As filed with the Securities and Exchange Commission on November 12, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
AMCOMP INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
6331
(Primary Standard Industrial
Classification Code Number)
65-0636842
(I.R.S. Employer
Identification Number)
701 U.S. Highway One, Suite 200
North Palm Beach, Florida 33408
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
AmComp Incorporated
701 U.S. Highway One, Suite 200
North Palm Beach, Florida 33408
Attention: Fred R. Lowe, President
(561) 840-7171 (Telephone)
(561) 863-2603 (Telecopier)
(Name, address, including zip code, and telephone number, including area code,
of agent of service)
Copies to:
David J. Adler, Esq. Alexander M. Dye, Esq.
Daniel J. Gallagher, Esq. Michael B. Kirwan, Esq.
Olshan Grundman Frome & Rosenzweig LLP LeBoeuf, Lamb, Greene & MacRae, L.L.P.
505 Park Avenue 125 West 55th Street
New York, New York 10022 New York, New York 10019-5389
(212) 753-7200 (Telephone) (212) 424-8000 (Telephone)
(212) 755-1467 (Telecopier) (212) 424-8500 (Telecopier)
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of each Class of Securities to be Proposed Maximum Aggregate Offering
Registered Price(1) Amount of Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value................ $50,000,000 $13,900
===================================================================================================================================
</TABLE>
- --------------------
(1) Estimated solely for purposes of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
-2-
<PAGE>
We will amend and complete the information in this prospectus. Although we are
permitted by US federal securities laws to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
SUBJECT TO COMPLETION NOVEMBER 12, 1998
Prospectus
, 199
AmComp Incorporated
_______ Shares of Common Stock
<TABLE>
<CAPTION>
Certain Data on the Company: The Offering:
<S> <C> <C> <C>
o We are the fourth largest provider of workers' o The Company is offering shares.
compensation insurance in Florida, based on
direct premiums written during 1997.
o AmComp Incorporated o The underwriters have an option to
701 U.S. Highway One, Suite 200 purchase an additional shares from
North Palm Beach, Florida 33408 the Company to cover over-allotments.
(561) 840-7171
o Proposed Symbol/(Proposed Market): o This is our initial public offering, and
_____/(NASDAQ National Market) no public market currently exists for
our shares.
o We plan to use the proceeds from this offering to
increase the capital of our insurance subsidiaries,
AmComp Assurance and AmComp Preferred, in order to
permit them to underwrite additional insurance.
o Closing , 199
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Per Share Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Public offering price (Estimated): $ $
Underwriting fees: $ $
Proceeds to Company: $ $
==========================================================================================================================
</TABLE>
This investment involves risk. See "Risk Factors" beginning on Page 12.
Neither the SEC nor any State securities commission has determined whether this
prospectus is truthful or complete. They have not made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
Donaldson, Lufkin & Jenrette
BT Alex. Brown
Credit Suisse First Boston
<PAGE>
TABLE OF CONTENTS
Page
Certain Introductory Matters....................... 5
Prospectus Summary................................ 6
Risk Factors...................................... 12
Forward-Looking Statements
and Associated Risks.............................. 19
Use of Proceeds.................................... 19
Capitalization..................................... 20
Dividend Policy.................................... 22
Dilution........................................... 22
Selected Consolidated Financial Data............... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................... 27
Business........................................... 35
Management......................................... 53
Certain Relationships and Related Transactions..... 61
Principal Stockholders............................. 62
Description of Capital Stock....................... 64
Shares Eligible For Future Sale.................... 67
Underwriting....................................... 68
Legal Matters...................................... 70
Experts............................................ 70
Available Information.............................. 70
Index to Financial Statements...................... F-1
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY
OR THE ADEQUACY OF THIS DOCUMENT.
The Company owns all of the shares of capital stock of two insurance companies
domiciled in the State of Florida. The Florida insurance laws require prior
approval by the Florida Department of Insurance (the "Florida DOI") of any
acquisition of control of a domestic insurance company or of any company which
controls a domestic insurance company. "Control" is generally presumed to exist
through the ownership of, or the holding of proxies with respect to, 5% or more
of the voting securities of a domestic insurance company or of any company which
controls a domestic insurance company. Any purchase resulting in such
purchaser's holding the power to vote 5% or more of the outstanding shares of
Common Stock would require prior approval by the Florida DOI. However, a person
who acquires at least 5% but less than 10% of the Common Stock may file with the
Florida DOI a disclaimer of affiliation and control and, unless such disclaimer
is disallowed by the Florida DOI, such person will not be required to seek prior
approval of the Florida DOI for such acquisition.
-4-
<PAGE>
CERTAIN INTRODUCTORY MATTERS
Certain Definitions
Unless otherwise stated, all references in this Prospectus to (a)
"AmComp" shall be to AmComp Incorporated, the issuer of the shares of Common
Stock in this Offering, (b) "AmComp Preferred" shall be to AmComp Preferred
Insurance Company and its predecessors, (c) "AmComp Assurance" shall be to
AmComp Assurance Corporation, (d) "Pinnacle Benefits" shall be to Pinnacle
Benefits, Inc., (e) "Pinnacle Administrative" shall be to Pinnacle
Administrative Company, (f) "Insurance Subsidiaries" shall be to AmComp
Preferred and AmComp Assurance and (g) the "Company" shall be to AmComp
Incorporated and its subsidiaries.
Share and Accounting Information
Unless otherwise stated, all information in this Prospectus assumes no
exercise of the option to purchase additional shares of Common Stock granted to
the Underwriters and gives effect to the conversion of all outstanding shares of
AmComp's Series A Mandatorily Redeemable Convertible Preferred Stock (the
"Series A Preferred Stock") into 6,000,000 shares of Common Stock, which will
occur immediately prior to the completion of this Offering (the "Preferred Stock
Conversion"). All share and per share data contained in this Prospectus have
been restated to give effect to a 5-for-2 split of the Common Stock in the form
of a stock dividend distributed in September 1996. Unless otherwise stated, all
financial information in this Prospectus is presented in accordance with
generally accepted accounting principles ("GAAP").
-5-
<PAGE>
PROSPECTUS SUMMARY
This Summary highlights information contained elsewhere in this
Prospectus. This Summary is not complete and does not contain all of the
information that you should consider before investing in the Common Stock
offered by this Prospectus. You should read the entire Prospectus carefully,
especially the risks of investing in the Common Stock discussed under "Risk
Factors."
The Company
The Company is the fourth largest provider of workers' compensation
insurance in Florida, based upon direct premiums written during 1997. The
Company underwrites workers' compensation insurance policies for employers
involved in a variety of businesses and industries, with an emphasis on small-
and medium-sized employers. The Company has written the majority of its premium
volume in Florida, but recently has commenced expansion into the Southeast and
Midwest. For the 12 months ended June 30, 1998, the Company recorded $107.9
million of gross premiums written, $91.9 million of revenues and net income of
$6.7 million. At June 30, 1998, total cash and invested assets were $103.3
million, total assets were $243.3 million and total mandatorily redeemable
preferred stock and stockholders' equity was $39.5 million.
From 1995 to 1997, the Florida workers' compensation market for
insurance companies grew substantially as insureds shifted away from
self-insurance funds. AmComp Preferred, the Company's principal insurance
subsidiary, has capitalized on this growth due to (1) its market position and
history as a former Florida self-insurance fund; (2) its strong relationships
with local insurance agencies; (3) its ability to lower policyholder loss ratios
through the use of managed care and proactive claims management; and (4) its
"equity-based" agency compensation plans. In order to maintain growth, in
Florida, the Company is developing additional agency relationships, offering new
workers' compensation products and increasing premiums written with existing
agencies. The Company also is expanding its business outside of Florida. During
1998, the Company opened its first regional office in Indianapolis, Indiana. The
Company believes that the factors that allowed it to succeed in the Florida
market will make its expansion efforts in other states successful. In addition,
while the Company is primarily focused on internal growth opportunities, it may
also consider future strategic acquisitions.
The Company provides "total care management" services in order to
reduce the frequency, severity and cost of lost wages and medical claims. Total
care management services include loss prevention, early intervention with
injured employees, proactive management of claims and emphasis on an early
return to work. The Company's focus on loss prevention includes educating
policyholders on workplace safety and proper communication with injured workers.
Under the Company's early intervention procedures, policyholders are encouraged
to notify the Company of a claim within 24 hours of the occurrence. Registered
nurses at the Company's offices are responsible for contacting the injured
employee, the policyholder and the healthcare provider within 24 hours after
notification of a claim. Working with claims adjusters as a team, nurses
coordinate the medical component of each indemnity claim from inception to
completion to provide quality healthcare to the injured employee, facilitating
an early return to work. The Company has concluded that returning an employee to
the job quickly is an effective means of controlling indemnity payments for lost
wages, typically the largest component of workers' compensation costs, as well
as legal and medical expenses.
The Company offers a range of workers' compensation policies that are
designed to fit the needs of its policyholders and employer groups. The
Company's basic product is a guaranteed cost policy, under which the premium for
a policyholder is set in advance and only varies based upon changes in the
policyholder's employee class codes and payroll. The Company also offers a
variety of loss sensitive retention programs to policyholders under which a
portion of premium may be returned to them in the form of a dividend. As of June
30, 1998, the Company offered its policies through an extensive network of more
than 250 independent agencies. It uses financial incentives that include
commissions, bonuses and stock options to establish long-term relationships with
those independent agencies that actively market its products and services.
Certain independent agencies that place insurance with the Company are granted
stock options that vest based upon achievement of specific performance criteria.
-6-
<PAGE>
The fundamental components of the Company's business strategy are:
o"Total Care Management." The Company believes that its emphasis on
total care management services in its dealings with policyholders, their
employees and independent agencies distinguishes it as a provider of workers'
compensation insurance products and services. The Company's total care
management strategy includes 24-hour first notice of injury reporting,
assignment of registered nurse/adjuster teams to each indemnity claim and the
use of field service consultants and policyholder education programs. This
strategy is designed to provide prompt, frequent and positive contacts with
these parties and to expedite the return to work of injured workers. The Company
believes that its total care management strategy is an effective means of
reducing payments for lost wages as well as for legal and medical expenses.
oEmphasis on Underwriting Profitability. The Company seeks to achieve
consistent underwriting profitability through its emphasis on selective
underwriting and appropriate pricing and reserving. The Company also uses
reinsurance to manage exposure to severe losses. As a result, AmComp Preferred
has reported loss ratios of 56.8%, 59.1% and 60.6% for the developed policy
years ended 1995, 1996 and 1997, respectively. In addition, AmComp Preferred has
experienced a favorable reserve development in four of the last five years.
oFocus on Smaller Accounts. The Company's target market is smaller
accounts, which the Company defines as accounts of policyholders with annual
premiums of less than $100,000, that express active interest in preventing and
managing their losses. Of the Company's earned premiums for 1997, approximately
67% was attributable to smaller accounts and of the Company's earned premiums in
the first six months of 1998, approximately 94% is attributable to smaller
accounts. The Company's average written premium size was $17,700 in 1997 and
$14,500 for the six months ended June 30, 1998. The Company believes that these
accounts are not subject to the same degree of price competition as large
accounts and that they permit generally better pricing per risk.
oProactive Claims Management. The Company believes that proactive
claims management is integral to its ability to minimize overall losses. The
Company uses experienced claims adjusters who are each responsible for
approximately 100 to 125 indemnity cases. The Company believes that this number
of cases is significantly fewer than the number of cases handled by adjusters at
many competing companies. The Company assigns a registered nurse and a claims
adjuster to each claim. This nurse/adjuster team remains responsible for the
claim from the time of the initial injury report to the final disposition of the
claim. Early return to the job is achieved in part through frequent and personal
contact with the injured employee and by encouraging "modified duty" until an
employee is able to return to his or her former job. The Company believes that
the amount of attention that its nurse/adjuster teams devote to their claims
minimizes attorney involvement and expedites the settlement of valid claims. One
year after the end of each of the 1994, 1995 and 1996 policy years, 94.0%, 92.7%
and 93.3%, respectively, of the number of claims incurred during such policy
years were closed.
oStrong Distribution Network. The Company relies on its extensive
network of independent sales agencies to market and sell its products. By
offering its independent agencies a combination of financial incentives, which
include commissions, bonuses and stock option grants, the Company seeks to
establish long-term relationships with its agencies and to provide them with an
interest in the future success of the Company. The vesting of such stock options
is subject to the optionee's attaining certain performance goals, including,
among other things, growth in written premiums, issuance of new policies and
maintenance or replacement of existing policies, maintenance of loss ratios and
collection of premiums. Independent agencies that hold stock options issued by
the Company produced approximately 62.5% of gross premiums written in 1997.
o Increased Market Penetration and Geographic Expansion. The Company
seeks internal growth by: (1) building relationships with additional independent
insurance agencies; (2) enhancing or developing new workers' compensation
products and services; and (3) expanding into new states. The Company has
already commenced expansion beyond its Florida underwriting base. The Company
believes that expansion outside of Florida offers significant opportunities for
increased sales and diversification of underwriting risk and plans to continue
its expansion into markets in the Southeast and Midwest.
-7-
<PAGE>
oExperienced Management Team and Employees. The Company believes that
hiring and retaining management and employees with experience in both managed
care and insurance are crucial to implementing its total care management
strategy. The Company believes that the collective underwriting, claims, care
management and other experience of its employees are critical factors in the
Company's success. The Company seeks to reduce employee turnover by paying
competitive salaries and by providing professional development and advancement
opportunities.
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered............................................. _____________ shares
Common Stock to be outstanding after the Offering................ _____________ shares(1)
Use of Proceeds.................................................. To increase the capital of the Insurance
Subsidiaries to permit them to underwrite
additional insurance and for working capital
and general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol........................... _________
</TABLE>
- --------------------------
(1) Excludes _______ shares of Common Stock reserved for issuance under (1)
AmComp's 1996 Stock Option Plan (the "1996 Plan"), (2) option agreements
with certain executive officers of the Company (the "Executive Option
Agreements"), (3) AmComp's Directors' Stock Option Plan (the "Directors'
Plan"), (4) AmComp's 1996 Stock Option Plan for Agents (the "AmComp Agents
Plan") and (5) an outstanding Common Stock purchase warrant issued in
connection with the establishment of AmComp's bank credit facility to the
lender under such facility (the "Warrant"). Includes 6,000,000 shares of
Common Stock issuable upon the Preferred Stock Conversion. See "Management
- Stock Option Plans" and "Description of Capital Stock - Agent Stock
Option Plans."
Risk Factors
For a discussion of certain factors you should consider before buying
shares of Common Stock, see "Risk Factors" on page 12.
-8-
<PAGE>
Summary Consolidated Financial Data
The following summary historical financial data for AmComp and its
subsidiaries should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements included herein. The consolidated income statement data for
the years ended December 31, 1995, 1996 and 1997 and the consolidated balance
sheet data as of December 31, 1995, 1996 and 1997 are derived from the
consolidated financial statements of AmComp and its subsidiaries, which have
been audited by Ernst & Young LLP, independent certified public accountants. The
consolidated income statement data for the years ended December 31, 1993 and
1994 and for the six months ended June 30, 1997 and 1998 and the consolidated
balance sheet data as of December 31, 1993 and 1994 and as of June 30, 1997 and
1998 are derived from the unaudited consolidated financial statements of AmComp
and its subsidiaries.
The Company believes the financial information for the years ended
December 31, 1993, 1994 and 1995 is not comparable to the financial information
for later periods due to the Company's acquisition of AmComp Preferred in
January 1996. Summary financial information for AmComp Preferred as of and for
the years ended December 31, 1993, 1994 and 1995 follows the summary financial
information for AmComp and its subsidiaries. The income statement and balance
sheet data as of and for the year ended December 31, 1995 are derived from the
financial statements of AmComp Preferred which have been audited by Ernst &
Young LLP, independent certified public accountants. The income statement and
balance sheet data as of and for the years ended December 31, 1993 and 1994 are
derived from the unaudited financial statements of AmComp Preferred.
The unaudited financial statements include all adjustments, consisting
of normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. The results of operations of the Company for the six months ended June
30, 1998 are not necessarily indicative of the results to be expected for the
entire year ending December 31, 1998.
AmComp and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------------------------- ----------------------
1993(1) 1994 1995 1996(2) 1997 1997 1998
------- ---- ---- ------- ---- ---- ----
(Dollars in thousands, except per share data)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Gross premiums written............. $ - $ - $ - $70,995 $126,782 $92,317 $73,419
Ceded premiums..................... - - - 1,144 23,155 350 20,596
Net premiums written............... - - - 69,851 103,627 91,967 52,823
Net premiums earned................ $ - $ - $ - $58,226 $102,505 $52,988 $36,046
Net investment income.............. 7 17 53 3,288 5,113 2,551 2,616
Net realized investment gains...... - - - - 65 - 129
Other income(3).................... 2,877 4,578 6,316 666 870 408 520
----- ----- ----- ------ ------- ------- -------
Total revenue...................... 2,884 4,595 6,369 62,180 108,553 55,947 39,311
Losses and loss adjustment expenses - - - 28,259 64,421 32,228 18,588
Underwriting and acquisition
expenses......................... 2,027 3,453 5,612 21,396 29,752 16,239 10,794
Interest expense................... - - - - 806 338 759
------ ------ ------- ------ ------ ------ ------
Total expenses..................... 2,027 3,453 5,612 49,655 94,979 48,805 30,141
Income before dividends to
policyholders and income taxes... 857 1,142 757 12,525 13,574 7,142 9,170
Dividends to policyholders......... - - - 3,600 6,080 2,996 3,424
----- ------ ------ ------ ------ ----- -----
Income before income taxes......... 857 1,142 757 8,925 7,494 4,146 5,746
Income tax expense................. 311 441 270 3,491 2,060 1,282 1,646
---- ------ ----- ------ ------ ------ ------
Net income......................... $546 $701 $487 $5,434 $5,434 $2,864 $4,100
Accretion of mandatorily redeemable
preferred stock syndication costs - - - (176) (355) (178) (180)
----- ----- ----- ------- ------ ------ ------
Net income attributable to common
stockholders..................... $546 $701 $487 $5,258 $5,079 $2,686 $3,920
Net income per share - basic....... $0.04 $0.06 $0.04 $0.42 $0.40 $0.21 $0.31
===== ====== ===== ====== ====== ====== ======
Weighted average shares
outstanding - basic.............. 12,500 12,500 12,500 12,527 12,574 12,563 12,597
Net income per share - diluted..... $0.04 $0.06 $0.04 $0.35 $0.29 $0.15 $0.22
===== ===== ===== ===== ===== ===== =====
Weighted average shares
outstanding - diluted............ 12,500 12,500 12,500 15,488 18,639 18,563 18,705
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of June 30,
-------------------------------------------------- -----------------------
1993(1) 1994 1995 1996(2) 1997 1997 1998
------- ---- ---- ------- ---- ---- ----
(Dollars in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total cash and invested assets....... $268 $1,184 $973 $98,314 $119,719 $103,115 $103,335
Total assets......................... 1,459 1,565 2,680 136,450 222,986 193,695 243,315
Unpaid losses and loss adjustment
expenses.......................... - - - 45,382 86,511 66,956 97,821
Note payable......................... - - - 10,000 20,000 10,000 20,000
Total liabilities.................... 613 18 646 107,096 187,553 161,300 203,770
Mandatorily redeemable preferred
stock(4).......................... - - - 21,745 22,100 21,922 22,280
Total common stockholders' equity.... 846 1,547 2,034 7,609 13,333 10,473 17,265
Total mandatorily redeemable preferred
stock and stockholders' equity.... 846 1,547 2,034 29,354 35,433 32,395 39,545
GAAP RATIOS(5):
Loss ratio(6)........................ - - - 48.5% 62.9% 60.8% 51.6%
Expense ratio(7)..................... - - - 36.8 29.0 30.7 30.0
Policyholder dividend ratio(8)....... - - - 6.2 5.9 5.7 9.5
---- ---- ---- ----
Combined ratio(9).................... - - - 91.5% 97.8% 97.2% 91.1%
</TABLE>
AmComp Preferred
Years Ended December 31,
1993 1994 1995
(Dollars in thousands)
INCOME STATEMENT
DATA(10):
Gross premiums written........... $24,714 $30,769 $43,494
Net premiums written............. 24,225 30,079 41,855
Net premiums earned.............. $24,225 $28,828 $32,346
Net investment income............ 1,093 1,763 2,492
Other income..................... 496 718 832
-------- ------- ------
Total revenue.................... 25,814 31,309 35,670
Losses and loss adjustment
expenses....................... 16,299 13,757 18,354
Underwriting and acquisition
expenses....................... 6,528 8,311 14,930
-------- ------- ------
Total expenses................... 22,827 22,068 33,284
Income before dividends to
policyholders and income
taxes.......................... 2,987 9,241 2,386
Dividends to policyholders....... 1,440 2,229 2,768
------ ----- -----
Income before income taxes....... 1,547 7,012 (382)
Income tax expense (benefit)..... 591 2,643 (50)
------- ------- ------
Net income (loss)................ $ 956 $ 4,369 $(332)
======= ======= ======
-10-
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1993 1994 1995
---- ---- ----
BALANCE SHEET DATA(10):
<S> <C> <C> <C>
Total cash and invested assets.................. $26,722 $37,209 $49,993
Total assets.................................... 32,379 50,149 67,841
Unpaid losses and loss adjustment
expenses..................................... 18,881 30,927 36,087
Total liabilities............................... 31,423 44,824 62,806
Total stockholders' equity...................... $ 956 $ 5,325 $ 5,035
GAAP RATIOS(5):
Loss ratio(6)................................... 67.3% 47.7% 56.7%
Expense ratio(7)................................ 26.9 28.8 46.2
Policyholder dividend ratio(8).................. 5.9 7.7 8.6
------ ----- ------
Combined ratio(9)............................... 100.1% 84.2% 111.5%
</TABLE>
- ---------------------
(1) The combination of Pinnacle Benefits and Pinnacle Administrative by AmComp
has been accounted for as reorganization of entities under common control
in a manner similar to a pooling of interests. The accounts of all three
entities have been combined as if the reorganization occurred on January
1, 1993.
(2) The acquisition of AmComp Preferred has been accounted for as a purchase,
effective January 1, 1996.
(3) Other income for 1993, 1994 and 1995 consists primarily of management fees
received by the Company for services provided to AmComp Preferred.
(4) In 1996, unrelated investors purchased $24.0 million (gross of syndication
expenses of $2.4 million) of mandatorily redeemable preferred stock, which
will be converted into 6,000,000 shares of Common Stock at the time of
consummation of the Offering.
(5) GAAP ratios are derived from amounts and captions reported in financial
statements prepared in accordance with generally accepted accounting
principles.
(6) Losses and loss adjustment expenses divided by net premiums earned.
(7) Underwriting and acquisition expenses divided by net premiums earned.
(8) Policyholder dividends incurred divided by net premiums earned.
(9) Sum of ratios computed in footnotes 6, 7 and 8.
(10) Throughout 1993 and 1994 and the first four months of 1995, AmComp
Preferred was a self-insurance fund, converting to an assessable mutual
insurance company in 1995. It subsequently became a stock insurance
company in January 1996.
-11-
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other
information in this Prospectus before purchasing Common Stock. Certain
statements concerning the Company's future financial condition and performance
are forward-looking statements and actual results and developments could be
materially different.
Concentration of Business
The Company offers only workers' compensation insurance. It has no
present plans to assume risk on any other type of insurance. Negative
developments in regulatory, judicial, economic and competitive conditions
affecting workers' compensation insurance could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company currently writes virtually all of its premiums in Florida.
Regulatory, judicial, economic and competitive conditions in Florida therefore
have a substantial effect on the revenues and profitability of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Regulation." Although the Company has begun expansion
into additional states, it anticipates that, for the foreseeable future, it will
continue to write the majority of its premiums in Florida. See
"Business--Geographic Expansion."
Highly Competitive Industry
The market for workers' compensation insurance products is highly
competitive. The Company's competitors include, among others, insurance
companies, professional employer organizations ("PEOs"), third party
administrators, self-insurance funds and state insurance pools. Many of the
Company's existing and potential competitors are significantly larger and
possess considerably greater financial and other resources than the Company. If
any of these competitors offer more competitive dividend or payment plans,
services or commissions to independent agencies, the Company could lose market
share, which could have an adverse effect on its business and results of
operations. See "Business--Competition."
The Company expects ratings to become an increasingly important factor
in establishing its competitive position. Certain independent agencies and
purchasers of insurance, particularly in states into which the Company is
expanding, look to the ratings assigned by A.M. Best Company, Inc. ("A.M. Best")
to assist them in assessing the financial strength and overall quality of
insurance companies. The Insurance Subsidiaries are not rated by A.M. Best. When
they apply for a rating, the rating they receive may not be favorable to the
Company's marketing efforts.
In July 1998, the Company entered into an arrangement with an insurance
carrier that has an A.M. Best rating of "A (Excellent)." Under the arrangement,
the carrier issues policies to employers meeting the Company's underwriting
guidelines. This permits the Company to compete for rating-sensitive business.
The Company reinsures such policies. The carrier receives, in effect, a
commission for each policy issued, which makes policies written through this
arrangement substantially less profitable to the Company. If this arrangement
were terminated, there could be no assurance that a comparable one would be
available to the Company on terms acceptable to it. See "Business--Insurance
Products" and "--Competition."
-12-
<PAGE>
Possible Inadequacy of Loss Reserves
The Insurance Subsidiaries must establish and maintain reserves for
their estimated liability for losses and loss adjustment expenses ("LAE"). These
reserves are for both reported losses and losses incurred but not reported
("IBNR"). They do not reflect a precise calculation of liabilities. Instead,
they are estimates based upon actuarial projections of the expected cost of
settlement and administration of claims and are based upon:
o known facts and circumstances
o predictions of future events
o estimates of future trends in frequency and severity
of claims
o other factors, such as inflation
In addition, certain workers' compensation claims may be paid over a long period
of time. Estimating reserves for these claims can be more uncertain than
estimating reserves for other lines of insurance with shorter or more definite
periods between occurrence of the claim and final determination of the loss.
The Company believes it has established appropriate loss reserves.
Nevertheless, the Company may ultimately incur losses and LAE that exceed its
loss reserves. If the Company's reserves are inadequate, the Company will be
required to increase them. An increase in reserves would reduce the Company's
net income in the period that the reserves are increased. If the increase is
substantial, it could have a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Loss and Loss
Adjustment Expense Reserves."
Dependence Upon Reinsurance
Like other insurers, the Company manages its risk, in part, through
excess of loss and quota-share reinsurance agreements. Under excess of loss
reinsurance, a reinsurer pays losses and loss expenses over a specific dollar
amount up to an agreed limit per occurrence. The Company's excess of loss
reinsurers assume liability on each loss exceeding $50,000. The Company's excess
of loss reinsurance agreements expire in 2000. Under quota-share reinsurance, a
reinsurer assumes a specified portion of net losses and allocated loss
adjustment expense ("ALAE") in exchange for a specified portion of policy
premiums. The Company's quota-share reinsurers have assumed 25% of the Company's
net losses and ALAE (with a specified exception) in exchange for 25% of the
Company's gross premiums written. The Company's quota-share reinsurance
agreements expire on December 31, 1998.
The availability, amount and cost of reinsurance are subject to market
conditions and to the Company's experience with insured losses. There can be no
assurance that the Company's reinsurance agreements can be renewed or replaced
prior to expiration upon terms as satisfactory as those currently in effect. If
the Company were unable to renew or replace its reinsurance agreements upon such
terms (1) its net liability on individual risks would increase; (2) it would
have greater exposure to catastrophic losses; (3) its underwriting results would
be subject to greater variability; and (4) its underwriting capacity would be
reduced.
The Company bears credit risk with respect to its reinsurers, because
the transfer of risk to them does not relieve the Company of liability to its
policyholders. The Company reinsures with reinsurers it believes to be
financially stable, but a reinsurer's failure to make a significant payment
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Reinsurance."
Payment of Policy Dividends
A majority of the Company's insurance policies are "retention"
policies. These policies provide for the potential payment of policy dividends
to the policyholders who own them. Each retention policy has a dividend plan
agreement that specifies how a policyholder may receive a dividend. Under
Florida law, neither the
-13-
<PAGE>
payment of these policy dividends, nor their amount can be guaranteed. Such
limitation is stated in the dividend plan agreement with each retention
policyholder. Payment of policy dividends is at the discretion of the Board of
Directors of the applicable Insurance Subsidiary and is based upon (1) the
individual policyholder's loss ratio; (2) the Insurance Subsidiary's overall
loss ratio; and (3) the terms of the policyholder's dividend plan agreement.
At the inception of each policy that is covered by a dividend plan
agreement, the Company calculates the maximum potential policy dividend that
could be paid to the holder of such policy under the applicable dividend plan
agreement. The Company generally furnishes this information to the independent
agency (which may, in turn, furnish the information to the policyholder). The
applicable Insurance Subsidiary pays policy dividends eight to 20 months after
the end of the policy term. While the Company believes that dividends paid by it
are comparable to those paid by its competitors, policy dividends paid by the
Company in 1998 have been substantially less than maximum potential policy
dividends.
In Florida, where premium rates are fixed by law, the payment of policy
dividends is an important competitive factor. If the Insurance Subsidiaries
declare policy dividends that fail to meet the expectations of retention
policyholders or the Company's independent agencies, this could adversely affect
the Insurance Subsidiaries' relationship with them and could have an adverse
effect on the Company's business and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Insurance Products."
Retention policyholders who pay the Company $50,000 or more in annual
premiums may defer a portion of their annual premium payments in anticipation of
offsetting that payment with policy dividends that are based upon the potential
policy dividend. The policyholder secures the deferred premium with a
certificate of deposit, a letter of credit or a performance bond. While the
policyholders' obligations are secured, the Company's business and results of
operations could be materially adversely affected if the actual policy dividend
is less than the deferred premium and if these policyholders and the related
collateral providers fail to pay a substantial amount of these receivables.
Reliance Upon Independent Insurance Agencies
The Company markets and sells its insurance products solely through
independent, non-exclusive insurance agencies and brokers. During 1997, the
Company's top 10 independent agencies accounted for approximately 43% of the
Company's premiums written. The loss of the relationship with one or more of
these agencies could have a material adverse effect on the Company's business
and results of operations. These agencies also sell competitors' products. The
Company must offer workers' compensation insurance products that meet the
requirements of these agencies and their customers. As the Company expands into
additional states, it must establish an effective network of independent
agencies in those states.
Management of Growth and Expansion
The Company has begun to expand into other states. As the Company
expands, it will be underwriting policies for insureds in states in which the
Company has not previously operated. The Company's insurance experience has been
developed in Florida. This experience may not enable the Company to compete
successfully in new markets or adequately estimate risks in those markets. In
addition, in the initial stages of its expansion, the Company will rely on third
party providers to adjust claims and for various administrative matters.
The Company's future growth and expansion will depend upon the efforts
of key management personnel and its ability to attract and retain qualified
persons familiar with the Company's markets. If the Company is unable to manage
its growth effectively, its business, financial condition and results of
operations could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business--Business Strategy."
-14-
<PAGE>
Regulation
The Company is subject to extensive regulation by the Florida DOI and
the insurance regulatory agencies of other states in which it is licensed. This
regulation is designed primarily for the protection of policyholders and their
employees, rather than stockholders of AmComp. Changes in such regulation could
materially adversely affect the Company's financial condition and results of
operations. Regulations vary from state to state, but typically address:
o licensing
o payment of dividends
o investment criteria
o establishment of premium rates
o policy forms
o changes of control
o capital requirements
o reserve requirements
o market conduct
The Florida DOI generally fixes the premium rates that insurers may
charge for workers' compensation insurance. Other states allow premium rates to
be based upon market forces and other factors. The Florida legislature may, as
early as 1999, consider legislative proposals to permit workers' compensation
insurers to compete on the basis of price. A change in Florida's rating system
could result in increased competition from larger, national insurance companies,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Regulation."
Holding Company Structure and Restrictions on Dividends and Other Payments
AmComp is a holding company. It relies upon payments from its
subsidiaries to meet its obligations. It currently receives dividend payments
solely from Pinnacle Administrative and Pinnacle Benefits. These dividend
payments are funded by fee payments under service and management agreements
entered into by Pinnacle Administrative and Pinnacle Benefits with each of the
Insurance Subsidiaries. Under the service agreements, Pinnacle Administrative
and Pinnacle Benefits provide certain administrative, marketing, accounting,
human resource, claims and other services to the Insurance Subsidiaries in
return for fees. AmComp has in the past purchased surplus notes from the
Insurance Subsidiaries. The Insurance Subsidiaries are required to make interest
and principal payments on the surplus notes to AmComp. Fee payments under the
service agreements are subject to Florida DOI review. Interest and principal
payments under the surplus notes are subject to the Florida DOI's prior
approval. The inability of the Insurance Subsidiaries to make these payments or
a material reduction in the amount of these payments would have a material
adverse effect on AmComp's liquidity. AmComp's existing bank credit facility
prohibits the payment of cash dividends on the Common Stock. See "Dividend
Policy" and "Business--Regulation."
Reliance Upon Key Personnel
The Company's success is largely dependent on the efforts of Fred R.
Lowe, its President and Chief Executive Officer, and Debra Cerre-Ruedisili, its
Executive Vice President and Chief Operating Officer. Each of them is a party to
an employment agreement with the Company containing confidentiality and
restrictive covenant provisions. The loss of the services of Mr. Lowe or Ms.
Cerre-Ruedisili could have a material adverse effect on the Company's business
and results of operations. See "Management."
-15-
<PAGE>
Disability and Guaranty Funds
The Company is subject to assessment by disability and guaranty funds.
One fund, Florida's Special Disability Trust Fund (the "SDTF"), reimburses
employers and insurance carriers for workers' compensation benefits paid to
employees who are injured and whose disability is increased by a prior
work-related injury. Workers' compensation insurers fund the SDTF through annual
assessments based upon workers' compensation net written premiums. The Company's
assessments were $3.2 million in 1996 and $4.6 million in 1997. The SDTF
currently has significant unfunded liabilities and no reserves currently exist
to satisfy future claims.
The Company submits covered claims to the SDTF for recovery. Because
collection is uncertain, the Company records SDTF recoveries only when received
and, accordingly, does not accrue for future recoveries. The Company received
SDTF recoveries of approximately $0.8 million in 1996 and approximately $0.5
million in 1997.
Current law caps future SDTF assessments at 4.52% of net written
premiums and no recoveries can be made for claims arising from accidents
occurring on or after January 1, 1998. The SDTF is currently scheduled to expire
in 2000, unless it is recreated by the Florida legislature. Changes in SDTF's
operations (or the operations of any successor to the SDTF) that decrease the
availability of recoveries from the SDTF or increase SDTF assessments payable by
the Company could have a material adverse effect on the Company's business and
results of operations. See "Business--Regulation."
Most states have established one or more insurance guaranty funds or
associations to pay claims of policyholders of insolvent companies. All
insurance companies must participate in guaranty associations in the states
where they write policies. They are assessed for the associations' operating
costs, including the costs of paying policyholder or covered employees' claims
against an insolvent insurer. In Florida, maximum assessment is currently 2% of
gross premiums written (to be increased to 3.5% effective July 1, 1999). The
Company's financial performance could be adversely affected by guaranty
association assessments resulting from the insolvency of unrelated insurers or
self-insurance funds. See "Business--Regulation."
Control by Management and Existing Stockholders
Following the completion of this Offering, directors, officers and
existing stockholders of AmComp will own approximately ____% of the outstanding
Common Stock (____% if the option granted to the Underwriters is exercised in
full). These persons will be able to elect the entire Board of Directors of
AmComp and to direct all of the affairs of the Company. See "Management" and
"Principal Stockholders."
Lack of Prior Public Market; Determination of Offering Price
There has been no public market for the Common Stock. The Company will
list the Common Stock on the Nasdaq National Market. The Company does not know
whether a regular trading market will develop or, if developed, will be
sustained for the Common Stock. Because there has been no public market for the
Common Stock, the initial public offering price of the Common Stock will be
determined by negotiation between the Company and the Underwriters. See
"Underwriting" for information relating to the factors that the Company and the
Underwriters will be considering in determining the initial public offering
price. The trading price of the Common Stock may be significantly higher or
lower than the initial public offering price in response to quarterly variations
in operating results, new regulations or interpretations of regulations, the
announcement of material acquisitions by the Company or its competitors, or
other factors. General political, economic and market conditions may also affect
the market price of the Common Stock. See "Description of Capital Stock."
-16-
<PAGE>
Dilution
All of the currently outstanding Common Stock was issued at prices
substantially lower than the price of the Common Stock offered by this
Prospectus. If you purchase Common Stock you will experience immediate and
substantial dilution of $_______ per share in net tangible book value with
respect to your shares. In contrast, the net tangible book value of Common Stock
held by the existing stockholders will increase by $____ per share. See
"Dilution."
Shares Eligible for Future Sale
The market price of the Common Stock could fall if large numbers of
shares are offered for sale or if investors believe that large numbers of shares
will be offered for sale. Upon completion of the Offering, there will be
____________ shares of Common Stock outstanding. Of these shares, the ________
shares of Common Stock sold in the Offering will be freely tradeable, except if
held by "affiliates" of the Company, as defined in Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). The remaining ______ shares of
Common Stock will be "restricted securities," as that term is defined in Rule
144. These shares may only be sold under a registration statement under the
Securities Act or an applicable exemption from registration, including pursuant
to Rule 144. The Company, its senior management and its principal stockholders
have agreed not to sell Common Stock (subject, in the case of the Company, to an
exception for the exercise of options granted under the Company's stock option
plans and agreements), for a period of 180 days after the date of this
Prospectus, without the consent of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), on behalf of the Underwriters. See "Shares Eligible for
Future Sale."
Year 2000 Risks
Like other companies, the Company could be adversely affected if
computer systems used by it or any of its major service providers do not
properly process and calculate date-related information and dates from and after
January 1, 2000. This is commonly known as the Year 2000 Issue. The issue, in
general terms, is that many existing computer systems and microprocessors with
date functions (including those in non-information technology equipment and
systems) use only two digits to identify a year in the date field, with the
assumption that the first two digits of the year are always "19." Consequently,
on January 1, 2000, computers that are not Year 2000 compliant may read the year
as 1900. Systems that calculate, compare or sort using the incorrect date may
malfunction.
Because the Company is dependent upon the proper functioning of its
computer systems, a failure of its systems to be Year 2000 compliant could have
a material adverse effect on the Company. Failure of this kind could, for
example, cause policies or claims not to be processed, lead to incomplete or
inaccurate accounting, result in generation of erroneous results or give rise to
uncertainty about the Company's need for liquidity. If not remedied, potential
risks include business interruption, financial loss, regulatory actions,
reputational harm and legal liability.
In addition, the Company depends upon the proper functioning of
third-party computer and non- information technology systems. These parties
include reinsurers, insurance agencies and commercial banks, as well as
providers of telecommunications services and other utilities. The Company has
initiated communications with parties with whom it has important financial or
operational relationships to determine the extent to which they are vulnerable
to the Year 2000 Issue. The Company has not yet received sufficient information
from all parties about their remediation plans to predict the outcome of their
efforts.
If third parties with whom the Company deals have Year 2000 problems
that are not remedied, the following problems could result: (1) in the case of
vendors, in disruption of important services upon which the Company depends,
such as telecommunications and electrical power; (2) in the case of third-party
data providers, in the receipt of inaccurate or out-of-date information that
would impair the Company's ability to perform critical data functions; (3) in
the case of banks and other lenders, in the disruption of capital flows
potentially
-17-
<PAGE>
resulting in liquidity stress; and (4) in the case of customers, in financial
and accounting difficulties for those parties that expose the Company to
increased credit risk and lost business.
The Company is implementing a plan to prepare its computer systems to
be Year 2000 compliant and expects to complete this process with respect to its
systems prior to January 1, 2000. The Company can give no assurance that its
Year 2000 program will be effective or that its estimates about the timing and
cost of completing its program will be accurate. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation--Year 2000."
-18-
<PAGE>
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including
statements regarding the Company's expected financial position, business and
financing plans. These forward-looking statements reflect the Company's views
with respect to future events and financial performance. The words "believe,"
"expect," "plans" and "anticipate" and similar expressions identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from such expectations (the
"Cautionary Statements") are disclosed in this Prospectus, including, without
limitation, in conjunction with the forward-looking statements included in this
Prospectus and under "Risk Factors." All subsequent written and oral
forward-looking statements attributable to the Company, its subsidiaries or
persons acting on the Company's behalf are expressly qualified in their entirety
by the Cautionary Statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
Prospectus. The Company undertakes no obligations to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
USE OF PROCEEDS
The net proceeds to AmComp from the sale of the shares of Common Stock
offered by it hereunder (based on an assumed initial public offering price per
share of $_____ and after deducting the underwriting discount and estimated
offering expenses) are expected to be approximately $____ million (approximately
$_____ million if the Underwriters' over-allotment option is exercised in full).
Approximately $_______ million of the net proceeds of the Offering will be
contributed to the capital of the Insurance Subsidiaries to permit them to
underwrite additional insurance. The balance, if any, of the net proceeds of the
Offering will be used for working capital and general corporate purposes. See
"Business--Business Strategy." Pending their application, the net proceeds of
the Offering will be invested in short-term investment grade securities.
-19-
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company
(1) as of June 30, 1998, (2) as adjusted to give effect to the Preferred Stock
Conversion and (3) as further adjusted to give effect to the consummation of the
Offering (based on an assumed initial public offering price per share of $_____
and after deducting the underwriting discount and estimated offering expenses)
and the application of the estimated net proceeds therefrom. This table should
be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------------------------------------------
As Further
Actual As Adjusted(1) Adjusted(1)(2)
------------- -------------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C>
Notes payable....................................... $20,000 $20,000 $20,000
======= ======= =======
Series A Mandatorily Redeemable Convertible
Preferred Stock, $1.00 par value, 2,400,000
shares authorized; 2,400,000 shares issued
and outstanding actual; no shares issued and
outstanding, as adjusted and as further
adjusted(3)...................................... 22,280 0 0
====== ======= =======
Series B Mandatorily Redeemable
Nonconvertible 10% Cumulative Preferred
Stock, $1.00 par value; 1,000,000 shares
authorized, no shares issued and outstanding..... --- --- ---
======== ======== ========
Stockholders' equity(4):............................
Common Stock, $.01 par value; 22,300,000
shares authorized, 12,596,664 issued and
outstanding actual; 18,596,664 shares issued
and outstanding, as adjusted and ________
as further adjusted.............................. 126 186
Warrants............................................ 75 75 75
Additional paid-in capital(3)....................... 450 22,670
Retained earnings................................... 16,166 16,166 16,166
Net unrealized appreciation of available for sale
securities....................................... 448 448 448
--------- ----------- ----------
Net stockholders' equity............................ 17,265 39,545
========= ========== ==========
Total capitalization............................. $59,545 $59,545 $
========= ========== ==========
</TABLE>
- --------------------------
(1) Gives effect to the Preferred Stock Conversion, resulting in the issuance of
6,000,000 shares of Common Stock.
(2) Gives effect to the sale by the Company of the shares of Common Stock
offered by it hereunder and the receipt of the net proceeds therefrom.
(3) The Company is accreting the Series A Preferred Stock syndication costs of
$2.4 million ($1,120,000 at June 30, 1998), using the interest method,
through January 31, 2003, the date of mandatory redemption.
-20-
<PAGE>
(4) Excludes _______ shares of Common Stock reserved for issuance under (1) the
1996 Plan, (2) the Executive Option Agreements, (3) the Directors' Plan, (4)
the AmComp Agents Plan and (5) the Warrant, which was issued in connection
with the establishment of AmComp's bank credit facility to the lender under
such facility. Includes 6,000,000 shares of Common Stock issuable upon the
Preferred Stock Conversion. See "Management--Stock Option Plans" and
"Description of Capital Stock--Agent Stock Option Plans."
-21-
<PAGE>
DIVIDEND POLICY
AmComp has never declared or paid cash dividends on its Common Stock.
It currently intends to retain earnings, if any, to finance the growth and
development of its business and does not anticipate paying any cash dividends in
the foreseeable future. Any future determination to pay cash dividends and the
amounts thereof will be at the discretion of the Board of Directors and will
depend upon the Company's earnings, financial condition, capital requirements,
plans for expansion, contractual restrictions, restrictions imposed by
applicable law and regulation and other factors deemed relevant by the Board of
Directors. See "Business--Regulation." AmComp is prohibited from paying cash
dividends on its Common Stock pursuant to the terms of its existing bank credit
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DILUTION
Purchasers of the shares offered hereby will experience an immediate
and substantial dilution in the net tangible book value of their investment. At
June 30, 1998, the net tangible book value of the Company (after giving effect
to the Preferred Stock Conversion) was $37.5 million, or $ per share. Net
tangible book value per share is equal to the Company's total tangible assets
less its total liabilities, divided by the total number of shares of Common
Stock outstanding. After giving effect to the sale of __________ shares of
Common Stock offered by the Company hereunder at an assumed initial public
offering price of $______ per share and the initial application of the net
proceeds therefrom, the pro forma net tangible book value of the Company at June
30, 1998 would have been approximately $_____ million or $______ per share. This
represents an immediate increase in pro forma net tangible book value of $___
per share to existing stockholders and an immediate dilution of $_____ per share
to new investors purchasing shares at the public offering price, as illustrated
in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price.................................. $_____
Net tangible book value per share as of June 30, 1998....... $____
Increase per share attributable to new investors............ ____
Estimated pro forma net tangible book value per share after the
Offering................................................. _____
Dilution per share to new investors(1)......................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30,
1998, the number of shares purchased from AmComp, the total cash consideration
paid and the average price per share paid by existing stockholders and the new
investors (based upon, in the case of new investors, an assumed initial public
offering price of $_____ per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------------- ----------------------------------
Average
Price Per
Number Percent Amount Percent Share
-------------- --------------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... % $ % $
New investors................ ---------- ----- ---------- ------
Total................... 100.0% $ 100.0%
========== ====== =========== ======
</TABLE>
- --------------------
(1) Excludes _____ shares of Common Stock reserved for issuance under (1)
the 1996 Plan, (2) the Executive Option Agreements, (3) the Directors'
Plan, (4) the AmComp Agents Plan and (5) the Warrant. Includes
6,000,000 shares of Common Stock issuable upon the Preferred Stock
Conversion. See "Management--Stock Option Plans" and "Description of
Capital Stock--Agent Stock Option Plans."
-22-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data for AmComp and its
subsidiaries should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements included herein. The consolidated income statement data for
the years ended December 31, 1995, 1996 and 1997 and the consolidated balance
sheet data as of December 31, 1995, 1996 and 1997 are derived from the
consolidated financial statements of AmComp and its subsidiaries, which have
been audited by Ernst & Young LLP, independent certified public accountants. The
consolidated income statement data for the years ended December 31, 1993 and
1994 and for the six months ended June 30, 1997 and 1998 and the consolidated
balance sheet data as of December 31, 1993 and 1994 and June 30, 1997 and 1998
are derived from the unaudited consolidated financial statements of AmComp and
its subsidiaries.
The Company believes the financial information for the years ended
December 31, 1993, 1994 and 1995 is not comparable to the financial information
for later periods due to the Company's acquisition of AmComp Preferred in
January 1996. Selected financial information for AmComp Preferred as of and for
the years ended December 31, 1993, 1994 and 1995 follows the selected financial
information for AmComp and its subsidiaries. The income statement and balance
sheet data as of and for the year ended December 31, 1995 are derived from the
financial statements of AmComp Preferred which have been audited by Ernst &
Young LLP, independent certified public accountants. The income statement and
balance sheet data as of and for the years ended December 31, 1993 and 1994 are
derived from the unaudited financial statements of AmComp Preferred.
The unaudited financial statements include all adjustments, consisting
of normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. The results of operations of the Company for the six-months ended June
30, 1998 are not necessarily indicative of the results to be expected for the
entire year ending December 31, 1998.
AmComp and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------------------------- ------------------------
1993(1) 1994 1995 1996(2) 1997 1997 1998
------- ---- ---- ------- ---- ---- ----
(Dollars in thousands, except per share data)
INCOME STATEMENT
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Gross premiums written......... $ - $ - $ - $70,995 $126,782 $92,317 $73,419
Ceded premiums................. - - - 1,144 23,155 350 20,596
Net premiums written........... - - - 69,851 103,627 91,967 52,823
Net premiums earned............ $ - $ - $ - $58,226 $102,505 $52,988 $36,046
Net investment income.......... 7 17 53 3,288 5,113 2,551 2,616
Net realized investment gains.. - - - - 65 - 129
Other income(3)................ 2,877 4,578 6,316 666 870 408 520
----- ----- ----- ------- ------- ------- -------
Total revenue.................. 2,884 4,595 6,369 62,180 108,553 55,947 39,311
Losses and loss adjustment
expenses..................... - - - 28,259 64,421 32,228 18,588
Underwriting and acquisition
expenses..................... 2,027 3,453 5,612 21,396 29,752 16,239 10,794
Interest expense............... - - - - 806 338 759
------ ------ ------- ------- ------ ------ ------
Total expenses................. 2,027 3,453 5,612 49,655 94,979 48,805 30,141
Income before dividends to
policyholders and income
taxes........................ 857 1,142 757 12,525 13,574 7,142 9,170
Dividends to policyholders..... - - - 3,600 6,080 2,996 3,424
------ ------- ------ ------ ------ ----- -----
Income before income taxes..... 857 1,142 757 8,925 7,494 4,146 5,746
Income tax expense............. 311 441 270 3,491 2,060 1,282 1,646
---- ------ ----- ------ ------ ------ ------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------------------------- ------------------------
1993(1) 1994 1995 1996(2) 1997 1997 1998
------- ---- ---- ------- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income..................... $546 $701 $487 $5,434 $5,434 $2,864 $4,100
Accretion of mandatorily
redeemable preferred stock
syndication costs............ - - - (176) (355) (178) (180)
----- ----- ----- ------- ------ ------ ------
Net income attributable to
common stockholders.......... $546 $701 $487 $5,258 $5,079 $2,686 $3,920
==== ==== ==== ====== ====== ====== ======
Net income per share -
basic........................ $0.04 $0.06 $0.04 $0.42 $0.40 $0.21 $0.31
===== ===== ===== ===== ===== ===== =====
Weighted average shares
outstanding - basic.......... 12,500 12,500 12,500 12,527 12,574 12,563 12,597
Net income per share - diluted. $0.04 $0.06 $0.04 $0.35 $0.29 $0.15 $0.22
===== ===== ===== ===== ===== ===== =====
Weighted average shares
outstanding - diluted........ 12,500 12,500 12,500 15,488 18,639 18,563 18,705
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of June 30,
---------------------------------------------------- --------------------
1993(1) 1994 1995 1996(2) 1997 1997 1998
------- ---- ---- ------- ---- ---- ----
(Dollars in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total cash and invested assets...... $268 $1,184 $973 $98,314 $119,719 $103,115 $103,335
Total assets........................ 1,459 1,565 2,680 136,450 222,986 193,695 243,315
Unpaid losses and loss
adjustment expenses.............. - - - 45,382 86,511 66,956 97,821
Note payable........................ - - - 10,000 20,000 10,000 20,000
Total liabilities................... 613 18 646 107,096 187,553 161,300 203,770
Mandatorily redeemable
preferred stock(4)............... - - - 21,745 22,100 21,922 22,280
Total stockholders' equity.......... 846 1,547 2,034 7,609 13,333 10,473 17,265
Total mandatorily redeemable
preferred stock and
stockholders' equity............. 846 1,547 2,034 29,354 35,433 32,395 39,545
GAAP RATIOS(5):
Loss ratio(6)....................... - - - 48.5% 62.9% 60.8% 51.6%
Expense ratio(7).................... - - - 36.8 29.0 30.7 30.0
Policyholder dividend ratio(8)...... - - - 6.2 5.9 5.7 9.5
----- ----- ----- -----
Combined ratio(9)................... - - - 91.5% 97.8% 97.2% 91.1%
</TABLE>
-24-
<PAGE>
AmComp Preferred
Years Ended December 31,
-----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
INCOME STATEMENT
DATA(10):
Gross premiums written........... $24,714 $30,769 $43,494
Net premiums written............. 24,225 30,079 41,855
Net premiums earned.............. $24,225 $28,828 $32,346
Net investment income............ 1,093 1,763 2,492
Other income..................... 496 718 832
------- ------ ------
Total revenue.................... 25,814 31,309 35,670
Losses and loss adjustment
expenses....................... 16,299 13,757 18,354
Underwriting and acquisition
expenses....................... 6,528 8,311 14,930
-------- ------- --------
Total expenses................... 22,827 22,068 33,284
Income before dividends to
policyholders and income
taxes.......................... 2,987 9,241 2,386
Dividends to policyholders....... 1,440 2,229 2,768
------ ----- -----
Income before income taxes....... 1,547 7,012 (382)
Income tax expense (benefit)..... 591 2,643 (50)
-------- ------ -------
Net income (loss)................ $ 956 $4,369 $ (332)
======= ====== =======
As of December 31,
----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
BALANCE SHEET DATA(10):
Total cash and invested assets $26,722 $37,209 $49,993
Total assets........................ 32,379 50,149 67,841
Unpaid losses and loss
adjustment expenses............... 18,881 30,927 36,087
Note payable........................ - - -
Total liabilities................... 31,423 44,824 62,806
Total stockholders' equity.......... $ 956 $ 5,325 $ 5,035
GAAP RATIOS(5):
Loss ratio(6)....................... 67.3% 47.7% 56.7%
Expense ratio(7).................... 26.9 28.8 46.2
Policyholder dividend ratio(8)...... 5.9 7.7 8.6
----- ---- ----
Combined ratio(9)................... 100.1% 84.2% 111.5%
- -------------------
(1) The combination of Pinnacle Benefits and Pinnacle Administrative by
AmComp has been accounted for as reorganization of entities under common
control in a manner similar to a pooling of interests. The accounts of
all three entities have been combined as if the reorganization occurred
on January 1, 1993.
(2) The acquisition of AmComp Preferred has been accounted for as a purchase,
effective January 1, 1996, resulting in negative goodwill of $6.0
million.
-25-
<PAGE>
(3) Other income for 1993, 1994 and 1995 consist primarily of management fees
received by the Company for services provided to AmComp Preferred.
(4) In 1996, unrelated investors purchased $24.0 million (gross of
syndication expenses of $2.4 million) of mandatorily redeemable preferred
stock which will be converted into 6,000,000 shares of Common Stock at
the time of the consummation of the Offering.
(5) GAAP ratios are derived from amounts and captions reported in financial
statements prepared in accordance with generally accepted accounting
principles.
(6) Losses and loss adjustment expenses divided by net premiums earned.
(7) Underwriting and acquisition expenses divided by net premiums earned.
(8) Policyholder dividends incurred divided by net premiums earned.
(9) Sum of ratios computed in footnotes 6, 7 and 8.
(10) Throughout 1993 and 1994 and the first four months of 1995, AmComp
Preferred was a self-insurance fund, converting to an assessable mutual
insurance company in 1995. It subsequently became a stock insurance
company in January 1996.
-26-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and the accompanying notes appearing
elsewhere herein.
Overview
AmComp Preferred (the Company's principal Insurance Subsidiary) is the
successor to a self-insurance fund that commenced operations in 1982. In April
1995, the self-insurance fund became an assessable mutual insurance company. In
December 1995, AmComp was formed and in the following month the stock of each of
Pinnacle Administrative and Pinnacle Benefits was contributed to AmComp.
Pinnacle Administrative and Pinnacle Benefits were organized to provide
marketing, underwriting, loss control, claims management and other policy
services to AmComp Preferred and its predecessors. The combination of these
companies was accounted for as a reorganization of entities under common control
in a manner similar to a pooling of interests.
Upon approval of the Florida DOI in January 1996, AmComp acquired all
of the issued and outstanding stock of AmComp Preferred in exchange for
eliminating the assessability under policies written by AmComp Preferred while a
self-insurance fund and an assessable mutual insurance company. The acquisition
of these companies was accounted for as a purchase that resulted in the Company
reporting $5.7 million of negative goodwill, which is being amortized over 10
years.
In October 1997, the Company acquired an inactive property and casualty
insurer licensed in 21 states, which was renamed AmComp Assurance. The
acquisition was accounted for as a purchase. The Company recorded $2.1 million
of goodwill, which is being amortized over 10 years.
The Company's insurance operations were entirely concentrated in
Florida through the end of 1997. Changes in Florida law (the "New Florida
Workers' Compensation Law"), effective January 1, 1994, modified the
underwriting environment for workers' compensation insurance in the following
significant areas: (1) limiting certain benefits that must be provided; (2)
eliminating wage loss benefits in favor of a system of benefits based upon a
schedule of impairment ratings plus supplemental benefits; (3) allowing
settlement of medical claims; (4) encouraging employers to rehire injured
workers; (5) adopting new procedures for dispute resolution designed to reduce
litigation costs; and (6) redefining permanent impairment. In addition,
effective January 1, 1997, the New Florida Workers' Compensation Law mandated
that insured employers participate in managed care arrangements. The Florida DOI
permitted insurers to offer premium credits of up to 10% from January 1, 1994
through December 31, 1996 to insured employers that voluntarily elected to
participate in an approved managed care arrangement. The changes also included
authorization of premium credits for insured employers that participated in
safety and drug-free workplace programs. Coinciding with these changes, the
Florida DOI ordered a 10.6% overall rate decrease effective January 1, 1994 and
an additional 11.2% overall workers' compensation insurance rate reduction on
policies written or renewing on and after January 1, 1997.
The New Florida Workers' Compensation Law also eliminated the residual
market assessment that was levied against insurance companies to support the
involuntary workers' compensation market and replaced it with a self-funded
joint underwriting association. As a result, the financial obligation of funding
deficits in the residual market mechanism was shifted from traditional insurance
entities to certain employers that are insured by the joint underwriting
association. The impact to date of these changes has been the transfer of
coverage from some of the self-insured groups to traditional insurance entities,
a more competitive workers' compensation market and the re-entry into the
Florida market of many major insurance carriers.
AmComp Preferred and its predecessors have shown significant premium
growth in recent years. Gross premiums written have grown from approximately $25
million at the end of 1993 to approximately $127 million at the end of 1997.
This growth has resulted in the need for additional capital and for reinsurance
programs to
-27-
<PAGE>
maintain appropriate statutory surplus to premium ratios. The Company borrowed
$10 million in each of December 1996 and December 1997. Certain of its existing
investors purchased $10 million of Series A Preferred Stock in December 1996.
The Company also entered quota-share reinsurance agreements in October 1997 that
effectively ceded 35% of unearned and new written business to its reinsurers.
While such reinsurance agreements enable the Insurance Subsidiaries to
underwrite a larger amount of gross premiums than they could otherwise write,
the ceding of a percentage of premiums to the reinsurers results in reduced net
premium revenue to the Company. However, the Company incurs a proportionate
reduction in claims and receives a ceding commission related to the quota-share
reinsurance agreements, which is reflected as a reduction of underwriting and
acquisition expense. In March 1998, the Company entered into an excess of loss
agreement, which reinsures claims over $50,000 through $500,000. In April 1998,
the Company's quota-share reinsurance was reduced from 35% to 25%. The excess of
loss agreement supplemented an existing excess of loss agreement providing
coverage for claims in excess of $500,000 in effect since 1996.
Florida's SDTF reimburses employers and insurance carriers for workers'
compensation benefits paid to employees who are injured and whose disability is
increased by a prior work-related injury. The SDTF is funded through annual
assessment against workers' compensation insurers based upon a percentage of net
workers' compensation premiums written. The Company's assessments (equal to
4.52% of net written premiums) of $3.2 million and $4.6 million have been
charged against earnings in 1996 and 1997, respectively. While the Company
submits claims to the SDTF for recovery of applicable claims paid on behalf of
its insureds, it has elected to record the related reserves gross of any
potential recovery. Actual recoveries are recorded as received as an offset
against losses and LAE incurred in the period received. The Company received
SDTF payments of approximately $0.8 million and $0.5 million in the years ended
December 31, 1996 and 1997, respectively. Under current law, future assessments
are capped at 4.52% of net written premiums, but no additional recoveries can be
made for losses incurred after January 1, 1998. The Company's actuaries have
estimated that at December 31, 1997 the Company was eligible to receive in
excess of $7.0 million in future SDTF recoveries. However, there can be no
assurance that any of such recoveries will actually be received. See "Risk
Factors--Disability and Guaranty Funds."
Results of Operations
Year ended December 31, 1995 compared to year ended December 31, 1996
The Company's results of operations for periods beginning after January
1, 1996 are not comparable to its results of operations for periods ending prior
to such date due to the acquisition of AmComp Preferred in January 1996. For the
year ended December 31, 1995, the Company's revenues consisted of $6.3 million
of fees charged for management services provided to AmComp Preferred when it was
organized as a self-insurance fund and an assessable mutual insurance company.
The management fees were determined in accordance with a management agreement.
In addition, the Company reported net investment income of $53,000 consistent
with the relatively small amount of investments held by the Company in 1995.
Expenses of $5.6 million consisted of those expenses necessary to serve as the
administrator of AmComp Preferred and consisted largely of personnel salaries
and wages and other general and administrative expenses.
Year ended December 31, 1996 compared to year ended December 31, 1997
Premiums. Gross premiums written increased from $71.0 million for the
year ended December 31, 1996 to $126.8 million for the comparable period in
1997. This increase resulted from the continued transfer of coverage from
self-insurance funds to traditional insurance entities due in part to the New
Florida Workers' Compensation Law and the Company's success in strengthening
agency relationships. Net premiums written increased from $69.8 million in 1996
to $103.6 million in 1997. Premiums written ceded to reinsurers in 1996 was $1.1
million, compared to $23.2 million in 1997. The premium ceded to reinsurers in
1996 primarily reflects premium associated with the excess of loss over $500,000
reinsurance agreement. In October 1997, the Company entered quota-share
reinsurance agreements which effectively ceded 35% of unearned and new written
-28-
<PAGE>
business and accounts for the increase in ceded premiums in that year. Net
premiums earned increased from $58.2 million in 1996 to $102.5 million in 1997
and followed the growth in gross and net premiums written.
Net investment income. Net investment income in 1996 was $3.3 million,
compared to $5.1 million in 1997. The increased investment income resulted from
growth in cash and invested assets associated with increased premium, proceeds
of borrowings of $10 million and the issuance of Series A Preferred Stock for
$10 million in December 1996. The average annual yield on investments decreased
from 5.1% in 1996 to 4.9% in 1997. Cash and invested assets were $98 million and
$120 million at December 31, 1996 and 1997, respectively.
Net realized investment gains. The Company recognized $0.1 million in
realized investment gains in 1997. There were no sales of investments in 1996.
Other income. Other income, which represents primarily policy service
fees and amortization of negative goodwill, increased from $0.7 million in 1996
to $0.9 million in 1997. Policy service fees were $0.1 million for 1996 and $0.2
million for 1997. The Company amortized negative goodwill of $0.5 million in
1996 and $0.6 million in 1997 resulting from the acquisition of AmComp Preferred
in 1996.
Losses and loss adjustment expenses. Losses and LAE incurred for the
year ended December 31, 1996 were $28.3 million, compared to $64.4 million for
the comparable period in 1997. Losses and LAE are established as the best
estimate of the ultimate losses and LAE in each year or period, but are subject
to change in future years or periods as additional information becomes known.
Changes in any given year or period are then reflected as an adjustment to
earnings and unpaid loss and LAE in the year or period in which the changes are
made. The 1996 year included favorable development from prior years of $3.2
million. The 1997 year included adverse development of $1.4 million and was the
first year in the prior five years in which AmComp Preferred reported adverse
development. The loss and LAE ratio, including the prior years' development, was
48.5% and 62.9% for 1996 and 1997, respectively. The loss and LAE ratio
(excluding prior years' development) was 54.0% and 61.5% for 1996 and 1997,
respectively.
Underwriting and acquisition expenses. The Company's underwriting and
acquisition expenses increased from $21.4 million for the year ended December
31, 1996 to $29.8 million for the comparable period in 1997. The increase
reflects the increase in premiums written. The expense ratio (as a percentage of
net premiums earned) was 36.8% for 1996 compared to 29.0% in 1997. The improved
expense ratio is primarily the result of improved bad debt allowances and
increased operating efficiency.
Interest expense. The Company had no interest expense in 1996.
Borrowings of $10.0 million at the end of each of 1996 and 1997 resulted in
interest expense of $0.8 million in 1997.
Dividends to policyholders. Dividends to policyholders for the years
ended December 31, 1996 and 1997 were $3.6 million and $6.1 million,
respectively. The increased policy dividends in 1996 and 1997 reflect the
increasing volume and proportion of retention policies written by the Company.
The retention business written in 1996 was $41.8 million or 45.1% of premiums
written, compared to $79.0 million or 67.3%, in 1997.
Income tax expense. Income tax expense decreased from $3.5 million for
the year ended December 31, 1996 to $2.1 million for the comparable period in
1997. These tax provisions represent 39% and 27% of pre-tax income for the years
ended December 31, 1996 and 1997. The reduction in the effective tax rate is
primarily associated with the shift to tax-exempt investments in 1997.
Net income. Net income for each of the years ended December 31, 1996
and 1997 was $5.4 million.
-29-
<PAGE>
Six months ended June 30, 1997 compared to six months ended June 30, 1998
Premiums. Gross premiums written decreased from $92.3 million for the
six months ended June 30, 1997 to $73.4 million for the comparable period in
1998. The decrease is the result of increasing competition, the reunderwriting
of the Company's entire book of business leading to the loss of policyholders,
and the effect of payment of less than the maximum potential policy dividend on
retention account renewals. The corresponding net premiums written decreased
from $92.0 million for the six months ended June 30, 1997 to $52.8 million for
the comparable period in 1998. Premiums written ceded to reinsurers for the six
months ended June 30, 1997 was $0.3 million compared to $20.6 million for the
comparable period in 1998. The premium ceded to reinsurers for the six months
ended June 30, 1997 primarily reflects premium associated with the excess of
loss over $500,000 reinsurance treaty. The premium ceded for the six months
ended June 30, 1998 includes premium ceded to quota-share reinsurers and to the
reinsurer associated with the $450,000 excess of $50,000 treaty in addition to
premium ceded under the Company's excess of loss over $500,000 excess treaty.
Net premiums earned decreased from $53.0 million for the six months ended June
30, 1997 to $36.0 million for the comparable period in 1998 and is consistent
with the decrease in gross premiums written and the increase in ceded premium.
Net investment income. Net investment income was $2.6 million for each
of the six months ended June 30, 1997 and 1998. The average annual yield on
investments was 5.0% for the six months ended June 30, 1997 compared to 4.7% for
the comparable period in 1998.
Net realized investment gains. The Company recognized $0.1 million in
realized investment gains for the six months ended June 30, 1998. There were no
sales of investments in the six months ended June 30, 1997.
Other income. Other income increased from $0.4 million for the six
months ended June 30, 1997 to $0.5 million for the comparable period in 1998.
Policy service fees were $0.1 million for the six months ended June 30, 1997 and
$0.2 million for the comparable 1998 period. Amortization of negative goodwill
was $0.3 million for each of the 1997 and 1998 periods.
Loss and loss adjustment expenses. Losses and LAE incurred for six
months ended June 30, 1997 were $32.2 million compared to $18.6 million for the
comparable period in 1998. The decrease in the loss and LAE expenses reflects
losses ceded to the reinsurers. The six months ended June 30, 1997 included
adverse development of loss and LAE reserves for prior periods of $0.7 million.
The six months ended June 30, 1998 included adverse development of $0.1 million
for prior periods. The loss and LAE ratio, including the previous periods'
development, was 60.8% and 51.6% for the six months ended June 30, 1997 and
1998, respectively. The loss and LAE ratio excluding any prior period
development was 59.4% and 51.2% for the six months ended June 30, 1997 and 1998,
respectively. The improvement in the loss and LAE ratio reflects the change in
the Company's excess of loss reinsurance agreements.
Underwriting and acquisition expenses. The Company's underwriting and
acquisition expenses decreased from $16.2 million for the six months ended June
30, 1997 to $10.8 million for the comparable period in 1998. Underwriting and
acquisition expenses for the 1998 period included $0.1 million of amortization
relating the acquisition of AmComp Assurance. The expense ratio (as a percentage
of net premiums earned) was 30.6% for the six months ended June 30, 1997
compared to 29.9% for the six months ended June 30, 1998. The improvement in the
expense ratio is the result of lower net premium volume and the change in the
Company's reinsurance agreements.
Interest expense. Interest expense increased from $0.3 million for the
six months ended June 30, 1997 to $0.8 million for the comparable 1998 period.
The increase is the result of the expense related to the additional $10 million
borrowed at the end of 1997.
-30-
<PAGE>
Dividends to policyholders. Dividends to policyholders for the six
months ended June 30, 1997 and 1998 were $3.0 million and $3.4 million,
respectively. The dividend provision gross of ceded dividends from the
quota-share agreements of $1.4 million for the six months ended June 30, 1998 is
$4.8 million and exceeds the dividend provision for the six months ended June
30, 1997 of $3.0 million by $1.8 million. The increase is the result of an
anticipated higher payout rate of policy dividends for 1998.
Income tax expense. Income tax expense increased from $1.3 million for
the six months ended June 30, 1997 to $1.6 million for the comparable period in
1998. These tax provisions represent 30% and 29% of pre-tax income for the six
months ended June 30, 1997 and 1998, respectively. The decrease in the effective
tax rate is the result of increasing the proportion of tax-exempt investments in
1998.
Net income. Net income increased 41.4% from $2.9 million for the six
months ended June 30, 1997 to $4.1 million for the comparable period in 1998.
Liquidity and Capital Resources
AmComp is a holding company. It relies upon payments from its
subsidiaries to meet its obligations. It currently receives dividend payments
solely from Pinnacle Administrative and Pinnacle Benefits. These dividend
payments are funded by fee payments under Service Agreements between Pinnacle
Administrative and Pinnacle Benefits and the Insurance Subsidiaries. Fee
payments under the Service Agreements are subject to Florida DOI review.
AmComp has historically met its cash requirements and financed its
growth principally from operations, the proceeds of borrowings and the sale of
its Series A Preferred Stock. AmComp incurred debt of $10 million in late
December 1996 and a further $10 million in late December 1997 under its credit
agreement. Interest is payable at the 30 day LIBOR rate plus a margin and
maturities begin in 1999 at $1 million per quarter with a final payment of the
remaining balance in December 2001. The credit agreement contains various
restrictive covenants generally pertaining to levels of indebtedness,
prohibitions on payment of dividends and limitations on incurrence of capital
expenditures. Additionally, the Insurance Subsidiaries must comply with
financial covenant restrictions, including ratios of leverage, debt service,
current maturity coverage, net premiums written to surplus and risk based
capital. Of the proceeds from such debt incurrence, $15 million was contributed
to the Insurance Subsidiaries. In connection with the transfer of funds, the
Insurance Subsidiaries executed surplus notes payable to AmComp, which bear
interest, in the case of $10 million principal amount, at an annual rate of 1%
in excess of the prime rate and, in the case of $5 million principal amount, at
an annual rate of 9 1/2%. These interest payments and future principal
repayments require prior approval of the Florida DOI.
The primary source of cash flow for Pinnacle Benefits and Pinnacle
Administrative is service fees paid by the Insurance Subsidiaries. The cash
requirements of these administrative subsidiaries are primarily for the payment
of salaries, employee benefits and other operating expenses.
The Insurance Subsidiaries' primary sources of cash flows are premiums,
investment income and the proceeds from the sale or maturity of invested assets.
The cash requirements of the Insurance Subsidiaries are primarily for the
payment of losses and LAE, guaranty fund and SDTF assessments, commissions,
reinsurance premiums, premium taxes, services fees, interest on the surplus
notes and purchase of investment securities. Due to the uncertainty regarding
the timing and amount of settlement of unpaid losses, the liquidity requirements
of the Insurance Subsidiaries vary and the Insurance Subsidiaries have adjusted
their investment portfolio to take into account historical payout patterns. The
Insurance Subsidiaries have historically purchased excess reinsurance to
mitigate the effects of large losses and to help stabilize liquidity. Beginning
in 1998, the Insurance Subsidiaries' excess of loss reinsurance coverage was
expanded to include claims over $50,000 through $500,000 per occurrence, which
will build further predictability in the cash flows. This new agreement requires
initial outlays of reinsurance premiums, based on premiums written, which is in
advance of premiums paid, and the reinsurers reimburse the Company after loss
and LAE payments are paid to the insured.
-31-
<PAGE>
For the years ended December 31, 1996 and 1997, net cash provided by
operations was $15.8 million and $15.1 million, respectively, while net cash
used in investing activities was $4.7 million and $42.4 million, respectively.
Financing activities in 1996 and 1997 provided additional cash in the amounts of
$31.8 million and $10.2 million, respectively. The financing activities in 1996
represent the issuance of Series A Preferred Stock and the proceeds from the
issuance of debt. The $10.2 million in 1997 primarily represent the addition $10
million proceeds from the issuance of debt. The net cash used by operations for
the six months ended June 30, 1998 was $15.4 million, which reflects large
reinsurance payments related to the new quota-share reinsurance program, which
began on October 1, 1997.
The Company believes its future cash flow generated by operations, its
cash and investment balances and the net proceeds from this Offering will be
sufficient to fund continuing operations, service its outstanding obligations
and provide for required capital expenditures for at least the next 12 months.
The Company's Insurance Subsidiaries are required to maintain certain
minimum amounts of capital as established by the Florida DOI pursuant to the
risk-based capital standards of the National Association of Insurance
Commissioners (the "NAIC"). These standards require the computation of a
risk-based capital amount, which is then compared to the Insurance Subsidiaries'
actual total adjusted capital. This computation involves applying various
financial factors to address four primary risks: asset risk, insurance
underwriting risk, credit risk and off-balance sheet risk. These standards
provide for regulatory intervention when the percentage of total adjusted
capital to authorized control level risk-based capital is below certain levels.
For the years ended December 31, 1997 and 1996, the Company's Insurance
Subsidiaries exceeded the risk-based capitalization levels required by
regulators.
The Insurance Subsidiaries are subject to statutory insurance laws and
regulations that limit the amount of dividends or distributions that may be paid
by an insurance company to its shareholders. Pursuant to the Florida Insurance
Code, the Insurance Subsidiaries may not, without the prior approval of the
Florida DOI, pay to their shareholders dividends or other distributions of cash
or property, the total fair market value of which exceeds generally the lesser
of 10% of surplus or net income, excluding realized capital gains, plus a two
year carryback. No dividends were paid during 1997 or 1996. As of June 30, 1998,
the amount available for shareholder dividends from the Insurance Subsidiaries
without prior approval was approximately $4.7 million.
Year 2000
The Company has developed a plan to address its exposure to Year 2000
issues (the "Y2K Action Plan"). The Y2K Action Plan is designed to mitigate Year
2000 risks arising from (1) the Company's internal systems, including both
information technology ("IT") items, such as hardware, software and personal
computers, and non IT items, such as any non-computer system or device that
contain embedded technology or micro controllers and (2) similar systems for the
material third parties upon whom the Company relies.
Assessment. The Y2K Action Plan requires the Company to assess not only
the Year 2000 issues from the Company's systems but also from the material third
parties upon whom the Company relies. To date, the Company has identified and
contacted all software, hardware and embedded systems vendors to receive a
statement of compliance, implementation of a testing and remediation strategy,
and development of a detailed project plan to manage and track progress.
The Company is now surveying and assessing the Year 2000 compliance of
the material third parties who are not IT vendors and upon whom it relies. The
Company is also devoting resources to follow-up, encourage and achieve Year 2000
compliance by these parties. In the insurance industry, independent agencies
market the Company's products to individual policyholders. Therefore, there is
potential risk associated with their individual state of Year 2000 readiness. To
assess the Company's risk, it is developing a survey to determine its agencies'
Year 2000 compliance status, as well as compliance by these agencies' system
vendors.
-32-
<PAGE>
Remediation. The Company uses four major IT systems for its current
day-to-day business operations: (1) a legacy claims management system
("CompStar"), (2) a legacy policy issuance system ("FMS"), (3) an integrated
claims management and policy issuance system ("POINT") and (4) an accounting
application system ("SQL Financial"). SQL Financial is Year 2000 compliant and
as part of the Y2K Action Plan the Company implemented this system in the second
quarter of 1998. Under the Y2K Action Plan, the Company's claims management and
policy issuance systems will convert to the POINT system. In addition, the
Company will implement a data warehouse and retire the FMS and CompStar
applications prior to January 1, 2000. The Company has received and installed
Year 2000 associated upgrades to the POINT system and has obtained a statement
of compliance for the POINT system. Under the Y2K Action Plan, most of the
Company's recent IT efforts have been devoted to the implementation of the POINT
system. The Company started writing new business on the POINT system in May
1998, and is scheduled to add all renewals effective January 1, 1999. The
Company is planning to complete historical conversion by the fourth quarter of
1999, which will allow it to retire legacy applications in 1999.
Testing. In the third quarter of 1998, the Company established a
Quality Assurance department within the IT department. The Company's Quality
Assurance department is conducting additional Year 2000 testing of the POINT
system. All testing, including integration testing, will be completed by
September 30, 1999. In addition to the testing already completed by third party
vendors, the Company has developed a testing strategy that will verify that
dates are calculated and stored properly and recognize dates into the year 2000
and leap year calculations. The operations staff of the Company will be defining
critical functionality and prioritizing this critical functionality by potential
risk and the Quality Assurance department will perform its testing in this
order, reducing the potential risk for the Company.
Current Readiness. To date, the Company has replaced three devices that
were not Year 2000 compliant. The planned date of completion of the Y2K Action
Plan is the fourth quarter of 1998. Presently, substantially all hardware
components are Year 2000 compliant and the Company is current in the Y2K Action
Plan.
Costs. The Company has estimated and included in its IT budget
approximately $200,000 for the future costs associated with the Y2K Action Plan.
The Company has incurred approximately $75,000 in costs associated with the Y2K
Action Plan.
Risks. All companies are faced with certain unknown and unexpected
risks arising from Year 2000 issues that could impact them negatively. The
Company's Y2K Action Plan has been designed to mitigate the Company's risks from
Year 2000 issues. Nevertheless, the Company recognizes the possibility of some
negative impact on it. The Company believes that the most reasonable likely
worst case Year 2000 scenarios would arise from: (1) the failure to correct a
material Year 2000 problem; (2) the Year 2000 non-compliance of one or more of
the material third parties upon whom the Company relies, such as agencies,
financial institutions, energy providers, telecommunications providers and
regulatory agencies; and (3) the turnover of systems personnel and the
historical challenge of securing sufficient programming personnel with
experience in Year 2000 remediation. The result of any of these scenarios
occurring could cause an interruption in certain normal business activities or
operations. At this time, the Company is assessing its potential estimated lost
revenue, if any, in the event one or more of these worst case scenarios occurs.
See "Risk Factors -- Year 2000 Risks."
Contingency Plans. If full implementation of the POINT system and the
data warehouse is not accomplished by the end of the first quarter 1999, the
Company will proceed with assessing and implementing one or more of its
contingency options. These options include (1) making the FMS system Year 2000
compliant and upgrading to the Year 2000 compliant version of CompStar or some
other claims management system, or (2) hiring resources to accommodate
additional workload associated with manual processing in the event of a Year
2000 system issue. To supplement the Company's internal resources, it has two
dedicated computer-specialists at Policy Management Services Corp., the vendor
of the POINT system, which should minimize the impact of any unanticipated
employee turnover and/or difficulty in hiring experienced replacements. The
estimated cost of
-33-
<PAGE>
additional resources and Year 2000 compliant software replacement for CompStar
is $150,000. In addition, the Company is prepared to replace non-compliant
hardware. In the event that a material third party does not achieve Year 2000
compliance, the Company will implement remediation actions on a case-by-case
basis.
-34-
<PAGE>
BUSINESS
Overview
The Company is the fourth largest provider of workers' compensation
insurance in Florida, based upon direct premiums written during 1997. The
Company underwrites workers' compensation insurance policies for employers
involved in a variety of businesses and industries, with an emphasis on small-
and medium-sized employers. The Company has written the majority of its premium
volume in Florida, but recently has commenced expansion into the Southeast and
Midwest. For the 12 months ended June 30, 1998, the Company recorded $107.9
million of gross premiums written, $91.9 million of revenues and net income of
$6.7 million. At June 30, 1998, total cash and invested assets were $103.3
million, total assets were $243.3 million and total mandatorily redeemable
preferred stock and stockholders' equity was $39.5 million.
From 1995 to 1997, the Florida workers' compensation market for
insurance companies grew substantially as insureds shifted away from
self-insurance funds. AmComp Preferred, the Company's principal insurance
subsidiary, has capitalized on this growth due to (1) its market position and
history as a former Florida self-insurance fund; (2) its strong relationships
with local insurance agencies; (3) its ability to lower policyholder loss ratios
through the use of managed care and proactive claims management; and (4) its
"equity-based" agency compensation plans. In order to maintain growth, in
Florida, the Company is developing additional agency relationships, offering new
workers' compensation products and increasing premiums written with existing
agencies. The Company also is expanding its business outside of Florida. During
1998, the Company opened its first regional office in Indianapolis, Indiana. The
Company believes that the factors that allowed it to succeed in the Florida
market will make its expansion efforts in other states successful. In addition,
while the Company is primarily focused on internal growth opportunities, it may
also consider future strategic acquisitions.
The Company provides "total care management" services in order to
reduce the frequency, severity and cost of lost wages and medical claims. Total
care management services include loss prevention, early intervention with
injured employees, proactive management of claims and emphasis on an early
return to work. The Company's focus on loss prevention includes educating
policyholders on workplace safety and proper communication with injured workers.
Under the Company's early intervention procedures, policyholders are encouraged
to notify the Company of a claim within 24 hours of the occurrence. Registered
nurses at the Company's offices are responsible for contacting the injured
employee, the policyholder and the healthcare provider within 24 hours after
notification of a claim. Working with claims adjusters as a team, nurses
coordinate the medical component of each indemnity claim from inception to
completion to provide quality healthcare to the injured employee, facilitating
an early return to work. The Company has concluded that returning an employee to
the job quickly is an effective means of controlling indemnity payments for lost
wages, typically the largest component of workers' compensation costs, as well
as legal and medical expenses.
The Company offers a range of workers' compensation policies that are
designed to fit the needs of its policyholders and employer groups. The
Company's basic product is a guaranteed cost policy, under which the premium for
a policyholder is set in advance and only varies based upon changes in the
policyholder's employee class codes and payroll. The Company also offers a
variety of loss sensitive retention programs to policyholders under which a
portion of premium may be returned to them in the form of a dividend. As of June
30, 1998, the Company offered its policies through an extensive network of more
than 250 independent agencies. It uses financial incentives that include
commissions, bonuses and stock options to establish long-term relationships with
those independent agencies that actively market its products and services.
Certain independent agencies that place insurance with the Company are granted
stock options that vest based upon achievement of specific performance criteria.
-35-
<PAGE>
Business Strategy
The fundamental components of the Company's business strategy are:
"Total Care Management." The Company believes that its emphasis on
total care management services in its dealings with policyholders, their
employees and independent agencies distinguishes it as a provider of workers'
compensation insurance products and services. The Company's total care
management strategy includes 24-hour first notice of injury reporting,
assignment of registered nurse/adjuster teams to each indemnity claim and the
use of field service consultants and policyholder education programs. This
strategy is designed to provide prompt, frequent and positive contacts with
these parties and to expedite the return to work of injured workers. The Company
believes that its total care management strategy is an effective means of
reducing payments for lost wages as well as for legal and medical expenses.
oEmphasis on Underwriting Profitability. The Company seeks to achieve
consistent underwriting profitability through its emphasis on selective
underwriting and appropriate pricing and reserving. The Company also uses
reinsurance to manage exposure to severe losses. As a result, AmComp Preferred
has reported loss ratios of 56.8%, 59.1% and 60.6% for the developed policy
years ended 1995, 1996 and 1997, respectively. In addition, AmComp Preferred has
experienced a favorable reserve development in four of the last five years.
oFocus on Smaller Accounts. The Company's target market is small
accounts, which the Company defines as accounts of policyholders with annual
premiums of less than $100,000, that express active interest in preventing and
managing their losses. Of the Company's earned premiums for 1997, approximately
67% was attributable to smaller accounts and of the Company's earned premiums in
the first six months of 1998, approximately 94% is attributable to smaller
accounts. The Company's average written premium size was $17,700 in 1997 and
$14,500 for the six months ended June 30, 1998. The Company believes that these
accounts are not subject to the same degree of price competition as large
accounts and that they permit generally better pricing per risk.
oProactive Claims Management. The Company believes that proactive
claims management is integral to its ability to minimize overall losses. The
Company uses experienced claims adjusters who are each responsible for
approximately 100 to 125 indemnity cases. The Company believes that this number
of cases is significantly fewer than the number of cases handled by adjusters at
many competing companies. The Company assigns a registered nurse and a claims
adjuster to each claim. This nurse/adjuster team remains responsible for the
claim from the time of the initial injury report to the final disposition of the
claim. Early return to the job is achieved in part through frequent and personal
contact with the injured employee and by encouraging "modified duty" until an
employee is able to return to his or her former job. The Company believes that
the amount of attention that its nurse/adjuster teams devote to their claims
minimizes attorney involvement and expedites the settlement of valid claims. One
year after the end of each of the 1994, 1995 and 1996 policy years, 94.0%, 92.7%
and 93.3%, respectively, of the number of claims incurred during such policy
years were closed.
oStrong Distribution Network. The Company relies on its extensive
network of independent sales agencies to market and sell its products. By
offering its independent agencies a combination of financial incentives, which
include commissions, bonuses and stock option grants, the Company seeks to
establish long-term relationships with its agencies and to provide them with an
interest in the future success of the Company. The vesting of such stock options
is subject to the optionee's attaining certain performance goals, including,
among other things, growth in written premiums, issuance of new policies and
maintenance or replacement of existing policies, maintenance of loss ratios and
collection of premiums. Independent agencies that hold stock options issued by
the Company produced approximately 62.5% of gross premiums written in 1997.
o Increased Market Penetration and Geographic Expansion. The Company
seeks internal growth by: (1) building relationships with additional independent
insurance agencies; (2) enhancing or developing new
-36-
<PAGE>
workers' compensation products and services; and (3) expanding into new states.
The Company has already commenced expansion beyond its Florida underwriting
base. The Company believes that expansion outside of Florida offers significant
opportunities for increased sales and diversification of underwriting risk and
plans to continue its expansion into markets in the Southeast and Midwest.
oExperienced Management Team and Employees. The Company believes that
hiring and retaining management and employees with experience in both managed
care and insurance are crucial to implementing its total care management
strategy. The Company believes that the collective underwriting, claims, care
management and other experience of its employees are critical factors in the
Company's success. The Company seeks to reduce employee turnover by paying
competitive salaries and by providing professional development and advancement
opportunities.
Workers' Compensation System
Workers' compensation is a statutory system under which an employer is
required to pay for its employees' costs of medical care and other specified
benefits for work-related injuries or illnesses. Most employers comply with this
requirement by purchasing workers' compensation insurance. The principal concept
underlying workers' compensation laws is that an employee injured in the course
of his employment has only the legal remedies available under workers'
compensation law and does not have any other claims against his or her employer.
Generally, workers are covered for injuries that occur in the course and within
the scope of their employment. The obligation to pay such compensation does not
depend on any negligence or wrongdoing on the part of the employer and exists
even for injuries that result from the negligence or wrongdoings of another
person, including the employee.
Workers' compensation insurance policies obligate the carrier to pay
all benefits that the insured employer may become obligated to pay under
applicable workers' compensation laws. Each state has a regulatory and
adjudicatory system that quantifies the level of wage replacement to be paid,
determines the level of medical care required to be provided and the cost of
permanent impairment and specifies the options in selecting healthcare providers
available to the injured employee or the employer. State laws generally require
two types of benefits for injured employees: (1) medical benefits, which include
expenses related to diagnosis and treatment of the injury, as well as any
required rehabilitation and (2) indemnity payments, which consist of temporary
wage replacement, permanent disability payments and death benefits to surviving
family members. To fulfill this mandated financial obligation, virtually all
employers are required to purchase workers' compensation insurance or, if
permitted by their state, to self-insure. These employers may purchase workers'
compensation insurance from a private insurance carrier, a state-sanctioned
assigned risk pool or a self-insurance fund (an entity that allows employers to
obtain workers' compensation coverage on a pooled basis, typically subjecting
each employer to joint and several liability for the entire fund).
In Florida, workers' compensation premiums are determined by the
payroll generated by employers and the specific type of work that each employee
performs. Class codes are established by the Florida DOI, which categorizes the
types of tasks performed by employees. Each class code is then assigned a
specific dollar rate depending on the propensity of an individual performing
that job function to be injured at work. The more likely it is that an
individual will be injured at work, based upon the hazards associated with
performing that work, the higher the rate and thus the higher the premiums
chargeable will be. Other states have implemented systems where premium rates
are based upon market forces and insurance companies are permitted to compete on
the basis of price in workers' compensation insurance.
According to A.M. Best, gross insurance premiums written by private
insurers for workers' compensation insurance in the United States in 1997 were
approximately $26.1 billion. Information published by A.M. Best indicates that
private insurance carriers in Florida accounted for approximately $1.7 billion
of such premiums.
-37-
<PAGE>
Insurance Products
The Company's products and rating plans encompass a variety of options
designed to fit the needs of its policyholders and employer groups. The
Company's basic product is a guaranteed cost policy, under which the premium for
a policyholder is set in advance and only varies based upon changes in the
policyholder's employee class codes and payroll. In return for payment of
premium, the Company agrees to assume statutorily imposed obligations of the
policyholder to provide workers' compensation benefits to its employees.
The Company also offers a variety of loss sensitive retention programs
to policyholders whose annualized premium is $10,000 or more. Under these
programs, a portion of premium may be returned to them in the form of a
dividend. Payment of policy dividends is at the discretion of the Board of
Directors of the applicable Insurance Subsidiary and is based upon (1) the
individual policyholder's loss ratio; (2) the Insurance Subsidiary's overall
loss ratio; and (3) the terms of the applicable dividend plan agreement. The
initial premium for policyholders in these programs is calculated on the same
basis as a guaranteed cost policy and eligibility for such programs varies based
upon the nature of the policyholder's operations, value of premium generated,
loss experience and controls in place as they relate to minimizing workers'
compensation claims and costs.
Most of the Company's individual retention programs require
policyholders to pay the Company the entire annualized premium through the
policy period with an opportunity to receive a potential policy dividend eight
to 20 months after the policy period expires. A specific evaluation date is
established for each of these policies to determine whether or not a
policyholder is eligible to receive a dividend. Policyholder dividends are
recognized over the effective period of the related policies and are subject to
the approval of the Board of Directors of the applicable Insurance Subsidiary.
One type of retention program offered by the Company permits a
policyholder who pays the Company $50,000 or more in annual premiums to defer a
portion of its annual premium in anticipation of offsetting that payment with
policy dividends that are based upon the potential policy dividend. The
policyholder secures the deferred premium with a certificate of deposit, a
letter of credit or a performance bond. Policy dividends are paid eight to 20
months after the end of the policy term. In the event that the policyholder
qualifies for a dividend and the applicable Insurance Subsidiary's Board of
Directors declares a dividend, the policyholder will receive the difference
between the dividend and the amount of premium that was deferred. If the
deferred amount exceeds the dividend amount, the policyholder will be obligated
to pay the Company the difference.
The Company also offers a group retention program, which is available
to active members of specific trade associations or other employer groups. Under
this type of retention plan, the premium and loss experience of the participants
is combined to determine if the group qualifies for a dividend.
The Company has the ability to offer policies on a retrospective rating
plan. Retrospective rating is a method of determining an individual
policyholder's premium based on the policyholder's losses during the policy
period. The premium is determined by a retrospective premium formula. By
contract, any returned or additional premiums to or from the policyholder are
determined by the retrospective formula and are not subject to discretion of an
insurance company's board of directors. Although the Company has retrospective
rating plan policies available, the Company has not sold any of these policies
and does not focus its marketing efforts on such products.
The Company offers numerous premium payment options to its
policyholders. These include an estimated pay option in which the policyholder
pays one-twelfth of its premium monthly based upon estimated payrolls for the
course of the policy period. Under the monthly self-reporting option, a
policyholder's monthly premium payments are calculated by the policyholder using
its monthly payroll figures. The Company also offers an electronic fund transfer
option, in which it automatically withdraws from the policyholder's account the
monthly premium payment.
-38-
<PAGE>
Guaranteed cost policies and retention policies accounted for 32.7% and
67.3%, respectively, of the Company's written premiums in 1997 and 33.8% and
66.2%, respectively, of such premiums during the six month period ended June 30,
1998.
In July 1998, the Company entered into an arrangement with an insurance
carrier that has an A.M. Best rating of "A (Excellent)." Under the arrangement,
the carrier issues policies to employers meeting the Company's underwriting
guidelines. This permits the Company to compete for rating-sensitive business.
The Company reinsures such policies. The carrier receives, in effect, a
commission for each policy issued, which makes policies written through this
arrangement substantially less profitable to the Company. In Florida, the
availability of policies issued by an "A"-rated issuer will permit the Company
to write United States Longshoremen and Harborworkers ("USL&H") coverage and to
continue coverage to construction trades subcontractors who are required to
secure policies from "A"-rated insurers. In the Midwest, "A"-rated paper is an
important competitive factor, and its unavailability would impede the Company's
expansion efforts.
Marketing and Distribution
The Company markets and sells its insurance products through more than
250 non-exclusive independent insurance agencies. The Company seeks to establish
and maintain long-term relationships with the principals, producers and customer
service representatives of independent agencies that will actively market the
Company's products and services by emphasizing superior service and offering
financial incentives that include commissions, bonuses and stock option grants.
All of the Company's marketing efforts directed at agencies are
implemented by its field underwriters. The Company's field underwriters work
with the independent agencies in making sales presentations to potential
customers. The Company currently employs 11 field underwriters, eight of whom
are located in the Company's Florida offices and the remainder of whom are
located in the Company's Indianapolis regional office. The Company believes that
its field underwriters play a significant role in the Company's ability to
obtain new and retain existing business.
A substantial portion of the Company's policies are written by smaller
independent agencies not affiliated with national insurance brokerage companies.
The decision by these agencies to place business with an insurer is, among other
things, dependent upon the quality and breadth of services offered to the
agencies and policyholders as well as the insurer's expertise and dedication to
a particular line of business. The Company believes that its exclusive focus on
workers' compensation insurance allows it to offer services and expertise that
permit it to compete effectively with much larger insurers.
The Company maintains a stock option plan for independent agencies of
AmComp Preferred and will shortly adopt a stock option plan for independent
agencies of AmComp Assurance, which will be substantially similar to the AmComp
Preferred plan. Vesting of stock options granted under these plans is subject to
the optionee's attaining certain performance goals including, among other
things, growth in written premiums, issuance of new policies and maintenance or
replacement of existing policies, maintenance of loss ratios and collection of
premiums. See "Description of Capital Stock--Agent Stock Option Plans."
The Company believes that the stock options available for grant to its
independent agencies serve as a unique and meaningful incentive. Independent
agencies that hold stock options under the AmComp Plan produced approximately
62.5% of the Company's premiums written in 1997.
Underwriting
Every policy application submitted for consideration to the Company is
reviewed by the field underwriter assigned to the agency submitting the
application. Subject to guidelines based on the specific experience of the field
underwriters and the nature of the risk, the field underwriters have binding
authority to
-39-
<PAGE>
approve the issuance of policies. Selected independent agencies are also granted
limited binding authority for small accounts that have specific risk
characteristics determined by the Company.
