EXHIBIT 4
EXECUTION COPY
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STOCK PURCHASE AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
INSURANCE PARTNERS, L.P.,
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
AND
CAPITAL Z PARTNERS, LTD.
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Dated as of May 5, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I THE TRANSACTIONS.................................................2
1.1 Purchase and Sale................................................2
1.2 Closing Matters..................................................2
1.3 The Closing......................................................2
1.4 Commitment Fee...................................................3
1.5 Transaction Fee..................................................3
1.6 Additional Fee...................................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS................................................4
2.1 Organization.....................................................4
2.2 Authority........................................................4
2.3 No Violation.....................................................5
2.4 Brokers..........................................................5
2.5 Funds Available..................................................6
2.6 Securities Act Representation....................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE COMPANY...................................................6
3.1 Corporate Organization...........................................6
3.2 Capital Stock....................................................6
3.3 Newly Issued Shares..............................................7
3.4 Authority........................................................7
3.5 No Violation.....................................................8
3.6 SEC Filings......................................................9
3.7 Litigation......................................................10
3.8 Compliance with Laws............................................10
3.9 No Material Adverse Change; Ordinary Course of Business.........11
3.10 Private Offering................................................11
3.11 Taxes...........................................................11
3.12 Brokers.........................................................12
3.13 Fairness Opinion................................................12
ARTICLE IV COVENANTS AND AGREEMENTS........................................12
4.1 Proxy Statement and Meeting of Company's Stockholders...........12
4.2 Standstill......................................................13
4.3 Transfer of Shares..............................................15
4.4 Rights Offering; Debt Offering..................................16
4.5 Best Efforts....................................................17
4.6 Indemnification by the Company..................................17
4.7 Indemnification by the Purchasers...............................18
4.8 Consents........................................................19
4.9 Use of Proceeds.................................................19
Page
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4.10 HSR Reports.....................................................19
4.11 Exclusivity.....................................................19
4.12 SEC Filings.....................................................19
4.13 Amendment of Purchase Agreement.................................20
4.14 Rights Offering Notice..........................................20
ARTICLE V CONDITIONS PRECEDENT............................................20
5.1 Conditions to Each Party's Obligations..........................20
5.2 Conditions to the Obligations of the Company....................20
5.3 Conditions to the Obligations of Purchasers.....................21
ARTICLE VI MISCELLANEOUS...................................................23
6.1 Termination.....................................................23
6.2 Amendment.......................................................23
6.3 Waiver..........................................................23
6.4 Survival........................................................23
6.5 Notices.........................................................23
6.6 Headings; Agreement.............................................24
6.7 Publicity.......................................................25
6.8 Entire Agreement................................................25
6.9 Conveyance Taxes................................................25
6.10 Assignment......................................................25
6.11 Counterparts....................................................26
6.12 Governing Law...................................................26
6.13 Third Party Beneficiaries.......................................26
6.14 Costs and Expenses..............................................26
EXHIBITS
Exhibit A-1 Purchasers of the Shares of Common Stock
Exhibit A-2 Warrants
Exhibit A-3 Transaction Fee
Exhibit B Form of Warrant
Exhibit C Form of Amended and Restated Registration Rights Agreement
STOCK PURCHASE AGREEMENT
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STOCK PURCHASE AGREEMENT ("Agreement") dated as of May 5, 1998 by
and among Superior National Insurance Group, Inc., a Delaware 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 Capital Z Partners, Ltd., a Bermuda corporation
("Cap Z", and together with IP Delaware and IP Bermuda, the "Purchasers").
R E C I T A L S:
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, par value $.01 per share (the "Common Stock"), of the Company as
is set forth in Section 1.1 below, on the terms and subject to the conditions
set forth herein;
WHEREAS, concurrently with the execution of this Agreement, the
Company and Foundation Health Corporation, a Delaware corporation ("FHC"), are
entering into a Purchase Agreement (the "Purchase Agreement") pursuant to which
the Company will acquire certain subsidiaries of FHC;
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;
WHEREAS, in accordance with Section 4.2(b) and (c) of the Amended
and Restated Stock Purchase Agreement, dated as of September 17, 1996 as amended
and restated effective as of February 17, 1997 (the "September 1996 Stock
Purchase Agreement"), among the Company, IP Delaware, IP Bermuda and the other
persons or entities who executed the subscription agreements attached thereto,
the limitations set forth in Section 4.2(a) and (c) of the September 1996 Stock
Purchase Agreement have been waived with respect to the transactions
contemplated hereby with the approval of the Board of Directors of the Company
in accordance with Section 4.2(b) of the September 1996 Stock Purchase
Agreement; and
WHEREAS, the Board of Directors of the Company has approved the
transfer or assignment by Cap Z of (i) this Agreement and all of its rights,
interests and obligations hereunder and (ii) the Shares and the Warrants (each
as defined herein) to be issued to Cap Z hereunder (x) to a partnership of which
Cap Z will be, directly or indirectly, the general partner, (y) to or from
Zurich Centre Investments
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Ltd. ("ZCIL") or its affiliates in accordance with the terms of the letter
agreement, dated May 5, 1998 (the "Zurich Letter"), among the Company, Cap Z and
ZCIL or (z) in the case of the Warrants, as otherwise provided in Section 1.4
hereof.
