headings contained in this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement. The term "Agreement" for purposes of representations and
warranties hereunder shall be deemed to include the Exhibits hereto to be
executed and delivered by parties relevant thereto.
6.7 Publicity. So long as this Agreement is in effect,
except as required by law, regulation or stock exchange requirements, the
parties hereto shall not, and shall cause their affiliates not to, issue or
cause the publication of any press release or other announcement with respect
to the transactions contemplated by this Agreement or the other agreements
contemplated hereby without the consent of the other parties, which consent
shall not be unreasonably withheld or delayed or without consulting with the
other parties as to the content of such press release or other announcement.
6.8 Entire Agreement. This Agreement (including all
Exhibits hereto) constitutes the entire agreement among the parties and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
6.9 Conveyance Taxes. The Company agrees to assume
liability for and to hold the Purchasers harmless against any sales, use,
transfer, stamp, stock transfer, real property transfer or gains, and value
added taxes, any transfer, registration, recording or other fees, and any
similar taxes incurred as a result of the issuance and sale of the Shares as
contemplated hereby.
6.10 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefits of the parties hereto
and their respective successors and permitted assigns. Except as otherwise
provided in the Exhibits to this Agreement or the other agreements contemplated
hereby, neither this Agreement nor any of the rights, interests or obligations
shall be assigned by any of the parties hereto without the prior written
consent of the other parties.
23.
83
6.11 Counterparts. This Agreement, including the
Subscription Agreements, may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed an original.
6.12 Governing Law. The validity and interpretation of
this Agreement shall be governed by the laws of the State of California,
without reference to the conflict of laws principles thereof.
6.13 Third Party Beneficiaries. Subject to Sections 1.5,
4.7 and 4.8, this Agreement is not intended to confer upon any other person any
rights or remedies hereunder.
6.14 Costs and Expenses. The Company will pay all costs
and expenses incurred by IP in connection with the transactions contemplated
hereby, including without limitation, the reasonable legal fees and expenses of
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx and any filing fees paid in connection
with the filing of HSR Reports by IP, whether or not the transactions
contemplated hereby are consummated.
24.
84
IN WITNESS WHEREOF, each of the Purchasers and the Company has
caused this Agreement to be duly signed as of the date first written above.
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a California corporation
By: /s/ J. XXXXX XXXXXX
--------------------------------------
Name: J. Xxxxx Xxxxxx
Title: Executive Vice President and
Chief Financial Officer
INSURANCE PARTNERS, L.P.,
a Delaware limited partnership
By: Insurance GenPar, L.P., its
General Partner
By: Insurance GenPar MGP, L.P., its
General Partner
By: Insurance GenPar MGP, Inc., its
General Partner
By: /s/ XXXXXX X. XXXXXX
-----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
INSURANCE PARTNERS OFFSHORE (BERMUDA),
L.P., a Bermuda limited partnership
By: Insurance GenPar (Bermuda), L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, Ltd.,
its General Partner
By: /s/ XXXXXX X. XXXXXX
-------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
[Acknowledgment and Agreement on Following Page]
25.
85
Acknowledgement and Agreement:
Each of the undersigned acknowledges that this Agreement affects
its rights and by its signature below, the undersigned covenants and agrees
that it and its officers, directors and managing partners shall be bound by the
terms of this Agreement to the extent such terms apply to them. Each of the
undersigned hereby provides the waiver required by Section 5.3(j) hereof.
CENTRELINE REINSURANCE LIMITED,
a Bermuda corporation
By: /s/ XXXXXX X. XXXXXXX
------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Senior Vice President
CENTRE REINSURANCE LIMITED,
a Bermuda corporation
By: /s/ XXXXXX X. XXXXXXX
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Senior Vice President
INTERNATIONAL INSURANCE INVESTORS, L.P.,
a Bermuda limited partnership
By: International Insurance Investors
(Bermuda) Limited,
a Bermuda corporation
Its: General Partner
By: /s/ XXXXXX SPASS
---------------------------------
Name: Xxxxxx Spass
Title: President
INTERNATIONAL INSURANCE ADVISORS, INC.,
a Delaware corporation
By: /s/ XXXXXX SPASS
--------------------------------
Name: Xxxxxx Spass
Title: President
26.
86
EXHIBIT A
STOCK SUBSCRIPTION AGREEMENT
This STOCK SUBSCRIPTION AGREEMENT (this "Subscription
Agreement") dated as of September 17, 1996, as amended and restated effective as
of February 17, 1997, is made and entered into by and between Superior National
Insurance Group, Inc., a California corporation (the "Company"), and
_______________ (the "Purchaser"). This Subscription Agreement amends, restates
and supersedes in its entirety the Stock Subscription Agreement dated as of
September 17, 1996 by and between the same parties hereto. All capitalized
terms used herein shall have the meanings ascribed to such terms in the Amended
and Restated Stock Purchase Agreement dated as of February 17, 1997 (the "Stock
Purchase Agreement") by and among the Company, IP and such other persons or
entities that execute the Subscription Agreements attached thereto, to which
this Subscription Agreement is attached as an Exhibit.