In assessing a risk, the field underwriter considers, among other
factors, each employer's prior loss experience, safety record, credit history,
operations, location and types of jobs within employment classifications. The
Company seeks to provide quotes within 24 hours after receipt of a completed
application. The Company's underwriting strategy focuses on smaller policy
sizes, which averaged $17,700 in annual premiums during 1997 and $14,500 for the
six months ended June 30, 1998. As part of the Company's expansion strategy, all
of the Company's prospective policyholders outside Florida are visited by
Company representatives prior to policy issuance.
Although the Company reviews its existing policies at renewal time and
when circumstances otherwise warrant, the Company reunderwrote all of its
existing policies during 1998. The Company's Underwriting Review Team, composed
of senior Company executives, meets twice monthly to review policy renewals with
loss ratios in excess of 60% and to formulate and revise policy. The
Underwriting Review Team evaluates all aspects of a particular policyholder's
operations, including financial stability, management control and claims
history. Recommendations as to risk improvement are made by the Underwriting
Review Team and are conveyed to the policyholder through the field underwriter
and field service consultant assigned to the policyholder.
The Company does not emphasize any one industry in underwriting its
policies. The following table sets forth the percentage of AmComp Preferred's
written premium by industry classification and loss ratios by year:
<TABLE>
<CAPTION>
Industry Classification 1993 1994 1995 1996 1997
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Construction 10.4% 32.3% 43.6% 22.1% 23.7%
Concrete/Tile Work 4.5 3.2 0.0 4.4 11.8
Manufacturing 13.8 5.7 7.8 8.9 10.1
Hospitality 1.1 1.7 5.9 7.4 7.8
Electrical 13.9 4.3 0.5 7.3 5.9
Retail 3.0 3.8 4.0 4.5 4.3
Roofing 2.9 0.0 0.0 0.7 3.4
HVAC 13.8 13.5 9.9 4.6 3.2
Other 36.6 35.5 28.3 40.1 29.9
Loss Ratio By Accident Year(1) 50.2% 36.3% 56.8% 59.1% 60.6%
</TABLE>
- -------------------
(1) Calculated as the best estimate of ultimate losses and LAE for the
respective accident years as determined by the Company's consulting actuary
as of June 30, 1998 divided by premiums earned in the corresponding accident
year.
Field Services
The Company employs 10 full-time field service consultants. The field
services consultants are the cornerstone of the Company's loss control strategy.
They help implement the Company's proactive approach to preventing losses and
containing costs once claims occur. The field service consultants are trained in
the details of workers' compensation practices as well as the functions of all
of the Company's departments. The responsibilities of the field service
consultants include (1) providing policyholder education on loss prevention
practices, including claims management, care management, employee hiring and
screening, employee indoctrination/education and safety program design,
implementation and monitoring; (2) ongoing evaluation of risks and continuing
insurability of existing policyholders; (3) evaluation of prospective
policyholders for insurance eligibility; and (4) working with the policyholder
to offer modified duty to injured workers.
-40-
<PAGE>
Claims Management and Managed Care
The Company believes that a proactive claims management strategy is
integral to its ability to minimize overall losses. The Company implements its
strategy through the use of registered nurses and claims adjusters who are
experienced in the workers' compensation system. The Company's nurse/adjuster
teams are responsible for claims from the time of the initial injury report to
final disposition. The Company believes that its claims adjusters generally
handle fewer cases than adjusters at competing companies and that its claims
handling procedures result in reduced insurance losses and lower litigation
expenses. A part of the Company's total care management approach is to minimize
attorney involvement. The Company has reported loss ratios of 56.8%, 59.1% and
60.6% for each of the developed policy years ended 1995, 1996 and 1997,
respectively. In addition, AmComp Preferred has experienced favorable reserve
development in four of the last five years.
The Company's claims department consists of 36 licensed claims
adjusters based at the Company's North Palm Beach, Florida headquarters and its
Maitland, Florida office. The Company emphasizes the prompt resolution of
claims. One year after the end of each of the 1994, 1995 and 1996 policy years,
94.0%, 92.7% and 93.3%, respectively, of the number of claims incurred during
such policy years were closed. Claims adjusters electronically track the
progress of claims filed and issue regular reviews on the status of cases. On a
bi-monthly basis, claims personnel review selected cases for changes in status
and adjustments to case-specific reserves. Registered nurses at the Company's
offices are responsible for contacting the injured employee, the policyholder
and the healthcare provider within 24 hours after notification of an initial
claim. Working with a claims adjuster as a team, nurses direct medical care and
coordinate the medical component of an indemnity claim from inception to
completion in order to provide quality healthcare to the injured employee,
facilitating a return to work as quickly as possible. Inpatient and outpatient
utilization management is used to evaluate the appropriateness and necessity of
medical treatment.
In Florida, the Company directs injured employees to healthcare
providers that are part of the Company's customized managed care network. The
Company has contracted with CorVel Corporation, giving the Company access to
physicians within the CorCare provider network selected by the Company. The
CorCare provider network consists of hospitals, primary care coordinators
(physicians), specialists and ancillary providers. The network is certified in
all of Florida's 67 counties by the Florida Agency for Health Care
Administration (the "AHCA"). Network physicians diagnose an employee's injuries
and monitor treatment. Working with registered nurses headquartered at the
Company's offices, network physicians develop treatment plans and coordinate
specialty referrals. Specially designated primary care physicians and hospitals
provide urgent and emergency care. Network physicians are compensated on average
below the Florida Department of Workers Compensation fee schedule on a
fee-for-service basis.
Geographic Expansion
While the Company plans to continue its growth in its historic Florida
market base, the Company also plans to expand its business into other states.
With the acquisition of AmComp Assurance in 1997 as its platform for this
expansion, the Company has commenced initial start-up operations in Alabama,
Georgia, Indiana, Kentucky, Tennessee and Wisconsin. The Company has not yet
written a significant amount of premiums in these states. The Company believes
that a positive reception in new states depends, in large part, on its ability
to: (1) communicate the strengths of its total care management strategy to
potential policyholders and agencies; (2) establish strong relationships with
local independent agencies; and (3) deliver a high level of service to
policyholders. The Company's Midwest expansion policy contemplates establishment
of regional offices covering a defined geographic area, with out-of-state branch
offices reporting to the local regional offices. The Company opened its first
regional office in Indianapolis, Indiana in December 1997, which serves
Illinois, Indiana, Kentucky, Tennessee and Wisconsin. From March 1, 1998 through
June 30, 1998, the Company wrote $0.3 million of premium outside Florida.
Until a regional network and infrastructure have been developed, the
Company plans to use Company field underwriters while relying on third party
claims administrators and nurses. Once the local regional network has reached a
critical size, hiring of in-house claims staffs and nurses will commence. In
addition, the Company
-41-
<PAGE>
will contract for, and may ultimately establish its own, medical care networks
in such states as it deems appropriate.
Loss and Loss Adjustment Expense Reserves
Loss and loss adjustment expense reserves are estimates of what an
insurer expects to pay on all claims to injured employees. The Company is
required to maintain reserves for payment of estimated loss and loss adjustment
expense for both reported claims and IBNR. The Company's ultimate liability may
be materially more or less than current reserve estimates.
Reserves for reported claims are established on a case-by-case basis.
Case-by-case reserve amounts are determined by claim examiners, based on the
examiner's judgment and experience, and on the Company's reserving practices,
which take into account the type of risk, the circumstances surrounding the
claim or policy provisions relating to type of loss and historical paid loss and
loss adjustment expense data for similar claims. Case-by-case reserves are not
established for unallocated loss adjustment expenses, and the entire reserve for
unallocated loss adjustment expenses is established primarily based upon the
Company's historical paid data. The Company's management, its consulting
actuaries and other outside review organizations regularly monitor reserve
adequacy for losses that have occurred and been reported and the Company adjusts
such reserves as necessary.
Loss and loss adjustment expense reserves for IBNR are estimated based
on many variables, including historical and statistical information, inflation,
legal developments, the regulatory environment, benefit levels, economic
conditions, judicial administration of claims, general frequency and severity
trends, medical costs, and other factors affecting the adequacy of loss
reserves. Changes in the Company's operations and management philosophy also may
cause actual developments to vary from the past. The adoption of new data
processing systems, shifts to underwriting more or less hazardous risk
classifications, the hiring of new claims personnel and changes in claims
servicing vendors and third party administrators may all change rates of reserve
development, payments, and claims closings, increasing or decreasing claims
severity and closing rates.
Adjustments in aggregate reserves are reflected in the operating
results of the period during which such adjustments are made. Although claims
for which reserves are established may not be paid for several years or more,
the reserves are not discounted.
-42-
<PAGE>
The following table provides a reconciliation of the beginning and
ending loss and loss adjustment expense reserves since the acquisition of AmComp
Preferred in 1996 for the two year period ended December 31, 1997 and the six
months ended June 30, 1998.
Reconciliation of Liability for Losses and Loss Adjustment Expense
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1996 1997 1998
------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Unpaid losses and LAE, net of reinsurance, beginning of period.......... -- $41,307 $67,872
Add unpaid losses and LAE, net of reinsurance, acquired in purchase of
AmComp Preferred.................................................... $31,723
Losses and loss adjustment expenses, net of reinsurance, incurred in:
Current year........................................................ 31,499 62,991 18,448
Prior years......................................................... (3,240) 1,430 140
-------- ------ ------
Total losses and loss adjustment expenses incurred...................... 28,259 64,421 18,588
Deduct payments for losses and loss adjustment expenses, net of reinsurance
occurring in:
Current year........................................................ 8,808 16,863 3,081
Prior years......................................................... 9,867 20,993 18,425
------- ------ ------
Total payments for losses and loss adjustment expenses.................. 18,675 37,856 21,506
------- ------ ------
Ending unpaid losses and loss adjustment expenses, net of reinsurance... 41,307 67,872 64,954
Reinsurance recoverable on unpaid losses and loss adjustment expenses.. 4,075 18,639 32,867
------- ------ ------
Ending unpaid losses and loss adjustment expenses, gross of reinsurance. $45,382 $86,511 $97,821
======= ======= =======
</TABLE>
During the year ended December 31, 1996, AmComp Preferred experienced
favorable development of $3.2 million from prior years. Management believes this
favorable development is the result of emphasis on early claim settlement when
appropriate and the benefits from the New Florida Workers' Compensation Law. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." In 1997, the Company experienced adverse development
resulting from the rapid growth in AmComp Preferred's premiums during the prior
two years and the resultant increase in case loads per adjuster. The positive
effects of the workers' compensation legislation of 1994 also reached a plateau
and began to level off. The Company opened a second claim office in 1997 to
address its recent growth. At June 30, 1998, the Company had returned to its
historical claim count of approximately 100 to 125 open indemnity claims per
adjuster.
The following table shows changes in the historical loss and LAE
reserves for AmComp Preferred for the six years ended December 31, 1997. Prior
to 1995, AmComp Preferred reported its reserves net of anticipated SDTF
recoveries. At the beginning of 1995, AmComp Preferred changed its reserving
methodology to record its reserves for unpaid losses and LAE gross of
anticipated SDTF recoveries. For comparability purposes, all amounts in the
following table are stated gross of SDTF recoverables. The top line shows the
reserve recorded at each year-end. Such amount represents an estimate of unpaid
losses and LAE occurring in that year as well as future payments on claims
occurring in prior years. The upper portion of the table (cumulative paid)
presents the cumulative amounts paid during subsequent years on those losses for
which reserves were carried as of each specific year. The lower portion
(reserves re-estimated) shows the re-estimated amounts of the previously
recorded reserve based on experience as of the end of each succeeding year. The
re- estimate changes as more information becomes know about the actual losses
for which the initial reserve was carried. An adjustment to the carrying value
of unpaid losses for a prior year will also be reflected in the adjustments for
each subsequent year. For example, an adjustment made in the 1994 year will be
reflected in the re-estimated ultimate net loss for each of the years
thereafter. The cumulative redundancy (deficiency) line represents the
cumulative change in estimates since the initial reserve was established. It is
equal to the difference between the initial reserve and the latest re-estimated
reserve amount.
-43-
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Unpaid losses and loss adjustment
expenses (net of reinsurance
recoverable on unpaid losses and loss
adjustment expenses) $12,928 $19,799 $25,796 $31,723 $41,307 $67,872
Liability re-estimated as of:
One year later 11,760 19,457 17,829 28,483 42,737 -
Two years later 13,157 14,379 18,025 29,451
Three years later 9,755 15,445 16,648
Four years later 11,130 14,817
Five years later 10,560
Cumulative (redundancy) deficiency (2,367) (4,981) (9,148) (2,272) 1,430 -
======= ======= ======= ======= ===== ====
Cumulative amount paid, net of
reinsurance, as of:
One year later 5,147 5,995 5,777 13,586 22,591 -
Two years later 7,142 8,447 9,530 19,517
Three years later 7,391 10,702 11,142
Four years later 8,457 11,393
Five years later 8,802
Unpaid losses and loss adjustment
expenses (net of reinsurance
recoverable on unpaid losses and loss
adjustment expenses) 31,723 41,307 67,872
Reinsurance recoverables on unpaid losses
and loss adjustment expenses at balance
sheet date 4,364 4,075 18,639
------- ------- ------
Unpaid losses and loss adjustment expenses
at balance sheet date $36,087 $45,382 $86,511
======= ======= =======
</TABLE>
Reinsurance
Like other insurers, the Company manages its risks, in part, through
excess of loss and quota-share reinsurance agreements. Reinsurance is used
principally (1) to reduce its net liability on individual risks; (2) to provide
protection for catastrophic losses; (3) to stabilize its underwriting results;
and (4) to increase its underwriting capacity.
The Company currently has in effect excess of loss reinsurance
agreements with Reliance Insurance Company ("Reliance") and Continental Casualty
Company. Under such agreements, the reinsurers have agreed to pay losses and LAE
on successive portions of each loss exceeding $50,000. Such agreements expire in
2000. The Company believes that its excess reinsurance agreements limit its
exposure not only to catastrophic claims but also to any increased frequency of
claims of intermediate severity that may result from economic, legal, regulatory
or social changes. See "Risk Factors--Dependence on Reinsurance."
The Company has entered into quota-share reinsurance agreements with
Everest Reinsurance Company and Underwriters Reinsurance Company under which the
reinsurers have assumed an aggregate of 25% of the net losses and ALAE until the
Company's loss ratio (defined as net losses plus ALAE incurred divided by net
earned premiums) equals 65%. The Company retains 100% of all losses in a loss
ratio corridor between 65% and 70%. If the loss ratio exceeds 70%, the Company
cedes 25% of net losses (net of excess of loss reinsurance) under the
quota-share agreement. In exchange for such assumption, the reinsurers receive
approximately 25% of the Company's gross premiums written and pay the Company a
35% ceding commission. The quota-share reinsurance also allows a credit for the
Company's excess of loss coverage and shares pro rata in policyholder dividends.
These quota-share agreements expire on December 31, 1998.
-44-
<PAGE>
Reinsurance does not legally relieve an insurer from its liability
under the workers' compensation policies it issues, but it does make the
assuming reinsurer liable to the insurer for the reinsurance ceded. Therefore,
the Company is subject to credit risk with respect to the obligations of its
reinsurers. The Company regularly performs internal reviews of the financial
strengths of its reinsurers. However, if a reinsurer is unable to meet any of
its obligations to the Insurance Subsidiaries under the reinsurance agreements,
the Insurance Subsidiaries would be responsible for the payment of all claims
and claims expenses which the Company has ceded to such reinsurer. See "Risk
Factors--Dependence Upon Reinsurance."
The availability, amount and cost of reinsurance are subject to market
conditions and to the Company's experience with insured losses. There can be no
assurance that the Company's reinsurance agreements can be renewed or replaced
prior to expiration upon terms as satisfactory as those currently in effect. If
the Company were unable to renew or replace its reinsurance agreements upon such
terms (1) its net liability on individual risks would increase; (2) it would
have greater exposure to catastrophic losses; (3) its underwriting results would
be subject to greater variability; and (4) its underwriting capacity would be
reduced.
Certain information regarding the Company's total reinsurance
recoverable is provided in the following table:
<TABLE>
<CAPTION>
As of December 31, 1997
--------------------------------------------------------
(Dollars in thousands)
Paid Unpaid
Reinsurance Carrier Rating(1) Losses Losses Total
- ------------------------------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Continental Casualty Company A $225 $8,327 $8,552
Everest Reinsurance Company A 182 3,841 4,023
General Reinsurance Corporation A++ 4 578 582
National Union Fire Insurance
Company A++ -- 2,086 2,086
PCA Property & Casualty
Insurance Company(2) E 174 1,246 1,420
Underwriters Reinsurance
Company A+ 121 2,561 2,682
Health Care Indemnity, Inc. A- 12 -- 12
-------------- -------------- --------------
Total......................... $ 718 $18,639 $ 19,357
============== ============== ==============
</TABLE>
- ---------------------------------------
(1) A.M. Best defines "A++" and "A+" rated insurance companies as "superior,"
"A" and "A-" rated insurance companies as "excellent," "B++" and "B+"
rated insurance companies as "very good," "B" and "B-" rated insurance
companies as "fair," "C++" and "C+" rated insurance companies as
"marginal," "C" and "C-" rated insurance companies as "weak," "D" rated
insurance companies as "poor" and "E" rated insurance companies as "under
regulatory supervision."
(2) PCA Property & Casualty Insurance Company was acquired by Humana, Inc., a
national managed care provider, in September 1997. The Company is
currently negotiating with management of that company toward a
commutation of that reinsurance agreement that would eliminate any future
exposure.
The Company has not experienced any material difficulties in collecting
reinsurance recoverables from any of its reinsurers. However, no assurance can
be given as to the future ability of any of the Company's reinsurers to meet
their obligations.
Investments
The Insurance Subsidiaries employ an investment strategy that
emphasizes asset quality and the matching of maturities of their fixed maturity
investments to their anticipated claim payments and expenditures or other
liabilities. The amount and types of investments that may be made by the
Insurance Subsidiaries are regulated under the Florida Insurance Code and the
rules and regulations promulgated by the Florida DOI. The Insurance
Subsidiaries' investments are primarily managed by Trade Street Investment
Associates, Inc. ("Trade
-45-
<PAGE>
Street"), based upon guidelines and strategies approved by their respective
boards of directors. As of December 31, 1997, the Insurance Subsidiaries'
combined portfolio consisted almost entirely of fixed-income securities. The
Insurance Subsidiaries' bond portfolio is heavily weighted toward short- to
intermediate-term, investment- grade securities rated "A" or better, with
approximately 97% rated "AA" or better. The Insurance Subsidiaries employ Trade
Street to act as their independent investment advisor pursuant to the terms of a
written agreement with Trade Street and the Insurance Subsidiaries' written
investment guidelines. The Insurance Subsidiaries have no investments in common
stocks (other than AmComp Preferred's investment in AmComp Assurance), preferred
stocks or derivative securities.
Trade Street has discretion to enter into investment transactions
within the Insurance Subsidiaries' investment guidelines. In practice, this
discretion is generally exercised only with respect to the reinvestment of
maturing securities in similar securities. In the case of sales of securities
prior to maturity, or the acquisition of securities which differ from the types
of securities already present in the portfolio, Trade Street routinely consults
with the Insurance Subsidiaries' Chief Financial Officers, who reports regularly
to the Insurance Subsidiaries' investment committees. Trade Street's fee is
based on the amount of assets in the portfolio and is not dependent upon
investment results or portfolio turnover.
The table below contains information concerning the composition of the
Company's investment portfolio at June 30, 1998:
<TABLE>
<CAPTION>
As of
June 30, 1998
----------------------------------------------------
(Dollars in thousands)
Carrying Market
Amount(1) Value
Bonds:(2)
<S> <C> <C>
U.S. government and agencies (AAA/Aaa rated)................ $27,698 $28,861
AA/Aa rated................................................. 54,341 53,507
A rated................................................. --- ---
BBB/Baa rated............................................... 4,229 4,229
BB/Ba rated................................................. --- ---
-------- --------
Total Bonds............................................. $86,268 $ 86,597
------- --------
Cash and cash equivalents and short-term investments........ $ 16,847 $ 16,847
-------- --------
Total................................................... $103,115 $103,444
======== ========
</TABLE>
- -------------------
(1) Carrying amount is amortized cost for bonds held to maturity and
short-term investments. Market value is used for bonds held for sale
and common stocks.
(2) Standard & Poor's Corporation ("S&P") defines "AAA" rated securities as
"highest rating, extremely strong security," "AA" rated securities as
"very strong security," "A" as "strong security," "BBB" as "adequate
security," and "BB" as "low quality." Moody's Investors Service, Inc.
("Moody's") defines "Aaa" rated securities as "best quality," "Aa" as
"high quality, "A" as "strong security, "Baa" as adequate security,"
and "Ba" as "low quality."
-46-
<PAGE>
The table below reflects investments and interest earned thereon and
average annual yield on investments for each year in the five years ended
December 31, 1997 and for the six-month period ended June 30, 1998.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
Year Ended December 31, 1998
------------------------------------------------- -----------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Average total invested assets(1)........ $250 $726 $1,079 $64,553 $103,619 $110,792
Net investment income (before
taxes)(2)............................ 7 17 53 3,288 5,113 2,616
Average annual yield on investment 2.8% 2.3% 4.9% 5.1% 4.9% 4.7%(5)
portfolio (before taxes)(3)..........
Average annual after tax yield(4)....... 1.8% 1.5% 3.2% 3.9% 4.1% 4.3%(5)
</TABLE>
- ---------------------------------------
(1) Average calculated based upon an average of the beginning and end of
period total investments for purposes of this calculation, investment
balances were at cost (fixed income securities as amortized cost). When
calculating the average total invested assets, the ending balances were
reduced by $20 million and $10 million in 1996 and 1997 respectively.
These adjustments were needed due to the investment increases relating
to the investor contribution of $10 million in December 1996 and the
loan proceeds of $10 million in both December 1996 and December 1997.
These proceeds had no interest earnings in the year in which they were
received. The average balance for 1996 was adjusted to include the
$49.9 million of investments acquired in the purchase of AmComp
Preferred in January 1996.
(2) Net investment income includes investment expenses.
(3) Pre-tax yield is calculated as net investment income dividend by
average total invested assets.
(4) In 1996 and continuing into 1997, the Company adopted a policy of
re-investing a portion of its long-term portfolio in non-taxable bonds
in order to offset the tax liability in a period of rising profits.
(5) Annualized rate of return.
The Company maintains cash reserves to meet current outstanding loss,
loss adjustment and administrative expenses. These short term funds amounted to
$43.9 million at December 31, 1996, $26.9 million at December 31, 1997 and $23.5
million at June 30, 1998. These funds are deposited in SunTrust Bank and the
Bank of New York in non-taxable interest bearing accounts at annual rates that
vary between 2.5% and 2.8%.
The Company monitors its assets and the matching of maturities of its
investments to the Company's anticipated claim payments, expenditures and other
liabilities. As of June 30, 1998, the investments under the Company's management
(excluding cash and cash equivalents) had an average duration of three years and
seven months.
The table below sets forth the maturity profile of the Company's bond
portfolio at market value as of June 30, 1998:
<TABLE>
<CAPTION>
As of June 30, 1998
---------------------------------------------------------------------------------------------
Bonds Rated(1)
---------------------------------------------------------------------------------------------
AAA/Aaa AA/Aa A BBB/Baa BB/Ba Total
(Dollars in thousands)
<S> <C> <C> <C> <C>
1 year or less...................... $2,551 $1,002 $3,553
More than 1 year, through 3 years... 24,362 20,701 $2,022 47,085
More than 3 years, through 5 years.. 1,822 15,212 17,034
More than 5 years, through 10
years............................ 126 15,068 2,207 17,401
More than 10 years, through 15
years............................ 1,013 1,013
More than 15 years.................. 511 511
--------- -------- ----- -------- ------ ---------
Total............................... $28,861 $53,507 - $4,229 - $86,597
</TABLE>
-47-
<PAGE>
- ---------------------------------------
(1) S&P defines "AAA" rated securities as "highest rating, extremely strong
security," "AA" rated securities as "very strong security," "A" as "strong
security," "BBB" as "adequate security," and "BB" as "low quality."
Moody's defines "Aaa" rated securities as "best quality," "Aa" as "high
quality," "A" as "strong security," "Baa" as adequate security," and "Ba"
as "low quality."
Competition
The market for workers' compensation insurance products is highly
competitive. The Company's competitors include, among others, insurance
companies, PEO's, third party administrators, self-insurance funds and state
insurance pools. Many of the Company's existing and potential competitors are
significantly larger and possess considerably greater financial and other
resources than the Company and can offer their services nationwide. After a
period of absence from the market in Florida, traditional national insurance
companies have re-entered that market, thereby increasing competition. Their
presence in the Company's current market, and in markets that the Company might
consider for expansion, will likely create greater competition for acquisitions
of workers' compensation businesses, making it more difficult for the Company to
grow by acquisition of new business.
Competitive factors in the workers' compensation insurance field
include pricing (either through premium rates or dividends), levels of service,
A.M. Best ratings, levels of capitalization, quality of care management
services, the ability to reduce loss ratios through total care management
strategy, loss prevention and the ability to reduce claims expenses. The Company
believes that its products and services are competitively priced. In Florida,
premium rates are fixed by the Florida DOI and are not a competitive factor.
Insurers in Florida compete principally based upon policyholder dividends and
the availability of premium payment plans. The Company also believes that its
level of service and its ability to reduce claims through its total care
management strategy are strong competitive factors that have enabled it to
retain existing clients and attract new clients. See "Risk Factors--Highly
Competitive Industry."
Historically, Florida workers' compensation insurers, many of whom were
self-insurance funds, paid all or a very substantial proportion of the potential
dividends on retention policies. In recent years, as a result of loss experience
and the increased share of the Florida market underwritten by stock corporations
and other for-profit entities, some workers' compensation insurers, including
the Company, have paid substantially less than all potential dividends. To the
extent that dividends on retention policies declared by the Company fail to meet
the expectations of the retention policyholders or the Company's independent
agencies, such failure could adversely affect the Company's relationship with
each of them and could have a material adverse effect on the Company's business
and results of operations.
In 1994, Florida ceased requiring carriers doing business in Florida to
pay residual market assessments to support the involuntary workers' compensation
markets. The Company believes that such action has had the effect of increasing
competition in Florida.
The Company expects ratings to become an increasingly important factor
in establishing its competitive position. Certain independent agencies and
purchasers of insurance, particularly in states into which the Company is
expanding, use the ratings assigned by A.M. Best and other nationally recognized
rating agencies to assist them in assessing the financial strength and overall
quality of the companies with which they are considering doing business. The
Insurance Subsidiaries have not been rated by a rating agency. The Company
believes that the absence of an A.M. Best rating has not seriously affected its
ability to compete for business in Florida. In the Midwest United States, the
favorable rating of a workers' compensation insurer is an important competitive
factor and its unavailability would impede the Company's expansion efforts. See
"--Insurance Products."
Regulation
General. Workers' compensation and managed healthcare programs are
subject to various laws and regulations. Both the nature and degree of
applicable government regulation vary greatly depending upon the
-48-
<PAGE>
specific activities involved. Generally, parties that actually provide or
arrange for the provision of managed care or workers' compensation programs
assume financial risk related to the provision of those programs, or undertake
direct responsibility for making payment or payment decisions for those
services, and are subject to a number of complex regulatory schemes that govern
many aspects of their conduct and operations. The managed healthcare field is a
rapidly expanding and changing industry; it is possible that the applicable
regulatory frameworks will expand to have an even greater impact upon the
conduct and operation of the Company's business.
The Company's business is subject to state-by-state regulation of
workers' compensation insurance and workers' compensation insurance management
services. Under the workers' compensation system, employer insurance or
self-funded coverage is governed by individual laws in each of the 50 states and
by certain federal laws. Such regulation is primarily for the benefit and
protection of covered employees and policyholders and not for the benefit of
insurance companies or their stockholders. Changes in individual state
regulation of workers' compensation or managed healthcare may create a greater
or lesser demand for some or all of the Company's products and services, or
require the Company to develop new or modified services in order to meet the
needs of the marketplace and to compete effectively in that marketplace. In
addition, many states limit the maximum amount of dividends and other payments
that may be paid in any year by insurance companies to their stockholders and
affiliates. This may limit the amount of distributions that may be made by the
Company's Insurance Subsidiaries. See "Risk Factors--Regulation."
Premium Rate Restrictions. In general, state regulations governing
workers' compensation systems and the insurance business impose restrictions and
limitations on the Company's business operations that are not imposed on
unregulated businesses. Among other matters, state laws regulate not only the
amounts and types of workers' compensation benefits that must be paid to injured
workers, but also the premium rates that may be charged by the Company to insure
employers for those liabilities.
Florida Rates and Benefits. In Florida, the Florida DOI approves
"manual" premium rates for each of the approximately 650 employment
classification codes prepared and filed by the National Council on Compensation
Insurance. Although Florida law authorizes the Florida DOI to permit rate
deviations under certain conditions, the Florida DOI has not routinely permitted
carriers operating in Florida to deviate from these approved rates, and
competition is, therefore, primarily related to the return of premiums to
employers with favorable loss experience, service, the ability to improve the
insured's experience ratings through loss prevention and effective claims
management and premium payment plans. Levels of benefit payments to injured
employees are regulated by the Florida Department of Labor and Employment
Security.
Statutory Accounting and Solvency Regulations. State regulation of
insurance company financial transactions and financial condition are based on
statutory accounting principles ("SAP"). SAP differs in a number of ways from
GAAP, which govern the financial reporting of most other businesses. In general,
SAP financial reports are more conservative than GAAP financial reports,
reflecting lower asset values, higher liability values and lower equity.
State insurance regulators closely monitor the financial condition of
insurance companies reflected in SAP financial statements and can impose
significant financial and operating restrictions on an insurance company that
becomes financially impaired. Regulators generally have the power to impose
restrictions or conditions on the following kinds of activities of a financially
impaired insurance company: transfer or disposition of assets, withdrawal of
funds from bank accounts, extension of credit or making loans and investment of
funds.
Financial and Investment Restrictions. Insurance company operations are
subject to financial restrictions that are not imposed on other businesses.
State laws require insurance companies to maintain minimum surplus balances and
place limits on the amount of insurance a company may write based on the amount
of the company's surplus. These limitations may restrict the rate at which the
Company's insurance operations can grow. As of the date of this Prospectus, the
Company meets relevant state minimum capital and surplus requirements.
-49-
<PAGE>
State laws also require insurance companies to establish reserves for
payments of policyholder liabilities and impose restrictions on the kinds of
assets in which insurance companies may invest. These restrictions may require
the Company to invest its assets more conservatively than it would if it were
not subject to the state law restrictions and may prevent the Company from
obtaining as high a return on its assets as it might otherwise be able to
realize. See "--Investments" and "Risk Factors--Regulation."
In addition, under Florida law, without regulatory approval an
insurance company may not pay to its shareholders within a 12-month period
dividends or other distributions of cash or property, the total fair market
value of which exceeds generally the lesser of 10% of surplus or 100% of its
prior year's net income, not including realized capital gains. This may limit
the amount of dividends that may be paid by the Insurance Subsidiaries to
AmComp, which in turn may limit the amount of capital available to AmComp for
debt service, expansion, dividend payments to shareholders, if any, and other
purposes. At December 31, 1997, the Insurance Subsidiaries were authorized to
pay up to $4.7 million in dividends without additional regulatory approval.
Many states, including Florida, have adopted risk-based capital
standards to determine the capital requirements of an insurance carrier based
upon the risks inherent in its operations. These standards require the
computation of a risk-based capital amount which is then compared to a carrier's
actual total adjusted capital. The computation addresses four primary risks:
asset risk, insurance underwriting risk, credit risk and off-balance sheet risk.
These standards provide for regulatory intervention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. The Insurance Subsidiaries exceed such risk- based capitalization
levels.
Florida also utilizes the NAIC Insurance Regulatory Information System
("IRIS"). IRIS identifies 12 ratios for property/casualty insurance companies.
IRIS specifies a range of "usual values" for each ratio. Departure from the
"usual value" range on four or more ratios may lead to increased regulatory
oversight from individual state insurance commissioners. In 1997, AmComp
Preferred had two ratios outside of their usual values, the net writing ratio
and the investment yield ratio. This was caused by AmComp Preferred's
significant increase in premium writing and the Company's strategy of switching
to tax-free bonds thus reducing its income tax liability. AmComp Assurance had
three ratios outside of their usual values in 1997. Two of these ratios (the
two-year operating results ratio and the change in surplus ratio) were outside
their usual value because AmComp Assurance had been inactive prior to its
purchase by the Company in October 1997. The third ratio, the investment yield
ratio, was lower than its usual range due to AmComp Assurance's having a higher
mix of tax-exempt bonds in its portfolio. The Company is not aware of any
increased regulatory scrutiny as a result of the Insurance Subsidiaries' 1997
IRIS values.
Florida Special Disability Trust Fund. Florida operates the SDTF, which
reimburses employers and insurance carriers for workers' compensation benefits
paid to employees who are injured and whose disability is increased by a prior
work-related injury. The SDTF is funded through annual assessments of workers'
compensation insurers based upon workers' compensation net premiums written. The
Company's SDTF recoveries, recorded as a reduction to losses and LAE incurred,
were approximately $0.8 million and $0.5 million for the fiscal years ended
December 31, 1996 and 1997, respectively. The Company's SDTF assessments were
approximately $3.2 million and $4.6 million for the fiscal years ended December
31, 1996 and 1997, respectively.
The SDTF has not prefunded its claims liability and no reserves
currently exist to satisfy future claims. Under Florida law, the SDTF is
currently scheduled to expire in 2000, unless it is recreated by the Florida
legislature. Under current law, claims arising from accidents occurring on or
after January 1, 1998 cannot be accepted for reimbursement by the SDTF. The SDTF
is liable for reimbursement for subsequent injuries that occurred prior to
January 1, 1998. SDTF assessments continue for funding purposes and are capped
under current law at 4.52% of net written premiums.
With respect to collection patterns, the SDTF reviews reimbursement
requests on a claim-by-claim basis, with actual collection payments tied to the
paid loss development over a claim's life. The payments are not made ratably or
in any other predictable pattern. A prior actuarial review of the SDTF indicated
the average
-50-
<PAGE>
time frame for collection of a claim made to the SDTF is 6 to 8 years. Because
collection of SDTF recoveries is uncertain, unlike most of its domestic
competitors, the Company records SDTF recoveries only when received and does not
accrue for future recoveries. The Company's actuaries have estimated that at
December 31, 1997 the Company was eligible to receive in excess of $7.0 million
in future SDTF recoveries.
Florida Agency For Health Care Administration. Florida is currently the
only state that mandates that workers' compensation carriers offer managed care
to policyholders. The Company is subject to regulation by AHCA, the Florida
regulatory agency that oversees the administration of workers' compensation
managed care arrangements. The managed care arrangements offered by workers'
compensation carriers are subject to AHCA's periodic reviews, audits and
approvals. AHCA has the ability to impose fines for deficient operations.
Participation in State Guaranty Fund. Most states have established one
or more insurance guaranty funds or associations that are charged by state law
to pay claims of policyholders insured by a company that becomes insolvent. All
insurance companies must participate in the guaranty associations in the states
where they write insurance and are assessable for the associations' operating
costs, including the cost of paying policyholder claims against an insolvent
insurer. In Florida, in 1997 the Florida Workers' Compensation Insurance
Guaranty Association ("FWCIGA") assessed the Company 1.5% of gross premiums
written in 1997 and there is currently a statutory cap on annual assessments of
2.0% of gross premiums written. Effective July 1, 1999, the statutory cap on
annual assessments will be increased to 3.5% of gross premiums written. The
Company's financial performance could be adversely affected by increases in
FWCIGA assessments.
Holding Company Act. In addition to the regulatory oversight of the
Insurance Subsidiaries, AmComp will also be subject to regulation under the
provisions of the Florida Insurance Code relating to insurance holding company
systems, defined as two or more companies, one or more of which is an insurance
company. Such provisions contain certain reporting requirements, including those
requiring the ultimate parent of a Florida insurance company to file information
relating to its capital structure, ownership and financial condition and the
general business operations of its insurance subsidiary. Such holding company
laws contain special reporting and prior approval requirements with respect to
transactions among affiliates.
The Insurance Subsidiaries have entered into service agreements with
Pinnacle Administrative and Pinnacle Benefits to provide certain administrative,
marketing, accounting, human resource, claims and other services to the
Insurance Subsidiaries in return for fees. AmComp has in the past contributed
capital to the Insurance Subsidiaries. The Insurance Subsidiaries are required
to pay interest and principal on the surplus notes, evidencing the obligations
to repay these capital contributions. Fee payments under the service agreements
are subject to Florida DOI review. Interest and principal payments under the
surplus notes are subject to the Florida DOI's prior approval.
Possible Future Regulation. State legislatures and the federal
government have considered and are considering a number of cost containment and
healthcare reform proposals. The Company believes it may benefit from some
proposals that favor the growth of managed care. However, no assurance can be
given that the state or federal government will not adopt future healthcare
reforms that would adversely affect the Company.
The Florida DOI fixes the premium rates that insurers may charge for
various types of coverage, including workers' compensation insurance. Other
states have implemented systems under which premium rates are based upon market
forces and other factors. The Florida legislature may, as early as 1999,
consider legislative proposals to permit workers' compensation insurers to
compete on the basis of price. Among the proposals which may be considered is a
system in which premium rates would be established with little or no regulatory
intervention.
In recent years, the state insurance regulatory framework has come
under increased federal scrutiny, and certain state legislatures have considered
or have enacted laws that altered and, in many cases, increased state authority
to regulate insurance companies and insurance holding companies. Further, the
NAIC and state insurance regulators are re-examining laws and regulations,
specifically focusing on investment laws for insurers, modifications to holding
company regulations, codification of statutory accounting practices, risk-based
company
-51-
<PAGE>
regulations, codification of statutory accounting practices, risk-based capital
guidelines, interpretations of existing laws and the development of new laws. In
addition, Congress and certain federal agencies are investigating the current
condition of the insurance industry in the United States to determine whether to
impose federal regulation. The Company cannot predict with certainty the effect
any proposed or future legislation or NAIC initiatives may have on the conduct
of the Company's business or results of operations of the Company. See "Risk
Factors--Regulation."
Legal Proceedings
The Company is periodically a party to routine litigation incidental to
the Company's business. The Company does not believe that it is a party to any
pending legal proceeding that is likely to have a material adverse effect on the
Company's business, financial condition or results of operations.
Employees
As of June 30, 1998, the Company had 175 employees, eight of whom were
executive officers.
Facilities
The Company's principal executive offices are located in North Palm
Beach, Florida and consist of approximately 26,000 square feet of office space
under a lease that expires December 21, 2001. In addition, the Company maintains
a branch office in Maitland, Florida consisting of approximately 8,300 square
feet of office space under a lease that expires June 30, 2003, and a regional
office in Indianapolis, Indiana consisting of approximately 1,900 square feet of
office space under a lease that expires November 30, 2000. The Company believes
that there is sufficient office space available at favorable leasing terms in
and outside Florida and in the areas targeted for expansion to satisfy the
additional needs of the Company that may result from future expansion.
-52-
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table provides information regarding the executive
officers and directors of the Company.
Name Age Position
---- --- --------
Sam A. Stephens 62 Chairman of the Board
Fred R. Lowe 63 President, Chief Executive Officer and
Director
Debra Cerre-Ruedisili 43 Executive Vice President, Chief
Operating Officer and Director
Donald L. Johnson 51 Senior Vice President, Chief Financial
Officer and
Treasurer
Alan N. Duggan 56 Senior Vice President
Marshall N. Gordon 55 Senior Vice President
Dale E. Hanson 41 Senior Vice President, Secretary and
Director
Antonio Faillaci 52 Vice President, Midwest Region
David Stegall 43 Vice President, Underwriting
Richard Kroon(1) 56 Director
Andrew M. Paul(2) 42 Director
Paul B. Queally(1)(2) 34 Director
Daniel J. Thomas (2) 39 Director
- ---------------------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Sam A. Stephens has served as Chairman of AmComp since December 1996
and as a Director of AmComp Preferred, Pinnacle Benefits and Pinnacle
Administrative since June 1996. Mr. Stephens served as President of AmComp from
December 1995 to February 1997. Mr. Stephens co-founded (with Fred R. Lowe)
Florida Administrators, Inc. (now known as Pinnacle Administrative) and founded
the Florida Air Conditioning Contractors Association-Self Insurers Fund
("FACCA"), a predecessor of AmComp Preferred. Mr. Stephens holds a B.A. degree
in Economics from the University of Florida and is a licensed property and
casualty agent.
Fred R. Lowe has served as President, Chief Executive Officer and a
Director of AmComp since February 1997. Mr. Lowe co-founded (with Sam A.
Stephens) Florida Administrators, Inc. Mr. Lowe has also served as President and
a Director of AmComp Assurance since November 1997 and as Vice President of
Pinnacle Administrative and Pinnacle Benefits since December 1996. From 1989 to
1992, Mr. Lowe held various executive positions with several financial service
companies. From 1992 until February 1997, Mr. Lowe served as an independent
consultant, which work included providing consulting services to Florida
Administrators, Inc. from 1994 to 1997. Mr. Lowe assisted in the conversion of
FACCA into a capitalized insurance company.
Debra Cerre-Ruedisili has served as Senior Vice President of AmComp
since April 1997, as Executive Vice President and Chief Operating Officer of
AmComp since March 1998 and as a Director of AmComp since September 1998. Ms.
Cerre-Ruedisili has served as a Director of AmComp Assurance since September
1998. Prior to joining the Company, Ms. Cerre-Ruedisili has served as Co-Chief
Executive Officer and Chief Operating Officer of MedView Services Incorporated
("MedView"), a managed care provider, from 1987 to 1997 and as the Risk Manager
of Kmart Corporation from 1984 to 1987. Previously, Ms. Cerre-Ruedisili was an
attorney in private practice specializing in the defense of workers'
compensation claims and also was a workers' compensation claims adjuster and
claims manager for Transamerica Insurance Group. Ms. Cerre-Ruedisili is a
-53-
<PAGE>
member of the Board of Governors of the Florida Workers' Compensation Joint
Underwriting Association. Ms. Cerre-Ruedisili earned her J.D. degree from the
University of Detroit.
Donald L. Johnson has served as Treasurer of AmComp since March 1998
and as Senior Vice President and Chief Financial Officer of Pinnacle
Administrative and Pinnacle Benefits since 1996. From 1994 to 1996, Mr. Johnson
served as Vice President and Controller of Vik Brothers' Insurance Group ("Vik
Brothers'"), a multi-line property and casualty company. Prior to working at Vik
Brother's, Mr. Johnson served for 18 years as Vice President and Controller of
Durham Corporation and for two years as Vice President - Sales of its successor,
Providian Corporation. Mr. Johnson is a Certified Public Accountant, Chartered
Life Underwriter, a Chartered Financial Consultant and a Fellow, Life Management
Institute. He received his B.S. degree from Campbell University and completed
the Executive Program at the University of North Carolina.
Alan N. Duggan has served as Senior Vice President of AmComp since
April 1998 and of its predecessor companies since November 1991, as a Director
of Pinnacle Benefits since June 1996 and as Vice President and Secretary of
Pinnacle Benefits from December 1992 to September 1998. Mr. Duggan joined
Pinnacle Assurance Corporation (the predecessor of AmComp Preferred) in November
1991 as its Vice President of Claims. Mr. Duggan's professional insurance
experience spans over 25 years in claims, subrogation, second injury fund,
rehabilitation, reinsurance and judicial hearings and appeals.
Marshall N. Gordon has served as Senior Vice President of AmComp since
April 1998 and as a senior executive officer of its predecessor companies since
April 1994. Mr. Gordon joined the Company in 1994 as the Director of Marketing
for Pinnacle Administrative. Prior to joining the Company, Mr. Gordon served as
the Director of Marketing for Paymaster from June 1993 to April 1994 and as Vice
President of Alexsis, a third-party administrator. While at Alexsis, Mr. Gordon
also served as the Administrator of the Florida Restaurant Worker's Compensation
Trust Fund. He is a licensed property and casualty agent.
Dale E. Hanson has served as Senior Vice President and Secretary of
AmComp since April 1998 and as a Director of AmComp since January 1996. He has
been a Director of AmComp Preferred since June 1996 and its Secretary and
Treasurer since February 1995. He has served as a Director, Vice President of
Operations and Secretary of Pinnacle Benefits since December 1992. Prior to
joining the Company, he served from 1986 to 1988 as Vice President and from 1988
to 1990 as President of Florida Roofing, Sheet Metal and Air Conditioning
Contracting Services Corporation. Mr. Hanson received his B.A. degree in
accounting and computer science from the University of Central Arkansas and is a
member of the Risk and Insurance Management Society.
Antonio Faillaci has served as Vice President, Midwest Region, since
March 1998 and has served as President of the Company's Midwest division since
June 1997. Mr. Faillaci served as First Vice President of Reliance National
Insurance Company from September 1996 to May 1997. From February 1995 to
September 1996, Mr. Faillaci served as Vice President and Division Manager for
Fremont Insurance Company and from 1993 to 1995 he served as President of
Casualty Insurance Company of Indiana (which was acquired by Fremont Insurance
Company). From 1984 to 1993, Mr. Faillaci served as Vice President of Marketing
for Casualty Insurance Company. Prior to 1984, Mr. Faillaci held various
underwriting and marketing positions with Syre and Toso Excess and Surplus Lines
Co., AETNA Insurance Company and Maryland Casualty Co.
David Stegall has served as Vice President, Underwriting of AmComp
since March 1998. Mr. Stegall served as Insurance Executive, Vice President of
Willis Corroon Corporation from January 1994 to 1997, and as Sales and Marketing
Manager of ManagedComp from 1992 to December 1993. Mr. Stegall has been employed
in the insurance industry since 1977. He has received his Chartered Property &
Casualty Underwriter designation in 1988 and his Associate of Risk Management
designation in 1991.
-54-
<PAGE>
Richard Kroon has served as a director of AmComp since March 1996. Mr.
Kroon has been the managing partner of the Sprout Group ("Sprout"), a venture
capital firm that is a division of Donaldson, Lufkin & Jenrette Securities
Corporation, since 1981. He is also a director of Quest Education Corp., a
post-secondary education provider and Loehmann's, Inc., an apparel retailer, and
several privately-held companies.
Andrew M. Paul has served as a director of AmComp since January 1996.
Mr. Paul has been a general partner of Welsh, Carson, Anderson & Stowe, a
leveraged buyout firm, since September 1984. He is also a director of Centennial
HealthCare Corporation, a healthcare services provider, Lincare, Inc., a
healthcare services and equipment provider, and Accredo Health, Incorporated, a
specialized contract pharmacy provider.
Paul B. Queally has served as a director of AmComp since March 1996.
Mr. Queally has been a general partner of Welsh, Carson, Anderson & Stowe since
1996. Mr. Queally joined Sprout in September 1986 holding various positions,
most recently a general partner until February 1996. Mr. Queally is a director
of New America Healthcare Corporation, an acute care hospital operator, and
several privately-held companies.
Daniel J. Thomas has served as a director of AmComp since May 1998. He
has been principally employed as Chief Executive Officer of Concentra Managed
Care, Inc., a managed care provider, since September 1, 1998, as President and
Chief Operating Officer of such corporation since January 1998, and as an
Executive Vice President and President of Practice Management Services of such
corporation from August 1997 to January 1998. From 1993 to August 1997, Mr.
Thomas served initially as Executive Vice President and Chief Operating Officer
and then as President and Chief Operating Officer of OccuSystems, Inc., a
managed care provider.
Other Significant Employees
The following information is provided regarding certain other
significant employees of the Company.
Clyde Barber, 43, has served as Vice President, Accounting of AmComp
since January 1998. Prior to joining AmComp, Mr. Barber was the senior financial
officer of IRM, a national reinsurance pool. Mr. Barber received his B.S. in
Business Administration from the University of North Carolina. Mr. Barber is a
member of the American Institute of Certified Public Accountants. He is also a
Chartered Financial Consultant and a Chartered Property and Casualty
Underwriter.
Melody Misiaszek, 42, has served as Vice President, Regulatory
Reporting and Compliance of AmComp since February 1997. Ms. Misiaszek served
from 1994 to 1997 as Director, Risk Services and from 1993 to 1994 in the policy
service department of Pinnacle Administrative. Prior to Ms. Misiaszek's
employment with Pinnacle Administrative, from 1987 to 1993 she was employed in
the independent insurance agency industry in various positions as office
manager, agent and customer service representative where she gained experience
in personal, commercial and marine insurance. Ms. Misiaszek earned her B.S.
degree in merchandising and marketing from Kent State University. Ms. Misiaszek
is a licensed property and casualty agent. She holds the designations of
Associate in Risk Management, Certified Insurance Counselor and Certified
Professional Insurance Women. She has been an active member at a state and local
level of the National Association of Insurance Women since 1990.
Laura Newstead, 38, has served as Vice President, Human Resources of
AmComp since April 1998. Prior to joining AmComp, Ms. Newstead was the Manager
of Human Resource Operations at The MEDSTAT Group, where she was responsible for
all aspects of the administration of human resources and payroll. Prior to The
MEDSTAT Group, Ms. Newstead served as the Director of Human Resources for
MedView for five years. Ms. Newstead was responsible for the start-up of the
human resources department at MedView, which supported seven regional offices.
Ms. Newstead has 12 years of human resource experience, of which, the last six
years were in healthcare and worker's compensation managed care. Ms. Newstead is
a member of the Society of
-55-
<PAGE>
Human Resource Management, the American Compensation Association, the American
Society of Employers and the Human Resource Association of Palm Beach County.
She received her B.A. degree from Western Michigan University and her Masters of
Administration & Human Resources from Central Michigan University.
Marina Popovetsky, 42, has served as Vice President, Information
Technology of AmComp since November 1997. From 1996 to October 1997, Ms.
Popovetsky served as Managing Director, Business Outsourcing operations for
Computer Science Corporation where she managed 250 employees in 12 different
locations. From 1989 to April 1996, Ms. Popovetsky served as Director of
Information Technology for MedView. Ms. Popovetsky has 18 years of information
technology experience, 15 of which involved management positions in the fields
of health care, managed care and software development. Ms. Popovetsky earned her
MBA degree from the University of Michigan.
Valerie Wilson, 43, has served as Vice President, Managed Care, of
AmComp since September 1997. From 1988 to June 1997, Ms. Wilson was employed by
MedView, serving as Vice President of Operations from 1993 through 1997. Ms.
Wilson has 20 years of health care experience, eight in hospital and home care
nursing, nine in group health, automotive and workers compensation managed care
and two with PCS, a third-party prescription drug administrator.
Committees of the Board of Directors
Stock Option and Compensation Committee
AmComp's Stock Option and Compensation Committee (the "Compensation
Committee") consists of Paul B. Queally and Richard Kroon. The Compensation
Committee grants options under the Company's stock option plans and recommends
to the Board of Directors the compensation of the Company's executive officers
and key employees.
Audit Committee
The Audit Committee consists of Paul B. Queally, Andrew M. Paul and
Daniel J. Thomas. The Audit Committee (1) selects independent public accountants
to audit the books, records and accounts of the Company, (2) reviews all
recommendations made by the Company's independent public accountants to the
Board of Directors with respect to accounting methods and the system of internal
control followed by the Company and advises the Board of Directors with respect
thereto and (3) examines and makes recommendations to the Board of Directors
with respect to the scope of audits conducted by the Company's independent
public accountants.
Executive Compensation
The following table sets forth information with respect to compensation
earned by and/or paid to the Chief Executive Officer and the four most highly
compensated executive officers other than the Chief Executive Officer
(collectively, the "Named Executive Officers") of the Company for each of the
Company's last three completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1)
------------------------------------------------------------
Securities
Name and Principal Other Annual Underlying Options All Other
Position(1) Year Salary Bonus Compensation Granted (#) Compensation
- ----------------------- -------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sam A. Stephens, Chairman 1997 $130,688 -- $52,859(2) -- --
1996 132,580 -- 48,012(3) -- --
1995 130,000 907,976(4) 39,078(5) -- $75,000(6)
</TABLE>
-56-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fred R. Lowe, President and 1997 123,179 -- -- 500,000 --
Chief Executive Officer 1996 -- -- -- -- 500,000(7)
1995 -- -- -- -- --
Debra Cerre-Ruedisili, 1997 102,681 15,000 -- 75,000 61,845(8)
Executive Vice President and 1996 -- -- -- -- --
Chief Operating Officer 1995 -- -- -- -- --
Donald L. Johnson, Senior 1997 147,696 20,000 -- -- 57,000(8)
Vice President, Chief Financia1996 9,134 25,000 -- 75,000 --
Officer and Treasurer 1995 -- -- -- -- --
Dale E. Hanson, Senior Vice 1997 125,313 20,000 36,712(9) -- --
President and Secretary 1996 112,634 10,000 32,492(10) -- --
1995 105,975 2,302 14,788(11) -- 20,000(12)
</TABLE>
- ---------------------------------------
(1) Excludes certain perquisites the value of which do not exceed the
lesser of $50,000 or 10% of the named individual's aggregate salary and
bonus.
(2) Includes directors fees of $18,000 paid by AmComp Preferred and
payments in respect of a leased automobile of $14,949.
(3) Includes directors fees of $19,500 paid by AmComp Preferred and life
insurance premiums with a value of $24,245 paid by the Company.
(4) Represents a one-time bonus paid in respect of services rendered during
several preceding years.
(5) Includes directors fees of $16,500 paid by AmComp Preferred and life
insurance premiums with a value of $18,612 paid by the Company.
(6) Represents a dividend paid by the administrative subsidiaries.
(7) Represents an advisory fee paid to Mr. Lowe in the capacity of
independent consultant in connection with the formation and funding of
AmComp and the transfer to it of the stock of AmComp Preferred,
Pinnacle Administrative and Pinnacle Benefits.
(8) Represents a relocation bonus.
(9) Includes directors fees of $18,000 paid by AmComp Preferred and
payments in respect of a leased automobile of $11,140.
(10) Includes directors fees of $13,500 paid by AmComp Preferred and
payments in respect of a leased automobile of $11,923.
(11) Includes payments in respect of a licensed automobile of $10,568.
(12) Represents a dividend paid by the administrative subsidiaries.
-57-
<PAGE>
The following table sets forth certain information regarding stock
option grants made to the Named Executive Officers during the fiscal year ended
December 31, 1997.
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------
Market Value
of Securities Potential Realizable Value at Assumed
% of Total Underlying Annual Rates of Stock Price Appreciation
Securities Options Options on for Option Term(2)
Under Granted to Exercise or the Date of
Options Employees in Base Price Grant Expiration
Name(1) Granted(#) Fiscal Year (Security) (Security) Date 5% 10% 0%(3)
- ------------------- ----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Fred R. Lowe,
President and Chief
Executive Officer.. 500,000 76.3% $6.00 $4.00 12/31/06
Debra Cerre-Ruedisili
Executive Vice
President and Chief
Operating Officer.. , 75,000 11.5% $6.00 $4.00 4/15/02
</TABLE>
The following table sets forth certain information regarding stock
options held by the Named Executive Officers as of December 31, 1997.
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
No. of Common Shares Underlying Value(2) of Unexercised in the
Unexercised Options at Fiscal Year- Money Options at Fiscal Year-End
Name End (#) Exercisable/Unexercisable ($) Exercisable/Unexercisable
- -------------------------------------- ------------------------------------- ------------------------------------
<S> <C>
Fred R. Lowe 0/500,000
Debra Cerre-Ruedisili 0/75,000
Donald L. Johnson 15,000/75,000
</TABLE>
- ---------------------------------------
(1) No options were exercised by the Named Executive Officers during the
fiscal year ended December 31, 1997.
(2) Represents the total gain that would be realized if all in-the-money
options held at December 31, 1997 were exercised, determined by
multiplying the number of shares underlying the options by the
difference between the per share option exercise price and the initial
public offering price of the Common Stock in this Offering. An option
is in-the-money if the fair market value of the underlying shares
exceeds the exercise price of the option.
-58-
<PAGE>
Stock Option Plans
1996 Stock Option Plan
On June 24, 1996, the Board of Directors of AmComp adopted AmComp's
1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan was approved by the
stockholders of AmComp on April 18, 1997. The 1996 Plan provides for the grant
of incentive stock options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and non-qualified stock options. The
maximum number of shares of Common Stock that may be issued pursuant to options
granted under the 1996 Plan is 625,000 shares. Employees, officers, consultants,
and advisors of and to the Company are eligible to participate in the 1996 Plan.
Unless sooner terminated by the Board, the 1996 Plan terminates on June 23,
2006.
The 1996 Plan is administered by the Compensation Committee. Grants are
made based on the Compensation Committee's judgment of an employee's
contribution to the success of the Company's operations. Incentive options
granted under the plan must have an exercise price of not less than 100% of the
fair market value of the Common Stock on the date of grant (and 110% of such
fair market value in the case of incentive stock options granted to holders of
more than 10% of the voting power of the Company) and are exercisable, subject
to vesting requirements determined by the Board of Directors, for periods of up
to 10 years from the date of grant. Non-qualified options granted under the 1996
Plan must have an exercise price of not less than 80% of fair market value on
the date of grant. The exercise price of an option may be paid in cash, or, when
approved by the Compensation Committee, by surrender of Common Stock with an
equivalent fair market value.
The 1996 Plan also provides for acceleration of the right to exercise
options upon the occurrence of certain events, including a merger, liquidation
or sale of substantially all the assets of the Company, unless the obligations
under outstanding options are assumed, or outstanding options are replaced, by a
successor entity. Stock options granted under the 1996 Plan are not
transferable, except by will or the laws of descent and distribution. Unless
otherwise determined by the Compensation Committee, all rights to exercise
options terminate upon termination of employment, provided that except where
termination is for cause, the options may be exercised, to the extent
exercisable upon termination, for a period ending on the earlier of 30 days
thereafter (one year in the case of death) or the time when the options
otherwise would have expired. As of June 30, 1998, options to purchase an
aggregate of 609,550 shares of Common Stock were outstanding under the 1996
Plan, of which options to purchase 107,910 shares had vested and were
exercisable.
Directors' Stock Option Plan
On March 3, 1997, the Board of Directors of AmComp adopted the
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan was
approved by the stockholders of AmComp on April 18, 1997. The maximum number of
shares of Common Stock that may be issued pursuant to options granted under the
Directors' Plan is 200,000 shares. Unless sooner terminated by the Board, the
Directors' Plan terminates on March 3, 2007.
The Directors' Plan is administered by the Board of Directors of
AmComp. All members of the Board of Directors who are not employees of AmComp
(the "Eligible Directors") are eligible to receive grants of options under the
Directors' Plan. Each Eligible Director receives an automatic, nondiscretionary
grant of (1) an option to purchase 15,000 shares of Common Stock on the date he
is elected to the Board of Directors, and (2) options to purchase 3,000 shares
of Common Stock annually on each January 1 thereafter so long as he remains an
Eligible Director. In addition, the Board has the authority to make
discretionary grants of options under the Plan.
Options granted under the Directors Plan must have an exercise price
equal to the fair market value of the Common Stock on the date of grant and are
exercisable, subject to vesting requirements determined by the
-59-
<PAGE>
Board of Directors of AmComp, for five years from the date of grant. The
exercise price of an option may be paid in cash, or, when approved by the Board
of Directors of AmComp, by surrender of Common Stock with an equivalent fair
market value.
The Directors' Plan also provides for acceleration of the right to
exercise options upon the occurrence of certain events, including a merger,
liquidation or sale of substantially all the assets of the Company. Stock
options granted under the Directors' Plan are not transferable, except by will
or the laws of descent and distribution. If an Eligible Director's membership on
the Board of Directors terminates for any reason other than cause, an option
held on the date of termination may be exercised within one year after the date
of termination (but in no event after the term of the option expires).
As of June 30, 1998, options to purchase an aggregate of 105,000 shares
of Common Stock were outstanding under the Directors' Plan, of which options to
purchase 25,000 shares had vested and were exercisable.
Directors' Compensation
Members of the Board of Directors of AmComp do not receive any
compensation for serving as Directors. They are eligible for reimbursement of
their reasonable expenses incurred in connection with attendance at such
meetings.
Employment Agreements
AmComp is party to an amended employment agreement with Fred R. Lowe
under which he serves as AmComp's President and Chief Executive Officer. In
addition to his base salary of $135,000, Mr. Lowe is eligible to receive a bonus
in each year of the agreement equal to 3% of AmComp's pre-tax operating income
(as defined in the employment agreement) in excess of $8,500,000 (but not in
excess of $13,000,000), 5% of such income in excess of $13,000,000 (but not in
excess of $18,000,000), and 7% of such income in excess of $18,000,000. The
agreement contains covenants restricting Mr. Lowe's ability to engage in
activities competitive with those of the Company for a period ending one year
after the termination or non-renewal of his employment and provides for payment
of severance over such period in an amount equal to his annual base salary. The
term of the employment agreement is automatically extended for additional
one-year terms after the initial term expires on December 31, 1999, unless
either party gives notice of its decision not to renew. In connection with the
entry by Mr. Lowe into his employment agreement, he was granted a 10-year option
to purchase 500,000 shares of Common Stock at an exercise price of $6.00 per
share. The option is exercisable in three equal installments on January 1, 1998,
1999 and 2000, provided, that in the event of a change of control (as defined in
the option agreement), the option becomes immediately exercisable in full.
AmComp is party to amended employment agreements with each of Debra
Cerre-Ruedisili, Donald L. Johnson and Dale E. Hanson. The annual salary of Ms.
Cerre-Ruedisili and Messrs. Johnson and Hanson under their employment agreements
is $200,000, $165,000 and $140,000, respectively. Each employment agreement
contains non-competition, severance and renewal provisions identical to those
contained in Mr. Lowe's agreement. On May 20, 1998, Ms. Cerre-Ruedisili was
granted a 10-year option to purchase 125,000 shares of Common Stock at an
exercise price of $6.00 per share. The option is exercisable in three equal
installments on May 20, 1999, 2000 and 2001, provided, that in the event of a
change of control (as defined in the option agreement), the option becomes
immediately exercisable in full.
In October 1998, AmComp entered into severance agreements with Fred R.
Lowe, Debra Cerre- Ruedisili and Donald L. Johnson, that entitle each of the
executives to a severance payment and other benefits in the event that their
employment is terminated, or certain other events relating to their employment
occur, following the occurrence of a change of control (as defined in the
severance agreements). The severance amount payable to each executive under his
or her severance agreement is equal to the executive's annual base salary in
-60-
<PAGE>
effect immediately prior to the date the severance amount becomes payable by the
Company. Unless extended by the Company, each severance agreement terminates on
December 31, 2000 in the event that a change of control does not occur on or
before such date. If a change of control does occur on or before December 31,
2000, each severance agreement shall continue in effect until the second
anniversary of the change of control. The Company is not required to make
severance payments after a change of control in the case of termination of
employment due to death, disability or for cause (as such term is defined in the
severance agreements).
Indemnification of Officers and Directors
As permitted by the General Corporation Law of the State of Delaware
(the "DGCL"), AmComp's Certificate of Incorporation limits the personal
liability of a director to AmComp for monetary damages for breach of fiduciary
duty of care as a director. Liability is not eliminated for (1) any breach of
the director's duty of loyalty to AmComp or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) unlawful payment of dividends or stock purchases or
redemptions pursuant to Section 174 of the DGCL or (4) any transaction from
which the director derived an improper personal benefit. The Certificate of
Incorporation further provides that AmComp shall indemnify directors and
executive officers to the fullest extent permitted by DGCL.
AmComp has entered into indemnification agreements with its directors
and executive officers. The indemnification agreements provide that the
directors and executive officers will be indemnified to the fullest extent
permitted by applicable law against all judgments, fines, penalties, excise
taxes and amounts paid in settlement or incurred in defense of any threatened,
pending or completed claim, action, suit or proceeding, including any derivative
action, on account of their services as a director or officer of AmComp or of
any subsidiary of AmComp or of any other company or enterprise in which they are
serving at the request of AmComp. Indemnification will be provided in a
proceeding or action other than a derivative action unless it is determined that
the indemnitee did not act in good faith and for a purpose he reasonably
believed to be in the best interests of AmComp, and in the case of a criminal
proceeding or action, he had reasonable cause to believe that his conduct was
unlawful. Indemnification will be provided in a derivative action under the same
standards, except in respect of (1) any claim, issue or matter as to which the
indemnitee is adjudged to be liable to AmComp or (2) any pending or threatened
action to which he is a party or threatened to be made a party unless an
appropriate court shall have determined that in view of the circumstances he is
fairly and reasonably entitled to indemnification. To the extent the provisions
of the indemnification agreements exceed the indemnification permitted by
applicable law, such provisions may be unenforceable or may be limited to the
extent they are found by a court of competent jurisdiction to be contrary to
public policy.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling AmComp
pursuant to the foregoing provisions, AmComp has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sam A. Stephens, Dale E. Hanson, Alan N. Duggan and Fred R. Lowe (each
an "Executive" and, together, the "Executives") are parties to a Stockholder
Agreement with AmComp and Pinnacle Benefits (the "Original Stockholder
Agreement") pursuant to which each Executive has granted Mr. Stephens an option
to repurchase the shares of Common Stock owned by him upon his withdrawal from,
or termination of his employment by, AmComp. The Original Stockholder Agreement
requires that the other Executives vote their Common Stock on any matter
presented to the stockholders of AmComp for a vote as they are directed, in
writing, by Mr. Stephens, so long as he is an AmComp stockholder. The Original
Stockholder Agreement also provides for certain purchase and sale rights in
respect of Common Stock owned by the Executives.
-61-
<PAGE>
Welsh, Carson, Anderson & Stowe VII, L.P. and certain of its affiliates
(collectively, the "WCAS Stockholders"), DLJ Capital Corporation and certain of
its affiliates (together with the WCAS Stockholders, the "Purchasers") and the
Executives are parties to a Stockholders Agreement with AmComp and Pinnacle
Administrators (the "Second Stockholders Agreement"). The Second Stockholders
Agreement provides, among other things, for the rights of the Purchasers and Mr.
Stephens to designate members of AmComp's Board of Directors, limitations on
AmComp's ability to take certain extraordinary actions (e.g., incurrence of
debt) and certain cross-purchase and sale rights in respect of Common Stock
owned by the Purchasers and the Executives and the Series A Preferred Stock
owned by the Purchasers. The Second Stockholders Agreement terminates in its
entirety upon the consummation of the Offering.
The Purchasers and the Executives are parties to a Registration Rights
Agreement with AmComp relating to (1) 12,500,000 shares of Common Stock, (2)
6,000,000 shares of Common Stock issuable upon the consummation of the Preferred
Stock Conversion and (3) up to an additional 2,500,000 shares of Common Stock
issuable upon conversion of Series A Preferred Stock issued subsequent to the
original issuances (all such shares of Common Stock being referred to as the
"Investment Shares"). The Registration Rights Agreement provides that, upon
completion of this Offering, holders representing a majority of the Investment
Shares may require AmComp to register such shares for resale. In addition to the
foregoing, the Registration Rights Agreement provides each of the Purchasers and
the Executives demand registration rights with respect to registrations on Form
S-3 promulgated under the Securities Act (if AmComp is entitled to use Form
S-3), so long as the reasonably anticipated aggregate price to the public of
such offering is at least $1.5 million. Form S- 3 demand registration rights
under the Registration Rights Agreement are limited to one registration during
every 180 days. Certain other conditions also must be met before AmComp may be
required to honor a demand registration request. AmComp is required to pay all
expenses of any registration pursuant to the Registration Rights Agreement,
subject to certain limitations.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of September 30, 1998 (after giving
effect to the Preferred Stock Conversion) and as adjusted to reflect the sale of
the Common Stock offered hereby, by (1) each director, (2) each of the Named
Executive Officers, (3) all directors and executive officers as a group and (4)
each person who beneficially owns 5% or more of the Company's Common Stock.
Unless otherwise indicated, the address for all of the executive officers,
directors and stockholders of the Company named below is c/o AmComp, 701 U.S.
Highway One, Suite 200, North Palm Beach, Florida 33408. Except as specified
below, the named beneficial owner has sole voting and investment power with
respect to the indicated shares of Common Stock.
<TABLE>
<CAPTION>
Shares Percent of Class
Beneficially Before After
Name of Beneficial Owner Owned(1) Offering Offering(2)
- ------------------------ -------- -------- -----------
<S> <C> <C>
Sam A. Stephens........................ 5,626,340 30.3%
Sam A. Stephens Charitable
Remainder Unitrust.................... 1,590,000 8.6
Fred R. Lowe........................... 666,667(3) 3.4
Debra Cerre-Ruedisili.................. 15,000(4) (5)
Donald L. Johnson...................... 30,000(6) (5)
Dale E. Hanson......................... 506,740 2.7
Richard Kroon(7)....................... 4,065,000(8) 21.9
Andrew M. Paul(9)...................... 5,668,700(10) 30.5
Paul B. Queally(9)..................... 5,658,550(11) 30.4
Daniel J. Thomas....................... 22,500 (5)
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
Shares Percent of Class
Beneficially Before After
Name of Beneficial Owner Owned(1) Offering Offering(2)
- ------------------------ -------- -------- -----------
<S> <C> <C>
Welsh, Carson, Anderson &
Stowe VII, L.P.(12)................... 5,648,475 30.4
DLJ Capital Corporation................ 4,060,000(13) 21.8
Sprout Growth II, L.P.(14)............. 1,735,625 9.3
Sprout Capital VII, L.P.(14)........... 2,122,997 11.4
All directors and executive officers as
group (9 persons)(3)(4)(6)(8)(10)(11) a 16,611,022 88.2
</TABLE>
- ---------------------------------------
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended ("Rule 13d-3").
The percentage of class is calculated in accordance with Rule 13d-3 and
includes options or other rights to subscribe that are exercisable
within 60 days after September 30, 1998. This table gives pro forma
effect to the conversion of the Series A Preferred Stock into 6,000,000
shares of Common Stock.
(2) Gives effect to the sale by the Company of the shares of Common Stock
offered by it hereunder.
(3) Includes 166,667 shares of Common Stock issuable upon exercise of
options held by Mr. Lowe.
(4) Consists of 15,000 shares of Common Stock issuable upon exercise of
options held by Ms. Cerre- Ruedisili.
(5) Less than 1%.
(6) Consists of 30,000 shares of Common Stock issuable upon exercise of
options held by Mr. Johnson.
(7) The address of such stockholder is c/o the Sprout Group, 277 Park
Avenue, 21st Floor, New York, New York 10172.
(8) Includes (i) 5,000 shares of Common Stock issuable upon exercise of
options held by Mr. Kroon, (ii) 2,122,997 shares of Common Stock held
by Sprout Capital VII, L.P. ("Sprout VII"), (iii) 1,735,625 shares of
Common Stock held by Sprout Growth II ("Sprout II"), L.P., (iv) 176,719
shares of Common Stock held by DLJ Capital Corporation ("DLJCC") and
(v) 24,659 shares of Common Stock held by Sprout CEO Fund, L.P.
("Sprout CEO"). Mr. Kroon is the president of DLJCC, which is the
general partner of Sprout VII, Sprout II and Sprout CEO. Mr. Kroon
disclaims beneficial ownership of the securities held by the
above-mentioned entities, except to the extent of his respective equity
interest therein.
(9) The address of each stockholder is c/o WCAS, 320 Park Avenue, Suite
2500, New York, New York 10022. The other general partners of WCAS,
each of whom may be deemed to have shared investment and voting power
with respect to the securities held by WCAS, are Patrick J. Welsh,
Russell L. Carson, Bruce K. Anderson, Richard H. Stowe, Anthony
DeNicola, Thomas A. McInerney, Robert A. Minicucci, Priscilla Newman,
Lawrence Sorrel and Laura Van Buren.
(10) Includes (i) 5,000 shares of Common Stock issuable upon exercise of
options held by Mr. Paul and (ii) 5,648,475 shares of Common Stock held
by Welsh, Carson, Anderson and Stowe VII, L.P. ("WCAS"), of which Mr.
Paul is a general partner. Mr. Paul may be deemed to have shared
investment and voting power with respect to the securities held by
WCAS. Mr. Paul disclaims beneficial ownership of the securities held by
WCAS, except to the extent of his equity interest therein.
(11) Includes (i) 5,000 shares of Common Stock issuable upon exercise of
options held by Mr. Queally and (ii) 5,648,475 shares of Common Stock
held by WCAS, of which Mr. Queally is a general partner. Mr. Queally
may be deemed to have shared investment and voting power with respect
to the securities held by
-63-
<PAGE>
WCAS. Mr. Queally disclaims beneficial ownership of the securities held
by WCAS, except to the extent of his equity interest therein.
(12) The address of WCAS is 320 Park Avenue, Suite 2500, New York, New York
10022.
(13) Includes (i) 2,122,997 shares of Common Stock held by Sprout VII, (ii)
1,735,625 shares of Common Stock held by Sprout II and (iii) 24, 659
shares of Common Stock held by Sprout CEO for which DLJCC acts as the
general partner. DLJCC disclaims beneficial ownership of such
securities except to the extent of its equity interest therein. The
address of DLJCC is c/o the Sprout Group, 277 Park Avenue, 21st Floor,
New York, New York 10172.
(14) The address for Sprout II and Sprout VII is c/o the Sprout Group, 277
Park Avenue, 21st Floor, New York, New York 10172.
DESCRIPTION OF CAPITAL STOCK
General
AmComp is authorized to issue up to 22,300,000 shares of Common Stock,
2,400,000 shares of Series A Preferred Stock, and 1,000,000 shares of Series B
Preferred Stock. As of June 30, 1998, the only shares of capital stock issued
and outstanding were 12,596,664 shares of Common Stock and 2,400,000 shares of
Series A Preferred Stock. Upon consummation of the Offering, after giving effect
to the Preferred Stock Conversion, there will be ____________ shares of Common
Stock and no shares of Series A Preferred Stock or Series B Preferred Stock
outstanding.
Common Stock
The holders of Common Stock are entitled to one vote for each share
held on all matters to be voted on by such stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted can elect all of the directors then
being elected. Subject to the prior rights of any series of Preferred Stock,
which may from time to time be outstanding, the holders of Common Stock are
entitled to receive dividends as may from time to time be declared by the Board
of Directors out of funds legally available for such purpose. In the event of
liquidation, dissolution or winding up of AmComp, the holders of Common Stock
are entitled to share ratably in all assets remaining available for distribution
to them after payment of liabilities and after provision has been made for any
outstanding Preferred Stock and any other class of stock, if any, senior to the
Common Stock. Holders of shares of Common Stock, as such, have no redemption,
preemptive or other subscription rights, and there are no conversion provisions
available to the Common Stock.
Preferred Stock
Series A Preferred Stock. The Company is authorized to issue 2,400,000
shares of Series A Preferred Stock, which has a liquidation preference of $10
per share and is convertible at any time, at the option of the holders, into 2.5
shares of Common Stock for each share of a Series A Preferred Stock held. The
Series A Preferred Stock is subject to mandatory redemption on January 31, 2003
at a redemption price of $10 per share plus accrued dividends. The Series A
Preferred Stock shall be automatically converted into Common Stock upon a firm
commitment initial public offering of AmComp resulting in proceeds of not less
than $30,000,000. The holders of Series A Preferred Stock are entitled to vote
together with the holders of Common Stock on all matters to be voted on by
stockholders of AmComp on the basis of one vote for each share of Common Stock
that would be issuable to such holder upon conversion of all shares of Series A
Preferred Stock held by such holder on its applicable record date. As of the
date of this Prospectus, there are 2,400,000 shares of Series A Preferred Stock
outstanding. Immediately prior to the closing of this Offering, all outstanding
shares of Series A
-64-
<PAGE>
Preferred Stock will be converted automatically into an aggregate of 6,000,000
shares of Common Stock pursuant to the Preferred Stock Conversion.
Series B Preferred Stock. The Company is authorized to issue 1,000,000
shares of Series B Preferred Stock. The Series B Preferred Stock is entitled to
receive cumulative dividends at the rate of $1.00 per share per annum payable
when and as declared by the Board of Directors. The Series B Preferred has a
liquidation preference of $10 per share and is senior to the Common Stock and
the Series A Preferred Stock. The Series B Preferred Stock is subject to
mandatory redemption on January 31, 2003 at a redemption price of $10 per share,
plus accrued dividends. Subject to certain adjustments, AmComp is authorized to
issue 1,000,000 Series B Preferred Stock, which is non-convertible and 10%
cumulative. As of the date of this Prospectus, no shares of Series B Preferred
Stock are outstanding.
Issuance of additional shares of Preferred Stock could adversely affect
the market price of the Common Stock. AmComp has no present plans to issue any
additional shares of Preferred Stock.
Agent Stock Option Plans
The 1996 Stock Option Plan for Agents of AmComp (the "AmComp Agents
Plan"), which is administered by the Compensation Committee, provides for grants
of stock options intended to attract, retain and provide equity incentives to
agents of AmComp Preferred. Agencies that have entered into an agency agreement
with AmComp or any subsidiaries are eligible to receive options under the AmComp
Agents Plan. The options vest over a period determined by the Compensation
Committee and are exercisable for a price of not less than 100% of fair market
value of the Common Stock on the date of the grant. Options issued under the
Plan generally vest in 1/3 increments during each of the first three years, with
the option expiring, if not exercised, at the end of the fourth year. Vesting is
subject to the optionee's attaining certain performance goals including, among
other things, growth in written premiums, issuance of new policies and
maintenance or replacement of existing policies, maintenance of loss ratios and
collection of premiums. The maximum number of shares of Common Stock that may be
issued pursuant to options granted under the AmComp Agents Plan is 875,000
shares. As of June 30, 1998, options to purchase 341,862 shares of Common Stock
were outstanding under the AmComp Agents Plan, of which 224,606 shares had
vested and were exercisable.
The Board of Directors of AmComp Assurance will adopt the 1998 Stock
Option Plan for Agents of AmComp Assurance (the "Assurance Agents Plan"), which
will be substantially similar to the AmComp Agents Plan and will provide for the
grant of options to purchase up to 5% of the shares of common stock of AmComp
Assurance. The Assurance Agents Plan will provide for the exchange of options
under the Assurance Agents Plan for options under the AmComp Agents Plan and
exchange of AmComp Assurance common stock for shares of Common Stock under
certain circumstances, thereby permitting the agent holding an option to enjoy
the liquidity anticipated to be provided by the Common Stock. The Assurance
Agents Plan will also provide for the mandatory exchange of then outstanding
options and shares of AmComp Assurance Common Stock on a specified date.
Certain Provisions of the Company's Certificate of Incorporation and Bylaws and
Delaware Law
Certain provisions of the AmComp's Certificate of Incorporation and
Bylaws are intended to enhance the likelihood of continuity and stability in the
Board of Directors and in its policies, but might have the effect of delaying or
preventing a change in control of AmComp and may make more difficult the removal
of incumbent management even if such transactions could be beneficial to the
interests of stockholders. Set forth below is a summary description of such
provisions:
Authority to Issue Preferred Stock. AmComp's Certificate of
Incorporation authorizes the issuance of shares of Series A Preferred Stock and
Series B Preferred Stock.
-65-
<PAGE>
Limitation of Director Liability. Section 102(b)(7) of the DGCL
("Section 102(b)") authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of director's fiduciary duty of care. Although Section 102(b)
does not alter a director's duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission.
AmComp's Certificate of Incorporation limits the liability of directors to
AmComp or its stockholders to the fullest extent permitted by Section 102(b).
Specifically, directors of AmComp will not be personally liable for monetary
damages for breach of a director's fiduciary duty as a director, except for
liability: (1) for any breach of the director's duty of loyalty to AmComp or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL (relating to certain unlawful dividends, stock purchases or
stock redemptions) or (4) for any transaction from which the director derived an
improper personal benefit.
Indemnification. To the maximum extent permitted by law, AmComp's
Certificate of Incorporation and Bylaws provide for mandatory indemnification of
directors, and permit indemnification of officers, employees and agents of
AmComp against all expense, liability and loss to which they may become subject
or which they may incur as a result of being or having been a director, officer,
employee, consultant or agent of AmComp. In addition, AmComp must advance or
reimburse directors, and may advance or reimburse officers, employees and agents
for expenses incurred by them in connection with indemnifiable claims.
AmComp is subject to the provisions of Section 203 of the DGCL
("Section 203"). Section 203 generally provides that a stockholder acquiring
more than 15 percent of the outstanding voting stock of a corporation (an
"Interested Stockholder") but less than 85 percent of such stock (excluding
voting stock owned by directors who are also officers or held in employee
benefit plans in which the employees do not have a confidential right to tender
or vote stock held by the plan) may not engage in certain "Business
Combinations" described below with the corporation for a period of three years
after the date on which the stockholders became an Interested Stockholder unless
(1) prior to such date, the corporation's board of directors approved either the
Business Combination or the transaction in which the stockholder became an
Interested Stockholder or (2) the Business Combination is approved by the
corporation's board of directors and authorized at a stockholders' meeting by a
vote of at least two-thirds of the corporation's outstanding voting stock not
owned by the Interested Stockholder. Under Section 203, these restrictions will
not apply to certain Business Combinations proposed by an Interested Stockholder
following the earlier of the announcement or notification of the Interested
Stockholder, during the previous three years or who became an Interested
Stockholder with the approval of the corporation's board of directors, if such
extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an Interested
Stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors. Although
Section 203 permits the stockholders of a corporation to elect not to be
governed by its provisions, the stockholders of AmComp to date have not made
this election.
Section 203 defines the term "Business Combination" to include
transactions in which the Interested Stockholder receives or could receive a
benefit on other than a pro forma basis with other stockholders, such as
mergers, certain asset sales, certain issuances of additional shares to the
Interested Stockholder, transactions with the corporation which increase the
proportionate interest in the corporation directly or indirectly owned by the
Interested Stockholder, or transactions in which the Interested Stockholder
receives certain other benefits.
The provisions of Section 203 could delay or frustrate the removal of
incumbent directors or a change in control of the Company. The provisions also
could discourage, impede or prevent a merger, tender offer or proxy consent.
-66-
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is
__________________________.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be ____________ shares of
Common Stock outstanding (based on the number of shares outstanding on _______,
1998 and excluding _______ shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option). Of these shares, the ________ shares of
Common Stock sold in the Offering will be freely tradeable. The remaining ______
shares of Common Stock will be "restricted securities," as that term is defined
in Rule 144 and may only be sold pursuant to a registration statement under the
Securities Act or an applicable exemption from registration thereunder,
including pursuant to Rule 144. The Company, its senior management and its
principal stockholders have agreed not to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for shares of Common Stock (subject, in the case of the Company, to
an exception for the exercise of options granted under the Company's stock
option plans), for a period of 180 days after the date of this Prospectus
without the consent of DLJ, on behalf of the Underwriters. Commencing ___ days
after the date of this Prospectus, and subject to such consent, all but _____ of
the _________________ shares outstanding on the date hereof will be immediately
eligible for sale in the public market subject to compliance with the volume
limitations and other restrictions of Rule 144. No prediction can be made as to
the effect, if any, that future sales of shares of Common Stock or the
availability of such shares for sale will have on the market price of the Common
Stock prevailing from time to time.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates of the
Company, who has beneficially owned shares for at least a one-year period (as
computed under Rule 144) is entitled to sell within any three-month period
commencing 90 days from the date of this Prospectus a number of shares that does
not exceed the greater of (i) 1% of the then outstanding Common Stock
(_____________ shares after giving effect to the Offering) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding filing of notice of such sale, and may only sell such shares through
unsolicited brokers' transactions or transactions with a market maker. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information about the
Company. However, a person who has not been an affiliate of the issuer for at
least 90 days and who has beneficially owned such shares for at least two years
is entitled under Rule 144(k) to sell such shares without regard to the volume
of other resale requirements described above. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly, or indirectly through the
use of one or more intermediaries, controls, is controlled by or is under common
control with such issuer.
The Company is unable to estimate the number of shares of Common Stock
that will be sold under Rule 144 or otherwise because this will depend in part
on the market price for the Common Stock, the personal circumstances of the
sellers and other factors.
Prior to the Offering, there has been no market for the Common Stock.
Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the market price of the Common Stock.
-67-
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
___________ 199_, (the "Underwriting Agreement") the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, BT
Alex. Brown and Credit Suisse First Boston Corporation and BT Alex. Brown (the
"Representatives"), have severally agreed to purchase from the Company the
respective number of shares of Common Stock set forth opposite their names
below:
Number of
Underwriter Shares
- ----------- -------
Donaldson, Lufkin & Jenrette Securities Corporation.......
BT Alex. Brown............................................
Credit Suisse First Boston Corporation....................
---------
Total............................................
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $__________ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $_____ per share. After the initial
public offering of the Common Stock, the public offering price and other selling
terms may be changed by the Representatives at any time without notice.
The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase, from time to
time, in whole or in part, up to an aggregate of ___________ additional shares
of Common Stock at the initial public offering price less underwriting discounts
and commissions. The Underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the Offering. To the extent that
the Underwriters exercise such option, each Underwriter will become obligated,
subject to certain conditions, to purchase its pro rata portion of such
additional shares based on such Underwriter's percentage underwriting commitment
as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or
-68-
<PAGE>
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for a
period of _____ days after the date of this Prospectus without the prior written
consent of DLJ. In addition, during such period, the Company has also agreed not
to file any registration statement with respect to, and each of its executive
officers, directors and certain stockholders of the Company has agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for
the Common Stock. The initial public offering price for the shares of Common
Stock offered hereby will be determined by negotiation between the Company and
the Representatives. The factors to be considered in determining the initial
public offering price include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the historical results of operations and the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general condition of the securities market at the
time of the Offering.
Application will be made to list the Common Stock on the Nasdaq
National Market. In order to meet the requirements for listing the Common Stock
on the Nasdaq National Market, the Underwriters have undertaken to sell lots of
100 or more shares to a minimum of 400 beneficial owners.
Other than in the United States, no action has been taken by the
Company or the Underwriters that would permit a public offering of the shares of
Common Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the Common Stock and the distribution of this
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short
positions or to stabilize the price of the Common Stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members if
the syndicate repurchases previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end these activities at any time.
DLJCC, Sprout VII, Sprout II and Sprout CEO (collectively, the "DLJ
Stockholders") are affiliates of DLJ. Prior to consummation of the Offering and
upon conversion of the Series A Preferred Stock, the DLJ Stockholders will own,
in the aggregate, 21.83% of the outstanding Common Stock of AmComp. Pursuant to
the Second Stockholders Agreement, Sprout II has the right to designate one
member of AmComp's Board of Directors, the WCAS Stockholders have the right to
designate two members of AmComp's Board of Directors, and the DLJ Stockholders,
together with the WCAS Stockholders, have the right to designate one member of
AmComp's Board of Directors by majority vote, subject to the consent of the
Executives. The Second Stockholders Agreement shall terminate in its entirety
upon consummation of the Offering. See "Certain Relationships and Related
Transactions."
-69-
<PAGE>
Under Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers (the "NASD") ("Rule 2720"), the Company is considered an
affiliate of DLJ. This offering is being conducted in accordance with Rule 2720,
which provides that among other things, when an NASD member participates in the
underwriting of an affiliate's equity securities the public offering price per
share can be no lower than that recommended by a "Qualified Independent
Underwriter" meeting certain standards ("QIU"). In accordance with this
requirement, BT Alex. Brown has assumed the responsibilities of acting as QIU
and will recommend a public offering price for the Common Stock in compliance
with the requirements of Rule 2720. In connection with the Offering, BT Alex.
Brown is performing due diligence investigations and reviewing and participating
in the preparation of this Prospectus and the Registration Statement of which
this Prospectus forms a part. As compensation for the services of BT Alex. Brown
as QIU, the Company has agreed to pay BT Alex. Brown customary QIU fees.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York,
New York. Certain legal matters arising in connection with this offering will be
passed upon for the Underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a
limited liability partnership including professional corporations, New York, New
York.
EXPERTS
The consolidated financial statements and schedules of AmComp
Incorporated and subsidiaries at December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, and the financial statements
of AmComp Preferred Insurance Company as of and for the year ended December 31,
1995 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent certified public accountants, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
Upon completion of the Offering, the Company will be required to file
annual, quarterly and current reports, proxy statements and other information
with the Commission. You may read and copy any documents filed by the Company at
the Commission's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference room. The Company's filings with the Commission are also
available to the public through the Commission's Internet site at
http://www.sec.gov. In addition, application will be made to have the Common
Stock quoted on the Nasdaq National Market. Reports and other information
concerning the Company may be inspected at the offices of the Nasdaq National
Market, 1735 Street, N.W., Washington, D.C. 20006. After the Offering, the
Company expects to provide annual reports to its stockholders that include
financial information audited by its independent public accountants.
The Company has filed a Registration Statement on Form S-1 with the
Commission. This Prospectus is a part of the Registration Statement and does not
contain all of the information in the Registration Statement. Whenever a
reference is made in this Prospectus to a contract or other document of the
Company, please be aware that such reference is not necessarily complete and
that you should refer to the exhibits that are a part of the Registration
Statement for a copy of the contract or other document. You may review a copy of
the Registration Statement at the Commission's public reference room in
Washington, D.C. as well as through the Commission's Internet site.
-70-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AmComp Incorporated and Subsidiaries
Report of Independent Certified Public Accountants................................................F-2
Consolidated Balance Sheets at December 31, 1997 and 1996.........................................F-3
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995............F-5
Consolidated Statements of Shareholders' Equity at December 31, 1997, 1996 and 1995...............F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995........F-7
Notes to Consolidated Financial Statements........................................................F-8
AmComp Incorporated and Subsidiaries
Consolidated Balance Sheets at June 30, 1998 (unaudited) and December 31, 1997...................F-33
Consolidated Statements of Income for the six month periods ended
June 30, 1998 and 1997 (unaudited)......................................................F-35
Consolidated Statements of Comprehensive Income for the six month periods ended
June 30, 1998 and 1997 (unaudited)......................................................F-36
Consolidated Statements of Cash Flows for the six month periods ended
June 30, 1998 and 1997 (unaudited)......................................................F-37
Notes to Consolidated Financial Statements (unaudited)...........................................F-38
AmComp Preferred Insurance Company
Report of Independent Certified Public Accountants...............................................F-43
Balance Sheet at December 31, 1995...............................................................F-44
Statement of Operations for the year ended December 31, 1995.....................................F-46
Statement of Changes in Equity at December 31, 1995..............................................F-47
Statement of Cash Flows for the year ended December 31, 1995.....................................F-48
Notes to Financial Statements....................................................................F-50
</TABLE>
F-1
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1995, 1996 and 1997
with Report of Independent Auditors
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1995, 1996 and 1997
Contents
Report of Independent Certified Public Accountants..........................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets.................................................2
Consolidated Statements of Income...........................................4
Consolidated Statements of Stockholders'Equity..............................5
Consolidated Statements of Cash Flows.......................................6
Notes to Consolidated Financial Statements..................................7
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
AmComp Incorporated
We have audited the accompanying consolidated balance sheets of AmComp
Incorporated and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AmComp
Incorporated and subsidiaries at December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
March 4, 1998
West Palm Beach, Florida
F-2
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1996 1997
---------------------------------------
(In Thousands)
Assets
<S> <C> <C>
Cash and invested assets:
Fixed maturity securities available-for-sale at fair value
(amortized cost of $22,923 in 1996 and $65,207 in 1997) $ 23,030 $65,896
Fixed maturity securities held-to-maturity at amortized cost
(fair value of $30,905 in 1996 and $26,819 in 1997) 31,329 26,915
Cash and cash equivalents 43,919 26,871
Other invested assets 36 37
---------------------------------------
Total cash and invested assets 98,314 119,719
Accrued investment income 802 1,217
Premiums receivable, less allowance of $7,134 in 1996
and $7,812 in 1997 25,031 54,188
Reinsurance recoverable:
On paid losses and loss adjustment expenses 40 718
On unpaid losses and loss adjustment expenses 4,075 18,639
Prepaid reinsurance premiums - 11,145
Deferred policy acquisition costs 3,406 824
Property and equipment 1,128 2,890
Deferred income taxes 3,233 10,930
Goodwill, net of amortization of $71 - 2,087
Other assets 421 629
=======================================
Total assets $136,450 $222,986
=======================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
December 31,
1996 1997
-----------------------------------------
Liabilities and stockholders' equity (In Thousands)
Liabilities:
<S> <C> <C>
Policy reserves and policyholders' funds:
Unpaid losses and loss adjustment expenses $ 45,382 $ 86,511
Unearned and advance premiums 24,489 38,478
Policyholders' deposits 4,450 5,147
Policyholder retention dividends payable 7,050 10,700
---------------------------------------
Total policy reserves and policyholders' funds 81,371 140,836
Reinsurance payable - 13,623
Accounts payable and accrued expenses 4,701 6,214
Income taxes payable 5,527 1,977
Note payable 10,000 20,000
Negative goodwill, net of accumulated amortization of
$335 in 1996 and $840 in 1997 5,365 4,860
Other liabilities 132 43
---------------------------------------
Total liabilities 107,096 187,553
Mandatorily redeemable convertible preferred stock series A 21,745 22,100
Mandatorily redeemable convertible cumulative preferred
Stock Series B - -
Commitments and contingencies
Stockholders' equity:
Common Stock (authorized shares 18,600 in 1996 and 22,300 in 1997
issued and outstanding 12,563 in 1996 and 12,597 in 1997) 125 126
Common Stock Warrants - 75
Additional paid-in-capital 250 450
Retained earnings 7,167 12,246
Net unrealized appreciation of available-for-sale securities
(net of deferred taxes of $40 in 1996 and $253 in 1997) 67 436
----------------------------------------
Total stockholders'equity 7,609 13,333
----------------------------------------
Total liabilities and stockholders'equity $136,450 $222,986
========================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
1995 1996 1997
-------------------------------------------------
(In Thousands Except
Per Share Amounts)
Revenue:
<S> <C> <C> <C>
Net premiums earned $ - $58,226 $102,505
Net investment income 53 3,288 5,178
Administrative and service fee income 6,302 - -
Other income 14 666 870
-------------------------------------------------
Total revenue 6,369 62,180 108,553
Expenses:
Losses and loss adjustment expenses - 28,259 64,421
Underwriting and acquisition expenses 5,612 21,396 29,752
Interest expense - - 806
------------------------------------------------
Total expenses 5,612 49,655 94,979
------------------------------------------------
Income before dividends to policyholders and income taxes 757 12,525 13,574
Dividends to policyholders - 3,600 6,080
------------------------------------------------
Income before income taxes 757 8,925 7,494
Income tax expense 270 3,491 2,060
------------------------------------------------
Net income 487 5,434 5,434
Accretion of mandatorily redeemable preferred stock
syndication costs
- (176) (355)
------------------------------------------------
Net income attributable to common stockholders $487 $5,258 $5,079
================================================
Earnings per common share - basic $ .04 $ .42 $ .40
================================================
Earnings per common share - diluted $ .04 $ .35 $ .29
================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Additional of Available- Total
Common Paid-In Retained for-Sale Stockholders'
Stock Warrants Capital Earnings Securities Equity
-----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 50 $ - $ - $1,497 $ - $ 1,547
Net income - - - 487 - 487
-------------------------------------------------------------------------------
Balance at December 31, 1995 50 - - 1,984 - 2,034
Net income - - - 5,434 - 5,434
Common stock issued - - 250 - - 250
5-to-2 common stock split in the form
of a stock dividend 75 - - (75) - -
Accretion of preferred stock
syndication costs - - - (176) - (176)
Net unrealized appreciation - - - - 67 67
--------------------------------------------------------------------------------
Balance at December 31, 1996 125 - 250 7,167 67 7,609
Net income - - - 5,434 - 5,434
Warrants - 75 - - - 75
Common stock issued 1 - 200 - - 201
Accretion of preferred stock
syndication costs - - - (355) - (355)
Net unrealized appreciation - - - - 369 369
================================================================================
Balance at December 31, 1997 $126 $75 $450 $12,246 $436 $13,333
================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1995 1996 1997
-----------------------------------------------------
Operating activities (In Thousands)
<S> <C> <C> <C>
Net income $ 487 $ 5,434 $ 5,434
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 91 252 198
Provision for deferred income taxes 210 (5,006) (7,909)
Net realized gains on investments - - (64)
Policy acquisition costs deferred - (11,356) (4,500)
Policy acquisition costs amortized - 9,061 7,082
Change in operating assets and liabilities
Accrued investment income - 249 (415)
Premiums receivable (910) (14,344) (29,157)
Reinsurance balances - 205 (12,764)
Other assets and liabilities (277) - (202)
Unpaid losses and loss adjustment expenses - 9,881 41,129
Unearned, advance premiums and policyholder deposits - 13,954 14,686
Policyholder retention dividends payable - 1,341 3,650
Accounts payable and accrued expenses 352 875 1,513
Income taxes payable 66 5,301 (3,550)
-----------------------------------------------------
Net cash provided by operating activities 19 15,847 15,131
Investing activities
Securities available-for-sale:
Purchases - (18,369) (55,875)
Sales and maturities - 7,186 15,995
Securities held-to-maturity:
Maturities - 1,433 4,227
Purchase of insurance subsidiary - - (4,513)
Cash acquired in purchase of insurance subsidiary - 5,893 -
Purchases of property and equipment (297) (932) (2,237)
Sale of other assets 61 100 23
-----------------------------------------------------
Net cash used in investing activities (236) (4,689) (42,380)
Financing activities
Issuance of common stock - 250 201
Issuance of preferred stock, net of syndication costs - 21,569 -
Proceeds from note payable - 10,000 10,000
-----------------------------------------------------
Net cash provided by financing activities - 31,819 10,201
-----------------------------------------------------
Net (decrease) increase in cash and cash equivalents (217) 42,977 (17,048)
Cash and cash equivalents at beginning of year 1,159 942 43,919
=====================================================
Cash and cash equivalents at end of year $ 942 $ 43,919 $ 26,871
=====================================================
Supplemental cash flow data
Cash paid - interest $ - $ - $ 741
====================================================
Cash paid - income taxes $ 55 $ 2,561 $13,450
====================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. Nature of Operations and Significant Accounting Policies
Organization
AmComp Incorporated and subsidiaries (collectively, "the Company") consist of
the following entities at December 31, 1997:
o AmComp Incorporated ("AmComp"), a holding company incorporated on December
28, 1995;
o AmComp Preferred Insurance Company ("AmComp Preferred"), a wholly-owned
property and casualty insurance company (formerly known as Pinnacle
Assurance Corporation);
o Pinnacle Administrative, Inc. ("Pinnacle Administrative "), a wholly-owned
administrative services company providing sales and marketing, underwriting,
policyholder service, data processing and accounting services (formerly
known as Florida Administrators, Inc.);
o Pinnacle Benefits, Inc. ("Pinnacle Benefits"), a wholly-owned claims
processing company (formerly known as Compensation Benefits, Inc.); and
o AmComp Assurance Corporation ("AmComp Assurance"), a wholly-owned property
and casualty insurance company.