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") equal to the sum of (a) the number of shares of Common Stock set
forth opposite such Purchaser's name on Exhibit A-1 hereto under the heading
"Shares to be Purchased" at a purchase price for each share of Common Stock of
Sixteen Dollars and Seventy-Five Cents ($16.75) (the "Share Price"), plus (b) if
all the shares of Common Stock offered in the Rights Offering (as defined
herein) are not subscribed for, the aggregate number of shares of Common Stock
that is equal to the product of the total number of shares of Common Stock which
are not subscribed for in the Rights Offering (which number shall be set forth
in the notice to be delivered by the Company to the Purchasers pursuant to
Section 4.14 hereof) and the percentage set forth opposite such Purchaser's name
on Exhibit A-1 hereto under the heading "Percentage of Unsubscribed Shares" at a
purchase price for each share of Common Stock equal to the Share Price;
provided, that in no event shall any Purchaser be obligated to purchase in
excess of the number of shares of Common Stock set forth opposite such
Purchaser's name on Exhibit A-1 hereto under the heading "Maximum Number of
Shares" (the aggregate amount to be paid by a Purchaser under this Section being
the "Purchase Price" with respect to such Purchaser).
1.2 Closing Matters. At the Closing each of the Purchasers shall
wire transfer or otherwise make available in same day funds to the Company the
Purchase Price to be paid by such Purchaser and the Company shall deliver to
such Purchaser certificates representing the Shares purchased by such Purchaser.
1.3 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
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conditions precedent), the purchase and sale of the Shares shall be consummated
at a closing (the "Closing") to be held at the offices of Xxxxxxx & XxXxxxxx in
Los Angeles, California, subject to the satisfaction or waiver of all conditions
precedent specified in Article V hereof, simultaneous with the Closing (as
defined in the Purchase Agreement) under the Purchase Agreement, or at such
other place and time as the Company and the Purchasers shall mutually agree in
writing after the satisfaction or waiver of all conditions precedent specified
in Article V; provided, that the Closing Date shall not be less than 10 business
days after the date on which the Rights Offering Notice is delivered by the
Company to the Purchasers pursuant to Section 4.14 hereof; and provided,
further, that in no circumstance shall the Closing occur on or after November
30, 1998 or such later date as may be required by Section 7.1(b)(i) of the
Purchase Agreement, but in no event later than December 31, 1998 (such date and
time being herein referred to as the "Closing Date").
1.4 Commitment Fee. Whether or not the transactions contemplated
hereby are consummated, the Company shall pay a commitment fee to each Purchaser
or its designee (or, in the case of Cap Z, assignee) and ZCIL or its designee
(the "Commitment Fee") as compensation, in the case of each Purchaser, for
agreeing to purchase the Shares referred to in Section 1.1(b) hereof, and, in
the case of ZCIL, for providing the Zurich Letter in respect of the Shares
referred to in Section 1.1(b) hereof. The Commitment Fee due hereunder shall be
earned and payable as of the date of execution of this Agreement and shall be
paid by issuing to each Purchaser or its designee (or, in the case of Cap Z,
assignee) and ZCIL or its designee, except to the extent set forth in the Zurich
Letter, the number of Common Stock Purchase Warrants (the "Warrants") set forth
opposite such Purchaser's or ZCIL's name on Exhibit A-2 hereto registered in the
name of such Purchaser or ZCIL. The Warrants shall be in the form of Exhibit B
hereto and shall be issued to each Purchaser or its designee (or, in the case of
Cap Z, assignee) and ZCIL or its designee in definitive form on the earlier of
the Closing Date and the date this Agreement is terminated in accordance with
its terms. Notwithstanding the provisions of Section 6.4 hereof, this Section
1.4 shall survive the termination of this Agreement.