R E C I T A L S
WHEREAS, the Original Merger Agreement has been amended
pursuant to the Amended Merger Agreement;
WHEREAS, the parties hereto have entered into this
Subscription Agreement in order to reaffirm their commitments under the
Original Stock Purchase Agreement, to evidence their consent to the changes set
forth in the Amended Merger Agreement, and to reflect changes to the Original
Stock Purchase Agreement necessitated by the amending of the Original Merger
Agreement; and
WHEREAS, the Company desires to issue and sell to the
Purchaser, and the Purchaser desires to subscribe for and purchase from the
Company, the number of Shares set forth below in Section 1 hereof on the terms
and conditions set forth in this Subscription Agreement and the Stock Purchase
Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants and conditions contained herein and in the Stock Purchase
Agreement, the parties hereto agree as follows:
(a) Sale and Purchase of Stock. The Company hereby
agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase
from the Company, subject to the terms and conditions set forth in this
Subscription Agreement and the Stock Purchase Agreement, __________ Shares, at
a price of Seven Dollars and Fifty-Three Cents ($7.53) per Share, for an
aggregate purchase price of $__________________.
87
(b) One Agreement. This Subscription Agreement, when
fully executed, shall be attached as an Exhibit to the Stock Purchase Agreement
and become a part of the Stock Purchase Agreement. The Purchaser agrees (i)
that he/she/it is a "Purchaser" as such term is defined in the Stock Purchase
Agreement and (ii) to be bound by all terms, provisions and conditions of the
Stock Purchase Agreement applicable to such Purchaser.
(c) Notices. Any notice or other writing given by either
party hereto to the other party relating to the subject matter of this
Agreement shall be delivered in the manner set forth in Section 6.5 of the
Stock Purchase Agreement. Any such notice, if to the Purchaser, shall be
delivered to:
-------------------------
-------------------------
-------------------------
(d) Amendments. This Subscription Agreement may be
amended only by a written agreement executed by the Company and the Purchaser.
(e) Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same Agreement.
28.
88
IN WITNESS WHEREOF, the parties hereto have duly executed this
Subscription Agreement as of the day and year first above written.
THE COMPANY:
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a California corporation
By:
-----------------------------------
PURCHASER:
--------------------------------------
29.
89
EXHIBIT B
PURCHASERS OF THE SHARES OF COMMON STOCK
Number Aggregate
Purchaser of Shares Purchase Price
--------- --------- --------------
IP Delaware 1,369,856 $ 10,315,015.00
IP Bermuda 754,978 5,684,984.00
TJS Partners, L.P. 132,802 999,999.06
Xxxxxxx X. Xxxxx 25,234 190,012.02
Xxxxxx X. Xxxxxx 4,648 34,999.44
Xxxxx X. Xxxxxx 6,640 49,999.20
Xxxxxx X. Xxxxxxxx 9,296 69,998.88
Xxxx X. Xxxxxxx 9,296 69,998.88
Xxxxxxx X. Xxxxx 9,296 69,998.88
Xxxxxx X. Xxxxx 3,984 29,999.52
Xxxxxxx Xxxxxxxxx 5,976 44,999.28
Xxxxx Xxxxxx 1,992 14,999.76
Xxx Xxxxxx 2,656 19,999.68
Xxxxxxx Xxxxxx 2,000 15,060.00
Xxxxx Xxxxxxx 1,328 9,999.84
Xxxxxx Xxxxxx 1,328 9,999.84
Xxxxxx Xxxxx 1,992 14,999.76
Xxxxx Xxxxxxxx 1,324 9,969.72
Xxxxxxx Xxxxxxxx 996 7,499.88
Xxxxxx Xxxxxxxx 2,324 17,499.72
Xxxxxx X. Xxxxx, Xx. 3,320 24,999.60
Xxxxxxx Xxx 1,000 7,530.00
Xxxx Xxxxx 1,000 7,530.00
Xxxxxx Fedora 1,000 7,530.00
Xxxxxxx Xxxxxxx 1,300 9,789.00
Xxxxx Xxxxxxxx 664 4,999.92
Xxxxx Xxxxx 1,000 7,530.00
Xxxxxx Xxxxxx 1,000 7,530.00
Xxxxx Xxxxxx 2,324 17,499.72
Xxxx X'Xxxxx 1,000 7,530.00
J. Xxxxx Xxxxxx 25,232 189,996.96
Xxxxxx Xxxxxx 2,324 17,499.72
Xxxx Xxxxxxx 1,328 9,999.84
30.
90
EXHIBIT G
VOTING AGREEMENT
Filed concurrently herewith as Exhibit 1 to this Statement on Schedule 13D.
-52-
91
EXHIBIT H
COMPENSATION PLAN FOR SENIOR MANAGEMENT TEAM
Previously filed on September 26, 1996 with the Securities and Exchange
Commission as Exhibit I to Exhibit 2 of SNIG's Statement on Schedule 13D, and
incorporated herein by reference.
-53-
92
EXHIBIT I
XXXXXXX XXXXX EMPLOYMENT AGREEMENT AND AMENDMENTS THERETO
Previously filed on September 26, 1996 with the Securities and Exchange
Commission as Exhibit K to Exhibit 2 of SNIG's Statement on Schedule 13D, and
incorporated herein by reference.
-54-