AmComp became the sole stockholder of Pinnacle Administrative and Pinnacle
Benefits when the majority stockholder and Chairman of the Board of the Company,
and two minority stockholders contributed their ownership of Pinnacle
Administrative and Pinnacle Benefits to AmComp on January 26, 1996. Since the
entities were under common control, the combination of AmComp, Pinnacle
Administrative and Pinnacle Benefits has been accounted for in a manner similar
to a pooling of interests. Accordingly, Pinnacle Administrative and Pinnacle
Benefits have been combined with AmComp as if the transaction occurred on
January 1, 1995, using each entity's historical book values.
Prior to April 1995, AmComp Preferred was a Florida self-insurance fund, Florida
Air Conditioning Contractors Association Self Insurers Fund ("the Fund"). As a
Fund, the members of the fund had joint and several liability for the
obligations of the Fund and were subject to unlimited assessability. In April
1995, the Fund converted to an assessable mutual insurance company, Pinnacle
Assurance Corporation ("Pinnacle"), in which the policyholders were jointly and
proportionately liable for Pinnacle's obligations, subject to a maximum
contingent assessment liability for each policyholder.
F-8
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
In August 1995, Pinnacle filed a Plan of Conversion and Recapitalization with
the Florida Department of Insurance ("DOI") to convert itself from an assessable
mutual company to a Florida domestic stock insurance company. In addition,
Pinnacle entered into a subscription and purchase agreement in which Pinnacle
Administrative or a newly formed holding company would acquire all of the issued
and outstanding common stock of Pinnacle at the time that the Plan of Conversion
and Recapitalization was approved by the DOI which occurred on January 26, 1996.
At that time, AmComp acquired all of the issued and outstanding common stock of
Pinnacle and paid a subscription price of $8.4 million. Pinnacle's name was
subsequently changed to AmComp Preferred.
The acquisition of AmComp Preferred by AmComp has been accounted for as a
purchase as if the acquisition occurred on January 1, 1996. In connection with
the conversion from a mutual insurance company to a stock insurance company, all
policy assessability provided for in the policies as either a self insurance
fund or an assessable mutual company was eliminated. The policyholders received
no other consideration for the acquisition of AmComp Preferred. Accordingly, the
Company recorded the approximate $5.7 million of net assets acquired as negative
goodwill which is being amortized over a ten year period.
On January 26, 1996 and December 31, 1996, unrelated investors purchased 1.4
million and 1.0 million shares of AmComp redeemable convertible preferred stock
directly for $14 million and $10 million, respectively. In addition, the same
investors acquired 4,000,000 shares (32%) of AmComp's issued and outstanding
common stock directly from the majority stockholder and the two minority
stockholders.
On October 31, 1997, AmComp Preferred acquired all of the issued and outstanding
shares of an inactive Florida-domiciled property and casualty insurance company,
Thomas Jefferson Insurance Company, which changed its name to AmComp Assurance
(see Note 2).
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the consolidated financial
statements and the accompanying notes. Such estimates and assumptions could
change in the future as more information becomes known that could affect the
amounts reported herein.
F-9
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the
basis of GAAP and include the accounts of AmComp, AmComp Preferred, Pinnacle
Administrative , Pinnacle Benefits and AmComp Assurance. All intercompany
accounts and transactions have been eliminated in consolidation.
Investments
Fixed maturity investments are designated at purchase as held-to-maturity or
available-for-sale. Held-to-maturity fixed maturity investments are reported at
amortized cost. Securities classified as available-for-sale are reported at fair
value with unrealized appreciation and depreciation, net of deferred taxes,
included as a separate component of stockholders'equity. The Company has the
intent and ability to hold to maturity those securities designated as
held-to-maturity.
Realized gains and losses on sales of investments are recognized in operations
on the specific identification basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Deferred Policy Acquisition Costs
To the extent recoverable from future policy revenues, the costs that vary with
and are primarily related to the production of new and renewal business, net of
reinsurance ceding allowances received, have been deferred and amortized over
the effective period of the related insurance policies.
Property and Equipment
Property and equipment is stated on the basis of cost. Depreciation is computed
using the straight-line method over the estimated useful life for financial
reporting purposes. Accumulated depreciation was $852,000 and $1,286,833 at
December 31, 1996 and 1997, respectively.
F-10
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Reinsurance
Reinsurance premiums, losses, and loss adjustment expenses are accounted for on
a basis consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts. Reinsurance ceding
commissions received are deferred and amortized over the effective period of the
related insurance policies.
Federal and State Income Taxes
The Company provides deferred federal and state income taxes for certain
differences between the financial statement amounts and tax bases of assets and
liabilities.
Policyholder Retention Dividends
Policyholder retention dividends are recognized over the effective period of the
related policies, and are restricted to limitations imposed by the Board of
Directors (see note 10).
Unpaid Losses and LAE
Unpaid Losses and LAE represent the estimated ultimate net cost of all reported
and unreported losses incurred through December 31, 1997. The reserves for
unpaid losses and LAE are estimated using individual case-basis valuations and
statistical analyses. Those estimates are subject to the effects of trends in
loss severity and frequency. Although considerable variability is inherent in
such estimates, management believes that the reserves for losses and LAE are
adequate. The estimates are continually reviewed and adjusted as necessary as
experience develops or new information becomes known; such adjustments are
included in current operations.
Recognition of Premium Revenue
The Company's insurance premiums are billed annually or under various
installment plans based on the estimated annual premium under the policy terms.
At the end of the policy term, payroll-based premium audits are performed on
substantially all policyholder accounts to determine earned premiums for the
policy year. Earned but unbilled premiums include estimated future
F-11
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
audit premiums and collateralized premiums. Collateralized premiums include
policies where the final calculated premium is paid after the end of the policy
term and the receivable balance is collateralized by cash equivalents, letters
of credit, and financial guarantee bonds. Estimated future audit premiums are
estimated based on a weighted average derived from the Company's historical
experience as a percentage of earned premiums.
These estimates are subject to the effects of trends in payroll audit
adjustments. Although considerable variability is inherent in such estimates,
management believes that the accrual for earned but unbilled premiums is
reasonable. The estimates are continually reviewed and adjusted as necessary as
experience develops or new information becomes known; such adjustments are
included in current operations. The reserve for unearned premiums is determined
on a daily pro rata basis.
Administrative and Service Fee Income
Administration and service fees for 1995 are for sales, marketing, underwriting,
policyholder service, data processing and claims adjudication services that were
provided by Pinnacle Administrative and Pinnacle Benefits for AmComp Preferred.
Special Disability Trust Fund ("SDTF") Assessments and Recoveries
The Company accrues and expenses SDTF assessments based on a percentage of net
written premiums and recognizes recoveries from the SDTF when they are received
(see Notes 3 and 4).
Policyholder Deposits
Policyholders are required to maintain deposits with the Company for certain
installment pay plans. Based on the selected pay plan, management determines the
deposit amount, which is based on a percentage of the policyholders' estimated
annual premium. Deposits are analyzed annually and adjusted as considered
necessary.
F-12
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Accretion of Preferred Stock Syndication Costs
The Company received net proceeds (net of syndication costs of $2,431,000) of
$21,569,000 for the issuance of the 2,400,000 shares of Mandatorily Redeemable
Convertible Preferred Stock Series A (the "RCPS") during 1996. The RCPS is
mandatorily redeemable on January 31, 2003 for $10 per share. The Company is
accreting the syndication costs, using the interest method, through the
mandatory redemption date. The annual accretion cost is being charged against
retained earnings and is included as a reduction to net income attributable to
common stockholders.
Earnings Per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128. In the calculation of basic earnings per
share the dilutive effects of options, warrants and convertible securities are
excluded from the calculation. Diluted earnings per share considers the effects
of dilutive convertible securities. All earnings per share amounts for all
periods have been presented to conform to the Statement 128 requirements.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, investments, premiums
receivable and reinsurance recoverables (see Notes 5, 6 and 7). Concentrations
of credit risk with respect to premiums receivable are limited due to the large
number of entities comprising the Company's customer base. However, the majority
of the collateralized premiums receivable balance of $13.1 million at December
31, 1997, is collateralized by financial guaranty bonds that are written by two
insurance companies that are rated A- or better by A. M. Best. Additionally,
most of the Company's revenues are currently derived from products and services
offered to customers in the Florida market which could be adversely affected by
economic downturns, an increase in competition or other environmental changes.
F-13
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement 130,
Reporting Comprehensive Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
adoption in 1998 will have no impact on the Company's net income or
stockholders'equity. Statement 130 requires unrealized gains or losses on the
Company's available-for-sale securities which were previously separately
reported in stockholders' equity, to be included in accumulated other
comprehensive income and changes therein reported as a component of total
comprehensive income.
2. Acquisitions
On October 31, 1997, AmComp Preferred acquired all of the outstanding stock of
AmComp Assurance for $4,512,981, and subsequently contributed bonds with a fair
value of $7,579,721 to AmComp Assurance. The transaction was accounted for as a
purchase and $2,158,514 of purchase price in excess of net assets acquired
("Goodwill") was recorded at the acquisition date. The Goodwill is being
amortized on a straight-line basis over ten years. Net income of $72,624,
representing the net income of AmComp Assurance since the acquisition date, is
included in the accompanying statements of income for the year ended December
31, 1997. AmComp Assurance is licensed to write property and casualty business
in twenty-one states.
3. Regulatory Requirements and Restrictions
AmComp Preferred and AmComp Assurance are required to periodically submit
financial statements prepared in accordance with prescribed or permitted
statutory accounting practices ("SAP") to the DOI. Such practices vary from
GAAP. Prescribed SAP includes state laws, regulations and general administrative
rules, as well as a variety of publications of the National Association of
Insurance Commissioners (NAIC). Permitted SAP encompasses all accounting
practices that are not prescribed; such practices may differ from company to
company and may not necessarily be permitted in subsequent reporting periods.
During 1995, AmComp Preferred received written approval from the DOI to classify
cumulative SDTF assessments (by accident year) as ULAE. In prior years, such
assessments were classified as other underwriting expenses. As a result of this
permitted practice, AmComp Preferred's excess of statutory reserves over
statement reserves were reduced and surplus was increased by $4,408,000 and
$1,661,000 at December 31, 1996 and 1997, respectively, compared to what would
have been reported under prescribed statutory accounting practices. Based on a
recommendation in a recent DOI Report of Examination, AmComp Preferred will
discontinue this practice for accounting periods subsequent to December 31,
1997.
F-14
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Regulatory Requirements and Restrictions (Continued)
AmComp Preferred and AmComp Assurance are subject to certain Risk-Based Capital
(RBC) requirements specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a property casualty insurance company is to
be determined based on the various risk factors related to it. At December 31,
1996 and 1997, the RBC of AmComp Preferred and AmComp Assurance exceeded the
minimum RBC requirements.
Under DOI regulations, AmComp Preferred and AmComp Assurance are required to
maintain capital and surplus equal to the greater of $5,000,000 or 10% of
policyholder liabilities, which amounts to $5,000,000 for AmComp Assurance and
approximately $10,000,000 for AmComp Preferred at December 31, 1997.
AmComp Preferred's statutory-basis capital and surplus was $34,681,000 and
$45,825,000 at December 31, 1996 and 1997, respectively, and its statutory-basis
net income was $3,269,000 and $1,378,000 for the years ended December 31, 1996
and 1997, respectively. AmComp Assurance's statutory-basis capital and surplus
was $5,595,143 (unaudited) and $9,928,721 (unaudited) at December 31, 1996 and
1997, respectively, and its statutory-basis net (loss)/income was ($369,728)
(unaudited) and $334,022 (unaudited) for the years ended December 31, 1996 and
1997, respectively.
Under Florida insurance regulations, the maximum dividend to stockholders that
may be paid without prior approval by the DOI is specifically defined by the
Florida Insurance Laws and Regulations and is generally the lesser of 10% of
surplus or 100% of the prior year's net income, excluding realized capital
gains, plus a two year carryback. For AmComp Preferred, no dividends were paid
during 1996 or 1997. As of December 31, 1997, the amount available for
stockholder dividends from AmComp Preferred without prior approval was
approximately $4,582,556. For AmComp Assurance, $72,000 is available for
dividends without prior approval at December 31, 1997.
Stock insurance companies are subject to statutes related to excess profits for
workers' compensation insurance companies. However, for five years following
authorization of the conversion from an assessable mutual to a stock insurance
company by the DOI, AmComp Preferred is provided relief from certain aspects of
these statutes. Nevertheless, such amounts otherwise subject to these rules
shall be maintained as policyholders' surplus and not be available for dividends
for a period of five years.
F-15
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. State of Florida SDTF
The State of Florida maintains the SDTF for the purpose of providing benefits to
workers who have a pre-existing condition and incur a second or subsequent
injury. The SDTF is funded through annual assessments against workers'
compensation insurers, which are based on a percentage of net workers'
compensation premiums written. Assessments charged to underwriting and
acquisition expense in the accompanying consolidated financial statements were
$3,189,000 and $4,625,450 in 1996 and 1997, respectively.
AmComp Preferred submits claims to the SDTF for recovery of applicable claims
paid on behalf of AmComp Preferreds' insureds. Because of the uncertainty of the
collectibility of such amounts, SDTF recoverables are reported in the
accompanying financial statements when received. Cash collections from the SDTF
were approximately $795,000 and $465,000 in 1996 and 1997, respectively.
The SDTF currently has significant unfunded liabilities. It is not possible to
predict how the SDTF will operate, if at all, in the future after further
legislative review. Changes in the SDTF's operations, which decrease the
availability of recoveries from the SDTF, increase SDTF assessments payable by
AmComp Preferred, and/or result in the discontinuation of the SDTF could have an
adverse effect on AmComp Preferred's business, financial condition and its
operations. Under current law, future assessments are capped at 4.52% of net
written premiums and no recoveries can be made for losses incurred after January
1, 1998.
F-16
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Investments
The Company's investments in available-for-sale securities and held-to-maturity
securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------------
(In Thousands)
Available-for-sale securities at
December 31, 1996
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 4,502 $ 1 $ 1 $ 4,502
Other government agencies 8,992 39 41 8,990
Municipalities 7,490 93 1 7,582
Corporate 1,939 17 - 1,956
------------------------------------------------------------------
Total fixed maturity securities $22,923 $150 $ 43 $23,030
==================================================================
Held-to-maturity securities at
December 31, 1996
U.S. Treasury securities $30,609 $ - $423 $30,186
Mortgage-backed securities 720 - 1 719
------------------------------------------------------------------
Total fixed maturity securities $31,329 $ - $424 $30,905
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------------
(In Thousands)
Available-for-sale securities at
December 31, 1997
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,783 $ - $ 30 $ 2,753
Other government agencies 3,488 13 - 3,501
Municipalities 44,739 564 - 45,303
Corporate 14,197 142 - 14,339
-------------------------------------------------------------------
Total fixed maturity securities $65,207 $ 719 $ 30 $65,896
===================================================================
</TABLE>
F-17
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Investments (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------
Held-to-maturity securities at
December 31, 1997
<S> <C> <C> <C> <C>
U.S. Treasury securities $26,594 $ 1 $ 98 $26,497
Mortgage-backed securities 321 1 - 322
------------------------------------------
Total fixed maturity securities $26,915 $ 2 $ 98 $26,819
==========================================
</TABLE>
The fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services.
The amortized cost and estimated market values of investments in fixed maturity
securities, segregated by available-for-sale and held-to-maturity, at December
31, 1997 and 1996 are summarized, by maturity, as follows:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------------------------------------------------
(In Thousands)
1997
Years to maturity:
<S> <C> <C> <C> <C>
One or less $ 6,698 $ 6,704 $ 7,584 $ 7,567
After one through five 51,687 52,343 19,010 18,930
After five through ten 2,243 2,260 - -
After ten 1,091 1,087 - -
Mortgage-backed securities 3,488 3,502 321 322
-----------------------------------------------------------------
Total $ 65,207 $ 65,896 $ 26,915 $ 26,819
=================================================================
</TABLE>
The foregoing data is based on the stated maturities of the securities. Actual
maturities may differ as borrowers may have the right to call or prepay
obligations.
At December 31, 1996 and 1997, bonds with an amortized cost of $3,195,000 and
$5,450,000, respectively, were on deposit with various states' departments of
insurance in accordance with regulatory requirements.
F-18
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Investments (Continued)
Major categories of the Company's net investment income at December 31, 1995,
1996 and 1997 are summarized as follows (in thousands):
1995 1996 1997
----------------------------------
Income:
Fixed maturity securities $ - $2,702 $4,076
Cash and cash equivalents 53 637 1,215
----------------------------------
Investment income 53 3,339 5,291
Investment expenses - 51 113
==================================
Net investment income $ 53 $3,288 $5,178
==================================
There were no sales of fixed maturity securities prior to maturity during 1995
or 1996. Proceeds from the sale of investments in available-for-sale fixed
maturity securities during 1997 were $15,597,266; gross gains of $88,716 and
gross losses of ($24,250) were realized on those sales.
6. Premiums Receivable
Major categories of the Company's premiums receivable at December 31, are
summarized as follows (in thousands):
1996 1997
---------------------------
Direct billed premiums receivable $8,268 $13,306
Estimated future audit premiums 4,449 4,436
Collateralized premiums receivable 2,160 13,146
Premiums receivable deferred installments 17,288 31,112
-------------------------
32,165 62,000
Less allowance for doubtful accounts (7,134) (7,812)
==========================
Net premiums receivable $25,031 $54,188
=========================
During 1997, the Company wrote off $3,329,000 of premiums receivable for which
the potential for future collections was considered to be remote.
F-19
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Reinsurance
Certain premiums and losses are ceded to other insurance companies under a quota
share reinsurance arrangement and various aggregate and specific excess of loss
reinsurance agreements. The ceded reinsurance agreements are intended to provide
Pinnacle with the ability to maintain its exposure to loss within its capital
resources.
Effective October 1, 1997, the Company, entered into a 35% quota share
reinsurance agreement (the "Quota Share Treaty") with two reinsurers, rated A or
better by A.M. Best. Under the Quota Share Treaty, the Company ceded
approximately 35% of its direct unearned premium reserve as of October 1, 1997
and approximately 35% of its Net written premiums ("Net" defined as gross less
specific excess reinsurance cessions) after October 1, 1997 with a ceding
commission of 35%. Under this agreement, the Company cedes 35% of its Net losses
and ALAE until a Loss Ratio ("Loss Ratio", defined as Net losses and ALAE
incurred divided by Net earned premiums) equals 65%. The Company retains 100% of
all losses in a Loss Ratio corridor between 65% and 70%. If the Loss Ratio
exceeds 70%, the Company resumes ceding 35% of the Net losses under the Quota
Share Treaty. In addition to losses and ALAE, the Company cedes 35% of its
policyholder dividends paid that are subject to the treaty.
AmComp Preferred offers workers' compensation policies at statutory limits. A
summary of AmComp Preferred's specific and aggregate reinsurance retention
limits follows:
Accident Specific Aggregate
Year Retention Retention
------------------------------------------------------------------
(In Thousands)
1987 $200 $ 2,070
1988 200 2,080
1989 and 1990 300 -
1991 through 1993 500 -
1994 400 -
1995 400 28,000
1996 500 -
1997* 500 -
* The specific excess treaty for the 1997 accident year contains a one time
deductible of $500,000.
F-20
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Reinsurance (continued)
AmComp Preferred's ceded reinsurance arrangements had the following effect on
certain items in the accompanying financial statements for 1997 and 1996:
<TABLE>
<CAPTION>
Premiums: (in thousands) 1996 1997
------------------------------ -------------------------------
Written Earned Written Earned
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Direct $70,995 $59,370 $126,782 $114,515
Ceded (1,144) (1,144) (23,155) (12,010)
----------------------------- -------------------------------
Net $69,851 $58,226 $103,627 $102,505
============================= ===============================
</TABLE>
<TABLE>
<CAPTION>
Other amounts (in thousands): 1996 1997
-------------------------------
<S> <C> <C>
Unpaid losses and LAE ceded $4,075 $18,639
Unearned premium reserve ceded - 11,145
Incurred losses and LAE ceded 289 15,279
Incurred policyholder dividends ceded - 419
</TABLE>
The Company has $1.4 million of unsecured reinsurance recoverables on unpaid
losses and LAE due from a reinsurer that is rated E by A.M. Best, but is current
in its payments to the Company. The reinsurer has recently been purchased by
Humana, Inc. a national healthcare provider and is undergoing restructuring.
Management believes that the amounts recoverable from the reinsurer are fully
collectible, and therefore no allowance has been provided at December 31, 1997
related to amounts recoverable from this reinsurer. At December 31, 1997 the
Company had $14,491,000 of paid and unpaid unsecured reinsurance recoverables
from four reinsurers. Each of the four reinsurers had an A.M. Best rating of A
or better.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company. Management evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
F-21
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Federal and State Income Taxes
Significant components of income tax expense for the year ended December 31 are
as follows (in thousands):
1995 1996 1997
------------------------------------------
Current expense $ 60 $8,497 $9,969
Deferred (benefit) expense 210 (5,006) (7,909)
========================================
Income tax expense $ 270 $3,491 $2,060
========================================
The effective federal income tax rates on earnings before income taxes differ
from the maximum statutory rates as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-----------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $265 35% $ 3,124 35% $2,623 35%
State income taxes, net 27 4 319 4 268 4
Tax exempt income - - (86) (1) (522) (7)
Other (benefit) expense net (22) (3) 134 2 (309) (4)
=================== ================= ========================
Effective income tax expense $270 36% $3,491 40% $2,060 28%
=================== ================= ========================
</TABLE>
The Revenue Reconciliation Act of 1993 increased the U.S. federal income tax
rate to 35% for taxable income in excess of $10,000,000. Because the Company
currently has annual taxable income exceeding $10,000,000, a U.S. federal income
tax rate of 35% has been used to compute the federal portion of deferred tax
assets and liabilities. An income tax rate of 5.5% has been used to compute the
State portion of deferred tax assets and liabilities.
The Company records deferred federal income taxes payable on certain temporary
differences between the amounts reported in the accompanying consolidated
financial statements and the amounts reported for federal and state income tax
reporting purposes.
F-22
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Federal and State Income Taxes (Continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and tax liabilities as of December 31, 1997 and 1996
are presented below (in thousands):
<TABLE>
<CAPTION>
Deferred tax assets: 1996 1997
----------------------------------------
<S> <C> <C>
Loss reserve adjustments $3,011 $5,315
Unearned premium adjustment 2,221 2,447
Allowance for bad debt 2,752 3,014
Policyholder dividends - 1,625
----------------------------------------
Total deferred tax assets 7,984 12,401
Deferred tax liabilities:
Deferred policy acquisition expenses 1,314 317
Policyholder dividends 2,285 -
Net unrealized appreciation on available-for-sale securities 41 253
Other 1,111 901
----------------------------------------
Total deferred tax liabilities 4,751 1,471
----------------------------------------
Net deferred tax asset $3,233 $10,930
========================================
</TABLE>
9. Unpaid Losses and LAE
The following table provides a reconciliation of the beginning and ending
balances for unpaid losses and LAE, reported in the accompanying consolidated
balance sheet (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------------------------------------
<S> <C> <C>
Unpaid losses and LAE, net of related reinsurance recoverables at beginning of year $ - $41,307
Add unpaid losses and LAE, net of related reinsurance recoverables, acquired in
purchase of AmComp Preferred 31,723 -
Add provision for losses and LAE, net of reinsurance, occurring in:
Current year 31,499 62,991
Prior years (3,240) 1,430
--------------------------------------
Incurred losses during the current year 28,259 64,421
Deduct payments for losses and LAE, net of reinsurance, occurring in:
Current year 8,808 16,863
Prior years 9,867 20,993
--------------------------------------
Payments for losses and LAE during the current year, net of reinsurance 18,675 37,856
--------------------------------------
Unpaid losses and LAE, net of related reinsurance recoverables at end of year 41,307 67,872
Reinsurance recoverables on unpaid losses and LAE at end of year 4,075 18,639
--------------------------------------
Unpaid losses and LAE, gross of reinsurance recoverables on unpaid losses at end
of year $45,382 $86,511
======================================
</TABLE>
F-23
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Unpaid Losses and LAE (Continued)
The Company's liabilities for unpaid losses and LAE, net of related reinsurance
recoverables, at December 31, 1995 and 1996, were (decreased) and increased in
the following year by ($3,240,000) and $1,430,000, respectively, for losses that
had occurred on or prior to those balance sheet dates. In the December 31, 1996
evaluation, management refined its loss projections to smooth the severities
used in developing estimates of ultimate losses and LAE to reduce the level of
redundancies at that date. During 1997 the Company recognized adverse
development of $2,311,000 on the December 31, 1996 reserves for losses and
allocated loss adjustment expenses (ALAE), which was offset by favorable
development of $881,000 on the December 31, 1996 unallocated loss adjustment
expense reserves (ULAE). The adverse development realized in 1997 on reserves
for losses and ALAE is due to a higher than anticipated loss ratio on the new
business produced in 1996.
The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. While anticipated changes in claim costs due to
inflation are considered in estimating the ultimate claim costs, the increase in
average severity of claims is caused by a number of factors that vary with the
individual type of policy written. Future average severities are projected based
on historical trends adjusted for implemented changes in underwriting standards,
policy provisions and general economic trends. Those anticipated trends are
monitored based on actual development and are modified if necessary.
10. Policyholder Retention Dividends
Certain policyholders have entered into agreements that provide for the
opportunity for dividends based on either their own individual or group loss
experience. Approximately 54% and 67% of the total business was subject to
dividend participation during 1996 and 1997, respectively. The dividends are
paid at the sole discretion of the Board of Directors (Board) and must be
approved by the Board prior to payment.
During 1997, the Board limited total retention dividend payments on 1996 and
1997 policies to 6.2% of total net earned premiums. The Company has reported
dividend expense of $3,600,000 and $6,080,000 for 1996 and 1997, respectively,
which does not exceed the 6.2% limitation imposed by the Board.
F-24
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies
The Company is named as a defendant in various legal actions arising principally
from claims made under insurance policies and contracts. Those actions are
considered by the Company in estimating the losses and LAE reserves. Management
believes that the resolution of those actions will not have a material effect on
the Company's financial position or results of operations.
Future minimum payments under noncancellable operating leases with initial terms
of one year or more as of December 31, 1997 are as follows (in thousands):
Year ended December 31,
1998 $ 553
1999 571
2000 527
2001 419
2002 157
Thereafter 79
--------
$ 2,306
========
During 1997, the Company's Board of Directors approved an incentive compensation
agreement for an executive of the Company. This agreement provides for the
executive to share from 3% to 7% of the Company's pre-tax operating income in
excess of $8.5 million. The agreement is effective through December 31, 1999.
During 1997, the Company entered into employment contracts with several of its
executives. These contracts provide for continuing compensation for a period
ranging from 12 to 18 months if the executives are released without cause.
12. Fair Value of Financial Instruments
Statement of Financial Accounting Standards, No. 107, Disclosure about Fair
Value of Financial Instruments, requires disclosure of the estimated Fair value
of all financial instruments including both assets and liabilities unless
specifically exempted.
The following methods and assumptions were used by the Company in estimating the
Fair value of financial instruments.
F-25
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Fair Value of Financial Instruments (Continued)
Cash and Cash Equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates fair value due to the short-term nature
of those items.
Accounts Receivable and Accounts Payable: The carrying amounts reported in the
balance sheet for accounts receivable and accounts payable approximate their
fair value.
Investment Securities: Fair values for fixed maturity securities and other
invested assets are based on quoted market prices where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained from independent pricing services (see Note 5.)
Note Payable: The Company's note payable is floating rate long-term debt.
Accordingly, the carrying amount is estimated to approximate the fair value.
13. 401(k) Savings Plan
The Company sponsors a 401(k) tax-deferred retirement savings plan (the Plan)
for its employees. The Plan is approved by the IRS and is administered by a
national financial management service. All full time employees with at least one
year of service are eligible to participate. Expenses relating to the Plan were
$0, $26,000 and $35,000, respectively, for the years ended December 31, 1995,
1996 and 1997.
14. Notes Payable
At December 31, 1997, the Company amended and restated the credit agreement that
was originally dated December 31, 1996 ("Facility A"). The maximum commitment
under Facility A was extended from $10,000,000 to $15,000,000 at December 31,
1997. Under Facility A, interest is payable at the 30 day LIBOR rate plus a
margin. At December 31, 1996 and 1997, the Company had borrowed $10,000,000 and
$15,000,000, respectively, and the interest rate was 7.91% and 7.88%,
respectively. The terms of the Facility A agreement require quarterly principal
payments of $750,000, commencing March 5, 1999 with the final payment due
December 5, 2001 in an amount equal to the outstanding balance of Facility A at
that date. Facility A is collateralized by $15,000,000 of surplus notes issued
by AmComp Preferred to the Company and the stock of AmComp Preferred. As a
commitment fee to amend and restate this Facility, the Company paid $50,000,
which is expensed over the term of the agreement.
F-26
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Notes Payable (Continued)
At December 31, 1997, the Company executed an additional $5,000,000 credit
facility ("Facility B"). Under Facility B, interest is payable at the 30 day
LIBOR rate plus a margin. At December 31, 1997, the interest rate was 7.88%.
Facility B may be consolidated into Facility A at August 31, 1998, (the
"Consolidation Date") if the Company meets certain requirements, primarily
related to the infusion of $10,000,000 of additional capital or debt that is
subordinated to Facility A prior to the Consolidation Date, and the Company
meeting certain operating thresholds through the Consolidation Date. As a
commitment fee for this credit facility, the Company issued a warrant to
purchase 55,000 shares of common stock. See Note 16. The fair value ($75,000) of
the warrant is being expensed over the term of Facility B.
Maturities of these debt obligations at December 31, 1997, are as follows (in
thousands):
1998* $ 5,000
1999 3,000
2000 3,000
2001 9,000
--------
Total $ 20,000
========
* Assumes that the Facility B is not consolidated into Facility A at August 31,
1998.
The credit agreement for Facility A and Facility B contains various restrictive
covenants. These restrictions primarily pertain to levels of indebtedness,
limitations on payment of dividends and limitations on capital expenditures.
Additionally, the Company must also comply with several financial covenant
restrictions including defined ratios of leverage, debt service, current
maturity coverage, net premium written to surplus and risk based capital. At
December 31, 1997 and 1996, the Company was in compliance with all covenants
under its debt agreement.
15. Mandatorily Redeemable Preferred Stock
Mandatorily Redeemable Convertible Preferred Stock Series A: 2,400,000 shares of
$1.00 par value, voting, participating, redeemable, convertible, preferred stock
("RCPS"), was authorized, issued and outstanding at December 31, 1997 and 1996.
The RCPS is convertible at any time, at the option of the holders, into 2.5
shares of the Company's common stock for each share of RCPS held. The number of
shares of common stock into which the RCPS can be converted may be adjusted from
time to time to avoid dilution of the RCPS stockholders. The RCPS is mandatorily
convertible in the event of an initial public offering of the Company's
F-27
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Mandatorily Redeemable Preferred Stock (Continued)
common stock yielding at least $30 million of proceeds to the Company after
deduction of underwriting discounts and commissions. The RCPS has a liquidation
preference of $10 per share and is mandatorily redeemable at January 31, 2003.
Dividends are payable as declared by the Board of Directors.
Mandatorily Redeemable Preferred Stock Series B: The Company is authorized to
issue1,000,000 shares of $1.00 par value, voting, nonconvertible, 10%
Cumulative, preferred stock ("RNCPS"). The RNCPS is mandatorily redeemable at
January 31, 2003. No shares of the RNCPS have been issued. The RNCPS is
subordinate to the RCPS.
16. Common Stock and Common Stock Warrants
Common Stock: There were 18,600,000 and 22,300,000 authorized shares of $.01 par
value common stock as of December 31, 1996 and 1997, respectively. At December
31, 1996 and 1997, 12,562,500 and 12,596,664 shares were issued and outstanding.
Dividends are payable as declared by the Board of Directors and are subordinate
to the Redeemable Convertible Preferred Stock Series A.
Common Stock Warrants: In conjunction with the Company entering into a credit
facility on December 31, 1997, the Company issued a warrant to purchase 55,000
shares of the Company's Common Stock. The warrants vest immediately and are
exercisable any time on or prior to the fifth anniversary of the date of
issuance at an exercise price of $4. The Company has capitalized the related
$75,000 fair value of the warrant and will amortize the amount over the term of
the credit facility.
17. Stock Options
During 1997, the Board of Directors approved a Director Stock Option Plan (the
"Directors Plan") and reserved 200,000 shares of common stock for issuance under
this plan. Under the Directors Plan, options vest over a period determined at
the time of grant and are exercisable over a five-year period after the date of
grant for an exercise price equal to the fair market value of the common stock
on the date of grant. Through December 31, 1997, options to purchase 90,000
shares have been granted, none are currently exercisable, none have been
forfeited and none have been exercised.
During 1996, the Company approved an employee stock option plan (the "Employee
Plan"), and reserved 625,000 shares of the Company's common stock for future
issuance under this plan. The employee options vest over a period determined at
the time of grant and are exercisable over a period of not more than ten years
at an exercise price equal to fair market value of the common stock at the date
of grant in the case of incentive
F-28
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Stock Options (Continued)
options and not less than 80% of such fair market value in the case of
non-qualified options. At December 31, 1997, options to purchase 79,190 shares
are currently exercisable at an average exercise price of $4.37.
During 1996, the Company approved an agent stock option plan (the "Agent Plan"),
and reserved 875,000 shares of the Company's common stock for future issuance
under this plan. The agent options vest over a period determined at the time of
grant and are exercisable over a period of not more than four years after the
date of grant at an exercise price equal to not less than the fair market value
of the common stock on the date of grant. The vesting of agent options is
contingent upon the agents meeting specified performance requirements. At
December 31, 1997, options to purchase 112,703 shares of common stock are
currently exercisable at an average exercise price of $6.
During 1997, the Company granted an executive options to purchase 49,998 shares
of common stock, under an executive incentive stock option agreement and options
to purchase 450,002 shares of common stock under a non-qualified stock option
agreement. These options vest over a three year period, and are exercisable over
a ten year period after the date of grant for an exercise price of $6 per share.
None of the options are currently exercisable, none have been forfeited and none
have been exercised.
The Company has elected to follow APB No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its stock options
granted to employees and director's, and Financial Accounting Standards Board
(FASB) Statement No. 123, Accounting for Stock-Based Compensation, for its stock
options granted to agents and its discretionary options granted to directors.
Under APB No. 25, because the exercise price of the Company's employee stock
options equals or is greater than the market price of the underlying stock on
the date of grant, no compensation expense is recognized. The Company expenses
the fair value (as determined at the measurement date) of options granted to
agents over the vesting period.
F-29
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Stock Options (continued)
Pro forma information regarding net income, required by FASB Statement No. 123,
as if the Company had accounted for its stock options issued to employees and
directors under the fair value method is as follows (in Thousands except for per
share information):
December 31,
------------------------------------
1995 1996 1997
------------------------------------
Proforma net income $ 487 $ 5,273 $ 4,845
Proforma basic earnings per share $ .04 $ .42 $ .39
Proforma diluted earnings per share $ .04 $ .28 $ .26
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions; risk-free
interest rates of 6.0% in 1997 and 6.5% in 1996; volatility factors of the
expected market price of the Company's Common Stock of .25; expected dividends
of $0; expected life equal to the life of the options; and stock price on the
date of grant of $4 for options issued prior to August, 1997 and $6 for options
issued during and after August 1997.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
F-30
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Stock Options (continued)
A summary of the Company's stock option activity, for the Employee Plan and
Agent Plan through December 31, 1997 follows:
<TABLE>
<CAPTION>
Employees Agents
------------------------------------------------------
Average Average
Exercise Number of Exercise Number of
Price Shares Price Shares
------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding--December 31, 1995 $ - - $ - -
Granted 4.35 427,250 6.00 888,063
Forfeited 4.00 (6,450) - -
-----------------------------------------------------
Outstanding--December 31, 1996 4.36 420,800 6.00 888,063
Granted 6.00 745,000 - -
Exercised 4.00 (2,500) - -
Forfeited 4.00 (22,350) 6.00 (201,956)
-----------------------------------------------------
Outstanding - December 31, 1997 $4.83 1,140,950 6.00 686,107
=====================================================
</TABLE>
The weighted-average remaining contractual life of those options are 2.4 and 3.6
years at 1996 and 1997, respectively. The weighted-average fair value of options
with stock price equal to exercise price and stock price less than exercise
price for option granted during 1996 was $1.50 and $.66, respectively, per
share. The weighted-average fair value of options granted during 1997 with stock
price equal to exercise price and stock price less than exercise price was $1.11
and $.75 per share, respectively.
F-31
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------------------------------
Numerator:
<S> <C> <C> <C>
Net income $ 487 $ 5,434 $ 5,434
Less accretion of mandatorily redeemable preferred stock
syndication costs - (176) (355)
-------------------------------------------
Net income attributable to common stockholders (Numerator for
basic earnings per share) 487 5,258 5,079
Effect of dilutive securities:
Plus accretion of mandatorily redeemable preferred stock
syndication costs - 176 355
===========================================
Net income attributable to common stockholders after assumed
conversions (Numerator for diluted earnings per share) $ 487 $5,434 $ 5,434
===========================================
Denominator:
Weighted average shares outstanding
(denominator for basic earnings per share) 12,500 12,527 12,574
Plus effect of dilutive securities:
Mandatorily redeemable preferred stock - 2,961 6,000
Employee stock options - - 65
-------------------------------------------
Weighted average shares and assumed conversions
(denominator for diluted earnings per share) 12,500 15,488 18,639
===========================================
Basic earnings per share $ .04 $ 0.42 $ 0.40
===========================================
Diluted earnings per share $ .04 $ 0.35 $ 0.29
==========================================
</TABLE>
The total number of outstanding potentially dilutive securities and the number
of common shares that these securities may be converted into are as follows:
<TABLE>
<CAPTION>
Potential Shares of Common
Security Outstanding Stock to be Issued
--------------------------------------- ----------------------------
1996 1997
----------------------------
(In thousands)
<S> <C> <C>
Mandatorily redeemable preferred stock 6,000 6,000
Employee and agent stock options 1,309 1,827
---------------------------
7,309 7,827
===========================
</TABLE>
At December 31, 1995, there were no potentially dilutive securities outstanding.
F-32
<PAGE>
Consolidated Financial Statements (Unaudited)
AmComp Incorporated and Subsidiaries
Six months ended June 30, 1997 and 1998
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Financial Statements
(Unaudited)
Six months ended June 30, 1997 and June 30, 1998
Contents
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets..................................................1
Consolidated Statements of Income............................................3
Consolidated Statements of Comprehensive Income..............................4
Consolidated Statements of Cash Flows........................................5
Notes to Consolidated Financial Statements...................................6
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
(Note 1) (Unaudited)
--------------------------
(In Thousands)
Assets
<S> <C> <C>
Cash and invested assets:
Fixed maturity securities available-for-sale at fair value
(amortized cost of $65,207 in 1997 and $62,180 in 1998) $65,896 $62,961
Fixed maturity securities held-to-maturity at amortized cost
(fair value of $26,819 in 1997 and $23,636 in 1998) 26,915 23,527
Cash and cash equivalents 26,871 16,810
Other invested assets 37 37
-----------------------
Total cash and invested assets 119,719 103,335
Accrued investment income 1,217 1,125
Premiums receivable, less allowance of $7,812 in 1997
and $9,784 in 1998 54,188 70,946
Reinsurance recoverable:
On paid losses and loss adjustment expenses 718 3,806
On unpaid losses and loss adjustment expenses 18,639 32,867
Prepaid reinsurance premiums 11,145 12,193
Deferred policy acquisition costs 824 1,607
Property and equipment 2,890 3,523
Deferred income taxes 10,930 11,398
Goodwill 2,087 2,015
Other assets 629 500
-----------------------
Total assets $222,986 $243,315
=======================
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
(Note 1) (Unaudited)
-------------------------
(In Thousands)
Liabilities and stockholders' equity
Liabilities:
<S> <C> <C>
Policy reserves and policyholders' funds:
Unpaid losses and loss adjustment expenses $86,511 $97,821
Unearned and advance premiums 38,478 51,895
Policyholders' deposits 5,147 4,481
Policyholder retention dividends payable 10,700 14,789
--------------------
Total policy reserves and policyholders' funds 140,836 168,986
Reinsurance payable 13,623 -
Accounts payable and accrued expenses 6,214 9,973
Income taxes payable 1,977 -
Note payable 20,000 20,000
Negative goodwill 4,860 4,559
Other liabilities 43 252
--------------------
Total liabilities 187,553 203,770
Mandatorily redeemable convertible preferred stock series A 22,100 22,280
Redeemable nonconvertible cumulative preferred stock series B - -
Commitments and contingencies
Stockholders' equity:
Common Stock (authorized shares 22,300; issued and
outstanding 12,563 in 1997 and 12,597 in 1998) 126 126
Common Stock Warrants 75 75
Additional paid-in-capital 450 450
Retained earnings 12,246 16,166
Accumulated other comprehensive income-unrealized
appreciation on available-for-sale securities (net of deferred
taxes of $223 and $253) 436 448
---------------------
Total stockholders' equity 13,333 17,265
---------------------
Total liabilities and stockholders' equity $222,986 $243,315
=====================
</TABLE>
See accompanying notes.
F-34
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
1997 1998
----------------------------
(In Thousands Except Per
Share Amounts)
Revenue:
<S> <C> <C>
Net premiums earned $52,988 $36,046
Net investment income 2,551 2,745
Other income 408 520
----------------------
Total revenue 55,947 39,311
Expenses:
Losses and loss adjustment expenses 32,228 18,588
Underwriting and acquisition expenses 16,239 10,794
Interest expense 338 759
----------------------
Total expenses 48,805 30,141
----------------------
Income before dividends to policyholders and income taxes 7,142 9,170
Dividends to policyholders 2,996 3,424
----------------------
Income before income taxes 4,146 5,746
Income tax expense 1,282 1,646
----------------------
Net income $2,864 $4,100
Accretion of mandatorily redeemable preferred stock
syndication costs
(178) (180)
-----------------------
Net income attributable to common stockholders $2,686 $3,920
=======================
Earnings per share - basic $.21 $ .31
=======================
Earnings per share - diluted $.15 $ .22
=======================
</TABLE>
See accompanying notes.
F-35
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1997 1998
-----------------------
<S> <C> <C>
Net income $ 2,864 $ 4,100
Other comprehensive income, net of tax
Unrealized appreciation of available for sale securities
arising during period (12) 140
Less: reclassification adjustment for gains included in net
income - (128)
------------------------
Comprehensive income $ 2,852 $ 4,112
========================
</TABLE>
See accompanying notes.
F-36
<PAGE>
AmComp Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1998
----------------------------------
Operating activities (In Thousands)
<S> <C> <C>
Net income $ 2,864 $ 4,100
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 181 147
Provision for deferred income taxes (3,055) (468)
Policy acquisition costs deferred (17,175) (5,197)
Policy acquisition costs amortized 11,476 4,414
Change in operating assets and liabilities
Accrued investment income (175) 92
Premiums receivable (43,163) (16,758)
Reinsurance balances (9) (31,987)
Other assets and liabilities 29 338
Unpaid losses and loss adjustment expenses 16,908 11,310
Unearned, advance premiums and policyholder deposits 36,292 12,751
Policyholder retention dividends payable 1,922 4,089
Accounts payable and accrued expenses 2,651 3,759
Income taxes payable (3,538) (1,977)
----------------------------------
Net cash provided by (used in) operating activities 5,208 (15,387)
Investing activities
Securities available-for-sale:
Purchases (20,173) (4,709)
Sales and maturities 4,500 7,750
Securities held-to-maturity:
Maturities 200 3,279
Purchases of property and equipment (603) (1,014)
Sale of other assets 108 20
---------------------------------
Net cash (used in) provided by investing activities (15,968) 5,326
Financing activities
Issuance of common stock 190 -
---------------------------------
Net cash provided by financing activities 190 -
---------------------------------
Net decrease in cash and cash equivalents (10,570) (10,061)
Cash and cash equivalents at beginning of year 43,919 26,871
---------------------------------
Cash and cash equivalents at end of period 33,349 $16,810
=================================
Supplemental cash flow data
Cash paid - interest $ 338 $ 759
Cash paid - income taxes $7,830 $ 4,320
</TABLE>
See accompanying notes.
F-37
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1998
1. Basis of Presentation
The consolidated balance sheet as of June 30, 1998, and the related consolidated
statements of income, comprehensive income, and cash flows for the six month
periods ended June 30, 1997 and 1998 are unaudited and have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of such
financial statements have been included. The results of operations for the six
months ended June 30, 1998 are not necessarily indicative of the results to be
expected for the full fiscal year.
The balance sheet at December 31, 1997 has been derived from the Audited
Financial Statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying consolidated financial statements include the accounts of
AmComp Incorporated, AmComp Preferred Insurance Company ("AmComp Preferred"),
AmComp Assurance Corporation ("AmComp Assurance"), Pinnacle Administrative
Company and Pinnacle Benefits Incorporated (collectively "AmComp" or the
"Company"). All intercompany accounts have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions could change.
New Accounting Standards
During the six months ended June 30, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"). Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. The adoption of Statement
130 had no effect on the Company's reported net income or stockholders' equity.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities which were previously separately reported in
stockholders' equity, to be included in accumulated other comprehensive income
and changes therein reported as a component of total comprehensive income.
F-38
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998
2. Reinsurance
Certain premiums and losses are ceded to other insurance companies under a quota
share reinsurance arrangement, and various aggregate and specific excess of loss
reinsurance agreements. The ceded reinsurance agreements are intended to provide
Preferred and Assurance with the ability to maintain their exposure to loss
within their capital resources.
Effective March 1, 1998, the Company entered into an excess of loss agreement
with an unaffiliated reinsurer whereby the Company will cede 11.8% of its net
earned premiums and will cede $450,000 of each and every loss in excess of
$50,000 per each occurrence. Through June 30, 1998, the Company has ceded
premiums of $3,514,000 and incurred losses of $8,048,000 under this agreement.
Effective October 1, 1997, the Company entered into a 35% quota share
reinsurance agreement (the "Quota Share Treaty") with two unaffiliated
reinsurers. Under the Quota Share Treaty, the Company ceded approximately 35% of
its direct unearned premium reserve as of October 1, 1997 and approximately 35%
of its Net written premiums ("Net" defined as gross less specific excess
reinsurance cessions) after October 1, 1997 with a ceding commission of 35%.
Under this agreement, the Company cedes 35% of its Net losses and ALAE until a
Loss Ratio ("Loss Ratio", defined as Net losses and ALAE incurred divided by Net
earned premiums) equals 65%. The Company retains 100% of all losses in a Loss
Ratio corridor between 65% and 70%. If the Loss Ratio exceeds 70%, the Company
resumes ceding 35% of the Net losses under the Quota Share Treaty. In addition
to losses and ALAE, the Company cedes 35% of its policyholder dividends paid
that are subject to the treaty. Effective April 1, 1998, the Company changed the
quota share percentage to 25%. For the six months ended June 30, 1998, the
Company has ceded premiums of $15,344,000 and incurred losses of $12,585,000
under this agreement.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company. Management evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
F-39
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998
3. Federal and State Income Taxes
The provision for taxes for the six months ended June 30, 1997 and 1998, differs
from the statutory rate primarily due to the effects of tax exempt interest
income.
4. Commitments and Contingencies
The Company is named as a defendant in various legal actions arising principally
from claims made under insurance policies and contracts. Those actions are
considered by the Company in estimating the losses and LAE reserves. Management
believes that the resolution of those actions will not have a material effect on
the Company's financial position or results of operations.
During 1997, the Company's Board of Directors approved an incentive compensation
agreement for an executive of the Company. This agreement provides for the
executive to share from 3% to 7% of the Company's pre-tax operating income in
excess of $8.5 million. The agreement is effective through December 31, 1999.
Certain executives of the Company have employment contracts. These contracts
provide for continuing compensation for a period ranging from12-18 months if the
executives are released without cause.
Certain policyholders have entered into contractual agreements in accordance
with management's participation guidelines that provide for the opportunity for
dividends based on either their own individual or group loss experience. The
dividends must be approved by the Board of Directors prior to payment.
The Company has reported dividend expense of $2,996,000 and $3,424,000 for the
six month periods ended June 30 1997 and 1998, respectively, which is less than
the limitation imposed by the Board of Directors for those periods.
F-40
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998
5. Stock Options
During 1998, the Company granted an executive options to purchase 49,998 shares
of common stock under an executive incentive stock option agreement and options
to purchase 75,002 shares of common stock under a non-qualified stock option
agreement.
6. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the six months ended June 30 (in thousands except per share data):
<TABLE>
<CAPTION>
1997 1998
------------------------------------
Numerator:
<S> <C> <C>
Net income $ 2,864 $ 4,100
Less accretion of mandatorily redeemable preferred stock
syndication costs (178) (180)
---------------------------------
Net income attributable to common stockholders (Numerator for
basic earnings per share) 2,686 3,920
Effect of dilutive securities:
Plus accretion of mandatorily redeemable preferred stock
syndication costs 178 180
--------------------------------
Net income attributable to common stockholders after assumed
conversions (Numerator for diluted earnings per share) $ 2,864 $4,100
================================
Denominator:
Weighted average shares outstanding
(denominator for basic earnings per share) 12,563 12,597
Plus effect of dilutive securities:
Mandatorily redeemable preferred stock 6,000 6,000
Employee stock options - 108
--------------------------------
Weighted average shares and assumed conversions
(denominator for diluted earnings per share) 18,653 18,705
================================
Basic earnings per share $ .21 $ 0.31
================================
Diluted earnings per share $ .15 $ 0.22
================================
</TABLE>
F-41
<PAGE>
AmComp Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998
6. Earnings Per Share (Continued)
The total number of outstanding potentially dilutive securities and the number
of common shares that these securities may be converted into at June 30, are as
follows:
Potential Shares of Common
Security Outstanding Stock to be Issued
-------------------------------------- --------------------------
1997 1998
--------------------------
(In thousands)
Mandatorily redeemable preferred stock 6,000 6,000
Employee and agent stock options 1,747 1,545
--------------------
7,747 7,545
=====================
F-42
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Financial Statements
Year ended December 31, 1995
with Report of Independent Auditors
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Financial Statements
Year ended December 31, 1995
Contents
Report of Independent Certified Public Accountants............................1
Audited Financial Statements
Balance Sheet.................................................................2
Statement of Operations.......................................................4
Statement of Changes in Equity................................................5
Statement of Cash Flows.......................................................6
Notes to Financial Statements.................................................8
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
AmComp Preferred Insurance Company (Formerly Pinnacle Assurance Corporation,
An Assessable Mutual Insurance Company)
We have audited the accompanying balance sheet of AmComp Preferred Insurance
Company as of December 31, 1995 and the related statements of operations,
changes in equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company converted from
an assessable mutual insurance company to a stock-insurance company on January
26, 1996. Concurrently, all of the company's common stock was acquired by AmComp
Incorporated.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of AmComp Preferred Insurance
Company, at December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
March 4, 1998
West Palm Beach, Florida
F-43
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Balance Sheet
December 31, 1995
(In Thousands)
Assets Cash and invested assets:
Fixed maturity securities available-for-sale at fair value
(amortized cost of $11,687) $11,754
Fixed maturity securities held-to-maturity at amortized cost
(fair value of $33,026) 32,346
Cash and cash equivalents 5,893
-------
Total cash and invested assets 49,993
Accrued investment income 844
Premiums receivable, less allowance of $2,935 11,212
Reinsurance recoverable:
On paid losses and loss adjustment expenses 245
On unpaid losses and loss adjustment expenses 4,364
Deferred policy acquisition costs 1,111
Property and equipment 61
Other assets 11
-------
Total assets $67,841
=======
See accompanying notes.
F-44
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Balance Sheet (Continued)
December 31, 1995
(In Thousands)
Liabilities and equity
Liabilities:
Policy reserves and policyholders' funds:
Unpaid losses and loss adjustment expenses $36,087
Unearned and advance premiums 11,116
Policyholders' deposits 4,394
Policyholder retention dividends payable 5,709
-------
Total policy reserves and policyholders' funds 57,306
Accounts payable and accrued expenses 3,033
Administrative and service fee payable to Pinnacle Administrative
and Pinnacle Benefits 795
Income taxes payable 629
Deferred income taxes 1,043
-------
Total liabilities 62,806
Commitments and contingencies
Equity:
Retained earnings 4,993
Net unrealized appreciation of available-for sale securities
(net of deferred taxes of $25) 42
-------
Total equity 5,035
=======
Total liabilities and equity $67,841
=======
See accompanying notes.
F-45
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Statement of Operations
Year ended December 31, 1995
(In Thousands)
Revenue:
Net premiums earned $32,346
Net investment income 2,492
Other income 832
-------
Total revenue 35,670
Expenses:
Losses and loss adjustment expenses 16,754
Losses and loss adjustment expenses - Pinnacle Benefits 1,600
Underwriting and acquisition expenses 10,228
Administrative and service expense - Pinnacle Administrative 4,702
-------
Total expenses 33,284
-------
Income before dividends to policyholders and income taxes 2,386
Dividends to policyholders 2,768
-------
Loss before income taxes (382)
Income tax benefit 50
-------
Net loss $ (332)
=======
See accompanying notes.
F-46
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Statement of Changes in Equity
Net Unrealized
Appreciation of
Available-
Retained for-Sale Total
Earnings Securities Equity
-------------------------------------
Balance at January 1, 1995 $5,325 $ - $5,325
Net loss (332) - (332)
Net unrealized appreciation - 42 42
-----------------------------------
Balance at December 31, 1995 $4,993 $ 42 $5,035
===================================
See accompanying notes.
F-47
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Statement of Cash Flows
Year ended December 31, 1995
(In Thousands)
Operating activities
Net loss $ (332)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 79
Provision for deferred income tax benefit (1,197)
Policy acquisition costs deferred (5,026)
Policy acquisition costs amortized 3,915
Change in operating assets and liabilities
Accrued investment income and other assets (172)
Premiums receivable (6,963)
Reinsurance recoverable 2,555
Unpaid losses and loss adjustments expenses 5,135
Unearned and advanced premiums 9,509
Policyholder retention dividends payable 1,404
Accrued expenses and other liabilities 2,634
Payable to affiliated companies 300
Income taxes payable 876
--------
Net cash provided by operating activities 12,717
Investing activities
Securities available-for-sale:
Purchases (2,499)
Securities held-to-maturity:
Purchases (8,734)
Maturities 2,195
--------
Net cash used in investing activities (9,038)
---------
Net increase in cash and cash equivalents 3,679
Cash and cash equivalents at beginning of year 2,214
--------
Cash and cash equivalents at end of year $ 5,893
========
See accompanying notes.
F-48
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Statement of Cash Flows (continued)
Year ended December 31, 1995
(In Thousands)
Supplemental cash flow data:
Cash paid:
Income taxes $ 995
Noncash transactions:
Transfer of investments from held-to-maturity to
available-for-sale 9,188
Unrealized gain from transfer to available-for-sale (net of the
related tax effect of $25) 42
See accompanying notes.
F-49
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies
Organization
AmComp Preferred Insurance Company (formerly Pinnacle Assurance Corporation), An
Assessable Mutual Insurance Company ("AmComp Preferred") was the successor to
Florida Air Conditioning Contractors Association Self Insurers Fund (the Fund).
Effective April 7, 1995, the Fund converted to an assessable mutual insurance
company. As policyholders of an assessable mutual insurance company, the
policyholders are jointly and proportionately liable for the obligations of
AmComp Preferred, and the maximum contingent assessment liability for each
policyholder is limited to not less than three nor more than 10 times their
annual premium for a term of one year. Prior to the conversion to an assessable
mutual insurance company, fund members had joint and several liability for the
obligations of the Fund and were subject to unlimited assessibility. On January
26, 1996, AmComp Preferred, pursuant to a Plan of Conversion and
Recapitalization (the "Plan") and with the approval of AmComp Preferred's
policyholders and the Florida Department of Insurance ("DOI"), converted from an
assessable mutual insurance company to a Florida domestic stock-insurance
company.
The Board of Directors adopted the Plan dated August 21, 1995, providing for the
conversion and recapitalization of AmComp Preferred from an assessable mutual
insurance company to a Florida domestic stock insurance company. As part of the
Plan, AmComp Preferred entered into a Subscription and Purchase Agreement (the
"Agreement") with Pinnacle Administrative Inc. ("Pinnacle Administrative"),
formerly known as Florida Administrators, Inc. dated August 21, 1995, providing
that simultaneous with the Plan, Pinnacle Administrative or a newly formed
holding company or affiliate would acquire 15,000 shares of AmComp Preferred's
capital stock representing 100% ownership of AmComp Preferred. The Plan was
approved by the DOI by a Consent Order dated November 14, 1995 and was
subsequently approved at the 1995 Annual Meeting of Members of AmComp Preferred
held on December 18, 1995. The DOI issued another Consent Order dated January
26, 1996, approving the issuance of capital stock to Pinnacle Administrative's
newly formed holding company, AmComp Incorporated ("AmComp"). The corporate by
laws of AmComp Preferred authorized 15,000 shares of $100 par value capital
stock. A subscription price of $8,400,000 was paid to AmComp Preferred on
January 26, 1996, in accordance with the terms of the Plan and the related
Agreement.
AmComp Preferred is authorized to issue workers' compensation insurance on
Florida risks, and is domiciled in the State of Florida. AmComp Preferred
markets its insurance through independent agents throughout the State of
Florida.
F-50
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known and such changes
could affect the amounts reported and disclosed herein.
Basis of Presentation
The accompanying financial statements of AmComp Preferred have been prepared in
conformity with generally accepted accounting principles ("GAAP").
Investments
Fixed maturity investments are designated at purchase as held-to-maturity or
available-for-sale. Held-to-maturity fixed maturity investments are reported at
amortized cost. Securities classified as available-for-sale are reported at fair
value with unrealized appreciation and depreciation net of tax, included as a
separate component of equity. AmComp Preferred has the intent and ability to
hold to maturity those securities designated as held-to-maturity.
In accordance with the transition provisions of Statement of Financial
Accounting Standards No. 115, A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities, issued by the
Financial Accounting Standards Board (FASB) in November 1995, AmComp Preferred
transferred securities with an amortized cost of $9,188,000 from the
held-to-maturity to the available-for-sale category on December 31, 1995. The
net unrealized appreciation on the securities transferred was approximately
$42,000, which is net of deferred income taxes of $25,000.
F-51
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies (continued)
Investments (continued)
Realized gains and losses on sales of investments and declines in value
considered to be other-than-temporary are recognized in operations on the
specific identification basis.
Cash and Cash Equivalents
AmComp Preferred considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Deferred Policy Acquisition Costs
To the extent recoverable from future policy revenues, the costs that vary with
and are primarily related to the production of new and renewal business have
been deferred and amortized over the effective period of the related insurance
policies.
Property and Equipment
Property and equipment is stated on the basis of cost. Depreciation is computed
using the straight-line method over the estimated useful life for financial
reporting purposes. Accumulated depreciation was $412,000 at December 31, 1995.
Reinsurance
Reinsurance premiums, losses, and loss adjustment expenses are accounted for on
bases consistent with those used in accounting for the original policies issued
and the terms of the reinsurance contracts.
Federal and State Income Taxes
AmComp Preferred provides deferred federal and state income taxes for certain
differences between the financial statement amount and tax bases of assets and
liabilities.
F-52
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies (continued)
Policyholder Retention Dividends
Policyholder retention dividends are recognized over the effective period of the
related policies and are restricted to limitations imposed by the Board of
Directors (see Note 8).
Unpaid Losses and Loss Adjustment Expenses
Unpaid losses and loss adjustment expenses ("LAE") represent the estimated
ultimate net cost of all reported and unreported losses incurred through
December 31, 1995. The reserves for unpaid losses and LAE are estimated using
individual case-basis valuations and statistical analyses. These estimates are
subject to the effects of trends in loss severity and frequency. Although
considerable variability is inherent in such estimates, management believes that
the reserves for losses and LAE are adequate. The estimates are continually
reviewed and adjusted as necessary as experience develops or new information
becomes known; such adjustments are included in current operations.
Recognition of Premium Revenue
AmComp Preferred's insurance premiums are billed annually or under various
installment plans based on the estimated annual premium under the policy terms.
At the end of the policy term, payroll-based premium audits are performed on
substantially all policyholder accounts to determine final earned premiums.
Earned but unbilled premiums include estimated future audit premiums and
collateralized premiums. Collateralized premiums include policies where the
final calculated premium is paid after the end of the policy term and the
receivable balance is collateralized by cash equivalents, letters of credit, and
financial guarantee bonds. Estimated future audit premiums are estimated based
on a weighted average derived from AmComp Preferred's historical experience as a
percentage of earned premiums.
These estimates are subject to the effects of trends in payroll audit
adjustments. Although considerable variability is inherent in such estimates,
management believes that the accrual for earned but unbilled premiums is
reasonable. The estimates are continually reviewed and adjusted as necessary as
experience develops or new information becomes known; such adjustments are
included in current operations. The reserve for unearned premiums is determined
on a daily pro rata basis.
F-53
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies (continued)
Administrative and Service Fee Expense
AmComp Preferred, pursuant to agreements with Pinnacle Administrative and
Pinnacle Benefits Inc. ("Pinnacle Benefits") incurred expenses of $6,302,000
during 1995. Of the $6,302,000, $1,600,000 was for claims adjudication services
performed by Pinnacle Benefits and is reported in the accompanying statement of
operations as losses and loss adjustment expenses - Pinnacle Benefits. The
remaining $4,702,000 was for sales, marketing, underwriting, policyholder
service, and data processing services provided by Pinnacle Administrative and is
reported in the accompanying statement of operations as administrative and
service fee expense - Pinnacle Administrative.
Administrative and Service Fee Payable to Pinnacle Administrative and Pinnacle
Benefits
At December 31, 1995, AmComp Preferred had amounts due to Pinnacle
Administrative and Pinnacle Benefits of $795,000, for unpaid administrative and
service fees which is reported in the accompanying balance sheet as
Administrative and service fees payable to Pinnacle Administrative and Pinnacle
Benefits.
Special Disability Trust Fund (SDTF) Assessments and Recoveries
AmComp Preferred accrues and expenses SDTF assessments based on a percentage of
net earned premiums and recognizes recoveries from the SDTF when they are
received (see Note 3).
Policyholder Deposits
Policyholders are required to maintain deposits with the Company for certain
installment pay plans. Based on the selected pay plan, management determines the
deposit amount which is based on a percentage of the policyholders' estimated
annual premium. Deposits are analyzed annually and adjusted as considered
necessary.
F-54
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies (continued)
Concentrations of Credit Risk
Financial instruments that potentially subject AmComp Preferred to significant
concentrations of credit risk consist principally of cash, investments, premiums
receivable and reinsurance recoverables. Concentrations of credit risk with
respect to premiums receivable are limited due to the large number of entities
comprising AmComp Preferred's customer base. However, all of AmComp Preferred's
revenues are currently derived from products and services offered to customers
in Florida which could be adversely affected by economic downturns, an increase
in competition or other environmental changes.
2. Regulatory Requirements and Restrictions
AmComp Preferred is required to periodically submit financial statements
prepared in accordance with prescribed or permitted statutory accounting
practices ("SAP") to the DOI. Such SAP practices differ from GAAP. Prescribed
SAP includes state laws, regulations and general administrative rules, as well
as a variety of publications of the National Association of Insurance
Commissioners ("NAIC"). Permitted SAP encompasses all accounting practices that
are not prescribed; such practices may differ from company-to-company and may
not necessarily be permitted in subsequent reporting periods.
At December 31, 1995, the statutory surplus of AmComp Preferred was $11,174,000
greater than it would have been if certain practices had not been permitted by
the DOI. This difference results from the following two permitted practices: (i)
future tax liabilities of approximately $9,200,000 resulting from a change in
accounting method that will be paid in three subsequent years were not recorded,
and (ii) cumulative SDTF assessments were reported as ULAE for statutory
purposes resulting in a $1,974,000 decrease of the liability for excess
statutory reserves over statement reserves. Based on a recommendation in a
recent DOI Report of Examination, AmComp Preferred will discontinue this
practice for accounting periods subsequent to December 31, 1997.
F-55
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
2. Regulatory Requirements and Restrictions (continued)
AmComp Preferred is also subject to certain Risk-Based Capital (RBC)
requirements specified by the NAIC. Under those requirements, the amount of
capital and surplus maintained by a property and casualty insurance company is
to be determined based on the various risk factors related to it. At December
31, 1995, AmComp Preferred's RBC exceeded the minimum RBC requirements.
AmComp Preferred's statutory-basis capital was $18,312,000 at December 31, 1995
as an assessable mutual insurance company and its statutory-basis net income was
$1,704,000. The statutory-basis capital and surplus at December 31, 1995 was
favorably impacted by the admissibility of $4,889,000 of recoverables due from
the SDTF and $7,312,000 of anticipated investment income. When the AmComp
Preferred converted to a stock insurance company on January 26, 1996, these
items were no longer admissable assets and the statutory-basis capital and
surplus was reduced for these items.
Under Florida insurance regulations, when AmComp Preferred converts to a stock
insurance company, the maximum dividend to stockholders which may be made
without prior approval by the DOI is specifically defined by the Florida
Insurance Laws and Regulations and is generally the lesser of 10% of surplus or
100% of the prior year's net income, excluding realized capital gains, plus a
two year carryback.
As a stock insurance company, AmComp Preferred will be subject to statutes
related to excess profits for workers' compensation insurance companies.
However, for five years following authorization of the conversion from an
assessable mutual to a stock insurance company by the DOI, AmComp Preferred is
provided relief from certain aspects of these statutes. Nevertheless, such
amounts otherwise subject to these rules will be maintained by AmComp Preferred
as surplus as to policyholders and will not be available for dividends for a
period of five years.
F-56
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
3. State of Florida SDTF
The State of Florida maintains the SDTF for the purpose of providing benefits to
workers who have a pre-existing condition and incur a second or subsequent
injury. The SDTF is funded through annual assessments against workers'
compensation insurers which are based on a percentage of net workers'
compensation premiums written. Assessments charged to underwriting and
acquisition expenses in the accompanying financial statements were $1,972,000 in
1995.
AmComp Preferred submits claims to the SDTF for recovery of applicable claims
paid on behalf of AmComp Preferred's insureds. For GAAP purposes, because of the
uncertainty of the collectibility of such amounts, SDTF recoverables are
recorded as they are received. Cash collections from the SDTF amounted to
approximately $780,000 in 1995.
The SDTF currently has significant unfunded liabilities. It is not possible to
predict how the SDTF will operate, if at all, in the future after further
legislative review. Changes in the SDTF's operations, that decrease the
availability of recoveries from the SDTF, or increase SDTF assessments payable
by AmComp Preferred, and/or the discontinuation of the SDTF could have a
material effect on AmComp Preferred's business, financial condition and its
operations. Under current law, future assessments are capped at 4.52% of net
written premiums and no recoveries can be made for losses incurred after January
1, 1998.
F-57
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
4. Investments
AmComp Preferred's investments in available-for-sale and held-to-maturity
securities are summarized as follows:
<TABLE>
<CAPTION>
Amortized Gross Unrealized
-----------------------------------
Cost Gains Losses Fair Value
---------------------------------------------------------------------
(In Thousands)
Available-for-sale securities at December 31, 1995
<S> <C> <C> <C> <C>
U.S. Treasury securities $11,498 $ 79 $ 8 $11,569
Mortgage-backed securities 189 - 4 185
---------------------------------------------------------------------
Total fixed maturity securities $11,687 $ 79 $ 12 $11,754
=====================================================================
Held-to-maturity securities at December 31, 1995
U.S. Treasury securities $31,187 $ 748 $ 61 $31,874
Mortgage-backed securities 1,159 - 7 1,152
---------------------------------------------------------------------
Total fixed maturity securities $32,346 $ 748 $ 68 $33,026
=====================================================================
</TABLE>
The fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services.
F-58
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
4. Investments (Continued)
The amortized cost and estimated market values of fixed maturity securities,
segregated by available-for-sale and held-to-maturity, at December 31, 1995 are
summarized, by maturity, as follows:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------
(In Thousands)
Years to maturity:
<S> <C> <C> <C> <C>
One or less $ 5,999 $ 6,015 $ - $ -
After one through five 4,499 4,553 29,200 29,722
After five through 10 1,000 1,001 1,987 2,152
Mortgaged-backed securities 189 185 1,159 1,152
=====================================================
Total $11,687 $ 11,754 $32,346 $33,026
=====================================================
</TABLE>
The foregoing data is based on the stated maturities of the securities. Actual
maturities may differ as borrowers may have the right to call or prepay
obligations.
At December 31, 1995, fixed maturity securities with an amortized cost of
$3,244,000 were on deposit with the Florida Insurance Department in accordance
with DOI regulatory requirements.
Major categories of AmComp Preferred's net investment income are summarized as
follows:
Income:
Fixed maturity securities $2,388
Cash and cash equivalents 165
------
Investment income 2,553
Investment expenses 61
======
Net investment income $2,492
======
F-59
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
5. Reinsurance
Certain premiums and losses are ceded to other insurance companies under various
aggregate and specific excess of loss reinsurance agreements. The ceded
reinsurance agreements are intended to provide AmComp Preferred with the ability
to maintain its exposure to loss within its capital resources.
AmComp Preferred offers workers' compensation policies at statutory limits. A
summary of AmComp Preferred's specific and aggregate reinsurance retention
limits follows:
Retention
Accident Year Specific Aggregate
----------------------------------------------------------------------------
(In Thousands)
1986 $175 $ 1,726
1987 200 2,070
1988 200 2,080
1989-90 300 -
1991-93 500 -
1994 400 -
1995 400 28,000
AmComp Preferred's ceded reinsurance arrangements had the following effect on
certain items in the accompanying financial statements:
(In Thousands)
1995
Premiums:
-------------------------
Written Earned
-------------------------
Direct $43,494 $33,985
Ceded (1,639) (1,639)
-------------------------
Net $41,855 $32,346
=========================
Other amounts:
Unpaid losses and LAE ceded $4,364
Incurred losses and LAE ceded $2,689
F-60
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
5. Reinsurance (Continued)
Reinsurance contracts do not relieve AmComp Preferred from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to AmComp Preferred. AmComp Preferred evaluates the financial condition
of its reinsurers and monitors concentrations of credit risk to minimize its
exposure to significant losses from reinsurer insolvencies.
At December 31, 1995, approximately $4,000,000 of AmComp Preferred's reinsurance
recoverables on paid and unpaid losses were due from one individual reinsurer
(rated A++ by A.M. Best Company).
6. Federal and State Income Taxes
Significant components of income tax benefit are as follows:
Current expense $(1,147)
Deferred benefit 1,197
--------
Income tax benefit $ 50
========
The effective federal income tax rates on earnings before income taxes were
lower than the maximum statutory rates as follows:
Amount
------------
Computed expected tax benefit $ 134
State income taxes, net 15
Other, net (99)
--------
Effective income tax benefit $ 50
========
F-61
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
6. Federal and State Income Taxes (Continued)
AmComp Preferred records deferred federal income taxes payable on certain
temporary differences between the amounts reported in the accompanying financial
statements and the amounts reported for federal and state income tax reporting
purposes. The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities as of December 31, 1995
are presented below (in thousands):
Deferred tax assets:
Loss reserve adjustments $2,741
Unearned premium adjustment 797
Allowance for bad debt 1,104
------
Total deferred tax assets 4,642
Deferred tax liabilities:
Deferred policy acquisition expenses 418
Policyholder dividends 5,179
Net unrealized appreciation on available-for-sale securities 25
Other 63
-------
Total deferred tax liabilities 5,685
-------
Net deferred tax liability $1,043
=======
F-62
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
7. Unpaid Losses and LAE
The following table provides a reconciliation of the beginning and ending
balances for unpaid losses and LAE, reported in the accompanying balance sheet
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Unpaid losses and LAE, net of related reinsurance recoverables
at beginning of year $23,874
Add provision for losses and LAE, net of reinsurance, occurring in:
Current year 20,794
Prior years (2,440)
---------
Total losses incurred during the year 18,354
Deduct payments for losses and LAE, net of reinsurance, occurring in:
Current year 3,442
Prior years 7,063
--------
Payments for losses and LAE during the current year, net of reinsurance 10,505
--------
Unpaid losses and LAE, net of related reinsurance recoverables at end of year 31,723
Reinsurance recoverable on unpaid losses and LAE at end of year 4,364
--------
Unpaid losses and LAE, gross of reinsurance recoverables on unpaid losses at
end of year $36,087
========
</TABLE>
AmComp Preferred's liability for unpaid losses and LAE, net of related
reinsurance recoverables, at December 31, 1994, was decreased in the following
year by $2,440,000 for claims that had occurred prior to 1995. This favorable
loss emergence resulted principally from settling reserves established in prior
years for amounts that were less than expected.
The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. While anticipated claims costs due to inflation
are considered in estimating the ultimate claim costs, the increase in average
severity of claims is caused by a number of factors that vary with the
individual type of policy written. Future average severities are projected based
on historical trends adjusted for implemented changes in underwriting standards,
policy provisions and general economic trends. Those anticipated trends are
monitored based on actual development and are modified if necessary.
F-63
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
8. Policyholder Retention Dividends
Certain policyholders have entered into agreements that provide for the
opportunity for dividends based on either their own individual or group loss
experience. As a mutual company all of the business was subject to dividend
participation during 1995. The dividends are paid at the sole discretion of the
Board of Directors (Board) and must be approved by the Board prior to payment.
9. Commitments and Contingencies
AmComp Preferred is named as a defendant in various legal actions arising
principally from claims made under insurance policies and contracts. Those
actions are considered by AmComp Preferred in estimating unpaid losses and LAE
reserves. AmComp Preferred's management believes that the resolution of those
actions will not have a material effect on AmComp Preferred's financial position
or results of operations.
Effective January 1, 1993, AmComp Preferred subleased its office space to
Pinnacle Administrative for the amount of rent due and payable per the lease
agreement. Therefore, AmComp Preferred incurred no rental expense for 1995.
Future minimum payments under noncancelable operating leases with initial terms
of one year or more are $82,000 and $41,000 for 1996 and 1997, respectively.
10. Fair Value of Financial Instruments
Statement of Financial Accounting Standard, No. 107, Disclosure about Fair Value
of Financial Instruments, requires disclosure of the estimated Fair value of all
financial instruments including both assets and liabilities unless specifically
exempted.
The following methods and assumptions were used by the Company in estimating the
Fair value of financial instruments.
Cash and Cash Equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximate fair value due to the short-term nature of
those items.
F-64
<PAGE>
AmComp Preferred Insurance Company
(Formerly Pinnacle Assurance Corporation
An Assessable Mutual Insurance Company)
Notes to Financial Statements
December 31, 1995
10. Fair Value of Financial Instruments (continued)
Accounts Receivable and Accounts Payable: The carrying amounts reported in the
balance sheet for accounts receivable and accounts payable approximate their
fair value.
Investment Securities: Fair values for fixed maturity securities and other
invested assets are based on quoted market prices where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained from independent pricing services.
F-65
<PAGE>
================================================================================
, 1998
AmComp Incorporated
________ Shares of Common Stock
--------------------------
PROSPECTUS
--------------------------
Donaldson, Lufkin & Jenrette
BT Alex. Brown
Credit Suisse First Boston
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you any
written information other than this prospectus or to make representations as to
matters that are not stated in this prospectus. You must not rely on
unauthorized information. This prospectus is not an offer to sell these
securities or our solicitation of your offer to buy these securities in any
jurisdiction where that would not be permitted or legal. Neither the delivery of
this prospectus nor any sales made hereunder after the date of this prospectus
shall create any implication that the information contained herein or the
affairs of the Company have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until ______, 199__ (25 days after the date of this prospectus), all dealers
that effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the Underwriters) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the SEC registration fee and the NASD
filing fee, all amounts shown are estimates.
SEC registration fee............................................... $13,900
NASD filing fee.................................................... $ 5,500
NASD National Market listing fee and expenses...................... $ *
Blue sky fees and expenses (including legal and filing fees) *
Printing expenses (other than stock certificates).................. *
Printing and engraving of stock certificates....................... *
Legal fees and expenses (other than Blue sky)...................... *
Accounting fees and expenses....................................... *
Transfer Agent and Registrar fees and expenses..................... *
Miscellaneous expenses............................................. *
-------
Total..................................................... $ *
=======
- ------------------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
The Certificate of Incorporation of the Registrant provides that the
Registrant shall indemnify to the extent permitted by Delaware law any person
whom it may indemnify thereunder, including directors, officers, employees,
consultants and agents of the Registrant. Such indemnification (other than an
order by a court) shall be made by the Registrant only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. Such determination shall be made by a majority vote
of a quorum consisting of disinterested directors, by independent legal counsel
or by the stockholders. In addition, the Registrant's Certificate of
Incorporation eliminates, to the extent permitted by Delaware law, personal
liability of directors to the Registrant and its stockholders for monetary
damages for breach of fiduciary duty as directors.
The Registrant's authority to indemnify its directors and officers is
governed by the provisions of Section 145 of the DGCL, as follows:
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no
II-1
<PAGE>
reasonable cause to believe the person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made with
respect to a person who is a director or officer at the time of such
determination (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust
II-2
<PAGE>
or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the corporation would have the power to indemnify
such person against such liability under this section.
(h) For purposes of this section, references to the "corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans, references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan, and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee, or agent of the corporation which
imposes duties on, or involves services by such director, officer, employee or
agent with respect to any employee benefit plan, its participants or
beneficiaries, and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of any employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to herein determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholder,
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Registrant has agreed to indemnify the Underwriters
and the Underwriters have agreed to indemnify the Registrant and its directors,
officers and controlling persons against certain civil liabilities that may be
incurred in connection with the offering, including certain liabilities under
the Securities Act.
The Registrant has entered into Indemnification Agreements with each of
its directors and officers whereby it has agreed to indemnify each director and
officer from and against any and all judgments, fines, penalties, excise taxes
and amounts paid in settlement or incurred by such director or officer for or as
a result of action taken or not taken while such director was acting in his
capacity as a director or executive officer of the Registrant.
Item 15. Recent Sales of Unregistered Securities.
During the past three years, the following securities were sold by the
Registrant without registration under the Securities Act of 1933, as amended
(the "Securities Act"). All share data included herein has been restated to give
effect to a 5-for-2 stock split of the Common Stock effected in the form of a
stock dividend distributed in September 1996. All certificates representing the
securities described herein and currently outstanding have been appropriately
legended. The securities described below were issued pursuant to an exemption
from registration contained in Section 4(2) of the Securities Act as
transactions by an issuer not
II-3
<PAGE>
involving any public offering. Certain of such securities were also issued in
compliance with Regulation D under the Securities Act.
(a) Issuances of Capital Stock
In connection with the original capitalization of the
Registrant on January 26, 1996, the Registrant issued 12,500,000 shares of
Common Stock to certain members of management in consideration of the transfer
by them to the Registrant of all of the issued and outstanding shares of capital
stock of Pinnacle Administrative and Pinnacle Benefits.
In connection with the original capitalization of the
Registrant on January 26, 1996, and on April 29, 1996, the Registrant sold an
aggregate of 1,400,000 shares of its Series A Redeemable Convertible Preferred
Stock, and on December 31, 1996, the Registrant sold an aggregate of 1,000,000
shares of its Series A Preferred Stock to Welsh, Carson, Anderson & Stowe, VII,
L.P., WCAS Healthcare Partners, L.P., Sprout Growth II, L.P., Sprout Capital
VII, L.P. and certain others investors. The aggregate purchase price for all
such shares was $24,000,000.
On July 2, 1996, the Registrant sold 22,500, 22,500, 11,250
and 6,250 shares of Common Stock to John K. Carlyle, Daniel J. Thomas, Richard
D. Rehm and James M. Greenwood, respectively, in a private placement for an
aggregate purchase price of $250,000. On April 18, 1997, in a private placement
of stock, the Registrant sold 8,333, 8,333, 8,333, 4,166 and 2,500 shares of its
Common Stock to Craig R. Callen, Lawrence N. Lavine, W. Patrick McMullen III,
John W. Patterson and Richard A. Landgarten, respectively. The aggregate
purchase price was $189,990.
In order to induce NationsBank, N.A. to enter into a credit
facility, on December 31, 1997, the Registrant issued to NationsBank, N.A. a
warrant to purchase an aggregate of 55,000 shares of Common Stock at an exercise
price of $4.00 per share.
(b) Certain grants and exercises of stock options.
The 1996 Stock Option Plan was adopted by the Registrant's
Board of Directors on April 18, 1997. As of September 30, 1998, options to
purchase up to an aggregate of 638,000 shares of Common Stock had been granted
to employees of the Registrant, of which options to purchase up to an aggregate
of 587,405 shares of Common Stock were outstanding. The Registrant has issued an
aggregate of 5,970 shares of Common Stock upon the exercise of such options.
The Directors' Stock Option Plan was adopted by the
Registrant's Board of Directors on April 18, 1997. As of September 30, 1998,
options to purchase an aggregate of 105,000 shares of Common Stock had been
granted to directors of the Registrant, of which all options granted were
outstanding. No shares of Common Stock have been issued pursuant to such
options.
The 1996 Stock Option Plan for Agents (the "Agents Plan") was
adopted by the Registrant's Board of Directors on March 29, 1996. As of
September 30, 1998, options to purchase an aggregate of 875,000 shares of Common
Stock had been granted to 35 independent agencies, of which options to purchase
an aggregate of 341,862 shares of Common Stock were outstanding. No shares of
Common Stock have been issued pursuant to such options.
On January 1, 1997, the Registrant granted to Fred R. Lowe an
option to purchase 500,000 shares of Common Stock at an exercise price of $6.00
per share. No shares of Common Stock have been issued pursuant to this option.
II-4
<PAGE>
On May 20, 1998, the Registrant granted to Debra
Cerre-Ruedisili an option to purchase 125,000 shares of Common Stock at an
exercise price of $6.00 per share. No shares of Common Stock have been issued
pursuant to this option.
Item 16. Exhibits and Financial Statements.
(a) Exhibits:
Number Description of Exhibit
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-laws of the Registrant.
4.1 Terms of the Registrant's Series A Preferred Stock. (See Exhibit
3.1).
*4.2 Specimen Certificate for the Registrant's Common Stock.
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
10.1 Shareholder Agreement, dated June 29, 1993, by and among
Compensation Benefits, Inc., the Registrant, and Sam A. Stephens,
Dale E. Hanson and Alan N. Duggan (as amended by Amendment to
Shareholders Agreement dated December 19, 1995 and Amendment No. 2
to Shareholders Agreement dated July 8, 1996).
10.2 Stockholders Agreement, dated as of January 26, 1996, by and among
the Registrant, the Florida Administrators, Inc., Sam A. Stephens,
Dale E. Hanson, Alan N. Duggan and Fred R. Lowe (the "Executives")
and Welsh, Carson, Andersen and Stowe VII L.P., WCAS Healthcare
Partners, L.P., Sprout Growth II, L.P., Sprout Capital VII, L.P.,
DLJ Capital Corporation, Sprout CEO Fund, Profit Sharing Plan,
DLJSC - Custodian F/B/O David F. Bellet, Horizon Investment
Associates, I, Patrick S. Welsh, Russell L. Carson, Bruce K.
Anderson, Richard H. Stowe, Andrew M. Paul, Thomas E. McInerney,
James B. Hoover, Robert A. Minicucci, Anthony J. DeNicola, Paul B.
Queally, Craig R. Callen, Lawrence N. Lavine, Laura Van Buren, W.
Patrick McMullen, III, John W. Patterson, Richard A. Landgarten,
John K. Carlyle, Daniel J. Thomas, Richard D. Rehm and James M.
Greenwood (collectively, the "Purchasers") (as amended by
Amendment to Stockholders Agreement and Registration Rights
Agreement dated July 8, 1996) and Amendment No. 2 to Stockholders
Agreement dated December 31, 1996).
10.3 Registration Rights Agreement, dated as of January 26, 1996, by
and among the Registrant, Florida Administrators, Inc., the
Executives and the Purchasers (as amended by Amendment to
Stockholders Agreement and Registration Rights Agreement dated
July 8, 1996).
10.4 Warrantholders Rights Agreement, dated as of December 31, 1997, by
and between the Registrant and NationsBank, N.A.
10.5 Amended and Restated Credit Agreement, dated as of December 31,
1997, by and among the Registrant and NationsBank, N.A.
**10.6 Workers' Compensation Excess of Loss Reinsurance Agreement,
effective March 1, 1998, by and between Pinnacle Assurance
Corporation (a/k/a AmComp Preferred Insurance Company), Thomas
Jefferson Insurance Company (a/k/a AmComp Insurance Company),
and/or other current or future member companies of the AmComp
Insurance Group and certain quota-share reinsurers, and Reliance
Insurance Company (as amended as of March 1, 1998 and April 1,
1998).
**10.7 Workers' Compensation and Employers Liability Quota-Share
Reinsurance Agreement, effective October 1, 1997, between Pinnacle
Assurance Corporation, AmComp Preferred Insurance Company, Thomas
Jefferson Insurance Company, AmComp Assurance Company
II-5
<PAGE>
and other insurance companies owned, managed, or affiliated with
AmComp Insurance Group, and Everest Reinsurance Company and
Underwriters Reinsurance Company.
10.8 Workers' Compensation Excess of Loss Reinsurance Agreement,
effective January 1, 1997, by and between Pinnacle Assurance
Corporation and Continental Casualty Company (as amended as of
September 26, 1997, as of October 31, 1997, as of November 25,
1997 and as of January 1, 1998).
*10.9 1996 Stock Option Plan of the Registrant, as amended.
*10.10 Directors' Stock Option Plan of the Registrant, as amended.
*10.11 1996 Stock Option Plan for Agents of the Registrant, as amended.
*10.12 1998 Stock Option Plan for Agents of AmComp Assurance Corporation.
10.13 Option Letter Agreement, dated January 1, 1997, between the
Registrant and Fred R. Lowe.
10.14 Option Letter Agreement, dated May 20, 1998 by and between the
Registrant and Debra Cerre-Ruedisili.
*10.15 Employment Agreement, dated January 1, 1997 by and between the
Registrant and Fred R. Lowe.
*10.16 Form of Executive Employment Agreement by and between the
Registrant and various executive employees.
*10.17 Form of Indemnification Agreement by and between the Registrant
and its directors and officers.
10.18 Lease Agreement for North Palm Beach Facility dated January 1,
1997 by and between 701 U.S. 1, Inc. and Ginn, Schiralli, Gary
Partnership and Florida Administrators, Inc.
10.19 Office Lease Agreement for Maitland Facility dated March 17, 1997
by and between Lincoln -300 Lincoln Place, Ltd. and Pinnacle
Assurance Corporation.
21 Subsidiaries of Company.
23.1 Consent of Ernst & Young L.L.P.
*23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP (contained in
Exhibit 5).
24 Powers of Attorney (included on the signature page of this
Registration Statement).
27 Financial Data Schedule.
- ------------------------------------
* To be filed by amendment.
** Portions of these exhibits are omitted and were filed separately
with the Securities and Exchange Commission pursuant to the
Registrant's application requesting confidential treatment in
accordance with Rule 406 of Regulation C as promulgated under the
Securities Act of 1933.
(b) Financial Statement Schedules:
Report of Independent Certified Public Accountants on Schedules
Schedule 2 - Condensed Financial Information of AmComp Incorporated
Schedule 5 - Valuation and Qualifying Accounts of AmComp
Incorporated
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled
II-6
<PAGE>
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
North Palm Beach, State of Florida on the 11th day of November, 1998.
AMCOMP INCORPORATED
By: /s/ Sam A. Stephens
----------------------------------------
Sam A. Stephens, Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sam A. Stephens, Fred R. Lowe and Debra
Cerre-Ruedisili, his true and lawful attorney-in-fact, each acting alone, with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments to this registration statement, and any related
registration statement filed pursuant to Rule 462(b) of the Act and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting along, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Sam A. Stephens Chairman of the Board November 11, 1998
- -------------------------
Sam A. Stephens
/s/ Fred R. Lowe President, Chief Executive November 11, 1998
- ------------------------- Officer (Principal Executive
Fred R. Lowe Officer) and Director
/s/ Debra Cerre-Ruedisili Executive Vice President, November 11, 1998
- ------------------------- Chief Operating Officer
Debra Cerre-Ruedisili and Director
/s/ Donald L. Johnson Senior Vice President, November 11, 1998
- ------------------------- Chief Treasurer Financial
Donald L. Johnson Officer and (Principal
Financial and Accounting
Officer)
/s/ Dale E. Hanson Senior Vice President, November 11, 1998
- ------------------------- Secretary and Director
Dale E. Hanson
/s/ Richard Kroon Director November 11, 1998
- ------------------------
Richard Kroon
/s/ Andrew M. Paul Director November 11, 1998
- ------------------------
Andrew M. Paul
/s/ Paul B. Queally Director November 11, 1998
- ------------------------
Paul B. Queally
/s/ Daniel J. Thomas Director November 11, 1998
- ------------------------
Daniel J. Thomas
II-8
<PAGE>
Report of Independent Certified Public Accountants on Schedules
Board of Directors and Stockholders
AmComp Incorporated
We have audited the consolidated financial statements of AmComp Incorporated and
Subsidiaries as of December 31, 1996 and 1997, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
March 4, 1998 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
March 4, 1998
West Palm Beach, Florida
S-1
<PAGE>
SCHEDULE 2 - Condensed Financial Information of AmComp Incorporated
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1997
----------------------------------
(In Thousands)
Assets
<S> <C> <C>
Cash and invested assets:
Fixed maturity securities held-to-maturity at amortized cost
(fair value of $322 in 1997) $ - $ 344
Cash and cash equivalents 3,572 6,197
----------------------------------
Total cash and invested assets 3,572 6,541
Investment in subsidiaries at equity 41,225 53,858
Other assets 637 364
----------------------------------
Total assets $45,434 $60,763
==================================
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued expenses 386 $ 267
Negative goodwill 5,365 4,860
Note payable 10,000 20,000
Other liabilities 329 203
----------------------------------
Total liabilities 16,080 25,330
Mandatorily redeemable convertible preferred stock series A 21,745 22,100
Redeemable nonconvertible cumulative preferred stock series B - -
Stockholders' equity:
Common Stock (authorized shares 18,600 in 1996 and 22,300 in
1997 issued and outstanding 12,563 in 1996 and 12,597 in 1997) 125 126
Common stock warrants - 75
Additional paid-in-capital 250 450
Retained earnings (380) (570)
Undistributed retained earnings of subsidiaries 7,547 12,816
Net unrealized appreciation on available-for-sale securities (net
of tax of $40 and $253 in 1996 and 1997, respectively, held
by subsidiaries) 67 436
----------------------------------
Total stockholders' equity 7,609 13,333
----------------------------------
Total liabilities and stockholders' equity $45,434 $ 60,763
==================================
</TABLE>
See accompanying notes.
S-2
<PAGE>
SCHEDULE 2 - Condensed Financial Information of AmComp Incorporated
Statements of Income
Year Ended
------------------------------
1996 1997
------------------------------
(In Thousands)
Revenue:
Net investment income $ 74 $ 907
Equity in earnings of subsidiaries 5,638 5,268
Other income 652 569
------------------------
Total revenue 6,364 6,744
Expenses:
General and administrative expenses 995 1,525
------------------------
Total expenses 995 1,525
------------------------
Income before income taxes 5,369 5,219
Income tax expense (65) (215)
-------------------------
Net income $5,434 $ 5,434
========================
See accompanying notes.
S-3
<PAGE>
SCHEDULE 2 - Condensed Financial Information of AmComp Incorporated
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1997
-----------------------
Operating activities (In Thousands)
<S> <C> <C>
Net cash provided by (used in) operating activities $ 153 $ (232)
Investing activities
Investment in subsidiaries (28,400) (10,000)
Dividends received from non-insurance subsidiaries - 3,000
Purchase of fixed maturity securities - (344)
------------------------
Net cash used in investing activities (28,400) (7,344)
Financing activities
Issuance of common stock 250 201
Issuance of mandatorily redeemable preferred stock 21,569 -
Proceeds from issuance of note payable 10,000 10,000
-----------------------
Net cash provided by financing activities 31,819 10,201
-----------------------
Net increase in cash and cash equivalents 3,572 2,625
Cash and cash equivalents at the beginning of the year - 3,572
-----------------------
Cash and cash equivalents at the end of the year $3,572 $6,197
=======================
</TABLE>
See accompanying notes.