1.5 Transaction Fee. If the transactions contemplated hereby are
consummated, at the Closing, the Company shall pay to each Purchaser or its
designee (or, in the case of Cap Z, assignee), in immediately available funds, a
transaction fee in the amount set forth opposite such Purchaser's name on
Exhibit A-3 hereto.
1.6 Additional Fee. If FHC shall pay to the Company the breakup
fee (the "Breakup Fee") as described in Section 7.3 of the Purchase Agreement in
accordance with Section 7.3 of the Purchase Agreement, then the Company shall
pay to each Purchaser or its designee promptly following the Company's receipt
of the Breakup Fee, an amount equal to the product of (x) the Breakup Fee and
(y) a fraction, the numerator of which is equal to the sum of (i) the number of
shares of Common Stock set forth opposite such Purchaser's name on Exhibit A-1
hereto under the heading "Maximum Number of Shares" plus (ii) the number of
shares of Common
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Stock issuable, as of the date the Breakup Fee is paid to the Company, to such
Purchaser upon the exercise of the number of Warrants set forth opposite such
Purchaser's name on Exhibit A-2 hereto (which, in the case of Cap Z, shall also
include the Warrants set forth opposite ZCIL's name on such Exhibit), and the
denominator of which is the number of outstanding shares of Common Stock on a
fully-diluted basis on the date the Breakup Fee is paid to the Company, assuming
the issuance to the Purchasers of the maximum number of shares of Common Stock
issuable hereunder as if the purchase by the Purchasers contemplated hereunder
shall have occurred (notwithstanding that no such purchases shall have taken
place) and the exercise, as of the date of such payment, of all of the Warrants
issuable hereunder into the aggregate number of Shares of Common Stock issuable
thereunder as of the date the Breakup Fee is paid to the Company.
Notwithstanding the provisions of Section 6.4 hereof, this Section 1.6 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 such Purchaser is a corporation or limited
partnership, as the case may be, duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or
formation, as the case may be.
2.2 Authority. (i) Each such Purchaser has full corporate or
partnership, as the case may be, power and authority to 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 Purchaser of this Agreement and each other
agreement contemplated hereby to which it is a party have been duly authorized
by all necessary corporate or partnership, as the case may be, action on the
part of such Purchaser, (iii) no other action on the part of such Purchaser (or,
in the case of a Purchaser that is a limited partnership, its respective
partners) is necessary to authorize the execution and delivery of this Agreement
and each other agreement contemplated hereby by such Purchaser or the
performance by such Purchaser of its obligations hereunder and (iv) this
Agreement has been duly executed and delivered by such Purchaser and (assuming
due execution and delivery by the other parties hereto) 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
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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 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 by such Purchaser of
this Agreement and each other agreement contemplated hereby to which it is a
party, the performance by such Purchaser of its obligations hereunder and
thereunder and the consummation by it 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 such Purchaser to obtain the consent, waiver, approval,
license or authorization of or make any filing 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) if
required, 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) the filing of a Form A Information Statement ("Form A") by
the Purchaser with the insurance departments of such states as may be required
in connection with the transactions contemplated by this Agreement or the
Purchase 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, partnership agreement, indenture, mortgage, agreement,
contract, order, judgment, ordinance, regulation or decree to which 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, 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.
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2.5 Funds Available. Such Purchaser has funds available, or
commitments from third parties to provide funds, sufficient to pay the Purchase
Price to be paid by such Purchaser, it being agreed by the Company that the
Zurich Letter constitutes such a commitment to provide funds to pay the Purchase
Price to be paid by Cap Z.
2.6 Securities Act Representation. As of the Closing hereunder,
such Purchaser will be an "accredited investor" as defined in Rule 501
promulgated as part of Regulation D under the Securities Act. Such Purchaser is
not purchasing its 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.