S-4
<PAGE>
SCHEDULE 2 - Condensed Financial Information of AmComp Incorporated
Notes to Condensed Financial Information
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes thereto of AmComp
Incorporated and subsidiaries. AmComp Incorporated was incorporated on December
28, 1995 and was initially capitalized on January 26, 1996. Since AmComp
Incorporated was not yet capitalized at December 31, 1995, no financial
information for AmComp Incorporated has been presented for the year ended
December 31, 1995.
NOTE A -- Significant Accounting Policies
In the parent company financial statements, the Company's investments in
wholly-owned subsidiaries are stated at cost plus equity in undistributed
earnings of the subsidiaries. AmComp Incorporated is actively engaged through
certain of its subsidiaries in the property and casualty insurance business.
S-5
<PAGE>
SCHEDULE 5 - Valuation and Qualifying Accounts
AmCOMP Incorporated
Years ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
(In Thousands) Balance at Charged to (1) Balance at
the Beginning Costs and Deductions the End of
Description of the Period Expenses - Describe the Period
- ------------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for uncollectible accounts $ 826 $ 2,280 $ 171 $ 2,935
Year ended December 31, 1996
Allowance for uncollectible accounts 2,935 4,647 448 7,134
Year ended December 31, 1997
Allowance for uncollectible accounts $ 7,134 $ 4,007 $ 3,329 $ 7,812
</TABLE>
(1) Write-off of premiums receivable balances against the allowance previously
established.
S-6
<PAGE>
INDEX TO EXHIBITS
(a) Exhibits:
Number Description of Exhibit
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-laws of the Registrant.
4.1 Terms of the Registrant's Series A Preferred Stock. (See Exhibit
3.1).
*4.2 Specimen Certificate for the Registrant's Common Stock.
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
10.1 Shareholder Agreement, dated June 29, 1993, by and among
Compensation Benefits, Inc., the Registrant, and Sam A. Stephens,
Dale E. Hanson and Alan N. Duggan (as amended by Amendment to
Shareholders Agreement dated December 19, 1995 and Amendment No. 2
to Shareholders Agreement dated July 8, 1996).
10.2 Stockholders Agreement, dated as of January 26, 1996, by and among
the Registrant, the Florida Administrators, Inc., Sam A. Stephens,
Dale E. Hanson, Alan N. Duggan and Fred R. Lowe (the "Executives")
and Welsh, Carson, Andersen and Stowe VII L.P., WCAS Healthcare
Partners, L.P., Sprout Growth II, L.P., Sprout Capital VII, L.P.,
DLJ Capital Corporation, Sprout CEO Fund, Profit Sharing Plan,
DLJSC - Custodian F/B/O David F. Bellet, Horizon Investment
Associates, I, Patrick S. Welsh, Russell L. Carson, Bruce K.
Anderson, Richard H. Stowe, Andrew M. Paul, Thomas E. McInerney,
James B. Hoover, Robert A. Minicucci, Anthony J. DeNicola, Paul B.
Queally, Craig R. Callen, Lawrence N. Lavine, Laura Van Buren, W.
Patrick McMullen, III, John W. Patterson, Richard A. Landgarten,
John K. Carlyle, Daniel J. Thomas, Richard D. Rehm and James M.
Greenwood (collectively, the "Purchasers") (as amended by
Amendment to Stockholders Agreement and Registration Rights
Agreement dated July 8, 1996) and Amendment No. 2 to Stockholders
Agreement dated December 31, 1996).
10.3 Registration Rights Agreement, dated as of January 26, 1996, by
and among the Registrant, Florida Administrators, Inc., the
Executives and the Purchasers (as amended by Amendment to
Stockholders Agreement and Registration Rights Agreement dated
July 8, 1996).
10.4 Warrantholders Rights Agreement, dated as of December 31, 1997, by
and between the Registrant and NationsBank, N.A.
10.5 Amended and Restated Credit Agreement, dated as of December 31,
1997, by and among the Registrant and NationsBank, N.A.
**10.6 Workers' Compensation Excess of Loss Reinsurance Agreement,
effective March 1, 1998, by and between Pinnacle Assurance
Corporation (a/k/a AmComp Preferred Insurance Company), Thomas
Jefferson Insurance Company (a/k/a AmComp Insurance Company),
and/or other current or future member companies of the AmComp
Insurance Group and certain quota-share reinsurers, and Reliance
Insurance Company (as amended as of March 1, 1998 and April 1,
1998).
**10.7 Workers' Compensation and Employers Liability Quota-Share
Reinsurance Agreement, effective October 1, 1997, between Pinnacle
Assurance Corporation, AmComp Preferred Insurance Company, Thomas
Jefferson Insurance Company, AmComp Assurance Company
<PAGE>
and other insurance companies owned, managed, or affiliated with
AmComp Insurance Group, and Everest Reinsurance Company and
Underwriters Reinsurance Company.
10.8 Workers' Compensation Excess of Loss Reinsurance Agreement,
effective January 1, 1997, by and between Pinnacle Assurance
Corporation and Continental Casualty Company (as amended as of
September 26, 1997, as of October 31, 1997, as of November 25,
1997 and as of January 1, 1998).
*10.9 1996 Stock Option Plan of the Registrant, as amended.
*10.10 Directors' Stock Option Plan of the Registrant, as amended.
*10.11 1996 Stock Option Plan for Agents of the Registrant, as amended.
*10.12 1998 Stock Option Plan for Agents of AmComp Assurance Corporation.
10.13 Option Letter Agreement, dated January 1, 1997, between the
Registrant and Fred R. Lowe.
10.14 Option Letter Agreement, dated May 20, 1998 by and between the
Registrant and Debra Cerre-Ruedisili.
*10.15 Employment Agreement, dated January 1, 1997 by and between the
Registrant and Fred R. Lowe.
*10.16 Form of Executive Employment Agreement by and between the
Registrant and various executive employees.
*10.17 Form of Indemnification Agreement by and between the Registrant
and its directors and officers.
10.18 Lease Agreement for North Palm Beach Facility dated January 1,
1997 by and between 701 U.S. 1, Inc. and Ginn, Schiralli, Gary
Partnership and Florida Administrators, Inc.
10.19 Office Lease Agreement for Maitland Facility dated March 17, 1997
by and between Lincoln -300 Lincoln Place, Ltd. and Pinnacle
Assurance Corporation.
21 Subsidiaries of Company.
23.1 Consent of Ernst & Young L.L.P.
*23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP (contained in
Exhibit 5).
24 Powers of Attorney (included on the signature page of this
Registration Statement).
27 Financial Data Schedule.
- ------------------------------------
* To be filed by amendment.
** Portions of these exhibits are omitted and were filed separately
with the Securities and Exchange Commission pursuant to the
Registrant's application requesting confidential treatment in
accordance with Rule 406 of Regulation C as promulgated under the
Securities Act of 1933.
(b) Financial Statement Schedules:
Report of Independent Certified Public Accountants on Schedules
Schedule 2 - Condensed Financial Information of AmComp Incorporated
Schedule 5 - Valuation and Qualifying Accounts of AmComp
Incorporated
CERTIFICATE OF INCORPORATION
OF
AMCOMP INCORPORATED
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions of and subject to the requirements of
the laws of the State of Delaware (particularly Chapter 1, Title 8 of the
Delaware Code and the acts amendatory thereof and supplemental thereto, and
known, identified and referred to as the "General Corporation Law of the State
of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter sometimes
called the "Corporation") is AmComp Incorporated.
SECOND: The address, including street, number, city and county
of the registered office of the Corporation in the State of Delaware is 1013
Center Road, Wilmington, Delaware 19805, County of New Castle; and the name of
the registered agent of the Corporation in the State of Delaware at such address
is CSC Networks/ Prentice Hall Legal & Financial Services.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is Two Hundred (200) all of which
are $.01 par value. All such shares are of one class and are Common Stock.
FIFTH: The name and the mailing address of the incorporator is
as follows:
Gary Weston
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the
<PAGE>
Corporation under the provisions of Section 291 of Title 8 of the Delaware Code
or on the application of trustees in dissolution under Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors, and/or
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation, as the case may be, the said compromise
or arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Corporation, as the case may be, and also on the Corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the
conduct of the affairs of the Corporation,
including the election of the Chairman of
the Board of Directors, if any, the
President, the Treasurer, the Secretary, and
other principal officers of the Corporation,
shall be vested in its Board of Directors.
The number of directors which shall
constitute the whole Board of Directors
shall be fixed by, or in the manner provided
in, the By- Laws. The phrase "whole Board"
and the phrase "total number of directors"
shall be deemed to have the same meaning, to
wit, the total number of directors which the
Corporation would have if there were no
vacancies. No election of directors need be
by written ballot.
2. The original By-Laws of the Corporation
shall be adopted by the incorporator unless
the Certificate of Incorporation shall name
the initial Board of Directors therein.
Thereafter, the power to make, alter, or
repeal the By-Laws, and to adopt any new By-
Law, except a By-Law classifying directors
for election for staggered terms, shall be
vested in the Board of Directors.
-2-
<PAGE>
3. Whenever the Corporation shall be authorized
to issue only one class of stock, each
outstanding share shall entitle the holder
thereof to notice of, and the right to vote
at, any meeting of stockholders. Whenever
the Corporation shall be authorized to issue
more than one class of stock, no outstanding
share of any class of stock which is denied
voting power under the provisions of the
Certificate of Incorporation shall entitle
the holder thereof to notice of, and the
right to vote at, any meeting of
stockholders, except as the provisions of
paragraph (b) (2) of Section 242 of the
General Corporation Law of the State of
Delaware, as the same may be amended and
supplemented, shall otherwise require.
NINTH: The personal liability of the directors of the
corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of subsection (b) of Section102 of the General Corporation Law of the State
of Delaware, as same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such offices, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this
Certificate of Incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the
-3-
<PAGE>
Corporation by this Certificate of Incorporation are granted subject to the
provisions of this Article ELEVENTH.
Dated: December 28, 1995
/s/ Gary Weston
-------------------------------------
Gary Weston, Incorporator
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
-4-
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AMCOMP INCORPORATED
-----------------------
AMCOMP INCORPORATED, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the following resolutions were duly adopted by the
Board of Directors of the Corporation, setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation. The resolutions are as follows:
"RESOLVED that there is hereby adopted an amendment to the
Certificate of Incorporation of the Corporation pursuant to which two
new series of preferred stock of the Corporation shall be authorized
and changing the authorized capital stock of the Corporation from 200
shares of Common Stock, $.01 par value per share, to 17,000,000 shares,
consisting of (i) 2,400,000 shares of Series A Convertible Preferred
Stock, $1 par value per share; (ii) 1,000,000 shares of 10% Series B
Non-Convertible Cumulative Preferred Stock, $1 par value per share; and
(iii) 13,600,000 shares of Common Stock, $.01 par value per share; and
"RESOLVED that, in connection with such change, Article FOURTH
of the Certificate of Incorporation of the Corporation shall be amended
and restated to read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 17,000,000 shares,
consisting of (i) 2,400,000 shares of Series A Convertible Preferred Stock, $1
par value per share (herein called the "Series A Preferred Stock"); (ii)
1,000,000 shares of 10% Series B Non-Convertible Cumulative Preferred Stock, $1
par value per share (herein called the "Series B Preferred Stock"); and (iii)
13,600,000 shares of Common Stock, $.01 par value per share (herein called the
"Common Stock"). All cross-references in each subdivision of this Article FOURTH
refer to other Sections in such subdivision unless otherwise indicated.
-5-
<PAGE>
The following is a statement of the designations, and the
powers, preferences and rights, and the qualifications, limitations or
restrictions thereof of each class of capital stock of the Corporation.
I.
SERIES A CONVERTIBLE PREFERRED STOCK
1. Dividends. The holders of Series A Preferred Stock shall
not be entitled to receive dividends in any fixed amount, provided, however,
that in the event that the Corporation shall at any time declare and pay a
dividend on the Common Stock (other than a dividend payable solely in shares of
Common Stock), it shall, at the same time, declare and pay to each holder of
Series A Preferred Stock a dividend equal to the dividend that would have been
payable to such holder if the shares of Series A Preferred Stock held by such
holder had been converted into Common Stock on the date of determination of
holders of Common Stock entitled to receive such dividend.
2. Liquidation, Dissolution or Winding Up. (a) In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment shall be made to the
holders of shares of any Junior Capital Stock (as herein defined) by reason of
their ownership thereof, an amount equal to $10 per share of Series A Preferred
Stock, plus all unpaid dividends to which such shares are entitled pursuant to
Section 1 above, and no more. If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation available
for distribution to its stockholders (after making all distributions to which
holders of capital stock ranking senior to the Series A Preferred Stock shall be
entitled) shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amount to which they shall be entitled pursuant to this
Section 2(a), the holders of shares of Series A Preferred Stock, and any other
shares ranking on a parity therewith, shall share ratably in any distribution of
the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares of
Series A Preferred Stock or other shares ranking on a parity therewith held by
them upon such distribution if all amounts payable on or with respect to such
shares were paid in full. For purposes of this Subdivision I, the term "Junior
Capital Stock" means any shares of capital stock of the Corporation, including
the Corporation's Common Stock, par value $.01 per share, other than shares of
the Corporation's capital stock permitted to rank on a parity with or senior to
the Series A Preferred Stock pursuant to Section 3 hereof. The Corporation's
Series B
-6-
<PAGE>
Preferred Stock shall rank senior to the Series A Preferred Stock.
(b) After the payment of all amounts required to be paid
pursuant to Section 2(a) to the holders of shares of Series A Preferred Stock,
and any other shares ranking on a parity therewith, upon the dissolution,
liquidation or winding up of the Corporation, the holders of shares of Junior
Capital Stock then outstanding shall share in any distribution of the remaining
assets and funds of the Corporation in the manner provided by law, in the
Certificate of Incorporation of the Corporation, as amended, or as provided in
any pertinent Certificate of Designation of the Corporation, as the case may be.
(c) Neither the merger or consolidation of the
Corporation into or with any other corporation, nor the sale of all or
substantially all the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 2 (unless in connection therewith the liquidation of the Corporation is
specifically approved).
3. Voting. (a) Except as otherwise provided by law or in
Section 3(b) below, the holders of Series A Preferred Stock shall vote together
with the holders of Common Stock on all matters to be voted on by the
stockholders of the Corporation, and each holder of Series A Preferred Stock
shall be entitled to one vote for each share of Common Stock that would be
issuable to such holder upon the conversion of all the shares of Series A
Preferred Stock held by such holder on the record date for the determination of
stockholders entitled to vote.
(b) So long as shares of the Series A Preferred Stock are
outstanding, without the consent of the holders of at least 66- 2/3% of the
Series A Preferred Stock at the time outstanding given in person or by proxy,
either in writing or at a special meeting called for that purpose at which the
holders of the Series A Preferred Stock shall vote separately as a class, the
Corporation may not (i) effect or permit (x) a consolidation or merger of the
Corporation or any subsidiary of the Corporation (each of the foregoing a
"Restricted Entity") with or into any other corporation (other than a merger in
which such Restricted Entity is the surviving corporation and which will not
result in more than 51% of the capital stock of such Restricted Entity
outstanding immediately after the effective date of such merger being owned
beneficially by persons other than the beneficial owners of such capital stock
immediately prior to such merger) (a "Change of Control"), or (y) a sale of all
or substantially all of the assets of any Restricted Entity as an entirety to
any other person (a "Sale of Assets"); (ii) effect or validate the amendment,
alteration or repeal of any provision hereof which would amend or repeal the
dividend, voting, conversion,
-7-
<PAGE>
redemption or liquidation rights of the Series A Preferred Stock set forth
herein; or (iii) create or authorize any additional class or series of stock
ranking senior to or on a parity with the Series A Preferred Stock as to
dividends or as to rights upon mandatory redemption, liquidation, dissolution or
winding up; increase the authorized number of shares of the Series A Preferred
Stock or of any other class or series of capital stock of the Corporation
ranking senior to or on a parity with the Series A Preferred Stock as to
dividends or as to rights upon mandatory redemption, liquidation, dissolution or
winding up, whether any such creation or authorization or increase shall be by
means of amendment hereof, the Certificate of Incorporation of the Corporation,
merger, consolidation or otherwise.
4. Mandatory Redemption. On January 31, 2003 (the "Series A
Redemption Date"), the Corporation shall redeem, at a redemption price of $10
per share, plus all dividends to which the holders of the Series A Preferred
Stock are then entitled pursuant to Section 1 above as of such date (the "Series
A Redemption Price"), all of the shares of Series A Preferred Stock then
outstanding.
5. Procedure for Redemption. (a) At least 20 days (and not
more than 60 days) prior to the Series A Redemption Date, written notice thereof
(a "Series A Redemption Notice") shall be mailed, by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock, at
his or its address last shown on the records of the transfer agent of the Series
A Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent), notifying such holder of the Series A Redemption Date, the
Series A Redemption Price, the total number of shares to be redeemed and the
number of shares to be redeemed from such holder, and calling upon such holder
to surrender to the Corporation, in the manner and at the place designated, his
or its certificate or certificates representing the shares to be redeemed. In
order to facilitate the redemption of the Series A Preferred Stock, the Board of
Directors may fix a record date for the determination of holders of the Series A
Preferred Stock, not more than 60 days nor less than 10 days prior to the Series
A Redemption Date.
(b) On or prior to the Series A Redemption Date, all
holders of shares of Series A Preferred Stock shall surrender their certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Series A Redemption Notice, and against such surrender the
Series A Redemption Price of such shares shall be paid to the order of the
person whose name appears on each such certificate as the owner thereof. Each
surrendered certificate shall be canceled. From and after the Series A
Redemption Date, unless there shall have been a default in payment of the Series
A Redemption Price, all rights of the holders of the shares of Series A
Preferred Stock
-8-
<PAGE>
as holders of such shares of Series A Preferred Stock (except the right to
receive the Series A Redemption Price without interest against surrender of
their certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever.
(c) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock on the Series A Redemption Date are
insufficient, after redemption of any other shares ranking senior thereto, to
redeem the full number of shares of Series A Preferred Stock on such date, those
funds which are legally available shall be used to redeem the maximum possible
number of such shares of Series A Preferred Stock ratably from each holder whose
shares are otherwise required to be redeemed. At any time thereafter when
additional funds of the Corporation become legally available for the redemption
of Series A Preferred Stock, such funds will be used, at the end of the next
succeeding fiscal quarter, to redeem the balance of the shares which the
Corporation was theretofore obligated to redeem, ratably on the basis set forth
in the preceding sentence.
6. Conversion. The shares of Series A Preferred Stock shall be
convertible as follows:
(a) Right to Convert. Subject to the terms and conditions
of this Section 6, the holder of any share or shares of Series A Preferred Stock
shall have the right, at its option at any time, to convert any such shares of
Series A Preferred Stock (except that upon any liquidation of the Corporation
the right of conversion shall terminate as to all shares at the close of
business 15 days after notice thereof has been given to the holders of Series A
Preferred Stock as provided in Section 6(h) hereof) into such number of fully
paid and nonassessable whole shares of Common Stock as is obtained by
multiplying the number of shares of Series A Preferred Stock so to be converted
by $10 and dividing the result by the conversion price of $10 per share or, if
there has been an adjustment of the conversion price, by the conversion price as
last adjusted and in effect at the date any share or shares of Series A
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to herein as the "Conversion Price"). Such rights
of conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of Series A
Preferred Stock into Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holder or holders of the
Series A Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address), subject to
-9-
<PAGE>
compliance with applicable laws to the extent such designation shall involve a
transfer, in which the certificate or certificates for shares of Common Stock
shall be issued.
(b) Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt by the Corporation of the written notice referred to
in Section 6(a) above and surrender of the certificate or certificates for the
share or shares of the Series A Preferred Stock to be converted, the Corporation
shall issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, subject to
compliance with applicable laws to the extent such designation shall involve a
transfer, a certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such share or shares of Series A Preferred
Stock. To the extent permitted by law, such conversion shall be deemed to have
been effected and the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Series A Preferred Stock shall cease, and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
(c) Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of the Series A Preferred
Stock into Common Stock and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share, and no payment or adjustment shall
be made upon any conversion on account of any cash dividends on the Series A
Preferred Stock so converted or the Common Stock issued upon such conversion. In
case the number of shares of Series A Preferred Stock represented by the
certificate or certificates surrendered pursuant to subsection (a) exceeds the
number of shares converted, the Corporation shall, upon such conversion, execute
and deliver to the holder thereof, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Series A Preferred
Stock, represented by the certificate or certificates surrendered which are not
to be converted.
(d) Adjustment of Price Upon Issuance of Common Shares.
Except as provided in Section 6(e) hereof, if and whenever (after the date of
effectiveness of this Amendment and whether or not any shares of Series A
Preferred Stock shall at the time have been issued and be outstanding) the
Corporation shall issue or sell, or is, in accordance with subsections (d)(i)
through (d)(vii), deemed to have issued or sold, any shares of
-10-
<PAGE>
its Common Stock without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then, forthwith upon such issue or sale, the Conversion Price shall be
adjusted to the price (calculated to the nearest cent) determined by dividing
(x) an amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale (including as outstanding
all shares of Common Stock issuable upon conversion of outstanding Series A
Preferred Stock) multiplied by the then existing Conversion Price, and (B) the
consideration, if any, received by the Corporation upon such issue or sale, by
(y) the total number of shares of Common Stock outstanding immediately after
such issue or sale (including as outstanding all shares of Common Stock issuable
upon conversion of outstanding Series A Preferred Stock without giving effect to
any adjustment in the number of shares so issuable by reason of such issue and
sale).
No adjustment of the Conversion Price, however, shall be made
in an amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.01 per share or more.
For purposes of this Section 6(d), the following subparagraphs
(i) through (vii) shall also be applicable:
(i) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock
(other than shares of Series A Preferred Stock) or securities
convertible into or exchangeable for Common Stock (such rights or
options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (A) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(B) the total maximum number of
-11-
<PAGE>
shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date of granting
of such Options and thereafter shall be deemed to be outstanding.
Except as otherwise provided in subparagraph (iii), no adjustment of
the Conversion Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (A) the total amount received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall be
less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided
that (x) except as otherwise provided in subparagraph (iii) below, no
adjustment of the Conversion Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible
Securities, and (y) if any such issue or sale of such Convertible
Securities is made upon exercise of any Option to purchase any such
Convertible Securities for which adjustments of the Conversion Price
have been or are to be made pursuant to other provisions of this
Section 6(d), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
-12-
<PAGE>
(iii) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph (i), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph (i)
or (ii), or the rate at which any Convertible Securities referred to in
subparagraph (i) or (ii) are convertible into or exchangeable for
Common Stock shall change at any time (in each case other than under or
by reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall forthwith be
readjusted to the Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold; and on the expiration of any such Option or the
termination of any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall
forthwith be increased to the Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such Option referred to in
subparagraph (i) or the rate at which any Convertible Securities
referred to in subparagraph (i) or (ii) are convertible into or
exchangeable for Common Stock shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then, in case of the delivery of Common Stock upon the
exercise of any such Option or upon conversion or exchange of any such
Convertible Securities, the Conversion Price then in effect hereunder
shall forthwith be adjusted to such respective amount as would have
been obtained had such Option or Convertible Securities never been
issued as to such Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid, but only
if as a result of such adjustment the Conversion Price then in effect
hereunder is thereby reduced.
(iv) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
-13-
<PAGE>
(v) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock
of the Corporation shall be combined into a smaller number of shares,
the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
(vi) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
The amount of consideration deemed to be received by the Corporation
pursuant to the foregoing provisions of this subparagraph (vi) upon any
issuance and/or sale of shares of Common Stock, Options or Convertible
Securities, pursuant to an established compensation plan of the
Corporation, to directors, officers or employees of the Corporation in
connection with their employment shall be increased by the amount of
any tax benefit realized by the Corporation as a result of such
issuance and/or sale, the amount of such tax benefit being the amount
by which the Federal and/or state income or other tax liability of the
Corporation shall be reduced by reason of any deduction or credit in
respect of such issuance and/or sale. In case any Options shall be
issued in connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
(vii) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (B) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of
-14-
<PAGE>
the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(e) Certain Issues of Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not make any adjustment of the
Conversion Price in the case of (i) the issuance of shares of Common Stock upon
conversion of Series A Preferred Stock, (ii) the issuance of Shares of Series A
Preferred Stock pursuant to that certain Securities Purchase and Asset Transfer
Agreement among the Corporation, Florida Administrators, Inc., Sam A. Stephens,
Dale E. Hanson, Alan N. Duggan, Welsh, Carson, Anderson & Stowe VII, L.P.,
Sprout Growth II, L.P., Sprout Capital VII, L.P., and the other several
Purchasers named therein, and (iii) the issuance of up to 500,000 shares of
Common Stock to employees of the Corporation or its subsidiaries or to insurance
agents thereof, either directly or pursuant to stock options, in either case
pursuant to plans or arrangements approved by the Board of Directors of the
Corporation.
(f) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provision (in form satisfactory to the holders of at least 66-2/3%
of the outstanding shares of Series A Preferred Stock) shall be made whereby
each holder of a share or shares of Series A Preferred Stock shall thereafter
have the right to receive, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable upon the conversion of such share or shares
of the Series A Preferred Stock, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore so receivable had such reorganization or
reclassification not taken place, and in any such case appropriate provision
shall be made with respect to the rights and interests of such holder to the end
that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights (including an immediate
adjustment, by reason of such reorganization or reclassification, of the
Conversion Price to the value for the Common Stock reflected by the terms of
-15-
<PAGE>
such reorganization or reclassification if the value so reflected is less than
the Conversion Price in effect immediately prior to such reorganization or
reclassification). In the event of a merger or consolidation of the Corporation
as a result of which a greater or lesser number of shares of common stock of the
surviving corporation are issuable to holders of Common Stock of the Corporation
outstanding immediately prior to such merger or consolidation, the Conversion
Price in effect immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock of the Corporation. The Corporation will
not effect any such consolidation or merger, or any sale of all or substantially
all its assets and properties, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument (in form reasonably satisfactory to the holders of at
least 66-2/3% of the shares of Series A Preferred Stock at the time outstanding)
executed and mailed or delivered to each holder of shares of Series A Preferred
Stock at the last address of such holder appearing on the books of the
Corporation, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
(g) Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to each holder
of shares of Series A Preferred Stock at the address of such holder as shown on
the books of the Corporation, which notice shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(h) Other Notices. In case at any time:
(i) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with, or a sale of all or
substantially all its assets to, another corporation; or
-16-
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any shares of Series A
Preferred Stock at the address of such holder as shown on the books of the
Corporation, (A) at least 15 days' prior written notice of the date on which the
books of the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (B) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 15 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (A) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (B)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
(i) Mandatory Conversion. All outstanding shares of Series A Preferred
Stock shall be automatically converted into Common Stock if at any time the
Corporation shall effect a firm commitment public offering of Common Stock of
the Company registered pursuant to the Securities Act of 1933, as amended,
resulting in proceeds to the Corporation of not less than $30,000,000, after
deduction of underwriting discounts and commissions but before deduction of
other expenses of issuance (an "Initial Public Offering"); such conversion shall
be effected at the time of and subject to the closing of the sale of such
shares.
(j) Stock to be Reserved. The Corporation will at all times reserve and
keep available out of its authorized but unissued Common Stock, solely for the
purpose of issuance upon the conversion of the Series A Preferred Stock as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding shares of Series A Preferred Stock. All
shares of Common Stock which shall be so issued shall be duly and validly issued
and fully paid and nonassessable and free from all taxes, liens and charges
arising out of or by reason of the issue thereof, and, without limiting the
generality of the foregoing, the Corporation covenants that it will from time to
time take all such action as may be requisite to assure that the par value per
share of the Common
-17-
<PAGE>
Stock is at all times equal to or less than the effective Conversion Price. The
Corporation will take all such action within its control as may be necessary on
its part to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which the Common Stock of the Corporation may
be listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if after such action the total number of
shares of Common Stock issued and outstanding and thereafter issuable upon
exercise of all options and conversion of Convertible Securities, including upon
conversion of the Series A Preferred Stock, would exceed the total number of
shares of Common Stock then authorized by the Corporation's Articles of
Incorporation.
(k) No Reissuance of Series A Preferred Stock. Shares of Series A
Preferred Stock that are converted into shares of Common Stock as provided
herein shall not be reissued.
(l) Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of the Series A Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series A Preferred Stock which is
being converted.
(m) Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series A Preferred Stock in any manner which interferes with the timely
conversion of such Series A Preferred Stock.
(n) Definition of Common Stock. As used in this Section 6, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
$.01 par value per share, as constituted on the date of filing of this
Certificate of Amendment and shall also include any capital stock of any class
of the Corporation thereafter authorized that shall not be limited to a fixed
sum or percentage of par value in respect of the rights of the holders thereof
to participate in dividends or in the distribution of assets upon the voluntary
or involuntary liquidation, dissolution or winding up of the Corporation;
provided, however, that such term, when used to describe the securities
receivable upon conversion of shares of the Series A Preferred Stock of the
Corporation, shall include only shares designated as Common Stock of the
Corporation on the date of filing of this Certificate of Amendment, any shares
resulting from any combination or subdivision thereof referred to in
subparagraph (v) of Section 6(d), or in case of any reorganization or
reclassification of the
-18-
<PAGE>
outstanding shares thereof, the stock, securities or assets provided for in
Section 6(f).
7. Reacquired Shares. Any shares of Series A Preferred Stock,
which are redeemed or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof
and the number of authorized shares of Series A Preferred Stock shall be reduced
accordingly.
II.
10% SERIES B NON-CONVERTIBLE CUMULATIVE PREFERRED STOCK
1. Dividends. (a) The holders of shares of Series B Preferred
Stock shall be entitled to receive dividends accruing at the rate of $1.00 per
share per annum, and no more, payable when and as declared by the Board of
Directors of the Corporation and out of funds legally available for the payment
thereof. Such dividends shall be cumulative and shall accrue from and after the
date of issue whether or not declared and whether or not there are any funds of
the Corporation legally available for the payment of dividends. Accrued but
unpaid dividends shall not bear interest. The Board of Directors of the
Corporation may fix a record date for the determination of holders of Series B
Preferred Stock entitled to receive payment of a dividend declared thereon,
which record date shall be no more than 60 days prior to the date fixed for the
payment thereof.
(b) As long as any shares of Series B Preferred Stock shall
remain outstanding, in no event shall any dividend be declared or paid upon, nor
shall any distribution be made upon, any Junior Capital Stock, other than a
dividend or distribution payable solely in shares of common stock of the
Corporation, nor shall any shares of Junior Capital Stock be purchased or
redeemed by the Corporation, nor shall any moneys be paid to or made available
for a sinking fund for the purchase or redemption of shares of any Junior
Capital Stock, unless, in each such case, (i) full cumulative dividends on the
outstanding shares of Series B Preferred Stock shall have been declared and paid
and (ii) any arrears or defaults in any mandatory redemption of shares of Series
B Preferred Stock shall have been cured; provided, however, that this Section
1(b) shall not apply to any repurchase by the Corporation of shares of its
common stock pursuant to the terms of any employment agreement, stock rights
agreement, stock purchase plan, stock option plan or similar arrangement between
the Corporation and its employees. For purposes of this Subdivision II, the term
"Junior Capital Stock" means any shares of capital stock of the Corporation,
including the Corporation's Common Stock, par value $.01 per share, and the
Series A Preferred Stock, other than shares of the Corporation's capital
-19-
<PAGE>
stock permitted to rank on a parity with or senior to the Series B Preferred
Stock pursuant to Section 3.
2. Liquidation, Dissolution or Winding Up. (a) In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series B Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment shall be made to the
holders of shares of any Junior Capital Stock by reason of their ownership
thereof, an amount equal to $10 per share of Series B Preferred Stock, plus all
accrued but unpaid dividends thereon (whether or not declared), and no more. If
upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders (after making all distributions to which holders of capital stock
permitted to rank senior to the Series B Preferred Stock pursuant to Section 3
hereof shall be entitled) shall be insufficient to pay the holders of shares of
Series B Preferred Stock the full amount to which they shall be entitled
pursuant to this Section 2(a), the holders of shares of Series B Preferred
Stock, and any other shares ranking on a parity therewith, shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares of Series B Preferred Stock held by them upon such distribution if
all amounts payable on or with respect to such shares were paid in full.
(b) After the payment of all amounts required to be paid
pursuant to Section 2(a) to the holders of shares of Series B Preferred Stock,
and any other shares ranking on a parity therewith, upon the dissolution,
liquidation or winding up of the Corporation, the holders of shares of Junior
Capital Stock then outstanding shall share in any distribution of the remaining
assets and funds of the Corporation in the manner provided by law, in the
Certificate of Incorporation of the Corporation, as amended, or as provided in
any pertinent Certificate of Designation of the Corporation, as the case may be.
(c) Neither the merger or consolidation of the Corporation
into or with any other corporation, nor the sale of all or substantially all the
assets of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Section 2 (unless in
connection therewith the liquidation of the Corporation is specifically
approved).
3. Voting. So long as shares of the Series B Preferred Stock
are outstanding, without the consent of the holders of at least 66-2/3% of the
Series B Preferred Stock at
-20-
<PAGE>
the time outstanding given in person or by proxy, either in writing or at a
special meeting called for that purpose at which the holders of the Series B
Preferred Stock shall vote separately as a class, the Corporation may not (i)
effect or permit a Change of Control or a Sale of Assets of any Restricted
Entity; (ii) effect or validate the amendment, alteration or repeal of any
provision hereof which would amend or repeal the dividend, voting, redemption or
liquidation rights of the Series B Preferred Stock set forth herein; or (iii)
create or authorize any additional class or series of stock ranking senior to or
on a parity with the Series B Preferred Stock as to dividends or as to rights
upon mandatory redemption, liquidation, dissolution or winding up; increase the
authorized number of shares of the Series B Preferred Stock or of any other
class or series of capital stock of the Corporation ranking senior to or on a
parity with the Series B Preferred Stock as to dividends or as to rights upon
mandatory redemption, liquidation, dissolution or winding up, whether any such
creation or authorization or increase shall be by means of amendment hereof, the
Certificate of Incorporation of the Corporation, merger, consolidation or
otherwise.
4. Mandatory Redemption. (a) On January 31, 2003, the
Corporation shall redeem, at a redemption price of $10 per share plus all
accrued but unpaid dividends thereon (whether or not declared) as of such date
(the "Series B Redemption Price"), all of the shares of Series B Preferred Stock
then outstanding.
(b) Upon the consummation of any Initial Public Offering, the
Corporation shall redeem, at the Series B Redemption Price, all shares of Series
B Preferred Stock then outstanding (the date of any redemption of Series B
Preferred Stock pursuant to this Section 4 is referred to herein as the "Series
B Redemption Date").
5. Procedure for Redemption. (a) At least 20 days (and not
more than 60 days) prior to the Series B Redemption Date, written notice thereof
(a "Series B Redemption Notice") shall be mailed, by first class or registered
mail, postage prepaid, to each holder of record of Series B Preferred Stock, at
his or its address last shown on the records of the transfer agent of the Series
B Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent), notifying such holder of the Series B Redemption Date, the
Series B Redemption Price, the total number of shares to be redeemed and the
number of shares to be redeemed from such holder, and calling upon such holder
to surrender to the Corporation, in the manner and at the place designated, his
or its certificate or certificates representing the shares to be redeemed. In
order to facilitate the redemption of the Series B Preferred Stock, the Board of
Directors may fix a record date for the determination of holders of the Series B
Preferred Stock, not more than 60 days nor less than 10 days prior to the Series
B Redemption Date.
-21-
<PAGE>
(b) On or prior to the Series B Redemption Date, all holders
of shares of Series B Preferred Stock shall surrender their certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Series B Redemption Notice, and against such surrender the
Series B Redemption Price of such shares shall be paid to the order of the
person whose name appears on each such certificate as the owner thereof. Each
surrendered certificate shall be canceled. From and after the Series B
Redemption Date, unless there shall have been a default in payment of the Series
B Redemption Price, all rights of the holders of the shares of Series B
Preferred Stock as holders of such shares of Series B Preferred Stock (except
the right to receive the Series B Redemption Price without interest against
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(c) If the funds of the Corporation legally available for
redemption of Series B Preferred Stock on the Series B Redemption Date are
insufficient to redeem the full number of shares of Series B Preferred Stock on
such date, those funds which are legally available shall be used to redeem the
maximum possible number of such shares of Series B Preferred Stock ratably from
each holder whose shares are otherwise required to be redeemed. At any time
thereafter when additional funds of the Corporation become legally available for
the redemption of Series B Preferred Stock, such funds will be used, at the end
of the next succeeding fiscal quarter, to redeem the balance of the shares which
the Corporation was theretofore obligated to redeem, ratably on the basis set
forth in the preceding sentence.
6. Reacquired Shares. Any shares of Series B Preferred Stock,
which are redeemed or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof
and the number of authorized shares of Series B Preferred Stock shall be reduced
accordingly.
-22-
<PAGE>
III.
COMMON STOCK
1. Voting. Except as otherwise provided by law and this
Certificate of Incorporation, the holders of Common Stock and Series A Preferred
Stock shall vote together as a class on all matters to be voted on by the
stockholders of the Corporation on the following basis: (1) each holder of
Series A Preferred Stock shall be entitled to one vote for each share of Common
Stock that would be issuable to such holder upon the conversion of all the
shares of Series A Preferred Stock so held by such holder on the record date for
the determination of stockholders entitled to vote and (2) each holder of Common
Stock shall be entitled to one vote per share.
2. Dividends. Holders of shares of Common Stock shall be
entitled to receive such dividends as from time to time may be declared by the
Board of Directors of the Corporation out of funds legally available for such
purpose.
3. Liquidation. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, after
payment shall have been made to holders of Series A Preferred Stock, Series B
Preferred Stock and any other shares senior to the Common Stock of the full
amounts of payments on liquidation to which they shall be entitled as stated and
expressed in this Article Fourth or as may be stated and expressed pursuant
hereto, the holders of Common Stock shall be entitled, to the exclusion of the
holders of Series A Preferred Stock and Series B Preferred Stock, to share
ratably according to the number of shares of the Common Stock held by them in
all remaining assets of the Corporation available for distribution to its
stockholders.
"RESOLVED, that, except as otherwise provided herein, the
Certificate of Incorporation of the Corporation will remain unchanged;
"RESOLVED, that the form, terms and provisions of the proposed
Certificate of Amendment to the Certificate of Incorporation of the
Corporation (the "Certificate of Amendment"), a copy of which has been
submitted to each director of the Corporation, pursuant to which the
authorized capital stock of the Corporation shall be changed from 200
shares of Common Stock, $.01 par value per share, to 17,000,000 shares,
consisting of (i) 2,400,000 shares of Series A Convertible Preferred
Stock, $1 par value per share; (ii) 1,000,000 shares of 10% Series B
Non-Convertible Cumulative Preferred Stock, $1 par value per share; and
-23-
<PAGE>
(iii) 13,600,000 shares of Common Stock, $.01 par value per share, be,
and they hereby are, in all respects, approved;
"RESOLVED, that the President, any Vice President and the
Secretary of the Corporation be, and each of them hereby is, authorized
and directed to prepare, execute, acknowledge and file, in accordance
with Section 241 of the General Corporation Law of the State of
Delaware, the Certificate of Amendment in substantially such form, with
such changes therein as the officers executing the same shall, by the
execution thereof, approve; and
"RESOLVED, that the proper officers of the Corporation be, and
each of them hereby is, authorized and directed to take all such
further actions and to execute and deliver, in the name and on behalf
of the Corporation and under its corporate seal or otherwise, any and
all such further documents and instruments, and to pay all such
expenses, as they or any of them may deem necessary or advisable to
carry out the purposes of any and all of the foregoing resolutions and
the transactions contemplated thereby; and that the taking of each such
action, the execution and delivery of each such document or instrument,
and the payment of each such expense shall be conclusive evidence of
its necessity or advisability."
SECOND: That the Amendment to the Certificate of Incorporation
of the Corporation effected by this Certificate was duly authorized by the Board
of Directors of the Corporation in accordance with the provisions of Section 241
of the General Corporation Law of the State of Delaware, the Corporation not
having received any payment for any of its stock.
THIRD: That the capital of the Corporation will not be reduced
under, or by reason of, the foregoing Amendment to the Certificate of
Incorporation of the Corporation.
-24-
<PAGE>
IN WITNESS WHEREOF, AMCOMP INCORPORATED has caused this
Certificate of Amendment to be signed by Sam A. Stephens, its President, who
hereby acknowledges under penalties of perjury that the facts herein stated are
true and that this Certificate of Amendment is his act and deed, and attested by
Laura Jett, its Secretary, this 10th day of January, 1996.
AMCOMP INCORPORATED
By /s/ Sam A. Stephens
--------------------------
Sam A. Stephens, President
Attest:
By /s/ Laura Jett
-----------------------
Laura Jett, Secretary
-25-
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AMCOMP INCORPORATED
-----------------------
AMCOMP INCORPORATED, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the following resolutions were duly adopted by the
Board of Directors of the Corporation, setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation. The resolutions are as follows:
"RESOLVED that there is hereby adopted an amendment to the
Certificate of Incorporation of this Corporation pursuant to which the
authorized capital stock of the Corporation shall be changed from
17,000,000 shares, consisting of (i) 2,400,000 shares of Series A
Convertible Preferred Stock, $1.00 par value per share; (ii) 1,000,000
shares of 10% Series B Non-Convertible Cumulative Preferred Stock,
$1.00 par value per share; and (iii) 13,600,000 shares of Common Stock,
$.01 par value per share, to 22,000,000 shares, consisting of (i)
2,400,000 shares of Series A Cumulative Preferred Stock, $1.00 par
value per share; (ii) 1,000,000 shares of 10% Series B Non-Convertible
Cumulative Preferred Stock, $1.00 par value per share; and (iii)
18,600,000 shares of Common Stock, $.01 par value per share; and it is
further
"RESOLVED that, in furtherance of such amendment, Paragraph 1
of Article FOURTH of the Certificate of Incorporation of the
Corporation be, and hereby is, amended to read as follows:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 22,000,000
shares, consisting of (i) 2,400,000 shares of Series A Convertible
Preferred Stock, $1.00 par value per share (herein called the "Series A
Preferred Stock"); (ii) 1,000,000 shares of 10% Series B Non-
Convertible Cumulative Preferred Stock, $1.00 par value per share
(herein called the "Series B Preferred Stock");
-26-
<PAGE>
and (iii) 18,600,000 shares of Common Stock, $.01 par value per share
(herein called the "Common Stock"). All cross-references in each
subdivision of this Article FOURTH refer to other Sections in such
subdivision unless otherwise indicated."
SECOND: That the Amendment to the Certificate of Incorporation
of the Corporation effected by this Certificate was duly authorized by the Board
of Directors of the Corporation in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware, and by written consent
of stockholders of the Corporation in accordance with the provisions of Section
228 of the General Corporation Law of the State of Delaware. Written notice of
such action has been given to stockholders of the Corporation not consenting to
such action as required by the provisions of Section 228(d) of the General
Corporation Law of the State of Delaware.
THIRD: That the capital of the Corporation will not be reduced
under, or by reason of, the foregoing Amendment to the Certificate of
Incorporation of the Corporation.
IN WITNESS WHEREOF, AMCOMP INCORPORATED has caused this
Certificate of Amendment to be signed by Sam A. Stephens, its President, who
hereby acknowledges under penalties of perjury that the facts herein stated are
true and that this Certificate of Amendment is his act and deed, and attested by
Laura Jett, its Secretary, this 24th day of October, 1996.
AMCOMP INCORPORATED
By /s/ Sam A. Stephens
--------------------------
Sam A. Stephens, President
Attest:
/s/ Laura Jett
- ----------------------------
Laura Jett, Secretary
-27-
<PAGE>
CERTIFICATE OF CORRECTION
TO THE
CERTIFICATE OF INCORPORATION
OF
AMCOMP INCORPORATED
---------------------
AMCOMP INCORPORATED, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
1. The name of the Corporation is AMCOMP
INCORPORATED.
2. The Certificate of Amendment to the Certificate of
Incorporation of the Corporation filed with the Secretary of State of Delaware
on January 23, 1996 contained an inaccurate record of the corporate action taken
therein, and the Certificate requires correction as permitted by subsection (f)
of Section 103 of the General Corporation Law of the State of Delaware.
3. The inaccuracy in the Certificate is as follows:
Certain of the conversion provisions contained in
the Certificate are incorrectly set forth.
4. (a) Article FOURTH, Sections I.6(d)(iv) and I.6(d)(v) of
the Certificate are corrected and restated to read in their entirety as follows:
(iv) Certain Stock Distributions. In case the
Corporation shall make any distribution upon any stock of the
Corporation payable in Common Stock (other than a dividend on Common
Stock, payable in Common Stock, to which the provisions of subparagraph
(v) shall apply), Options or Convertible Securities, any Common Stock,
Options or Convertible Securities, as the case may be, issuable in
payment of such distribution shall be deemed to have been issued or
sold without consideration.
-28-
<PAGE>
(v) Certain Stock Dividends Payable in Common Stock;
Subdivision or Combination of Stock. In case the Corporation shall at
any time declare a dividend on its Common Stock, payable in Common
Stock, or subdivide its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately
prior to such dividend or subdivision shall be proportionately reduced,
and conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall
be proportionately increased.
(b) Article FOURTH, section I.6(e) is corrected and restated
to read in its entirety as follows:
(e) Certain Issues of Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not make any
adjustment of the Conversion Price in the case of (i) the issuance of
shares of Common Stock upon conversion of Series A Preferred Stock,
(ii) the issuance of shares of Series A Preferred Stock pursuant to
that certain Securities Purchase and Asset Transfer Agreement among the
Corporation, Florida Administrators, Inc., Sam A. Stephens, Dale E.
Hanson, Alan N. Duggan, Welsh, Carson, Anderson & Stowe VII, L.P.,
Sprout Growth II, L.P., Sprout Capital VII, L.P., and the other several
Purchasers named therein, and (iii) the issuance of up to 500,000
shares of Common Stock, such number to be proportionately increased in
the case of a stock dividend on Common Stock payable in Common Stock or
a subdivision of shares of Common Stock, or proportionately reduced in
the case of a combination of shares of Common Stock, to employees of
the Corporation or its subsidiaries or to insurance agents thereof,
either directly or pursuant to stock options, in either case pursuant
to plans or arrangements approved by the Board of Directors of the
Corporation.
AMCOMP INCORPORATED has caused this Certificate of Correction
of Certificate of Amendment to the Certificate of Incorporation to be signed by
Fred R. Lowe, its Chief Executive Officer and President, this 21st day of March,
1997.
AMCOMP INCORPORATED
By:/s/ Fred R. Lowe
------------------------------
Name: Fred R. Lowe
Title: Chief Executive Officer
and President
-29-
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AMCOMP INCORPORATED
-----------------------
AMCOMP INCORPORATED, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the following resolutions were duly adopted by the
Board of Directors of the Corporation, setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation. The resolutions are as follows:
"RESOLVED, that it would be advisable and in the
best interests of the Corporation and its stockholders to
adopt, and the Board of Directors hereby adopts, an amendment
to the Certificate of Incorporation of this Corporation
pursuant to which (A) the authorized capital stock of the
Corporation would be changed from 22,000,000 shares,
consisting of (i) 2,400,000 shares of Series A Convertible
Preferred Stock, $1.00 par value per share (the "Series A
Convertible Preferred Stock"); (ii) 1,000,000 shares of 10%
Series B Non-Convertible Cumulative Preferred Stock, $1.00
par value per share; and (iii) 18,600,000 shares of Common
Stock, $.01 par value per share, to 25,700,000 shares,
consisting of (i) 2,400,000 shares of Series A Convertible
Preferred Stock, $1.00 par value per share; (ii) 1,000,000
shares of 10% Series B Non-Convertible Cumulative Preferred
Stock, $1.00 par value per share; and (iii) 22,300,000 shares
of Common Stock, $.01 par value per share and (B) the number
of shares of Common Stock issuable to employees and insurance
agents of the Corporation and its subsidiaries pursuant to
plans and arrangements that will not affect the conversion
price of the Series A Convertible Preferred Stock be changed
to such number of shares of Common Stock as are issuable from
time to time pursuant to plans or arrangements approved by
the Board of Directors by affirmative vote of not less than
75% of then incumbent directors; and it is further
"RESOLVED, that in order to effectuate such
amendment, Paragraph 1 of Article FOURTH of the
<PAGE>
Certificate of Incorporation of the Corporation be, and
hereby is, amended to read as follows:
FOURTH: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
25,700,000 shares, consisting of (i) 2,400,000 shares of
Series A Convertible Preferred Stock, $1.00 par value per
share (herein called the "Series A Preferred Stock"); (ii)
1,000,000 shares of 10% Series B Non- Convertible Cumulative
Preferred Stock, $1.00 par value per share (herein called the
"Series B Preferred Stock"); and (iii) 22,300,000 shares of
Common Stock, $.01 par value per share (herein called the
"Common Stock"). All cross-references in each subdivision of
this Article FOURTH refer to other Sections in such
subdivision unless otherwise indicated.;
and it is further
"RESOLVED, that in order to effectuate such
amendment, Section 6(e) of Article FOURTH of the Certificate
of Incorporation of the Corporation be, and hereby is,
amended to read in its entirety as follows:
(e) Certain Issues of Stock Excepted. Anything
herein to the contrary notwithstanding, the Corporation shall
not make any adjustment of the Conversion Price in the case
of (i) the issuance of shares of Common Stock upon conversion
of Series A Preferred Stock, (ii) the issuance of Shares of
Series A Preferred Stock pursuant to that certain Securities
Purchase and Asset Transfer Agreement among the Corporation,
Florida Administrators, Inc., Sam A. Stephens, Dale E.
Hanson, Alan N. Duggan, Welsh, Carson, Anderson & Stowe VII,
L.P., Sprout Growth II, L.P., Sprout Capital VII, L.P., and
the other several Purchasers named therein, and (iii) the
issuance of shares of Common Stock to employees of the
Corporation or its subsidiaries or to insurance agents
thereof, either directly or pursuant to stock options, in
either case pursuant to plans or arrangements approved by the
Board of Directors of the Corporation by affirmative vote of
not less than 75% of then incumbent directors."
SECOND: That the Amendment to the Certificate of Incorporation
of the Corporation effected by this Certificate was duly authorized by the Board
of Directors of the Corporation in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware, and by the vote of the
holders of a majority of all outstanding shares entitled to vote thereon at a
meeting of the stockholders of the Corporation in accordance with the provisions
of Section 211 of the General Corporation Law of the State of Delaware.
-2-
<PAGE>
THIRD: That the capital of the Corporation will not be reduced
under, or by reason of, the foregoing Amendment to the Certificate of
Incorporation of the Corporation.
IN WITNESS WHEREOF, AMCOMP INCORPORATED has caused this
Certificate of Amendment to be signed by Fred R. Lowe, its President, who hereby
acknowledges under penalties of perjury that the facts herein stated are true
and that this Certificate of Amendment is his act and deed, and attested by
Laura Jett, its Secretary, this day of June, 1997.
AMCOMP INCORPORATED
By /s/ Fred R. Lowe
-----------------------
Fred R. Lowe, President
Attest:
/s/ Laura Jett
- ---------------------
Laura Jett, Secretary
-3-
[As adopted on December 28, 1995]
AMCOMP INCORPORATED
BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.1. Annual Meetings. An annual meeting of
stockholders to elect directors and transact such other business as may properly
be presented to the meeting shall be held at such place as the Board of
Directors may from time to time fix, if that day shall be a legal holiday in the
jurisdiction in which the meeting is to be held, then on the next day not a
legal holiday or as soon thereafter as may be practical, determined by the Board
of Directors.
SECTION 1.2. Special Meetings. A special meeting of
stockholders may be called at any time by the Board of Directors or the
President and shall be called by any of them or by the Secretary upon receipt of
a written request to do so specifying the matter or matters, appropriate for
action at such a meeting, proposed to be presented at the meeting and signed by
holders of record of a majority of the shares of stock that would be entitled to
be voted on such matter or matters if the meeting were held on the day such
request is received and the record date for such meeting were the close of
business on the preceding day. Any such meeting shall be held at such time and
at such place, within or without the State of Delaware, as shall be determined
by the body or person calling such meeting and as shall be stated in the notice
of such meeting.
SECTION 1.3. Notice of Meeting. For each meeting of
stockholders written notice shall be given stating the place, date and hour and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Except as otherwise provided by Delaware law, the written notice of
any meeting shall be given not less than 10 or more than 60 days before the date
of the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
SECTION 1.4. Quorum. Except as otherwise required by Delaware
law or the Certificate of Incorporation, the holders of record of a majority of
the shares of stock entitled to be voted
<PAGE>
present in person or represented by proxy at a meeting shall constitute a quorum
for the transaction of business at the meeting, but in the absence of a quorum
the holders of record present or represented by proxy at such meeting may vote
to adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is obtained. At any such adjourned session of the
meeting at which there shall be present or represented the holders of record of
the requisite number of shares, any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 1.5. Chairman and Secretary at Meeting. At each
meeting of stockholders the President, or in his absence the person designated
in writing by the President, or if no person is so designated, then a person
designated by the Board of Directors, shall preside as chairman of the meeting;
if no person is so designated, then the meeting shall choose a chairman by
plurality vote. The Secretary, or in his absence a person designated by the
chairman of the meeting, shall act as secretary of the meeting.
SECTION 1.6. Voting; Proxies. Except as otherwise provided by
Delaware law or the Certificate of Incorporation, and subject to the provisions
of Section 1.10:
(a) Each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock held by
him.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors,
properly presented to any meeting shall be decided by a majority of the votes
cast on the matter.
(e) Election of directors and the vote on any other
matter presented to a meeting shall be by written ballot only if so ordered by
the chairman of the meeting or if so requested by any stockholder present or
represented by proxy at the meeting entitled to vote in such election or on such
matter, as the case may be.
SECTION 1.7. Adjourned Meetings. A meeting of stockholders may
be adjourned to another time or place as provided in Section 1.4. Unless the
Board of Directors fixes a new record date, stockholders of record for an
adjourned meeting shall be as originally determined for the meeting from which
the adjournment
-2-
<PAGE>
was taken. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote. At the adjourned meeting any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 1.8. Consent of Stockholders in Lieu of Meeting. Any
action that may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of such
action shall be given promptly to each stockholder that would have been entitled
to vote thereon at a meeting of stockholders and that did not consent thereto in
writing.
SECTION 1.9. List of Stockholders Entitled to Vote. At least
10 days before every meeting of stockholders a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, shall be prepared and shall be open to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, at a place within
the city where the meeting is to be held. Such list shall be produced and kept
at the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 1.10. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 or less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action. If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the
-3-
<PAGE>
day on which the first written consent is expressed; and the record date for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE II
DIRECTORS
SECTION 2.1. Number; Term of Office; Qualifications;
Vacancies. The number of directors that shall constitute the whole Board of
Directors shall be one, which number may be changed from time to time as
determined by action of the Board of Directors taken by the affirmative vote of
a majority of the whole Board of Directors. Directors shall be elected at the
annual meeting of stockholders to hold office, subject to Sections 2.2 and 2.3,
until the next annual meeting of stockholders and until their respective
successors are elected and qualified. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by the sole remaining director, and the directors so chosen shall hold office,
subject to Sections 2.2 and 2.3, until the next annual meeting of stockholders
and until their respective successors are elected and qualified.
SECTION 2.2. Resignation. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time be
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective. When one or more
directors shall resign from the Board of Directors effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in these By-Laws in the filling
of other vacancies.
SECTION 2.3. Removal. Any one or more directors may be
removed, with or without cause, by the vote or written consent of the holders of
a majority of the shares entitled to vote at an election of directors.
SECTION 2.4. Regular and Annual Meetings; Notice. Regular
meetings of the Board of Directors shall be held at such time and at such place,
within or without the State of Delaware, as the Board of Directors may from time
to time prescribe. No notice need be given of any regular meeting, and a notice,
if given, need
-4-
<PAGE>
not specify the purposes thereof. A meeting of the Board of Directors may be
held without notice immediately after an annual meeting of stockholders at the
same place as that at which such meeting was held.
SECTION 2.5. Special Meetings; Notice. A special meeting of
the Board of Directors may be called at any time by the Board of Directors, its
Chairman, the President or any person acting in the place of the President and
shall be called by any one of them or by the Secretary upon receipt of a written
request to do so specifying the matter or matters, appropriate for action at
such a meeting, proposed to be presented at the meeting and signed by at least
two directors. Any such meeting shall be held at such time and at such place,
within or without the State of Delaware, as shall be determined by the body or
person calling such meeting. Notice of such meeting stating the time and place
thereof shall be given (a) by deposit of the notice in the United States mail,
first class, postage prepaid, at least five days before the day fixed for the
meeting addressed to each director at his address as it appears on the
Corporation's records or at such other address as the director may have
furnished the Corporation for that purpose, or (b) by delivery of the notice
similarly addressed for dispatch by telegraph, cable or radio or by delivery of
the notice by telephone or in person, in each case at least 24 hours before the
time fixed for the meeting.
SECTION 2.6. Chairman of the Board; Presiding Officer and
Secretary at Meetings. The Board of Directors may elect one of its members to
serve at its pleasure as Chairman of the Board. Each meeting of the Board of
Directors shall be presided over by the Chairman of the Board or in his absence
or in case there shall be no Chairman of the Board by the President, if a
director, or if neither is present by such member of the Board of Directors as
shall be chosen at the meeting. The Secretary, or in his absence an Assistant
Secretary, shall act as secretary of the meeting, or if no such officer is
present, a secretary of the meeting shall be designated by the person presiding
over the meeting.
SECTION 2.7. Quorum. A majority of the whole Board of
Directors shall constitute a quorum for the transaction of business, but in the
absence of a quorum a majority of those present (or if only one be present, then
that one) may adjourn the meeting, without notice other than announcement at the
meeting, until such time as a quorum is present. Except as otherwise required by
the Certificate of Incorporation or the By-Laws, the vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 2.8. Meeting by Telephone. Members of the Board of
Directors or of any committee thereof may participate in meetings of the Board
of Directors or of such committee by means of conference telephone or similar
communications equipment by means
-5-
<PAGE>
of which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 2.9. Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the Board of Directors
or of such committee.
SECTION 2.10. Executive and Other Committees. The Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate an Executive Committee and one or more other committees,
each such committee to consist of one or more directors as the Board of
Directors may from time to time determine. Any such committee, to the extent
provided in such resolution or resolutions, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it but no such
committee shall have such power of authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Each such
committee other than the Executive Committee shall have such name as may be
determined from time to time by the Board of Directors.
SECTION 2.11. Compensation. No director shall receive any
stated salary for his services as a director or as a member of a committee but
shall receive such sum, if any, as may from time to time be fixed by the action
of a majority of the stockholders.
-6-
<PAGE>
ARTICLE III
OFFICERS
SECTION 3.1. Election; Qualification. The officers of the
Corporation shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be selected by the Board of Directors. The Board
of Directors may elect a Controller, one or more Assistant Secretaries, one or
more Assistant Treasurers, one or more Assistant Controllers and such other
officers as it may from time to time determine. Two or more offices may be held
by the same person.
SECTION 3.2. Term of Office. Each officer shall hold office
from the time of his election and qualification to the time at which his
successor is elected and qualified, unless he shall die or resign or shall be
removed pursuant to Section 3.4 at any time sooner.
SECTION 3.3. Resignation. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time be
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers; and, unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.4. Removal. Any officer may be removed at any time,
with or without cause, by the vote of the Board of Directors.
SECTION 3.5. Vacancies. Any vacancy however caused in any
office of the Corporation may be filled by the Board of Directors.
SECTION 3.6. Compensation. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
SECTION 3.7. Chairman of Meetings. The Chairman of the Board
shall be the chairman of all meetings of the Board of Directors, or in the
absence or in case there shall be no Chairman of the Board, the President shall
be the Chairman of all meetings of the Board of Directors.
SECTION 3.8. President. The President shall be the chief
executive officer of the Corporation and shall have general charge of the
business and affairs of the Corporation, subject however to the right of the
Board of Directors to confer specified powers on officers and subject generally
to the direction of the Board of Directors and the Executive Committee, if any.
-7-
<PAGE>
SECTION 3.9. Vice President. Each Vice President shall have
such powers and duties as generally pertain to the office of Vice President and
as the Board of Directors or the President may from time to time prescribe.
During the absence of the president or his inability to act, the Vice President,
or if there shall be more than one Vice President, then that one designated by
the Board of Directors, shall exercise the powers and shall perform the duties
of the President, subject to the direction of the Board of Directors and the
Executive Committee, if any.
SECTION 3.10. Secretary. The Secretary shall keep the minutes
of all meetings of stockholders and of the Board of Directors. He shall be
custodian of the corporate seal and shall affix it or cause it to be affixed to
such instruments as require such seal and attest the same and shall exercise the
powers and shall perform the duties incident to the office of Secretary, subject
to the direction of the Board of Directors and the Executive Committee, if any.
SECTION 3.11. Other Officers. Each other officer of the
Corporation shall exercise the powers and shall perform the duties incident to
his office, subject to the direction of the Board of Directors and the Executive
Committee, if any.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1. Stock Certificates. The interest of each holder
of stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary. Any of or all the signatures appearing
on such certificate or certificates may be a facsimile. If any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
SECTION 4.2. Transfer of Stock. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable law and such
rules and regulations as the Board of Directors shall from time to time
prescribe.
SECTION 4.3. Holders of Record. Prior to due presentment for
registration of transfer the Corporation may treat the holder of record of a
share of its stock as the complete owner
-8-
<PAGE>
thereof exclusively entitled to vote, to receive notifications and otherwise
entitled to all the rights and powers of a complete owner thereof,
notwithstanding notice to the contrary.
SECTION 4.4. Lost, Stolen, Destroyed or Mutilated
Certificates. The Corporation shall issue a new certificate of stock to replace
a certificate theretofore issued by it alleged to have been lost, destroyed or
wrongfully taken, if the owner or his legal representative (i) requests
replacement, before the Corporation has notice that the stock certificate has
been acquired by a bona fide purchaser; (ii) files with the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such stock
certificate or the issuance of any such new stock certificate; and (iii)
satisfies such other terms and conditions as the Board of Directors may from
time to time prescribe.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Indemnity. (a) The Corporation shall indemnify,
subject to the requirements of subsection (d) of this Section, any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right
-9-
<PAGE>
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of the State of Delaware
or such other court shall deem proper.
(c) To the extent that a director, officer, employee
or agent of the Corporation, or a person serving in any other enterprise at the
request of the Corporation, has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsection (a) and (b)
of this Section, or in defense of any claim, issue or matter therein, the
Corporation shall indemnify him against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b)
of this Section (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this Section. Such determination shall be made (1) by
a majority vote of the directors who are not parties to such action, suit or
proceeding even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred by a director, officer,
employee or agent in defending a civil or criminal action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Section.
-10-
<PAGE>
(f) The indemnification and advancement of expenses
provided by or granted pursuant to, the other subsections of this Section shall
not limit the Corporation from providing any other indemnification or
advancement of expenses permitted by law nor shall it be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Section.
(h) The indemnification and advancement of expenses
provided by, or granted pursuant to this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(i) For the purposes of this Section, references to
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(j) This Section 5.1 shall be construed to give the
Corporation the broadest power permissible by the Delaware General Corporation
Law, as it now stands and as hereafter amended.
SECTION 5.2. Waiver of Notice. Whenever notice is
required by the Certificate of Incorporation, the By-Laws or any provision of
the General Corporation Law of the State of Delaware, a written waiver thereof,
signed by the person entitled to notice,
-11-
<PAGE>
whether before or after the time required for such notice, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 5.3. Fiscal Year. The fiscal year of the Corporation
shall start on such date as the Board of Directors shall from time to time
prescribe.
SECTION 5.4. Corporate Seal. The corporate seal shall be in
such form as the Board of Directors may from time to time prescribe, and the
same may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
ARTICLE VI
AMENDMENT OF BY-LAWS
SECTION 6.1. Amendment. The By-Laws may be altered, amended or
repealed by the stockholders or by the Board of Directors by a majority vote.
-12-
SHAREHOLDER AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of June, 1993, by
and among COMPENSATION BENEFITS, INC., a Florida corporation, (the
"Corporation") and SAM A. STEPHENS, DALE E. HANSON, and ALAN N. DUGGAN
("Shareholders").
WHEREAS, SAM A. STEPHENS, ("STEPHENS") prior to the execution of this
Agreement, has been the sole and 100% Shareholder of the issued and outstanding
stock of the corporation; and
WHEREAS, simultaneously with the execution of this Agreement, STEPHENS
will vote to cause the corporation to issue on or about January 1, 1994 from its
authorized but previously unissued stock certain shares of stock to the
Shareholders; upon such issuance, effective on or about January 1, 1994, the
Shareholders will own all of the issued and outstanding shares of the
Corporation's common stock in the following percentages:
(a) SAM A. STEPHENS 375 shares (75%)
(b) DALE E. HANSON 100 shares (20%)
(c) ALAN N. DUGGAN 25 shares (5%)
The value of the above shares to be transferred to the Shareholders as of
January 1, 1994 shall be the "book value" of such shares as of the end of the
fiscal year ending June 30, 1993 in accordance with the audited financial
statements of the Corporation.
WHEREAS, STEPHENS, the Corporation and Shareholders desire to assure
and provide continuity in the management of the Corporation; and
WHEREAS, to that end the Shareholders and the Corporation have decided
to make certain agreements, among other things, to arrange
<PAGE>
for the sale and purchase, in the manner and to the extent set forth, of all the
stock owned by a Shareholder in the Corporation upon his death, disability or
termination of employment and to provide prior opportunities to purchase the
interest of a Shareholder in the Corporation if said Shareholder desires to
sell, transfer, encumber or dispose of said interest during his lifetime;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, each of the Shareholders hereby binds himself and
his heirs, executors, administrators and assigns and the Corporation hereby
binds itself and its successors, and they agree as follows:
1. TERMINATION OF EMPLOYMENT OF SHAREHOLDER OR EARLY WITHDRAWAL.
(a) The value of the shares of stock of the Corporation
transferred to the Shareholders on or about January 1, 1994, as set forth in the
Recitals above, shall be the "book value" of the such shares as of the end of
the fiscal year ending June 30, 1993 in accordance with the audited financial
statements of the Corporation.
(b) In the event that any shareholder shall voluntarily elect
to terminate his employment with the corporation and to withdraw from the
corporation, or in the event that the corporation shall (i) by vote of the
majority of the Board of Directors and (ii) ratified by the owner(s) and
holder(s) of a majority of the total issued and outstanding shares of stock, to
terminate the relationship of a particular Stockholder as an employee, officer,
and shareholder of the Corporation and to repurchase the shares of stock owned
by such Shareholder, the Corporation shall have and is
-2-
<PAGE>
hereby granted an option to repurchase the shares of stock of any such
Shareholder as hereinafter set forth in this Section 1.
(1) Until this Agreement is terminated by the written
consent of all parties hereto, the Corporation shall continue to have an option
and right to re-purchase the stock of a withdrawing or terminated Shareholder in
accordance with the terms and provisions of this Section. If the Corporation
shall exercise its option to repurchase such Shareholder's stock at any time,
the purchase price of such stock shall be at the "book value" of such stock for
the previous fiscal year as reflected in the audited financial statements of the
Corporation. Further, at the option of the Corporation, such repurchase amount,
shall be payable, in quarterly installments, over a five (5) year period, plus
interest at Wall Street Journal prime rate.
(2) Once a shareholder's shares are repurchased under
the terms and provisions of this agreement such shareholder shall have no
further rights under this agreement or as a shareholder or employee of the
corporation or otherwise relating to the corporation.
(c) In the event of a repurchase by the Corporation of a
withdrawing or terminated Shareholder's stock in the Corporation as set forth in
subparagraphs (b) (1) and (2) of this Section 1, such stock shall be held as
treasury stock and, if re-issued by the Corporation shall be first offered to
the remaining Shareholders in the same relative percentages as such Shareholders
held while the shares were held as treasury stock, unless: (1) by vote of the
majority of the Board of Directors, and (2) ratified by the owner(s) and
holder(s) of a majority of the total issued and
-3-
<PAGE>
outstanding shares of stock, such shares are to be transferred to another
employee of the corporation who, by such vote, is deemed to be a valued employee
of the corporation.
2. DEATH OR DISABILITY OF A SHAREHOLDER.
The parties anticipate the possibility of purchasing life and/or
disability insurance for the purposes of funding a repurchase of a Shareholder's
stock upon death or disability. In such event, the parties hereto will enter
into an addendum to be attached to this agreement. If such insurance-funded
repurchase addendum has not been executed by the parties, then the provisions of
Section 1 of this agreement shall apply in the event of death; provided,
however, that the owner(s) of a majority of the issued and outstanding stock
(including the personal representative, trustee, or other legal representative
of a deceased shareholder at such time) may vote, by simple majority, to waive
such right of repurchase by and on behalf of the Corporation.
3. RESTRICTIONS ON SALE OF STOCK DURING LIFETIME.
(a) Except as set forth herein, no Shareholder shall sell,
transfer, encumber, or make any other disposition of his stock, whether such
disposition is voluntary or involuntary until such Shareholder shall give notice
to the Corporation of any such proposed sale, transfer, encumbrance, or
disposition. Regardless of the proposed sale price, the Corporation shall have
the absolute right of first refusal and option to repurchase such shares of
stock of such Shareholder in accordance with the same terms and provisions and
for the same price set forth in Section 1 of this Agreement.
-4-
<PAGE>
(b) However, notwithstanding the foregoing restrictions on the
sale of stock as set forth in subparagraph (a) above, in the event that any
Shareholder owning a majority of the issued and outstanding shares of stock of
the Corporation shall propose to sell or transfer his shares of stock and
ownership interest in the Corporation in a good faith "arms-length" transaction
with a prospective purchaser, he shall be free to do so and shall be
unrestricted by the terms and provisions of this Agreement (subject, however, to
subsection (b) below), so long as he shall offer to purchase (or to have
purchased by such prospective purchaser) the remaining Shareholders' shares of
stock at the same per share price and in accordance with the same terms as those
offered to such majority Shareholder in such transaction. The remaining
Shareholders shall not then be obligated to sell their shares to such third
party purchaser, and instead, may elect to retain their shares notwithstanding
the sale of stock by the majority Shareholder, in which event the remaining
Shareholders shall remain minority shareholders after such sale and the majority
Shareholder shall be authorized to proceed with such sale free of any
restrictions.
(c) In the event that a majority Shareholder shall receive a
proposal to purchase his shares of stock from a prospective purchaser in a
proposed "arms-length" transaction, as set forth in the preceding subparagraph
(b), he shall, before formally agreeing to such proposal, offer his shares of
stock to the remaining Shareholders under the same terms and provisions and same
price as that set forth in such proposal. The remaining Shareholders shall have
a period of thirty (30) days to exercise
-5-
<PAGE>
such option to purchase all such shares and, in addition, to actually close and
fund the transaction and to pay the purchase price in accordance with the same
terms and provisions of such proposal and within the same time period. If the
remaining Shareholders shall fail to agree in writing to repurchase and to
actually complete such repurchase of such shares within said thirty (30) day
period, the majority Shareholder shall be free, in all respects and without
further limitation, to dispose of his shares in accordance with the terms and
provisions of such third party offer; provided, however, as set forth in (b)
above, that the remaining Shareholders' shares of stock shall, at their option,
also be purchased for the same price and in accordance with the same terms as
such proposal.
(d) In the event that the entity which is currently known as
the Florida Air Conditioning Contractors Association-Self Insurers Fund
("FACCA-SIF") (or the Trustees or participants thereof) shall elect to form or
organize a worker's compensation insurance company as a successor entity to
FACCA-SIF, then, and in such event, the corporation, by vote of the holders of a
majority in interest of the issued and outstanding shares of stock of the
corporation, shall be authorized to agree to and the remaining Shareholders
shall hereby be deemed to have consented to the following:
(i) To exchange the service company contract or other assets
of the corporation for stock or for an ownership interest in the successor
insurance company, or for other considerations; or
-6-
<PAGE>
(ii) To merge or to exchange shares of stock in the
corporation for shares of stock in the successor insurance company; or
(iii) To enter into any other form of agreement whatsoever
with the successor insurance company or otherwise or to take any other corporate
action, the purpose of which is, in substance, to transfer or release, in
exchange for consideration, the corporation's right to act as the service
company for and on behalf of FACCA-SIF or the successor insurance company.
As set forth above, the vote by the corporation to accomplish
any of the foregoing purposes shall be by simple majority in interest of the
holders of the issued and outstanding shares of stock in the corporation,
provided, however, that in the event that the corporation shall, by such
majority vote, agree to any of the foregoing, the consideration received
therefor shall be divided among the shareholders in the same percentage as the
relative percentages of ownership of the issued and outstanding shares of stock
in the corporation (currently 75% Stephens, 20% Hanson, 5% Duggan, as of the
date of the execution of this agreement).
4. CLOSING.
Unless otherwise provided herein, closing of any transaction
under this agreement (except as otherwise set forth above in Section 3 above)
shall take place within thirty (30) days of the death or termination of
employment of a Shareholder, or as soon as practicable after the mailing of the
notice required by Section 3 of this agreement, as the case may be (but not
later than 30 days after a Remaining Shareholder(s) shall elect to purchase such
shares), or upon such other date as the parties shall agree.
-7-
<PAGE>
The closing shall take place at the office of the Corporation or at such other
place as the parties shall agree.
5. EFFECT OF NONCOMPLIANCE.
In the event any purported or attempted transfer of stock does
not comply with the provisions of this Agreement, the purported transferee shall
not be deemed to be a Shareholder of the Corporation and shall not be entitled
to registration of such transfer on the books of the Corporation.
6. RESTRICTIVE LEGEND.
To effectuate this agreement, all the certificates for shares
of the stock of the Corporation shall bear the following legend thereon:
"The shares represented by this certificate are subject to an
agreement dated ____ among ______ and its Shareholders, and
they may not transfer or encumber such shares except in
accordance with the terms of the agreement. The Corporation
will furnish to any of its Shareholders a copy of the
agreement upon request and without charge."
7. SPECIFIC PERFORMANCE.
In addition to any other remedies available in law or equity,
the parties hereto shall have the right to enforce this Agreement through
specific performance of its provisions.
8. OFFSET OF PURCHASE PRICE BY INDEBTEDNESS.
If at any time a Shareholder's interest is being purchased by
the corporation hereunder, the selling Shareholder is indebted to the
corporation or to other shareholders or other entities such as FLORIDA
ADMINISTRATORS, INC. and FACCA-SIF, the amount of the indebtedness shall offset
and reduce the purchase price payable by that purchaser to the extent that the
amount of
-8-
<PAGE>
the indebtedness does not exceed the purchase price; in such event the offset
shall be applied to such indebtedness.
9. CREATION OF SURPLUS.
If the Corporation shall not have sufficient surplus to permit
it to redeem lawfully the stock required to be purchased by the Corporation, the
Corporation, the Shareholders and the personal representative of a deceased
Shareholder covenant to vote shares and to take such other measures as may be
required to establish a corporation surplus that will allow the redemption of
shares under this Agreement, including but not limited to:
(a) reduction of capital;
(b) cancellation of treasury shares;
(c) appraisal of assets at fair market value;
(d) pro rata contribution of cash to the Corporation by
Shareholders, except the selling Shareholder, in such amounts
and at such times as may be required to allow the Corporation
to meet its obligations under this agreement.
10. EXECUTION OF AGREEMENT BY SUBSEQUENT SHAREHOLDERS.
No issue or transfer of any shares of the Corporation shall be
completed unless and until the holder or transferee has executed a counterpart
of this Agreement, which shall be retained as part of the corporate records.
Likewise, when the shares of stock of a shareholder are repurchased by the
corporation from such shareholder, such shareholder shall have no further rights
under this agreement.
-9-
<PAGE>
12. NOTICE.
All notices, demands, requests, offers or responses permitted
or required to be given under this agreement shall be deemed sufficient if
mailed by registered or certified mail, postage prepaid, addressed to the
Shareholder at his address as shown on the records of the Corporation and to the
Corporation at its registered address. Any party hereto may change the address
to which notices shall be sent by written notice of such new or changed address
given to the secretary of the Corporation.
13. MISCELLANEOUS PROVISIONS.
(a) This agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida.
(b) The Section headings in this agreement are for reference
purposes only and shall not in any way affect the meaning and interpretation of
this agreement.
(c) This agreement shall be binding on and shall operate for
the benefit of the parties hereto and their respective heirs and legal
representatives. It also shall be binding on any transferee who has received any
shares in accordance with the provisions of this agreement and the heirs and
legal representatives of that transferee. It shall further be binding on any
person to whom any of the stock is transferred in violation of the provisions of
this Agreement and the heirs and legal representatives of that person.
(d) This agreement contains the entire agreement of the
parties hereto, and all prior understandings and agreements, whether written or
oral, between the parties are merged into this agreement. This agreement cannot
be altered, amended,
-10-
<PAGE>
supplemented, modified or terminated except by instrument in writing signed by
all of the parties hereto, the proper officers signing on behalf of the
Corporation.
(e) Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this agreement, the
successful party shall be awarded a reasonable attorney's fee, which shall
include a reasonable attorney's fee for any appellate proceedings, expenses
(including any accounting expenses) and costs. Venue for any such action shall
be in Palm Beach County, Florida.
(f) The invalidity or unenforceability of any particular
provision of this agreement shall not affect the other provisions hereof, and
this agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
(g) This agreement may be signed and executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date first above written.
COMPENSATION BENEFITS, INC.
/s/ Illegible By:/s/ Sam A. Stephens, President
- ----------------------------- --------------------------------
Its
/s/ Mary V. Baldo Attest:/s/ Alan N. Duggan
- ----------------------------- ----------------------------
Secretary
/s/ Illegible /s/ SAM A. STEPHENS
- ---------------------------- -----------------------------------
SAM A. STEPHENS
/s/ Mary V. Baldo
- -----------------------------
-11-
<PAGE>
/s/ Illegible /s/ DALE E. HANSON
- ------------------------------ -----------------------------------
DALE E. HANSON
/s/ Mary V. Baldo
- -----------------------------
/s/ Illegible /s/ ALAN N. DUGGAN
- ------------------------------ -----------------------------------
ALAN N. DUGGAN
/s/ Mary V. Baldo
- -----------------------------
-12-
<PAGE>
AMENDMENT TO SHAREHOLDER AGREEMENT
This Amendment to the Shareholder Agreement dated June 29, 1993, by and
among COMPENSATION BENEFITS, INC., a Florida corporation, ("Corporation") and
SAM A. STEPHENS, DALE E. HANSON, and ALAN H. DUGGAN, ("Shareholders") is made
and entered into this 19th day of December, 1995.
RECITALS
WHEREAS, the Corporation and the Shareholders entered into the above
referenced Shareholder Agreement ("Shareholder Agreement") effective June 29,
1993, and
WHEREAS, the Corporation is about to become an owner of PINNACLE
ASSURANCE CORPORATION, a nonassessable stock insurer (or in the alternative, the
owner of a holding company to be formed for the purposes of acquiring ownership
of said insurance company) in accordance with the "Plan of Conversion and
Recapitalization of PINNACLE ASSURANCE CORPORATION, An Assessable Mutual
approved by the Florida Department or Insurance", and
WHEREAS, in furtherance of said "Plan of Conversion and
Recapitalization of PINNACLE ASSURANCE CORPORATION", the Corporation is
considering various alternative methods of recapitalization for such purposes,
including recapitalization through additional investors or through financing
alternatives or otherwise, and
-1-
<PAGE>
WHEREAS, in furtherance of said anticipated recapitalization, the
Corporation and Shareholders have executed that certain Letter of Intent, a copy
of which is attached hereto as Exhibit "A", and
WHEREAS, as of the date of this Amendment, the Corporation and the
Shareholders do not know whether or not a formal contract and closing based upon
the terms and provisions of said Letter of Intent will be executed and
completed, or whether an alternative source of recapitalization will be
utilized, and
WHEREAS, the Corporation and the Shareholders wish to amend the
Shareholder Agreement in order to provide certain provisions for benefits and
consideration to the corporation and to the Shareholders in conjunction with
said anticipated recapitalization, whichever format is chosen, including, but
not limited to a provision for a voting agreement and a voting trust whereby SAM
A. STEPHENS shall have the right to unanimously vote all of the issued and
outstanding shares of stock of the Corporation owned by the Shareholders and
WHEREAS, the Shareholders and the Corporation wish to amend said
Shareholder Agreement, to the extent necessary to effectuate the purposes set
forth or contemplated herein.
NOW THEREFORE, for TEN DOLLARS and NO/100 and other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged by all signatories hereto. It is agreed as follows:
1. The above Recitals are incorporated into the terms
-2-
<PAGE>
and provisions of this Agreement as accurately reciting the basis for the
execution of this Amendment and the terms and provisions thereof are hereby made
part of this Agreement.
2, Paragraph 1 of the Shareholder Agreement entitled "TERMINATION OF
EMPLOYMENT OF SHAREHOLDER OF EARLY WITHDRAWAL" is hereby amended as follows:
Paragraph 1.(b)(1) is hereby deleted in its entirety and the following
shall be substituted in its place:
"Until this Agreement is terminated by the written consent of all
parties hereto, SAM A. STEPHENS shall continue to have an option and right, but
not the obligation, to repurchase the stock of a withdrawing or terminated
Shareholder in accordance with the terms and provisions of this section. If SAM
A. STEPHENS shall exercise his option to repurchase such shareholder's stock at
any time, the purchase price of such stock shall be at the "market" value of
such stock if a "market" price had been established by a generally recognized
stock exchange: if no much "market" value has been established, then the
purchase price shall be appraised value of such stock based upon an appraisal of
a qualified person or entity generally recognized in the industry as being
qualified to appraise such stock, said appraisal to be performed by an appraiser
selected by the Corporation to render an opinion as to the appraised value of
the stock."
Paragraph 1.(c) is hereby deleted in its entirety. New Paragraph 1.(d)
is added as follows:
"All remaining terms and provisions of the Shareholder
-3-
<PAGE>
Agreement referring to a right of purchase shares of stock on behalf of the
Corporation (including but not limited to rights of first refusal and options to
repurchase shares of stock in favor of the Corporation) are hereby amended to
state that such right of repurchase, right of first refusal, option to
repurchase, or other right to purchase shares of stock from a shareholder are
now to be solely in favor of SAM A. STEPHENS and not in favor of the
Corporation. All such references to the word "Corporation" in such context are
hereby deleted and "SAM A. STEPHENS" shall be substituted in place thereof."
3. The execution of the Letter of Intent (Exhibit "A") and any
subsequent formal contract in furtherance thereof by the Shareholders and by the
Corporation shall not be deemed in violation of the terms and provisions of the
Shareholder Agreement. Furthermore, the Shareholders and the Corporation agree
that any other form of recapitalization of the Corporation in furtherance of the
"Plan of Conversion and Recapitalization of PINNACLE ASSURANCE CORPORATION, An
Assessable Mutual", whether through additional investors, additional capital
infusions, loans or otherwise, shall also not be deemed to be a violation of the
terms and provisions of the Shareholder Agreement. Moreover, the Shareholders
and the Corporation agree that the execution of any such documents in
furtherance of such recapitalization and the completion of any transactions
contemplated in connection therewith shall not, in any way, be deemed to have
activated any notice requirements, or purchase rights, options or any other
procedures set forth in said
-4-
<PAGE>
Agreement (including but not limited to those in Section 3 "Restrictions On Sale
Of Stock During Lifetime"). Moreover, the Shareholders and the Corporation
hereby further acknowledge and agree that the execution of this Amendment and
the transactions contemplated herein are, in part, in furtherance of paragraphs
3.(d)(i), (ii) and (iii) of the Shareholder Agreement in order to demonstrate to
the "Investors", as described in Exhibit "A", that the Corporation and all of
the Shareholders are in agreement with the proposed transactions contemplated by
the Letter of Intent (Exhibit ("A") and the proposed recapitalization of the
Corporation in the furtherance of the "Plan of Conversion and Recapitalization
of PINNACLE ASSURANCE CORPORATION, An Assessable Mutual". The Shareholders
further agree to execute any and all additional agreements and documents as
requested by SAM A. STEPHENS to effectuate the closing of the transactions
contemplated in said Exhibit "A", or to effectuate any such other form of
recapitalization as may be selected by SAM A. STEPHENS. Provided, however,
nothing set forth herein, or contemplated hereby, shall, in any way, be deemed
to be a waiver of the terms provisions of said paragraphs 3.(d)(i), (ii) and
(iii) of the Shareholder Agreement authorizing and permitting any and all such
acts to be taken solely by a majority vote of the issued and outstanding shares
of stock of the Corporation, all such terms and provisions are hereby
acknowledged and agreed to remain in effect.
4. The Shareholders hereby further acknowledge and agree that upon the
completion of the transactions contemplated by
-5-
<PAGE>
the Letter of Intent (Exhibit "A"), the Shareholders are contemplated to be
shareholders in the Delaware corporation to be formed as described in Exhibit
"A"; as a result of such transactions, the Corporation may be merged with or
held as a subsidiary of said Delaware corporation to be formed or the
Corporation may otherwise be restructured in furtherance of said transactions.
Notwithstanding such fact, it is hereby specifically agreed by, between and
among the Shareholders that the terms and provisions of the Shareholder
Agreement, as modified or amended herein, shall continue in effect between and
among the Shareholders upon the formation of the above-described new Delaware
corporation to be formed and the Shareholders do hereby agree that they will
execute a subsequent Shareholder Agreement with regard to their shares in said
new corporation or any other corporation to be formed in conjunction with such
recapitalization, said Shareholder Agreement shall contain the same terms and
provisions as the Shareholder Agreement, as amended herein.
5. The Shareholders further hereby agree that they will vote their
shares of the Corporation, (and their shares of the new Delaware corporation to
be formed or any other corporation to be formed in conjunction with such
recapitalization) on any matter presented to the shareholders of the Corporation
for a vote, as they are directed, in writing, by SAM A. STEPHENS, so long as he
shall remain a Shareholder of the Corporation, or of the new Delaware
corporation or any such other corporation to be formed in conjunction with the
recapitalization described above. In the
-6-
<PAGE>
event that a Shareholder(s) holding a minority of the issued and outstanding
stock of the Corporation (or of the new Delaware or other corporation to be
formed) shall refuse to vote his shares of stock as directed in writing by SAM
A. STEPHENS, then and in such event, it is hereby agreed that SAM A. STEPHENS
shall be deemed to have, and is hereby given, an irrevocable power of attorney
coupled with an interest to vote the shares of stock of such minority
Shareholder(s) on any matter presented to the shareholders of the Corporation
for a vote. Thin provision is intended to be a binding and enforceable voting
agreement pursuant to Florida Statutes 607.0731 and any comparable Delaware law,
and this provision shall be specifically enforceable as provided in said
statute. Moreover, upon the written request of SAM A. STEPHENS, the Shareholders
hereby agree that they will execute and enter into a voting trust in the form
attached as Exhibit B.
6. At such time as the Shareholders shall become shareholders in the
above-described proposed new Delaware corporation to be formed, the Shareholders
shall execute a shareholder agreement, as permitted under the laws of the State
of Delaware, which will contain the same terms and provisions of the
Shareholder's Agreement, as amended hereby, and which will continue in effect
the voting agreement set forth in the preceding paragraph as between and among
the Shareholders including their stock in said new corporation. This provision
shall be deemed specifically enforceable in a court of equity. Moreover, upon
the written request of SAM A. STEPHENS, the Shareholders hereby agree that they
-7-
<PAGE>
will execute and enter into a voting trust in the form attached hereto as
Exhibit "B" with regard to said Delaware corporation. In the event that any
Shareholder(s) shall then refuse to execute such voting trust with regard to his
shares of stock in said proposed successor Delaware corporation to be formed,
SAM A. STEPHENS, so long as he is a Shareholder of the Corporation or of the
Delaware corporation to be formed, shall be deemed to have and is hereby
authorized by all other Shareholders, and is hereby given by them, an
irrevocable power of attorney coupled with an interest, to execute the voting
trust on behalf of all shareholders, to vote the shares of stock of the minority
shareholder(s) on any matter presented to the shareholders of such corporation
for a vote, and to deliver a copy of this provision to the Delaware corporation
which is to be formed and to require its enforcement under the laws of said
state.
7. The voting agreement, or voting trust, whichever applicable, with
regard to the proposed successor Delaware corporation to be formed shall be in
accordance with Delaware law and any provision set forth herein which is not in
compliance therewith shall be deemed modified so as to be in compliance with
such laws. If any portion of this Agreement is not enforceable under applicable
law, all remaining portions shall still be enforceable to the extent permitted
by applicable law.
8. The Shareholders hereby agree that the terms and provisions of this
Amendment, including paragraphs 5 and 6 above with regard to the voting
agreement and voting trust in favor of
-8-
<PAGE>
SAM A. STEPHENS, shall remain in full force and effect with regard to all
matters which are presented to the Shareholders of the Corporation for a vote
subsequent to the execution of this Amendment, regardless of whether the
transaction described in or contemplated by the Letter of Intent (Exhibit "A")
is completed and closed. Moreover, without in any way limiting the foregoing
statement, such voting provisions shall be deemed to authorize SAM A. STEPHENS
to vote all of the issued and outstanding shares of stock of the Corporation
owned by the Shareholders in making further decisions which may be presented to
the Shareholders of the Corporation for a vote with regard to the
recapitalization of FLORIDA ADMINISTRATORS, INC., or PINNACLE ASSURANCE
CORPORATION as contemplated by or in furtherance of the "Plan Of Conversion and
Recapitalization of PINNACLE INSURANCE CORPORATION" as approved by the Florida
Department of Insurance, regardless of whether such recapitalization is to be
completed in accordance with the terms and provisions of the Letter of Intent
(Exhibit "A"), or through other investors (if the transaction described in said
Letter of Intent does not close) or through loan transactions or otherwise.
9. This Amendment to Shareholder Agreement shall be binding upon the
heirs, personal representatives, estates, successors and assigns of the
Shareholders. Moreover, SAM A. STEPHENS shall be fully authorized to transfer
his shares of stock in the Corporation (or in the Delaware corporation to be
formed) to a revocable trust for estate planning purposes, and such transfer
shall not be deemed to be in violation of this Amendment or in
-9-
<PAGE>
violation of the Shareholder Agreement. Moreover, the personal representative,
trustee or legal representative, whichever may then be applicable, of SAM A.
STEPHENS shall be deemed fully authorized to vote the shares of the Shareholders
in accordance with the terms and provisions of paragraphs 5, 6 and 8 above in
the same manner and with the same force and effect as SAM A. STEPHENS under the
terms and provisions of said paragraphs. Said personal representative, trustee
or legal representative, whichever may be applicable, shall have all voting
rights given, assigned or delegated to SAM A. STEPHENS hereunder.
10. The Shareholder Agreement, except as specifically modified or
amended hereby shall remain in full force and effect. In the event of a conflict
between the terms and provisions of the Shareholder Agreement and this
Amendment, the terms and provisions of this Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
COMPENSATION BENEFITS, INC.
/s/ Fred R. Lowe By:/s/ Sam A. Stephens, President
- --------------------------------- -------------------------------
Print Name: Its
- ---------------------------------
Print Name:
Attest:/s/ Dale E. Hanson
---------------------------
Secretary
/s/ Fred R. Lowe /s/ SAM A. STEPHENS
- --------------------------------- ----------------------------------
Print Name: SAM A. STEPHENS
- --------------------------------
Print Name:
-10-
<PAGE>
/S/ Fred R. Lowe /s/ Dale E. Hanson
- -------------------------------- ----------------------------------
Print Name: DALE E. HANSON
- -------------------------------
Print Name:
/S/ Fred R. Lowe /s/ Alan N. Duggan
- -------------------------------- ----------------------------------
Print Name: ALAN N. DUGGAN
- -------------------------------
Print Name:
-11-
<PAGE>
AMENDMENT NO. 2 TO SHAREHOLDER AGREEMENT
This Amendment No. 2 (the "Second Amendment") to the
Shareholder Agreement dated June 29, 1993 (the "Original Agreement"), by and
among COMPENSATION BENEFITS, INC., a Florida corporation ("Corporation"), AMCOMP
INCORPORATED, a Delaware corporation ("AmComp"), SAM A. STEPHENS ("Stephens"),
DALE E. HANSON ("Hanson"), ALAN N. DUGGAN ("Duggan") and FRED R. LOWE ("Lowe,"
and, together with Stephens, Hanson and Duggan, the "Shareholders") is made and
entered into as of July 8, 1996.
RECITALS
WHEREAS, the Corporation, Stephens, Hanson and Duggan entered
into the Original Agreement, effective June 29, 1993; and
WHEREAS, the Corporation, Stephens, Hanson and Duggan first
amended the Original Agreement on December 19, 1995 (the "First Amendment"); and
WHEREAS, the Corporation and the Shareholders wish to further
amend the Original Agreement (as amended by the First Amendment and the Second
Amendment, the "Agreement"); and
WHEREAS, by Stock Purchase Agreement of even date herewith,
Lowe is acquiring from the other Shareholders shares of AmComp, the Delaware
corporation referred to in Paragraph 4 of the First Amendment; and
WHEREAS, the Shareholders other than Lowe have previously
agreed that the Agreement shall be applicable to AmComp and to the authorized
shares of AmComp (the "AmComp Shares"); and
<PAGE>
WHEREAS, the Shareholders other than Lowe are parties to that
certain Securities Purchase and Asset Transfer Agreement among AmComp, Florida
Administrators, Inc., Stephens, Hanson, Duggan and the Purchasers named therein
dated as of January 26, 1996 (the "Securities Purchase Agreement").
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, it is agreed as follows:
1. The above Recitals are incorporated into the terms and
provisions of the Agreement as accurately reciting the basis for the execution
of this Second Amendment and the terms and provisions thereof are hereby made
part of the Agreement.
2. Lowe is hereby joined as a party to the Agreement as a
Shareholder for all purposes thereof.
3. Each of the Shareholders expressly affirms (i) the
applicability of the Agreement to AmComp and to the AmComp Shares; and (ii) the
intention of the Shareholders to negotiate, execute and deliver a successor
agreement to the Agreement (the "Successor Agreement"). Unless and until the
Successor Agreement shall have been executed and delivered by AmComp and the
Shareholders, the Agreement shall remain in full force and effect in accordance
with its terms.
4. In the event that pursuant to Article VII of the Securities
Purchase Agreement, the Shareholders, or any of them, become obligated to
indemnify the Purchasers for any Taxes or Damages (as those terms are defined in
the Securities Purchase Agreement), the aggregate amount of such Taxes or
Damages shall be borne by the Shareholders in the following proportions:
-2-
<PAGE>
Stephens - 86.67%
Hanson - 5.96%
Duggan - 1.49%
Lowe - 5.88%
provided, however, that in no event shall Hanson or Duggan be liable pursuant to
the Securities Purchase Agreement and hereunder for an amount in excess of the
amount provided for in Section 7.06 of the Securities Purchase Agreement; and
provided, further, that in no event shall Lowe be liable pursuant to the
Securities Purchase Agreement and hereunder for an amount in excess of that
amount for which he would have been liable pursuant to the Securities Purchase
Agreement had he been a party thereto as a Founder and had his liability
thereunder been limited in the same manner as that of Hanson and Duggan. To the
extent that any Shareholder shall have paid in excess of his proportionate share
of such Damages, the other Shareholders shall promptly upon demand by him
reimburse him such proportion of such excess as shall result in each Shareholder
bearing the respective proportions of such Damages set forth above.