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 (as defined below) is a corporation or statutory business trust
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, with all requisite corporate or
trust, as the case may be, 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
Certificate of Incorporation and the Bylaws of the Company and respective
charter documents of the Subsidiaries, each as amended to date, have been
delivered to the Purchasers. "Subsidiaries" 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, 5,874,584 shares 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 the
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preemptive rights that are contained in such warrants) 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 and except
for the Warrants to be issued hereunder and the rights to purchase shares of
Common Stock to be offered in connection with the Rights Offering, there are no
preemptive rights, 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 issued and sold 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. 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 or imposed
by applicable federal and state securities laws. Upon receipt of the Warrants
pursuant to the terms hereof, the Purchasers or their designees will acquire
good and marketable title to the Warrants and the Common Stock to be issued upon
exercise thereof, in each case free and clear of any and all Encumbrances,
except such Encumbrances as may be created pursuant to this Agreement, imposed
by applicable federal and state securities laws or, prior to the Closing, the
Certificate of Incorporation. The Common Stock to be issued upon the exercise of
the Warrants is duly authorized, has been reserved for issuance, and, when so
issued, will be fully paid and non-assessable. No other person or entity has any
preemptive right, option, warrant, subscription agreement or other right with
respect to such Shares, Warrants or Common Stock to be issued upon exercise of
the Warrants, 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"), which preemptive rights will, as of the Closing
Date, have been duly exercised or waived by such holders.
3.4 Authority. The Company has full corporate power and authority
to 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. The execution, delivery and performance by the Company of this
Agreement and each other agreement contemplated hereby to which it is a party
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 stockholder approval 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
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delivered by the Company and (assuming due execution and delivery by the other
parties hereto) 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 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 Securities Act, the Exchange Act and applicable state
securities laws, (ii) the filing of (A) HSR Reports by FHC and the Company in
connection with the transactions contemplated by the Purchase Agreement (the
"Acquisition"), (B) HSR Reports by the Purchasers, if required, in connection
with this Agreement, (C) Forms A by the Company with the insurance departments
of such states as may be required in connection with the Acquisition and (D)
Forms A by the Purchasers with the insurance departments of such states as may
be required in connection with this Agreement or (iii) any waiver required from
the holders of the 10 3/4% Trust Preferred Securities of the Company's
Subsidiary, Superior National Capital Trust I, in connection with the
transactions contemplated by this Agreement and the Purchase 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, 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
9
than the rights granted to the holders of the Common Stock Purchase Warrants
issued pursuant to the Note Purchase Agreement and the Preferred Securities
Purchase Agreement. 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 will not result in a
"change of control" or similar event occurring under any agreement, indenture,
mortgage or contract to which the Company or any of its Subsidiaries is subject
or by which the Company or any of its Subsidiaries is bound or give rise to a
payment by the Company or any of its Subsidiaries under a change of control or
similar provision in any agreement, indenture, mortgage or contract to which the
Company or any of its Subsidiaries is subject or by which the Company or any of
its Subsidiaries is bound.
3.6 SEC Filings. The Company has filed all SEC Filings required to
be filed by it since September 17, 1996 under the Securities Act or the Exchange
Act, and all amendments thereto. The Company heretofore has delivered to each
Purchaser 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 stockholders' equity, together with the notes
thereto) for the fiscal years ended and as at December 31, 1996 and December 31,
1997 (as such financial statements appear in the Company's Form 10-K for each of
the fiscal years ended December 31, 1996 and December 31, 1997, which were filed
with the Commission on March 10, 1997 and March 31, 1998, respectively
(collectively, the "Financial Statements")), (b) its Quarterly Reports on Form
10-Q for the quarters ended September 30, 1996, March 31, 1997, June 30, 1997,
and September 30, 1997, (c) its Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, (d) each of its Proxy Statements on Schedule 14A under
the Exchange Act, dated November 11, 1996 and March 10, 1997, respectively, and
(e) 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, since September 17, 1996 (the
foregoing subsections (a) through (e), 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 the Purchasers true
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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 September 17, 1996 (other than routine filing
package cover letters) and (y) all correspondence between the Company or its
counsel and the Company's auditors since September 17, 1996, 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 the Purchasers 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 adequacy or form of any SEC
Filings filed with the Commission since September 17, 1996. 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 the Purchasers 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 to
which it is a party. 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 any 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 the
Purchasers in writing, since December 31, 1997, (i) there has not been any
material
11
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 any of the Subsidiaries or their
respective representatives in connection with the offer or sale of the Shares or
Warrants. No registration of the Shares or Warrants, pursuant to the provisions
of the Securities Act or any state securities or "blue sky" laws, will be
required by the offer, sale or issuance of the Shares or Warrants.
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 amounts 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 returns of the Company and
its Subsidiaries have been examined and closed through the fiscal year ended
December 31, 1993. The Company has delivered to the Purchasers (a) true and
complete copies of any tax sharing agreements to which it or any of the
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 and any other
financial advisor of the Company with respect to the transactions contemplated
hereunder, the Company has not paid or become obligated to pay any fee or
commission to any broker, funder, investment banker or other intermediary in
connection with this Agreement.
3.13 Fairness Opinion. The Company has received the favorable
opinion of a financial advisor to the Company as to the fairness on a financial
basis of the terms of the transactions contemplated under this Agreement and the
Purchase Agreement, taken as a whole.
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ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Proxy Statement and Meeting of Company's Stockholders.
(a) The Company shall call a meeting of its stockholders (the
"Stockholders' Meeting") as soon as reasonably practicable after the date of
this Agreement, for the purpose of voting upon approval of the sale of Shares
pursuant to this Agreement and, to the extent required, the transactions
contemplated by the Financing Agreements (as defined in the Purchase Agreement)
and such other related matters as it deems appropriate. In connection with the
Stockholders' Meeting, (i) the Company shall prepare and file with the
Commission a Proxy Statement and mail such Proxy Statement to its stockholders,
(ii) the Board of Directors of the Company shall recommend to its stockholders
the approval of the sale of Shares pursuant to this Agreement and (iii) the
Board of Directors and officers of the Company shall use their reasonable
efforts to obtain such stockholders' approval. Each Purchaser agrees to assist
and co-operate 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 Stockholders' 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 any party hereto with respect to information supplied in writing by any
other party hereto 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
stockholders, 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 stockholders 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 Delaware General Corporation Law and the bylaws of the Company to duly
call, give notice of, convene and hold the Stockholders' Meeting within
forty-five (45) calendar days after the mailing of the Proxy Statement to
approve the matters set forth therein.
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4.2 Standstill.
(a) Each Purchaser's "Associates" (which term shall be defined
for this purpose to include CentreLine Reinsurance Limited, Centre Reinsurance
Limited, International Insurance Investors, L.P. ("III") and International
Insurance Advisors, Inc. ("IIA") and any person or entity that controls, is
under common control with, or is controlled by any of the Purchasers or such
persons or entities, and all individuals who are officers, directors or control
persons of any such entities, including any of the Purchasers) that is a
signatory hereto covenants and agrees with respect to itself, and each Purchaser
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 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 referenced to herein with respect to any of the foregoing; provided,
however, that nothing in this Section 4.2(a) shall restrict any Purchaser 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 Warrants, the warrant issued to IIA pursuant to the
Note Purchase Agreement, the warrant issued to CentreLine pursuant to the
Preferred Securities Purchase Agreement and any other warrants with respect to
any capital stock of the Company issued prior to the date hereof (or any
preemptive rights granted pursuant to any of them), (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 any Purchaser
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 any
Purchaser 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) (I) 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
14
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 or
(II) prohibit or restrict ordinary trading transactions on behalf of third party
clients by an Associate engaged in the investment management business.
(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
any Purchaser or (ii) the shares of the Company, not including in such total
number of shares voting those beneficially owned by any Purchaser and its
Associates.
(c) In furtherance of the standstill covenants set forth in
this Section 4.2, each of the Company and each of the Purchasers covenants and
agrees that any material business relationship between the Company and any
Purchaser or any Associate of any Purchaser must be approved in the manner
provided in Section 4.2(b) above.
(d) Other than with respect to the election of directors of
the Company, each Purchaser covenants and agrees that, with respect to any vote
of the stockholders of the Company on a particular matter, if the aggregate
number of all shares that are voted in like manner by the Purchasers and their
respective Associates shall be greater of 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 stockholders voted their shares with respect to
such matter.
(e) Each Purchaser covenants and agrees that such Purchaser
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 Warrants or the Common Stock Purchase
Warrants issued to them under the Note Purchase Agreement or 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 of
the September 1996 Stock Purchase Agreement, who are Associates of any Purchaser
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 the Purchasers and their
respective Associates, directly or indirectly, represent 15% of the outstanding
shares of the Company on a fully diluted basis (including, without limitation,
the Voting Notes).
(g) Upon consummation of the Closing hereunder, this Section
4.2 shall supersede in its entirety Section 4.2 of the September 1996 Stock
15
Purchase Agreement, which as of such consummation shall be of no further force
and effect.
(h) It is hereby understood and agreed by the parties hereto
that CentreLine Reinsurance Limited, Centre Reinsurance Limited, III and IIA are
executing the Acknowledgment and Agreement attached hereto only with respect to
this Section 4.2 and each such person will have no liability or obligation under
this Agreement other than with respect to this Section 4.2.