5. Paragraph 13(a) of the Original Agreement is amended in its
entirety to read as follows:
"This agreement shall be governed by and
construed and enforced in accordance with the
laws of the State of Delaware, except that
body of law relating to choice of laws."
6. Except as specifically modified or amended hereby, the
Original Agreement, as amended by the First Amendment, shall remain in full
force and effect in accordance with its terms.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Second Amendment as of the date first above written.
COMPENSATION BENEFITS, INC.
By: /s/ Sam A. Stephens
-------------------------
Name:
Title:
AMCOMP INCORPORATED
By:/s/ Sam A. Stephens
-------------------------
Name:
Title:
/s/ Sam A. Stephens
-----------------------------------
SAM A. STEPHENS
/s/ Dale E. Hanson
-----------------------------------
DALE E. HANSON
/s/ Alan N. Duggan
-----------------------------------
ALAN N. DUGGAN
/s/ Fred R. Lowe
-----------------------------------
FRED R. LOWE
-4-
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of January 26, 1996 by and
among AMCOMP INCORPORATED, a Delaware corporation (the "Company"), the several
parties named on the signature pages hereof under the heading "Purchasers"
(collectively, the "Purchasers") and the several parties named on the signature
pages hereof under the heading "Founders" (collectively, the "Founders") . The
Purchasers and the Founders are herein collectively referred to as the
"Stockholders," and each individually as a "Stockholder".
WHEREAS, the Company has entered into a Securities Purchase
and Asset Transfer Agreement dated as of January 26, 1996 (the "Purchase
Agreement") with the Stockholders pursuant to which (i) the Purchasers will, on
the Initial Closing Date (as defined therein) or thereafter, pursuant to the
provisions of Sections 1.01 and 1.04 thereof, purchase (x) first, from the
Company 1,400,000 shares of its Series A Convertible Preferred Stock, par value
$1 per share ("Series A Preferred Stock"), and (y) following such purchases,
from the Founders 1,600,000 shares of the Company's Common Stock, $.01 par value
per share ("Common Stock"), and (ii) the Purchasers may in the future, pursuant
to the provisions of Article II of the Purchase Agreement, purchase (a) up to
1,000,000 additional shares of Series A Preferred Stock and (b) up to 1,000,000
shares of 10% Series B Non-Convertible Cumulative Preferred Stock, $1 par value
per share ("Series B Preferred Stock, " and collectively with Series A Preferred
Stock, "Preferred Stock"), of the Company.
WHEREAS, upon the consummation of the transactions to occur on
the Initial Closing Date and thereafter pursuant to Sections 1.01 and 1.04 of
the Purchase Agreement, the Purchasers and the Founders will own the respective
numbers of shares of Common Stock and Series A Preferred Stock appearing
opposite their respective names in Annex I and Annex II to the Purchase
Agreement (subject to adjustment, in the case of the Purchasers, if the events
referred to in the last sentence of Section 11 hereof occur); and
WHEREAS, all of the Stockholders believe that it is in the
best interests of the Company that certain arrangements be made among themselves
with respect to the election of directors of the Company and with respect to
certain other matters;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. Designation of Directors. (a) During the term of
this Agreement, the Stockholders will vote all shares of voting capital stock of
the Company held by them and will otherwise use their best efforts to cause to
be elected to the Board of Directors of the Company eight individuals, of whom
(i) so long as the Founders, in the aggregate, own at least 50% of the Common
Stock to be owned by them (after giving effect to the sales of Common Stock to
be made by them to the Purchasers pursuant to Section 1.01 and Section 1.04 of
the Purchase Agreement) (A) three directors (the "Stephens Designees") shall be
designated by Sam A. Stephens ("Stephens"), provided that not more than two of
the Stephens Designees may be an officer or employee of the Company or any
subsidiary thereof, and (B) one director (who shall not be an affiliate of the
Stockholders or of the Company) (the "Founders Designee") shall be designated by
a majority in interest of the Founders, subject to the consent of the
Purchasers, which consent shall not be unreasonably withheld; and (ii) so long
as the Purchasers, in the aggregate, own at least 50% of the Common Stock
acquired by them on the Initial Closing Date or subsequently acquired by them
pursuant to the Purchase Agreement (treating for purposes of such computation
each holder of Preferred Stock as the holder of the number of shares of Common
Stock at the time issuable upon conversion of such shares), (x) two directors
(the "WCAS Designees") shall be designated by Welsh, Carson, Anderson & Stowe
VII, L.P. ("WCAS VII"), (y) one director (the "Sprout Designee") shall be
designated by Sprout Growth II, L.P. ("Sprout"), and (z) one director (who shall
not be an affiliate of the Stockholders or of the Company) (the "Purchaser
Designee") shall be designated by a majority in interest of the Purchasers,
subject to the consent of the Founders, which consent shall not be unreasonably
withheld. The Company shall pay all reasonable out-of-pocket expenses incurred
by any such individual or individuals in attending meetings of the Company's
Board of Directors and committee meetings thereof.
(b) Stephens, WCAS VII, Sprout, or a majority in interest of
the Purchasers or the Founders, as the case may be, may from time to time choose
any or all of the persons who are to be Stephens Designees, WCAS Designees, the
Sprout Designee, the Purchaser Designee or the Founders Designee, as the case
may be, and shall have the right to cause the removal or replacement of any of
their respective designees. If any designee shall cease to be a member of the
Board of Directors of the Company by reason of resignation, death, disability or
removal or otherwise, then the party entitled to designate such designee shall
designate a
2
<PAGE>
successor to such person and the Stockholders will vote all shares of voting
capital stock of the Company then held by them and will otherwise use their best
efforts to cause such designee to be elected to the Board of Directors.
SECTION 2. Approval of Certain Actions. (a) So long as any
shares of Series A Preferred Stock or Series B Preferred Stock are outstanding,
the Company shall not, and shall not permit any subsidiary to, without the prior
written consent of holders of 66-2/3% of the outstanding shares of each class of
Preferred Stock, (i) incur indebtedness in excess of $2,000,000 in the aggregate
(on a consolidated basis for the Company and all subsidiaries) at any time
outstanding, (ii) grant or issue any equity securities (or any options or rights
to acquire, or securities convertible into, equity securities) of the Company or
any subsidiary or (iii) merge or consolidate with or into any other person, sell
or otherwise transfer of all or any substantial portion of its assets or
liquidate.
(b) Without limiting the foregoing, for so long as Stephens
continues to own not less than 75% of the number (less up to 250,000 shares
which may be transferred by him to Fred Lowe) of shares of Common Stock to be
owned by him after giving effect to the sales to be made by him to the
Purchasers pursuant to Sections 1.01 and 1.04 of the Purchase Agreement, the
Company shall not take any action set forth in clause (ii) of paragraph (a)
above without also obtaining the prior written consent of Stephens.
(c) Notwithstanding anything to the contrary in this Section
2, no approval of the holders of Preferred Stock or Stephens, as the case may
be, shall be required for grants by the Company of options to acquire up to
500,000 shares of Common Stock pursuant to stock option plans from time to time
in effect and the issuance of Common Stock upon the exercise of such options.
SECTION 3. Buy-Sell Arrangement. (a) The Purchasers, acting as
a group, and the Founders, acting as a group, will each have the right to
initiate the following buy-sell procedure during a period commencing upon the
expiration of 30 full calendar months following the date of the Initial Closing
Date and ending upon the termination of this Agreement. The group wishing to
initiate the procedure (the "Initiating Group") shall submit an offer (the
"Offer") in writing to the other group (the "Responding Group") to purchase all
shares of Common Stock (and if the Founders are the Initiating Group, all shares
of Preferred Stock) owned by the Responding Group for a cash price per share of
Common Stock (the "Offer Price") to be specified in the offer, and, if Preferred
Stock must be included in the offer, at the
3
<PAGE>
cash price for shares thereof set forth below (the "Preferred Stock Price").
(b) The Responding Group shall, within 60 days of receipt of
such offer, elect either (i) to sell all shares of the Company's stock owned by
it to the Initiating Group or (ii) to purchase all shares of the Company's stock
owned by the Initiating Group at the Offer Price and (if applicable) the
Preferred Stock Price, in which event the Initiating Group shall sell all such
shares owned by it to the Responding Group. If the Responding Group does not
give written notice of its election to the Initiating Group within such 60 day
period, it shall be deemed to have elected to sell its shares to the Initiating
Group.
(c) Whichever of the Initiating Group or the Responding Group
is to make the purchase hereunder (the "Acquiring Group") shall consummate such
purchase within 180 days of such election by the Responding Group. If the
Acquiring Group is unable to consummate such purchase, then the other group may,
at its option, either purchase the Acquiring Group's shares or again initiate
the procedure at a future date, and such Acquiring Group shall no longer have
the right to submit an Offer in accordance with paragraph (a) above.
(d) The Preferred Stock Price for each share of Series A
Preferred Stock shall be the Offer Price that would be payable for the shares of
Common Stock into which each such share of Series A Preferred Stock is
convertible. The Preferred Stock Price for each share of Series B Preferred
Stock shall be $10 plus accrued but unpaid dividends thereon to the date of
purchase.
(e) In the event that the Founders sell all shares of Common
Stock then held by them in accordance with this Section 3, Stephens hereby
agrees that, for the eighteen month period following such sale, he will not (i)
engage, whether directly or indirectly, in competition with or conduct any
business or activity identical or similar to the business of the Company or any
subsidiary of the Company as presently conducted or as may be conducted by the
Company or any such subsidiary in the future, (ii) solicit any customer of the
Company or any subsidiary of the Company or (iii) make any statement or perform
any action that would be reasonably expected to injure an interest of the
Company or any subsidiary of the Company in its dealings with present, future or
potential clients; provided, however, that Stephens may own an equity interest
in any business or activity, not to exceed 5% of such business or activity, if
the capital stock representing such equity interest is listed on a public stock
exchange. Stephens agrees that the limitations set forth in this paragraph
4
<PAGE>
(e) are reasonable and properly required for the adequate protection of the
business of the Company.
SECTION 4. Transfer of Shares. (a) Except as otherwise
provided in paragraph (b) below, no Purchaser or Founder (for purposes of this
Section 4, a "Transferor") will sell, transfer or otherwise dispose of any
Common Stock or Preferred Stock, if as a result of such transfer such Transferor
would own less than 75% of the shares of Common Stock or Preferred Stock, as the
case may be, owned by the Transferor on the date hereof.
(b) The provisions of paragraph (a) above shall not apply with
respect to (i) a transfer by a Transferor to an affiliate (as defined in Rule
405 under the Securities Act of 1933, as amended (the "Securities Act")) of such
Transferor, (ii) any distributions or transfers by a Transferor which is a
partnership to its partners (including its limited partners), or (iii) in the
case of a Transferor who is an individual, any transfer by such Transferor to
the spouse or lineal descendants of such Transferor, including without
limitation any transfer by bequest or devise, or to a trust or trusts for the
benefit of such Transferor or any of the foregoing.
(c) No Transferor shall sell, transfer or otherwise dispose of
any shares of Common Stock or any shares of Preferred Stock, unless the
transferee agrees to be bound by the provisions of Section 3 hereof as though
such transferee were a member of the Purchaser group or the Founder group, as
the case may be.
SECTION 5. Legend on Stock Certificates. Each certificate
representing shares of Common Stock or Preferred Stock held by any Stockholder
shall conspicuously bear the following legend until such time as the shares
represented thereby are no longer subject to the provisions hereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF
JANUARY 26, 1996 AMONG AMCOMP INCORPORATED (THE "COMPANY") AND
CERTAIN HOLDERS OF SHARES OF THE OUTSTANDING CAPITAL STOCK OF
THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE COMPANY."
The Company covenants that it will keep a copy of this
Agreement on file at the address specified in, or pursuant to, Section 10 for
the purpose of furnishing copies hereof to the holders of record of shares of
Common Stock and Preferred Stock.
5
<PAGE>
SECTION 6. Duration of Agreement. This Agreement and all
obligations hereunder shall terminate upon the consummation of a firm commitment
public offering of Common Stock of the Company registered pursuant to the
Securities Act resulting in proceeds to the Company of not less than $30,000,000
after deduction of underwriting discounts and commissions, but before deduction
of other expenses of issuance.
SECTION 7. Representations and Warranties. (a) Each of the
Company and each Stockholder represents and warrants, severally and not jointly,
to the Company and the other Stock- holders as follows:
(i) The execution, delivery and performance of this Agreement
by the Company or such Stockholder, as the case may be, will not
violate in any material respect any provision of law, any order of any
court or other agency of government, or any provision of any indenture,
agreement or other instrument to which the Company or such Stockholder
or any of its, his or her, as the case may be, properties or assets is
bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of
the properties or assets of the Company or such Stockholder (other than
those arising hereunder).
(ii) This Agreement has been duly executed and delivered by
the Company or such Stockholder, as the case may be, and constitutes
the legal, valid and binding obligation of the Company or such
Stockholder, enforceable against the Company or such Stockholder in
accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting the enforcement of creditors'
rights, and except that the availability of the equitable remedies of
specific performance and injunctive relief may be subject to the
discretion of the court before which any proceeding may be brought.
(b) Each Stockholder represents and warrants, severally and
not jointly, to the Company and the other Stockholders that as of the date
hereof such Stockholder does not own or have any rights to acquire any shares of
the capital stock of the Company except as set forth in or pursuant to the
Purchase Agreement.
6
<PAGE>
SECTION 8. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware.
SECTION 9. Successors and Assigns. This Agreement shall be
binding upon the parties hereto and their respective successors and assigns
(which become such by operation of law), legal representatives and heirs.
SECTION 10. Notices. Any notice, demand or request required or
permitted to be given under the provisions of this Agreement (a) shall be in
writing; (b) shall be delivered personally, including by means of telecopy
(confirmed by a subsequent delivery by courier or mail) or courier, or mailed by
registered or certified mail, postage prepaid and return receipt requested; (c)
shall be deemed given on the date of personal delivery or on the date that is
five days after the date set forth on the return receipt; and (d) shall be
delivered or mailed as follows or to such other address as any party may from
time to time direct:
if to the Company, to it at
701 U.S. Highway One Suite 200
North Palm Beach, Florida 33408
Attention: Chief Executive Officer
with a copy to
Olshan, Grundman, Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: David J. Adler, Esq.
or if to any Stockholder at its address set forth in Annex I
or II to, or as otherwise determined as provided in, the
Purchase Agreement.
SECTION 11. Modification. Except as otherwise provided herein,
neither this Agreement nor any provision hereof may be modified, changed,
discharged or terminated except by the written agreement of (i) the holders of a
majority in interest of the Common Stock and the Series A Preferred Stock
(voting together as one class on an "as-converted" basis) then held by the
Purchasers and (ii) the holders of a majority in interest of the Common Stock
then held by the Founders; provided, however, that no modification or amendment
shall be effective to reduce the requisite percentages required to effect any
modification under
7
<PAGE>
this Section 11 without the written approval of each of the Stockholders, and
provided, further, that no amendment may apply to less than all Stockholders
referred to in clause (i) or all Stockholders referred to in clause (ii) without
the written approval of each Stockholder referred to in the applicable clause
whose interest would be adversely affected. If pursuant to Section 1.04 of the
Purchase Agreement the Initial Purchasers instead of the Deferring Purchasers
(as such terms are defined therein) purchase the shares of capital stock of the
Company to be purchased on the Deferred Closing Date as provided therein, then
all references herein (i) to "Purchasers" shall be deemed references to "Initial
Purchases" (as so defined) and (ii) to "Sprout" shall be deemed references to
"WCAS VII", and WCAS VII shall succeed to Sprout's right contained in Section
2(a) hereof to designate one director of the Company.
SECTION 12. Severability. In the event that any one or more of
the provisions contained in this Agreement or in any other instrument referred
to herein shall, for any reason, be held to be invalid, illegal or
unenforceable, such illegality, invalidity or unenforceability shall not affect
any other provisions of this Agreement.
SECTION 13. Injunctive Relief. The parties hereto acknowledge
and agree that a remedy at law for any breach or threatened breach of the
provisions of this Agreement would be inadequate and, therefore, agree that each
party hereto shall be entitled to injunctive relief in addition to any other
available rights and remedies in case of any such breach or threatened breach;
provided, however, that nothing contained herein shall be construed as
prohibiting any party hereto from pursuing any other rights and remedies
available for any such breach or threatened breach.
SECTION 14. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which taken together shall constitute one and the same instrument.
SECTION 15. Entire Agreement. This Agreement and the Annexes
hereto supersede all previous agreements between the parties hereto. In the
event of any conflict between this Agreement and any other agreement or
instrument with respect to the subject matter hereof, the provisions of this
Agreement shall control.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders Agreement as of the day and year first above written.
AMCOMP INCORPORATED
By:/s/ Sam A. Stephens
-------------------------------------
Title: President
FLORIDA ADMINISTRATORS, INC.
By:/s/ Sam A. Stephens
-------------------------------------
Title: President
THE FOUNDERS:
/s/ Sam A. Stephens
----------------------------------------
Sam A. Stephens
/s/ Dale E. Hanson
----------------------------------------
Dale E. Hanson
/s/ Alan N. Duggan
----------------------------------------
Alan N. Duggan
THE PURCHASERS:
WELSH, CARSON, ANDERSON &
STOWE VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By:/s/ Laura VanBuren
-------------------------------------
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HP Partners, General
Partner
By:/s/ Laura VanBuren
-------------------------------------
General Partner
9
<PAGE>
SPROUT GROWTH II, L.P.
By DLJ Capital Corporation
Its: Managing General Partner
By:/s/ Paul Queally
-------------------------------------
Paul Queally
Its: Attorney-In-Fact
SPROUT GROWTH VII, L.P.
By DLJ Capital Corporation
Its: Managing General Partner
By:/s/ Paul Queally
-------------------------------------
Paul Queally
Its: Attorney-In-Fact
DLJ CAPITAL CORPORATION
By:/s/ Paul Queally
-------------------------------------
Paul Queally
Its: Attorney-In-Fact
/s/ Paul Queally
----------------------------------------
Paul Queally
/s/ Patrick J. Welsh
----------------------------------------
Patrick J. Welsh
/s/ Russell L. Carson
----------------------------------------
Russell L. Carson
/s/ Bruce K. Anderson
----------------------------------------
Bruce K. Anderson
<PAGE>
/s/ Richard H. Stowe
----------------------------------------
Richard H. Stowe
/s/ Andrew M. Paul
----------------------------------------
Andrew M. Paul
/s/ Thomas E. McInerey
----------------------------------------
Thomas E. McInerey
/s/ Laura VanBuren
----------------------------------------
Laura VanBuren
/s/ James B. Hoower
----------------------------------------
James B. Hoover
/s/ Robert A. Minicucci
----------------------------------------
Robert A. Minicuccu
/s/ Anthony J. de Nicola
----------------------------------------
Anthony J. de Nicola
Profit Sharing Plan,
Custodian f/b/o
/s/ David F. Bellet
----------------------------------------
David F. Bellet
HORIZON INVESTMENTS ASSOCIATES, I
/s/ illegible
----------------------------------------
<PAGE>
SPROUT CEO FUND, L.P.
BY
Its: Managing General Partner
By: /s/ Paul Queally
-----------------------------------
Paul Queally
Its: Attorney-In-Fact
<PAGE>
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT
AND REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 1 dated July 8, 1996 to STOCKHOLDERS AGREEMENT
and REGISTRATION RIGHTS AGREEMENT by and among AmComp Incorporated, a Delaware
corporation (the "Company"), Florida Administrators, Inc., a Florida corporation
("FAI"), and the several parties named on the signature pages hereof under the
heading "Stockholders" (collectively, the "Stockholders").
W I T N E S S E T H
WHEREAS, the Company, FAI and the Stockholders have entered
into (i) a certain Stockholders Agreement dated as of January 26, 1996 and (ii)
a certain Registration Rights Agreement dated January 26, 1996 (the
"Registration Rights Agreement"); and
WHEREAS, the parties to each of the Stockholders Agreement and
Registration Rights Agreement desire to amend and clarify such Agreements.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
Section 1. Capitalized Terms. All capitalized terms used
herein and not defined shall have the meanings accorded them in the Stockholders
Agreement.
Section 2. Transferees of Common Stock. No sale, transfer or
other disposition of shares of Common Stock pursuant to Section 4 of the
Stockholders Agreement shall be valid unless any such transferee thereof is
joined as a party to the Stockholders Agreement and the Registration Rights
Agreement by executing and delivering a Consent and Agreement substantially in
the form of Exhibit A-1 hereto or A-2 hereto, whichever is applicable.
Section 3. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
<PAGE>
Amendment as of the day and year first above written.
AMCOMP INCORPORATED
By: /S/ Sam A. Stephens
---------------------------------
Name:
Title:
FLORIDA ADMINISTRATIONS, INC.
By: /S/ Sam A. Stephens
---------------------------------
Name:
Title:
THE STOCKHOLDERS
/s/ Sam A. Stephens
-----------------------------------
Sam A. Stephens
/s/ Dale E. Hanson
-----------------------------------
Dale E. Hanson
/s/ Alan N. Duggan
-----------------------------------
Alan N. Duggan
WELSH CARSON, ANDERSON & STOWE
VII, L.P.
By: WCAS VII Partners, L.P.,
General Partner
By: /s/ Laura VanBuren
-------------------------------
Name:
Title:
WCAS HEALTHCARE PARTNERS, L.P.
By: WCAS HP Partners,
General Partner
By: /s/ Laura VanBuren
-------------------------------
Name:
Title:
-2-
<PAGE>
SPROUT GROWTH II, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By: /s/ Richard E. Kroon
-------------------------------
Name: Richard E. Kroon
Title: President
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By: /s/ Richard E. Kroon
-------------------------------
Name: Richard E. Kroon
Title: President
DLJ CAPITAL CORPORATION
By: /s/ Richard E. Kroon
-------------------------------
Name: Richard E. Kroon
Title: President
/s/ Patrick J. Welsh
------------------------------------
Patrick J. Welsh
/s/ Russel L. Carson
------------------------------------
Russel L. Carson
/s/ Bruce K. Anderson
------------------------------------
Bruce K. Anderson
/s/ Richard H. Stowe
------------------------------------
Richard H. Stowe
/s/ Andrew M. Paul
------------------------------------
Andrew M. Paul
/s/ Thomas E. McInerney
------------------------------------
Thomas E. McInerney
-3-
<PAGE>
/s/ Laura VanBuren
------------------------------------
Laura VanBuren
/s/ James B. Hoover
------------------------------------
James B. Hoover
/s/ Robert A. Minicucci
------------------------------------
Robert A. Minicucci
/s/ Anthony J. de Nicola
------------------------------------
Anthony J. de Nicola
DAVID F. BELLET - TRUSTEE F/B/O
DAVID F. BELLET PROFIT SHARING
PLAN, DLJSC CUSTODIAN
By: /s/ David F. Bellet
--------------------------------
Name:
Title:
HORIZON INVESTMENTS ASSOCIATES, I
By: /s/ illegible
---------------------------------
Name:
Title:
SPROUT CEO FUND, L.P.
By:
Its: Managing General Partner
By: /s/ illegible
--------------------------------
Name:
Title:
-4-
<PAGE>
/s/ John K. Carlyle
------------------------------------
John K. Carlyle
/s/ Daniel J. Thomas
------------------------------------
Daniel J. Thomas
/s/ Richard D. Rehm, M.D.
------------------------------------
Richard D. Rehm, M.D.
/s/ James M. Greenwood
------------------------------------
James M. Greenwood
/s/ Fred R. Lowe
------------------------------------
Fred R. Lowe
-5-
<PAGE>
EXHIBIT A-1
CONSENT AND AGREEMENT
(Founder Group)
WHEREAS, AmComp Incorporated, a Delaware corporation (the
"Company"), Florida Administrators, Inc., a Florida corporation ("FAI"), and the
several parties named on the signature pages thereof under the heading
"Purchasers" and the several parties named on the signature pages thereof under
the heading "Founders" are parties to (i) a certain Stockholders Agreement dated
as of January 26, 1996 (the "Stockholders Agreement") and (ii) a certain
Registration Rights Agreement dated January 26, 1996 (the "Registration Rights
Agreement").
WHEREAS, _________________ has agreed to transfer _______
shares of Common Stock, $.01 par value per share, of the Company (the "Shares")
to the undersigned.
NOW, THEREFORE, the undersigned hereby consents and agrees as
follows:
4. The undersigned is joined as a party to the Stockholders
Agreement as a Founder, except that the undersigned shall not be deemed to be a
Founder under the Stockholders Agreement for purposes of (i) consenting to the
designation of the Purchaser Designee pursuant to Section 1(a)(ii)(z) of the
Stockholders Agreement or (ii) designating the Founder Designee pursuant to
Section 1(a)(ii)(B). The undersigned shall not be entitled in its capacity as a
Stockholder to reasonable out-of-pocket expenses incurred by it in attending
meetings as provided in the last sentence of Section 1(a) of the Stockholders
Agreement. The provisions of Section 7(b) of the Stockholders Agreement shall be
inapplicable to the undersigned. All capitalized terms used in this Section 1
and not defined herein shall have the meanings accorded them in the Stockholders
Agreement.
5. The undersigned is joined as a party to the Registration
Rights Agreement as a Founder and the Shares shall be deemed Founders Stock,
except that the undersigned shall not be entitled to request that the Company
effect a registration on Form S- 3 as provided in Section 5 of the Registration
Rights Agreement. Notwithstanding the foregoing, if any other holder of Founders
Stock or any holder of Restricted Stock shall make such a request of the
Company, the undersigned shall be entitled to join in such request as
contemplated by such Section 5. All capitalized terms used in this Section 2 and
not defined herein shall have the meaning accorded them in the Registration
Rights Agreement.
6. The undersigned acknowledges that the certificates for the
Shares shall bear a legend substantially as follows:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A
STOCKHOLDERS AGREEMENT, DATED AS OF JANUARY 26, 1996
AMONG AMCOMP INCORPORATED (THE "COMPANY") AND
CERTAIN HOLDERS OF SHARES OF THE OUTSTANDING CAPITAL
STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
COMPANY."
7. No sale, disposition or transfer of the Shares shall be
made unless the transferee of such Shares shall agree to join the Stockholder
Agreement and the Registration Rights Agreement by means of a Consent and
Agreement substantially in the form hereof.
IN WITNESS WHEREOF, the undersigned has executed this Consent
and Agreement on ___________________.
---------------------------------
Name:
Address:
---------------------------------
---------------------------------
<PAGE>
EXHIBIT A-2
CONSENT AND AGREEMENT
(Purchaser Group)
WHEREAS, AmComp Incorporated, a Delaware corporation (the
"Company"), Florida Administrators, Inc., a Florida corporation ("FAI"), and the
several parties named on the signature pages thereof under the heading
"Purchasers" and the several parties named on the signature pages thereof under
the heading "Founders" are parties to (i) a certain Stockholders Agreement dated
as of January 26, 1996 (the "Stockholders Agreement") and (ii) a certain
Registration Rights Agreement dated January 26, 1996 (the "Registration Rights
Agreement").
WHEREAS, _________________ has agreed to transfer _______
shares of Common Stock, $.01 par value per share, of the Company (the "Shares")
to the undersigned.
NOW, THEREFORE, the undersigned hereby consents and agrees as
follows:
8. The undersigned is joined as a party to the Stockholders
Agreement as a Purchaser, except that the undersigned shall not be deemed to be
a Purchaser under the Stockholders Agreement for purposes of (i) consenting to
the designation of the Founders Designee pursuant to Section 1(a)(i)(B) of the
Stockholders Agreement or (ii) designating the Purchaser Designee pursuant to
Section 1(a)(ii)(z). The undersigned shall not be entitled in its capacity as a
Stockholder to reasonable out-of-pocket expenses incurred by it in attending
meetings as provided in the last sentence of Section 1(a) of the Stockholders
Agreement. The provisions of Section 7(b) of the Stockholders Agreement shall be
inapplicable to the undersigned. All capitalized terms used in this Section 1
and not defined herein shall have the meanings accorded them in the Stockholders
Agreement.
9. The undersigned is joined as a party to the Registration
Rights Agreement as a Purchaser and the Shares shall be deemed Restricted Stock,
except that the undersigned shall not be entitled to request that the Company
effect a registration on Form S- 3 as provided in Section 5 of the Registration
Rights Agreement. Notwithstanding the foregoing, if any other holder of
Restricted Stock or any holder of Founders Stock shall make such a request of
the Company, the undersigned shall be entitled to join in such request as
contemplated by such Section 5. All capitalized terms used in this Section 2 and
not defined herein shall have the meaning accorded them in the Registration
Rights Agreement.
10. The undersigned acknowledges that the certificates for the
Shares shall bear a legend substantially as follows:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A
STOCKHOLDERS AGREEMENT, DATED AS OF JANUARY 26, 1996
AMONG AMCOMP INCORPORATED (THE "COMPANY") AND
CERTAIN HOLDERS OF SHARES OF THE OUTSTANDING CAPITAL
STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
COMPANY."
11. No sale, disposition or transfer of the Shares shall be
made unless the transferee of such Shares shall agree to join the Stockholder
Agreement and the Registration Rights Agreement by means of a Consent and
Agreement substantially in the form hereof.
IN WITNESS WHEREOF, the undersigned has executed this Consent
and Agreement on ___________________.
---------------------------------
Name:
Address:
---------------------------------
---------------------------------
<PAGE>
AMENDMENT NO. 2
TO
STOCKHOLDERS AGREEMENT
AMENDMENT NO. 2, dated as of December 31, 1996, to Stockholders
Agreement, dated as of January 26, 1996 (as heretofore amended by Amendment No.
1 thereto dated July 8, 1996, the "Stockholders Agreement") among AmComp
Incorporated, a Delaware corporation ("AmComp") and the other parties thereto.
The parties hereto hereby agree as follows:
1. Defined Terms. Defined terms used and not otherwise defined herein
have the respective meanings given thereto in the Stockholders Agreement.
2. Amendment to Stockholders Agreement. The Stockholders Agreement is
hereby further amended by the addition of the following Section at the end
thereof:
"SECTION 16. Additional Provisions (a) Sam A. Stephens shall
be entitled, on a single occasion only, to transfer up to 1,740,000
shares of Common Stock owned by him to a single, charitable remainder
trust established by him without being treated (unless such shares
shall thereafter be sold or transferred by such trust) as having
relinquished ownership of such shares for purposes of Section 1(a),
2(b) or 4(b) hereof, it being understood that Stephens and the trustees
of such trust shall in connection with such transfer to such trust
comply with the provisions of Section 4(c) hereof and Section 2 of
Amendment No. 1 hereto.
(b) In determining, for purposes of Section l(a), 2(b) or 4(b)
hereof, the percentage which the number of shares of Common Stock owned
from time to time by any Founder or Purchaser or by Stephens, as the
case may be, is of the shares of Common Stock owned by such person or
entity at a particular prior time, such person or entity shall be
treated, in order to reflect the five-for-two Common Stock split which
became effective on September 30, 1996, as having owned at that prior
time 2.5 times the number of shares of Common Stock actually owned by
such person or entity at that time. Any future split of Common Stock or
stock dividend payable in Common Stock shall result in a similar
adjustment."
<PAGE>
3. Effectiveness of Amendment. This Amendment shall become effective
when counterparts hereof have been executed and delivered to the Company by (i)
holders of a majority in interest of the Common Stock and Series A Preferred
Stock held at the date hereof by the Purchasers and (ii) the holders of a
majority in interest of the Common Stock held at the date hereof by the
Founders, all as provided in Section 11 of the Stockholders Agreement.
4. Effect of Amendment. Except to the extent amended hereby, each
provision of the Stockholders Agreement shall remain in full force and effect.
5. Governing Law. This instrument shall be governed by, and construed
in accordance with, the laws of the State of Delaware.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
AMCOMP INCORPORATED
By: /s/ Fred R. Lowe
--------------------------------------
Title President
FLORIDA ADMINISTRATORS, INC.
By: /s/ Sam A. Stephens
--------------------------------------
Title
/s/ Sam A. Stephens
---------------------------------------
Sam A. Stephens
/s/ Dale E. Hanson
----------------------------------------
Dale E. Hanson
/s/ Alan N. Duggan
----------------------------------------
Alan N. Duggan
/s/ Fred R. Lowe
----------------------------------------
Fred R. Lowe
WELSH CARSON, ANDERSON & STOWE VII,
L.P.
By WCAS VII Partners, L.P.,
General Partner
By:/s/ Laura VanBuren
-------------------------------------
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HP Partners, General Partner
By:/s/ Laura VanBuren
-------------------------------------
Attorney-in-Fact
6 -3-
<PAGE>
SPROUT GROWTH II, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By: /s/ Richard E. Kroon
------------------------------------
Its: President
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By: /s/ Richard E. Kroon
-----------------------------------
Its: President
DLJ CAPITAL CORPORATION
By: /s/ Richard E. Kroon
-------------------------------------
Its: President
Patrick J. Welsh*
Russell L. Carson*
Bruce K. Anderson*
Richard H. Stowe*
Andrew M. Paul*
Thomas E. McInerney*
James B. Hoover*
Robert A. Minicucci*
Anthony J. de Nicola*
Paul B. Queally*
*By:/s/ Laura VanBuren
---------------------------------------
Attorney-in-fact
/s/ Laura VanBuren
--------------------------------------
Laura M. VanBuren
-4-
<PAGE>
PROFIT SHARING PLAN. DLJSC -
CUSTODIAN F/B/O DAVID F. BELLET
By:/s/ David F. Bellet
-------------------------------------
David F. Bellet
Trustee
HORIZON INVESTMENTS ASSOCIATES, I
By: /s/ Illegible
------------------------------------
By:
------------------------------------
Jonh K. Carlyle
By:
------------------------------------
Daniel J. Thomas
By:
------------------------------------
Richard D. Rhem
By:
------------------------------------
James M. Greenwood
REGISTRATION RIGHTS AGREEMENT
January 26, 1996
To the several persons named
at the foot hereof
Ladies and Gentlemen:
This will confirm that (a) with respect to the several individuals and
entities named as Purchasers in the Securities Purchase and Asset Transfer
Agreement dated as of January 26, 1996 (the "Purchase Agreement") among AMCOMP
INCORPORATED, a Delaware corporation (the "Company"), Welsh, Carson, Anderson &
Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), Sprout Growth II,
L.P., a Delaware limited partnership ("Sprout"), and the other several
purchasers named in Annex I thereto (WCAS VII, Sprout and such other several
purchasers are hereinafter referred to collectively as the "Purchasers"), in
consideration of (i) the purchase by the Purchasers pursuant to Sections 1.01
and 1.04 of the Purchase Agreement (A) from the Company of 1,400,000 shares of
Series A Convertible Preferred Stock, par value $1 per share ("Series A
Preferred Stock"), of the Company and (B) from the Founders (as defined herein)
of 1,600,000 shares (the "Common Shares") of the Company's Common Stock, $.01
par value per share, and (ii) the possible future purchases by the Purchasers
from the Company pursuant to Article II of the Purchase Agreement of (X) up to
1,000,000 additional shares of Series A Preferred Stock and (Y) up to 1,000,000
shares of 10% Series B Non-Convertible Cumulative Preferred Stock, $1 par value
per share ("Series B Preferred Stock," and collectively with the Series A
Preferred Stock, the "Preferred Stock"), of the Company, and as an inducement to
the Purchasers to consummate the transactions contemplated by the Purchase
Agreement, and (b) with respect to the several stockholders of the Company
listed in Annex II to the Purchase Agreement (collectively, the "Founders"), in
consideration of the entry by them into the Stockholders Agreement, dated as of
the date hereof, among the stockholders of the Company, and as an inducement to
them to consummate the transactions contemplated by the Stockholders Agreement
and the Purchase Agreement, the Company hereby covenants and agrees with each of
you, and with each subsequent
<PAGE>
holder of Restricted Stock (as such term is defined herein), and with each
holder of Founders Stock (as hereinafter defined) as follows:
1. Certain Definitions. As used herein, the following terms shall have
the following respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.01 par value per
share, of the Company, as constituted as of the date of this Agreement,
subject to adjustment pursuant to the provisions of Section 10 hereof.
"Conversion Stock" means the shares of Common Stock issuable
upon conversion of any of the Series A Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934 or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Founders Stock" means the 3,400,000 shares of Common Stock to
be owned by the Founders upon consummation of the transactions
contemplated by Section 1.01 and Section 1.04 of the Purchase
Agreement.
"Registration Expenses" means the expenses so described in
Section 8 hereof.
"Restricted Stock" means the shares of capital stock of the
Company, other than Founders Stock, the certificates for which are
required to bear the legend set forth in Section 2 hereof.
"Securities Act" means the Securities Act of 1933 or any
similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means the expenses so described in Section
8 hereof.
2. Restrictive Legend. Each certificate representing the Common Shares,
each certificate representing the Preferred Stock, each certificate representing
the Founders Stock, each certificate representing the Conversion Stock and each
certificate issued upon exchange, adjustment or transfer thereof, other than in
a public sale or as otherwise permitted by the last
-2-
<PAGE>
paragraph of Section 3 hereof, shall be stamped or otherwise imprinted with a
legend substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY
HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
Restricted Stock or Founders Stock, as the case may be (other than under the
circumstances described in Sections 4, 5 or 6 hereof), the holder thereof shall
give written notice to the Company of its intention to effect such transfer.
Each such notice shall describe the manner of the proposed transfer and, if
requested by the Company, shall be accompanied by an opinion of counsel
reasonably satisfactory to the Company (it being agreed that Reboul, MacMurray,
Hewitt, Maynard & Kristol is and shall be satisfactory) to the effect that the
proposed transfer of the Restricted Stock or Founders Stock, as the case may be,
may be effected without registration under the Securities Act, whereupon the
holder of such Restricted Stock or Founders Stock, as the case may be, shall be
entitled to transfer such Restricted Stock or Founders Stock, as the case may
be, in accordance with the terms of its notice. Each certificate for Restricted
Stock or Founders Stock, as the case may be, transferred as above provided shall
bear the legend set forth in Section 2, unless (i) such transfer is in
accordance with the provisions of Rule 144 (or any other rule permitting public
sale without registration under the Securities Act) or (ii) the opinion of
counsel referred to above is to the further effect that the transferee and any
subsequent transferee (other than an affiliate of the Company) would be entitled
to transfer such securities in a public sale without registration under the
Securities Act.
The foregoing restrictions on transferability of Restricted Stock and
Founders Stock shall terminate as to any particular shares of Restricted Stock
or Founders Stock when such shares shall have been effectively registered under
the Securities Act and sold or otherwise disposed of in accordance with the
intended method of disposition by the seller or sellers thereof set forth in the
registration statement concerning such shares. Whenever a holder of Restricted
Stock or Founders Stock is able to demonstrate to the Company (and its counsel)
that the provisions of Rule 144(k) of the Securities Act are available to such
holder without limitation, such holder of Restricted Stock or Founders Stock
shall be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend set forth in Section 2.
-3-
<PAGE>
4. Required Registration.
(a) Subject to the provisions of paragraph (e) below, following the
expiration of thirty (30) months after the Initial Closing Date, or, if earlier,
the date on which the Company completes an Initial Public Offering (as defined
in the Purchase Agreement), at any time the holders of Restricted Stock
constituting at least a majority of the Restricted Stock outstanding at such
time may request the Company to register under the Securities Act all or any
portion of the Restricted Stock held by such requesting holder or holders for
sale in the manner specified in such notice provided, however, that the only
securities which the Company shall be required to register pursuant hereto shall
be shares of Common Stock; provided, further, however, that in any such case the
reasonably anticipated aggregate price to the public of the shares to be so
registered shall not be less than $10,000,000. For the purposes of calculating
the holdings of outstanding Restricted Stock by holders of Preferred Stock for
purposes of this Section 4(a) and Section 13(d), (i) holders of Series A
Preferred Stock shall be treated as the holders of the number of shares of
Conversion Stock then issuable upon conversion of such shares and (ii) Series B
Preferred Stock shall not be counted.
(b) Promptly following receipt of any notice under this Section 4, the
Company shall notify any holders of Restricted Stock from whom notice has not
been received and any holders of Founders Stock, and shall use its best efforts
to register under the Securities Act, for public sale in accordance with the
method of disposition specified in such notice from such requesting holders, the
number of shares of Restricted Stock specified in such notice (and in any
notices received from other such holders of Restricted Stock and holders of
Founders Stock, as the case may be, within 20 days after their receipt of such
notice from the Company); provided, however, that if the proposed method of
disposition specified by the requesting holders shall be an underwritten public
offering, the number of shares of Restricted Stock or Founders Stock or both, as
the case may be, to be included in such an offering may be reduced (first, pro
rata among the requesting holders of Founders Stock based on the number of
shares of Founders Stock so requested to be registered and second, pro rata
among the requesting holders of Restricted Stock based on the number of shares
of Restricted Stock so requested to be registered) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the Restricted Stock to be sold. If such method of
disposition shall be an underwritten public offering, the Company may designate
the managing underwriter of such offering, subject to the approval of the
selling
-4-
<PAGE>
holders of a majority of the Restricted Stock included in the offering, which
approval shall not be unreasonably withheld. Notwithstanding anything to the
contrary contained herein, the obligation of the Company under this Section 4
shall be deemed satisfied only when a registration statement covering all shares
of Restricted Stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holder,
shall have become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been sold
pursuant thereto; provided, however, that if such notice is given and such a
registration statement shall have been filed under the Securities Act and the
registration is thereafter terminated for any reason other than a determination
by the Company not to proceed with the same, then, unless the requesting holders
shall pay all Registration Expenses (as defined herein) in connection therewith,
such attempted registration shall count as a required registration pursuant to
this Section 4 by the holders of Restricted Stock, requesting the same for
purposes of paragraph (e) below, in which event, the Company will permit such
parties an additional registration pursuant to this Section 4, in which all
Registration Expenses (as well as all Selling Expenses) will be paid by the
requesting holders.
(c) In the event that the Board of Directors of the Company determines
in good faith that the filing of a registration statement pursuant hereto would
be detrimental to the Company, the Board of Directors may defer such filing for
a period not to exceed sixty (60) days. The Board of Directors may not effect
more than one such deferral during any twelve month period. The Board of
Directors agrees to promptly notify all holders of Restricted Stock of any such
deferral, and shall provide to such holders a reasonably complete explanation
therefor.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except to the extent that, in the
opinion of the managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. Except as provided in this
paragraph (d), the Company will not effect any other registration of its Common
Stock, whether for its own account or that of other holders, from the date of
receipt of a notice from requesting holders pursuant to this Section 4 until the
completion of the period of distribution of the registration contemplated
thereby.
-5-
<PAGE>
(e) Notwithstanding anything to the contrary contained herein, the
Company shall be obligated to register Restricted Stock pursuant to this Section
4 on two occasions only.
5. Form S-3 Registration.
(a) If the Company shall receive from any holder or holders of
Restricted Stock or Founders Stock, a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to Restricted Stock or Founders Stock, as the case may
be, owned by such holder or holders, the reasonably anticipated aggregate price
to the public of which would exceed $1,500,000, the Company will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other holders of
Restricted Stock and Founders Stock; and
(ii) as soon as is reasonably practicable, use its best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other government requirements
or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
holder's or holders' Restricted Stock or Founders Stock, as the case
may be, as are specified in such request, together with all or such
portion of the Restricted Stock or Founders Stock of any holder or
holders joining in such request as are specified in a written request
given within thirty (30) days after receipt of such written notice from
the Company, provided, however that the Company shall not be obligated
to effect any such registration, qualification or compliance pursuant
to this Section 5(a) (A) more than once in any 180-day period, or (B)
if the Company is not entitled to use Form S-3, and further provided,
however, that the only securities which the Company shall be required
to register pursuant hereto shall be shares of Common Stock. Subject to
the foregoing, the Company shall file a registration statement covering
the Restricted Stock and Founders Stock so requested to be registered
as soon as is reasonably practicable after receipt of the request or
requests of the holders of the Restricted Stock and Founders Stock, as
the case may be.
(b) Registrations effected pursuant to this Section 5 shall not be
counted as requests for registration pursuant to Section 4.
-6-
<PAGE>
6. Incidental Registration. If the Company at any time (other than
pursuant to Section 4 or 5 hereof) proposes to register any of its Common Stock
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Form S-4 or S-8 or another form not available for
registering the Restricted Stock for sale to the public), it will give written
notice at such time to all holders of outstanding Restricted Stock and Founders
Stock of its intention to do so. Upon the written request of any such holder,
given within 30 days after receipt of any such notice by the Company, to
register any of its Restricted Stock or Founders Stock or both, as the case may
be, (which request shall state the intended method of disposition thereof), the
Company will use its best efforts to cause the Restricted Stock or Founders
Stock or both, as the case may be, as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Restricted Stock or Founders Stock, as the case may be,
so registered; provided that nothing herein shall prevent the Company from
abandoning or delaying such registration at any time. In the event that any
registration pursuant to this Section 6 shall be, in whole or in part, an
underwritten public offering of Common Stock, any request by a holder pursuant
to this Section 6 to register Restricted Stock or Founders Stock, as the case
may be, shall specify that either (i) such Restricted Stock or Founders Stock,
as the case may be, is to be included in the underwriting on the same terms and
conditions as the shares of Common Stock otherwise being sold through
underwriters in connection with such registration or (ii) such Restricted Stock
or Founders Stock, as the case may be, is to be sold in the open market without
any underwriting, on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances. The
number of shares of Restricted Stock or Founders Stock or both, as the case may
be, to be included in an underwriting in accordance with clause (i) above may be
reduced pro rata among the requesting holders of Restricted Stock or Founders
Stock, as applicable, based upon the number of shares of Restricted Stock or
Founders Stock so requested to be registered, if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company therein;
provided, however, that such number of shares of Restricted Stock or Founders
Stock or both, as the case may be, shall not be reduced if any shares are to be
included in such underwriting for the account of any person other than the
Company.
Notwithstanding anything to the contrary contained in this Section 6,
in the event that there is a firm commitment underwritten public offering of
securities of the Company
-7-
<PAGE>
pursuant to a registration covering Restricted Stock or Founders Stock or both,
as the case may be, and a holder of Restricted Stock or Founders Stock, as the
case may be, does not elect to sell his Restricted Stock or Founders Stock, as
the case may be, to the underwriters of the Company's securities in connection
with such offering, such holder shall refrain from selling such Restricted Stock
or Founders Stock, as the case may be, so registered pursuant to this Section 6
during the period of distribution of the Company's securities by such
underwriters and the period in which the underwriting syndicate participates in
the after market; provided, however, that such holder shall, in any event, be
entitled to sell its Restricted Stock or Founders Stock, as the case may be,
commencing on the 90th day after the effective date of such registration
statement or, if later, on such date (but in no event later than the 180th day
after such effective date) as contractual "lock-up" restrictions imposed by the
underwriters shall expire or be released.
7. Registration Procedures. If and whenever the Company is required by
the provisions of Section 4, 5 or 6 hereof to use its best efforts to effect the
registration of any of the Restricted Stock or Founders Stock or both, as the
case may be, under the Securities Act, the Company will, as expeditiously as
possible:
(a) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission a registration statement (which, in the case of an
underwritten public offering pursuant to Section 4 hereof, shall be on
Form S-1 or another form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period
specified in paragraph (a) above and as comply with the provisions of
the Securities Act with respect to the disposition of all Restricted
Stock or Founders Stock or both, as the case may be, covered by such
registration statement in accordance with the sellers' intended method
of disposition set forth in such registration statement for such
period;
(c) furnish to each seller and to each underwriter such number
of copies of the registration statement and the
-8-
<PAGE>
prospectus included therein (including each preliminary prospectus) as
such persons may reasonably request in order to facilitate the public
sale or other disposition of the Restricted Stock or Founders Stock or
both, as the case may be, covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted
Stock or Founders Stock or both, as the case may be, covered by such
registration statement under the securities or blue sky laws of such
jurisdictions as the sellers of Restricted Stock or Founders Stock or
both, as the case may be, or, in the case of an underwritten public
offering, the managing underwriter, shall reasonably request (provided
that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required
to qualify but for this paragraph (d), (ii) subject itself to taxation
in any such jurisdiction or (iii) consent to general service of process
in any jurisdiction);
(e) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
(following which notification the sellers agree to discontinue sales of
their Restricted Stock or Founders Stock covered by such Registration
Statement until such misstatement or omission shall have been
remedied);
(f) use all reasonable efforts (if the offering is
underwritten) to furnish, at the request of any seller, on the date
that Restricted Stock or Founders Stock or both, as the case may be, is
delivered to the underwriters for sale pursuant to such registration:
(i) an opinion of counsel representing the Company for the purposes of
such registration, addressed to the underwriters and to such seller and
dated such date, stating that such registration statement has become
effective under the Securities Act and that (A) to the best knowledge
of such counsel, no stop order suspending the effectiveness thereof has
been issued and no proceedings for that purpose have been instituted or
are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus, and each amendment or
supplement thereof, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder (except that such counsel need
-9-
<PAGE>
express no opinion as to financial statements, the notes thereto, and
the financial schedules and other financial and statistical data
contained therein) and (C) to such other effects as may reasonably be
requested by counsel for the underwriters or by such seller or its
counsel and which are customary in underwritings of the type being
undertaken, and (ii) a letter dated such date from the independent
public accountants retained by the Company, addressed to the
underwriters, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in
the registration statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five business days
prior to the date of such letter) with respect to the registration in
respect of which such letter is being given as such underwriters or
seller may reasonably request; and
(g) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement and permit such seller, attorney, accountant or agent to
participate in the preparation of such registration statement.
For purposes of paragraphs (a) and (b) above and of Section 4(c) hereof, the
period of distribution of Restricted Stock or Founders Stock or both, as the
case may be, in a firm commitment underwritten public offering shall be deemed
to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Restricted Stock
or Founders Stock or both, as the case may be, in any other registration shall
be deemed to extend until the earlier of the sale of all Restricted Stock or
Founders Stock or both, as the case may be, covered thereby or six months after
the effective date thereof.
In connection with each registration hereunder, the selling
holders of Restricted Stock and Founders Stock, if applicable, will furnish to
the Company in writing such information with respect to themselves and the
proposed distribution by them as shall be reasonably necessary in order to
assure compliance with federal and applicable state securities laws.
-10-
<PAGE>
In connection with each registration pursuant to Sections 4, 5
and 6 hereof covering an underwritten public offering, the Company agrees to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between major
underwriters and companies of the Company's size and investment stature,
provided, however, that such agreement shall not contain any such provision
applicable to the Company which is inconsistent with the provisions hereof and
provided, further, however, that the time and place of the closing under said
agreement shall be as mutually agreed upon among the Company, such managing
underwriter and the selling holders of Restricted Stock and Founders Stock, if
applicable.
8. Expenses. All expenses incurred by the Company in complying with
Sections 4, 5 and 6 hereof, including without limitation all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars and fees and expenses of one counsel for the sellers of Restricted
Stock and the sellers of Founders Stock (or, if there shall be no sellers of
Restricted Stock, one counsel for the sellers of Founders Stock), but excluding
any Selling Expenses, are herein called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock or Founders Stock or both, as the case may be, are herein
called "Selling Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement filed pursuant to Section 4, 5 or 6 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 4, 5 or 6 hereof shall be borne by the participating sellers in
proportion to the number of shares sold by each, or by such persons other than
the Company (except to the extent the Company shall be a seller) as they may
agree.
9. Indemnification. In the event of a registration of any of the
Restricted Stock or Founders Stock or both, as the case may be, under the
Securities Act pursuant to Section 4, 5 or 6 hereof, the Company will indemnify
and hold harmless each seller of such Restricted Stock or Founders Stock, as the
case may be, thereunder and each underwriter of Restricted Stock or Founders
Stock or both, as the case may be, thereunder and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such seller or underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged
-11-
<PAGE>
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock or Founders Stock or both, as the case may be,
was registered under the Securities Act pursuant to Section 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such seller, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such
seller, such underwriter or such controlling person in writing specifically for
use in such registration statement or prospectus.
In the event of a registration of any of the Restricted Stock
or Founders Stock or both, as the case may be, under the Securities Act pursuant
to Section 4, 5 or 6 hereof, each seller of such Restricted Stock or Founders
Stock, as the case may be, thereunder, severally and not jointly, will indemnify
and hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer or director or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such
Restricted Stock or Founders Stock or both, as the case may be, was registered
under the Securities Act pursuant to Section 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that such seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission
-12-
<PAGE>
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus;
provided, further, however, that the liability of each seller hereunder shall be
limited to the proceeds (net of underwriting discounts and commissions) received
by such seller from the sale of Restricted Stock or Founders Stock, as the case
may be, covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party other than under this Section 9. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 9 for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party, or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees
-13-
<PAGE>
and disbursements of more than one separate firm qualified in such jurisdiction
to act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two
paragraphs of this Section 9 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Restricted Stock or Founders Stock, as
the case may be, on the other, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or actions as well
as any other relevant equitable considerations, including the failure to give
any notice under the third paragraph of this Section 9. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Company, on the one hand, or the underwriters and the sellers of such Restricted
Stock or Founders Stock, as the case may be, on the other, and to the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and each of you agree that it
would not be just and equitable if contributions pursuant to this paragraph were
determined by pro rata allocation (even if all of the sellers of such Restricted
Stock or Founders Stock, as the case may be, were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph, the sellers
of such Restricted Stock or Founders Stock, as the case may be, shall not be
required to contribute any amount in excess of the amount, if any, by which the
total price at which the Common Stock sold by each of them was offered to the
public exceeds the amount of any damages which they would have otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission. No person guilty of fraudulent misrepresentations (within the meaning
of Section 11(f) of the
-14-
<PAGE>
Securities Act), shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
The indemnification of underwriters provided for in this
Section 9 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. In that event the
indemnification of the sellers of Restricted Stock or Founders Stock or both, as
the case may be, in such underwriting shall at the sellers' request be modified
to conform to such terms and conditions.
10. Changes in Common Stock. If, and as often as, there are any changes
in the Common Stock by way of stock split, stock dividend, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.
11. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation
or By-laws of the Company, or any provision of any indenture, agreement
or other instrument to which it or any of its properties or assets is
bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of
the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to
considerations of public policy in the case of the indemnification
provisions hereof.
12. Rule 144 Reporting. The Company agrees with you as follows:
(a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144(c)(1)
or (c)(2), whichever is applicable, under the Securities Act, at all
times from and after the date it is first required to do so.
-15-
<PAGE>
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe
under Section 13(a) or 15(d) of the Exchange Act at any time after the
Company has become subject to such reporting requirements of the
Exchange Act.
(c) The Company shall furnish to such holder of Restricted
Stock forthwith upon request (i) a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any
time from and after the date it first becomes subject to such reporting
requirements) and of the Securities Act and the Exchange Act (at any
time from and after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents so
filed as a holder may reasonably request to avail itself of any rule or
regulation of the Commission allowing a holder of Restricted Stock to
sell any such securities without registration.
13. Miscellaneous.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. Without limiting the generality of
the foregoing, the registration rights conferred herein on the holders
of Restricted Stock shall inure to the benefit of any and all
subsequent holders from time to time of the Restricted Stock for so
long as the certificates representing the Restricted Stock shall be
required to bear the legend specified in Section 2 hereof.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class
registered mail, postage prepaid, addressed as follows:
if to the Company, to it at
701 U.S. Highway One
Suite 200
North Palm Beach, Florida 33408
Attention: Chief Executive Officer
-16-
<PAGE>
with a copy to
Olshan, Grundman, Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: David J. Adler, Esq.
if to any holder of Restricted Stock, to such holders at the
address as set forth under such holder's name in Annex I to the
Purchase Agreement;
if to any Founder, to him at his address as set forth in Annex
II to the Purchase Agreement;
if to any subsequent holder of Restricted Stock or Founders
Stock, to such holder at such address as may have been furnished to the
Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of
Restricted Stock or Founders Stock) or to the holders of Restricted
Stock or Founders Stock (in the case of the Company).
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may
not be modified or amended except in writing signed by the Company and
the holders of not less than 66-2/3% of each of the Restricted Stock
and Founders Stock then outstanding, provided that no modification or
amendment shall deprive any holder of Restricted Stock or Founders
Stock of any material right under this Agreement without such holder's
consent. The Company will not grant any registration rights to any
other person without the written consent of the holders of 66-2/3% of
the Restricted Stock then outstanding if such rights could reasonably
be expected to conflict with, or be on a parity with, the rights of
holders of Restricted Stock granted under this Agreement. If pursuant
to Section 1.04 of the Purchase Agreement, the Initial Purchasers
instead of the Deferring Purchasers (as such terms are defined in the
Purchase Agreement) purchase the shares of capital stock of the Company
to be purchased on the Deferred Closing Date (as so defined) as
provided therein, then all references to "Purchasers" herein shall be
deemed references to "Initial Purchasers" as so defined.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
-17-
<PAGE>
all of which together shall constitute one and the same instrument.
-18-
<PAGE>
Please indicate your acceptance of the foregoing by signing
and returning the enclosed counterpart of this letter, whereupon this letter
(herein sometimes called "this Agreement") shall be a binding agreement between
the Company and you.
Very truly yours,
AMCOMP INCORPORATED
By /s/ Sam A. Stephens
------------------------------------
President
AGREED TO AND ACCEPTED
as of the date first
above written.
THE FOUNDERS:
/s/ Sam A. Stephens
- ----------------------------------
Sam A. Stephens
/s/ Dale E. Hanson
- ----------------------------------
Dale E. Hanson
/s/ Alan N. Duggan
- ----------------------------------
Alan N. Duggan
THE PURCHASERS:
WELSH CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P., General Partner
By: /s/ Laura VanBuren
------------------------------
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HP Partners, General Partner
By: /s/ Laura VanBuren
------------------------------
General Partner
SPROUT GROWTH II, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
<PAGE>
By: /s/ Paul Queally
------------------------------
Paul Queally
Its: Attorney-In-Fact
SPROUT CAPITAL VII, L.P.
By DLJ Capital Corporation
Its: Managing General Partner
By: /s/ Paul Queally
------------------------------
Paul Queally
Its: Attorney-In-Fact
DLJ CAPITAL CORPORATION
By: /s/ Paul Queally
------------------------------
Title: Attorney-In-Fact
/s/ Patrick J. Welsh
- ----------------------------------
Patrick J. Welsh
/s/ Russel L. Carson
- ----------------------------------
Russell L. Carson
/s/ Bruce K. Anderson
- ----------------------------------
Bruce K. Anderson
/s/ Richard H. Stowe
- ----------------------------------
Richard H. Stowe
/s/ Andrew M. Paul
- ----------------------------------
Andrew M. Paul
<PAGE>
/s/ Thomas E. McInerney
- ----------------------------------
Thomas E. McInerney
/s/ Laura VanBuren
- ----------------------------------
Laura VanBuren
/s/ James B. Hoover
- ----------------------------------
James B. Hoover
/s/ Robert A. Minicucci
- ----------------------------------
Robert A. Minicucci
/s/ Anthony J. de Nicola
- ----------------------------------
Anthony J. de Nicola
DLJSC AS CUSTODIAN FOR
DAVID F. BELLET
By: /s/ David F. Bellet
----------------------------------
Trustee
HORIZON INVESTMENTS ASSOCIATES, I
By: /s/ Illegible
----------------------------------
Managing Partner
<PAGE>
SPROUT CEO FUND, L.P.
By
Its: Managing General Partner
By: /s/ Paul Queally
----------------------------------
Patrick Queally
Its: Attorney-In-Fact
<PAGE>
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT
AND REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 1 dated July 8, 1996 to STOCKHOLDERS AGREEMENT
and REGISTRATION RIGHTS AGREEMENT by and among AmComp Incorporated, a Delaware
corporation (the "Company"), Florida Administrators, Inc., a Florida corporation
("FAI"), and the several parties named on the signature pages hereof under the
heading "Stockholders" (collectively, the "Stockholders").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company, FAI and the Stockholders have entered
into (i) a certain Stockholders Agreement dated as of January 26, 1996 and (ii)
a certain Registration Rights Agreement dated January 26, 1996 (the
"Registration Rights Agreement"); and
WHEREAS, the parties to each of the Stockholders Agreement and
Registration Rights Agreement desire to amend and clarify such Agreements.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
Section 1. Capitalized Terms. All capitalized terms used
herein and not defined shall have the meanings accorded them in the Stockholders
Agreement.
Section 2. Transferees of Common Stock. No sale, transfer or
other disposition of shares of Common Stock pursuant to Section 4 of the
Stockholders Agreement shall be valid unless any such transferee thereof is
joined as a party to the Stockholders Agreement and the Registration Rights
Agreement by executing and delivering a Consent and Agreement substantially in
the form of Exhibit A-1 hereto or A-2 hereto, whichever is applicable.
Section 3. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
<PAGE>
Amendment as of the day and year first above written.
AMCOMP INCORPORATED
By:/s/ Sam A. Stephens
----------------------------------
Name: Sam A. Stephens
Title: President
FLORIDA ADMINISTRATIONS, INC.
By:/s/ Sam A. Stephens
----------------------------------
Name: Sam A. Stephens
Title:President
THE STOCKHOLDERS
/s/ Sam A. Stephens
-------------------------------------
Sam A. Stephens
/s/ Dale E. Hanson
-------------------------------------
Dale E. Hanson
/s/ Alan N. Duggan
-------------------------------------
Alan N. Duggan
WELSH CARSON, ANDERSON & STOWE
VII, L.P.
By: WCAS VII Partners, L.P.,
General Partner
By: /s/ Laura VanBuren
----------------------------------
Name: Laura VanBuren
Title:
WCAS HEALTHCARE PARTNERS, L.P.
By: WCAS HP Partners,
General Partner
By: /s/ Laura VanBuren
----------------------------------
Name: Laura VanBuren
Title:
-2-
<PAGE>
SPROUT GROWTH II, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By: /s/ Richard E. Kroon
----------------------------------
Name: Richard E. Kroon
Title:
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By: /s/ Richard E. Kroon
----------------------------------
Name: Richard E. Kroon
Title:
DLJ CAPITAL CORPORATION
By: /s/ Richard E. Kroon
----------------------------------
Name: Richard E. Kroon
Title:
/s/ Patrick J. Welsh
-------------------------------------
Patrick J. Welsh
/s/ Russel L. Carson
-------------------------------------
Russel L. Carson
/s/ Bruce K. Anderson
-------------------------------------
Bruce K. Anderson
/s/ Richard H. Stowe
-------------------------------------
Richard H. Stowe
/s/ Andrew M. Paul
-------------------------------------
Andrew M. Paul
/s/ Thomas E. McInerney
-------------------------------------
Thomas E. McInerney
-3-
<PAGE>
/s/ Laura VanBuren
-------------------------------------
Laura VanBuren
/s/ James B. Hoover
-------------------------------------
James B. Hoover
/s/ Robert A. Minicucci
-------------------------------------
Robert A. Minicucci
/s/ Anthony J. de Nicola
-------------------------------------
Anthony J. de Nicola
DAVID F. BELLET - TRUSTEE F/B/O DAVID
F. BELLET PROFIT SHARING PLAN, DLJSC
CUSTODIAN
By: /s/ David F. Bellet
----------------------------------
Name:
Title:
HORIZON INVESTMENTS ASSOCIATES, I
By: /s/ illegible
----------------------------------
Name:
Title:
SPROUT CEO FUND, L.P.
By:
Its: Managing General Partner
By: /s/ illegible
----------------------------------
Name:
Title:
-4-
<PAGE>
/s/ John K. Carlyle
-------------------------------------
John K. Carlyle
/s/ Daniel J. Thomas
-------------------------------------
Daniel J. Thomas
/s/ Richard D. Rehm, M.D.
-------------------------------------
Richard D. Rehm, M.D.
/s/ James M. Greenwood
-------------------------------------
James M. Greenwood
/s/ Fred R. Lowe
-------------------------------------
Fred R. Lowe
-5-
<PAGE>
EXHIBIT A-1
CONSENT AND AGREEMENT
(Founder Group)
WHEREAS, AmComp Incorporated, a Delaware corporation (the
"Company"), Florida Administrators, Inc., a Florida corporation ("FAI"), and the
several parties named on the signature pages thereof under the heading
"Purchasers" and the several parties named on the signature pages thereof under
the heading "Founders" are parties to (i) a certain Stockholders Agreement dated
as of January 26, 1996 (the "Stockholders Agreement") and (ii) a certain
Registration Rights Agreement dated January 26, 1996 (the "Registration Rights
Agreement").
WHEREAS, _________________ has agreed to transfer _______
shares of Common Stock, $.01 par value per share, of the Company (the "Shares")
to the undersigned.
NOW, THEREFORE, the undersigned hereby consents and agrees as
follows:
4. The undersigned is joined as a party to the Stockholders
Agreement as a Founder, except that the undersigned shall not be deemed to be a
Founder under the Stockholders Agreement for purposes of (i) consenting to the
designation of the Purchaser Designee pursuant to Section 1(a)(ii)(z) of the
Stockholders Agreement or (ii) designating the Founder Designee pursuant to
Section 1(a)(ii)(B). The undersigned shall not be entitled in its capacity as a
Stockholder to reasonable out-of-pocket expenses incurred by it in attending
meetings as provided in the last sentence of Section 1(a) of the Stockholders
Agreement. The provisions of Section 7(b) of the Stockholders Agreement shall be
inapplicable to the undersigned. All capitalized terms used in this Section 1
and not defined herein shall have the meanings accorded them in the Stockholders
Agreement.
5. The undersigned is joined as a party to the Registration
Rights Agreement as a Founder and the Shares shall be deemed Founders Stock,
except that the undersigned shall not be entitled to request that the Company
effect a registration on Form S- 3 as provided in Section 5 of the Registration
Rights Agreement. Notwithstanding the foregoing, if any other holder of Founders
Stock or any holder of Restricted Stock shall make such a request of the
Company, the undersigned shall be entitled to join in such request as
contemplated by such Section 5. All capitalized terms used in this Section 2 and
not defined herein shall have the meaning accorded them in the Registration
Rights Agreement.
6. The undersigned acknowledges that the certificates for the
Shares shall bear a legend substantially as follows:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A
STOCKHOLDERS AGREEMENT, DATED AS OF JANUARY 26, 1996
AMONG AMCOMP INCORPORATED (THE "COMPANY") AND
CERTAIN HOLDERS OF SHARES OF THE OUTSTANDING CAPITAL
STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
COMPANY."
7. No sale, disposition or transfer of the Shares shall be
made unless the transferee of such Shares shall agree to join the Stockholder
Agreement and the Registration Rights Agreement by means of a Consent and
Agreement substantially in the form hereof.
IN WITNESS WHEREOF, the undersigned has executed this Consent
and Agreement on ___________________.
---------------------------------
Name:
Address:
---------------------------------
---------------------------------
<PAGE>
EXHIBIT A-2
CONSENT AND AGREEMENT
(Purchaser Group)
WHEREAS, AmComp Incorporated, a Delaware corporation (the
"Company"), Florida Administrators, Inc., a Florida corporation ("FAI"), and the
several parties named on the signature pages thereof under the heading
"Purchasers" and the several parties named on the signature pages thereof under
the heading "Founders" are parties to (i) a certain Stockholders Agreement dated
as of January 26, 1996 (the "Stockholders Agreement") and (ii) a certain
Registration Rights Agreement dated January 26, 1996 (the "Registration Rights
Agreement").
WHEREAS, _________________ has agreed to transfer _______
shares of Common Stock, $.01 par value per share, of the Company (the "Shares")
to the undersigned.
NOW, THEREFORE, the undersigned hereby consents and agrees as
follows:
8. The undersigned is joined as a party to the Stockholders
Agreement as a Purchaser, except that the undersigned shall not be deemed to be
a Purchaser under the Stockholders Agreement for purposes of (i) consenting to
the designation of the Founders Designee pursuant to Section 1(a)(i)(B) of the
Stockholders Agreement or (ii) designating the Purchaser Designee pursuant to
Section 1(a)(ii)(z). The undersigned shall not be entitled in its capacity as a
Stockholder to reasonable out-of-pocket expenses incurred by it in attending
meetings as provided in the last sentence of Section 1(a) of the Stockholders
Agreement. The provisions of Section 7(b) of the Stockholders Agreement shall be
inapplicable to the undersigned. All capitalized terms used in this Section 1
and not defined herein shall have the meanings accorded them in the Stockholders
Agreement.
9. The undersigned is joined as a party to the Registration
Rights Agreement as a Purchaser and the Shares shall be deemed Restricted Stock,
except that the undersigned shall not be entitled to request that the Company
effect a registration on Form S- 3 as provided in Section 5 of the Registration
Rights Agreement. Notwithstanding the foregoing, if any other holder of
Restricted Stock or any holder of Founders Stock shall make such a request of
the Company, the undersigned shall be entitled to join in such request as
contemplated by such Section 5. All capitalized terms used in this Section 2 and
not defined herein shall have the meaning accorded them in the Registration
Rights Agreement.
10. The undersigned acknowledges that the certificates for the
Shares shall bear a legend substantially as follows:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A
STOCKHOLDERS AGREEMENT, DATED AS OF JANUARY 26, 1996
AMONG AMCOMP INCORPORATED (THE "COMPANY") AND
CERTAIN HOLDERS OF SHARES OF THE OUTSTANDING CAPITAL
STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
COMPANY."
11. No sale, disposition or transfer of the Shares shall be
made unless the transferee of such Shares shall agree to join the Stockholder
Agreement and the Registration Rights Agreement by means of a Consent and
Agreement substantially in the form hereof.
IN WITNESS WHEREOF, the undersigned has executed this Consent
and Agreement on ___________________.
---------------------------------
Name:
Address:
---------------------------------
---------------------------------
EXECUTION COPY
WARRANTHOLDERS RIGHTS AGREEMENT
WARRANTHOLDERS RIGHTS AGREEMENT (this "Agreement"), dated as of
December 31, 1997, between AMCOMP INCORPORATED, a Delaware corporation (together
with its successors, "AmComp"), and NATIONSBANK, N.A. ("NationsBank", and
together with such other warrantholders of AmComp as may, from time to time,
become parties to this Agreement in accordance with the provisions hereof, the
"Warrantholders").
WHEREAS, AmComp wishes to provide to the Warrantholders and the holders
of the Conversion Shares (as defined herein) the rights described herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Unless otherwise defined herein, the
following terms used in this Agreement shall have the meanings specified below.
"Affiliate" means, with respect to any Person, any of (i) a director or
executive officer of such Person, (ii) a spouse, parent, sibling or descendent
of such Person (or a spouse, parent, sibling or descendant of any director or
executive officer of such Person), (iii) any general or limited partner of such
Person, (iv) any holder of 10% or more of any class of equity securities of such
Person, and (v) any other Person that, directly or indirectly, controls, or is
controlled by or is under common control with such Person. For the purpose of
this definition, "control" (including the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities or by contract or agency or otherwise.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Closing Date" means December 31, 1997.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, par value $0.01 per share, of
AmComp, and stock of any other class or other consideration into which such
Common Stock may change.
<PAGE>
"Conversion Shares" means (i) any shares of Common Stock or other
securities issued upon the exercise of any Warrants and (ii) any securities
issued with respect to any of such shares or other securities referred to in
clause (i) upon the conversion thereof into other securities or by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise;
provided that any of such securities shall cease to be Conversion Shares when
such securities shall have (x) been disposed of pursuant to a Public Sale or (y)
ceased to be outstanding.
"Credit Agreement" means the Amended and Restated Credit Agreement,
dated as of December 31, 1997, by and among AmComp, the subsidiaries of AmComp
parties thereto and NationsBank.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor Federal statute, and the rule and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such successor Federal statute.
"Indemnified Party" has the meaning set forth in Section 3.4(a) hereof.
"Initial Public Offering" means the first registration of an offering
of shares of Common Stock under the Securities Act which becomes effective
(other than by a registration on Form S-4 or S-8 or any successor or similar
forms).
"Majority Holders" means holders holding a majority in interest of the
outstanding Conversion Shares and Warrants (such majority determined, for
purposes of this definition, by calculating the number of Conversion Shares for
which such Warrants are then exercisable).
"NASD" means The National Association of Securities Dealers, Inc.
"NASDAQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"Other Securities" means securities other than Registrable Securities.
"Person" means a corporation, an association, a partnership, a trust, a
limited liability company, an organization, a business, an individual, a
government or a subdivision thereof or a governmental agency.
"Public Sale" means any sale of Common Stock to the public pursuant to
an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 (or any
successor provision then in effect) adopted under the Securities Act.
-2-
<PAGE>
"Registrable Securities" means any Conversion Shares until the earlier
of (i) the date (if any) on which such Conversion Shares shall have been
exchanged for new equity securities of AmComp not bearing a legend restricting
transfer, the subsequent disposition of which shall not require registration or
qualification under the Securities Act or any similar state law then in force
and (ii) the date on which such Conversion Shares may be sold pursuant to Rule
144(k) under the Securities Act.
"Registration Expenses" means all expenses incident to AmComp's
performance of or compliance with Sections 3.1 through 3.4 hereof, including (i)
all registration, filing and listing fees, (ii) all fees and expenses of
complying with securities or blue-sky laws, (iii) all word processing,
duplicating and printing expenses, (iv) all messenger and delivery expenses, (v)
the fees and disbursements of counsel for AmComp and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (vi)
premiums and other costs of policies of insurance (if any) against liabilities
arising out of the public offering of the Registrable Securities being
registered if AmComp desires such insurance, and (vii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but not including underwriting discounts and commissions and
transfer taxes, if any; provided that, in any case where Registration Expenses
are not to be borne by AmComp, such expenses shall not include (i) salaries of
AmComp personnel or general overhead expenses of AmComp, (ii) auditing fees,
(iii) premiums or other expenses relating to liability insurance required by
underwriters of AmComp, or (iv) other expenses for the preparation of financial
statements or other data, to the extent that any of the foregoing either is
normally prepared by AmComp in the ordinary course of its business or would have
been incurred by AmComp had no public offering taken place.
"Regulation Y Holder" means any Warrant Securityholder that is a bank
holding company within the meaning of the BHC Act, or a subsidiary thereof
subject to Regulation Y under the BHC Act.
"Restricted Securities" means the Warrants, the Conversion Shares and
any securities obtained upon exchange for or upon conversion or transfer of or
as a distribution on Warrants, the Conversion Shares or any such securities;
provided that particular securities shall cease to be Restricted Securities when
such securities shall have (x) been disposed of pursuant to a Public Sale, (y)
been otherwise transferred or exchanged and new certificates for them not
bearing a legend restricting further transfer shall have been delivered by
AmComp and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, or (z) ceased to be outstanding. Whenever any particular securities cease
to be Restricted Securities, the holder thereof shall be entitled to receive
from the issuer thereof or its transfer agent, without expense (other than
transfer taxes, if any), new securities of like tenor not bearing a legend of
the character set forth in Section 2.2.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at
-3-
<PAGE>
that time. Reference to a particular section of the Securities Act shall include
a reference to the comparable section, if any, of any such successor statute.
"Warrant Securityholder" means at any time any Warrantholder or any
holder of Conversion Shares.
"Warrantholders" has the meaning set forth in the introductory
paragraph.
"Warrants" has the meaning set forth in Section 2.1.
All references herein to "days" shall mean calendar days unless
otherwise specified.
ARTICLE II
PURCHASE OF WARRANTS;
TRANSFER AND CONVERSION OF SHARES;
PAYMENTS TO WARRANT SECURITYHOLDERS
SECTION 2.1. Purchase of Warrants. AmComp hereby agrees to sell to
NationsBank and, subject to the terms and conditions of this Agreement,
NationsBank hereby agrees to purchase from AmComp, on the Closing Date, for a
purchase price of $.01 and other good and valuable consideration, all of which
shall be deemed to have been received by AmComp upon the execution and delivery
of this Agreement, warrants entitling NationsBank to purchase, in the aggregate,
55,000 shares of Common Stock, for an initial exercise price of $4.00 per share
(together with any warrants issued in substitution or replacement therefore, the
"Warrants"). On the Closing Date, AmComp will deliver to NationsBank, upon
payment therefor, a Warrant substantially in the form of Exhibit A registered in
the name of NationsBank or the name of its nominee and dated the Closing Date.
The terms set forth in the Warrant constitute part of this Agreement as if fully
set forth herein. Subject to the terms hereof and the Warrant, NationsBank or
its assigns may exercise the Warrant, in whole or in part, at any time prior to
the fifth anniversary of the Closing Date, provided that NationsBank may not
exercise the Warrant, and agrees to promptly return the Warrant to AmComp for
cancellation, if (a) the "Consolidation" (as defined in the Credit Agreement)
shall not have been consummated on or prior to August 31, 1998 as a result of
the election of NationsBank not to grant the request of AmComp to effect the
Consolidation in accordance with the terms set forth in the Credit Agreement,
(b) the principal amount of the "Facility B Advance" (as defined in the Credit
Agreement) and all accrued interest and other amounts owing with respect thereto
shall have been paid on or prior to September 30, 1998, and (c) NationsBank
shall have received a loan fee paid by AmComp in the amount of $75,000 on or
prior to September 30, 1998. Notwithstanding anything herein to the contrary,
if, prior to March 31, 1998, NationsBank (x) provides notice to AmComp of its
election to receive a fee in lieu of continuing to hold the Warrant, and (y)
surrenders the Warrant to AmComp, then AmComp shall, within 10 days following
the surrendering of the Warrant, pay to NationsBank a loan fee in the amount of
$75,000.
-4-
<PAGE>
SECTION 2.2. Restrictions on Transfer and Conversion; Legend on
Certificates.
(a) Except as otherwise provided in this Agreement, Restricted
Securities shall not be transferable except (i) pursuant to an effective
registration statement under the Securities Act, (ii) pursuant to Rule 144 or
144A (or any successor provisions) under the Securities Act, or (iii) pursuant
to a transaction that is otherwise exempt from or not subject to the
registration requirements of the Securities Act.
(b) Unless otherwise expressly provided herein, each certificate for
Restricted Securities and each certificate issued in exchange for or upon
transfer of any thereof shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO AND HAVE THE BENEFIT OF A WARRANTHOLDERS RIGHTS AGREEMENT
DATED AS OF DECEMBER 31, 1997, BETWEEN AMCOMP INCORPORATED AND THE
WARRANTHOLDERS PARTIES THERETO, COPIES OF WHICH ARE ON FILE WITH AMCOMP
INCORPORATED."
(c) Any other provision of this Agreement to the contrary
notwithstanding, no transfer of any Restricted Securities other than pursuant to
a Public Sale may be made to any Person unless such Person shall have agreed in
writing that such Person, as a holder of Restricted Securities, and the
Restricted Securities it acquires shall be bound by and be entitled to the
benefits of all the provisions of this Agreement applicable to such Restricted
Securities (and upon such agreement such Person shall be entitled to such
benefits). Any purported transfer of Restricted Securities without compliance
with the applicable provisions of this Agreement shall be void and of no effect,
and the purported transferee shall have no rights as a Warrant Securityholder
under this Agreement. In the event of such noncomplying transfer, AmComp shall
not transfer any such Restricted Securities on its books or recognize the
purported transferee as a shareholder or warrantholder, as the case may be, for
any purpose, until all applicable provisions of this Agreement have been
complied with.
SECTION 2.3. Permitted Transfers. The restrictions on transfer provided
in Section 2.2 shall not be applicable to any transfer in compliance with
federal and all applicable state securities laws (i) to an Affiliate of the
holder of Restricted Securities, from an Affiliate of such holder to such holder
or between Affiliates of such holder (if any such Affiliate to whom shares of
Restricted Securities have been transferred by a holder thereof ceases to be an
Affiliate of such holder of Restricted Securities, such Restricted Securities
shall immediately be transferred back
-5-
<PAGE>
to the transferor thereof), (ii) upon the death of any holder of Restricted
Securities to such holder's executors, administrators or testamentary trustees,
or (iii) to a trust the beneficiaries of which include only the holder of such
Restricted Securities or such holder's spouse, parents, siblings or descendants
(any transferee referred to in (i), (ii) or (iii) above being referred to herein
as a "Permitted Transferee"); provided that no such transfer shall be made to
any Permitted Transferee unless such Permitted Transferee shall have agreed in
writing that such Permitted Transferee, as a Warrant Securityholder, and the
shares of Common Stock or Warrants it acquires shall be bound by and be entitled
to the benefits of all the provisions of this Agreement applicable to Common
Stock or Warrants (as the case may be), and upon such agreement such Permitted
Transferee shall be entitled to such benefits.
SECTION 2.4. Restrictions on Transfer by Regulation Y Holders. Nothing
in this Agreement shall require any Regulation Y Holder to make a transfer of
Warrants or Conversion Shares in a manner not permitted by the BHC Act or other
applicable law (as "Impermissible Transfer"). If this Agreement would otherwise
require any Regulation Y Holder to make an Impermissible Transfer as a condition
precedent to making a transfer of Warrants of Conversion Shares in a manner
permitted by the BHC Act and other applicable law (a "Permissible Transfer"),
then such Regulation Y Holder shall not be required to make such Impermissible
Transfer as a condition precedent to making such Permissible Transfer.
SECTION 2.5. No Inconsistent Agreements. AmComp has not entered into
and will not enter into any registration rights agreements or similar
arrangements the performance by AmComp of which would in any manner conflict
with, restrict or be inconsistent with the performance by AmComp of its
obligations under this Agreement.
-6-
<PAGE>
ARTICLE III
SECTION 3.1. Incidental Registration.
(a) If at any time subsequent to an Initial Public Offering AmComp
proposes to register any of its securities under the Securities Act (other than
by a registration on Form S-4 or S-8 or any successor or similar forms) whether
for its own account or for the account of the holder or holders of any Other
Securities, it will each such time give prompt written notice to all Warrant
Securityholders of its intention to do so. Upon the written request of any such
holder made within 30 days after the receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
holder and the intended method of disposition thereof), AmComp will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which AmComp has been so requested to register by the holders
thereof, to the extent required to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities so to
be registered, by inclusion of such Registrable Securities in the registration
statement which covers the securities which AmComp proposes to register;
provided that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, AmComp shall determine for
any reason either not to register or to delay registration of such securities,
AmComp may, at its election, give written notice of such determination to each
Warrant Securityholder and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith) and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other securities. AmComp will pay all Registration Expenses in connection with
each registration of Registrable Securities pursuant to this Section 3.1.
(b) If AmComp at any time proposes to register any of its securities
under the Securities Act as contemplated by Section 3.1(a) and such securities
are to be distributed by or through one or more underwriters, AmComp will, if
requested by any holder of Registrable Securities as provided in this Section
3.1, use its best efforts to arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters; provided that if the managing
underwriter of such underwritten offering shall inform AmComp and holders of the
Registrable Securities requesting such registration and all other holders of any
Other Securities which shall have exercised, in respect of such underwritten
offering, registration rights comparable to the rights under this Section 3.1,
by letter of its belief that inclusion in such distribution of all or a
specified number of such securities proposed to be distributed by such
underwriters would interfere with the successful marketing of the securities
being distributed by such underwriters (such letter to state the basis of such
belief and the approximate number of such Registrable Securities and such Other
Securities proposed so to be registered which may be distributed without such
effect), then AmComp may, upon written notice to all holders of such Registrable
Securities and holders of
-8-
<PAGE>
such Other Securities, include in such registration, if and to the extent stated
by such managing underwriter to be necessary to eliminate such effect, (i)
first, securities requested to be included in such registration for the account
of AmComp ("AmComp Shares"), and (ii) second, requested to be included in such
registration by the holder or holders thereof pro rata among such holders
requesting such registration on the basis of the number of such securities or
shares requested to be included by such holders' provided that (x) AmComp shall
include only Registrable Securities and Other Securities requested to be
included in such registration by the holders thereof pro rata among such holders
on the basis of the number of such securities requested to be included by such
holders, such that the resultant aggregate number of such Registrable Securities
and Other Securities so included in such registration, together with the number
of securities to be included in such registration for the account of AmComp,
shall be equal to the number of shares stated in such managing underwriter's
letter, and (y) if the managing underwriter indicates that the inclusion of a
greater percentage of Registrable Securities (and a lesser percentage of Other
Securities) than the inclusion of such shares on a pro rata basis would permit a
greater number of shares of its securities to be registered in a manner that
would not interfere with the successful marketing of the securities being
distributed by such underwriters, then Registerable Securities and Other
Securities shall be included in such registration in the proportions so
determined by the managing underwriter to permit inclusion of such greater
number.
SECTION 3.2. Registration Procedures.
(a) If and whenever AmComp is required to effect the registration of
any Registerable Securities under the Securities Act as provided in Section 3.1,
AmComp shall, as expeditiously as possible:
(i) prepare and (within 60 days after the end of the period
within which requests for registration may be given to AmComp or in any
event as soon thereafter as possible file with the Commission the
requisite registration statement to effect such registration (including
such audited financial statements as may be required by the Securities
Act) and thereafter use its best efforts to cause such registration
statement to become and remain effective as provided in clause (ii)
below; provided however that AmComp may discontinue any registration of
its securities which are not Registrable Securities at any time prior
to the effective date of the registration statement relating thereto;
provided further that before filing such registration statement or any
amendments thereto, AmComp will furnish to the counsel selected by the
holders of Registrable Securities which are to be included in such
registration copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
-8-
<PAGE>
registration statement until the expiration of 90 days after such
registration statement becomes effective;
(iii) furnish to each seller of Registrable Securities covered
by such registration statement and each underwriter, if any, of the
securities being sold by such seller such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller and underwriter, if any, may reasonably request in order
to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under blue-sky or similar laws of such
jurisdictions as any seller thereof and any underwriter of the
securities being sold by such seller shall reasonably request, to keep
such registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such seller
and underwriter to consummate the disposition in such jurisdictions of
the securities owned by such seller, except that AmComp shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for
the requirements of this subdivision (iv) be obligated to be so
qualified, to subject itself to taxation in any such jurisdiction or to
consent to general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller and the underwriters, if any, of
(x) an opinion of counsel for AmComp, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), reasonably satisfactory in form and substance to
such seller, and
(y) a "comfort" letter, dated the effective date of
such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the
date of the closing under the underwriting agreement), signed
by
-10-
<PAGE>
the independent public accountants who have certified AmComp's
financial statements including in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letter delivered to
the underwriters in underwritten public offerings of securities;
(vii) notify the holders of Registrable Securities and the
managing underwriter or underwriters, if any, promptly and confirm such
advice in writing promptly thereafter:
(A) when the registration statement, the prospectus
or any prospectus supplement related thereto or post-
effective amendment to the registration statement has been
filed, and, with respect to the registration statement or any
post-effective amendment thereto, when the same has become
effective;
(B) of any request by the Commission for amendments
or supplements to the registration statement or the prospectus
or for additional information;
(C) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration or the
initiation of any proceedings by any Person for that purpose;
and
(D) of the receipt by AmComp of any notification with
respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or
blue-sky laws of any jurisdiction or the initiation or threat
of any proceeding for such purpose;
(viii) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
AmComp's discovery that, or upon the happening of any event as a result
of which, the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing, and at the request of any such seller
promptly prepare and furnish to such seller and each underwriter, if
any, a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such securities, such prospectus shall 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 not misleading in the light of the circumstances then existing;
10
<PAGE>
(ix) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the registration statement at
the earliest possible moment;
(x) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar quarter
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(xi) make available for inspection by a representative of the
sellers of Registrable Securities participating in the offering, any
underwriter participating in any disposition pursuant to the
registration and any attorney or accountant retained by such sellers or
underwriter (each, an "Inspector"), all financial and other records,
pertinent corporate documents and properties of AmComp (the "Records"),
and cause AmComp's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection
with such registration; provided that AmComp shall not be required to
comply with this subdivision (xi) if there is a reasonable likelihood,
in the judgment of AmComp, that such delivery could result in the loss
of any attorney-client privilege related thereto; and provided further
that Records which AmComp determines, in good faith, to be confidential
and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (x) such Records have become
generally available to the public or (y) the disclosure of such Records
may be necessary or appropriate (A) to comply with any law, rule,
regulation or order applicable to any such Inspectors or seller of
Registrable Securities, (B) in response to any subpoena or other legal
process or (C) in connection with any litigation to which such
Inspectors or any seller of Registrable Securities is a party (provided
that AmComp is provided with reasonable notice of such proposed
disclosure and a reasonable opportunity to seek a protective order or
other appropriate remedy with respect to such Records);
(xii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such Registration Statement;
(xiii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange or
automated quotation system on which any of the Common Stock is then
listed or traded; and
(xiv) use its best efforts to provide a CUSIP number for the
Registrable Securities, not later than the effective date of the
registration.
AmComp may require each seller of Registrable Securities as to which any
registration is being effected to furnish AmComp such information regarding such
seller and the distribution of such
-11-
<PAGE>
securities as AmComp may from time to time
reasonably request in writing for purposes of preparing the relevant
registration statement and amendments and supplements thereto.
(b) Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from AmComp of the
occurrence of any event of the kind described in subdivision (viii) of Section
3.2(a), such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of Section
3.2(a). In the event AmComp shall give any such notice, the periods specified in
subdivision (ii) of Section 3.2(a) shall be extended by the length of the period
from and including the date when each seller of any Registrable Securities
covered by such registration statement shall have received such notice to the
date on which each such seller has received the copies of the supplemented or
amended prospectus contemplated by subdivision (viii) of Section 3.2(a).
(c) If any such registration or comparable statement refers to any
holder of Registrable Securities by name or otherwise as the holder of any
securities of AmComp, then such holder shall have the right to require, in the
event that such reference to such holder by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
the reference to such holder.
SECTION 3.3. Underwritten Offerings.
(a) If requested by the underwriters for any underwritten offering by
holders of Registrable Securities pursuant to a registration requested under
Section 3.1, AmComp will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to AmComp, each such holder and the underwriters, and to
contain such representations and warranties by AmComp and such holders and such
other terms as are generally prevailing in agreements of such type, including,
without limitation, indemnities to the effect and to the extent provided in
Section 3.4. The holders of the Registrable Securities will cooperate with
AmComp in the negotiation of the underwriting agreement.
(b) Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of any equity securities of AmComp, during the ten days prior
to and the 180 days after the effective date of any underwritten registration
pursuant to Section 3.1 (or such shorter period as the underwriter or
underwriters may permit), except as part of such underwritten registration,
whether or not such holder of Registrable Securities participates in such
registration, and except as otherwise permitted by the managing underwriter of
such underwriting (if any). Each of the holders of Registrable Securities agrees
that AmComp may instruct its transfer agent to place stop transfer notations in
its records to enforce this Section 3.3(b).
-12-
<PAGE>
(c) No Person may participate in any underwritten offering hereunder
unless such Person (i) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved, subject to the terms and
conditions hereof, by the Person or a majority of the Persons entitled to
approve such arrangements and (ii) completes and executes all agreements,
questionnaires, indemnities and other documents (other than powers of attorney,
except a power of attorney with respect to the price at which such Person's
shares of Common Stock shall be sold to the underwriters of such offering and
the transfer of such shares to such underwriters; provided that such power of
attorney may include, at the sole discretion of such person, a minimum price
below which such Person shall not be obligated to sell such shares) required
under the terms of such underwriting arrangements.
SECTION 3.4. Indemnification.
(a) AmComp agrees to indemnify and hold harmless each holder of
Registrable Securities whose Registrable Securities are covered by any
registration statement, its directors and officers and each other Person, if
any, who controls such holder within the meaning of the Securities Act or
Exchange Act (each an "Indemnified Party"), against any losses, claims, damages
or liabilities, joint or several, to which such Indemnified Party may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
AmComp will reimburse each such Indemnified Party for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
AmComp shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to AmComp by or on behalf of such holder specifically for use in the preparation
thereof. In addition, AmComp shall indemnify any underwriter of such offering
and each other Person, if any, who controls any such underwriter within the
meaning of the Securities Act or the Exchange Act in substantially the same
manner and to substantially the same extent as the indemnity herein provided to
each Indemnified Party. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any such
director, officer, underwriter or controlling person and shall survive the
transfer of such securities by such holder.
(b) Each prospective seller of Registrable Securities hereunder shall
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section
-13-
<PAGE>
3.4) AmComp, each director of AmComp and each other person, if any, who controls
AmComp within the meaning of the Securities Act or Exchange Act, with respect to
any statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereof, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to AmComp by
or on behalf of such seller specifically for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of AmComp
or any such director, officer or controlling person and shall survive the
transfer of such securities by such seller. The amount payable by any
prospective seller of a Registrable Security with respect to the indemnification
set forth in this subsection (b) in connection with any offering of securities
will not exceed the amount of net proceeds received by such prospective seller
pursuant to such offering.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 3.4, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 3.4, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include, as an unconditional term thereof, the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation. No indemnified party shall
consent to entry of any judgment or enter into any settlement of any such action
the defense of which has been assumed by an indemnifying party without the
consent of such indemnifying party.
(d) If the indemnification provided for in the preceding subdivisions
of this Section 3.4 is unavailable to an indemnified party in respect of any
expense, loss, claim, damage or liability referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such expense, loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative
-14-
<PAGE>
benefits received by, and the relative fault of, AmComp on the one hand and of
the holder or underwriter, as the case may be, on the other in connection with
the statements or omissions which resulted in such expense, loss, damage or
liability, as well as any other relevant equitable considerations. The relative
benefits received by AmComp on the one hand and the holder or underwriter, as
the case may be, on the other in connection with the distribution of the
Registrable Securities shall be deemed to be in the same proportion as the total
net proceeds received by AmComp from the initial sale of the Registrable
Securities by AmComp to the purchaser bear to the gain realized by the selling
holder or the underwriting discounts and commissions received by the
underwriter, as the case may be. The relative fault of AmComp on the one hand
and of the holder or underwriter, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission to state a material fact relates
to information supplied by AmComp, by the holder or by the underwriter and
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; provided that the foregoing
contribution agreement shall not inure to the benefit of any indemnified party
if indemnification would be unavailable to such indemnified party by reason of
the proviso contained in the first sentence of subdivision (a) of this Section
3.4, and in no event shall the obligation of any indemnifying party to
contribute under this subdivision (d) exceed the amount that such indemnifying
party would have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (a) or (b) of this Section 3.4
had been available under the circumstances.
AmComp and the holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (d) were
determined by pro rata allocation (even if the holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph and subdivision (c) of this Section 3.4. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 3.5. Rule 144; Rule 144A.
-15-
<PAGE>
(a) If AmComp shall have filed a registration statement pursuant to
Section 12 of the Exchange Act or a registration statement pursuant to the
Securities Act, and for so long as AmComp remains subject to the reporting
requirements of the Exchange Act, AmComp will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and the
regulations adopted by the Commission thereunder and will take such further
action as any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, AmComp will deliver to such holder a written statement
as to whether it has complied with such requirements.
(b) AmComp represents and warrants that the Common Stock is not, and is
not part of a class of securities that is, listed on a national securities
exchange registered under Section 6 of the Exchange Act or quoted in an
automated inter-dealer quotation system. For so long as any shares of
Registrable Securities are restricted securities within the meaning of Rule
144(a)(3) under the Securities Act, AmComp covenants and agrees that it shall,
during any period in which it is not subject to Section 13 or 15(d) of the
Exchange Act, make available to any holder of Registrable Securities in
connection with the sale of such holder Registrable Securities and any
prospective purchaser of Registrable Securities from such, in each case upon
request, the information specified in, and meeting the requirements of, Rule
144A(d)(4) under the Securities Act.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Notices. All notices and other communications provided for
hereunder shall be dated and in writing and shall be deemed to have been given
(i) if given by telecopy, when such telecopy is transmitted and confirmation of
receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier
or any other means, when received or when delivery at such address is refused.