4.3 Transfer of Shares. So long as the shares of Common Stock
owned by the Purchasers and their Associates, directly or indirectly, represent
15% of the shares of Common Stock outstanding on a fully diluted basis
(including, without limitation, the Voting Notes), the Purchasers 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. The Purchasers may at any time Transfer any or all of its shares of
Common Stock (i) to any Associate of the Purchasers, 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 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 the Purchasers or any Associate thereof or a Business Combination,
which is approved or recommended by the Board of Directors of the Company or
with respect to which the Board of Directors of the Company 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" 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
hereof and this Section 4.3 (treating such purchaser or purchasers as an
"Associate" for purposes of such sections), (vii) pursuant to a registration
statement filed under the Securities Act pursuant to the Amended and Restated
Registration Rights Agreement, in the form attached hereto as Exhibit C (the
"Registration Rights Agreement"), or otherwise or (viii) pursuant to a pro rata
distribution to its partners. Upon the consummation of the Closing hereunder,
this Section 4.3 shall supersede in its entirety Section 4.3 of the September
1996 Stock Purchase Agreement, which as of such consummation shall be of no
further force and effect.
16
4.4 Rights Offering; Debt Offering.
(a) As soon as practicable after the date of this Agreement,
the Company shall effect (i) a "rights offering" of Common Stock to its
stockholders at a price per share of Common Stock of Sixteen Dollars and
Seventy-Five Cents ($16.75) and in an aggregate amount of not less than One
Hundred Six Million Dollars ($106,000,000) (the "Rights Offering") and (ii) an
offering of debt securities of the Company in an aggregate amount of not less
than One Hundred Ten Million Dollars ($110,000,000) (or such lesser amount as
may be agreed upon between the Company and the Purchasers) (the "Debt
Offering"). The Rights Offering and the Debt Offering will each be on terms
reasonably acceptable to the Purchasers.
(b) The Company will prepare and file with Commission
registration statements with respect to the Rights Offering and the Debt
Offering. The Company hereby represents, warrants and agrees with the Purchasers
that the Registration Statements will not, at the time any preliminary
prospectus, prospectus or prospectus supplement included in such Registration
Statements are mailed, 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. The Company further represents, warrants and agrees that the
Registration Statements will comply as to form in all material respects with the
provisions of the Securities Act. Any registration statement, including, without
limitation, any preliminary prospectus, prospectus or prospectus supplement
included therein, filed under the Securities Act, as the case may be, in
connection with the Rights Offering or the Debt Offering, 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
"Registration Statements."
(c) The Company acknowledges that it has been advised that IP
Delaware and IP Bermuda will not be offered any rights to subscribe for, and
will not purchase any, shares of Common Stock in the Rights Offering.
4.5 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, the proper
partners, officers or directors of all parties to this Agreement shall take all
such reasonably necessary action. No party hereto will take any action for the
purpose of delaying,
17
impairing or impeding the receipt of any required consent, authorization, order
or approval or the making of any required filing. 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.
4.6 Indemnification by the Company.
(a) The Company agrees to indemnify each of the Purchasers,
and each of the Purchaser's respective partners, members, employees, agents and
representatives, against and hold the Purchasers, and each of the Purchaser's
respective partners, members, 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 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.
18
4.7 Indemnification by the Purchasers.
(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.
4.8 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.
19
4.9 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 Purchase Agreement.
4.10 HSR Reports. If the Purchasers are required to file an HSR
Report in connection with the Purchase by the Purchasers pursuant to the terms
of this Agreement, then the Purchasers shall so notify the Company in writing
and, within fifteen (15) business days from the receipt by the Company of such
notice, each of the Purchasers and the Company shall file with the Federal Trade
Commission and the Antitrust Division of the Department of Justice, an HSR
Report and any supplemental information which may be requested in connection
with such HSR Reports. The Purchasers and the Company shall cooperate fully in
the preparation of such filings.
4.11 Exclusivity. The Company hereby agrees that prior to the
Closing Date, the Company shall not, directly or indirectly, solicit, entertain
or accept offers from persons (other than the Purchasers) for the investment
contemplated by this Agreement. The Company further agrees that, other than the
Rights Offering and the Debt Offering, it will not utilize any funds or sources
of financing to finance the transactions contemplated by the Purchase Agreement
without first consummating the Purchase.
4.12 SEC Filings. From and after the date hereof to the Closing
the Company shall make all SEC Filings required to be filed under the Securities
Act or the Exchange Act, and all amendments thereto, and the Company shall
deliver to the Purchasers a copy of each such SEC Filing.
4.13 Amendment of Purchase Agreement. The Company shall not amend
the Purchase Agreement without the prior written consent of the Purchasers
(which shall not be unreasonably withheld).
4.14 Rights Offering Notice. On the next business day following
the expiration of the subscription period of the Rights Offering, the Company
shall deliver to the Purchasers a notice (the "Rights Offering Notice") which
sets forth the number of shares of Common Stock which have been subscribed for
in the Rights Offering.
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
20
shall be subject to the fulfillment or waiver by the Purchasers and the Company
on or prior to the Closing Date of the following conditions:
(a) No United States or state 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 Closing provided for in Section 1.3 hereof shall occur
simultaneously with the closing of the transactions contemplated by the Purchase
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 fulfillment or waiver by the Company on or prior to the
Closing Date of the following additional conditions:
(a) 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. 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 Purchase Agreement, the Registration Rights Agreement and any and all other
agreements, documents, certificates or instruments contemplated by this
Agreement and any of the foregoing.
21
(d) All of the conditions to Closing set forth in Article 6 of
the Purchase Agreement shall have been satisfied or waived.
(e) The stockholders of the Company (including, without
limitation, the holders of the Voting Notes) shall have duly approved at the
Stockholders' Meeting the issuance of the Shares pursuant to this Agreement and,
to the extent required, the transactions contemplated by the Financing
Agreements.
(f) The Company shall have received, in a form reasonably
satisfactory to the Company, the favorable opinion of its financial advisor in
connection with the transactions contemplated hereunder and under the Purchase
Agreement, as of the date of the mailing of the Proxy Statement, as to the
fairness on a financial basis of the terms of the Purchase and the transactions
contemplated by this Agreement.
(g) 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.
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 the Purchasers 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 set
forth in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.10, 3.12 and 3.13 of 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 the Purchasers a certificate to the effect set
forth in Sections 5.3(a) and (b).
(c) The Company shall have delivered (i) to each of the
Purchasers stock certificates in definitive form representing the number of
Shares to be purchased by such Purchaser pursuant to Section 1.1, registered in
the name of such Purchaser and (ii) to each of the Purchasers or its designee
(or, in the case of Cap Z, assignee) and ZCIL or its designee, except to the
extent set forth in the Zurich Letter, Warrants in definitive form representing
the number of Warrants set forth opposite such Purchaser's or ZCIL's name on
Exhibit A-2 hereto, registered in the name of each such Purchaser or its
designee (or, in the Case of Cap Z, assignee) or ZCIL or its designee.
22
(d) The stockholders of the Company (including, without
limitation, the holders of the Voting Notes) shall have duly approved at the
Stockholders' Meeting the issuance of the Shares pursuant to this Agreement and,
to the extent required, the transactions contemplated by the Financing
Agreements.
(e) The Purchasers shall have received fully executed copies
of the Purchase Agreement, the Registration Rights Agreement and any and all
other agreements, documents, certificates or instruments contemplated by this
Agreement and any of the foregoing.
(f) 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.
(g) The Debt Offering and Rights Offering shall have been
consummated simultaneously with the Closing of this Agreement and the Purchase
Agreement on terms and conditions reasonably satisfactory to the Purchasers, and
in no event shall the notes issued in connection with the Debt Offering have an
interest rate in excess of 12% per annum.
(h) The Purchase Agreement shall not have been materially
amended or modified, nor any material provision thereof waived by the Company,
except upon the consent of the Purchasers in their sole discretion (such consent
not to be unreasonably withheld).
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement (including, without limitation,
Sections 4.2 and 4.3 hereof) shall terminate and the transactions contemplated
hereby may be abandoned (i) at any time simultaneous with or following the
termination of the Purchase Agreement, (ii) by the Company, on the one hand, or
the Purchasers, on the other hand, upon notice to the other, two (2) days after
the failure by the stockholders of the Company to approve at the Stockholders'
Meeting the issuance of the Shares pursuant to this Agreement and, to the extent
required, the transactions contemplated by the Financing Agreements in
accordance with Section 5.2(e) and 5.3(d) hereof or (iii) on the next date
following the date which is the last date on which, pursuant to Section 1.3
hereof, the Closing hereunder can occur by written notice of the Company to the
other parties or any Purchaser to the other parties. This Agreement shall
terminate at such time as, by their terms, all of the obligations under Sections
4.2 and 4.3 hereof are no longer in effect.
23
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
the Purchasers 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 the Purchasers 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 Sections 1.4, 1.5 and 1.6 and 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
transmuted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
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.