Such notices shall be addressed to the appropriate party to the attention of the
person who executed this Agreement at the address or telecopy number set forth
under such party's signature below (or to the attention of such other person or
to such other address or telecopy number as such party shall have furnished to
each other party in accordance with this Section 4.1).
SECTION 4.2. Binding Nature of Agreement. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto or their successors in interest, except as expressly otherwise provided
herein.
-16-
<PAGE>
SECTION 4.3. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 4.4. Specific Performance. Without limiting the rights of each
party hereto to pursue all other legal and equitable rights available to such
party for the other parties' failure to perform their obligations under this
Agreement, the parties hereto acknowledge and agree that the remedy at law for
any failure to perform their obligations hereunder would be inadequate and that
each of them, respectively, shall be entitled to specific performance,
injunctive relief or other equitable remedies in the event of any such failure.
SECTION 4.5. GOVERNING LAW; ARBITRATION.
(a) THIS AGREEMENT AND THE WARRANTS SHALL BE GOVERNED BY THOSE
PROVISIONS OF THE CORPORATE CODE OF THE JURISDICTION IN WHICH AMCOMP IS
INCORPORATED AND ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE OF THE JURISDICTION IN
WHICH AMCOMP IS INCORPORATED WHICH ARE NECESSARILY APPLICABLE TO SECURITIES
ISSUED BY A CORPORATION INCORPORATED IN SUCH JURISDICTION AND OTHERWISE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE.
AMCOMP AND THE WARRANTHOLDERS AGREE THAT THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT BEAR A REASONABLE RELATION TO THE STATE OF NEW YORK.
(b) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ ENDISPUTE AND
ANY SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
-17-
<PAGE>
(c) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
AMCOMP'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR
DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(d) RESERVATION OF RIGHTS. NOTHING IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT SHALL BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN T HIS
AGREEMENT; OR (ii) BE A WAIVER BY NATIONSBANK OF THE PROTECTION AFFORDED TO IT
BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT
THE RIGHT OF NATIONSBANK HERETO (a) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (b) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (c) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. NATIONSBANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
SECTION 4.6. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the same
instrument.
SECTION 4.7. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
18
<PAGE>
SECTION 4.8. Entire Agreement. This Agreement is intended by the
parties hereto as a final and complete expression of their agreement and
understanding in respect to the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings, written or oral, between the
parties with respect to such subject matter.
SECTION 4.9. Amendment and Waiver. Any provision of this Agreement may
be amended if, but only if, such amendment is in writing and is signed by AmComp
and the Majority Holders; provided that no such amendment may adversely affect
the rights or obligations hereunder of any Warrant Securityholder unless signed
by such Warrant Securityholder. Any provision may be waived if, but only if,
such waiver is in writing and is signed by the party or parties waiving such
provision and for whose benefit such provision is intended.
SECTION 4.10. No Third-Party Beneficiaries. Nothing in this Agreement
shall convey any rights upon any person or entity which is not a party or an
assignee of a party to this Agreement.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
AMCOMP INCORPORATED
By:/s/ Don Johnson
------------------------------
Name: Don Johnson
Title: Vice President
Address: P.O. Box 14846
North Palm Beach
Florida, 33408
Telefax: (407) 840-7192
NATIONSBANK, N.A.
By:/s/ John M. Powell
------------------------------
Name: John M. Powell
Title: Vice President
Address: 1555 Palm Beach Lakes Blvd.
Ste. 31C
West Palm Beach
Florida 33401-237
Telefax: (561) 684-2726
S-1
<PAGE>
STATE OF NEW YORK )
) to wit:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State and County listed above to take acknowledgments,
personally appeared John M. Powell who is personally known to me to be the
person who signed the foregoing Warrantholders Rights Agreement on behalf of
NationsBank, N.A. and who executed the foregoing instrument on December 31,
1997, and who acknowledged before me in the State and County listed above that
he executed same.
This acknowledgment is given for the sole purpose of verifying the
identity of the parties who signed the foregoing instrument and the place of its
signing, and without any liability on the part of the Notary with regard to the
obligations of the foregoing instrument.
WITNESS my hand and official seal this 31 day of December, 1997.
/s/ Dennis Gitler
------------------------------------
Print Name:______________________________________
Notary Public - State of_________________________
Commission Number:_______________________________
Commission Expires:______________________________
(NOTARIAL SEAL)
DENNIS GITLER
Notary Public, State of New York
No. O1G150044850
Qualified in Kings county
Certificate Filed in New York County
Commission Expires 6/5/99
<PAGE>
STATE OF NEW YORK )
) to wit:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State and County listed above to take acknowledgments,
personally appeared Don Johnson who is personally known to me to be the person
who signed the foregoing Warrantholders Rights Agreement on behalf of AmComp
Incorporated and who executed the foregoing instrument on December 31, 1997, and
who acknowledged before me in the State and County listed above that he executed
same.
This acknowledgment is given for the sole purpose of verifying the
identity of the parties who signed the foregoing instrument and the place of its
signing, and without any liability on the part of the Notary with regard to the
obligations of the foregoing instrument.
WITNESS my hand and official seal this 31 day of December, 1997.
/s/ Dennis Gitler
-------------------------------
Print Name:_________________________________
Notary Public - State of____________________
Commission Number:__________________________
Commission Expires:_________________________
(NOTARIAL SEAL)
DENNIS GITLER
Notary Public, State of New York
No. O1G150044850
Qualified in Kings county
Certificate Filed in New York County
Commission Expires 6/5/99
-2-
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS
REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE ALSO SUBJECT TO AND HAVE THE BENEFIT OF A WARRANTHOLDERS
RIGHTS AGREEMENT DATED AS OF DECEMBER 31, 1997, BETWEEN AMCOMP INCORPORATED AND
THE Warrantholders PARTIES THERETO, COPIES OF WHICH ARE ON FILE WITH AMCOMP
INCORPORATED.
Warrant No. 1 For the Purchase of 55,000 Shares
AMCOMP INCORPORATED
Common Stock Purchase Warrant
THIS CERTIFIES THAT, for value received, NationsBank, N.A. or its
successors in interest, assigns or transferees (collectively, the
"Warrantholder"), is entitled to purchase from AmComp Incorporated, a Delaware
corporation (the "Company"), 55,000 shares of the Company's Common Stock (as
defined in Section 9(a) hereof) (the "Conversion Shares") at the exercise price
of FOUR DOLLARS ($4.00) per share ("Exercise Price"). The number of Conversion
Shares and the Exercise Price shall be adjusted and readjusted or changed from
time to time in accordance with Section 4 hereof.
This Warrant may be exercised at any time and from time to time on or
prior to the fifth anniversary of the date of issuance set forth on the
signature page of this Warrant, provided that Warrantholder may not exercise
this Warrant, and agrees to promptly return this Warrant to the Company for
cancellation, if (a) the "Consolidation" (as defined in the Amended and Restated
Credit Agreement, dated as of December 31, 1997 (the "Credit agreement"), by and
among the Company, the subsidiaries of the Company parties thereto and the
Warrantholder) shall not have been consummated on or prior to August 31, 1998 as
a result of the election of the Warrantholder not to grant the request of the
Company to effect the Consolidation in accordance with the terms set forth in
the Credit Agreement, (b) the principal amount of the "Facility B Advance" (as
defined in the Credit Agreement) and all accrued interest and other amounts
owing with respect thereto shall have been paid on or prior to September 30,
1998, and (c) the Warrantholder shall have received a loan fee paid by the
Company in the amount of $75,000 on or prior to September 30, 1998.
Notwithstanding anything herein to the contrary, if, prior to March 31, 1998,
the Warrantholder (x) provides notice to the Company of its election to receive
a fee in lieu of
Page 1 of 9
<PAGE>
continuing to hold the Warrant, and (y) surrenders the Warrant to the Company,
then the Company shall, within 10 days following the surrendering of the
Warrant, pay to the Warrantholder a loan fee in the amount of $75,000.
1. Exercise of Warrant.
(a) The rights represented by this Warrant may be exercised by the
Warrantholder, in whole or in part, by (a) delivering to the Company a duly
executed notice of exercise in the form of Annex A hereto and (b) at the
Warrantholder's option, either (i) delivering a check payable to (or wire
transfer to the account of) the Company in an amount equal to the product of (x)
the Exercise Price times (y) the number of Conversion Shares as to which this
Warrant is being exercised (such product, the "Total Exercise Price") or (ii)
delivering to the company a letter (the "Conversion Letter") requesting
conversion or exchange of a portion of any indebtedness owed by the Company to
the Warrantholder in an amount equal to the Total Exercise Price or (iii) if the
Company shall have consummated an Initial Public Offering (as defined in the
Warrant Agreement referred to below), surrendering to the Company a portion of
this Warrant with a Value (as defined below) equal to the Total Exercise Price.
For the purpose of clause (b)(iii) above, "Value" shall mean the product of (I)
the amount by which the Fair Market Value per Share (as defined below) exceeds
the Exercise Price and (II) the number of Conversion Shares as to which this
Warrant is surrendered for the purpose of effecting payment for Conversion
Shares. "Fair Market Value per Share" means the average closing price of a share
of Common Stock of the Company for the three trading days immediately preceding
the date on which the Warrant (or portion thereof) is surrendered, determined by
reference to any recognized national publication containing such information.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of delivery of a duly executed notice
of exercise, together with the amount (in cash or by delivering the Conversion
Letter or by surrender of a portion of this Warrant), if any, payable upon
exercise of this Warrant and, as of such moment, (i) the rights of the
Warrantholder, as such, with respect to the number of Conversion Shares as to
which this Warrant is being exercised (and, if applicable, surrendered as
payment of the Total Exercise Price) shall cease, and (ii) such Warrantholder
shall be deemed to be the record holder of the shares of Common Stock issuable
upon such exercise. As soon as practicable after the exercise, in whole or in
part, of this Warrant, and in any event within 5 business days thereafter, the
Company at its expense (including the payment by it of any applicable issuance
or stamp taxes) will cause to be issued in the name of and delivered to the
Warrantholder, or as the Warrantholder (upon payment by the Warrantholder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock to which the
Warrantholder shall be entitled upon such exercise. In the event of partial
exercise of this Warrant and, if applicable, partial surrender of this Warrant
pursuant to clause (b)(iii) of this Section, the Warrant need not be delivered
to the Company provided that the Warrantholder agrees to make a notation of such
partial exercise and, if applicable, partial surrender of the Warrant. If this
Warrant is delivered to the Company, the Company shall issue and deliver to the
Page 2 of 9
<PAGE>
Warrantholder a new Warrant evidencing the rights to purchase the remaining
Conversion Shares, which new Warrant shall all other respects be identical to
this Warrant.
2. Investment Representation.
The Warrantholder by accepting this Warrant represents that the
Warrantholder is acquiring this Warrant for its own account or the account of an
affiliate for investment purposes and not with the view to any offering or
distribution and that the Warrantholder will not sell or otherwise dispose of
this Warrant or the underlying Conversion Shares in violation of applicable
securities laws. The Warrantholder acknowledges that the certificates
representing any Conversion Shares will bear a legend indicating that they have
not been registered under the Securities Act of 1933, and may not be sold by the
Warrantholder except pursuant to an effective registration or pursuant to an
exemption from registration. The Warrantholder shall be entitled to include the
Conversion Shares in any demand or piggyback registration in accordance with
(and subject to) the terms and conditions of the Warrantholders Rights
Agreement, dated as of December 31, 1997 (the "Warrant Agreements"), between the
Company and the Warrantholder.
3. Validity of Warrant and Issue of Shares.
The Company represents and warrants that this Warrant has been duly
authorized and validly issued and covenants and agrees that all shares of Common
Stock that may be issued upon the exercise of the rights represented by this
Warrant will, when issued upon such exercise, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
4. Antidilution Provisions.
The terms of this Warrant shall be subject to adjustment as follows:
(a) If the Company shall (i) pay a stock dividend or make a
distribution to holders of Common Stock in shares of its Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, (A) the Exercise Price shall be increased or decreased, as the case
may be, to an amount which shall bear the same relation to the Exercise Price in
effect immediately prior to such action as the total number of shares
outstanding immediately prior to such action shall bear to the total number of
shares outstanding immediately after such action and (B) this Warrant
automatically shall be adjusted so that it shall thereafter evidence the right
to purchase the kind and number of Conversion Shares or other securities which
the Warrantholder would have owned
Page 3 of 9
<PAGE>
and would have been entitled to receive after such action if this Warrant had
been exercised immediately prior to such action or any record date with respect
thereto. An adjustment made pursuant to this subsection (a) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution of Common Stock and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends or cash
distributions payable out of consolidated net income or retained earnings or
dividends payable in Common Stock), (ii) evidences of indebtedness or other debt
or equity securities of the Company, or of any corporation other than the
Company (except for the Common Stock of the Company) or (iii) subscription
rights, options or warrants to purchase any of the foregoing assets or
securities, whether or not such rights options or warrants are immediately
exercisable (hereinafter collectively called "Distributions on Common Stock"),
the Company Shall make provisions for the Warrantholder to receive upon exercise
of this Warrant, a proportional amount (depending upon the extent to which this
Warrant is exercised) of such assets, evidences of indebtedness, securities or
such other rights, as if such Warrantholder had exercised this Warrant on or
before such record date.
(c) In the case of any consolidation or merger of the Company with or
into another corporation or the sale of all or substantially all the assets of
the Company to another person or entity, this Warrant thereafter shall be
exercisable for the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Company deliverable upon exercise of this Warrant would have been entitled upon
such consolidation, merger or sale; and, in such case, appropriate adjustment
shall be made in the application of the provisions in this Section 4 to the end
that the provisions set forth in this Section 4 (including provisions with
respect to changes in and adjustments of the exercise price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the exercise of this
Warrant.
(d) Upon the occurrence of each adjustment or readjustment of the
exercise price or any change in the number of Conversion Shares or in the shares
of stock or other securities or property deliverable upon exercise of this
Warrant pursuant to this Section 4, the Company at its expense shall promptly
compute such adjustment or readjustment and change in accordance with the terms
hereof and furnish to each holder hereof a certificate signed by the chief
financial officer of the Company, setting forth such adjustment or readjustment
and change and showing in detail the facts upon which such adjustment or
readjustment and change is based. The Company shall, upon the written request at
any time of the Warrantholder, furnish or cause to be furnished to such Holder,
a similar certificate setting forth (i) such adjustment or readjustment and
change, (ii) the Exercise Price then in effect, and (iii) the number of
Conversion Shares and the amount, if any, of other shares of stock and other
securities and property which would be received upon the exercise of the
Warrant.
Page 4 of 9
<PAGE>
(e) The Company shall not be required upon the exercise of this Warrant
to issue any fraction of shares, but shall make any adjustment therefor by
rounding the number of shares obtainable upon exercise to the next highest whole
number of shares.
5. Transfer of Rights.
Subject to and in accordance with the terms of the Warrant Agreement,
this Warrant is transferable in whole or in part, at the option of the
Warrantholder upon delivery of the Warrant Assignment Form annexed as Annex B
hereto, duly executed. Upon presentation of such Warrant Assignment Form to the
Company, the Company shall execute and deliver a new Warrant or Warrants in the
form of this Warrant with appropriate changes to reflect the issuance of
subsequent Warrants, in the name of the assignee or assignees named in such
instrument of assignment and, if the Warrantholder's entire interest is not
being transferred or assigned, in the name of the Warrantholder, and this
Warrant shall promptly be canceled. Any transfer or exchange of this Warrant
shall be without charge to the Warrantholder and any new Warrant or Warrants
issued shall be dated the date hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or for which it may
be exchanged. The Warrantholder (and not the Company) will be responsible for
any stamp, transfer or other taxes payable on any such transfer.
6. Lost. Mutilated or Missing Warrant.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like denomination and date.
7. Rights of Warrantholder.
The Warrantholder shall not, by virtue hereof, be entitled to any
voting or other rights of a shareholder of the Company, either at law or equity,
and the rights of the Warrantholder are limited to those expressed in this
Warrant.
8. Successors
All the provisions of this Warrant by or for the benefit of the Company
or the Warrantholder shall bind and inure to the benefit of their respective
successors and assigns.
9. Miscellaneous
(a) As used herein, the term "Common Stock" shall mean and include the
Company's currently authorized common stock, $0.01 par value per share, and
stock of any other class or other consideration into which such currently
authorized Common Stock may hereafter have been changed.
Page 5 of 9
<PAGE>
(b) The caption headings used in this Warrant are for convenience of
reference only and shall not be construed in any way to affect the
interpretation of any provisions of this Warrant.
10. Notices.
Any notice pursuant to this Warrant shall be effective if sent by first
class mail, postage prepaid, or delivered by facsimile transmission, to the
address and in the manner specified in the Warrant Agreement.
Page 6 of 9
<PAGE>
IN WITNESS WHEREOF, the Company, intending to be legally bound hereby,
has caused this Warrant to be signed by its duly authorized officer, and
attested by its Secretary or Assistant Secretary as of the date set forth below.
AMCOMP INCORPORATED
By:____________________________________
Name:
Title:
Attest:
- -----------------------------
Name:
Title:
Issuance Date: December 31, 1997
Page 7 of 9
<PAGE>
ANNEX A
COMMON STOCK PURCHASE WARRANT
Notice of Exercise
[Date]
To: AMCOMP INCORPORATED
The undersigned, pursuant to the provisions set forth in Warrant No. , hereby
irrevocably elects and agrees to purchase _______ shares of the Company's Common
Stock covered by such Warrant, and makes payment herewith in full therefor of
the Total Exercise Price of $_______.
The undersigned hereby represents that the undersigned is exercising such
Warrant for its own account or the account of an affiliate and will not sell or
otherwise dispose of the underlying Conversion Shares in violation of applicable
securities laws. If said number of shares is less than all of the shares
purchasable hereunder the undersigned requests that a new Warrant evidencing the
rights to purchase the remaining Conversion Shares (which new Warrant shall in
all other respects be identical to the Warrant exercised hereby) be registered
in the name of__________________ whose address is__________________:
Signature:___________________________
Printed Name:________________________
Address:_____________________________
_____________________________________
_____________________________________
_____________________________________
Page 8 of 9
<PAGE>
ANNEX B
ASSIGNMENT
FOR VALUE RECEIVED ________________ hereby sells, assigns and transfers
all of its rights as set forth in Warrant No. with respect to the shares of the
Company's Common Stock covered thereby as set forth below unto:
Name of Assignee(s) Address(es) No. of Shares
___________________ _________________ _____________________________
___________________ _________________ _____________________________
___________________ _________________ _____________________________
All notices to be given by the Company to the Warrantholder pursuant to
Section 10 of Warrant No. shall be sent to the Assignee(s) at the above stated
address(es), and, if the number of shares being hereby assigned is less than all
of the shares covered by Warrant No. , then also to the undersigned.
The undersigned requests that the Company execute and deliver, if
necessary to comply with the provisions of Section 5 of Warrant No. , a new
Warrant or, if the number of shares being hereby assigned is less than all of
the shares covered by Warrant No. _________________ new Warrants in the name of
the undersigned, the assignee and/or the assignees, as is appropriate.
Dated:_____________________
Signature:___________________________
Printed Name:________________________
Address:_____________________________
_____________________________________
_____________________________________
Page 9 of 9
EXECUTION COPY
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of December 31, 1997
among
AmComp Incorporated,
as Borrower,
THE SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
AND
NATIONSBANK, N.A.,
as Bank
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS.................................................1
SECTION 1.01. Definitions....................................................1
SECTION 1.02. Computation of Time Periods...................................23
SECTION 1.03. Accounting Terms..............................................23
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES..........................24
SECTION 2.01. The Committed Facilities......................................24
SECTION 2.02. Interest......................................................25
SECTION 2.03. Promissory Notes..............................................25
ARTICLE III
OTHER PROVISIONS RELATING TO CREDIT FACILITY...............26
SECTION 3.01. Default Rate..................................................26
SECTION 3.02. Prepayments...................................................26
SECTION 3.03. Fees..........................................................26
SECTION 3.04. Capital Adequacy..............................................27
SECTION 3.05. Inability To Determine Interest Rate..........................27
SECTION 3.06. Illegality....................................................27
SECTION 3.07. Requirements of Law...........................................28
SECTION 3.08. Taxes.........................................................28
SECTION 3.09. Indemnity.....................................................29
SECTION 3.10. Payments, Computations. Etc...................................30
SECTION 3.11. Confirmation of other Credit Documents........................31
ARTICLE IV
GUARANTY...................................................31
SECTION 4.01. The Guaranty..................................................31
SECTION 4.02. Obligations Unconditional.....................................32
SECTION 4.03. Reinstatement.................................................33
SECTION 4.04. Remedies......................................................33
SECTION 4.05. Rights of Contribution........................................33
SECTION 4.06. Continuing Guaranty...........................................34
-i-
<PAGE>
Page
----
ARTICLE V
CONDITIONS.................................................34
SECTION 5.01. Closing Conditions............................................34
ARTICLE VI
REPRESENTATIONS AND WARRANTIES.............................36
SECTION 6.01. Financial Condition...........................................36
SECTION 6.02. No Change; Dividends..........................................37
SECTION 6.03. Organization; Existence; Compliance with Law..................37
SECTION 6.04. Power; Authorization; Enforceable Obligations.................37
SECTION 6.05. No Legal Bar..................................................37
SECTION 6.06. No Material Litigation........................................38
SECTION 6.07. No Default....................................................38
SECTION 6.08. Ownership of Property: Liens..................................38
SECTION 6.09. No Burdensome Restrictions...................................38
SECTION 6.10. Taxes.........................................................38
SECTION 6.11. ERISA.........................................................39
SECTION 6.12. Governmental Regulations, Etc.................................40
SECTION 6.13. Pinnacle......................................................41
SECTION 6.14. Subsidiaries..................................................41
SECTION 6.15. Purpose of Advances...........................................42
SECTION 6.16. Environmental Matters.........................................42
SECTION 6.17. Insurance Policies............................................43
SECTION 6.18. Places of Business............................................43
ARTICLE VII
AFFIRMATIVE COVENANTS......................................43
SECTION 7.01. Information Covenants.........................................43
SECTION 7.02. Preservation of Existence and Franchises......................46
SECTION 7.03. Books and Records.............................................46
SECTION 7.04. Compliance with Law...........................................47
SECTION 7.05. Payment of Taxes and Other Indebtedness.......................47
SECTION 7.06. Insurance/Reinsurance.........................................47
SECTION 7.07. Maintenance of Property.......................................47
SECTION 7.08. Performance of Obligations....................................47
SECTION 7.09. Use of Proceeds...............................................47
SECTION 7.10. Audits/Inspections............................................48
SECTION 7.11. Financial Covenants...........................................48
SECTION 7.12. Additional Credit Parties.....................................48
SECTION 7.13. Ownership of Subsidiaries.....................................49
-ii-
<PAGE>
SECTION 7.14. Dividends.....................................................49
SECTION 7.15. Banking Accounts..............................................49
SECTION 7.16. Subordination of Other Loans, Etc.............................49
SECTION 7.17. Hedging Arrangements..........................................49
ARTICLE VIII
NEGATIVE COVENANTS.........................................50
SECTION 8.01. Indebtedness..................................................50
SECTION 8.02. Liens.........................................................50
SECTION 8.03. Nature of Business............................................50
SECTION 8.04. Consolidation, Merger, Sale or Purchase of Assets, Etc........50
SECTION 8.05. Advances, Investments, Loans, Etc.............................51
SECTION 8.06. Restricted Payments...........................................51
SECTION 8.07. Prepayments of Indebtedness, Etc..............................51
SECTION 8.08. Transactions with Affiliates..................................52
SECTION 8.09. Fiscal Year...................................................52
SECTION 8.10. Limitation on Restrictions on Subsidiary Dividends
and Other Distributions, Etc...............................52
SECTION 8.11. Issuance of Stock.............................................53
SECTION 8.12. Sale Leasebacks...............................................53
SECTION 8.13. Settlements...................................................53
SECTION 8.14. No Further Negative Pledges...................................53
SECTION 8.15. No Foreign Subsidiaries.......................................53
SECTION 8.16. No Amendments to Service Contracts............................53
SECTION 8.17. Changes in Management.........................................54
ARTICLE IX
EVENTS OF DEFAULT..........................................54
SECTION 9.01. Events of Default.............................................54
SECTION 9.02. Acceleration; Remedies........................................56
ARTICLE X
MISCELLANEOUS..............................................57
SECTION 10.01. Notices......................................................57
SECTION 10.02. Right of Set-Off.............................................58
SECTION 10.03. Benefit of Agreement.........................................58
SECTION 10.04. No Waiver; Remedies Cumulative...............................59
SECTION 10.05. Payment of Expenses, Etc.....................................59
SECTION 10.06. Amendments, Waivers and Consents.............................60
SECTION 10.07. Counterparts.................................................60
-iii-
<PAGE>
SECTION 10.08. Headings.....................................................60
SECTION 10.09. Survival.....................................................60
SECTION 10.10. Governing Law; Arbitration...................................60
SECTION 10.11. Severability.................................................61
SECTION 10.12. Entirety.....................................................62
SECTION 10.13. Binding Effect: Termination..................................62
SECTION 10.14. Conflict.....................................................62
-iv-
<PAGE>
SCHEDULES
-purposely omitted-
Schedule 1.01A Existing Affiliate Contracts
Schedule 1.01B Investments
Schedule 1.01C Liens
Schedule 2.01(b) Form of Advance Request
Schedule 2.03 Form of Facility A Note/Facility B Note
Schedule 3.03 Form of Warrantholders Rights Agreement
Schedule 5.01A Form of Legal Opinion
Schedule 5.01B Form of Legal Opinion of Special Counsel
Schedule 5.01C Form of Waiver Under Pledge Agreement
Schedule 5.01(d) Form of Assignment of Life Insurance Policy
Schedule 6.01(a) Financial Statement Disclosures
Schedule 6.01(b) Financial Statement Exceptions
Schedule 6.04 Required Consents, Authorizations, Notices
and Filings
Schedule 6.05 Conflicts
Schedule 6.06 Litigation
Schedule 6.14 Subsidiaries
Schedule 6.18 Places of Business
Schedule 7.01(d) Form of Officer's Compliance Certificate
Schedule 7.12 Form of Joinder Agreement
Schedule 8.01 Indebtedness
-v-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 31,
1997 (the "Credit Agreement"), is by and among AMCOMP INCORPORATED, a Delaware
corporation (the "Borrower"), the subsidiaries of the Borrower identified on the
signature pages hereto and such other subsidiaries as may from time to time
become a party hereto (the "Guarantors") and NATIONSBANK, N.A. (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has entered into a Credit Agreement, dated as of
December 30, 1996 (the "Original Credit Agreement"), with the Guarantors and the
Bank;
WHEREAS, the parties to the Original Credit Agreement wish to amend and
restate the Original Credit Agreement as hereinafter set forth;
WHEREAS, any collateral, guarantee, pledge or assignment that has
heretofore been given as security under and in connection with the Original
Credit Agreement or any other agreement, instrument or other document for the
repayment of any Indebtedness incurred by the Borrower to the Bank shall
continue to secure the repayment of such Indebtedness previously incurred and
presently outstanding, together with all new Indebtedness now or hereafter
incurred by the Borrower to the Bank under this Credit Agreement or any other
Credit Document.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. As used in this Credit Agreement, the
following terms shall have the meanings specified below unless the context
otherwise requires:
"Actuarial Report" shall mean an actuarial review and
valuation statement of an Insurance Subsidiary's loss and loss
adjustment expense reserve positions as of June 30 and December 31 of
any fiscal year (or such other date requested by the Bank), with
respect to the insurance business in force, and covering such other
subjects as are customary in actuarial reviews and reasonably requested
by the Bank, prepared by an independent actuarial firm reasonably
acceptable to the Bank in accordance with reasonable actuarial
assumptions and procedures, not inconsistent with the assumptions and
procedures previously employed, and accompanied by a report prepared by
such actuarial firm reviewing the adequacy of loss reserves of each
Insurance Subsidiary (which firm
<PAGE>
2
shall be provided access to or copies of all reserves analyses and
valuations relating to the insurance business of each such Insurance
Subsidiary) together with its opinion affirming the adequacy of such
loss reserves.
"Additional Credit Party" means each Person that becomes a
Guarantor after the Original Closing Date by execution of a Joinder
Agreement.
"Advance" means a Facility A Advance or a Facility B Advance.
"Advance Fee" shall have the meaning assigned to such term in
Section 3.03(c).
"Advance Request" means a written request for an Advance in
substantially the form of Schedule 2.01(b), as required by Section
2.01(b).
"Affiliate" means, with respect to any Person, any other
Person (i) directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person or (ii) directly or
indirectly owning or holding five percent (5%) or more of the equity
interest in such Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative
to the foregoing.
"Annual Statement" means, with respect to any Insurance
Subsidiary, such Insurance Subsidiary's annual statement to the
insurance regulatory authorities of its domiciliary state, as the same
may be amended from time to time.
"Applicable Percentage Rate" shall have the meaning assigned
to such term in Section 2.02.
<PAGE>
3
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Advance, the appropriate
applicable percentage corresponding on the following chart to the Debt
Service Coverage Ratio in effect as of the most recent Calculation
Date:
- --------------------------------------------------------------------------------
Applicable
Percentage for
Pricing Level Debt Service Coverage Ratio Eurodollar Loans
- --------------------------------------------------------------------------------
I Greater than or equal to 3.00 2.25%
- --------------------------------------------------------------------------------
II Greater than or equal to 2.50 2.50%
but less than 3.00
- --------------------------------------------------------------------------------
III Less than 2.00 2.75%
================================================================================
The Applicable Percentages shall be determined and adjusted quarterly
on the date (each a "Calculation Date") which is the first day of the
month immediately following the date the Borrower provides the Bank
with the financial statements pursuant to Section 7.01(a) and (b) and
the officer's certificate in accordance with the provisions of Section
7.01(c); provided, however that (i) the initial Applicable Percentage
shall be based on Borrower's financial statements for the most recently
ended fiscal quarter and shall remain at such level until the first
Calculation Date subsequent to the Original Closing Date and,
thereafter, the Pricing Level shall be determined by the then current
Debt Service Coverage Ratio, and (ii) if the Borrower fails to provide
the Bank with the financial statements pursuant to Section 7.01(a) and
(b) and the officer's certificate as required by Section 7.01(c) to the
Bank in accordance with the requirements set forth therein, the
Applicable Percentage for such Calculation Date shall be based on
Pricing Level III until such time as financial statements and an
appropriate officer's certificate is provided, whereupon the Pricing
Level shall be determined by the then current Debt Service Coverage
Ratio. Each Applicable Percentage shall be effective from one
Calculation Date until the next Calculation Date. Any adjustment in the
Applicable Percentage shall be applicable to all existing Advances as
well as any new Advances made or issued.
"Assignment of Life Insurance Policy" means that Assignment of
Life Insurance Policy, dated as of June 12, 1997, and substantially in
the form of Schedule 5.01(d) hereto.
"Assumed Consolidated Scheduled Payments" means, as of any
date of determination, (i) for the period from the Original Closing
Date to the anniversary thereof, the then outstanding principal amount
of the Advances divided by 10 minus scheduled payments of principal
under the Notes for the succeeding twelve month period; (ii) for the
period from the date one year and one day after the Original Closing
Date to the
<PAGE>
4
anniversary thereof, then outstanding principal amount of the Advances
divided by 5 minus scheduled payments of principal under the Notes for
the succeeding twelve month period; and (iii) for any period
thereafter, zero dollars.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
ordering the winding up or liquidation of its affairs; or (ii) there
shall be commenced against such Person an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or any case, proceeding or other action for the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of such Person or for any substantial part of its
Property or for the winding up or liquidation of its affairs, and such
involuntary case or other case, proceeding or other action shall remain
undismissed, undischarged or unbonded for a period of sixty (60)
consecutive days; or (ii) such Person shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or make any general assignment for the
benefit of creditors; or (ii) such Person shall be unable to, or shall
admit in writing its inability to pay its debts generally as they
become due.
"Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the greater of (i) the Federal Funds Rate in effect on such
day plus 1/2 of 1% or (ii) the Prime Rate in effect on such day. If for
any reason the Bank shall have determined (which determination shall be
conclusive absent manifest error) that it is unable after due inquiry
to ascertain the Federal Funds Rate for any reason, including the
inability or failure of the Bank to obtain sufficient quotations in
accordance with the terms hereof, the Base Rate shall be determined
without regard to clause (i) of the first sentence of this definition
until the circumstances giving rise to such inability no longer exist.
Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such
change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Advance bearing interest at a rate
determined by reference to the Base Rate.
<PAGE>
5
"Borrower" means the Person identified as such in the heading
hereof, together with any permitted successors and assigns.
"Borrower's Obligations" means, without duplication, (i) all
of the obligations of the Borrower to the Bank, whenever arising, under
this Credit Agreement, the Notes or any of the other Credit Documents
and (ii) all liabilities and obligations, whenever arising, owing from
the Borrower to the Bank, or any Affiliate of the Bank, arising under
any Hedging Agreement.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in West Palm Beach, Florida are
authorized or required by law to close, except that, such day shall
also be a day on which dealings between banks are carried on in U.S.
dollar deposits in London, England and New York, New York.
"Calculation Date" has the meaning set forth in the definition
of Applicable Percentage.
"Capital Lease" means, as applied to any Person, any lease of
any Property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
"Change of Control" means the occurrence of any of the
following events: (i) Samuel Stephens or, during the period from the
Closing Date until January 31, 1998, the trustee under that certain
Samuel A. Stephens Irrevocable Trust Agreement, shall fail to have
beneficial ownership, directly or indirectly, of at least 25% of the
combined voting power of all Voting Stock of the Borrower, (ii) The
Sprout Group and The Welsh, Carson, Anderson and Stowe Group shall
fail, in the aggregate, to have beneficial ownership, directly or
indirectly, of at least 45% of the combined voting power of all Voting
Stock of the Borrower, (iii) the shareholders of the Borrower shall
approve any plan or proposal for the liquidation or dissolution of the
Borrower, or (iv) during any period of up to 24 consecutive months,
commencing after the Original Closing Date, individuals who at the
beginning of such 24 month period were directors of the Borrower
(together with any new director whose election by the Borrower's Board
of Directors or whose nomination for election by the Borrower's
shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the directors of the Borrower then in office. As used
herein, "beneficial ownership" shall have the meaning provided in Rule
13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
"Closing Date" means the date hereof.
<PAGE>
6
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor thereto, as interpreted by the rules and regulations
issued thereunder, in each case as in effect from time to time.
References to sections of the Code shall be construed also to refer to
any successor sections.
"Collateral" means the Surplus Notes and all promissory notes
of the Subsidiaries to the Borrower, now owned or hereafter acquired
(the "Collateral Notes"), life insurance on the life of Samuel Stephens
and 100% of the outstanding capital stock of Pinnacle (the "Collateral
Stock").
"Collateral Notes" shall have the meaning assigned in the
definition of Collateral.
"Collateral Stock" shall have the meaning assigned in the
definition of Collateral.
"Combined Ratio" means the combined ratio of Pinnacle
determined after payment of dividends and otherwise in accordance with
SAP.
"Commitment" means the Bank's obligation to make Advances
hereunder, including the Facility A Commitment or the Facility B
Commitment, together with the right of the Bank to receive all payments
of all principal, interest and other amounts due hereunder and under
the other Credit Documents from the Borrower and all other rights,
remedies, privileges, duties and obligations of the Bank hereunder and
under the other Credit Documents.
"Commitment Fee" shall have the meaning assigned to such term
in Section 3.03(a).
"Consolidated Capitalization" means, at any time, the sum of
(i) Consolidated Net Worth at such time plus (ii) Consolidated Funded
Indebtedness at such time.
"Consolidated Cash Restricted Payments" means, for any period,
all cash Restricted Payments made by the Borrower and any of its
Subsidiaries (other than any such Restricted Payments made to the
Borrower or a Subsidiary) for such period.
"Consolidated EBITDA" means, for any period, the sum of (a)
Consolidated Net Income for such period plus (b) an amount which, in
the determination of Consolidated Net Income for such period, has been
deducted for (i) Consolidated Interest Expense for such period, (ii)
Consolidated Tax Expense for such period and (iii) consolidated
depreciation and amortization expense of the Borrower and its
Subsidiaries for such period less (c) to the extent included in
Consolidated Net Income, amortization of negative goodwill, all as
determined in accordance with GAAP.
<PAGE>
7
"Consolidated Funded Indebtedness" means, at any time, the
outstanding principal amount of all Funded Indebtedness, without
duplication, of the Borrower and its Subsidiaries at such time.
"Consolidated Interest Expense" means, for any period, all
interest expense of the Borrower and its Subsidiaries for such period,
as determined in accordance with GAAP.
"Consolidated Leverage Ratio" means, as of the last day of any
fiscal quarter of the Borrower, the ratio of (i) Consolidated Funded
Indebtedness as of such date to (ii) Consolidated Capitalization as of
such date.
"Consolidated Net Income" means, for any period, net income
after taxes for such period for the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date, total
shareholders' equity of the Borrower and its Subsidiaries as of such
date, as determined in accordance with GAAP, excluding the effect of
FASB 115.
"Consolidated Net Written Premiums" means, as of the last day
of any fiscal year, with respect to the Insurance Subsidiaries, the sum
of the total amount of premiums written after deducting or adding
premiums on business ceded to or assumed from others (as shown on line
32, column 4, Part 2B of page 9 of the Annual Statement for such date)
by the Insurance Subsidiaries on a consolidated basis in accordance
with SAP.
"Consolidated Net Written Premiums to Statutory Surplus Ratio"
means, as of the last day of any fiscal year, the ratio of (i)
Consolidated Net Written Premiums as of such date to (ii) Consolidated
Statutory Surplus as of such date.
"Consolidated Scheduled Funded Indebtedness Payments" means,
as of the last day of any fiscal quarter of the Borrower, the scheduled
payments of principal on Funded Indebtedness for the Borrower and its
Subsidiaries for the succeeding twelve month period.
"Consolidated Statutory Surplus" means, as of any date, with
respect to the Insurance Subsidiaries, the aggregate amount (without
duplication) of policyholders' surplus (as shown on line 25 in column 1
on page 3 of such Person's most recent SAP Statement) of the Insurance
Subsidiaries on a consolidated basis in accordance with SAP, or an
amount determined in a consistent manner for any date other than one as
of which a SAP Statement is prepared.
"Consolidated Tax Expense" means, for any period, all income
tax expense of the Borrower and its Subsidiaries for such period, as
determined in accordance with GAAP.
<PAGE>
8
"Consolidation" shall have the meaning assigned to such term
in Section 2.01(d)(ii) hereof.
"Consolidation Date" means August 31, 1998.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the Pledge Agreement, the Assignment of Life
Insurance Policy, each Joinder Agreement, the Warrantholders Rights
Agreement, the Warrants and all other related agreements and documents
issued or delivered hereunder or thereunder or pursuant hereto or
thereto.
"Credit Party" means any of the Borrower and the Guarantors.
"Debt Service Coverage Ratio" means, as of the last day of any
fiscal quarter of the Borrower, the ratio of (a)(i) Operating Company
Net Income for the four quarter period ended as of such date plus (ii)
depreciation and amortization expenses of the Operating Companies for
the four quarter period ended as of such date minus (iii) to the extent
included in item (i), interest not paid when due on the Surplus Notes
that remains outstanding as of any date of determination minus (iv)
cash dividends of the Borrower for the four quarter period ended as of
such date minus (v) capital expenditures determined in accordance with
GAAP of the Operating Companies for the four quarter period ended as of
such date to (b)(i) Consolidated Scheduled Funded Indebtedness Payments
plus (ii) Assumed Consolidated Scheduled Payments.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Delivered Annual Statements" means with respect to the
Borrower and its Subsidiaries, those Annual Statements, as filed with
the appropriate Governmental Authorities of their respective states of
domicile, for the fiscal year ending December 31, 1996.
"Dollars" and "$" means dollars in lawful currency of the
United States of America.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture,
processing,
<PAGE>
9
distribution, use, treatment, storage, disposal, transport, or handling
of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA Affiliate" means an entity which is under common
control with any Credit Party within the meaning of Section 4001(a)(14)
of ERISA, or is a member of a group which includes the Borrower and
which is treated as a single employer under Sections 414(b), (c), (m),
or (o) of the Code.
"Eurodollar Loan" means any Advance bearing interest at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each
Advance, a per annum interest rate determined pursuant to the following
formula:
Eurodollar Rate = Interbank Offered Rate
---------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of loans bearing interest at the
Eurodollar Rate is determined), whether or not the Bank has any
Eurocurrency liabilities subject to such reserve requirement at that
time. Advances shall be deemed to constitute Eurocurrency liabilities
and as such shall be deemed subject to reserve requirements without
benefits of credits for proration, exceptions or offsets that may be
available from time to time to the Bank. The Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default" means such term as defined in Section 9.01.
"Existing Affiliate Contracts" means those certain agreements
identified on Schedule 1.01A attached hereto, as such agreements exist
as of the Original Closing Date.
<PAGE>
10
"Facility A Advance" shall have the meaning assigned to such
term in Section 2.01(a).
"Facility A Commitment" shall have the meaning assigned to
such term in Section 2.01(a).
"Facility A Note" means a promissory note of the Borrower
payable to the order of the Bank, in substantially the form of Schedule
2.03 hereto, evidencing the indebtedness of the Borrower to the Bank
resulting from the Facility A Advance, as such amount may be increased
pursuant to Section 2.01(d)(ii) hereof, and as such promissory note may
be amended, modified, restated or replaced from time to time.
"Facility A Termination Date" means December 5, 2001 or such
earlier date of termination of the Facility A Commitment pursuant to
Article IX hereof.
"Facility B Advance" shall have the meaning assigned to such
term in Section 2.01(b).
"Facility B Commitment" shall have the meaning assigned to
such term in Section 2.01(b).
"Facility B Note" means a promissory note of the Borrower
payable to the order of the Bank, in substantially the form of Schedule
2.03 hereto, evidencing the indebtedness of the Borrower to the Bank
resulting from the Facility B Advance, as such promissory note may be
amended, modified, restated or replaced from time to time.
"Facility B Termination Date" means September 30, 1998 or such
earlier date of termination of the Facility B Commitment pursuant to
Article IX hereof.
"FDOI" means the Florida Department of Insurance.
"Fees" means all fees payable pursuant to Section 3.03.
"Federal Funds Rate" means, for any day, the rate of interest
per annum (rounded upwards, if necessary, to the nearest whole multiple
of 1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding
such day, provided that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day and (ii) if no such rate is so
published on such next preceding Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to the Bank on such day
on such transactions as determined by the Bank.
<PAGE>
11
"Florida Insurance Laws" means all statutes, regulations,
interpretations of any nature whatsoever applicable to any entity
undertaking an insurance business in the State of Florida, including
Pinnacle.
"Funded Indebtedness" means, with respect to any Person,
without duplication, (i) all Indebtedness of such Person for borrowed
money, (ii) all purchase money Indebtedness of such Person, including
without limitation the principal portion of all obligations of such
Person under Capital Leases, (iii) all Guaranty Obligations of such
Person with respect to Funded Indebtedness of another Person, (iv) the
maximum available amount of all standby letters of credit or
acceptances issued or created for the account of such Person, (v) all
Funded Indebtedness of another Person secured by a Lien on any Property
of such Person, whether or not such Funded Indebtedness has been
assumed, and (vi) the principal balance outstanding under any synthetic
lease, tax retention operating lease, off-balance sheet loan or similar
off-balance sheet financing product to which such Person is a party,
where such transaction is considered borrowed money indebtedness for
tax purposes but is classified as an operating lease in accordance with
GAAP. The Funded Indebtedness of any Person shall include the Funded
Indebtedness of any partnership or joint venture in which such Person
is a general partner or joint venturer.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms of
Section 1.03 hereof.
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantor" means each of those Persons identified as a
"Guarantor" on the signature pages hereto, and each Additional Credit
Party which may hereafter execute a Joinder Agreement, together with
their successors and permitted assigns.
"Guaranty Obligations" means, with respect to any Person,
without duplication, any obligations of such Person (other than
endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) guarantying or intended to
guaranty any Indebtedness of any other Person in any manner, whether
direct or indirect, and including without limitation any obligation,
whether or not contingent, (i) to purchase any such Indebtedness or any
Property constituting security therefor, (ii) to advance or provide
funds or other support for the payment or purchase of any such
Indebtedness or to maintain working capital, solvency or other balance
sheet condition of such other Person (including without limitation keep
well agreements, maintenance agreements, comfort letters or similar
agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (iii) to lease or purchase Property,
securities or services primarily for the purpose of assuring the holder
of such Indebtedness, or (iv) to otherwise assure or hold harmless the
holder of such Indebtedness against loss in respect thereof. The amount
of any Guaranty Obligation hereunder shall (subject to any limitations
set forth therein)
<PAGE>
12
be deemed to be an amount equal to the outstanding principal amount (or
maximum principal amount, if larger) of the Indebtedness in respect of
which such Guaranty Obligation is made.
"Hedging Agreements" means any interest rate protection
agreement between the Borrower and the Bank, or any Affiliate of the
Bank, entered into in order to manage existing or anticipated interest
rate risks associated with the obligations of the Borrower to the Bank
under this Credit Agreement, the Notes or any of the other Credit
Documents.
"Home Office Building" means, collectively, (i) the office
building occupied by the Borrower and its Subsidiaries, (ii) the realty
upon which such building is located in North Palm Beach, Florida, and
(iii) the parking area dedicated to such office building.
"Indebtedness" of any Person means (i) all obligations of such
Person for borrowed money, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (iii) all obligations of
such Person under conditional sale or other title retention agreements
relating to Property purchased by such Person (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (iv) all obligations
of such Person issued or assumed as the deferred purchase price of
Property or services purchased by such Person (other than trade debt
incurred in the ordinary course of business and due within six months
of the incurrence thereof) which would appear as liabilities on a
balance sheet of such Person, (v) all obligations of such Person under
take-or-pay or similar arrangements or under commodities agreements,
(vi) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on, or payable out of the proceeds of production
from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (vii) all Guaranty
Obligations of such Person, (viii) the principal portion of all
obligations of such Person under Capital Leases, (ix) all obligations
of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements, commodity purchase or option
agreements or other interest or exchange rate or commodity price
hedging agreements (including, but not limited to, the Hedging
Agreements) (it being understood that the amount of Indebtedness under
any agreement described in this subclause (ix), as of any date, shall
be deemed to be equal to the termination value payable by such Person
if such agreement were terminated on such date), (x) the maximum amount
of all standby letters of credit issued or bankers' acceptances
facilities created for the account of such Person and, without
duplication, all drafts drawn thereunder (to the extent unreimbursed),
and (xi) the principal balance outstanding under any synthetic lease,
tax retention operating lease, off- balance sheet loan or similar
off-balance sheet financing product to which such Person is a party,
where such transaction is considered borrowed money indebtedness for
tax purposes but is classified as an operating lease in accordance with
GAAP; provided that Indebtedness shall not include (i) obligations with
respect to insurance policies,
<PAGE>
13
annuities, guaranteed investment contracts and similar products
underwritten by, or Reinsurance Agreements or Retrocession Agreements
(including, without limitation, cut- through endorsements related
thereto) entered into by, any Insurance Subsidiary in the ordinary
course of its business and (ii) obligations with respect to Surplus
Relief Reinsurance ceded by the Borrower or any Insurance Subsidiary.
The Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner
or a joint venturer.
"Insurance Subsidiary" means Pinnacle, AmComp Assurance
Corporation and each Wholly Owned Subsidiary of the Borrower licensed
to engage in the business of property and casualty insurance.
"Interbank Offered Rate" means, for the Interest Period for
each Advance, a per annum interest rate (rounded upwards, if necessary,
to the nearest whole multiple of 1/100 of 1%) equal to the rate of
interest, determined by the Bank on the basis of the offered rates for
deposits in dollars for a period of time corresponding to such Interest
Period (and commencing on the first day of such Interest Period),
appearing on Telerate Page 3750 (or, if, for any reason, Telerate Page
3750 is not available, the Reuters Screen LIBO Page) as of
approximately 11:00 A.M. (London time) two (2) Business Days before the
first day of such Interest Period. As used herein, "Telerate Page 3750"
means the display designated as page 3750 by Dow Jones Telerate, Inc.
(or such other page as may replace such page on that service for the
purpose of displaying the British Bankers Association London interbank
offered rates) and "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service
(or such other page as may replace the LIBO page on that service for
the purpose of displaying London interbank offered rates of major
banks).
"Intercompany Indebtedness" means any Indebtedness of a Credit
Party which (i) is owing to any other Credit Party and (ii) by its
terms is specifically subordinated in right of payment to the prior
payment of the obligations of the Credit Parties under this Credit
Agreement and the other Credit Documents on terms and conditions
reasonably satisfactory to the Bank.
"Interest Payment Date" means the fifth day of each March,
June, September and December, the date of repayment of principal of the
applicable Advance and the applicable Termination Date. If an Interest
Payment Date falls on a date which is not a Business Day, such Interest
Payment Date shall be deemed to be the next succeeding Business Day,
except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day.
"Interest Period" means a period of one month's duration
commencing in each case, on the date of the borrowing (including
renewals); provided, however, (i) if any Interest Period would end on a
day which is not a Business Day, such Interest Period shall
<PAGE>
14
be extended to the next succeeding Business Day (except that where the
next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding Business Day), (ii) no Interest
Period shall extend beyond the Termination Date applicable to an
Advance, (iii) no Interest Period shall extend beyond any Interest
Payment Date or any principal amortization payment date, and (iv) where
an Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period is
to end, such Interest Period shall end on the last day of such calendar
month.
"Investment", in any Person, means any loan or advance to such
Person, any purchase or other acquisition of any capital stock,
warrants, rights, options, obligations or other securities of, or
equity interest in, such Person, any capital contribution to such
Person or any other investment in such Person, including, without
limitation, any Guaranty Obligation incurred for the benefit of such
Person.
"Investment Grade Securities" means (i) U.S. Government
Obligations; (ii) any certificate of deposit, maturing not more than
365 days after the date of acquisition, issued by, or time deposit of,
a commercial banking institution that has combined capital and surplus
of not less than $100,000,000 or its equivalent in foreign currency,
whose debt is rated at the time as of which any investment there is
made, of A (or higher) according to Standard & Poor's Corporation
("S&P") or Moody's Investors Services, Inc. ("Moody's"), or A1 (or
higher) by IBCA Ltd., or if none of S&P, Moody's and IBCA Ltd. shall
then exist, the equivalent of such rating by any other nationally
recognized securities rating agency; (iii) commercial paper, maturing
not more than 270 days after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the Company) with
a rating, at the time as of which any investment therein is made, of
A-1 (or higher) according to S&P or "P-1" (or higher) according to
Moody's, or if neither of S&P and Moody's shall then exist, the
equivalent of such rating by any other nationally recognized securities
rating agency; (iv) any bankers' acceptances or any money market
deposit accounts, in each case, issued or offered by any commercial
bank having capital and surplus in excess of $100,000,000 or its
equivalent in foreign currency, whose debt is rated at the time as of
which any investment there is made, of "A" (or higher) according to S&P
or Moody's or "A1" (or higher) by IBCA Ltd., or if none of S&P, Moody's
and IBCA Ltd. shall then exist, the equivalent of such rating by any
other nationally recognized securities rating agency; (v) any fund
investing exclusively in investments of the types described in clauses
(i) through (iv) above. For this purpose, "U.S. Government Obligations"
means securities that are (x) direct obligations of the United States
of America for the timely payment of which its full faith and credit is
pledged or (y) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank
(as defined in Section
<PAGE>
15
3(a)(2) of the Securities Act of 1933, as amended), as custodian with
respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by
such custodian for the account of the holder of such depository
receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation evidenced by
such depository receipt.
"IRIS Tests" shall mean the ratios and other financial
measurements developed by the NAIC under its Insurance Regulatory
Information System or, in lieu thereof, any successor thereto,
replacement thereof, substitute therefor or other substantially similar
guidelines intended to measure the financial performance of companies
in the property and casualty insurance industry, as the same shall be
in effect from time to time.
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Schedule 7.12 hereto, executed and delivered by an
Additional Credit Party in accordance with the provisions of Section
7.12.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any financing or similar statement or notice
filed under the Uniform Commercial Code as adopted and in effect in the
relevant jurisdiction or other similar recording or notice statute, and
any lease in the nature thereof).
"Material Adverse Effect" means a material adverse effect on
(i) the combined condition (financial or otherwise), operations,
business, assets or liabilities or prospects of the Borrower and its
Subsidiaries, taken as a whole, (ii) the ability of any Credit Party to
perform any material obligation under the Credit Documents to which it
is a party or (iii) the material rights and remedies of the Lenders
under the Credit Documents.
"Materials of Environmental Concern" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Laws,
including, without limitation, asbestos, polychlorinated biphenyls and
urea- formaldehyde insulation.
"Maximum Consolidated Capitalization" means, as of the last
day of any fiscal quarter of the Borrower, the ratio of Consolidated
Funded Indebtedness to Consolidated Capitalization.
<PAGE>
16
"Multiemployer Plan" means a Plan which is a multiemployer
plan as defined in Sections 3(37) or 4001 (a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate and at least one
employer other than the Borrower, any Subsidiary of the Borrower or any
ERISA Affiliate are contributing sponsors.
"NAIC" means the National Association of Insurance
Commissioners and any successor thereof.
"NationsBank" means NationsBank, N.A. and its successors and
assigns.
"Non-Excluded Taxes" means such term as is defined in Section
3.08.
"Non-Guarantor Subsidiary" means any Non-Insurance Subsidiary
which is not a Guarantor.
"Non-Insurance Subsidiary" means any Subsidiary of the
Borrower which is not an Insurance Subsidiary.
"Note" means the Facility A Note or the Facility B Note.
"Operating Companies" means, collectively, the Borrower (on an
unconsolidated basis), Pinnacle Administrative Company (as successor to
Florida Administrators, Inc.) and Pinnacle Benefits, Inc. (as successor
to Compensation Benefits, Inc.).
"Operating Company Net Income" means, for any period, net
income after taxes, without duplication, for such period for the
Operating Companies, as determined in accordance with GAAP.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed)
which is not a Capital Lease other than any such lease in which that
Person is the lessor.
"Original Closing Date" means December 30, 1996.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereof.
"Permitted Investments" means any of the following: (i) cash;
(ii) Investment Grade Securities; (iii) Investments in non-Investment
Grade Securities so long as (a) the fair saleable value of all
non-Investment Grade Securities held by the Insurance
<PAGE>
17
Subsidiaries does not exceed 10% of the consolidated Total Invested
Assets of the Insurance Subsidiaries and (b) the fair saleable value of
all non-Investment Grade Securities held by the Borrower and its
Subsidiaries (including Insurance Subsidiaries) does not exceed 10% of
the aggregate fair saleable value of all securities held by the
Borrower and its Subsidiaries (including the Insurance Subsidiaries) on
a consolidated basis; (iv) advances or loans to directors, officers,
employees, agents, customers or suppliers (A) made in the ordinary
course of business and consistent with the past practices of the Credit
Parties or (B) to the extent not permitted by the foregoing subclause
(A), that do not exceed $250,000 in the aggregate at any one time
outstanding; (v) Investments in any Credit Party; (vi) Intercompany
Indebtedness permitted by Section 8.01(c); (vii) Investments in a Non-
Guarantor Subsidiary, provided that such Investments do not exceed
$500,000 in the aggregate at any one time outstanding; (viii) accounts
receivable created, acquired or made by the Borrower or any of its
Subsidiaries in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (ix)
Investments consisting of stock, obligations, securities or other
property received by the Borrower or any of its Subsidiaries in
settlement of accounts receivable (created in the ordinary course of
business) from bankrupt obligors; (x) repurchase agreements entered
into by a Person with a commercial banking institution (including any
of the Lenders) or recognized securities dealer having capital and
surplus in excess of $100,000,000 for direct obligations issued by or
fully guaranteed by the United States of America in which such Person
shall have a perfected first priority security interest (subject to no
other Liens) and having, on the date of purchase thereof, a fair market
value of at least 100% of the amount of the repurchase obligations;
(xi) the Home Office Building; (xii) Investments of the Borrower in any
Insurance Subsidiary, provided that no Default or Event of Default
exists hereunder or would occur as a result thereof; (xiii) other
Investments existing as of the Original Closing Date and set forth in
Schedule 1.01B; (xiv) Guaranty Obligations permitted by Section 8.01;
(xv) acquisitions permitted by Section 8.04(d); and (xvi) transactions
permitted by Section 8.08.
"Permitted Liens" means:
(i) Liens in favor of the Bank;
(ii) Liens (other than Liens created or imposed under
ERISA) for taxes, assessments or governmental charges or
levies not yet due or Liens for taxes being contested in good
faith by appropriate proceedings for which adequate reserves
determined in accordance with GAAP have been established (and
as to which the Property subject to any such Lien is not yet
subject to foreclosure, sale or loss on account thereof);
(iii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and suppliers
and other Liens imposed by law or pursuant to customary
reservations or retentions of title arising in the ordinary
course of
<PAGE>
18
business, provided that such Liens secure only amounts not yet
due and payable or, if due and payable, are unfiled and no
other action has been taken to enforce the same or are being
contested in good faith by appropriate proceedings for which
adequate reserves determined in accordance with GAAP have been
established (and as to which the Property subject to any such
Lien is not yet subject to foreclosure, sale or loss on
account thereof);
(iv) Liens (other than Liens created or imposed under
ERISA) incurred or deposits made by the Borrower and its
Subsidiaries in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of
tenders, statutory obligations, bids, leases, government
contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment
of borrowed money);
(v) Liens in connection with attachments or judgments
(including judgment or appeal bonds) provided that the
judgments secured shall, within 30 days after the entry
thereof, have been discharged or execution thereof stayed
pending appeal, or shall have been discharged within 30 days
after the expiration of any such stay;
(vi) easements, rights-of-way, restrictions
(including zoning restrictions), minor defects or
irregularities in title and other similar charges or
encumbrances not, in any material respect, impairing the use
of the encumbered Property for its intended purposes;
(vii) Liens on Property securing purchase money
Indebtedness to the extent permitted under Section 8.01,
provided that (i) the Indebtedness secured by such Liens does
not exceed the purchase price of the assets financed and (ii)
any such Lien attaches to such Property concurrently with or
within 90 days after the acquisition thereof;
(viii) Liens arising under escrows, trusts,
custodianships, separate accounts, funds withheld procedures,
and similar deposits, arrangements or agreements established
with respect to insurance policies, annuities, guaranteed
investment contracts and similar products underwritten by, or
Reinsurance Agreements entered into by, the Borrower or any
Insurance Subsidiary in the ordinary course of business;
(ix) deposits with insurance regulatory authorities;
<PAGE>
19
(x) Liens on assets at the time such assets are
acquired by the Borrower or any Subsidiary; provided that such
Liens are not created in contemplation of such acquisition;
(xi) normal and customary rights of setoff upon
deposits of cash in favor of banks or other depository
institutions; and
(xii) Liens existing as of the Original Closing Date
and set forth on Schedule l.01C; provided that no such Lien
shall at any time be extended to or cover any Property other
than the Property subject thereto on the Original Closing
Date.
"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise (whether or not incorporated) or any Governmental
Authority.
"Pinnacle" means Pinnacle Assurance Corporation, a Wholly
Owned Subsidiary of the Borrower.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is (or,
if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" within the meaning of Section 3(5)
of ERISA.
"Pledge Agreement" means that certain Pledge and Security
Agreement, dated as of December 30, 1996, pursuant to which the
Borrower has granted to the Bank a security interest for the Borrower's
Obligations in the Collateral.
"Prepayment Fee" shall have the meaning assigned to such term
in Section 3.02.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by NationsBank as its prime rate in effect
at its principal office in Charlotte, North Carolina, with each change
in the Prime Rate being effective on the date such change is publicly
announced as effective (it being understood and agreed that the Prime
Rate is a reference rate used by NationsBank in determining interest
rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit by NationsBank to any
debtor).
"Pro Forma Basis" means, with respect to any transaction, that
such transaction shall be deemed to have occurred as of the first day
of the four fiscal-quarter period ending as of the most recent fiscal
quarter end preceding the date of such transaction with respect to
which the Bank has received the officer's certificate in accordance
with the provisions
<PAGE>
20
of Section 7.01(d). As used herein, "transaction" means (i) any
acquisition of capital stock or securities or any purchase, lease or
other acquisition of Property as referred to in Section 8.04(d), (ii)
any Restricted Payment as referred to in Section 8.06(d) or (iii) any
settlement as referred to in Section 8.13.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Statement" means, with respect to any Insurance
Subsidiary, such Insurance Subsidiary's quarterly statement to the
insurance regulatory authorities of its domiciliary state, as the same
may be amended from time to time.
"Regulation G, T, U, or X" means Regulation G, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"Reinsurance Agreements" shall mean any agreement, contract,
treaty, certificate or other arrangement whereby an Insurance
Subsidiary agrees to transfer, cede or retrocede to another insurer or
reinsurer all or part of the liability assumed by such an Insurance
Subsidiary under a policy or policies of insurance issued by such an
Insurance Subsidiary.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the environment (including the abandonment or
discarding of barrels, containers and other closed receptacles
containing any Materials of Environmental Concern).
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the
post-event notice requirement is waived under subsections .13, .14,
.18, .19, or .20 of PBGC Reg. Section 2615.
"Requirement of Law" means, as to any Person, the certificate
of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its material property is subject.
"Restricted Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of stock of the Borrower or any of its Subsidiaries, now or hereafter
outstanding, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect,
of any shares of any class of stock of the Borrower or any of its
Subsidiaries, now or hereafter outstanding and (iii) any payment made
to retire, or to obtain the surrender of, any
<PAGE>
21
outstanding warrants, options or other rights to acquire shares of any
class of stock of the Borrower or any of its Subsidiaries, now or
hereafter outstanding.
"Retrocession Agreement" means any agreement, contract, treaty
or other arrangement (other than Surplus Relief Reinsurance) whereby
any insurer cedes or assumes reinsurance to or from other insurers.
"Risk Based Capital Act" means the Risk Based Capital Model
Act and the rules, regulations and procedures prescribed from time to
time by the NAIC with respect thereto, in each case as amended,
modified or supplemented from time to time by the NAIC.
"SAP" means, with respect to any Insurance Subsidiary, the
accounting practices prescribed or permitted by the insurance
commissioner (or other similar authority) in the jurisdiction of
domicile of such insurance company for the preparation of Annual
Statements, Quarterly Statements and other financial reports by
insurance corporations of the same type as such Insurance Subsidiary,
as applied on a consistent basis and subject to the terms of Section
1.03 hereof.
"SAP Statement" means an Annual Statement or a Quarterly
Statement
"Service Contracts" means (i) that certain Management Company
Contract, dated as of April 7, 1995, between Pinnacle Administrative
Company (formerly known as Florida Administrators, Inc.) and Pinnacle,
as amended by the Amendment, dated as of January 26, 1996 and (ii) that
certain Service Company Contract, dated as of April 7, 1995, between
Pinnacle Administrative Company (formerly known as Florida
Administrators, Inc.) and Pinnacle Benefits, Inc. (formerly known as
Compensation Benefits, Inc.), as amended by the Amendment, dated as of
January 26, 1996, as each such agreement is in effect on the Original
Closing Date.
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Solvent" or "Solvency" means, with respect to any Person as
of a particular date, that on such date (i) such Person is able to
generally pay its debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business,
(ii) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature in their ordinary course, (iii) such
Person is not engaged in a business or a transaction, and is not about
to engage in a business or a transaction, for which such Person's
Property would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which such
Person is engaged or is to engage, (iv) the fair value of the Property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person
and (v) the present fair saleable
<PAGE>
22
value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its
debts as they become absolute and matured. In computing the amount of
contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured
liability.
"Subsidiary" means, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time, any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by
such Person directly or indirectly through Subsidiaries, and (ii) any
partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than 50%
equity interest at any time.
"Surplus Notes" means those certain promissory notes, dated
the Original Closing Date, in the principal amount of $10,000,000 and
dated the Closing Date, in the principal amount of $5,000,000, issued
by Pinnacle to the Borrower.
"Surplus Relief Reinsurance" means any transaction in which
any Insurance Subsidiary cedes business under a Reinsurance Agreement
that would be considered a "financing-type" Reinsurance Agreement as
determined by the independent certified public accountants of the
Borrower in accordance with principles published by the Financial
Accounting Standards Board (including, but not limited to FASB 113 and
EITF #93-6).
"Termination Date" means, with respect to the Facility A
Advance, the Facility A Termination Date and, with respect to the
Facility B Advance, the Facility B Termination Date.
"Termination Event" means (i) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (ii) the
withdrawal by the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate from a Multiple Employer Plan during a plan year in which it
was a substantial employer (as such term is defined in Section
4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan;
(iii) the distribution of a notice of intent to terminate or the actual
termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA;
(iv) the institution of proceedings to terminate or the actual
termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any
event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; or (vi) the complete or partial withdrawal of the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a
Multiemployer Plan.
<PAGE>
23
"Total Invested Assets" means, with respect to any Insurance
Subsidiary, the amount set forth on line 8(a) in column 1 on page 2 of
such Insurance Subsidiary's most recent SAP Statement.
"Voting Stock" means, with respect to any Person, capital
stock issued by such Person the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of
directors (or persons performing similar functions) of such Person,
even though the right so to vote has been suspended by the happening of
such a contingency.
"Warrantholders Rights Agreement" means the Warrantholders
Rights Agreement, dated as of the date hereof, among the Borrower and
the Bank in substantially the form of Schedule 3.03.
"Warrants" has the meaning set forth in the Warrantholders
Rights Agreement.
"Wholly Owned Subsidiary" of any Person means any Subsidiary
100% of whose Voting Stock or other equity interests is at the time
owned by such Person directly or indirectly through other Wholly Owned
Subsidiaries.
SECTION 1.02. Computation of Time Periods. For purposes of computation
of periods of time hereunder, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding."
SECTION 1.03. Accounting Terms.
(a) Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Bank shall
be prepared, (i) with respect to the Borrower and its consolidated Subsidiaries,
in accordance with GAAP applied on a consistent basis and (ii) with respect to
the Insurance Subsidiaries, in accordance with SAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP or SAP, as appropriate, applied on a basis
consistent with the most recent annual or quarterly financial statements
delivered pursuant to Section 6.01 hereof; provided, however, if (a) the
Borrower shall object to determining such compliance on such basis at the time
of delivery of such financial statements due to any change in GAAP, SAP or the
rules promulgated with respect thereto or (b) the Bank shall so object in
writing within 30 days after delivery of such financial statements, then such
calculations shall be made on a basis consistent with the most recent financial
statements delivered by the Borrower to the Bank as to which no such objection
shall have been made.
(b) All references to line items in any column and on any page of an
Insurance Subsidiary's SAP Statement are deemed to be references to the
equivalent item in the event that the form of such Person's SAP Statement is
amended.
<PAGE>
24
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Committed Facilities.
(a) $15,000,000 Facility A. Subject to and upon the terms and
conditions and relying upon the representations and warranties herein set forth,
the Bank agrees to make an advance (the "Facility A Advance") to the Borrower on
the date hereof in an amount not to exceed $15,000,000 (the "Facility A
Commitment").
(b) $5,000,000 Facility B. In addition to the Facility A Commitment,
subject to and upon the terms and conditions and relying upon the
representations and warranties herein set forth, the Bank agrees to make an
advance (the "Facility B Advance") to the Borrower on the date hereof in an
amount not to exceed $5,000,000 (the "Facility B Commitment").
(c) Borrowing Procedure. The Borrower shall submit an appropriate
Advance Request to the Bank not later than 11:00 A.M. (New York City time) on
the proposed date for the making of an Advance, which Advance Request shall be
irrevocable and shall specify, among other things, that the funding of an
Advance is requested and the type of the Advance. Upon fulfillment of the
conditions set forth in Section 5.01 on or prior to such date, the Bank shall
make the Advance relating to such Advance Request available to the Borrower in
same day funds on such date at the Bank's address referred to in Section 10.01.
(d) Repayment.
(i) Facility A. Subject to the provisions of paragraph (ii)
hereof, the principal amount of the Facility A Advance shall be repaid
in eleven (11) equal and consecutive quarterly installments of $750,000
due and payable as of the fifth day of each March, June, September and
December, commencing on March 5, 1999; provided, that, the final
installment of principal shall be payable on the Facility A Termination
Date and shall be in an amount sufficient to pay the entire principal
amount of the Facility A Advance outstanding on the Facility A
Termination Date.
(ii) Facility B. The principal amount of the Facility B
Advance shall be due and payable in one installment on the Facility B
Termination Date, provided, that, upon the Borrower's request and at
the Bank's election in its sole discretion, which election shall be in
writing on notice to the Borrower as provided herein, the principal
amount of the Facility B Advance may be consolidated with and added to
the principal amount of the Facility A Advance on the Consolidation
Date (the "Consolidation"). The Consolidation shall be subject to the
satisfaction or waiver by the Bank on or prior to the Consolidation
<PAGE>
25
Date of conditions, in the Bank's sole discretion, including, but not
limited to, the following:
(A) Consolidated EBITDA for the six-month period
ending June 30, 1998 shall be greater than
$6,000,000;
(B) the Borrower shall have received at least
$10,000,000 in net proceeds from the
issuance in an offering of its equity
securities or subordinated debt on terms
satisfactory to the Bank;
(C) the results of the December 31, 1997 and
June 30, 1998 Actuarial Reports delivered to
the Bank pursuant to Section 7.01(e) hereof
are satisfactory to the Bank in its sole
discretion;
(D) an Event of Default shall not have occurred
(including any Event of Default waived by
the Bank) or be continuing; and
(E) a Material Adverse Effect shall not have
occurred.
Upon the Consolidation, (1) the Facility B Advance shall be deemed to
be repaid; (2) the outstanding principal amount of the Facility A
Advance and the Facility A Commitment shall be deemed to be increased
by the amount so consolidated, (3) the principal amount of the Facility
A Advance shall be due and payable in quarterly installments of
$1,000,000 and (4) the Borrower shall execute a replacement Facility A
Note in substantially the form of Schedule 2.03 in the principal amount
of the increased Facility A Commitment.
SECTION 2.02. Interest. Subject to the provisions of Section 3.01, the
Advances shall bear interest at a per annum rate equal to the Eurodollar Rate
plus the Applicable Percentage (the "Applicable Percentage Rate"). The interest
on the Facility A Advance shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein). The
interest on the Facility B Advance shall be payable in arrears on each
applicable Interest Payment Date occurring on and after March 5, 1998 (or at
such other times as may be specified herein).
SECTION 2.03. Promissory Notes. The Facility A Advance shall be
evidenced by a Facility A Note. The Facility B Advance shall be evidenced by a
Facility B Note.
<PAGE>
26
ARTICLE III
OTHER PROVISIONS RELATING TO CREDIT FACILITY
SECTION 3.01. Default Rate. Upon the occurrence, and during the
continuance, of an Event of Default, the principal of and, to the extent
permitted by law, interest on the Advances and any other amounts owing hereunder
or under the other Credit Documents shall bear interest, payable on demand, at a
per annum rate 3% greater than the rate which would otherwise be applicable (or
if no rate is applicable, whether in respect of interest, fees or other amounts,
then 3% greater than the Applicable Percentage Rate).
SECTION 3.02. Prepayments. The Borrower shall have the right to prepay
the Advances in whole or in part, provided, however, that (i) Borrower shall
additionally pay (a) all accrued and unpaid interest on such prepayment amount
to the date of such prepayment and, (b) in the event such prepayment occurs
within 36 months of the Original Closing Date, an amount equal to .50% of such
prepayment amount (the "Prepayment Fee") to compensate the Bank for any loss or
expense (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Bank to make, continue
or extend any portion of the principal amount of the Advances) as a result of
such prepayment; (ii) the Advances may only be prepaid on three Business Days'
prior written notice to the Bank which notice shall specify the amounts to be
prepaid; (iii) any prepayment of the Advances will be subject to Section 3.07;
and (iv) each such partial prepayment of the Advances shall be in a minimum
principal amount of $250,000. Subject to the foregoing terms, amounts prepaid
under this Section 3.02 shall be applied to principal installments thereof in
inverse order of maturity. Amounts prepaid may not be reborrowed.
SECTION 3.03. Fees.
(a) Commitment Fee. In consideration of the Facility A Commitment, the
Borrower agrees to pay the Bank a commitment fee in the amount of $50,000 (the
"Commitment Fee"), the entire amount of which the Bank acknowledges has been
irrevocably paid prior to the date hereof.
(b) Commitment Warrant. In consideration of the Facility B Commitment,
the Borrower agrees to grant to the Bank on the Closing Date warrants to
purchase 55,000 shares of the common stock of the Borrower on the terms and
conditions set forth in the Warrantholders Rights Agreement and as evidenced by
the Warrants.
(c) Advance Fee. The Borrower agrees to pay the Bank from time to time
an Advance Fee (each, an "Advance Fee") on the anniversary of the Original
Closing Date and on each anniversary thereafter in the amount of .15% of the
then outstanding principal amount of the Facility A Advance.
<PAGE>
27
SECTION 3.04. Capital Adequacy. If the Bank has determined, after the
date hereof, that the adoption or the becoming effective of, or any change in,
or any change by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof in the interpretation
or administration of, any applicable law, rule or regulation regarding capital
adequacy, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which the Bank could have achieved
but for such adoption, effectiveness, change or compliance (taking into
consideration the Bank's policies with respect to capital adequacy), then, upon
notice from the Bank to the Borrower, the Borrower shall be obligated to pay to
the Bank such additional amount or amounts as will compensate The Bank for such
reduction. Each determination by the Bank of amounts owing under this Section
shall, absent manifest error, be conclusive and binding on the parties hereto.
SECTION 3.05. Inability To Determine Interest Rate. If prior to the
first day of any Interest Period, the Bank shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by reason
of circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such Interest Period, the
Bank shall give telecopy or telephonic notice thereof to the Borrower as soon as
practicable thereafter. If such notice is given (a) any Advances requested to be
made on the first day of such Interest Period shall be made as Base Rate Loans
and (b) any Advances that were to have been continued as Eurodollar Loans shall
be continued as Base Rate Loans. Until such notice has been withdrawn by the
Bank, no further Eurodollar Loans shall be made or continued as such.
SECTION 3.06. Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof occurring after the Original Closing Date
shall make it unlawful for the Bank to make or maintain Eurodollar Loans as
contemplated by this Credit Agreement, (a) the Bank shall promptly give written
notice of such circumstances to the Borrower (which notice shall be withdrawn
whenever such circumstances no longer exist), (b) the commitment of the Bank
hereunder to make Eurodollar Loans and continue Eurodollar Loans as such shall
forthwith be canceled and, until such time as it shall no longer be unlawful for
the Bank to make or maintain Eurodollar Loans, the Bank shall then have a
commitment only to make a Base Rate Loan when an Advance is requested and (c)
Advances then outstanding, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Advances or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.11.
<PAGE>
28
SECTION 3.07. Requirements of Law. If, after the Original Closing Date,
the adoption of or any change in any Requirement of Law or in the interpretation
or application thereof applicable to the Bank, or compliance by the Bank with
any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority, in each case made subsequent to
the Original Closing Date:
(a) shall subject the Bank to any tax of any kind whatsoever
with respect to any Advances made by it or its obligation to make
Advances, or change the basis of taxation of payments to the Banks in
respect thereof (except for (i) Non-Excluded Taxes covered by Section
3.08 and (ii) changes in taxes measured by or imposed upon the overall
net income, or franchise tax (imposed in lieu of such net income tax),
of the Bank or its applicable lending office, branch, or any affiliate
thereof));
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of the Bank which is not otherwise
included in the determination of the Eurodollar Rate hereunder; or
(c) shall impose on the Bank any other condition (excluding
any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to the Bank, by
an amount which the Bank deems to be material, of making, continuing or
maintaining Advances or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, upon notice to the Borrower from the Bank, in
accordance herewith, the Borrower shall be obligated to promptly pay the Bank,
upon its demand, any additional amounts necessary to compensate the Banks for
such increased cost or reduced amount receivable. If the Bank becomes entitled
to claim any additional amounts pursuant to this subsection, it shall provide
prompt notice thereof to the Borrower, certifying (x) that one of the events
described in this paragraph (a) has occurred and describing in reasonable detail
the nature of such event, (y) as to the increased cost or reduced amount
resulting from such event and (z) as to the additional amount demanded by the
Bank and a reasonably detailed explanation of the calculation thereof. Such a
certificate as to any additional amounts payable pursuant to this subsection
submitted by the Bank, to the Borrower shall be conclusive and binding on the
parties hereto in the absence of manifest error. This covenant shall survive the
termination of this Credit Agreement and the payment of the Advances and all
other amounts payable hereunder.
SECTION 3.08. Taxes.
(a) Except as provided below in this subsection, all payments made by
the Borrower under this Credit Agreement and the Notes shall be made free and
clear of, and without deduction or withholding for or on account of, any present
or future income, stamp or other taxes, levies,
<PAGE>
29
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any court, or governmental
body, agency or other official, excluding taxes measured by or imposed upon the
overall net income of the Bank or its applicable lending office, or any branch
or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing
business or taxes on the overall capital or net worth of the Bank or its
applicable lending office, or any branch or affiliate thereof, in each case
imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the
laws of which the Bank, applicable lending office, branch or affiliate is
organized or is located, or in which its principal executive office is located,
or any nation within which such jurisdiction is located or any political
subdivision thereof; or (ii) by reason of any connection between the
jurisdiction imposing such tax and the Bank, applicable lending office, branch
or affiliate other than a connection arising solely from the Bank having
executed, delivered or performed its obligations, or received payment under or
enforced, this Credit Agreement or the Notes. If any such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions or withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts payable to
the Bank hereunder or under the Notes, (A) the amounts so payable to the Bank
shall be increased to the extent necessary to yield to the Bank (after payment
of all Non-Excluded Taxes) interest or any such other amounts payable hereunder
at the rates or in the amounts specified in this Credit Agreement and the Notes,
and (B) as promptly as possible thereafter the Borrower shall send to the Bank
for its own account, a certified copy of an original official receipt received
by the Borrower showing payment thereof. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Bank the required receipts or other required documentary evidence,
the Borrower shall indemnify the Bank for any incremental taxes, interest or
penalties that may become payable by the Bank as a result of any such failure.
The agreements in this subsection shall survive the termination of this Credit
Agreement and the payment of the Advances and all other amounts payable
hereunder.
(b) In connection with this transaction there may or may not be due
certain documentary stamp taxes and/or intangible taxes imposed by the State of
Florida (the "Florida Taxes"). In addition to (and not in limitation of) the
indemnification with respect to tax liabilities set forth above, the Borrower
agrees to indemnify the Bank, its directors, officers, agents and employees from
and against any and all liability, damage, loss, cost, expense or reasonable
attorney fees which may accrue to or be sustained by the Bank or its directors,
officers, agents or employees on account of or arising from any claim or action
raised by, filed or brought by or in the name of any Florida governmental or
administrative department with respect to nonpayment of the Florida Taxes
against the Bank, or any of its directors, officers, agents or employees.
SECTION 3.09. Indemnity. The Borrower promises to indemnify the Bank
and to hold the Bank harmless from any loss or expense which the Bank may
sustain or incur (other than through the Bank's gross negligence or willful
misconduct) as a consequence of (a) default by the Borrower in making a
borrowing of, Advances after the Borrower has given a notice requesting the same
in accordance with the provisions of this Credit Agreement, (b) default by the
Borrower in making any prepayment of an Advance after the Borrower has given a
notice thereof in accordance with the provisions of this Credit Agreement or (c)
the making of a prepayment of an
<PAGE>
30
Advance on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the amount so prepaid,
or not so borrowed, or continued, for the period from the date of such
prepayment or of such failure to borrow or continue to the last day of the
applicable Interest Period (or, in the case of a failure to borrow or continue,
the Interest Period that would have commenced on the date of such failure) in
each case at the applicable rate of interest for such Advances provided for
herein (excluding, however, the Applicable Percentage included therein, if any)
over (ii) the amount of interest (as reasonably determined by the Bank) which
would have accrued to the Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank Eurodollar market.
The covenants of the Borrower set forth in this Section 3.07 shall survive the
termination of this Credit Agreement and the payment of the Advances and all
other amounts payable hereunder.
SECTION 3.10. Payments, Computations. Etc.
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Bank in dollars in immediately available funds,
without offset, deduction, counterclaim or withholding of any kind, at the
Bank's Charlotte, North Carolina office specified in Section 10.01 not later
than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments
received after such time shall be deemed to have been received on the next
succeeding Business Day. The Bank may (but shall not be obligated to) debit the
amount of any such payment which is not made by such time to any ordinary
deposit account of the Borrower maintained with the Bank (with notice to the
Borrower). The Borrower shall, at the time it makes any payment under this
Credit Agreement, specify to the Bank the Advances, Fees, interest or other
amounts payable by the Borrower hereunder to which such payment is to be
applied. Whenever any payment hereunder shall be stated to be due on a day which
is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day (subject to accrual of interest and Fees for the period
of such extension), except that, if the extension would cause the payment to be
made in the next following calendar month, then such payment shall instead be
made on the next preceding Business Day. Except as expressly provided otherwise
herein, all computations of interest and fees shall be made on the basis of
actual number of days elapsed over a year of 360 days. Interest shall accrue
from and include the date of borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Credit Agreement to the contrary, after the occurrence
and during the continuance of an Event of Default, all amounts collected or
received by the Bank on account of the Borrower's Obligations or any other
amounts outstanding under any of the Credit Documents shall be paid over or
delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including without limitation reasonable attorneys' fees)
of the Bank in connection with enforcing its rights under the Credit
Documents;
<PAGE>
31
SECOND, to payment of any Fees owed to the Bank;
THIRD, to the payment of all of the Borrower's Obligations
consisting of interest;
FOURTH, to the payment of the outstanding principal amount of
the Borrower's Obligations;
FIFTH, to all other Borrower's Obligations and other
obligations which shall have become due and payable under the Credit
Documents or otherwise and not repaid pursuant to clauses "FIRST"
through "FOURTH" above; and
SIXTH, to the payment of the surplus, if any, to whoever may
be lawfully entitled to receive such surplus.
In carrying out the foregoing, amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category.
SECTION 3.11. Confirmation of other Credit Documents. The Borrower and
the other Credit Parties hereby acknowledge and agree that the Pledge Agreement
and the Assignment of Life Insurance Policy are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Borrower and the other Credit
Parties hereby further acknowledge and confirm that the Pledge Agreement and the
Assignment of Life Insurance Policy do and shall continue to secure the payment
in full of all of the Borrower's Obligations.
ARTICLE IV
GUARANTY
SECTION 4.01. The Guaranty. Each of the Guarantors hereby jointly and
severally guarantees to the Bank, and each Affiliate of the Bank that enters
into a Hedging Agreement, the prompt payment of the Borrower's Obligations in
full when due (whether at stated maturity, by acceleration or otherwise)
strictly in accordance with the terms thereof. The Guarantors hereby further
agree that if any of the Borrower's Obligations are not paid in full when due
(whether at stated maturity, as a mandatory prepayment, by acceleration or
otherwise), the Guarantors will, jointly and severally, promptly pay the same,
without any demand or notice whatsoever, and that in the case of any extension
of time of payment or renewal of any of the Borrower's Obligations, the same
will be promptly paid in full when due (whether at extended maturity, as a
mandatory prepayment, by acceleration or otherwise) in accordance with the terms
of such extension or renewal.
<PAGE>
32
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents or Hedging Agreements, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of each Guarantor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
SECTION 4.02. Obligations Unconditional. The obligations of the
Guarantors under Section 4.01 hereof are joint and several, absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Credit Documents or Hedging Agreements, or any
other agreement or instrument referred to therein, or any substitution, release
or exchange of any other guaranty of or security for any of the Borrower's
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 4.02 that the obligations of the Guarantors
hereunder shall be absolute and unconditional under any and all circumstances.
Each Guarantor agrees that such Guarantor shall have no right of subrogation,
indemnity, reimbursement or contribution against the Borrower or any other
Guarantor of the Borrower's Obligations for amounts paid under this Guaranty
until such time as the Bank (and any Affiliates of the Banks entering into
Hedging Agreements) have been paid in full, the Commitments under the Credit
Agreement have been terminated and no Person or Governmental Authority shall
have any right to request any return or reimbursement of funds from the Bank in
connection with monies received under the Credit Documents or Hedging
Agreements. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Guarantor hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of
the Borrower's Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of any
of the Credit Documents, any Hedging Agreement or any other agreement
or instrument referred to in the Credit Documents or Hedging Agreements
shall be done or omitted;
(iii) the maturity of any of the Borrower's Obligations shall
be accelerated, or any of the Borrower's Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreements or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements
shall be waived or any other guaranty of any of the Borrower's
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with;
<PAGE>
33
(iv) any Lien granted to, or in favor of, the Bank as security
for any of the Borrower's Obligations shall fail to attach or be
perfected; or
(v) any of the Borrower's Obligations shall be determined to
be void or voidable (including, without limitation, for the benefit of
any creditor of any Guarantor) or shall be subordinated to the claims
of any Person (including, without limitation, any creditor of any
Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Bank exhaust any right, power or remedy
or proceed against any Person under any of the Credit Documents, any Hedging
Agreements or any other agreement or instrument referred to in the Credit
Documents or Hedging Agreements or against any other Person under any other
guaranty of, or security for, any of the Borrower's Obligations.
SECTION 4.03. Reinstatement. The obligations of the Guarantors under
this Section 4 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of any Person in respect of the
Borrower's Obligations is rescinded or must be otherwise restored by any holder
of any of the Borrower's Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise, and each Guarantor agrees that it
will indemnify the Bank on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Bank in connection with such rescission or restoration, including any such costs
and expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.
SECTION 4.04. Remedies. The Guarantors agree that, to the fullest
extent permitted by law, as between the Guarantors, on the one hand, and the
Bank, on the other hand, the Borrower's Obligations may be declared to be
forthwith due and payable as provided in Section 9.02 hereof (and shall be
deemed to have become automatically due and payable in the circumstances
provided in said Section 9.02) for purposes of Section 4.01 hereof
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing the Borrower's Obligations from becoming
automatically due and payable) as against any other Person and that, in the
event of such declaration (or the Borrower's Obligations being deemed to have
become automatically due and payable), the Borrower's Obligations (whether or
not due and payable by any other Person) shall forthwith become due and payable
by the Guarantors for purposes of said Section 4.01.
SECTION 4.05. Rights of Contribution. The Guarantors hereby agree, as
among themselves, that if any Guarantor shall become an Excess Funding Guarantor
(as defined below), each other Guarantor shall, on demand of such Excess Funding
Guarantor (but subject to the succeeding provisions of this Section 4.05), pay
to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata
Share (as defined below and determined, for this purpose, without reference to
the properties, assets, liabilities and debts of such Excess Funding Guarantor)
<PAGE>
34
of such Excess Payment (as defined below) . The payment obligation of any
Guarantor to any Excess Funding Guarantor under this Section 4.05 shall be
subordinate and subject in right of payment to the prior payment in full of the
obligations of such Guarantor under the other provisions of this Section 4, and
such Excess Funding Guarantor shall not exercise any right or remedy with
respect to such excess until payment and satisfaction in full of all of such
obligations. For purposes hereof, (i) "Excess Funding Guarantor" shall mean, in
respect of any obligations arising under the other provisions of this Section 4
(hereafter, the "Guaranteed Obligations"), a Guarantor that has paid an amount
in excess of its Pro Rata Share of the Guaranteed Obligations; (ii) "Excess
Payment" shall mean, in respect of any Guaranteed Obligations, the amount paid
by an Excess Funding Guarantor in excess of its Pro Rata Share of such
Guaranteed Obligations; and (iii) "Pro Rata Share", for the purposes of this
Section 4.05, shall mean, for any Guarantor, the ratio (expressed as a
percentage) of (a) the amount by which the aggregate present fair saleable value
of all of its assets and properties exceeds the amount of all debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder) to (b) the amount by which the aggregate present fair saleable value
of all assets and other properties of the Borrower and all of the Guarantors
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Borrower and the Guarantors hereunder) of the Borrower and
all of the Guarantors, all as of the Original Closing Date (if any Guarantor
becomes a party hereto subsequent to the Original Closing Date, then for the
purposes of this Section 4.05 such subsequent Guarantor shall be deemed to have
been a Guarantor as of the Original Closing Date and the information pertaining
to, and only pertaining to, such Guarantor as of the date such Guarantor became
a Guarantor shall be deemed true as of the Original Closing Date).
SECTION 4.06. Continuing Guaranty. The guaranty in this Section 4 is a
continuing guaranty, and shall apply to all Borrower's Obligations whenever
arising.
ARTICLE V
CONDITIONS
SECTION 5.01. Closing Conditions. The obligation of the Bank to enter
into this Credit Agreement and to make the Facility A Advance or the Facility B
Advance, shall be subject to satisfaction or waiver by the Bank of the following
conditions (in form and substance acceptable to the Bank):
(a) The Bank shall have received original counterparts of this
Credit Agreement executed by each of the parties hereto;
(b) The Bank shall have received (i) an original Facility A
Note and an original Facility B Note, each executed by the Borrower
(ii) original counterparts of the Waiver under the Pledge Agreement, in
substantially the form of Schedule 5.01C, executed by
<PAGE>
35
each party thereto; (iii) original counterparts of the Warrantholders
Rights Agreement executed by each of the parties thereto, and (iv) an
original Warrant, executed by the Borrower;
(c) The Bank shall have received an Advance Request;
(d) The Bank shall have received all documents it may
reasonably request relating to the existence and good standing of each
of the Credit Parties, the corporate or other necessary authority for
and the validity of the Credit Documents, and any other matters
relevant thereto, all in form and substance reasonably satisfactory to
the Bank;
(e) The Bank shall have received a certificate executed by the
chief financial officer of the Borrower as of the Closing Date stating
that immediately after giving effect to this Credit Agreement and the
other Credit Documents, (i) the Borrower on a consolidated basis is
Solvent, (ii) no Default or Event of Default exists and (iii) the
representations and warranties set forth in Section 6 are true and
correct in all material respects;
(f) The Bank shall have received legal opinions of Olshan,
Grundman, Frome & Rosensweig, LLP, special counsel for the Credit
Parties, and Maida Galloway & Neal, P.C., special Florida counsel for
the Credit Parties, dated as of the Closing Date and substantially in
the form of Schedule 5.01A or 5.01B;
(g) The Bank shall have received copies of insurance policies
or certificates of insurance of the Credit Parties evidencing liability
and casualty insurance meeting the requirements of the Credit Documents
including, without limitation, those set forth in Section 7.06(a);
(h) The Bank shall have received, for its own account, all
fees and expenses required by this Credit Agreement or any other Credit
Document to be paid on or before the Closing Date; and
(i) The Bank shall have received such other documents,
agreements or information which may be reasonably requested by the
Bank, including, without limitation, additional Collateral required to
be pledged in accordance with the Pledge Agreement.
<PAGE>
36
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Bank that:
SECTION 6.01. Financial Condition. (a) The audited consolidated balance
sheets of the Subsidiaries as of December 31, 1996 and the audited statements of
earnings and statements of cash flows for the years ended December 31, 1996 and
December 31, 1995 have heretofore been furnished to the Bank. Such financial
statements (including the notes thereto) (i) have been audited by Ernst & Young,
(ii) have been prepared in accordance with GAAP consistently applied throughout
the periods covered thereby and (iii) present fairly (on the basis disclosed in
the footnotes to such financial statements) the financial condition, results of
operations and cash flows of the Subsidiaries as of such date and for such
periods. The unaudited interim balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of, and the related unaudited interim
statements of earnings and of cash flows for, each fiscal quarterly period ended
after December 31, 1996 and prior to the Closing Date have heretofore been
furnished to the Bank. Such interim financial statements for each such quarterly
period, (i) have been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby and (ii) present fairly (on the basis
disclosed in the footnotes to such financial statements) the consolidated
financial condition, results of operations and cash flows of the Borrower and
its consolidated Subsidiaries as of such date and for such periods. During the
period from December 31, 1996 to and including the Closing Date, except as
disclosed on Schedule 6.01(a), there has been no sale, transfer or other
disposition by the Borrower or any of its Subsidiaries of any material part of
the business or property of the Borrower and its consolidated Subsidiaries,
taken as a whole, and no purchase or other acquisition by any of them of any
business or property (including any capital stock of any other person) material
in relation to the consolidated financial condition of the Borrower and its
consolidated Subsidiaries, taken as a whole, in each case, which, is not
reflected in the foregoing financial statements or in the notes thereto and has
not otherwise been disclosed in writing to the Bank on or prior to the Closing
Date.
(b) The Delivered Annual Statements, including, without limitation, the
provisions made therein for reserves, policy and contract claims, copies of
which have heretofore been delivered to the Bank, have been prepared in
accordance with SAP applied on a consistent basis (except as otherwise disclosed
to the Bank). The Quarterly Statements of each of the Insurance Subsidiaries,
including, without limitation, the provisions made therein for reserves, policy
and contract claims, as filed with the appropriate Governmental Authorities of
its state of domicile, for the fiscal quarters ending March 31, 1997, June 30,
1997 and September 30, 1997, copies of which have heretofore been delivered to
the Bank, have been prepared in accordance with SAP applied on a consistent
basis (except as otherwise set forth in Schedule 6.01(b)). All SAP Statements
which have heretofore been delivered to the Bank fairly present the financial
condition, the results of operations, changes in equity and changes in financial
position of the Insurance Subsidiaries as of and for the respective dates and
period indicated therein.
<PAGE>
37
SECTION 6.02. No Change; Dividends. Since December 31, 1996, (a) there
has been no development or event relating to or affecting the Borrower or any of
its Subsidiaries which has had or would be reasonably expected to have a
Material Adverse Effect and (b) except as permitted under this Credit Agreement,
no dividends or other distributions have been declared, paid or made upon the
capital stock or other equity interest in the Borrower or any of its
Subsidiaries nor, except to the extent permitted under this Credit Agreement,
has any of the capital stock or other equity interest in the Borrower or any of
its Subsidiaries been redeemed, retired, purchased or otherwise acquired for
value by such Person.
SECTION 6.03. Organization; Existence; Compliance with Law. Each of the
Borrower and its Subsidiaries (a) is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation or organization, (b) has the corporate or other necessary power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, and (d) is in compliance with all material Requirements of Law.
SECTION 6.04. Power; Authorization; Enforceable Obligations. Each of
the Credit Parties has the corporate or other necessary power and authority, and
the legal right, to make, deliver and perform the Credit Documents to which it
is a party, and in the case of the Borrower, to borrow hereunder, and has taken
all necessary corporate action to authorize the borrowings on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of the Credit Documents to which such Credit Party is a party,
except for consents, authorizations, notices and filings described in Schedule
6.04, all of which have been obtained or made or have the status described in
such Schedule 6.04. This Credit Agreement has been, and each other Credit
Document to which any Credit Party is a party will be, duly executed and
delivered on behalf of the Credit Parties. This Credit Agreement constitutes,
and each other Credit Document to which any Credit Party is a party when
executed and delivered will constitute, a legal, valid and binding obligation of
such Credit Party enforceable against such party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
SECTION 6.05. No Legal Bar. Except as otherwise described in Schedule
6.05, the execution, delivery and performance of the Credit Documents by the
Credit Parties, the borrowings hereunder and the use of the proceeds thereof (a)
will not violate any Requirement of Law or contractual obligation of the
Borrower or any of its Subsidiaries in any respect that would
<PAGE>
38
reasonably be expected to have a Material Adverse Effect, (b) will not result
in, or require, the creation or imposition of any Lien on any of the properties
or revenues of any of the Borrower or any of its Subsidiaries pursuant to any
such Requirement of Law or contractual obligation, and (c) will not violate or
conflict with any provision of any Credit Party's articles of incorporation or
by-laws.