24
If to the Purchasers, 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.
and
Capital Z Partners, Ltd.
Xxx Xxxxx Xxxxxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
with copies to:
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx Xxxxx, Esq.
and
Insurance Partners Advisors, L.P.
Xxx Xxxxx Xxxxxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
25
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 or Warrants as contemplated
hereby.
6.10 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Cap Z may transfer or assign this
Agreement and all of its rights, interests and obligations hereunder (i) to ZCIL
or its affiliates pursuant to the Zurich Letter or (ii) to one or more of the
following entities: any partnership of which Cap Z is, directly or indirectly,
the general partner, any limited liability company of which Cap Z is, directly
or indirectly, the managing member or any Associate of Cap Z, and upon any such
transfer or assignment Cap Z shall have no further obligations hereunder except
under Section 4.2(a) hereof, in which event such assignee shall be a "Purchaser"
for all purposes under this Agreement. If Cap Z shall assign its rights,
interests and obligations hereunder to ZCIL, ZCIL may assign its rights,
interests and obligations hereunder to Cap Z or a partnership of which Cap Z is,
directly or indirectly, the general partner, any limited liability company of
which Cap Z is, directly or indirectly, the managing member or any Associate of
Cap Z, all in accordance with the terms of the Zurich Letter, and upon any such
transfer or assignment ZCIL shall have no further rights or obligations
hereunder to the extent its rights, interests and obligations have been so
transferred or assigned. 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
26
obligations shall be assigned by any of the parties hereto without the prior
written consent of the other parties.
6.11 Counterparts. This Agreement 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 Delaware, without
reference to the conflict of laws principles thereof.
6.13 Third Party Beneficiaries. 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 any of the Purchasers 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 the Purchasers, whether or not the
transactions contemplated hereby are consummated.
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 Delaware corporation
By: /s/ J. Xxxxx Xxxxxx
----------------------
Name: J. Xxxxx Xxxxxx
Title: 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/ signature illegible
-----------------------
Name:
Title:
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), Ltd., its
General Partner
By: /s/ signature illegible
-----------------------
Name:
Title:
CAPITAL Z PARTNERS, LTD.
By: /s/ Xxxxxxx Xxxxxx
------------------
Name: Xxxxxxx Xxxxxx
Title: Vice President
[Acknowledgment and Agreement on Following Page]
Acknowledgment 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 (and the officers,
directors and control persons of such managing partners) shall be bound by the
terms of this Agreement to the extent such terms apply to them.
CENTRELINE REINSURANCE LIMITED,
a Bermuda corporation
By: /s/ Xxxx Xxxxxxx
----------------
Name: Xxxx Xxxxxxx
Title: SUP & CAO
CENTRE REINSURANCE LIMITED,
a Bermuda corporation
By: /s/ Xxxx Xxxxxxx
----------------
Name: Xxxx Xxxxxxx
Title: SUP & CAO
INTERNATIONAL INSURANCE INVESTORS,
L.P., a Bermuda limited partnership
By: International Insurance Investors
(Bermuda) Limited, a Bermuda
corporation
Its: General Partner
By: /s/ Xxxxxxx Xxxxxx
------------------
Name: Xxxxxxx Xxxxxx
Title: Director
INTERNATIONAL INSURANCE ADVISORS,
INC., a Delaware corporation
By: /s/ Xxxxxx X. Spass
----------------------
Name: Xxxxxx X. Spass
Title: President
EXHIBIT A-1
PURCHASERS OF THE SHARES OF COMMON STOCK
--------------------------------------------------------------------------------
Purchaser Percentage of Maximum
Shares to be Unsubscribed Number of
Purchased Shares Shares
--------------------------------------------------------------------------------
IP Delaware 1,756,627 31.3016% 3,737,504
IP Bermuda 712,627 12.6984% 1,516,227
Cap Z 3,142,686 56% 6,686,567
--------------------------------------------------------------------------------
EXHIBIT A-2
WARRANTS
--------------------------------------------------------------------------------
Purchaser Number of Warrants
--------------------------------------------------------------------------------
IP Delaware 229,754
IP Bermuda 93,206
Cap Z 205,520
ZCIL 205,520
--------------------------------------------------------------------------------
EXHIBIT A-3
TRANSACTION FEE
--------------------------------------------------------------------------------
Purchaser Fee Amount
--------------------------------------------------------------------------------
IP Delaware $1,220,762
IP Bermuda $495,238
Cap Z $2,184,000
--------------------------------------------------------------------------------