SECTION 6.06. No Material Litigation. Except as disclosed and described
in Schedule 6.06, no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the best knowledge of the
Credit Parties, threatened by or against the Borrower or any of its Subsidiaries
or against any of their respective properties or revenues which (a) relates to
any of the Credit Documents or any of the transactions contemplated hereby or
thereby or (b) would be reasonably expected to have a Material Adverse Effect.
SECTION 6.07. No Default. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of their contractual
obligations in any respect which would be reasonably expected to have a Material
Adverse Effect.
SECTION 6.08. Ownership of Property: Liens. Each of the Borrower and
its Subsidiaries has good record and marketable title in fee simple to, or a
valid leasehold interest in, all its material real property, and good title to,
or a valid leasehold interest in, all its other material property, and none of
such property is subject to any Lien, except for Permitted Liens.
SECTION 6.09. No Burdensome Restrictions. Except as previously
disclosed in writing to the Bank on or prior to the Closing Date, no Requirement
of Law or contractual obligation of the Borrower or any of its Subsidiaries
would be reasonably expected to have a Material Adverse Effect.
SECTION 6.10. Taxes. Each of the Borrower and its Subsidiaries has
filed or caused to be filed all United States federal income tax returns and all
other material tax returns which, to the best knowledge of the Credit Parties,
are required to be filed and has paid (a) all taxes shown to be due and payable
on said returns or (b) all taxes shown to be due and payable on any assessments
of which it has received notice made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any (i) taxes, fees or other charges with
respect to which the failure to pay, in the aggregate, would not have a Material
Adverse Effect or (ii) taxes, fees or other charges the amount or validity of
which are currently being contested and with respect to which reserves in
conformity with GAAP have been provided on the books of such Person), and no tax
Lien has been filed, and, to the best knowledge of the Credit Parties, no claim
is being asserted, with respect to any such tax, fee or other charge.
<PAGE>
39
SECTION 6.11. ERISA. Except as would not result in a Material Adverse
Effect:
(a) During the five-year period prior to the date on which
this representation is made or deemed made: (i) no Termination Event
has occurred, and, to the best knowledge of the Credit Parties, no
event or condition has occurred or exists as a result of which any
Termination Event could reasonably be expected to occur, with respect
to any Plan; (ii) no "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether or
not waived, has occurred with respect to any Plan; (iii) each Plan has
been maintained, operated, and funded in compliance with its own terms
and in material compliance with the provisions of ERISA, the Code, and
any other applicable federal or state laws; and (iv) no lien in favor
of the PBGC or a Plan has arisen or is reasonably likely to arise on
account of any Plan.
(b) The actuarial present value of all "benefit liabilities"
under all Single Employer Plans (determined within the meaning of
Section 401(a) (2) of the Code, utilizing the actuarial assumptions
used to fund such Plans), whether or not vested, did not, as of the
last annual valuation date prior to the date on which this
representation is made or deemed made, exceed the current value of the
assets of all such Plans.
(c) Neither the Borrower, any of the Subsidiaries of the
Borrower nor any ERISA Affiliate has incurred, or, to the best
knowledge of the Credit Parties, could be reasonably expected to incur,
any withdrawal liability under ERISA to any Multiemployer Plan or
Multiple Employer Plan. Neither the Borrower, any of the Subsidiaries
of the Borrower nor any ERISA Affiliate would become subject to any
withdrawal liability under ERISA if the Borrower, any of the
Subsidiaries of the Borrower or any ERISA Affiliate were to withdraw
completely from all Multiemployer Plans and Multiple Employer Plans as
of the valuation date most closely preceding the date on which this
representation is made or deemed made. Neither the Borrower, any of the
Subsidiaries of the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization (within
the meaning of Section 4241 of ERISA) is insolvent (within the meaning
of Section 4245 of ERISA), or has been terminated (within the meaning
of Title IV of ERISA), and no Multiemployer Plan is, to the best
knowledge of the Credit Parties, reasonably expected to be in
reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected
or may subject the Borrower, any of the Subsidiaries of the Borrower or
any ERISA Affiliate to any liability under Sections 406, 409, 502(i),
or 502(1) of ERISA or Section 4975 of the Code, or under any agreement
or other instrument pursuant to which the Borrower, any of the
Subsidiaries of the Borrower or any ERISA Affiliate has agreed or is
required to indemnify any person against any such liability.
<PAGE>
40
(e) The present value (determined using actuarial and other
assumptions which are reasonable with respect to the benefits provided
and the employees participating) of the liability of the Borrower, each
Subsidiary of the Borrower and each ERISA Affiliate for post-retirement
welfare benefits to be provided to their current and former employees
under Plans which are welfare benefit plans (as defined in Section 3(1)
of ERISA), net of all assets under all such Plans allocable to such
benefits, are reflected on the Financial Statements in accordance with
FAS 106.
SECTION 6.12. Governmental Regulations, Etc.
(a) No part of the proceeds of the Loans will be used, directly or
indirectly, for the purpose of purchasing or carrying any "margin stock" within
the meaning of Regulation G or Regulation U, or for the purpose of purchasing or
carrying or trading in any securities. If requested by the Bank, the Borrower
will furnish to the Bank a statement to the foregoing effect in conformity with
the requirements of FR Form U-1 referred to in said Regulation U. No
indebtedness being reduced or retired out of the proceeds of the Advances was or
will be incurred for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U or any "margin security" within the meaning
of Regulation T. "Margin stock" within the meanings of Regulation U does not
constitute more than 25% of the value of the consolidated assets of the Borrower
and its Subsidiaries. None of the transactions contemplated by this Credit
Agreement (including, without limitation, the direct or indirect use of the
proceeds of the Advances) will violate or result in a violation of the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, or regulations issued pursuant thereto, or Regulation G, T, U or X.
(b) Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act or the Investment Company Act of 1940, each as amended. In addition,
neither the Borrower nor any of its Subsidiaries is (i) an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, and is not controlled by such a company, or (ii) a "holding
company", or a "subsidiary company" of a "holding company" or an "affiliate" of
a "holding company" or of a "subsidiary" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(c) The Insurance Subsidiaries have filed all reports, statements,
documents, registrations, filings, or submissions required to be filed with any
Governmental Authority with respect to which the failure to so file will
individually or in the aggregate have a Material Adverse Effect, or except as
otherwise agreed to by the applicable Governmental Authority. All such filings
complied with applicable law in all material respects when filed, and no
material deficiencies have been asserted by any Governmental Authority with
respect to such filings or submissions.
<PAGE>
41
(d) No director, executive officer or principal shareholder of the
Borrower or any of its Subsidiaries is a director, executive officer or
principal shareholder of the Bank. For the purposes hereof the terms "director",
"executive officer" and "principal shareholder" (when used with reference to the
Bank) have the respective meanings assigned thereto in Regulation O issued by
the Board of Governors of the Federal Reserve System.
(e) Each of the Borrower and its Subsidiaries has obtained all material
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its respective Property and to the conduct of its business.
(f) Neither the Borrower nor any of its Subsidiaries is in violation of
any applicable statute, regulation or ordinance of the United States of America,
or of any state, city, town, municipality, county or any other jurisdiction, or
of any agency thereof (including without limitation, environmental laws and
regulations) , which violation could reasonably be expected to have a Material
Adverse Effect.
(g) Each of the Borrower and its Subsidiaries is current with all
material reports and documents, if any, required to be filed with any state or
federal securities commission or similar agency and is in full compliance in all
material respects with all applicable rules and regulations of such commissions.
(h) Pinnacle has obtained from the FDOI all requisite approvals,
authorizations and consents necessary for the conversion of Pinnacle from an
assessable mutual to a domestic stock insurer and to undertake the transactions
contemplated in this Agreement and the other Credit Documents including the
purchase by the Borrower of all the issued and outstanding capital stock of
Pinnacle.
SECTION 6.13. Pinnacle. In regard to Pinnacle:
(a) Pinnacle has converted from an assessable mutual on
January 26, 1996 and is a domestic stock insurer under the Florida
Insurance Laws.
(b) Pinnacle has complied or otherwise caused all other
applicable persons to comply with the terms and conditions of the
Consent Order.
(c) The transaction by which the Borrower acquires all the
issued and outstanding stock in Pinnacle is in compliance with the
Consent Order.
SECTION 6.14. Subsidiaries. Schedule 6.14 sets forth all the
Subsidiaries of the Borrower at the Closing Date, the jurisdiction of their
incorporation and the direct or indirect ownership interest of the Borrower
therein.
<PAGE>
42
SECTION 6.15. Purpose of Advances. The proceeds of the Advances shall
be used by the Borrower only to provide a subordinated working capital loan to
Pinnacle, as evidenced by the Surplus Notes, to facilitate premium growth for
Pinnacle.
SECTION 6.16. Environmental Matters.
(a) Each of the facilities and properties owned, leased or operated by
the Borrower or any of its Subsidiaries (the "Properties") and all operations at
the Properties are in compliance with all applicable Environmental Laws, and
there is no violation of any Environmental Law with respect to the Properties or
the businesses operated by the Borrower or any of its Subsidiaries (the
"Businesses"), and there are no conditions relating to the Businesses or
Properties that could give rise to liability under any applicable Environmental
Laws.
(b) None of the Properties contains, or has previously contained, any
Materials of Environmental Concern at, on or under the Properties in amounts or
concentrations that constitute or constituted a violation of, or could give rise
to liability under, Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has received any
written or verbal notice of, or inquiry from any Governmental Authority
regarding, any violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the Businesses, nor
does the Borrower or any of its Subsidiaries have knowledge or reason to believe
that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties, or generated, treated, stored or disposed of
at, on or under any of the Properties or any other location, in each case by or
on behalf of the Borrower or any of its Subsidiaries in violation of, or in a
manner that would be reasonably likely to give rise to liability under, any
applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the best knowledge of any Credit Party, threatened, under any
Environmental Law to which the Borrower or any of its Subsidiaries is or will be
named as a party, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect to
the Borrower or any of its Subsidiaries, the Properties or the Businesses.
(f) There has been no release or, threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations (including, without limitation, disposal) of the Borrower or any
of its Subsidiaries in connection with the Properties or otherwise in connection
with the Businesses, in violation of or in amounts or in a manner that could
give rise to liability under Environmental Laws.
<PAGE>
43
SECTION 6.17. Insurance Policies. All insurance policies or contracts,
including, without limitation, annuities issued or assumed by the Insurance
Subsidiaries and now in force, are, to the extent required under applicable law,
on forms approved by the insurance regulatory authority of the state or
jurisdiction where issued or have been filed with and not objected to by such
authority within the period provided for objection except where the issuance of
such policies or contracts without such approval or expiration of the period for
objection will not, individually or in the aggregate, have a Material Adverse
Effect. All policy or annuity dividends and benefits payable by the Insurance
Subsidiaries have in all material respects been paid in accordance with the
terms of the policies and annuities under which they arose, except for such
dividends or other benefits for which such Insurance Subsidiary reasonably
believes there is a reasonable basis to contest payment, or will not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 6.18. Places of Business. The places of business of the
Borrower and each Subsidiary set forth in Schedule 6.18 are true and correct and
set forth, whenever applicable, whether said place of business is owned or
leased by the Borrower and each Subsidiary, as the case may be, and, if leased,
the name and address of the lessor.
ARTICLE VII
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding, and until all Commitments
hereunder shall have terminated:
SECTION 7.01. Information Covenants. The Borrower will furnish, or
cause to be furnished, to the Bank:
(a) Annual Financial Statements.
(i) As soon as available, and in any event within 120 days
after the close of each fiscal year of the Borrower and its
Subsidiaries, a consolidated and consolidating balance sheet and income
statement of the Borrower and its Subsidiaries, as of the end of such
fiscal year, together with related consolidated statements of
operations, retained earnings, changes in stockholders' equity and cash
flows for such fiscal year, setting forth in comparative form
consolidated figures for the preceding fiscal year, all such financial
information described above to be in reasonable form and detail and
audited by independent certified public accountants of recognized
national standing reasonably acceptable to the Bank and whose opinion
shall be to the effect that such financial statements have been
prepared in accordance with GAAP (except for changes with which such
accountants concur) and shall not be limited as to the scope of the
audit or qualified as to the status of the Borrower and its
Subsidiaries as a going concern.
<PAGE>
44
(ii) As soon as available, and in any event within 120 days
(or, if later, as required by applicable law) after the close of each
fiscal year of an Insurance Subsidiary, the most recent SAP Statement
of such Insurance Subsidiary, as audited in accordance with applicable
law and accompanied by a certificate of a knowledgeable officer of such
Insurance Subsidiary to the effect that such SAP Statement fairly
presents in all material respects the financial condition of such
Insurance Subsidiary and has been prepared in accordance with SAP.
(iii) As soon as available, and in any event within 30 days of
the close of each fiscal year end of the Borrower and its Subsidiaries,
copies of annual budgets and projections for the following fiscal
period.
(b) Quarterly Financial Statements.
(i) As soon as available, and in any event within 45 days
after the close of each fiscal quarter of the Borrower and its
Subsidiaries (other than the fourth fiscal quarter, in which case 120
days after the end thereof) a consolidated and consolidating balance
sheet and income statement of the Borrower and its Subsidiaries, as of
the end of such fiscal quarter, together with related consolidated
statements of operations, retained earnings and cash flows for such
fiscal quarter in each case setting forth in comparative form
consolidated figures for the corresponding period of the preceding
fiscal year, all such financial information described above to be in
reasonable form and detail and reasonably acceptable to the Bank, and
accompanied by a certificate of the chief financial officer of the
Borrower to the effect that such quarterly financial statements fairly
present in all material respects the financial condition of the
Borrower and its Subsidiaries and have been prepared in accordance with
GAAP, subject to changes resulting from audit and normal year-end audit
adjustments.
(ii) As soon as available, and in any event within 45 days
after the close of each fiscal quarter of an Insurance Subsidiary
(other than the fourth fiscal quarter, in which case 120 days after the
end thereof), the most recent SAP Statement of such Insurance
Subsidiary, in each case accompanied by a certificate of a
knowledgeable officer of such Insurance Subsidiary to the effect that
such SAP Statement fairly presents in all material respects the
financial condition of such Insurance Subsidiary and has been prepared
in accordance with SAP.
(c) Monthly Financial Statements. As soon as available, and in any
event within 30 days of the end of each month, internally prepared consolidated
financial statements of the Borrower and its Subsidiaries, including a
consolidated and consolidating balance sheet and income statement as of the end
of such month.
(d) Officer's Certificate. At the time of delivery of the financial
statements provided for in Sections 7.01(a) and 7.01(b) above, a certificate of
the chief financial officer of the
<PAGE>
45
Borrower; substantially in the form of Schedule 7.01(d), (i) demonstrating
compliance with the financial covenants contained in Section 7.11 by calculation
thereof as of the end of each such fiscal period and (ii) stating that no
Default or Event of Default exists, or if any Default or Event of Default does
exist, specifying the nature and extent thereof and what action the Borrower
proposes to take with respect thereto.
(e) Actuarial Report. On or prior to each March 15 and August 15, an
Actuarial Report, dated December 31 and June 30, respectively, prepared by an
independent actuary reasonably acceptable to the Bank and certified as to such
Insurance Subsidiary's, including Pinnacle's, reserve position as of the date of
such report by such independent actuary.
(f) IRIS Test Results. As soon as received after the end of each Fiscal
Year of each Insurance Subsidiary, a copy of the final report to such Insurance
Subsidiary from the NAIC as to such Insurance Subsidiary's status under the IRIS
Tests.
(g) Auditor's Reports. Promptly upon receipt thereof, a copy of any
other report or "management letter" submitted by independent accountants to the
Borrower or any of its Subsidiaries in connection with any annual, interim or
special audit of the books of such Person.
(h) Reports. Promptly after transmission or receipt thereof, (a) copies
of any filings and registrations with, and reports to or from, the Securities
and Exchange Commission, or any successor agency, and copies of all financial
statements, proxy statements, notices and reports as the Borrower or any of its
Subsidiaries shall send to its shareholders or to a holder of any Indebtedness
owed by the Borrower or any of its Subsidiaries in its capacity as such a
holder; (b) copies of any reports on examination or similar reports, financial
examination reports or market conduct examination reports by a Governmental
Authority with respect to any Insurance Subsidiary relating to such Insurance
Subsidiary's insurance business, (c) copies of all Insurance Holding Company
Systems Act filings and (d) upon the request of the Bank, all reports and
written information to and from the United States Environmental Protection
Agency, or any state or local agency responsible for environmental matters, the
United States Occupational Health and Safety Administration, or any state or
local agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety matters.
(i) Notices. Promptly after obtaining knowledge thereof, the Borrower
will give written notice to the Bank immediately of (a) the occurrence of an
event or condition comprising of a Default or Event of Default, specifying the
nature and existence thereof and what action the Credit Parties propose to take
with respect thereto, and (b) the occurrence of any of the following with
respect to the Borrower or any of its Subsidiaries (i) the pendency or
commencement of any litigation, arbitral or governmental proceeding against such
Person which if adversely determined is likely to have a Material Adverse
Effect, (ii) the institution of any proceedings against such Person with respect
to, or the receipt of notice by such Person of potential liability or
responsibility for violation, or, alleged violation of any federal, state or
local law, rule or regulation, including but not limited to, Environmental Laws,
the violation of which would likely
<PAGE>
46
have a Material Adverse Effect, or (iii) any notice or determination concerning
the imposition of any withdrawal liability by a Multiemployer Plan against such
Person or any ERISA Affiliate, the determination that a Multiemployer Plan is,
or is expected to be, in reorganization within the meaning of Title IV of ERISA
or the termination of any Plan.
(j) ERISA. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Bank promptly (and in any event within five business days)
of: (i) of any event or condition, including, but not limited to, any Reportable
Event, that constitutes, or might reasonably lead to, a Termination Event; (ii)
with respect to any Multiemployer Plan, the receipt of notice as prescribed in
ERISA or otherwise of any withdrawal liability assessed against the Borrower or
any of its ERISA Affiliates, or of a determination that any Multiemployer Plan
is in reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due date
(including extensions) thereof of all amounts which the Borrower, any of the
Subsidiaries of the Borrower or any ERISA Affiliate is required to contribute to
each Plan pursuant to its terms and as required to meet the minimum funding
standard set forth in ERISA and the Code with respect thereto; or (iv) any
change in the funding status of any Plan that could have a Material Adverse
Effect; together, with a description of any such event or condition or a copy of
any such notice and a statement by the chief financial officer of the Borrower
briefly setting forth the details regarding such event, condition, or notice,
and the action, if any, which has been or is being taken or is proposed to be
taken by the Credit Parties with respect thereto. Promptly upon request, the
Borrower shall furnish the Bank with such additional information concerning any
Plan as may be reasonably requested, including, but not limited to, copies of
each annual report/return (Form 5500 series) , as well as all schedules and
attachments thereto required to be filed with the Department of Labor and/or the
Internal Revenue Service pursuant to ERISA and the Code, respectively, for each
"plan year" (within the meaning of Section 3 (39) of ERISA).
(k) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or financial
condition of the Borrower or any of its Subsidiaries as the Bank may reasonably
request.
SECTION 7.02. Preservation of Existence and Franchises. The Borrower
will, and will cause each of its Subsidiaries to, do all things necessary to
preserve and keep in full force and effect its existence, rights, franchises and
authority, except (a) as a result of or in connection with a dissolution, merger
or disposition of a Subsidiary permitted by Section 8.04(a), Section 8.04(b) or
Section 8.04(c) or (b) as would not, in the reasonable opinion of the Bank,
result in a Material Adverse Effect.
SECTION 7.03. Books and Records. The Borrower will, and will cause each
of its Subsidiaries to, keep complete and accurate books and records of its
transactions in accordance with good accounting practices on the basis of GAAP
and, with respect to any Insurance Subsidiary, SAP (including the establishment
and maintenance of appropriate reserves).
<PAGE>
47
SECTION 7.04. Compliance with Law. The Borrower will, and will cause
each of its Subsidiaries to, comply with all laws, rules, regulations and
orders, and all applicable restrictions imposed by all Governmental Authorities,
applicable to it and its property if noncompliance with any such law, rule,
regulation, order or restriction would have a Material Adverse Effect.
SECTION 7.05. Payment of Taxes and Other Indebtedness. Except as
otherwise provided pursuant to the terms of the definition of "Permitted Liens"
set forth in Section 1.01, the Borrower will, and will cause each of its
Subsidiaries to, pay and discharge (i) all taxes, assessments and governmental
charges or levies imposed upon it, or upon its income or profits, or upon any of
its properties, before they shall become delinquent, (ii) all lawful claims
(including claims for labor, materials and supplies) which, if unpaid, might
give rise to a Lien upon any of its properties, and (iii) except as prohibited
hereunder, all of its other Indebtedness as it shall become due.
SECTION 7.06. Insurance/Reinsurance.
(a) The Borrower will, and will cause each of its Subsidiaries to, at
all times maintain in full force and effect insurance (including worker's
compensation insurance, liability insurance, casualty insurance and business
interruption insurance) in such amounts, covering such risks and liabilities and
with such deductibles or self-insurance retentions as are in accordance with
normal industry practice.
(b) The Borrower will cause each of its Insurance Subsidiaries to
maintain, at all time and in accordance with normal industry practice,
Reinsurance Agreements that are with reinsurers rated "A-" or better by A.M.
Best & Company, Inc.
SECTION 7.07. Maintenance of Property. The Borrower will, and will
cause each of its Subsidiaries to, maintain and preserve its properties and
equipment material to the conduct of its business in good repair, working order
and condition, normal wear and tear and casualty and condemnation excepted, and
will make, or cause to be made, in such properties and equipment from time to
time all repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto as may be needed or proper, to the extent and in the manner
customary for companies in similar businesses.
SECTION 7.08. Performance of Obligations. The Borrower will, and will
cause each of its Subsidiaries to, perform in all material respects all of its
obligations under the terms of all material agreements, indentures, mortgages
security agreements or other debt instruments (including, without limitation,
the Subordinated Debt Agreement) to which it is a party or by which it is bound.
SECTION 7.09 Use of Proceeds. The Borrower will use the proceeds of the
Loans solely for the purposes set forth in Section 6.15.
<PAGE>
48
SECTION 7.10. Audits/Inspections. Upon reasonable notice and during
normal business hours, the Borrower will, and will cause each of its
Subsidiaries to, permit representatives appointed by the Bank, including,
without limitation, independent accountants, agents, attorneys, and appraisers
to visit and inspect its property, including its books and records, its accounts
receivable and inventory, its facilities and its other business assets, and to
make photocopies or photographs thereof and to write down and record any
information such representative obtains and shall permit the Bank or its
representatives to investigate and verify the accuracy of information provided
to the Lenders and to discuss all such matters with the officers, employees and
representatives of such Person, all (unless an Event of Default shall have
occurred and be continuing) at the Lenders' sole cost and expense and so long as
Bank does not unreasonably interfere with the conduct or activities of the
Borrower and its Subsidiaries.
SECTION 7.11. Financial Covenants.
(a) Consolidated Leverage Ratio. The Borrower will cause the
Consolidated Leverage Ratio, as of the last day of each fiscal quarter, to be no
greater than 0.40.
(b) Debt Service Coverage Ratio. The Borrower will cause the Debt
Service Coverage Ratio, as of the last day of each fiscal quarter, to be at
least 1.40.
(c) Consolidated Net Written Premiums to Statutory Surplus Ratio. The
Borrower will cause the Consolidated Net Written Premiums to Statutory Surplus
Ratio, as of the last day of each fiscal year of its Insurance Subsidiaries, to
be no greater than 3.0 to 1.0.
(d) Risk Based Capital. The Borrower will cause each Insurance
Subsidiary to maintain a ratio, as of the last day of each fiscal year, of (A)
Total Adjusted Capital (as defined in the Risk- Based Capital Act or in the
rules and procedures prescribed from time to time by the NAIC with respect
thereto) to (B) the Company Action Level RBC (as defined in the Risk-Based
Capital Act or in the rules and procedures prescribed from time to time by the
NAIC with respect thereto) of at least 175%.
(e) Combined Ratio. The Borrower will cause Pinnacle's Combined Ratio
as of the last day of each fiscal quarter, to be no greater than 101%.
SECTION 7.12. Additional Credit Parties. Except as otherwise prevented
by law (including with respect to an insurance company's ability to guaranty the
obligations of an affiliate), upon the formation of any new Subsidiary by the
Borrower or any Subsidiary, such new subsidiary shall promptly become a
"Guarantor" hereunder by
(A) execution of a Joinder Agreement in substantially the form
of Schedule 7.12 attached hereto;
<PAGE>
49
(B) delivery of such other documentation as the Bank may
reasonably request, including, without limitation, certified
resolutions and other organizational and authorizing documents of such
Person and favorable opinions of counsel to such Person (which shall
cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above), all in form,
content and scope reasonably satisfactory to the Bank.
SECTION 7.13. Ownership of Subsidiaries. Except to the extent otherwise
provided in Section 8.04(b) and Section 8.11, the Borrower shall, directly or
indirectly, own at all times 100% of the capital stock of each of its
Subsidiaries.
SECTION 7.14. Dividends. Except as otherwise provided by law, the
Borrower shall (a) cause each of its Subsidiaries from time to time to pay cash
dividends or make other distributions or payments in cash (directly or, through
other Subsidiaries of the Borrower, indirectly) to the Borrower in amounts that,
taken together, are sufficient to permit the Borrower to (i) pay all principal
of and any accrued interest in respect of the Advances and all other
indebtedness or obligations of any and every kind owing by the Borrower to the
Bank as the same shall become due and payable (whether at stated maturity, by
mandatory prepayment, by acceleration or otherwise) and (ii) pay for all capital
expenditures made by the Borrower, (b) cause each of its Insurance Subsidiaries
to make payments in accordance with the terms of the Service Contracts, and (c)
cause each of its Insurance Subsidiaries to request on a timely basis regulatory
approval to the extent necessary for such Subsidiary to pay such dividends or
make such distributions or payments.
SECTION 7.15. Banking Accounts. The Borrower and its Subsidiaries shall
maintain all their depository investment and other accounts with the Bank.
SECTION 7.16. Subordination of Other Loans, Etc. All loans or fees owed
to Affiliates of the Borrower shall, at all times, be subordinate to the
Advances and the Borrower shall cause its Affiliates from time to time, to
execute and deliver to the Bank subordination agreement in form and content
satisfactory to the Bank; provided, however, so long as no Default exists or has
occurred, the Borrower may pay (but not prepay) current principal and interest
on such loans to such Affiliates.
SECTION 7.17. Hedging Arrangements. The Borrower will cause the
obligations of the Borrower under any Hedging Agreement to be secured by the
Collateral.
<PAGE>
50
ARTICLE VIII
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding, and until all Commitments
hereunder shall have terminated:
SECTION 8.01. Indebtedness. The Borrower will not, nor will it permit
any of its Subsidiaries to, contract, create, incur; assume or permit to exist
any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(b) Indebtedness of the Borrower and any of its Subsidiaries
set forth in Schedule 8.01 (and renewals, refinancings and extensions
thereof on terms and conditions no less favorable to such Person than
such existing Indebtedness);
(c) Indebtedness of the Borrower and any of its Subsidiaries
incurred in the ordinary course of business and consistent with the
past practices of the Credit Parties.
(d) Intercompany Indebtedness incurred in the ordinary course
of business and consistent with the past practices of the Credit
Parties or for cash management purposes; and
(e) obligations of the Borrower in respect of the Hedging
Agreements.
SECTION 8.02. Liens. The Borrower will not, nor will it permit any of
its Subsidiaries to, contract, create, incur, assume or permit to exist any Lien
with respect to any of their Property, whether now owned or after acquired,
including, without limitation, the Service Contracts, except for Permitted
Liens.
SECTION 8.03. Nature of Business. The Borrower will, and will cause its
Subsidiaries to, remain principally engaged in the property and casualty
insurance business and such business activities incidental or related thereto
and will not engage in (i) writing lines of insurance for which it does not
currently hold all necessary licenses or (ii) any line of business in which they
are not currently engaged to such an extent that the business of the Borrower
and its Subsidiaries taken as a whole would be fundamentally different in nature
from the business of the Borrower and its Subsidiaries on the Original Closing
Date.
SECTION 8.04. Consolidation, Merger, Sale or Purchase of Assets, Etc.
The Borrower will not, nor will it permit any of its Subsidiaries to:
<PAGE>
51
(a) except in connection with a disposition of assets
permitted by the terms of subsection (c) below, dissolve, liquidate or
wind up their affairs;
(b) enter into any transaction of merger or consolidation;
provided, however, that, so long as no Default or Event of Default
would be directly or indirectly caused as a result thereof, (i) the
Borrower may merge or consolidate with any of its Subsidiaries provided
that the Borrower is the surviving corporation; (ii) any Subsidiary of
the Borrower may merge or consolidate with any other Subsidiary of the
Borrower, provided after giving effect to such merger or consolidation,
no Default or Event of Default would exist hereunder;
(c) sell, lease, transfer or otherwise dispose of any Property
or Subsidiary other than (i) the sale of assets pursuant to Reinsurance
Agreements entered into in the ordinary course of business, (ii) the
sale or disposition of machinery and equipment no longer used or useful
in the conduct of such Person's business, (iii) the sale of assets to
the Borrower or any Subsidiary of the Borrower, provided that after
giving effect to such sale or other disposition, no Default or Event of
Default would exist hereunder, and (iv) as permitted by Section 8.11;
(d) except as otherwise permitted by Section 8.04(b), acquire
all or any portion of the capital stock or securities of any other
Person or purchase, lease or otherwise acquire (in a single transaction
or a series of related transactions) all or any substantial part of the
Property of any other Person.
SECTION 8.05. Advances, Investments, Loans, Etc. The Borrower will not,
nor will it permit any of its Subsidiaries to, acquire, make or permit to exist
any Investments other than Permitted Investments.
SECTION 8.06. Restricted Payments. Except as otherwise contemplated by
Section 7.14, the Borrower will not, nor will it permit any of its Subsidiaries
to, directly or indirectly, declare, order, make or set apart any sum for or pay
any Restricted Payment, except (a) to make dividends payable solely in the same
class of capital stock of such Person, (b) to make dividends or other
distributions payable to the Borrower (directly or indirectly through
Subsidiaries of the Borrower) and (c) policyholder dividends from Pinnacle.
SECTION 8.07. Prepayments of Indebtedness, Etc. The Borrower will not,
nor will it permit any of its Subsidiaries to, (i) after the issuance thereof,
amend or modify (or permit the amendment or modification of) any of the terms of
any Indebtedness if such amendment or modification would add or change any terms
in a manner adverse to the issuer of such Indebtedness, or shorten the final
maturity or average life to maturity or require any payment to be made sooner
than originally scheduled or increase the interest rate applicable thereto or
change any subordination provision thereof, or (ii)(A) if any Default or Event
of Default has occurred and is continuing or would be directly or indirectly
caused as a result thereof, make (or give any
<PAGE>
52
notice with respect thereto) any voluntary or optional payment, any prepayment
or any redemption or acquisition for value of (including without limitation, by
way of depositing money or securities with the trustee with respect thereto
before due for the purpose of paying when due), refund, refinance or exchange of
any other Indebtedness (other than Subordinated Indebtedness) or (B) make (or
give any notice with respect thereto) any voluntary or optional payment, any
prepayment or any redemption or acquisition for value of (including without
limitation, by way of depositing money or securities with the trustee with
respect thereto before due for the purpose of paying when due), refund,
refinance or exchange of any Subordinated Indebtedness or (C) amend, modify or
change its articles of incorporation (or corporate charter or other similar
organizational document) or bylaws (or other similar document) where such change
would have a Material Adverse Effect.
SECTION 8.08. Transactions with Affiliates. Except as contemplated
under this Credit Agreement, the Borrower will not, nor will it permit any of
its Subsidiaries to, enter into any transaction (or series of related
transactions) directly or indirectly with or for the benefit of any Affiliate of
the Borrower (other than a Subsidiary) or any officer or director of any
Affiliate unless (a) such transaction (or series of related transactions) is in
the ordinary course of business on terms that are no less favorable to the
Borrower or such Subsidiary, as the case may be, than the Borrower or any such
Subsidiary would obtain in a comparable transaction (or series of related
transactions) with a Person not an Affiliate, (b) such transaction (or series of
related transactions) is approved by the Board of Directors of the Borrower, and
(c) with respect to any transaction (or series of related transactions)
involving aggregate payments or commitments in excess of $10,000,000, the
Borrower receives an opinion from a nationally recognized investment banking
firm, or other nationally or regionally recognized appraisal firm, that such
transaction (or series of related transactions) is fair to the Borrower or such
Subsidiary, as the case may be, from a financial point of view. The restrictions
contained in the foregoing sentence shall not apply to any payments made under
the Existing Affiliate Contracts.
SECTION 8.09. Fiscal Year. The Borrower will not, nor will it permit
any of its Subsidiaries to, change its fiscal year.
SECTION 8.10. Limitation on Restrictions on Subsidiary Dividends and
Other Distributions, Etc. The Borrower will not, nor will it permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause, incur,
assume, suffer or permit to exist or become effective any consensual encumbrance
or restriction of any kind on the ability of any such Person to (a) pay
dividends or make any other distribution on any of such Person's capital stock,
(b) subject to subordination provisions, pay any Indebtedness owed to the
Borrower or any other Credit Party, (c) make loans or advances to any other
Credit Party or (d) transfer any of its Property to any other Credit Party,
except for encumbrances or restrictions existing under or by reason of (i)
customary non-assignment provisions in any lease governing a leasehold interest
and (ii) this Credit Agreement and the other Credit Documents.
<PAGE>
53
SECTION 8.11. Issuance of Stock. The Borrower will not, nor will it
permit any of its Subsidiaries to, issue, sell or otherwise dispose of any
shares of capital stock of any Subsidiary of the Borrower (including by way of
sales of treasury stock) or any options or warrants to purchase, or securities
convertible into, capital stock of any Subsidiary of a Borrower, provided, that
AmComp Assurance Corporation may issue options to its employees and agents
exercisable for no more than 10% of the common stock of AmComp Assurance
Corporation outstanding at the time of any such issuance.
SECTION 8.12. Sale Leasebacks. The Borrower will not, nor will it
permit any of its Subsidiaries to, directly or indirectly, become or remain
liable as lessee or as guarantor or other surety with respect to any lease,
whether an Operating Lease or a Capital Lease, of any Property (whether real or
personal or mixed), whether now owned or hereafter acquired, (iii) which such
Person has sold or transferred or is to sell or transfer to any other Person
other than a Credit Party or (iv) which such Person intends to use for
substantially the same purpose as any other Property which has been sold or is
to be sold or transferred by such Person to any other Person in connection with
such lease.
SECTION 8.13. Settlements. The Borrower will not, nor will it permit
any of its Subsidiaries to, enter into any binding settlement agreement with
respect to any litigation, investigation or proceeding, whether pending or
threatened, by or against the Borrower or any of its Subsidiaries, unless after
giving effect on a Pro Forma Basis to any such settlement (including but not
limited to any payment made or any Indebtedness to be incurred or assumed by the
Borrower or any of its Subsidiaries in connection therewith), no Default or
Event of Default would exist hereunder.
SECTION 8.14. No Further Negative Pledges. Except with respect to
prohibitions against other encumbrances on specific Property encumbered to
secure payment of particular Indebtedness (which Indebtedness relates solely to
such specific Property, and improvements and accretions thereto, and is
otherwise permitted hereby), the Borrower will not, nor will it permit any of
its Subsidiaries to, enter into, assume or become subject to any agreement
prohibiting or otherwise restricting the creation or assumption of any Lien upon
its properties or assets, whether now owned or hereafter acquired, or requiring
the grant of any security for such obligation if security is given for some
other obligation.
SECTION 8.15. No Foreign Subsidiaries. Neither the Borrower nor any of
its Subsidiaries will create, acquire or permit to exist any direct or indirect
Subsidiary of such Person which is not incorporated or organized under the laws
of any State of the United States or the District of Columbia.
SECTION 8.16. No Amendments to Service Contracts. Except as otherwise
required by law, the Borrower will not, nor will it permit any of its
Subsidiaries to, amend, modify or alter any of the terms or provisions of the
Service Contracts, provided, that the Service Contracts may be amended,
supplemented or modified to add AmComp Assurance Corporation as a party on
<PAGE>
54
terms no less favorable to Pinnacle Administrative Company than those set forth
in the existing Service Contracts.
SECTION 8.17 Changes in Management. Neither the Borrower nor any of its
Subsidiaries will, without the prior written consent of the Bank, which consent
will not be unreasonably withheld and the granting or withholding of which will
be delivered promptly, materially change, or permit a material change in, the
nature or scope of responsibilities or duties of Fred Lowe or Samuel Stephens
with respect to the management of the Borrower or any of its Subsidiaries.
Neither the Borrower nor any of its Subsidiaries will, without prior written
notice to the Bank, materially change the nature or scope of responsibilities or
duties of any person serving in senior management of the Borrower or any of its
Subsidiaries, including any President, Chairman, Vice President, Secretary,
Treasurer, Chief Executive Officer or Chief Financial Officer.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default. An Event of Default shall exist upon
the occurrence of any of the following specified events (each an "Event of
Default")
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of any of
the Loans, or
(ii) default, and such default shall continue for five (5) or
more Business Days, in the payment when due of any interest on the
Loans or of any Fees or other amounts owing hereunder, under any of the
other Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement made or
deemed to be made by any Credit Party herein, in any of the other Credit
Documents, or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove untrue in any material respect
on the date as of which it was deemed to have been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.02, 7.09, 7.11, 7.12 or
8.01 through 8.16, inclusive, or
<PAGE>
55
(ii) default in the due performance or observance by it of any
term, covenant or agreement (other than those referred to in
subsections (a), (b) or (c)(i) of this Section 9.01) contained in this
Credit Agreement and such default shall continue unremedied for a
period of at least 30 days after the earlier of a responsible officer
of a Credit Party becoming aware of such default or notice thereof by
the Bank; or
(d) Other Credit Documents. (i) Any Credit Party shall default in the
due performance or observance of any term, covenant or agreement in any of the
other Credit Documents (subject to applicable grace or cure periods, if any), or
(ii) except as the result of or in connection with a dissolution, merger or
disposition of a Subsidiary permitted by Section 8.04(a), Section 8.04(b) or
Section 8.04(c), any Credit Document shall fail to be in full force and effect
or to give the Bank the Liens, rights, powers and privileges purported to be
created thereby; or
(e) Guaranties. Except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted by Section 8.04(a),
Section 8.04(b) or Section 8.04(c), the guaranty given by any Guarantor
hereunder (including any Additional Credit Party) or any provision thereof shall
cease to be in full force and effect, or any Guarantor (including any Additional
Credit Party) hereunder or any Person acting by or on behalf of such Guarantor
shall deny or disaffirm such Guarantor's obligations under such guaranty, or any
Guarantor shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed pursuant to any
guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to
the Borrower or any of its Subsidiaries; or
(g) Insurance Regulatory Orders. There shall occur any seizure,
vesting, or intervention by or under the authority of any Governmental Authority
by which (i) the management of any Insurance Subsidiary is displaced, or (ii)
the authority of any Insurance Subsidiary is displaced, or is curtailed, in any
materially adverse manner; or
(h) Defaults under Other Agreements.
(i) The Borrower or any of its Subsidiaries shall default in
the performance or observance (beyond the applicable grace period with
respect thereto, if any) of any obligation or condition of the Service
Contracts; or
(ii) The Borrower or any of its Subsidiaries shall default, in
any materially adverse manner, in the performance or observance (beyond
the applicable grace period with respect thereto, if any) of any
obligation or condition of any contract or lease; or
(iii) With respect to any Indebtedness (other than
Indebtedness outstanding under this Credit Agreement), (A) the Borrower
or any of its Subsidiaries shall (1) default in any payment (beyond the
applicable grace period with respect thereto, if any) with respect to
<PAGE>
56
any such Indebtedness, or (2) the occurrence and continuance of a
default in the observance or performance relating to such Indebtedness
or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event or condition shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or permit, the holder or holders of such
Indebtedness (or trustee or agent on behalf of such holders) to cause
(determined without regard to whether any notice or lapse of time is
required) , any such Indebtedness to become due prior to its stated
maturity; or (B) any such Indebtedness shall be declared due and
payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof; or
(i) Judgments.
(i) One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving a liability of
$50,000 or more in the aggregate (to the extent not paid or fully
covered by insurance provided by a carrier who has acknowledged
coverage) and any such judgments or decrees shall not have been
vacated, discharged or stayed or bonded pending appeal within 30 days
from the entry thereof; or
(j) ERISA. Any of the following events or conditions, if such event or
condition could have a Material Adverse Effect: (1) any "accumulated funding
deficiency", as such term is defined in Section 302 of ERISA and Section 412 of
the Code, whether or not waived, shall exist with respect to any Plan, or any
lien shall arise on the assets of the Borrower, any Subsidiary of the Borrower
or any ERISA Affiliate in favor of the PBGC or a Plan; (2) a Termination Event
shall occur with respect to a Single Employer Plan, which is, in the reasonable
opinion of the Bank, likely to result in the termination of such Plan for
purposes of Title IV of ERISA; (3) Termination Event shall occur with respect to
a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable
opinion of the Bank, likely to result in (i) the termination of, such Plan for
purposes of Title IV of ERISA, or (ii) the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate incurring any liability in connection with a
withdrawal from, reorganization of (within the meaning of Section 4241 of
ERISA), or insolvency or (within the meaning of Section 4245 of ERISA) such
Plan; or (4) any prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall
occur which may subject the Borrower, any Subsidiary of the Borrower or any
ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(1) of
ERISA or Section 4975 of the Code, or under any agreement or other instrument
pursuant to which the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate has agreed or is required to indemnify any person against any such
liability; or
(k) Ownership. There shall occur a Change of Control.
SECTION 9.02. Acceleration; Remedies. Upon the occurrence of an Event
of Default, and at any time thereafter unless and until such Event of Default
has been waived by the Bank or
<PAGE>
57
cured to the satisfaction of the Bank (pursuant to the voting procedures in
Section 11.06), the Bank shall by written notice to the Credit Parties take any
of the following actions:
(i) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(ii) Acceleration. Declare (i) the unpaid principal of, (ii)
any accrued interest in respect of and (iii) Prepayment Fee relating
to, all Advances and any and all other indebtedness or obligations of
any and every kind owing by the Borrower to the Bank hereunder to be
due whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
(iii) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents and all
rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.01(f) shall occur, then the Commitments shall automatically terminate
and all Advances, all accrued interest in respect thereof, all accrued and
unpaid Fees and other indebtedness or obligations owing to the Bank hereunder
automatically shall immediately become due and payable without the giving of any
notice or other action by the Bank.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. Except as otherwise expressly provided herein,
all notices and other communications shall have been duly given and shall be
effective (i) when delivered, (ii) when transmitted via telecopy (or other
facsimile device) to the number set out below, (iii) the day following the day
on which the same has been delivered prepaid to a reputable national overnight
air courier service, or (iv) the third Business Day following the day on which
the same is sent by certified or registered mail, postage prepaid, in each case
to the respective parties at the address, in the case of the Borrower,
Guarantors and the Bank, set forth below, or at such other address as such party
may specify by written notice to the other parties hereto:
<PAGE>
58
if to the Borrower or the Guarantors:
AmComp Incorporated
P.O. Box 14846
North Palm Beach, Florida 33408
Attn: Chief Executive Officer
Telephone: (407) 840-7140
Telecopy: (407) 840-7192
with a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10002
Attn: David J. Adler
Telephone: (212) 753-7200
Telecopy: (212) 755-1467
if to the Bank:
NationsBank, N.A.
1555 Palm Beach Lakes Boulevard, Suite 310
West Palm Beach, Florida 33401-2377
Attn: Commercial Banking Manager
Telephone: (561) 471-7611
Telecopy: (561) 684-2726
SECTION 10.02. Right of Set-Off. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default, the
Bank is authorized at any time and from time to time, without presentment,
demand, protest or other notice of any kind (all of which rights being hereby
expressly waived), to set-off and to appropriate and apply any and all deposits
(general or special) and any other indebtedness at any time held or owing by the
Bank (including, without limitation branches, agencies or Affiliates of the Bank
wherever located) to or for the credit or the account of any Credit Party
against obligations and liabilities of such Person to the Bank hereunder, under
the Notes, the other Credit Documents or otherwise, irrespective of whether the
Bank shall have made any demand hereunder and although such obligations,
liabilities or claims, or any of them, may be contingent or unmatured, and any
such set-off shall be deemed to have been made immediately upon the occurrence
of an Event of Default even though such charge is made or entered on the books
of the Bank subsequent thereto.
SECTION 10.03. Benefit of Agreement. This Credit Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the
<PAGE>
59
parties hereto; provided that none of the Credit Parties may assign or transfer
any of its interests without prior written consent of the Lenders.
SECTION 10.04. No Waiver; Remedies Cumulative. No failure or delay on
the part of the Bank in exercising any right, power or privilege hereunder or
under any other Credit Document and no course of dealing between the Bank and
any of the Credit Parties shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Bank would otherwise have. No notice to or demand
on any Credit Party in any case shall entitle the Borrower or any other Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of the Bank to any other or further action
in any circumstances without notice or demand.
SECTION 10.05. Payment of Expenses, Etc. The Borrower agrees to: (i)
pay all reasonable out-of-pocket costs and expenses (A) of the Bank in
connection with the negotiation, preparation, execution and delivery and
administration of this Credit Agreement and the other Credit Documents and the
documents and instruments referred to therein (including, without limitation,
the reasonable fees and expenses of King & Spalding, special counsel to the
Bank) and any amendment, waiver or consent relating hereto and thereto
including, but not limited to, any such amendments, waivers or consents
resulting from or related to any work-out, renegotiation or restructure relating
to the performance by the Credit Parties under this Credit Agreement and (B) of
the Bank in connection with enforcement of the Credit Documents and the
documents and instruments referred to therein (including, without limitation, in
connection with any such enforcement, the reasonable fees and disbursements of
counsel for the Bank and each of the Lenders); (ii) pay and hold the Bank
harmless from and against any and all present and future stamp and other similar
taxes with respect to the foregoing matters and save the Bank harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to the Bank) to pay such taxes;
and (iii) indemnify the Bank, its officers, directors, employees,
representatives and agents from and hold each of them harmless against any and
all losses, liabilities, claims, damages or expenses incurred by any of them as
a result of, or arising out of, or in any way related to, or by reason of (A)
any investigation, litigation or other proceeding (whether or not the Bank is a
party thereto) related to the entering into and/or performance of any Credit
Document or the use of proceeds of any Advances (including other extensions of
credit) hereunder or the consummation of any other transactions contemplated in
any Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding or (B) the presence or Release of any Materials
of Environmental Concern at, under or from any Property owned, operated or
leased by the Borrower or any of its Subsidiaries, or the failure by the
Borrower or any of its Subsidiaries to comply with any Environmental Law (but
excluding, in the case of either of clause (A) or (B) above, any such losses,
liabilities, claims,
<PAGE>
60
damages or expenses to the extent incurred by reason of gross negligence or
willful misconduct on the part of the Person to be indemnified).
SECTION 10.06. Amendments, Waivers and Consents. Neither this Credit
Agreement nor any other Credit Document nor any of the terms hereof or thereof
may be amended, changed, waived, discharged or terminated unless such amendment,
change, waiver, discharge or termination is in writing entered into by, or
approved in writing by, the Bank and the Borrower.
SECTION 10.07. Counterparts. This Credit Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, but all of which shall constitute one and the same instrument.
It shall not be necessary in making proof of this Credit Agreement to produce or
account for more than one such counterpart.
SECTION 10.08. Headings. The headings of the sections and subsections
hereof are provided for convenience only and shall not in any way affect the
meaning or construction of any provision of this Credit Agreement.
SECTION 10.09. Survival. All indemnities set forth herein, including,
without limitation, in Section 3.07, 3.09, or 10.05 shall survive the execution
and delivery of this Credit Agreement, the making of the Loans, the repayment of
the Loans and other obligations under the Credit Documents and the termination
of the Commitments hereunder, and all representations and warranties made by the
Credit Parties herein shall survive delivery of the Notes and the making of the
Loans hereunder.
SECTION 10.10. Governing Law; Arbitration.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ ENDISPUTE AND
ANY SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS
<PAGE>
61
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(c) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(d) RESERVATION OF RIGHTS. NOTHING IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT SHALL BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN T HIS
AGREEMENT; OR (ii) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE
RIGHT OF THE BANK HERETO (a) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (b) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (c) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
SECTION 10.11. Severability. If any provision of any of the Credit
Documents is determined to be illegal, invalid or unenforceable, such provision
shall be fully severable and the remaining provisions shall remain in full force
and effect and shall be construed without giving effect to the illegal, invalid
or unenforceable provisions.
<PAGE>
62
SECTION 10.12. Entirety. This Credit Agreement together with the other
Credit Documents represent the entire agreement of the parties hereto and
thereto, and supersede all prior agreements and understandings, oral or written,
if any, including any commitment letters or correspondence relating to the
Credit Documents or the transactions contemplated herein and therein.
SECTION 10.13. Binding Effect: Termination. (a) This Credit Agreement
shall become effective at such time on or after the Closing Date when it shall
have been executed by the Borrower, the Guarantors and the Bank, and the Bank
shall have received copies hereof (telefaxed or otherwise) and thereafter this
Credit Agreement shall be binding upon and inure to the benefit of the Borrower,
the Guarantors and the Bank and their respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Advances or any
other amounts payable hereunder or under any of the other Credit Documents shall
remain outstanding and until the Commitments hereunder shall have expired or
been terminated.
SECTION 10.14. Conflict. To the extent that there is a conflict or
inconsistency between any provision hereof, on the one hand, and any provision
of any Credit Document, on the other hand, this Credit Agreement shall control.
[Signature Pages to Follow]
<PAGE>
S-1
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: AMCOMP INCORPORATED,
a Delaware corporation
By /s/ Don Johnson
---------------------
Name: Don Johnson
Title: Vice President
STATE OF NEW YORK )
) to wit:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State and County listed above to take acknowledgments,
personally appeared Don Johnson who is personally known to me to be the person
named as attorney-in-fact in the foregoing and who executed the foregoing
instrument on December 31, 1997, and who acknowledged before me in the State of
New York, County of New York, that he executed same.
This acknowledgment is given for the sole purpose of verifying the
identity of the parties who signed the foregoing instrument and the place of its
signing, and without any liability on the part of the Notary with regard to the
obligations of the foregoing instrument.
WITNESS my hand and official seal this 31 day of December, 1997.
/s/ Dennis Gitler
-----------------------------------
Print Name: Dennis Gitler
----------------------
Notary Public - State of New York
-----------
Commission Number:
-----------------
Commission Expires:
----------------
(NOTARIAL SEAL)
Dennis Gitler
Notary Public, State of New York
No. 01GI5044850
Qualified in Kings County
Certificate Filed in New York County
Commission Expires 6/5/99
--------
<PAGE>
S-2
GUARANTORS: PINNACLE ADMINISTRATIVE COMPANY,
a Florida corporation
By /s/ Don Johnson
---------------------
Name: Don Johnson
Title: Vice President
PINNACLE BENEFITS, INC.,
a Florida corporation
By /s/ Don Johnson
---------------------
Name: Don Johnson
Title: Vice President
<PAGE>
STATE OF NEW YORK )
) to wit:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State and County listed above to take acknowledgments, personally appeared
Don Johnson who has produced the following identification DRIVERS LICENSE and
who executed the foregoing instrument on December 31, 1997, and who acknowledged
before me in the State of New York, County of New York, that he executed same.
This acknowledgment is given for the sole purpose of verifying the identity
of the parties who signed the foregoing instrument and the place of its signing,
and without any liability on the part of the Notary with regard to the
obligations of the foregoing instrument.
WITNESS my hand and official seal this 31 day of December, 1997.
/s/ Dennis Gitler
-----------------------------------
Print Name: Dennis Gitler
----------------------
Notary Public - State of
-----------
Commission Number:
-----------------
Commission Expires:
----------------
(NOTARIAL SEAL)
Dennis Gitler
Notary Public, State of New York
No. 01GI5044850
Qualified in Kings County
Certificate Filed in New York County
Commission Expires 6/5/99
--------
<PAGE>
S-3
BANK: NATIONSBANK, N.A.
By /s/ John M. Powell
-------------------------
Name: John M. Powell
Title: Vice President
STATE OF NEW YORK )
) to wit:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State and County listed above to take acknowledgments, personally appeared
John M. Powell who is personally known to me to be the person named as
attorney-in-fact in the foregoing and who executed the foregoing instrument on
December 31, 1997, and who acknowledged before me in the State of New York,
County of New York, that he executed same.
This acknowledgment is given for the sole purpose of verifying the identity
of the parties who signed the foregoing instrument and the place of its signing,
and without any liability on the part of the Notary with regard to the
obligations of the foregoing instrument.
WITNESS my hand and official seal this 31 day of December, 1997.
/s/ Dennis Gitler
-----------------------------------
Print Name: Dennis Gitler
----------------------
Notary Public - State of
-----------
Commission Number:
-----------------
Commission Expires:
----------------
(NOTARIAL SEAL)
Notary Public, State of New York
No. 01GI5044850
Qualified in Kings County
Certificate Filed in New York County
Commission Expires 6/5/99
--------
Confidential portions of this document have been omitted and filed
separately with the Securities and Exchange Commission
[Logo]
JARDINE SAYER
& Company, Inc.
WORKERS' COMPENSATION
EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE: MARCH 1,1998.
TABLE OF CONTENTS
ARTICLE SUBJECT PAGES
1 Business Reinsured 2
2 Company Retention and
Reinsurer Limits 2
3 Commencement and Termination 3
4 Territory 4
5 Definitions 4
6 Net Retained Lines 6
7 Other Reinsurance 6
8 Exclusions 7
9 Rate and Premium 8
10 Currency 8
11 Claims Reports and Settlements 9
12 Extra Contractual Obligations 9
13 Liability of the Reinsurer 10
14 Errors and Omissions 10
15 Inspection 10
16 Insolvency 11
17 Arbitration 12
18 Offset 13
19 Salvage and Subrogation 13
20 Intermediary 14
21 Participation 14
Signature 15
Attachments INSOLVENCY FUNDS EXCLUSION CLAUSE
NUCLEAR INCIDENT EXCLUSION CLAUSE-
LIABILITY NMA -1590
Page 1 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
WORKERS' COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT
This Agreement is made and entered into by and between Pinnacle Assurance
Corporation, (a/k/a AmComp Preferred Insurance Company), Thomas Jefferson
Insurance Company (a/k/a AmComp Insurance Company), and/or other current or
future member companies of the AmComp Insurance Group, North Palm Beach,
Florida, and certain quota share Reinsurers (hereinafter collectively referred
to as the "Company") and Reliance Insurance Company (hereinafter referred to as
the "Reinsurer").
ARTICLE 1
BUSINESS REINSURED
This Agreement is to indemnify the Company in respect of the net excess
liability as herein provided and specified which may accrue to the Company as a
result of any loss or losses which may occur with a date of loss during the term
of this Agreement under policies which are in force, written, bound or renewed
by or on behalf of the Company covering business classified by the Company as
Primary Workers' Compensation.
ARTICLE 2
COMPANY RETENTION AND REINSURER LIMITS
1. The Company shall retain for its own account and be liable for the
first fifty thousand dollars ($50,000) of Ultimate Net Loss resulting
from each Loss Occurrence that commences on or after the effective date
of this Agreement.
2. The Reinsurer will indemnify the Company for the difference between
five hundred thousand dollars ($500,000) of Ultimate Net Loss and the
Company's retention of fifty thousand dollars ($50,000) resulting from
each Loss Occurrence that commences on or after the effective date of
this Agreement.
Page 2 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
ARTICLE 3
COMMENCEMENT AND TERMINATION
This Agreement shall become effective at March 1, 1998 with respect to losses
occurring during the term of this Agreement on policies then in force or written
or bound or renewed thereafter and shall continue in force until terminated by
either party effective at any subsequent March 1. The party giving notice of
termination shall give at least 90 days prior written notice by certified mail,
return receipt requested. However, the Reinsurer may not give notice of
termination to become effective prior to March 1, 2000 both days inclusive.
In the event of termination and at the sole option of the Company, the Reinsurer
shall remain liable for losses on policies in force at the effective date of
termination until their next expiration or anniversary date. Such run-off period
shall not exceed 12 months from the effective date of termination of this
Agreement, plus odd time, not to exceed 18 months in all. In consideration for
such extension, within thirty days the Company shall pay the Reinsurer a
reinsurance premium determined by applying the treaty rate displayed in Article
9 at the date of termination to the run-off portion of the Company's unearned
premium at the date of termination.
In the event this Agreement is terminated on a cut-off basis, the Reinsurer
shall incur no liability for losses occurring subsequent to the effective date
of termination.
Notwithstanding the termination of this Agreement as hereinabove provided, the
provisions of the Agreement shall continue to apply to the unexpired liability
hereunder until all obligations and liabilities incurred by each party hereunder
prior to such termination shall have been fully performed and discharged.
If any law or regulation of the Federal government of the United States, or any
State, Territory or Local government, or the rulings of any official having
jurisdiction or supervision over insurance companies, should render the
enforcement of this Agreement, in whole or in part, illegal within a given
jurisdiction, the Company may, upon written notice to the Reinsurer, suspend,
abrogate, or amend this Agreement insofar as it relates to such jurisdiction, to
the extent necessary to comply with such law, regulation or ruling. Such
suspension, abrogation or amendment of this Agreement shall in no way affect any
other portion thereof.
Page 3 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
ARTICLE 4
TERRITORY
This Agreement shall cover wherever the Company's policies cover.
ARTICLE 5
DEFINITIONS
A. The term "Ultimate Net Loss" as used in this Agreement shall mean the
actual loss paid by the Company, or for which the Company becomes
liable to pay, such loss to include expenses of investigation,
litigation and interest (including interest accrued prior to judgment
where such interest is added to the judgment and interest accrued
subsequent to judgment), and other loss expense of the Company
including subrogation, salvage, and recovery expenses, and including a
pro rata share of salaries of the Company's field employees, pro rated
in accordance with the time occupied in adjusting such loss, and
including expenses of the Company's officials and employees incurred in
connection with the loss. However, salaries of the Company's officials
and office expenses of the Company shall not be included. Ultimate Net
Loss shall also include eighty per cent (80%) of any Extra Contractual
Obligations as provided for in the EXTRA CONTRACTUAL OBLIGATIONS
Article of this Agreement. Salvages and all other recoveries (whether
recovered or not), shall be first deducted from such loss to arrive at
the amount of liability attaching hereunder.
All salvages, recoveries or payments recovered or received subsequent
to loss settlement hereunder shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary
adjustments shall be made by the parties hereto.
Nothing in this Article shall be construed to mean that losses are not
recoverable hereunder until the Company's Ultimate Net Loss has been
ascertained.
B. The term "Loss Occurrence" as used in this Agreement shall mean any one
accident, casualty, disaster, or loss or series of accidents,
casualties, disasters, or losses arising out of or caused by one event.
Page 4 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
As respects Occupational Disease or Cumulative Trauma under Workers'
Compensation and Employers' Liability policies, a loss for the purpose
of this Agreement shall be deemed to have occurred at the date when
compensability of the employee commenced, or if such a date cannot be
definitely determined, the loss as respects such employee affected by
the disease shall be deemed to be the last day of the last exposure to
conditions causing or aggravating the injury.
The terms "Occupational Disease" and "Cumulative Trauma" will be in
accordance with applicable statutes or regulations and defined as
follows:
"Occupational Disease" is an abnormal condition that fulfills all of
the following conditions:
1. It is not traceable to a definite compensable accident
occurring during the employee's present or past employment.
2. It has been caused by exposure to a disease producing agent or
agents present in the worker's occupational environment.
3. It has resulted in a disability or death.
"Cumulative Trauma" is an injury that fulfills all of the following
conditions:
1. It is not traceable to a definite compensable accident
occurring during the employee's present or past employment.
2. It has occurred from, and has been aggravated by, a repetitive
employment related activity.
3. It has resulted in a disability or death.
C. The term "Net Premiums Earned" as used in this Agreement shall mean
(1) gross direct premium written by the Company during the
Agreement Year,
plus
(2) gross direct unearned premium reserve on policies in force at
the beginning of the Agreement Year, minus
Page 5 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
(3) the gross direct unearned premium reserve on policies in force
at the end of the Agreement Year, minus
(4) return premiums from audit adjustments and/or cancellations.
D. The term "Policy" shall mean any oral or written binder, policy, or
contract of insurance or reinsurance issued, accepted or held covered
provisionally or otherwise, by or on behalf of the Company.
E. The term "Agreement Year" shall mean the 12 consecutive months
commencing with each March 1, subject to including run-off or short
term cancellation in a given year as described in the COMMENCEMENT AND
TERMINATION Article of this Agreement
ARTICLE 6
NET RETAINED LINES
This Agreement applies only to that portion of any policy which the Company
retains net for its own account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of which this
Agreement attaches, only loss or losses in respect of that portion of any policy
which the Company retains net for its own account shall be included. The amount
of the Reinsurer's liability hereunder in respect of any loss or losses shall
not be increased by reason of the inability of the Company to collect from any
other Reinsurer any amounts which may have become due from them, whether such
inability arises from the insolvency of such other Reinsurer or otherwise.
ARTICLE 7
OTHER REINSURANCE
Article 6 notwithstanding, the Company shall be permitted to carry quota share
and/or aggregate excess of loss reinsurance, recoveries under which will inure
solely to the benefit of the Company and will be disregarded for the purpose of
determining the Ultimate Net Loss of the Company under this Agreement.
Page 6 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
ARTICLE 8
EXCLUSIONS
1. This Agreement specifically excludes all claims arising from jobs or
work relating to the following industries:
A. Risks involving a nuclear facility or nuclear material, spent
fuel or waste as defined in the Nuclear Incident Exclusion
Clause (per attached) except for the use of radioactive
isotopes.
B. Underground mining.
C. The manufacturing storage or transportation of the fireworks,
ammunition, nitroglycerin or other explosive device.
D. Any professional sports activity.
E. Asbestos Abatement when written as such.
F. Wrap Ups
2. The following exposures, coverages or charges are not covered by this
Agreement:
A. Underwriting Pools and Associations or Syndicates.
B. Insolvency Fund (per attached).
C. Financial Guarantee.
D. Employer's Liability coverage.
E. Reinsurance, except fronted business ceded to Company
F. Specific excess and aggregate excess workers' compensation
policies.
G. War/Civil War/Insurrection
H. Policies with deductibles greater than $2,500.
I. Loss Portfolio transfers
Page 7 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
J. United States Longshoremen's and Harbor Workers Compensation
Act, except when the payroll in respect of any one risk ceded
hereunder is less than 20.00% of total payroll of such risk.
K. Jones Act
Except for exposures, coverages or charges enumerated under paragraph 2, if the
Company is inadvertently bound or is unknowingly exposed (due to error,
automatic provisions of policy coverage, or as imposed by law) on a risk
otherwise excluded herein, such risk shall be covered until the Company receives
knowledge thereof, and pending cancellation of such risk, for a period of ten
days in addition to the tune permitted for cancellation in the original policy,
such total not exceeding 70 days in all.
ARTICLE 9
RATE AND PREMIUM
A. The Company will pay the Reinsurer an annual deposit premium
of [text omitted pursuant to confidential treatment request]
(for 100%) in equal quarterly installments [text omitted
pursuant to confidential treatment request].
B. Annually, within ninety days of the anniversary date of the
treaty inception, the Company will report Net Premiums Earned
during the Agreement Year, apply a treaty rate of [text
omitted pursuant to confidential treatment request] to such
Net Premiums Earned to determine the developed reinsurance
premium, and remit to the Reinsurer the difference between the
developed reinsurance premium and the deposit premium.
C. If the developed reinsurance premium calculated in Article 9
(B) is less than the deposit premium, the Reinsurer will
refund the difference within thirty days of its receipt of the
Company's report, subject to a minimum reinsurance premium for
each Agreement Year of [text omitted pursuant to confidential
treatment request] (for 100%).
ARTICLE 10
CURRENCY
The currency to be used for all purposes of this Agreement shall be United
States of America currency.
Page 8 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
ARTICLE 11
CLAIM REPORTS AND SETTLEMENTS
Quarterly within forty-five (45) days, the Company shall provide the Reinsurer
with a diskette report of all paid claims activity for the quarter, and the
Reinsurer will reimburse the Company for the balance owing within thirty (30)
days of its receipt of the report.
In addition, simultaneously, the Company will provide the Reinsurer with a
diskette report of claims incurred in excess of 50% of the Company's retention
in any one Loss Occurrence. The loss data will include claim number, policy
number, employer's name, claimant's name, date of loss, paid medical, paid
indemnity, paid loss adjustment expense, paid other expense, and outstanding
reserves for medical, indemnity, loss adjustment expense, and other expense,
description of loss, date loss reported, and loss location.
ARTICLE 12
EXTRA CONTRACTUAL OBLIGATIONS
A. This Agreement shall protect the Company within the limits
hereof, where the ultimate net loss includes Extra Contractual
Obligations; provided, through written communication, the
Company counsels with the Reinsurer, and the Reinsurer concurs
in the action to be taken by the Company in the handling of a
claim made by the insured or assignee under a policy issued by
the Company.
B. "Extra Contractual Obligations" are defined as those
liabilities not covered under any other provision of this
Agreement and which arise from the handling of any claim of
business covered hereunder, such liabilities arising because
of, but not limited to, the following: failure by the Company
to settle within the policy limit, or by reason of alleged, or
actual negligence, fraud or bad faith in rejecting an offer of
settlement, or in the preparation of the defense, or in the
trial of any action against its insured, or in the
preparation, or prosecution of an appeal consequent upon such
action.
C. The date on which an Extra Contractual Obligation is incurred
by the Company shall be deemed, m ad circumstances, to be the
date of the Loss Occurrence.
Page 9 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
D. However, this Article shall not apply where the loss has been
incurred due to the fraud of a member of the Board of
Directors or a corporate officer of the Company acting
individually or collectively or in collusion with any
individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any
claim covered hereunder.
ARTICLE 13
LIABILITY OF THE REINSURER
The liability of the Reinsurer shall follow that of the Company in every case,
and shall be subject in all respects to all the general and special
stipulations, clauses, waivers and modifications of the original policies,
binders, or other undertakings and any endorsements thereon.
Nothing herein shall in any manner create any obligations or establish any
rights against the Reinsurer in favor of any third party or any persons not
parties to this Agreement.
ARTICLE 14
ERRORS AND OMISSIONS
Any inadvertent delay, omission, or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such delay, omission or
error is promptly rectified upon discovery.
ARTICLE 15
INSPECTION
At all reasonable times at its regular place of business, the Company shall
place at the disposal of the Reinsurer and the Reinsurer shall have the right to
inspect, examine, audit, and verify through its authorized representatives, all
books, records, and papers of the Company in connection with any reinsurance
hereunder, or claims in connections herewith.
Page 10 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
The Reinsurer, at its own expense, will have the right to make copies or
extracts of any books, records, and papers.
ARTICLE 16
INSOLVENCY
In the event of the insolvency of the Company, this reinsurance shall be payable
directly to the Company, or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Company shall give written
notice to the Reinsurer of the pendency of any claim against the Company
indicating the policy or bond reinsured, which claim would involve a possible
liability on the part of the Reinsurer, within a reasonable time after such
claim is filed in the conservation or liquidation proceeding or in the
receivership and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable,
subject to the approval of the court, against the Company as part of the expense
of conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.
It is further understood and agreed that, in the event of the insolvency of the
Company, the reinsurance under this Agreement shall be payable directly by the
Reinsurer to the Company or to its liquidator, receiver, conservator or
statutory successor, except as provided by the applicable reinsurance regulation
or except (a) where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company or (b) where the
Reinsurer with the consent of the direct insured or insureds has assumed such
policy obligations of the Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the
Company to such payees.
Page 11 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
ARTICLE 17
ARBITRATION
As a condition precedent to any right of action hereunder, any dispute arising
out of or related to this Agreement or any transaction under this Agreement,
whether arising before or after termination, shall be submitted upon written
request by either party to the decision of a board of arbitration composed of
two arbitrators and an umpire, meeting in North Palm Beach, Florida unless
otherwise agreed. Notice requesting arbitration will be sent by Certified or
Registered Mail, return receipt requested.
The members of the board of arbitration shall be active or retired disinterested
officials of insurance or reinsurance companies. Each party shall appoint its
arbitrator, and the two arbitrators shall choose an umpire before instituting
the hearing. If the respondent fails to appoint its arbitrator within thirty
(30) days after receiving written request, the claimant shall also appoint the
second arbitrator. If the two arbitrators fail to agree upon the appointment of
an umpire within thirty (30) days after notification of the appointment of the
second arbitrator, the two arbitrators will promptly request the American
Arbitration Association ("AAA") to appoint an umpire for the arbitration with
the qualifications set forth above in this Article. If the AAA fails to name an
umpire within thirty (30) days of the arbitrators' request, either party may
apply to a court of competent jurisdiction to appoint an umpire with the above
required qualifications. The umpire will promptly notify in writing all parties
to the arbitration of his selection and thereupon the board of arbitration will
notify all parties of the scheduled date for the hearing. Upon resignation or
death of any member of the board of arbitration, a replacement will be appointed
in the same fashion as the resigning or deceased member was appointed.
The claimant shall submit its initial brief within twenty (20) days from
appointment of the umpire. The respondent shall submit its brief within twenty
(20) days thereafter, and the claimant may submit a reply brief within ten (10)
days after filing of the respondent's brief.
The board shall make its decision with regard to the custom and usage of the
insurance and reinsurance business. The board shall issue its decision in
writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and rebuttal
shall be allowed. The board shall make its decision within sixty (60) days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the board shall be final and binding upon
all parties to the proceeding. Judgment may be entered upon the award of the
board in any court having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the umpire. The remaining costs
of the arbitration proceedings shall be allocated by the board.
Page 12 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
It is agreed that the jurisdiction of the arbitrators to make or render any
decision or award shall be limited by the limit of liability expressly
hereinbefore set forth, and that the arbitrators shall have no jurisdiction to
make any decision or render any award exceeding such expressly stated limit of
liability of the Reinsurer.
ARTICLE 18
OFFSET
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any balances, whether on account of premiums or on
account of losses or otherwise, due from such party to the other party hereto
under this Agreement only and may offset the same against any balance or
balances due to the former from the latter under the same Agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due to such party from the other are
on account of premiums or on account of losses or otherwise and regardless of
the capacity, whether as Company or as Reinsurer, in which each party acted
under this Agreement, provided, however, that in the event of the insolvency of
a party hereto, offsets shall only be allowed in accordance with applicable
statutes.
ARTICLE 19
SALVAGE AND SUBROGATION
The Reinsurer shall be subrogated, as respects any loss for which the Reinsurer
shall actually pay or become liable, but only to the extent of the amount of
payment by or the amount of liability to the Reinsurer, to all the rights of the
Company against any person or other entity who may be legally responsible in
damages for said loss. The Company hereby agrees to enforce such rights, but in
case the Company shall refuse or neglect to do so, the Reinsurer is hereby
authorized and empowered to bring any appropriate action in the name of the
Company or its policyholders, or otherwise to enforce such rights.
Any recoveries, salvages or reimbursements applying to risks covered under this
Agreement shall always be used to reimburse the excess carriers (from the last
to the first, beginning with the carrier of the last excess), according to their
participation, before being used in any way to reimburse the Company for its
primary loss, inclusive of original deductibles where applicable.
Page 13 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
All salvages, recoveries or reimbursements, after deduction of loss adjustment
expense applicable thereto, recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement, and all necessary adjustments shall be made
by the parties hereto, provided always, that nothing in this Article shall be
construed to mean that losses under this Agreement are not recoverable until the
Company's ultimate net loss has been ascertained.
ARTICLE 20
INTERMEDIARY
Jardine Sayer & Company, Inc., is hereby recognized as the Intermediary
negotiating this Agreement for all business hereunder. All communications,
including notices, premiums, return premiums, commissions, taxes, losses, loss
adjustment expenses, salvages and loss settlements relating thereto shall be
transmitted to the Reinsurer or the Company through Jardine Sayer & Company,
Inc., P.O. Box 6400, Lawrenceville, New Jersey 08648-0400. Payments made by the
Company to the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed only to
constitute payment to the Company to the extent that such payments are actually
received by the Company.
ARTICLE 21
PARTICIPATION
WORKERS' COMPENSATION EXCESS OF LOSS REINSURANCE AGREEMENT
EFFECTIVE:
This Agreement obligates the Reinsurer for the proportion shown below of the
interests and liabilities set forth under this Agreement.
Page 14 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the following dates.
In _________________________, this ________day of _____________, ____________19
100.0 % Reinsurer: Reliance Insurance Company
James A. Fowler, Senior Vice President
In Palm Beach, Florida, this 15th day of May, 1998
PINNACLE ASSURANCE CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
AMCOMP ASSURANCE COMPANY
/s/ Donald Johnson
- ------------------------------------
Chief Financial Officer
- ------------------------------------
Title
Page 15 of 15
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
INSOLVENCY FUND EXCLUSION
It is agreed that this Agreement excludes all liability of the Company arising
by contract, operation of law or otherwise, from its participation or
membership, whether voluntary or involuntary, in any insolvency fund.
"Insolvency Fund" includes any guaranty fund, insolvency fund, plan, pool,
association, fund or other arrangements, howsoever denominated, established or
governed, which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee or other obligation of an
insurer or its successors or assigns, which has been declared by any competent
authority to be insolvent or which is otherwise deemed unable to meet any claim,
debt, charge, fee or other obligation in whole or in part.
Page 1 of 1
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.
I. This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
II. Without in any way restricting the operation of paragraph (I) of this
Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal
and replacement) of the classes specified in Clause B in this paragraph
(II) shall be deemed to include the following provision (specified as
the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION*
A. It is agreed that the policy does not apply under any liability
coverage, to:
injury, sickness, disease, death or destruction, bodily injury or
property damage
with respect to which an insured under the policy is also an insured
under a nuclear energy liability policy issued by Nuclear Energy
Liability Insurance Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of Canada, or would be an
insured under any such policy but for its termination upon exhaustion
of its limit of liability.
B. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms
related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.
C. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
1. become effective on or after May 1st, 1960, or
2. become effective before that date and contain the Limited
Exclusion Provision set out above:
Provided this paragraph (II) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies
or combination policies of a similar nature, issued by the
Reassured on New York risks, until 90 days following approval
of the Limited Exclusion Provision by the Governmental
Authority having jurisdiction thereof.
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
III. Except for those classes of policies specified in
Clause B of paragraph (II) and without in any way
restricting the operation of paragraph (I) of this
Clause, it is understood and agreed that for all
purposes of this reinsurance the original liability
policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual
Liability, Elevator Liability, Owners or Contractors
(including railroad) Protective Liability, Manufacturers and
Contractors Liability, Product Liability, Professional and
Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor
Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages,
from the time specified in Clause E of this paragraph (III),
the following provision (specified as Broad Exclusion
Provision):
BROAD EXCLUSION PROVISION*
It is agreed that the policy does not apply:
A. Under any Liability Coverage, to:
injury sickness, disease, death or destruction, bodily injury or
property damage
1. with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance Association
of Canada, or would be an insured under any such policy but
for its termination upon exhaustion of its limit of liability;
or
2. resulting from hazardous properties of nuclear material and
with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would
be, entitled to indemnity from the United States of America,
or any agency thereof, under any Agreement entered into by the
United States of America, or agency thereof, with any person
or organization.
2 of 5
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
B. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision, relating to:
immediate medical or surgical relief first aid,
to expenses incurred with respect to:
bodily injury, sickness, disease or death bodily injury
resulting from the hazardous properties of nuclear material, and
arising out of the operation of a nuclear facility by any person or
organization.
C. Under any Liability Coverage, to:
injury, sickness, disease, death or destruction, bodily injury
or property damage
resulting from the hazardous properties of nuclear material, if:
1. the nuclear material (1 ) is at any nuclear facility owned by,
or operated by or on behalf of, an insured or (2) has been
discharged or dispersed therefrom;
2. the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
3. the injury sickness, disease, death or destruction, bodily
injury or property damage arises out of the furnishing by an
insured of services, materials, parts or equipment in
connection with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such facility
is located within the United States of America, its
territories or possessions or Canada, this exclusion (3)
applies only to: injury to or destruction of property at such
nuclear facility property damage to such nuclear facility and
any property thereat.
D. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special nuclear
material or byproduct material; "source material", "special nuclear
material", and "by-product material", have the meanings given them in
the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent
fuel" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "waste"
means any waste material (1) containing by-product material and (2)
resulting from the operation by any person or organization of any
nuclear facility included within the definition of nuclear facility
under paragraph (1) or (2) thereof; "nuclear facility" means
3 of 5
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
(1) any nuclear reactor,
(2) any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling, processing or packaging
waste,
(3) any equipment or device used for the processing, fabricating
or alloying of special nuclear material if at any time the
total amount of such material in the custody of the insured at
the premises where such equipment or device is located
consists of or contains more than Twenty-Five (25) grams of
plutonium or uranium 233 or any combination thereof, or more
than Two Hundred Fifty (250) grams of uranium 235,
(4) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste, and includes the
site on which any of the foregoing is located, all operations
conducted on such site and all premises used for such
operations; "nuclear reactor" means any apparatus designed or
used to sustain nuclear fission in a self-supporting chain
reaction or to contain a critical mass of fissionable
material;
With respect to injury to or destruction of property, the word
"injury" or "destruction", "property damage" includes all
forms of radioactive contamination of property. Includes all
forms of radioactive contamination of property.
E. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (III), whether new, renewal or
replacement, being policies which become effective on or after May 1st,
1960, provided this paragraph (III) shall not be applicable to:
1. Garage and Automobile Policies issued by the Reassured on New
York risks, or
2. statuary liability insurance required under Chapter 90,
General Laws of Massachusetts, until 90 days following
approval of the Broad Exclusion Provision by the Governmental
Authority having jurisdiction thereof.
4 of 5
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
IV. Without in any way restricting the operation of paragraph (I) of this
Clause, it is understood and agreed that paragraphs (II) and (III)
above are not applicable to original liability policies of the
Reassured in Canada and that with respect to such policies this Clause
shall be deemed to include the Nuclear Energy Liability Exclusion
Provisions adopted by the Canadian Underwriters' Association or the
Independent Insurance Conference of Canada.
- ----------------------------
NOTES: The words underlined in the Limited Exclusion Provision and in the
Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a
Broad Exclusion Provision containing those words.
"Reassured" shall be understood to mean "Reassured", "Company",
"Reinsured" or whatever other term is used in the attached
reinsurance agreement to designate the reinsured Company or
Companies.
"Reinsurance" shall be understood to mean "Reinsurance", "Contract",
"Agreement", " Policy" or whatever other term is used to
designate the attached reinsurance document.
5 of 5
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
ADDENDUM NO. 1
To the
WORKERS' COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT
P-103/98
This Agreement is made and entered into by and between Pinnacle Assurance
Corporation, (a/k/a AmComp Preferred Insurance Company), Thomas Jefferson
Insurance Company (a/k/a AmComp Insurance Company), and/or other current or
future member companies of the AmComp Insurance Group, North Palm Beach,
Florida, and certain quota share Reinsurers
(hereinafter collectively referred to as the "Company")
And
Reliance Insurance Company
(hereinafter referred to as the "Reinsurer").
IT IS UNDERSTOOD AND AGREED THAT, with effect from March 1, 1998 until March 31,
1998, both days inclusive, ARTICLE 21 - PARTICIPATION is amended to reflect a
change in the Reinsurer's share from "100%" to "100% of 79%".
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
1 of 2
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Addendum as of the following dates.
In , this day of , 19
-------------------------------------- -------------- -----------------
100.0% of 79.0% Reinsurer: Reliance Insurance Company
James A. Fowler, Senior Vice President
In , this day of , 19
------------------------------------- -------------- -----------------
PINNACLE ASSURANCE CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
AMCOMP ASSURANCE COMPANY
/s/ Don Johnson
- ----------------------------------
Title: Chief Financial Officer
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
ADDENDUM NO. 2
To the
WORKERS' COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT
P-103/98
This Agreement is made and entered into by and between Pinnacle Assurance
Corporation, (a/k/a AmComp Preferred Insurance Company), Thomas Jefferson
Insurance Company (a/k/a AmComp Insurance Company), and/or other current or
future member companies of the AmComp Insurance Group, North Palm Beach,
Florida, and certain quota share Reinsurers (hereinafter collectively referred
to as the "Company")
And
Reliance Insurance Company (hereinafter referred to as the "Reinsurer").
IT IS UNDERSTOOD AND AGREED THAT, with effect from April 1, 1998, ARTICLE 21
PARTICIPATION is amended to reflect a change in the Reinsurer's share from "100%
of 79%" to "100% of 85%".
'
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
1 of 2
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Addendum as of the following dates.
In , this day of , 19
------------------------------------- -------------- -----------------
100.0% of 85.0% Reinsurer: Reliance Insurance Company
James A. Fowler, Senior Vice President
In , this day of , 19
------------------------------------- -------------- -----------------
PINNACLE ASSURANCE CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
AMCOMP ASSURANCE COMPANY
Don Johnson
- ----------------------------------
Chief Financial Officer
Title
2 of 2
Confidential portions of this document have been omitted and filed
separately with the Securities and Exchange Commission
[Logo]
JARDINE SAYER
& Company, Inc.
WORKERS' COMPENSATION AND EMPLOYERS LIABILITY
QUOTA SHARE REINSURANCE AGREEMENT
P-102/97
(hereinafter referred to as the "Agreement")
between
PINNACLE ASSURANCE CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
AMCOMP ASSURANCE COMPANY
North Palm Beach, Florida
and other insurance companies owned, managed, or affiliated with
AmComp Insurance Group
(hereinafter referred to as the "Company")
and
THE SUBSCRIBING REINSURERS SPECIFIED
IN THE INTERESTS AND LIABILITIES CONTRACT
TO WHICH THIS AGREEMENT IS ATTACHED
(hereinafter referred to as the "Reinsurers")
Article I
Business Covered
The Company obliges itself to cede and the Reinsurers oblige themselves to
accept proportional Loss and Loss Adjustment Expense as described in Article
VIII and proportional premium as described in Article IX in respect of Policies
issued by or through Florida Administrative Services and/or Pinnacle
Administrators, Inc during the Term of this Agreement and classified by the
Company as Workers' Compensation and Employers' Liability insurance.
Article II
Term
A. This Agreement shall be effective at 12:01 A.M. Eastern Daylight Time
on October 1, 1997 in respect of Policies then in force as well as new
and renewal Policies accepted thereafter and shall remain in force
until canceled.
B. The Company or the Reinsurers may cancel this Agreement by giving the
other party ninety (90) days prior written notice by registered mail to
be effective December 31, 1998 or any December 31 thereafter. The
Company shall continue to underwrite and accept new and renewal
Policies during the period between notice and effective date of
termination.
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
C. In the event of termination of this Agreement, at the Company's option:
1. Run-off termination. The Reinsurers shall remain liable in
respect of all Policies then in force at the effective date of
termination until the termination or next anniversary of such
Policies, whichever occurs first, following the effective date
of termination, provided that the run-off period will not
exceed twelve (12) months from the effective date of
termination plus odd time, if any, not to exceed eighteen (18)
months in all; or
2. Cut-off termination. The Company shall relieve the Reinsurers
of all liability hereunder for Losses and Loss Adjustment
Expenses arising from an Occurrence subsequent to the
effective date of termination. If the Company elects cut-off
termination, the Reinsurers shall refund to the Company the
unearned premium applicable to the unexpired liability on
Policies in force minus the commission allowed by the
Reinsurers.
D. Article II-B notwithstanding, either party to this Agreement shall have
the right to cancel this Agreement immediately by giving written notice
to the other parry by registered mail in the event that the other
party:
1. Suffers a reduction of policyholder surplus of 50% or greater
within any Treaty Year, or
2. Is declared insolvent, put in liquidation, or restricted as to
underwriting by any competent regulatory authority or court of
competent jurisdiction.
Termination pursuant to Article II-D does not alter the Company's or its
successor's rights under Article II-C.
Article III
Territory
This Agreement applies within the territorial limits of the Company's policies.
Article IV
Exclusions
This Agreement excludes:
A. All business not classified by the Company as Workers' Compensation
and/or Employer's Liability.
B. Loss or Damage occasioned by war, invasion, hostilities, acts of
foreign enemies, civil war, rebellion, insurrection, military or
usurped power, martial law or confiscation by order of any government
or public authority, as excluded under a standard form of policy
containing a standard War Exclusion Clause.
C. Radioactive contamination arising from nuclear incidents.
D. All business derived from any state-sponsored or mandated Pool,
Association, including Joint Underwriting Associations, Syndicates,
Exchange, Plan or other facility directly as a member, subscriber or
participant, or indirectly by way of reinsurance.
-2-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
E. Fiduciary Liability arising from the Employee Retirement Income
Security Act of 1974 (ERISA), or amendments thereto when written as
such;
F. Assumed Treaty Reinsurance, except with respect to business assumed
from insurers managed by AmCorp or its subsidiaries.
Article V
Full Reinsurance Clause
A. All amounts ceded hereunder shall be subject to the same gross rates
and to the same conditions and modifications of the Company's policies,
and the Reinsurers shall pay losses as may be paid thereon and shall
follow the settlements of the Company subject to the limits, terms, and
conditions of this Agreement.
B. The Reinsurers shall in every case to which this Agreement applies follow the
fortunes of the Company.
Article VI
Other Reinsurance
A. The Company shall deduct (1) [text omitted pursuant to confidential
treatment request] for limits and/or exposures exceeding five hundred
thousand dollars ($500,000) each and every occurrence plus (2) actual
premiums paid for facultative reinsurance, if any, which inures to the
benefit of this Agreement. The Company may not deduct premiums paid for
facultative reinsurance for limits exceeding five hundred thousand
dollars ($500,000).
B. The Company may at its own expense purchase underlying excess
reinsurance (on a funded basis, an indemnity basis, or any combination
thereof) in respect of its Net Retained Liability and/or the Loss
Corridor described in Article VIII, recoveries under which will be
ignored for the purposes of determining is Net Retained Liability.
Article VII
Definitions
"Gross Ceded Premium" means Gross Subject Unearned Premium plus Gross Subject
Written Premium.
"Gross Net Earned Premium" means Gross Net Unearned Premium at the beginning of
an accounting period plus Gross Net Written Premium during the accounting period
minus Gross Net Unearned Premium at the end of an accounting period.
"Gross Net Unearned Premium" means Gross Subject Unearned Premium minus
deductions allowed pursuant to Article VI.
-3-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
"Gross Net Written Premium" means Gross Subject Written Premium minus deductions
allowed pursuant to Article VI.
"Gross Subject Earned Premium" means Gross Subject Unearned Premium at the
beginning of a Treaty Year plus Gross Subject Written Premium during a Treaty
Year. In the event of cut-off termination, there will be a deduction of Gross
Subject Unearned Premium returned by the Reinsurers to the Company.
"Gross Subject Unearned Premium" means the reserve for unexpired liability
established in the Company's statutory balance sheets.
"Gross Subject Written Premium" means gross premium accounted as written by the
Company in respect of business ceded hereunder, plus or minus premiums arising
from audit adjustments or retrospective rating adjustments, minus cancellations,
return premiums.
"Loss" means payments and reserves established by the Company as a result of
claims under its Policies.
"Loss Adjustment Expense" means all costs and expenses allocable to specific
claims that are incurred by the Company in the adjustment, evaluation,
investigation, defense, litigation, settlement, and/or appeal of specific
claims, including (a) courts costs and costs of supersedes and appeal bonds, (b)
interest accrued after award or judgment and prejudgment interest awarded
against the insured, and (c) legal expenses and costs incurred by the Company in
connection with coverage questions and legal actions connected thereto. Loss
Adjustment Expenses do not include salaries and expenses of Company officers and
staff adjusters [text omitted pursuant to confidential treatment request].
"Loss Ratio" means ceded Loss and Loss Adjustment Expense divided by ceded Gross
Subject Earned Premium.
"Net Retained Liability" means Loss and Loss Adjustment Expense retained by the
Company after deduction of specific excess reinsurance and salvage and
subrogation recoveries, provided that the Company's Net Retained Liability shall
for the purposes of this Agreement be deemed not to exceed the amount displayed
in Article VI-A (1) each and every Occurrence.
"Occurrence" means each and every event or series of events that gives rise to a
loss payable under the Company's policies.
"Policy" means contracts of insurance or reinsurance including without
limitation oral and written binders pursuant to the terms and conditions of
which the Company is obliged to pay Losses and/or Loss Adjustment Expense.
"Policy dividends" mean dividends declared and paid by the Company during the
term of each Treaty Year of this Agreement, which Policy dividends also arise
from the Gross Net Earned Premium allocated to each such Treaty Year of this
Agreement.
"Treaty Year" means the period from inception through the first date of
termination and, thereafter, each calendar year.
-4-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
Article VIII
Retention and Cession
A. Retention. The Company shall retain sixty-five per cent (65.0%) of
Losses and Loss Adjustment Expense of its Net Retained Liability up to
but not exceeding five hundred thousand dollars ($500,000) each and
every occurrence plus one hundred per cent (100.0%) of Losses and Loss
Adjustment Expense greater than five hundred thousand dollars
($500,000) each and every occurrence.
B. Loss Corridor. In addition, if the ceded Loss Ratio for any Treaty Year
exceeds sixty-five percent (65.0%), the Company will retain Losses and
Loss Adjustment Expense for which the Reinsurers would otherwise be
liable (but for this Loss Corridor provision) equal to five per cent
(5.0%) of Gross Net Earned Premium.
C. Cession. The Company will cede and the Reinsurers will accept
thirty-five per cent (35.0%) of Losses and Loss Adjustment Expense of
the Company's net retained liability up to but not exceeding five
hundred thousand dollars ($500,000) each and every occurrence, subject
to the Loss Corridor provision contained in Article VIII-B
D. Policy Dividends. The Reinsurers will reimburse the Company for their
proportional share of Policy Dividends as further defined in Article
VII.
E. Adjustment. On or after April 1, 1998 at the start of any calendar
quarter, the Company may adjust its Retention and Cession on a run-off
or cut-off basis, provided that (a) the Retention must be not greater
than seventy-five per cent (75.0%) or less than sixty per cent (60.0%);
and (b) the Company may adjust the Retention only once during each
Treaty Year.
Article IX
Premium and Commission
A. Subject to adjustment as displayed in Article VIII-E, the Company shall
cede thirty-five percent (35.0%) of its Gross Net Unearned Premium at
the inception of this Agreement plus thirty-five per cent (35.0%) of
its Gross Net Written Premium in respect of new and renewal Policies
accepted during the Term of this Agreement.
B. The Reinsurers shall allow the Company to deduct a ceding commission of
thirty-five per cent (35.0%) [text omitted pursuant to confidential
treatment request].
Article X
Accounts and Settlements
A. Quarterly within sixty (60) days of the end of each calendar quarter,
the Company will submit accounts in accordance with Schedule X-A
annexed hereto.
-5-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
B. Simultaneously with its submission of accounts, the Company will remit any
balance it owes the Reinsurers.
C. The Reinsurers shall remit any balance it owes the Company within
thirty (30) days of its receipt of the Company's quarterly account.
D. Quarterly within seventy-five (75) days of the end of each calendar
quarter, the Company and the Reinsurers shall exchange statutory
financial statements filed with their respective state regulatory
authorities.
Article XI
Offset
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any balances, whether on account of premiums or on
account of losses or otherwise, due from such party to the other party hereto
under this Agreement and may offset the same against any balance or balances due
or to become due to the former from the latter under the same Agreement between
them; and the party asserting the right of offset shall have and may exercise
such right whether the balance or balances due or to become due to such party
from the other are on account of premiums or on account of losses or otherwise
and regardless of the capacity, whether as Company or as Reinsurers, in which
each party acted under this Agreement, provided, however, that in the event of
the insolvency of a party hereto, offsets shall only be allowed in accordance
with relevant statutes.
Article XII
Reserves
(This Article applies to Reinsurers: (a) which do not qualify for credit by any
state or any other governmental authority having jurisdiction over the Company's
affairs; or (b) whose rating by A.M. Best drops below "A".)
A. As regards all business coming within the scope of this Agreement, the
Reinsurers agree that, if the Company so requests, the Reinsurers shall
fund its share of the Company's ceded unearned premium and outstanding
loss and loss adjustment expense reserves including incurred but not
reported loss reserves by:
1. Clean, unconditional and irrevocable Letter of Credit issued
by any bank acceptable to the state or other governmental
authority having jurisdiction in this matter, and/or
2. Acceptable escrow accounts for the benefit of the Company,
and/or
3. Cash advances, if, without such funding, a penalty would
accrue to the Company on any financial statement it is
required to file with any insurance regulatory authorities.
B. With regard to funding in whole or in part by Letter of Credit, it is
agreed that each such Letter of Credit will be issued for a term of not
less than one year and will include a so-called "evergreen" clause
which automatically extends the term for at least one additional year
at each expiration date unless thirty (30) days prior to any expiration
date, the issuing bank notifies the Company by certified mail it elects
not to consider the Letter of Credit renewed or extended for any
additional period.
-6-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
C. The Company and the Reinsurers further agree, notwithstanding anything
to the contrary in this Agreement, that said Letter of Credit may be
drawn upon by the Company or its successors in interest at any time,
without diminution because of the insolvency of the Company or the
Reinsurers, but only for one or more of the following purposes:
1. To reimburse itself for the Reinsure sharers of the
unearned premium paid under this Agreement, and/or
2. To reimburse itself for the Reinsurers' share of the
unearned premium returned or returnable to insureds
upon cancellation of Policies covered under this
Agreement, and/or
3. To pay the Reinsurers' share or to reimburse the
Company for the Reinsurers' share of any liability
for loss reinsured by This Agreement, which is due to
the Company and has not been otherwise paid by the
Reinsurers, and/or
4. To make refund to the Reinsurers of any sum which is
in excess of the actual amounts required to pay the
Reinsurers' obligations under 1, 2, and 3 above.
D. The bank issuing the Letter of Credit shall have no responsibility
whatsoever in connection with the propriety of withdrawals made by the
Company or the disposition of funds withdrawn, except to see that
withdrawals are made only upon the order of properly authorized
representatives of the Company.
E. At annual intervals or more frequently as determined by the Company,
but never more frequently than quarterly, the Company shall prepare a
specific statement, for the sole purpose of amending the Letter of
Credit, and/or the escrow accounts and/or the Reinsurers' cash
advances, of the Reinsurers' share of any obligations. If the statement
shows that the Reinsurers' share of obligations exceeds the balance of
funding as of the statement date, the Reinsurers shall, within thirty
(30) days after receipt of notice of such excess, secure delivery to
the Company of an amendment of the Letter of Credit increasing the
amount of credit by the amount of such difference and/or increase the
balances of the escrow accounts and/or make additional cash advances to
eliminate the difference. If, however, the statement shows that the
Reinsurers' share of obligations is less than the balance of funding as
of the statement date, the Company shall, within thirty (30) days after
receipt of written request from the Reinsurers, release such excess
funding by agreeing to secure an amendment to the Letter of Credit
reducing the amount of credit available and/or returning excess amounts
from escrow accounts and/or cash advances.
F. The rights and obligations of the Company and the Reinsurers, as set
forth in this Article, shall not be diminished in any manner whatsoever
by the insolvency of any party hereto.
Article XIII
Currency
All of the provisions of this Agreement involving dollar amounts are expressed
in terms of United States dollars and all premium and loss payments hereunder
shall be made in United States dollars.
-7-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
Article XIV
Access to Records
The Company shall place at the disposal of the Reinsurers at all reasonable
times, and the Reinsurers shall have the right to inspect, through its
authorized representatives, all books, records, or papers of the Company in
connection with any reinsurance hereunder, or claims in connection herewith.
Article XV
Errors and Omissions
Any inadvertent neglect, delay, omission or error shall not be held to relieve
the Reinsurers from any liability which would attach to it hereunder if such
neglect, delay, omission or error had not been made, provided the Company
rectifies such neglect, delay, omission, or error upon discovery.
Article XVI
Arbitration
As a condition precedent to any right of action hereunder, any dispute arising
out of this Agreement, whether arising before or after termination, shall be
submitted to the decision of a board of arbitration composed of two arbitrators
and an umpire, meeting in North Palm Beach, FL unless otherwise agreed.
The members of the board of arbitration shall be active or retired disinterested
officials of insurance or reinsurance companies. Each party shall appoint its
arbitrator, and the two arbitrators shall choose an umpire before instituting
the hearing. If the respondent fails to appoint its arbitrator within four weeks
after being requested to do so by the claimant, the latter shall also appoint
the second arbitrator. If the two arbitrators fail to agree upon the appointment
of an umpire within four weeks after their nominations, each of them shall name
three, of whom the other shall decline two, and the decision shall be made by
drawing lots.
The claimant shall submit its initial brief within 20 days from appointment of
the umpire. The respondent shall submit its brief within 20 days thereafter, and
the claimant may submit a reply brief within 10 days after filing of the
respondent's brief.
The board shall make its decision with regard to the custom and usage of the
insurance and reinsurance business. The board shall issue its decision in
writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and rebuttal
shall be allowed. The board shall make its decision within 60 days following the
termination of the hearings unless the parties consent to an extension. The
majority decision of the board shall be final and binding upon all parties to
the proceeding. Judgment may be entered upon the award of the board in any court
having jurisdiction thereof.
If more than one Reinsurer is involved in the same dispute, all such Reinsurers
shall constitute and act as one party for purposes of this clause, and
communications shall be made by the Company to each of the Reinsurers
constituting the one party, provided that nothing therein shall impair the
rights of such Reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the Reinsurers under the
terms of this Agreement from several to joint.
-8-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the umpire. The remaining costs
of the arbitration proceedings shall be allocated by the board.
It is agreed that the jurisdiction of the arbitrators to make or render any
decision or award shall be limited by the limit of liability, expressly
hereinbefore set forth, and that the arbitrators shall have no jurisdiction to
make any decision or render any award exceeding such expressly stated limit of
liability of the Reinsurers.
Article XVII
Service of Suit
(This Clause is only applicable to unauthorized Reinsurers, or to the Reinsurers
who are domiciled outside the United States of America.)
It is agreed that in the event of the failure of the Reinsurers to pay any
amount claimed to be due hereunder, the Reinsurers, at the request of the
Company, will submit to the jurisdiction of any Florida State Court and will
comply with all requirements necessary to give such Court jurisdiction, and all
matters arising hereunder shall be determined in accordance with the law of the
state of Florida and practice of such Court. Nothing in this Clause constitutes
or should be understood to constitute a waiver of the Reinsures' rights to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
State in the United States.
It is further agreed that service of process in such suit may be upon Harris,
Kukaey, Helgesen, P.A., or anm agreed-upon attorney, and that in any suit
instituted, the Reinsurers will abide by the final decision of such Court or of
any Appellate Court in the event of an appeal.
The above named are authorized and directed to accept service of process on
behalf of the Reinsurers in any such suit and/or upon the request of the Company
to give a written undertaking to the Company that they will enter a general
appearance upon the Reinsurers' behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any State, Territory or District of the
United States which makes provision therefor, the Reinsurers hereby designates
the Superintendent, Commissioner or the Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as his true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
Company or any beneficiary hereunder arising out of this Agreement, and hereby
designates the above-named as the firm to whom the said officer is authorized to
mail such process or a true copy thereof.
Article XVIII
Insolvency
In the event of the insolvency of the Company, the reinsurance shall be payable
directly to the Company, or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Company shall give written
notice to the Reinsurers of the pendency of any claim against the Company
indicating the policy or bond reinsured, which claim would involve a possible
liability on the part of the Reinsurers, within a reasonable time after such
claim
-9-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
is filed in the conservation or liquidation proceeding or in the receivership
and that during the pendency of such claim, the Reinsurers may investigate such
claim and interpose, at its own expense, in the proceeding where such claim is
to be adjudicated, any defense or defenses that it may deem available to the
Company or its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Reinsurers shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurers.
Where two or more Reinsurers are involved in the same claim and a majority in
interest elect to interpose defense of such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the Company.
It is further understood and agreed that, in the event of the insolvency of the
Company, the reinsurance under this Agreement shall be payable directly by the
Reinsurers to the Company or to its liquidator, receiver, conservator or
statutory successor, except as provided by the applicable reinsurance regulation
or except (a) where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company or (b) where the
Reinsurers with the consent of the direct insured or insureds has assumed such
policy obligations of the Company as direct obligations of the Reinsurers to the
payees under such policies and in substitution for the obligations of the
Company to such payees.
Article XIX
Insolvency Funds Exclusion
This Agreement excludes all liability of the Company arising, by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool, association fund or other
arrangement, howsoever denominated, established or governed, which provides for
any assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of any insurer, or its successors
or assigns, which has been declared by any competent authority to be insolvent,
or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
Article XX
Intermediary
Jardine Sayer & Company, Inc., P.O. Box 6400, Lawrenceville, New Jersey
08648-0400, is hereby recognized as the Intermediary negotiating this Agreement
for all business hereunder. All communications (including but not limited to
notices, statements, premiums, return premiums, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurers through Jardine Sayer & Company,
Inc., P.O. Box 6400, Lawrenceville, New Jersey 08648-0400. Payments made by the
Company to the Intermediary shall constitute payment to the Reinsurers to the
extent of such payments. Payments made by the Reinsurers to the Intermediary
shall only constitute payment to the Company to the extent that such payments
are actually received by the Company.
-10-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
Schedule X-A
Quarterly account statement
- --------------------------------------------------------------------------------
1. Gross Subject Unearned Premium at inception per statutory statement
of Company
- --------------------------------------------------------------------------------
2. Excess limits and inuring reinsurance deduction per Article VI
- --------------------------------------------------------------------------------
3. Gross Net Unearned Premium at inception (1) - (2)
- --------------------------------------------------------------------------------
4. Gross Subject Written Premium
- --------------------------------------------------------------------------------
5. Excess limits and inuring reinsurance deduction per Article VI
- --------------------------------------------------------------------------------
6. Gross Net Written Premium (4) - (5)
- --------------------------------------------------------------------------------
7. Gross Net Ceded Premium [(3) + (6)] x 0.35
- --------------------------------------------------------------------------------
8. Ceding Commission Per Article IX-B
- --------------------------------------------------------------------------------
9. Net ceded premium (7) - (8)
- --------------------------------------------------------------------------------
10.Paid Losses and Loss Adjustment Expenses
- --------------------------------------------------------------------------------
11.Policy dividends
- --------------------------------------------------------------------------------
12.Net balance (9) - (10) - (11)
- --------------------------------------------------------------------------------
Memo items
- --------------------------------------------------------------------------------
1. Gross Subject Unearned Premium end of period
- --------------------------------------------------------------------------------
2. Outstanding Case Loss Reserves
- --------------------------------------------------------------------------------
3. Outstanding Case Loss Adjustment Expense Reserve
- --------------------------------------------------------------------------------
4. Bulk and IBNR Reserves
- --------------------------------------------------------------------------------
Large claims list
- --------------------------------------------------------------------------------
List of claims with reported ultimate loss greater than one hundred thousand
dollars ($100,000)
- --------------------------------------------------------------------------------
-11-
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
INTERESTS AND LIABILITIES CONTRACT
To the
WORKERS' COMPENSATION AND EMPLOYERS LIABILITY
QUOTA SHARE REINSURANCE AGREEMENT
P-102/97
(hereinafter referred to as the "Agreement")
between
PINNACLE ASSURANCE CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
AMCOMP ASSURANCE COMPANY
North Palm Beach, Florida
and other insurance companies owned, managed, or affiliated with
AmComp Insurance Group
(hereinafter referred to as the "Company")
and
EVEREST REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
It is hereby mutually agreed that the Subscribing Reinsurer shall have a 60.00%
participation in the Interests and Liabilities of the Reinsurers as set forth in
the Agreement attached hereto.
Such participation shall be several and not joint with the participation of
other Subscribing Reinsurers, and the Subscribing Reinsurer shall under no
circumstances participate in the Interests and Liabilities of the other
Reinsurers in said Instrument.
The Contract shall attach 12:01 A.M. Eastern Daylight Time on October 1, 1997
and is subject to the provisions contained in the attached Agreement.
The Agreement to which this Contract is attached, and therefore the interests
and liabilities of the Subscribing Reinsurer therein, may be changed, altered
and amended as the parties may agree; provided such change, alteration and
amendment is evidenced by endorsement to this Contract executed by the Company
and the Subscribing Reinsurer.
1 of 2
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be signed in
duplicate by their duly authorized representatives.
Signed in North Palm Beach, Florida,
This 2nd day of June, 1998.
ATTEST: PINNACLE Assurance CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
/s/ Mary V. Baldo AMCOMP ASSURANCE COMPANY
- ---------------------------
By:/s/ Don Johnson
---------------------------------
Title:CFO
------------------------------
Reference:__________________________
And signed in Calabasas, California,
This 22nd day of May, 1998.
ATTEST: EVEREST REINSURANCE COMPANY
By:/s/ Illegible
---------------------------------
Title: /s/ Illegible
------------------------------
Reference:RA 4555
------------------------------
2 of 2
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
INTERESTS AND LIABILITIES CONTRACT
To the
WORKERS' COMPENSATION AND EMPLOYERS LIABILITY
QUOTA SHARE REINSURANCE AGREEMENT
P-102/97
(hereinafter referred to as the "Agreement")
between
PINNACLE ASSURANCE CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
AMCOMP ASSURANCE COMPANY
North Palm Beach, Florida
and other insurance companies owned, managed, or affiliated with
AmComp Insurance Group
(hereinafter referred to as the "Company")
and
EVEREST REINSURANCE COMPANY
(hereinafter referred to as the "Subscribing Reinsurer")
It is hereby mutually agreed that the Subscribing Reinsurer shall have a 40.00%
participation in the Interests and Liabilities of the Reinsurers as set forth in
the Agreement attached hereto.
Such participation shall be several and not joint with the participation of
other Subscribing Reinsurers, and the Subscribing Reinsurer shall under no
circumstances participate in the Interests and Liabilities of the other
Reinsurers in said Instrument.
The Contract shall attach 12:01 A.M. Eastern Daylight Time on October 1, 1997
and is subject to the provisions contained in the attached Agreement.
The Agreement to which this Contract is attached, and therefore the interests
and liabilities of the Subscribing Reinsurer therein, may be changed, altered
and amended as the parties may agree; provided such change, alteration and
amendment is evidenced by endorsement to this Contract executed by the Company
and the Subscribing Reinsurer.
1 of 2
<PAGE>
[Logo]
JARDINE SAYER
& Company, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be signed in
duplicate by their duly authorized representatives.
Signed in North Palm Beach, Florida,
This 16th day of June, 1998.
ATTEST: PINNACLE Assurance CORPORATION
AMCOMP PREFERRED INSURANCE COMPANY
THOMAS JEFFERSON INSURANCE COMPANY
/s/ Illegible AMCOMP ASSURANCE COMPANY
- ---------------------------
By:/s/ Don Johnson
---------------------------------
Title:CFO
------------------------------
Reference:__________________________
And signed in Calabasas, California,
This 16th day of June, 1998.
ATTEST: UNDERWRITERS REINSURANCE COMPANY
/s/ Illegible By:/s/ Illegible
- ----------------------------- ---------------------------------
Title: Senior Vice President
------------------------------
Reference: 80591178367
------------------------------
2 of 2
WORKERS COMPENSATION EXCESS OF LOSS REINSURANCE AGREEMENT
THIS AGREEMENT is made and entered into by and between Pinnacle
Assurance Corporation, North Palm Beach, Florida (hereinafter called the
"Company"), under the management of Florida Administrators, Inc., North Palm
Beach, Florida, of the one part, and Continental Casualty Company, Chicago,
Illinois (hereinafter called the "Reinsurer") of the other part.
WITNESSETH:
That in consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
ARTICLE I
COVERAGE
The Reinsurer will indemnify the Company, subject to the limits set
forth in the Retention and Limit Article, in respect to losses that may accrue
to the Company under all policies classified by the Company as Workers
Compensation and Employers' Liability including liability under U.S.
Longshoremen's and Harbor Workers Compensation or similar acts of federal or
state law or common law on business underwritten and accepted by Florida
Administrators, Inc. on behalf of the Company.
All reinsurance for which the Reinsurer will be obligated by virtue of
this Agreement will be subject to the same terms, conditions, interpretations,
waivers, modifications, and alterations as the respective policies of the
Company to which this Agreement applies. Nothing herein will in any manner
create any obligations or establish any rights against the Reinsurer in favor of
any third parties or any persons not parties to this Agreement except as
provided in the Insolvency Article.
<PAGE>
ARTICLE II
TERM AND CANCELLATION
This Agreement will apply to all losses occurring on or after January
1, 1997, 12:01 A.M. standard time (as defined in the Company's policies) on
inforce policies, or policies written, or renewed with effective dates on or
after January 1, 1997, 12:01 A.M. standard time, and will remain in force and
effect until cancelled as hereinafter provided.
This Agreement may be terminated January 1, 1999 or any January 1ST
thereafter or by either party giving at least 90 days prior notice by certified
or registered mail to the other party. During any such period of notice the
Reinsurer will remain bound by the terms of this Agreement.
In the event this Agreement is cancelled in accordance with the
aforementioned procedure, the Reinsurer will remain liable for all losses under
policies in force until their expiration or renewal dates, whichever come first
not to exceed 12 months plus odd time, nor to exceed 18 months in all. During
the run-off period, the Company will continue to cede to the Reinsurer the
appropriate earned premium.
Alternatively, the Company may elect to cancel (or reduce) the
Reinsurer's liability on a cutoff basis as of the date of cancellation, and the
Reinsurer will not be liable for any losses occurring (or the percentage thereof
equal to the amount of participation reduction) on or after the cancellation
date. Should cancellation take place on a cut-off basis, or the Reinsurer's
participation change, any aggregate losses to the Reinsurer on policies in force
as of the date of cancellation or participation change will be prorated among
those Reinsurers cancelling or reducing their participation and those Reinsurers
initiating or increasing their participation in the same manner that the premium
on the policies is shared.
Notwithstanding the other provisions in this Article, in the event the
Company's policies are written in a jurisdiction where cancellation, renewal, or
nonrenewal is regulated by the insurance authorities, and the Company is bound
by such regulations and statutes of said jurisdiction or by a judicial decision,
the Reinsurer will remain liable on any such policies in force at cancellation
date of
-2-
<PAGE>
this Agreement (and will receive the premium therefore) until the date each
expires or until the first renewal date when the Company can lawfully nonrenew
said policies, whichever occurs first.
Notwithstanding the cancellation of this Agreement as herein above
provided, its provisions will continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities incurred by each party
hereunder will be fully performed and discharged.
ARTICLE III
TERRITORY
The territorial scope of this Agreement will cover that of the
Company's policies, but is limited to policies issued to employers with
employees operating in the state of Florida, but this limitation will not apply
to losses if the Company's policies provide coverage outside the aforesaid
territorial limits.
ARTICLE IV
EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
A. All reinsurance assumed by the Company; however, local agency
reinsurance accepted in the normal course of business and/or
policies written by another carrier at the Company's request
and reinsured 100% by the Company will not be excluded
hereunder and intercompany pooling arrangements will not be
excluded hereunder.
B. All liability of the Company arising by contract, operation of
law, or otherwise, from its participation or membership,
whether voluntary or involuntary, in any insolvency fund.
"Insolvency Fund" includes any guaranty fund, insolvency fund,
plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed; which provides for any
assessment of or payment or assumption by the Company of part
or all of any claim, debt, charge, fee, or other obligation of
an
-3-
<PAGE>
insurer, or its successors or assigns, which has been declared
by any competent authority to be insolvent, or which is
otherwise deemed unable to meet any claim, debt, charge, fee
or other obligation in whole or in part.
C. Loss or liability excluded by the Nuclear Incident Exclusion
Clause-Liability-- Reinsurance U.S. attached to this
Agreement.
D. Manufacturing, production and refining of petroleum and its
products.
E. Professional sports teams.
F. Operations where the governing classifications are railroad
class codes.
G. Offshore drilling.
H. Tunneling operations involving tunnels over 100 feet in length
(auguring shall not be considered tunneling).
I. Wrecking or demolition of buildings, structures or vessels,
but not to exclude the wrecking or demolition of buildings not
exceeding five stories in height.
J. Financial Guarantee.
K. Pools, Associations and Syndicates.
L. The manufacturing, storage, or transportation of fireworks,
ammunition, nitroglycerin, or other explosive devices.
ARTICLE V
SPECIAL ACCEPTANCE
The Company may submit to the Reinsurer for special acceptance
hereunder business not covered by this Agreement. If said business is accepted
by the Reinsurer, it shall be subject to the terms of this Agreement, except as
such terms are modified by such acceptance.
All individual Waivers of Subrogation need to be referred to Wexford
Underwriting Managers, Inc. prior to issuing.
-4-
<PAGE>
The following additional Classifications are to be submitted to the
Company for approval prior to quoting to determine if exposures pose more than
an incidental hazard:
A. Any account with Manual Premium of $350,000 or more
B. Any account with an Experience Modification of 1.50 or higher
and premium of $100,000 or higher
C. Any account with more than incidental USL&H or maritime
exposure. Incidental is defined for the purposes of this
Agreement as not having more than ten percent (10%) of the
Insured's overall workers' compensation payroll (excluding
clerical) assigned to this type of exposure.
In addition, all accounts that have the following NCCI Code
Classifications shall be referred to Wexford Underwriting Managers, Inc. prior
to quoting:
CODE CLASSIFICATION
1164/1165 Mining Risks
2702 Logging and Lumbering
5551 Roofing (all kinds)
7219 Trucking: other than local as a primary code
7720 Police/Detective Agencies
8350 Gas Dealers - LPG
7538 Electric Light or Power Line Construction
ARTICLE VI
DEFINITIONS
"Policy" as used in this Agreement will mean all policies, contracts,
binders, or agreements of insurance or reinsurance whether written or oral, as
intended to be covered hereunder.
-5-
<PAGE>
"Ultimate net loss" as used in this Agreement will mean the amount of
any settlement, award, or judgment paid by the Company or for which the Company
has become liable to pay (including interest accrued prior to final judgment if
included as part of loss on reinsured policies) after deduction of all salvages,
subrogations, discounts, and recoveries received by the Company, and inuring
reinsurance whether recovered or not. Loss will include loss expense arising
from the settlement of claims. Recoveries from the Company's underlying
reinsurance agreements will not be deducted when establishing ultimate net loss
hereunder. All salvages, recoveries, or reinsurance received subsequent to any
loss settlement hereunder will be applied as if received prior to the
settlement, and all necessary adjustments will be made by the parties hereto.
Nothing in this definition, however, should be construed to mean that losses
under this Agreement are not recoverable until the Company's ultimate net loss
has been ascertained.
"Loss expense" as used in this Agreement will mean all expenses
incurred by the Company in the investigation, appraisal, adjustment, litigation
and/or defense of claims under policies reinsured hereunder, including court
costs and interest accrued prior to final judgment if included as part of loss
expenses on reinsured policies, interest accrued after final judgment, legal
expenses and costs incurred in connection with coverage questions and legal
actions connected thereto arising under reinsured policies but excluding
internal office expenses, salaries, per diem, and other remuneration of regular
Company employees. However, in the event a verdict or judgment is reduced by an
appeal or a settlement, subsequent to the entry of the judgment, resulting in an
ultimate saving on such verdict or judgment, or a judgment is reversed outright,
the loss expense incurred in securing such final reduction or reversal shall be
prorated between the Reinsurer and the Company in the proportion that each
benefits from such reduction or reversal, and the expenses incurred up to the
time of the original verdict or judgment shall be a) prorated in proportion to
each party's interest in such verdict or judgment, or b) added to the Company's
loss when the terms and conditions of the Company's original policies reinsured
hereunder include loss expense as part of the policy limit.
-6-
<PAGE>
"Direct Earned Premium" as used in this agreement is defined as:
Manual Premium (Payroll/100) x Voluntary Rate
+ Increased Limits Factor (Manual Premium x Factor)
-Deductible Credit (Manual Premium x Credit)
Subject Premium
x Managed Care Factor (1 - Managed Care Credit)
x Safety Factor (1 - Safety Credit)
x Drug Free Workplace Factor (1 - DFW Credit)
x Experience Modification Factor
Total Modified Premium
+ Aircraft Seat Surcharge
*-Other Credits that are Subject to Premium Discounts
or are a Part of Standard Premium
- Contracting Classification Premium Adjustment Program
(Modified Premium x CCPAP Credit)
Standard Premium
-Premium Discounts (Stock Volume Discount)
*Direct Earned Premium
*As defined and/or modified by NCCI or the Florida
Department of Insurance
"Occurrence" as used in this Agreement unless otherwise defined in the
policies reinsured hereunder, will mean each and every accident, disaster,
occurrence or casualty or series of accidents, disasters, occurrences or
casualties arising out of one event. Occupational disease sustained by each
employee shall be deemed to be one separate occurrence and the occurrence shall
be deemed to take place on the date upon which the employee is last exposed at
work to conditions allegedly causing such occupational disease.
"Agreement year" as used in this Agreement will mean the period of 12
consecutive months commencing with the inception of this Agreement and each
anniversary thereof that this Agreement remains in effect.
ARTICLE VII
RETENTION AND LIMIT
With respect to all business covered hereunder, no claim will be made
hereunder unless the Company has first sustained Paid Ultimate Net Loss(es) of
$500,000 in the $500,000
-7-
<PAGE>
excess $500,000 layer. It is agreed that after the Company has sustained and
paid Ultimate Net Loss(es) of $500,000 in the $500,000 excess $500,000 layer,
the Ultimate Net Loss will become $500,000 for each subsequent occurrence. The
Reinsurer shall then be liable for 100% of the amount by which such loss exceeds
the Company's retention, but the liability of the Reinsurer shall not exceed
Statutory limits for Workers Compensation or $1,000,000 for Employers Liability
as respects any loss occurrence.
ARTICLE VIII
NET RETAINED LIABILITY
In computing the amount or amounts in excess of which this Agreement
attaches, only an Ultimate Net Loss or losses in respect to that portion of any
insurance or reinsurance that the Company retains net for its own account will
be included. The amount of the Reinsurer's liability hereunder with respect to
any Ultimate Net Loss or losses will not be increased by the inability of the
Company to collect from any other reinsurers any amounts that may have become
due from them, whether such inability arises from the insolvency of such
reinsurers or otherwise. Permission is hereby granted the Company to carry
underlying treaty and facultative reinsurance and recoveries made thereunder
shall be disregarded for all purposes of this Agreement and shall inure to the
sole benefit of the Company.
ARTICLE IX
RATE AND PREMIUM
The Company will pay the Reinsurers 1.20 % of the Direct Earned Premium
on the policies in force at the inception of this Agreement, or written or
renewed with an effective date thereafter. The Company will be subject to a
minimum premium of $1,612,800 and will pay a deposit premium of $2,016,000 on
estimated Direct Earned Premium of $168,000,000 for the period of January 1,
1997 to January 1, 1999 as follows:
-8-
<PAGE>
Payable: January 31, 1997 - $252,000
April 1, 1997 - $252,000
July 1, 1997 - $252,000
October 1, 1997 - $252,000
January 1, 1998 - $252,000
April 1, 1998 - $252,000
July 1, 1998 - $252,000
October 1, 1998 - $252,000
ARTICLE X
OTHER REINSURANCE
The Company is permitted to have other treaty reinsurance. The premium
for any such reinsurance that inures to the benefit of this Agreement may be
deducted from the gross subject premium hereunder. Additionally, the Company may
purchase facultative reinsurance on any subject risk it deems advisable, and the
premium for that portion of the Company's policy reinsured elsewhere will be
deducted from the gross subject premium hereunder
ARTICLE XI
EXCESS OF ORIGINAL POLICY LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS
This Agreement will extend to cover any losses arising from claims
related extra contractual obligations and/or excess limits liability.
This Agreement shall protect the Company, within the limits hereof, in
connection with Ultimate Net Loss in excess of the limit of the original policy
for which the Company may be legally liable to pay on business covered
hereunder, where loss in excess of the limit has been incurred because of, but
not limited to, its failure to settle within the original policy limit or by
reason of alleged or actual negligence, fraud or bad faith in rejecting an offer
of settlement or in the preparation of the defense or in the trial of any action
against its insured or in the
-9-
<PAGE>
preparation or prosecution of an appeal consequent upon such action. One hundred
percent (100%) of the amount of any excess of original policy limits shall be
added to the Ultimate Net Loss which is covered under the other provisions of
this Agreement and the sum thereof shall be considered one loss subject to the
provisions of this Agreement.
However, this Article shall not apply where the loss has been incurred
due to the fraud of a member of the board of directors or a corporate officer of
the Company acting individually or collectively or in collusion with any
individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
For the purposes of this Article, the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had it
not been for the limit of the original policy.
This Agreement shall protect the Company, within the limit thereof,
where the loss includes any Extra Contractual Obligations. Eighty percent (80%)
of the amount of any Extra Contractual Obligations shall be added to the
Ultimate Net Loss which is covered under the other provisions of this Agreement
and the sum thereof shall be considered one loss subject to the provisions of
this Agreement.
"Extra Contractual Obligations" are defined as those liabilities not
covered under any other provision of this Agreement and which arise from the
handling of any claim on business covered hereunder, such liabilities arising
because of, but not limited to, the following: failure by the Company to settle
within the policy limit, or by reason of alleged or actual negligence, fraud or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or in the preparation
or prosecution of any appeal consequent upon such action.
The date on which any Extra Contractual obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
loss from which the Extra Contractual Obligation arises.
-10-
<PAGE>
However, this Article shall not apply where the loss has been incurred
due to fraud of a member of the board of directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE XII
REPORTS AND REMITTANCES
Within 45 days after the close of each quarter, the Company will
furnish the Reinsurer with a report of reinsurance premium due them for that
period. Such report will show and properly segregate the Company's subject
premium to which the reinsurance rate applies as well as set forth the
Reinsurer's portion of unearned premium reserve and contain such other
information as may be required by the Reinsurer for completion of its NAIC
annual statements.
Within 180 days following each annual anniversary date, the premium due
the Reinsurer will be prorated against the minimum and deposit premium set forth
in Rate and Premium Article, and any balance shown to be due either party shall
be paid at that time as an interim audit. At 180 days following the expiration
date, on July 1, 1999, the second interim audit will be performed by the Company
and any balance shown to be due the Reinsurer will be remitted immediately. At
270 days following expiration date, on October 1, 1999, a final audit will be
performed by the Company and any balance shown to be due the Reinsurer will be
remitted immediately. If the balance shows an amount due the Company from the
Reinsurer, such amount shall be remitted within 30 days of receipt of the audit.
-11-
<PAGE>
ARTICLE XIII
LOSS NOTICES AND SETTLEMENTS
The Company will be responsible for the investigation, settlement,
defense or appeal of any claim made or suit brought, or proceeding instituted
against the Company and shall give prompt notice to the Reinsurer upon learning
of any of the following:
A. Any claim, suit or proceeding that appears to involve
indemnity by the Reinsurer.
B. Any occurrence, claim, award or proceeding judgment which
exceeds 50% of the Retention as outlined in Article VII -
Retention and Limit.
C. Any occurrence which causes serious injury to two or more
employees of an insured.
D. Any case involving:
1. Amputation of a major extremity.
2. Brain or spinal cord injury.
3. Multiple Deaths.
4. Permanent total disability as defined in the Workers
Compensation Act of the state of Florida.
5. Any second or third degree burn of 50% or more of the
body.
6. The reopening of any case in which further award
might involve liability of the Reinsurer.
The Company will not make voluntary settlement involving loss to the
Reinsurer without written consent of the Reinsurer.
The Company will forward promptly to the Reinsurer any information it
may request on the individual occurrences, claims, or cases. The Company will
send to the Reinsurer within 60 days after the end of this Agreement an
experience report, upon a form satisfactory to the Reinsurer showing in detail
the amounts disbursed during the term of this Agreement in settling claims and
the estimated future payments on, or reserves for, outstanding claims.
-12-
<PAGE>
The Reinsurer, at its own election and expense and in addition to any
indemnity for claim expenses provided by this Agreement, shall have the right
but not the duty to participate with the Company in the investigation,
settlement, defense or appeal of any claim, suit or proceeding which might
involve liability of the Reinsurer.
ARTICLE XIV
OFFSET
The Company and Reinsurer hereunder will be entitled to deduct from
amounts due to the other party under this Agreement any amounts due itself from
the other party under this Agreement; however, in the event of the insolvency of
any party hereto, offset will be in accordance with applicable law.
ARTICLE XV
SALVAGE AND SUBROGATION
The Reinsurer will be credited with its share of salvage and/or
subrogation in respect of claims and settlements under this Agreement, less its
share of recovery expense. Unless the Company and Reinsurer agree to the
contrary, the Company will enforce its right to salvage and/or subrogation and
will prosecute all claims arising out of such right. Should the Company refuse
or neglect to enforce this right, the Reinsurer is hereby empowered and
authorized to institute appropriate action in the name of the Company.
Amounts recovered from salvage and/or subrogation will always be used
to reimburse the excess reinsurers (and the Company, should it carry a portion
of excess coverage net) in the reverse order of their participation in the loss
before being used in any way to reimburse the Company for its primary loss. If
the amount recovered exceeds the recovery expense, the recovery expense will be
borne each party in proportion to its benefit from the recovery. If the recovery
expense exceeds the amount recovered, the amount recovered (if any) will be
applied to the
-13-
<PAGE>
reimbursement of recovery expense, and the remaining expense, as well as any
originally incurred loss expense, will be added to the Ultimate Net Loss.
ARTICLE XVI
DELAYS, ERRORS, OR OMISSIONS
Any inadvertent delay, error or omission will not be held to relieve
either party hereto from any liability that would attach to it hereunder if such
delay, omission, or error had not been made, providing such error or omission is
rectified upon discovery.
ARTICLE XVII
AMENDMENTS
By mutual consent of the Company and the Reinsurer, any of the terms or
conditions of this Agreement may be altered or amended by addenda. Each such
addendum will then constitute a part of this Agreement.
ARTICLE XVIII
ACCESS TO RECORDS
Provided the Company received prior notice, the Reinsurer or its
designated representatives will have the right to inspect at any reasonable
time, all records of the Company that pertain in any way to this Agreement.
ARTICLE XIX
INSOLVENCY
In the event of the Company's insolvency, the reinsurance afforded by
this Agreement will be payable by the Reinsurer on the basis of the Company's
liability under the policies reinsured without diminution because of the
Company's insolvency or because its liquidator, receiver, conservator, or
-14-
<PAGE>
statutory successor has failed to pay all or a portion of any claims, subject
however to the right of the Reinsurer to offset against such funds due
hereunder, any sums that may be payable to it by said insolvent Company in
accordance with the Offset Article. The reinsurance will be payable by the
Reinsurer directly to the Company, its liquidator, receiver, conservator, or
statutory successor except (a) where this Agreement specifically provides
another payee of such reinsurance in the event of the Company's insolvency and
(b) where the Reinsurer, with the consent of the direct insured or insureds, has
assumed such policy obligations of the Company as direct obligations of itself
to the payees under such policies in substitution of the Company's obligation to
such payees.
The Company's liquidator, receiver, conservator, or statutory successor
will give written notice of the pendency of a claim against the Company under
the policies reinsured within a reasonable time after such claim is filed in the
insolvency proceeding. During the pendency of such claim, the Reinsurer may
investigate said claim and interpose in the proceeding where the claim is to be
adjudicated, at its own expense, any defense that it may deem available to the
Company, its liquidator, receiver, conservator, or statutory successor. The
expense thus incurred by the Reinsurer will be chargeable against the Company,
subject to court approval, as part of the expense of conservation or liquidation
to the extent that such proportionate share of the benefit will accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.
ARTICLE XX
ARBITRATION
As a condition precedent to any right of action hereunder, any dispute
that arises out of or in connection with this Agreement, including its formation
or validity, will be submitted for decision to an arbitration panel composed of
two arbitrators and an umpire. The arbitration will be conducted under the
Federal Arbitration Act and will proceed as set forth below.
All notices in connection with arbitration will be in writing and sent
certified or registered mail, return receipt requested. The term "days" as used
herein will mean calendar days. Notice
-15-
<PAGE>
requesting arbitration will reference this Article, will state issues to be
resolved in the view of the claimant, and will appoint the arbitrator selected
by the claimant. Within 30 days after receipt of such notice, the respondent
will notify the claimant of any additional issues to be resolved and of the name
of its appointed arbitrator. As time is of the essence, if the respondent fails
to appoint its arbitrator within 30 days after receipt of notice requesting
arbitration, the claimant is authorized to and will appoint the second
arbitrator.
Unless otherwise mutually agreed, each member of the arbitration panel
will be an impartial active or former officer of an insurance or reinsurance
company or an Underwriter at Lloyd's of London. Before instituting the hearing
the two appointed arbitrators will choose an impartial umpire. If the two
arbitrators fail to agree on the appointment of an umpire within 30 days after
the appointment of the second arbitrator, within 10 days thereafter the two
arbitrators will request the American Arbitration Association ("AAA") to appoint
an umpire with the qualifications set forth above in this Article without regard
to the AAA's Commercial Arbitration Rules. If the AAA fails to appoint an umpire
within 30 days after its receipt of the arbitrators' request, either party may
apply to a court of competent jurisdiction to appoint an umpire with the
qualifications set forth above in this Article. The umpire will immediately
notify each party of his selection. In the event of the resignation or death of
any member of the arbitration panel, a replacement will be appointed in the same
manner as the resigning or deceased member was appointed.
Within 30 days after notice of appointment of the umpire, the claimant
and respondent will each submit an initial brief to the panel. Within 45 days
after notice of appointment of the umpire, the panel will meet and determine
timely periods for the submission of reply briefs and amended briefs, procedures
for discovery, and a scheduled date for the hearing. Arbitration will be held in
the city of the Company's home office unless the parties mutually agree to
another venue.
The panel will be relieved of all judicial formality and the umpire
will be the final judge of the panel's procedures, the rules of evidence,
privilege, and production, and the excessiveness and relevancy of any witnesses
and documents upon the petition of any participating party. The panel
-16-
<PAGE>
will be authorized to issue interim orders and awards in the interest of
fairness and the prompt and orderly resolution of issues in dispute. To the
extent permitted by law, the umpire and the panel will be empowered to issue
orders to enforce such decisions. Insofar as the panel looks to substantive law,
it will consider the law of the state of Florida.
The panel will make its award with regard to the terms expressed in
this Agreement, the original intentions of the parties to the extent reasonably
ascertainable, and the custom and practice of the insurance and reinsurance
business. The panel will make its award within 30 days after the close of the
hearing. Each award by the panel will be in writing and may state factual
findings that served as a basis for the award. Each award by the panel will be
agreed upon by a majority of the panel's members and will be final and binding
on all parties to the proceeding. Any party may apply to a court of competent
jurisdiction for an order confirming the award, and a judgment of that court
will thereupon be entered on the award. If such an order is issued, the
attorneys' fees of the party so applying and court costs will be paid by the
party against whom confirmation is sought.
Each party will bear the expense of the arbitrator appointed on its
behalf and ail remaining costs of the arbitration will be finally allocated by
the panel. The panel may award interest, costs and expenses as it deems
appropriate, including but not limited to attorneys' fees, to the extent
permitted by law.
ARTICLE XXI
TAXES
The Company will pay all taxes on premiums reported to the Reinsurer on
this Agreement.
ARTICLE XXII
CURRENCY
The sign "$" in this Agreement refers to United States of America
Dollars. Premiums due the Reinsurer and loss payments due the Company hereunder
will be in United States of America Dollars.
-17-
<PAGE>
ARTICLE XXIII
COMMUTATION
By mutual agreement, after termination of the Agreement the Company
shall submit a statement to the Reinsurer listing amounts paid, and reserves, in
respect of all incurred losses known, and reported to the Company subject to
this Agreement. This statement shall form the basis of a final agreed value for
all such losses. The amounts of reserves contained therein shall be determined
by employing one or more of the following alternatives:
A. A calculation based on the following criteria:
1. In respect of all "index linked" benefits, annuity
values shall be calculated based upon annual discount
of 0%, and an annual escalation of 0%.
2. In respect of all un-indexed benefits, annuity values
shall be calculated based upon annual discount of 4%.
3. In respect of all future medical costs, annuity
calculation shall be based upon the Company's
evaluation of long term medical care and
rehabilitation requirements, using an annual discount
of 0% and an annual escalation of 0%.
4. Where applicable, survivor's life expectancy as well
as remarriage probability shall be reflected in the
calculation by employing tables recommended by a
mutually acceptable actuarial consultant.
B. Any other method of calculating the agreed value of one or
more losses, as mutually agreed between the Company and the
Reinsurer.
Such calculation shall be considered the final and agreed value of all
known losses subject to this Agreement and the resulting loss, if any, shall be
accepted by the Company in full settlement of the Reinsurer's liability for all
such losses.
-18-
<PAGE>
Notwithstanding, if the Reinsurer and the Company cannot reach a
settlement by mutual agreement, then the Reinsurer and the Company shall
mutually appoint an independent actuary who shall investigate, determine and
capitalize the present value of any such unsettled claims under the excess
layer. Cost of any independent actuary shall be shared on an equal basis by the
Reinsurer and the Company.
In the event the Reinsurer and the Company cannot reach an agreement on
an independent actuary, each party shall appoint an actuary. The two chosen
actuaries shall then select a third actuary. If either party refuses or neglects
to appoint an actuary within 30 days after settlement cannot be reached, the
requesting party may appoint a second actuary. If the two actuaries fail to
agree on the selection of a third actuary within 30 days after their
appointment, each of them shall name three individuals, of whom the other shall
decline two, and the decision shall be made by drawing lots. All actuaries
selected by drawing lots shall be disinterested in the outcome of the
commutation and shall be a Fellow of Society of Actuaries/Fellow of the Casualty
Actuarial Society or an Associate of Society of Actuaries/Associate of Casualty
Actuarial Society. The decision in writing of any two actuaries, when filed with
the parties hereto, will be final and binding on both parties. The expenses of
the actuaries and of the commutation shall be equally divided between the two
parties.
Any payment by the Reinsurer under this Article shall constitute a
complete release of the Reinsurer for their liability under the excess layer(s)
commuted as respects such claim.
ARTICLE XXIV
INTERMEDIARY
Florida Administrators, Inc., North Palm Beach, Florida, is hereby
recognized as the Intermediary negotiating this Agreement for all business
hereunder. All communications (including, but not limited to, notices,
statements, premiums, returned premiums, commissions, taxes, losses, loss
expenses, salvages, and loss settlements) relating thereto shall be transmitted
to the Company
-19-
<PAGE>
or the Reinsurer through Florida Administrators, Inc., North Palm Beach,
Florida. Payments by the Company to the Intermediary shall be deemed payment to
the Reinsurer. Payment by the Reinsurer to the Intermediary will be deemed
payment to the Company only to the extent that such payments are actually
received by the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives.
Signed at ____________________, this _______ day of ________________ 199_.
Pinnacle Assurance Corporation
Signature: Title:
--------------- ------------------------------
Attest:
---------------------
Signed at New York, New York, this 9 day of April 1997
Accepted herein: 100%
Continental Casualty Company
Signature: /s/ illegible Title: Vice President
------------------- -----------------------------
Attest:/s/ illegible
---------------------
-20-
<PAGE>
ADDENDUM
Attaching to and forming a part of
Workers Compensation Excess of Loss Reinsurance Agreement
Contract Number W-128579674A
In consideration of the premium charged, it is hereby mutually understood and
agreed that as of 12:01 A.M. standard time, September 26, 1997, the preamble,
ARTICLE 1, coverage, and is amended to read:
THIS AGREEMENT is made and entered into by and between Pinnacle
Assurance Corporation, North Palm Beach, Florida (hereinafter called the
"Company"), under the management of Pinnacle Administrative Company, North Palm
Beach, Florida, formerly known as Florida Administrators, Inc., of the one part,
and Continental Casualty Company, Chicago, Illinois (hereinafter called the
"Reinsurer") of the other part.
ARTICLE I, COVERAGE
The Reinsurer will indemnify the Company, subject to the limited set
forth in the Retention and Limit Article, in respect to losses that may accrue
to the Company under all policies classified by the Company as Workers
Compensation and Employers' Liability including liability under U.S.
Longshoremen's and Harbor Workers Compensation or similar acts of federal or
state law or common law on business underwritten and accepted by Pinnacle
Administrative Company, on behalf of the Company.
All reinsurance for which the Reinsurer will be obligated by virtue of
this Agreement will be subject to the same terms, conditions, interpretations,
waivers, modifications, and alterations as respective policies of the Company to
which this Agreement applies. Nothing herein will in any manner create any
obligations or establish any rights against the Reinsurer in favor of any third
parties or any persons not parties to this Agreement except as provided in the
insolvency Article.
ARTICLE XXIV, INTERMEDIARY
Pinnacle Administrative Company, North Palm Beach, Florida, is hereby
recognized as the Intermediary negotiating this Agreement for all business
hereunder. All communications (including, but not limited to, notices,
statements, premiums, returned premiums, commissions,
-21-
<PAGE>
taxes, losses, loss expenses, salvages, and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through Pinnacle
Administrative Company, North Palm Beach, Florida. Payments by the Company to
the Intermediary shall be deemed payment to the Reinsurer. Payment by the
Reinsurer to the Intermediary will be deemed payment to the Company only to the
extent that such payments are actually received by the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives.
Signed at Palm Beach, Florida this 3rd day of June 1998.
Pinnacle Assurance Corporation
Signature: /s/ Don Johnson Title: Chief Financial Officer
---------------------- -------------------------
Attest: /s/ Mary Baldo
---------------------
Signed at New York, New York this 26 day of May 1998.
CONTINENTAL CASUALTY COMPANY
Signature: /s/ Illegible Title: Vice President
----------------------- ------------------------
Attest: /s/ Dianne P. Patterson
-----------------------
-22-
<PAGE>
ADDENDUM
Attaching to and forming a part of
Workers Compensation Excess of Loss Reinsurance Agreement
Contract Number W-128579674A
In consideration of the premium charged, it is hereby mutually understood and
agreed that as of 12:01 A.M. standard time October 31, 1997, the preamble, is
amended to read:
THIS AGREEMENT is made and entered into by and between Pinnacle
Assurance Corporation, and AmComp Assurance Corporation, North Palm Beach,
Florida (hereinafter called the "Company"), under the management of Pinnacle
Administrative Company, North Palm Beach, Florida, of the one part, and
Continental Casualty Company, Chicago, Illinois (hereinafter called the
"Reinsurer") of the other part.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives.
Signed at Palm Beach, Florida this 3rd day of June 1998.
Pinnacle Assurance Corporation
AmComp Assurance Corporation
Signature: /s/ Don Johnson Title: Chief Financial Officer
------------------ ----------------------------------
Attest: /s/ Mary Baldo
---------------------
Signed at New York, New York this 26 day of May 1998.
CONTINENTAL CASUALTY COMPANY
Signature: /S/ Illegible Title: Vice President
-------------------- ---------------------------------
Attest: /s/ Diane P. Patterson
-----------------------
-23-
<PAGE>
ADDENDUM
Attaching to and forming a part of
Workers Compensation Excess of Loss Reinsurance Agreement
Contract Number W-128579674A
In consideration of the premium charged, it is hereby mutually understood and
agreed that as of 12:01 A.M. standard time, November 25, 1997, the preamble, is
amended to read:
THIS AGREEMENT is made and entered into by and between AmComp Preferred
Insurance Company, formerly known as Pinnacle Assurance Corporation, and AmComp
Assurance Corporation, North Palm Beach, Florida (hereinafter called the
"Company"), under the management of Pinnacle Administrative Company, North Palm
Beach, Florida, of the one part, and Continental Casualty Company, Chicago,
Illinois (hereinafter called the "Reinsurer") of the other part.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives.
Signed at Palm Beach, Florida, this 3rd day of June 1998.
AmComp Preferred Insurance Company
AmComp Assurance Corporation
Signature: /s/ Don Johnson Title: Chief Financial Officer
------------------ ----------------------------------
Attest: /s/ Mary Baldo
---------------------
Signed at New York, New York this 26 day of May 1998.
CONTINENTAL CASUALTY COMPANY
Signature: /S/ Illegible Title: Vice President
-------------------- ---------------------------------
Attest: /s/ Diane P. Patterson
-----------------------
-24-
<PAGE>
ADDENDUM
Attaching to and forming a part of
Workers Compensation Excess of Loss Reinsurance Agreement
Contract Number W-128579674A
In consideration of the premium charged, it is hereby mutually understood and
agreed that as of 12:01 A.M. standard time, January 1, 1998, ARTICLE II, TERM
AND CANCELLATION, ARTICLE VII, RETENTION AND LIMIT, ARTICLE IX, RATE AND
PREMIUM, and ARTICLE XII, REPORTS AND REMITTANCES, are amended to read:
ARTICLE II, TERM AND CANCELLATION,
This Agreement will apply to all losses occurring on or after January
1, 1997, 12:01 A.M. standard time (as defined in the Company's policies) on
policies written, or renewed with effective dates on or after January 1, 1997,
12:01 A.M. standard time, and will remain in force and effect until cancelled as
hereinafter provided.
This Agreement may be terminated January 1, 2001 or any January 1st
thereafter or by either party giving at least 90 days prior notice by certified
or registered mail to the other party. During any such period of notice the
Reinsurer will remain bound by the terms of this Agreement.
In the event this Agreement is cancelled in accordance with the
aforementioned procedure, the Reinsurer will remain liable for all losses under
policies in force until their expiration or renewal dates, whichever come first
not to exceed 12 months plus odd time, nor to exceed 18 months in all. During
the nun-off period, the Company will continue to cede to the Reinsurer the
appropriate earned premium.
Alternatively, the Company may elect to cancel (or reduce) the
Reinsurer's liability on a cut-off basis as of the date of cancellation, and the
Reinsurer will not be liable for any losses occurring (or the percentage thereof
equal to the amount of participation reduction) on or after the cancellation
date. Should cancellation take place on a cut-off basis, or the Reinsurer's
participation change, any aggregate losses to the Reinsurer on policies in force
as of the date of cancellation or participation change will be prorated among
those Reinsurers cancelling or reducing their participation and those Reinsurers
initiating or increasing their participation in the same manner that the premium
on the policies is shared.
Notwithstanding the other provisions in this Article, in the event the
Company's policies are written in a jurisdiction where cancellation, renewal, or
nonrenewal is regulated by the
-25-
<PAGE>
insurance authorities, and the Company is bound by such regulations and statutes
of said jurisdiction or by a judicial decision, the Reinsurer will remain liable
on any such policies in force at cancellation date of this Agreement (and will
receive the premium therefore) until the date each expires or until the first
renewal date when the Company can lawfully nonrenew said policies, whichever
occurs first.
Notwithstanding the cancellation of this Agreement as herein above
provided, its provisions will continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities incurred by each party
hereunder will be fully performed and discharged.
ARTICLE VII, RETENTION AND LIMIT
No claim will be made hereunder unless the Company has first sustained
and paid an Ultimate Net Loss of $500,000 each and every occurrence. The
Reinsurer will then be liable for 100% of the amount by which such loss exceeds
the Company's retention, but the liability of the Reinsurer shall not exceed
Statutory limits for Workers Compensation or $1,000,000 for Employers' Liability
as respects any loss occurrence.
ARTICLE IX, RATE AND PREMIUM
The Company will pay the Reinsurers 1.25% of the Direct Earned Premium
on the policies at the inception of this Addendum, or written or renewed with an
effective date thereafter. The Company will be subject to a minimum premium of
$3,450,000 and will pay a deposit premium of $4,312,500 on estimated Direct
Earned Premium of $345,000,000 for the period January 1, 1998 to January 1, 2001
as follows:
January 31, 1998 $359,375
April 1, 1998 $359,375
July 1, 1998 $359,375
October 1, 1998 $359,375
January 1, 1999 $359,375
April 1, 1998 $359,375
July 1, 1999 $359,375
October 1, 1998 $359,375
January 1, 2000 $359,375
April 1, 2000 $359,375
-26-
<PAGE>
July 1, 2000 $359,375
October 1, 2000 $359,375
ARTICLE XII, REPORTS AND REMITTANCES
Within 45 days after the close of each quarter, the Company will
furnish the Reinsurer with a report of reinsurance premium due them for that
period. Such report will show and properly segregate the Company's subject
premium to which the reinsurance rate applies as well as set forth the
Reinsurer's portion of unearned premium reserve and contain such other
information as may be required by the Reinsurer for completion of its NAIC
annual statements.
Within 180 days following each annual anniversary date, the premium due
the Reinsurer will be prorated against the minimum and deposit premium set forth
in Rate and Premium Article, and any balance shown to be due either party shall
be paid at that time as an interim audit. At 180 days following the expiration
date, on July 1, 2001, the third interim audit will be performed by the Company
and any balance shown to be due the Reinsurer will be remitted immediately. At
270 days following expiration date, on October 1, 2001, a final audit will be
performed by the Company and any balance shown to be due the Reinsurer will be
remitted immediately. If the balance shows an amount due the Company from the
Reinsurer, such amount shall be remitted within 30 days of receipt of the audit.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives.
Signed at Palm Beach, Florida, this 3rd day of June 1998.
AmComp Preferred Insurance Corporation
AmComp Assurance Corporation
Signature: /s/ Don Johnson Title: Chief Financial Officer
------------------ ----------------------------------
Attest: Mary Baldo
---------------------
Signed at New York, New York this 26 day of May 1998.
CONTINENTAL CASUALTY COMPANY
Signature: /S/ Illegible Title: Vice President
-------------------- ---------------------------------
Attest: /s/ Diane P. Patterson
-----------------------
-27-
<PAGE>
ADDENDUM
Attaching to and forming a part of
Workers Compensation Excess of Loss Reinsurance Agreement
Contract Number W-128579674A
In consideration of the premium charged, it is hereby mutually understood and
agreed that as of 12:01 A.M. standard time, January 1, 1998, ARTICLE IV,
EXCLUSIONS, is amended to read:
ARTICLE IV, EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
A. All reinsurance assumed by the Company; however, local agency
reinsurance accepted in the normal course of business will not be
excluded hereunder and intercompany pooling arrangements will not be
excluded hereunder.
B. All liability of the Company arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed; which
provides for any assessment of or payment or assumption by the Company
of part or all of any claim, debt, charge, fee, or other obligation of
an insurer, or its successors or assigns, which has been declared by
any competent authority to be insolvent, or which is otherwise deemed
unable to meet any claim, debt, charge, fee or other obligation in
whole or in part.
C. Loss or liability excluded by the Nuclear Incident Exclusion Clause --
Liability -- Reinsurance U.S. attached to this Agreement.
D. Manufacturing, production and refining of petroleum and its products.
E. Professional sports teams.
F. Operations where the governing classifications are railroad class
codes.
G. Offshore drilling.
H. Tunneling operations involving tunnels over 100 feet in length
(auguring shall not be considered tunneling).
I. Wrecking or demolition of buildings, structures or vessels, but not to
exclude the wrecking or demolition of buildings not exceeding five
stories in height.
J. Financial Guarantee.
K. Pools, Associations and Syndicates.
-28-
<PAGE>
L. The manufacturing, storage, or transportation of fireworks, ammunition,
nitroglycerin, or other explosive devices.
M. No reinsurance indemnity will be afforded under this Agreement for:
(1) Operations in which asbestos contracting related
classifications of 5472 or 5473 or Asbestos Goods
Manufacturing classification of 1852 are
appropriately assigned.
(2) Operations involving the installation or removal of
asbestos material, but not to exclude the incidental
exposure to asbestos material which may occur in the
normal operations including, but not limited to,
plumbing, carpentry, other building contractors or
subcontractors and retail or wholesale distributors.
N. All risks involving exposure to the following substances:
(1) dioxin
(2) polychlorinated biphenyls
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives.
Signed at Palm Beach, Florida, this 3rd day of June 1998.
AmComp Preferred Insurance Company
AmComp Assurance Corporation
Signature: /s/ Don Johnson Title: Chief Financial Officer
------------------ ----------------------------------
Attest: /s/ Mary Baldo
---------------------
Signed at New York, New York this 26 day of May 1998.
Signed at New York, New York, this 26 day of June 1998.
CONTINENTAL CASUALTY COMPANY
Signature: /S/ Illegible Title: Vice President
-------------------- ---------------------------------
Attest: /s/ Diane P. Patterson
-----------------------
-29-
AmComp Incorporated
701 U.S. Highway One
North Palm Beach, Florida 33408
January 1, 1997
To: Mr. Fred Lowe
236 River Drive
Tequesta, Florida 33469
1. We are pleased to inform you that on January 1, 1997 the
Board of Directors (the "Board") of AmComp Incorporated (the "Company") granted
you (i) an incentive stock option (the "ISO"), as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to purchase 49,998
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), at a price of $6.00 per share and (ii) a non-qualified option (the
"NQO" and together with the ISO, the "Options") to purchase 450,002 shares of
Common Stock, at a price of $6.00 per share. The shares of Common Stock to be
issued upon exercise of the Options are referred to hereinafter as the "Shares."
2. Prior to December 31, 2006 (on which date the Options will,
to the extent not previously exercised, expire), the Options may be exercised in
whole or in part, at any time and from time to time, as follows: (i) the ISO:
(a) as to 16,666 Shares, on or after January 1, 1998; (b) as to 16,666 Shares,
on or after January 1, 1999; and (c) as to the remaining 16,666 Shares, on or
after January 1, 2000; and (ii) the NQO: (a) as to 150,001 Shares, on or after
January 1, 1998; (b) as to 150,001 Shares, on or after January 1, 1999; and (c)
as to the remaining 150,000 shares, on or after January 1, 2000. If, for any
reason, the ISO is not approved by stockholders of the Company on or before
December 31, 1997, without further action on your part or on that of the
Company, it shall be converted into an additional NQO.
3. In the event of a Change of Control (as hereinafter
defined) of the Company, then immediately prior to such event, the Options (to
the extent not previously exercised) shall become immediately exercisable. For
the purposes of this Agreement, a "Change of Control" means (i) the direct or
indirect sale, exchange or other transfer of all or substantially all of the
assets of the Company or of the subsidiaries of the Company, taken as a whole
(the "Subsidiaries"), to any person or entity or group of persons or entities
acting in concert as a partnership or other group (a "Group of Persons"), (ii)
the merger, consolidation or other business combination of the Company or of the
subsidiaries of the Company, taken as a whole (the "Subsidiaries"), with or into
<PAGE>
another company other than Amerisafe, Inc., with the effect that, immediately
following such merger, consolidation or other business combination, the
shareholders of the Company or the Subsidiaries, taken as a whole, prior to such
merger, consolidation or other business combination hold less than 50% of the
combined voting power of the then outstanding securities of the surviving
company of such merger, consolidation or other business combination ordinarily
(and apart from rights accruing under special circumstances) having the right to
vote in the election of directors, (iii) the replacement of a majority of the
Company's Board of Directors (the "Board") in any given year as compared to the
directors who constituted the Board at the beginning of such year, and such
replacement shall not have been approved by the Board as constituted at the
beginning of such year, or (iv) a person or entity or Group of Persons as a
result of a tender or exchange offer or open market or privately negotiated
purchases, which offer or purchases shall not have been approved by the Board as
constituted prior to the commencement by such person or entity or Group of
Persons of such offer or purchase or within 10 days after such commencement,
shall have become the beneficial owner (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of securities of the Company or
the Subsidiaries of the Company, taken as a whole, representing more than 50% of
the combined voting power of the then outstanding securities of the Company or
the Subsidiaries of the Company, taken as a whole, ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors.
4. You must purchase a minimum of 100 Shares each time you
choose to purchase Shares, except to purchase the remaining Shares available to
you.
5. The Options are not transferable otherwise than by will or
by the applicable laws of descent and distribution and may be exercised, during
your lifetime, only by you; provided, however, that the Options may be
transferred pursuant to a qualified domestic relations order (as defined in the
Internal Revenue Code of 1986 or Title I of the Employee Retirement Income
Security Act, or the rules promulgated thereunder).
6. In the event of your death, the Options may be exercised by
your personal representative or representatives, or by the person or persons to
whom your rights under the Options shall pass by will or by the applicable laws
of descent and distribution, at any time prior to the earlier of the first
anniversary of the date of your death or the expiration of the Options.
7. If you shall voluntarily retire or quit your employment
without the written consent of the Company, or if the Company shall terminate
your employment for cause (as such term is defined in that certain Employment
Agreement dated as of January 1,
-2-
<PAGE>
1997 between the Company and you and any renewal, amendment or replacement of
such agreement), the Options shall forthwith terminate. If you shall voluntarily
retire or quit your employment with the written consent of the Company or if
your employment shall have been terminated by the Company for reasons other than
cause, you may (unless the Options shall have previously expired pursuant to the
provisions hereof) exercise the Options at any time prior to the earlier of
three months after termination of employment or the expiration of the Options,
to the extent of the number of Shares subject to the Options that were
purchasable by you on the date of termination of your employment. The Options
shall not be affected by any change of employment so long as you continue to be
an employee of the Company. If you shall, subsequent to the date hereof, become
a consultant to the Company rather than an employee thereof, for the purposes of
this Agreement, you shall continue to be deemed an employee of the Company so
long as you shall continue as such consultant; provided, that, without further
act on your part or on that of the Company, the ISO shall be converted into an
additional NQO.
8. In the event of any change in the outstanding Common Stock
by reason of stock dividend, recapitalization, merger, consolidation, split-up,
subdivision, combination or exchange of shares, or the like, the aggregate
number and kind of shares subject to the Options and the exercise price thereof
shall be proportionately adjusted by the Board.
9. The Company may establish, from time to time, appropriate
procedures to provide for payment or withholding of such income or other taxes
as may be required by law to be paid or withheld in connection with the exercise
of the Options. The Company may also establish, from time to time, appropriate
procedures to ensure that the Company receives prompt advice concerning the
occurrence of any event that may create, or affect the timing or amount of, any
obligation to pay or withhold any such taxes or which may make available to the
Company any tax deduction resulting from the occurrence of such event, and you
will comply with all such procedures so established.
10. Unless at the time of the exercise of the Options a
registration statement under the Securities Act of 1933, as amended (the "Act"),
is in effect as to such Shares, any Shares purchased by you upon the exercise of
the Options shall be acquired for investment and not for sale or distribution,
and if the Company so requests, upon any exercise of the Options, in whole or in
part, you will execute and deliver to the Company a certificate to such effect.
The Company shall not be obligated to issue any Shares pursuant to the Options,
in the opinion of counsel to the Company, the Shares to be so issued are
required to be registered or otherwise qualified under the Act or under any
other applicable statute, regulation or ordinance affecting the sale of
securities,
-3-
<PAGE>
unless and until such Shares have been so registered or otherwise qualified.
11. You understand and acknowledge that, under existing law,
unless at the time of the exercise of the Options, a registration statement
under the Act is in effect as to Shares so issuable (i) any Shares purchased by
you upon exercise of the Options may be required to be held indefinitely unless
such Shares are subsequently registered under the Act or an exemption from such
registration is available; (ii) any sales of such Shares made in reliance upon
Rule 144 promulgated under the Act may be made only in accordance with the terms
and conditions of that Rule (which, under certain circumstances, restrict the
number of shares which may be sold and the manner in which shares may be sold);
(iii) in the case of securities to which Rule 144 is not applicable, compliance
with Regulation A promulgated under the Act or some other disclosure exemption
will be required; (iv) certificates for Shares to be issued to you hereunder
shall bear a legend to the effect that the Shares have not been registered under
the Act and that the Shares may not be sold, hypothecated or otherwise
transferred in the absence of an effective registration statement under the Act
relating thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; (v) the Company will place an appropriate "stop
transfer" order with its transfer agent with respect to such Shares; and (vi)
except as hereinafter provided, the Company has undertaken no obligation to
register the Shares or to include the Shares in any registration statement that
may be filed by it subsequent to the issuance of the shares to you. The Shares
shall be deemed Founders Stock (as such term is defined in certain Registration
Rights Agreement dated January 26, 1996 among the stockholders of the Company)
and unless the offer and resale thereof by you shall theretofore have been
registered under the Act, you shall be entitled to the benefits of such
Registration Rights Agreement with respect thereto.
12. The Options (or any installment thereof) are to be
exercised by delivering to the Company a written notice of exercise in the form
attached hereto as Exhibit A, specifying the number of Shares to be purchased,
together with payment of the purchase price of the Shares to be purchased. The
purchase price is to be paid (i) in cash, (ii) by delivering to the Company
shares of Common Stock already owned by you and having a fair market value on
the date of exercise equal to the exercise price of the Options, (iii) through
your written election to have Shares withheld by the Company from the shares
otherwise to be received, with such withheld Shares having an aggregate fair
market value on the date of exercise equal to the exercise of the Options, or
(iv) a combination of the foregoing methods. For the purposes of this Agreement,
fair market value shall be determined in accordance with the provisions of the
Company's Directors' Stock Option Plan.
13. If you make a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Shares issued
to you upon exercise of an ISO within the
-4-
<PAGE>
two-year period commencing on January 2, 1997 or within a one-year period
commencing on the day after the date of transfer of the Shares pursuant to the
exercise of such ISO, you shall, within 10 days after such disposition, notify
the Company thereof and immediately deliver to the Company any amount of federal
income tax withholding required by law. In lieu of payment of such tax
withholding in cash, you shall have the option of delivering to the Company
shares of Common Stock already owned by you and having a fair market value on
the date of delivery equal to the amount of such tax withholding.
Would you kindly evidence your acceptance of the Options and
your agreement to comply with the provisions hereof by executing this letter
under the words "Agreed To and Accepted."
Very truly yours,
AMCOMP INCORPORATED
By:/s/ Sam A. Stephens
-------------------------------------
Name: Sam A. Stephens
Title: Chairman of the Board
AGREED TO AND ACCEPTED:
/s/ Fred Lowe
- -----------------------
Fred Lowe
-5-
<PAGE>
Exhibit A
AmComp Incorporated
701 U.S. Highway One
North Palm Beach, Florida 33408
Gentlemen:
Notice is hereby given of my election to purchase _____ shares
of Common Stock, $.01 par value (the "Shares"), of AmComp Incorporated, at a
price of $6.00 per Share, pursuant to the provisions of the
(incentive/non-qualified) stock option granted to me on January 1, 1997. I elect
to pay for the Shares as follows:
/ / by delivery of my check in the amount of
$___________.
/ / by delivery of ______ Shares having a fair
market value of $__________.
/ / by my election to have Shares withheld by
the Company from the Shares otherwise to be
received, with such withheld Shares having
an aggregate fair market value on the date
of exercise equal to the purchase price.
The following information is supplied for use in issuing and
registering the Shares purchased hereby:
Number of Certificates
and Denominations ___________________
Name ___________________
Address ___________________
-------------------
Social Security Number ___________________
Dated: _______________, ____
Very truly yours,
--------------------------
-6-
AmComp Incorporated
701 U.S. Highway One
North Palm Beach, Florida 33408
May 20, 1998
To: Ms. Debra Cerre-Ruedisili
c/o AmComp Incorporated
701 U.S. Highway One
North Palm Beach, Florida 33408
1. We are pleased to inform you that on May 20, 1998 the Board
of Directors (the "Board") of AmComp Incorporated (the "Company") granted you a
non-qualified option (the "Option") to purchase 150,000 shares of Common Stock,
at a price of $6.00 per share. The shares of Common Stock to be issued upon
exercise of the Option are referred to hereinafter as the "Shares."
2. Prior to May 19, 2008 (on which date the Option will, to
the extent not previously exercised, expire), the Option may be exercised in
whole or in part, at any time and from time to time, as follows: (i) as to
50,000 Shares, on or after May 20, 1999; (ii) as to 50,000 Shares, on or after
May 20, 2000; and (iii) as to the remaining 50,000 Shares, on or after May 20,
2001.
3. In the event of a Change of Control (as hereinafter
defined) of the Company, then immediately prior to such event, the Option (to
the extent not previously exercised) shall become immediately exercisable. For
the purposes of this Agreement, a "Change of Control" means (i) the direct or
indirect sale, exchange or other transfer of all or substantially all of the
assets of the Company or of the subsidiaries of the Company, taken as a whole
(the "Subsidiaries"), to any person or entity or group of persons or entities
acting in concert as a partnership or other group (a "Group of Persons"), (ii)
the merger, consolidation or other business combination of the Company or of the
subsidiaries of the Company, taken as a whole (the "Subsidiaries"), with or into
another company, with the effect that, immediately following such merger,
consolidation or other business combination, the stockholders of the Company or
the Subsidiaries, taken as a whole, prior to such merger, consolidation or other
business combination hold less than 50% of the combined voting power of the then
outstanding securities of the surviving company of such merger, consolidation or
other business combination ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors,
(iii) the replacement of a majority of the Company's Board of Directors (the
"Board") in any given year as compared to the directors who constituted the
Board
<PAGE>
at the beginning of such year, and such replacement shall not have been approved
by the Board as constituted at the beginning of such year, or (iv) a person or
entity or Group of Persons as a result of a tender or exchange offer or open
market or privately negotiated purchases, which offer or purchases shall not
have been approved by the Board as constituted prior to the commencement by such
person or entity or Group of Persons of such offer or purchase or within 10 days
after such commencement, shall have become the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
securities of the Company or the Subsidiaries of the Company, taken as a whole,
representing more than 50% of the combined voting power of the then outstanding
securities of the Company or the Subsidiaries of the Company, taken as a whole,
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors.
4. You must purchase a minimum of 100 Shares each time you
choose to purchase Shares, except to purchase the remaining Shares available to
you.
5. The Option is not transferable otherwise than by will or by
the applicable laws of descent and distribution and may be exercised, during
your lifetime, only by you; provided, however, that the Option may be
transferred pursuant to a qualified domestic relations order (as defined in the
Internal Revenue Code of 1986 or Title I of the Employee Retirement Income
Security Act, or the rules promulgated thereunder).
6. In the event of your death, the Option may be exercised by
your personal representative or representatives, or by the person or persons to
whom your rights under the Option shall pass by will or by the applicable laws
of descent and distribution, at any time prior to the earlier of the first
anniversary of the date of your death or the expiration of the Option.
7. If you shall voluntarily retire or quit your employment
without the written consent of the Company, or if the Company shall terminate
your employment for cause (as such term is defined in any employment agreement
between the Company or any Subsidiary and you as from time to time in effect,
or, if no such agreement is in effect, as determined by the Board of Directors
of the Company), the Option shall forthwith terminate. If you shall voluntarily
retire or quit your employment with the written consent of the Company or if
your employment shall have been terminated by the Company for reasons other than
cause, you may (unless the Option shall have previously expired pursuant to the
provisions hereof) exercise the Option at any time prior to the earlier of three
months after termination of employment or the expiration of the Option, to the
extent of the number of Shares subject to the Option that were purchasable by
you on the date of termination of your employment. The Option shall not be
affected by any change of
-2-
<PAGE>
employment so long as you continue to be an employee of the Company or any
Subsidiary. If you shall, subsequent to the date hereof, become a consultant to
the Company rather than an employee thereof, for the purposes of this Agreement,
you shall continue to be deemed an employee of the Company so long as you shall
continue as such consultant.
8. In the event of any change in the outstanding Common Stock
by reason of stock dividend, recapitalization, merger, consolidation, split-up,
subdivision, combination or exchange of shares, or the like, the aggregate
number and kind of shares subject to the Option and the exercise price thereof
shall be proportionately adjusted by the Board.
9. The Company may establish, from time to time, appropriate
procedures to provide for payment or withholding of such income or other taxes
as may be required by law to be paid or withheld in connection with the exercise
of the Option. The Company may also establish, from time to time, appropriate
procedures to ensure that the Company receives prompt advice concerning the
occurrence of any event that may create, or affect the timing or amount of, any
obligation to pay or withhold any such taxes or which may make available to the
Company any tax deduction resulting from the occurrence of such event, and you
will comply with all such procedures so established.
10. Unless at the time of the exercise of the Option a
registration statement under the Securities Act of 1933, as amended (the "Act"),
is in effect as to such Shares, any Shares purchased by you upon the exercise of
the Option shall be acquired for investment and not for sale or distribution,
and if the Company so requests, upon any exercise of the Option, in whole or in
part, you will execute and deliver to the Company a certificate to such effect.
The Company shall not be obligated to issue any Shares pursuant to the Option,
if in the opinion of counsel to the Company, the Shares to be so issued are
required to be registered or otherwise qualified under the Act or under any
other applicable statute, regulation or ordinance affecting the sale of
securities, unless and until such Shares have been so registered or otherwise
qualified.
11. You understand and acknowledge that, under existing law,
unless at the time of the exercise of the Option, a registration statement under
the Act is in effect as to Shares so issuable (i) any Shares purchased by you
upon exercise of the Option may be required to be held indefinitely unless such
Shares are subsequently registered under the Act or an exemption from such
registration is available; (ii) any sales of such Shares made in reliance upon
Rule 144 promulgated under the Act may be made only in accordance with the terms
and conditions of that Rule (which, under certain circumstances, restrict the
number of shares which may be sold and the manner in which shares may be sold);
(iii) in
-3-
<PAGE>
the case of securities to which Rule 144 is not applicable, compliance with
Regulation A promulgated under the Act or some other disclosure exemption will
be required; (iv) certificates for Shares to be issued to you hereunder shall
bear a legend to the effect that the Shares have not been registered under the
Act and that the Shares may not be sold, hypothecated or otherwise transferred
in the absence of an effective registration statement under the Act relating
thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; (v) the Company will place an appropriate "stop
transfer" order with its transfer agent with respect to such Shares; and (vi)
except as hereinafter provided, the Company has undertaken no obligation to
register the Shares or to include the Shares in any registration statement that
may be filed by it subsequent to the issuance of the shares to you.
12. The Option (or any installment thereof) is to be exercised
by delivering to the Company a written notice of exercise in the form attached
hereto as Exhibit A, specifying the number of Shares to be purchased, together
with payment of the purchase price of the Shares to be purchased. The purchase
price is to be paid (i) in cash, (ii) by delivering to the Company shares of
Common Stock already owned by you and having a fair market value on the date of
exercise equal to the exercise price of the Option, (iii) through your written
election to have Shares withheld by the Company from the shares otherwise to be
received, with such withheld Shares having an aggregate fair market value on the
date of exercise equal to the exercise of the Option, or (iv) a combination of
the foregoing methods. For the purposes of this Agreement, fair market value
shall be determined in accordance with the provisions of the Company's
Directors' Stock Option Plan.
Would you kindly evidence your acceptance of the Option and
your agreement to comply with the provisions hereof by executing this letter
under the words "Agreed To and Accepted."
Very truly yours,
AMCOMP INCORPORATED
By: /s/ Fred R. Lowe
--------------------
Name: Fred R. Lowe
Title: President
AGREED TO AND ACCEPTED:
/s/ Debra Cerre-Ruedisili
- -------------------------
Debra Cerre-Ruedisili
-4-
<PAGE>
Exhibit A
AmComp Incorporated
701 U.S. Highway One
North Palm Beach, Florida 33408
Gentlemen:
Notice is hereby given of my election to purchase _____ shares
of Common Stock, $.01 par value (the "Shares"), of AmComp Incorporated, at a
price of $6.00 per Share, pursuant to the provisions of the stock option granted
to me on May 20, 1998. I elect to pay for the Shares as follows:
____
/___/ by delivery of my check in the amount of
$________.
____
/___/ by delivery of ______ Shares having a fair market
value of $__________.
____
/___/ by my election to have Shares withheld by the
Company from the Shares otherwise to be received,
with such withheld Shares having an aggregate fair
market value on the date of exercise equal to the
purchase price.
The following information is supplied for use in issuing and
registering the Shares purchased hereby:
Number of Certificates
and Denominations ___________________
Name ___________________
Address ___________________
-------------------
Social Security Number ___________________
Dated: _______________, ____
Very truly yours,
--------------------------
701 U.S. 1, INC.
Standard Office Building Lease
THIS LEASE AGREEMENT (sometimes hereinafter referred to as the "Lease")
made and entered into this ___1st__ day of January, 1997 by and between 701 U.S.
1, INC., a Florida corporation, and GINN, SCHIRALLI, GARY PARTNERSHIP, a Florida
General Partnership, (hereinafter called "LESSOR"), whose address for purposes
hereof is 701 U.S. Highway One, North Palm Beach, Florida 33408 and FLORIDA
ADMINISTRATORS, INC., a Florida corporation, hereinafter called "LESSEE").
LESSEE'S address, for purposes hereof until commencement of the terms of this
Lease, being 701 U.S. One, Suite 200, North Palm Beach, FL 33408, and thereafter
being that of the "Building" (hereinafter defined), or such address as may be
specified in writing by LESSEE.
W I T N E S S E T H:
1. LEASED PREMISES: Subject to and upon the terms, provisions,
covenants and conditions hereinafter set forth, and each in consideration of the
duties, covenants and obligations of the other hereunder, LESSOR does hereby
lease, demise and let to LESSEE and LESSEE does hereby lease, demise and let
from LESSOR those certain premises (hereinafter sometimes called the "Premises"
or "Leased Premises") in the Building known as 701 U.S. 1 Office Building
(herein sometimes called the "Building") located at U.S. Highway One and
Lighthouse Drive, North Palm Beach, Florida, 33408 such Leased Premises being
more particularly described as follows:
Suites of the Building as reflected on Exhibit "A" attached hereto made
a part hereof and identified by the signature or initials of LESSOR and
LESSEE.
2. TERM: This Lease shall be for a term of five (5) years, commencing
on the 1st day of January 1, 1997, and ending on the 31th day of December, 2001,
(hereinafter sometimes referred to as the "Lease Term" or "Term"), unless sooner
terminated or extended as provided herein.
3. RENTAL: LESSEE agrees to pay LESSOR a Base Annual Rental of Two
Hundred Twenty Seven Thousand One Hundred Three and 24/100 ($227,103.24)
Dollars, payable in advance, in twelve (12) equal monthly installments of
Eighteen Thousand Nine Hundred Twenty Five and 27/100 ($18,925.27) Dollars, for
each and every calendar month of the term of this Lease, subject to the Cost of
Living adjustment as set forth in Paragraph 5(A) hereof, without any demand,
notice, offset or deduction whatsoever, in lawful (legal tender for public or
private debts) money of the United States of America, at the Office of LESSOR,
or elsewhere as designated from time to time by LESSOR'S written notice, to
LESSEE. Upon execution of this Lease by LESSOR and LESSEE, LESSEE agrees to pay
the sum of Eighteen Thousand Nine Hundred Twenty Five and 27/100 ($18,925.27)
Dollars, representing payment of Rental for the first full calendar month of
this Lease. The balance of the total Rental is payable in monthly installments
as specified hereinabove. The first of which shall be due and payable on the 1st
day of February, 1997, and each succeeding monthly payment shall be due and
payable on the first (1st) day of each month thereafter. Notwithstanding
anything to the contrary contained herein, Lessee and Lessor agree that each
annual CPI increase shall not be greater than six (6%) percent nor less than
three (3%) percent in any one year.
In addition to the Rental, LESSEE shall and hereby agrees to pay to
LESSOR each month a sum equal to any sales tax, tax on Rentals, and any other
charges, taxes and/or impositions, now in existence or hereafter imposed based
upon the privilege of renting the space leased hereunder or upon the amount of
Rental collected therefor. Nothing herein shall, however, be taken to require
LESSEE to pay any part of any Federal and State Taxes on income imposed upon
LESSOR.
LESSEE shall be required to pay LESSOR interest on any Rental due that
remains unpaid five (5) days after due date. Said interest will be computed at
the rate of fifteen (15%) percent per annum.
The Base Annual Rental is subject to a cost of living increase, as set
forth in Paragraph 5(A) herein.
4. SECURITY DEPOSIT: Lessor and Lessee agree that Lessor is holding
$11,754.32 as a Security Deposit and that said Security Deposit will be placed
in an interest bearing account and the beneficiary of said account shall be FBO
Pinnacle Insurance Corporation.
5. COST OF LIVING INCREASE: In view of the fluctuating power of the
dollar, the Parties hereto desiring to adjust the Base Annual Rental provided
for in Paragraph 3 to such purchasing power, agree that an adjustment shall be
made in the base annual rental on the first (1st) anniversary date of this Lease
and each anniversary date thereafter.
The Parties hereto adopt as a standard for measuring such fluctuations
the Consumer Price Index, for Urban Wage Earners and Clerical Workers, United
States City Average, All Items (1967=100) or any successor thereto as
promulgated by the Bureau of Labor Statistics of the United States Department of
Labor, hereinafter referred to as the "Price Index." The Price Index for the
month in which the lease commences shall be taken as the Basic Standard and that
figure will, therefore, be the Basic Standard, as that term is hereinafter used.
These adjustments shall be made in the rent by multiplying said rental by a
fraction, the numerator of which shall be the new Price Index figure, and the
denominator of which shall be the Basic Standard. The new Price Index to be used
as the numerator of the fraction shall be the Price Index for the last month
preceding the anniversary date for which the cost of living increase or decrease
is being computed, i.e., the tenth (10th) month for the first (1st) anniversary
adjustment. No such adjustment shall result in a decrease in the base annual
rental below the original base annual rental payable by the LESSEE.
/s/ illegible
--------------
Initial
1
<PAGE>
The Consumer Price Index is the United States Bureau of Labor
Statistics, Consumer Price Index, for Urban Wage Earners and Clerical Workers,
United States City Average, All Items (1967=100) or any successor thereto
published by the United States Department of Labor, Bureau of Labor Statistics;
provided that should the said Consumer Price Index or manner of computing or
reporting same be discontinued or changed, the Parties shall attempt to agree
upon a substitute formula, and failing such agreement the matter shall be
determined by arbitration in North palm Beach under the Rules of the American
Arbitration Association then prevailing.
In the event that the Price Index ceases to use the 1967 average of one
hundred (100) as the basis of calculation, or if a substantial change is made in
the terms of particular items contained in the Price Index, then the Price Index
shall be adjusted to the figure that would have been arrived at had the change
in the manner of computing the Price Index in effect at the commencement of the
full term of this Lease not been effected. In the event that such Price Index
(or successor or substitute Price Index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the Price Index shall be used.
After the base annual rental has been adjusted as set forth in this
Paragraph 5(A), the adjusted base annual rental will be payable in advance in
twelve (12) equal monthly installments during each year subsequent to the
anniversary date adjustment.
6. USE: The LESSEE will use and occupy the Leased Premises for the
following use or purpose and for no other use or purpose OFFICE.
7. IMPROVEMENTS: LESSEE will complete all interior improvements to the
Leased Premises in accordance with plans and specifications approved by LESSEE,
LESSOR and The Village of North Palm Beach. LESSEE will provide complete
architectural plans for the Leased Premises to LESSOR which include electrical,
air-conditioning, plumbing and interior wall design. The plans for LESSEE'S
interior improvements shall be approved by LESSOR and The Village of North Palm
Beach prior to the commencement of construction on LESSEE'S interior
improvements. Any improvements made by LESSEE shall be performed by a Florida
State Certified General Contractor, previously approved in writing by LESSOR and
a complete list of all sub-contractors shall be previously approved in writing
by LESSOR. LESSEE agrees that for the installation of air-conditioning,
electrical and plumbing work, that LESSEE shall use the sub-contractors of
record that installed the central air-conditioning, electrical and plumbing
systems in the Building in order to maintain the integrity and warranties of the
systems.
Improvements are to be provided as follows:
(A) AIR CONDITIONING: LESSEE is to provide, in accordance with
approved plans, all duct work, heat pump strips, compressors/air handling units,
refrigerant liner and required connections to LESSOR'S cool water system. LESSOR
will provide the following: central cooling tower, circulating water pumps and
certain water pipes. LESSEE shall provide all incidental appurtenances such as,
but not limited to, heat strips and thermostats, required to air condition
LESSEE'S premises. The LESSEE shall enter into a contract with a licensed air
conditioning company, approved by LESSOR, whereby the air conditioning
compressors are maintained no less than monthly.
(B) ELECTRICAL: LESSOR is to provide installation of
electrical systems from the main electrical distribution point to tenants meter
center modules for the Leased Premises. LESSEE is to provide all electrical
systems from the meter hub to the Leased Premises as required by The Village of
North Palm Beach Building Code.
(C) INTERIOR AND EXTERIOR WALLS OF LEASED PREMISES: LESSEE is
to bear the cost of construction of all interior walls, the pro rata share of
party walls and exterior hallway walls required for LESSEE'S premises.
(D) All improvements made to the Leased Premises shall be the
property of the LESSOR during the Term of this Lease and shall remain the
property of the LESSOR upon termination of this Lease.
(E) Notwithstanding anything contained in this paragraph to
the contrary, Lessor agrees that no reasonable authorization will be withheld by
Lessor.
8. CONDITION OF PREMISES: Taking possession of the Leased Premises by
LESSEE shall be conclusive evidence as against LESSEE that the Leased Premises
were in good and satisfactory condition when possession was so taken. This Lease
does not grant any right to light or air over or about the Leased Premises or
Building.
9. QUIET POSSESSION: Upon payment by LESSEE of the rents herein
provided, and upon the observance and performance of all terms, provisions,
covenants and conditions on LESSEE'S part to be observed and performed, LESSEE
shall, subject to all of the provisions, covenants and conditions of this Lease
Agreement, peaceably and quietly hold and enjoy the Leased Premises for the term
hereby demised.
10. SERVICES: LESSOR will furnish the following services to LESSEE:
(A) Automatically operated elevator service, public stairs, electrical
current for common lighting and water at those points of supply provided for
general use of its LESSEES at all times and on all days throughout the year.
(B) Heat and air conditioning of common areas on Monday through Friday
from 8:00 a.m. to 6:00 p.m., excluding legal holidays.
/s/ illegible
--------------
Initial
2
<PAGE>
(C) Exterior building maintenance, landscaping, central trash
receptacles and maintenance of common areas including the elevators, public
stairs, restrooms and public drinking facilities.
(D) No electric current shall be used except that furnished or approved
by the LESSOR, nor shall electric cable or wire be brought into the Leased
Premises, except upon the written consent and approval of the LESSOR. LESSEE
shall use only office machines and equipment that operate on the Building's
standard electric circuits (but which in no event shall overload the Building's
standard electric circuits from which the LESSEE obtains electric current or
which will, in the opinion of LESSOR, interfere with the reasonable use of the
Building by LESSOR or other tenants or which shall create a hazard within the
Leased Premises) LESSEE shall comply with all Governmental mandates regarding
temperature control.
LESSEE shall, at LESSEE'S sole expense, pay for all electrical service
to the Leased Premises from and after the commencement of the terms hereof.
(LESSEE'S electrical system shall be approved as part of the approval of
LESSEE'S construction plans and shall be constructed in accordance with said
approved plans.)
LESSOR'S services as stated herein shall be provided as long as the
LESSEE is not in default under any of the terms, provisions, covenants and
conditions of this Lease, subject to interruption caused by repairs, renewals,
improvements, changes of services, alterations, strikes, lockouts, labor
controversies, inability to obtain fuel or power, accidents, breakdowns,
catastrophes, national or local emergencies, acts of God and conditions and
causes beyond the control of LESSOR and upon such happening, no claim for
damages or abatement of rent for failure to furnish any such service shall be
made by the LESSEE or allowed by the LESSOR.
11. CHARGES FOR SERVICES: It is understood and agreed upon between the
Parties hereto that any charges against LESSEE by LESSOR for services or for
work done on the Leased Premises by order of LESSEE, or otherwise accruing under
this Lease, shall be considered as rent due and shall be included in any lien
for rent.
12. NON-PAYMENT: LESSEE agrees that LESSEE will promptly pay said rent
at the times and place stated above; that LESSEE will pay charges for work
performed on order of LESSEE, and will pay any other charges that accrue under
this Lease; that, if any part of the rent or above-mentioned charges shall
remain due and unpaid for fifteen (15) days next after the same shall become due
and payable, LESSOR shall have the option of declaring the balance of the entire
rent for the entire term of this Lease to be immediately due and payable, and
LESSOR may then proceed to collect all of the unpaid rent called for by this
Lease by distress or otherwise. Notwithstanding anything contained in this
paragraph to the contrary, Lessor shall not be entitled to accelerate the
remaining lease payments unless and until Lessor shall gave notified Lessee in
writing of any delinquent payment and Lessee shall not have brought such
payments current within ten (10) days of the written notice.
13. ALTERATIONS AND REPAIRS: LESSEE will, at LESSEE'S own expense, keep
the Leased Premises in good repair and tenantable condition during the Lease
Term and will replace at its own expense any and all broken glass caused by
LESSEE in and about said Leased Premises.
LESSEE will make no alteration, additions or improvements in or to the Leased
Premises without the written consent of LESSOR, which shall not be unreasonably
withheld, and all additions, fixtures, carpet or improvements, except only
office furniture and fixtures which shall be readily removable without injury to
the Leased Premises, shall be and remain a part of the Leased Premises at the
expiration of this Lease.
It is further agreed that this Lease is made by the LESSOR and accepted
by the LESSEE with the distinct understanding and agreement that the LESSOR
shall have the right and privilege to make and build additions to the Building
of which the Leased Premises are a part, and make such alterations and repairs
to said Building as it may deem wise and advisable without any liability to the
LESSEE therefor. Lessor has the right to make such repairs provided said repairs
do not interfere with the Lessee's use and enjoyment of the premises.
14. LIENS: LESSEE further agrees that LESSEE will pay all liens of
contractors, subcontractors, mechanics, laborers, materialmen, and other items
of like character, and will indemnify LESSOR against all expenses, costs and
charges, including bond premiums for release of liens and attorney's fees
reasonably incurred in and about the defense of any suit in discharging the said
Premises or any part thereof from any liens, judgments or encumbrances caused or
suffered by LESSEE. In the event any such lien shall be made or filed, LESSEE
shall bond against or discharge the same within ten (10) days after the same has
been made or filed. It is understood and agreed between the Parties hereto that
the expenses, costs and charges above referred to shall be considered as rent
due and shall be included in any lien for rent. Lessee's obligation herein are
limited to liens and lienors claiming through contracts with Lessee or Lessee's
authorized agents or contracts.
The LESSEE herein shall not have any authority to create any liens for
labor or materials on the LESSOR'S interest in the Leased Premises and all
persons contracting with the LESSEE for the destruction or removal of any
facilities or other improvements or for the erection, installation, alternation
or repair of any facilities or other improvements on or about the Leased
Premises, and all materialmen, contractors, mechanics and laborers, are hereby
charged with notice that they must look only to the LESSEE'S interests in the
Leased Premises to secure the payment of any bill for work done or material
furnished at the request of the LESSEE.
15. PARKING: All parking spaces shall be shared in common with all
other tenants in the Building on a first come basis except that LESSOR retains
exclusive control and management of the parking lot and LESSOR retains the right
to at
/s/ illegible
--------------
Initial
3
<PAGE>
any time exercise any of the powers and privileges granted LESSOR in Paragraph
33 hereof. Lessee acknowledges that the Village of North Palm Beach Code
presently does not permit the erection of any additional covered, canopy
parking; however, Lessor and Lessees hereby agree that should Lessee be able to
obtain a permit from the Village of North Palm Beach for the additional five (5)
covered spaces on the west side of the building, Lessee may do so provided
Lessee pays for the construction of said canopy. Lessor agrees to make available
the five (5) spaces to Lessee in the event said permit can be obtained.
16. ESTOPPEL CERTIFICATE: LESSEE agrees that from time to time, upon
not less than ten (10) days prior request by LESSOR, LESSEE will deliver to
LESSOR a statement in writing certifying: (a) that this Lease is unmodified and
in full force and effect (or, if there have been modifications that the Lease,
as modified, is in full force and effect and stating the modifications); (b) the
dates to which the rent and other charges have been paid; and (c) that LESSOR is
not in default under any provisions of this Lease, or, if in default, the nature
thereof in detail.
17. LESSOR'S MORTGAGEE: If the Building and/or Leased Premises are at
any time subject to a mortgage and/or mortgage and deed of trust, and LESSEE has
received written notice from Mortgagee of same, then in any instance in which
LESSEE gives notice to LESSOR alleging default by LESSOR hereunder, LESSEE will
also simultaneously give a copy of such notice to LESSOR'S Mortgagee and
LESSOR'S Mortgagee shall have the right (but not the obligation) to cure or
remedy such default during the period that is permitted to LESSOR hereunder,
plus an additional period of thirty (30) days, and LESSEE will accept such
curative or remedial action (if any) taken by LESSOR'S Mortgagee with the same
effect as if such action had been taken by LESSOR.
This Lease shall, at LESSOR'S option, which option may be exercised at
any time during the Lease Term, be subject and subordinate to any first mortgage
or first priority deed of trust now or hereafter covering the Leased Premises.
To this end, LESSEE hereby agrees to execute any instrument or instruments which
LESSOR may deem necessary or desirable to effect the subordination of this Lease
to any and all such mortgages and/or deeds of trust. LESSEE hereby appoints
LESSOR and/or LESSOR'S successor(s) in interest as LESSEE'S attorney-in-fact to
execute any and all documents necessary to effectuate all the provisions of this
Paragraph.
Lessor will use its best efforts to cause Lessor's Mortgage to enter
into a Non-Disturbance Agreement with Pinnacle wherein the Mortgage agrees not
to oust Lessee from possession of the property even in the event of a
foreclosure so long as Lessee is current in its lease and so long as Lessee
attorns to the Mortgagee or purchaser of the property at a foreclosure sale.
18. ASSIGNMENT BY LESSOR: If the interests of LESSOR under this Lease
shall be transferred voluntarily or by reason of foreclosure or other
proceedings for enforcement of any first mortgage on the Leased Premises, LESSEE
shall be bound to such transferee (therein sometimes called the "Purchaser") for
the balance of the term hereof remaining and any extensions or renewals thereof
which may be effected in accordance with the terms and provisions hereof, with
the same force and effect as if the Purchaser were the LESSOR under this Lease,
and LESSEE does hereby agree to attorn to the Purchaser, including the Mortgagee
under any such mortgage if it be the Purchaser, as its LESSOR, said attornment
to be effecting and self-operative without the execution of any further
instruments upon the Purchaser succeeding to the interest of the LESSOR under
this Lease. The respective rights and obligations of LESSEE and the Purchaser
upon such attornment to the extent of the then remaining balance of the term of
this Lease and any such extensions and renewals, shall be the same as those set
forth herein. In the event of such transfer of LESSOR'S interests, LESSOR shall
be released and relieved from all liability and responsibility thereafter
accruing to LESSEE under this Lease or otherwise and LESSOR'S successor by
acceptance of rent from LESSEE hereunder shall become liable and responsible to
LESSEE in respect to all obligations of the LESSOR under this Lease.
19. ASSIGNMENT BY LESSEE: Without the written consent of LESSOR first
obtained in each case, LESSEE shall not assign, sublease, transfer, mortgage,
pledge, or otherwise encumber or dispose of this Lease for the Term hereof, or
underlet the Leased Premises or any part thereof or permit the Leased Premises
to be occupied by other persons. If this Lease is assigned or sublet, or if the
Leased Premises or any part hereof are underlet or occupied by anybody other
than the LESSEE, the LESSOR may, after default by the LESSEE, collect or accept
rent from the assignee, undertenant, or occupant and apply the net amount
collected or accepted to the rent herein reserved, but no such collection or
acceptance shall be deemed a waiver of this covenant or the acceptance of the
assignee, undertenant or occupant as LESSEE, nor shall it be construed as or
implied to be, a release of the LESSEE from the further observance and
performance by the LESSEE of the terms, provisions, covenants and conditions
herein contained. Lessee shall be able to assign freely, without consent of
Lessor, to any parent, subsidiary or affiliated corporation, provided said
affiliated corporation is engaged in the same or similar business as Lessee and
so long as Lessee remains primarily liable for the rental payments. Lessor
agrees to not unreasonably withhold consent to an assignment by Lessee to a
non-affiliated corporation.
20. SUCCESSORS AND ASSIGNS: All terms, provisions, covenants and
conditions to be observed and performed by LESSEE shall be applicable to and
binding upon LESSEE'S respective heirs, administrators, executors, successors
and assigns, subject, however, to the restrictions as to assignment or
subletting by LESSEE as provided herein. All expressed covenants of this Lease
shall be deemed to be covenants with the land.
21. INSURANCE: If the LESSOR'S insurance premiums exceed the standard
premium rates because the nature of LESSEE'S operation results in
extra-hazardous exposure, then LESSEE shall, upon receipt of appropriate
invoices from LESSOR, reimburse LESSOR for such increase in premiums. It is
understood and agreed between the Parties hereto that any such increase in
premiums shall be considered as rent due and shall be included in any lien for
rent. LESSEE shall maintain current Owner's, Landlord and Tenant Liability
insurance coverage with the LESSOR a named insured in amounts of not less
/s/ illegible
--------------
Initial
4
<PAGE>
than $300,000.00 bodily injury and $50,000.00 property damage, with current
Certificate of Insurance to be furnished to the LESSOR.
22. INDEMNIFY LESSOR: In consideration of said Premises being leased to
LESSEE for the above rental, LESSEE agrees: that LESSEE, at all times, will
indemnify and keep harmless LESSOR from all losses, damages, liabilities and
expenses, which may arise or be claimed against LESSOR and be in favor of any
persons, firms or corporations, for any injuries or damages to the person or
property of any persons, firms or corporations, consequent upon or arising from
the use or occupancy of said Premises by LESSEE, or consequent upon or arising
from any acts, omissions, neglect or fault of LESSEE, his agents, servants,
employees, licensees, visitors, customers, patrons or invitees over which Lessee
has control, or consequent upon or arising from LESSEE'S failure to comply with
any laws, statutes, ordinances, codes or regulations as herein provided; that
LESSOR shall not be liable to LESSEE for any damages, losses or injuries to the
persons or property of LESSEE which may be caused by the acts, neglect,
omissions or faults of any persons, firms or corporations, except when such
injury, loss or damage results from negligence of LESSOR, his agents or
employees, and that LESSEE will indemnify and keep harmless LESSOR from all
damages, liabilities, losses, injuries or expenses which may arise or be claimed
against LESSOR and be in favor of any persons, firms or corporations, for any
injuries or damages to the person or property of any persons, firms or
corporations, where said injuries or damages arose about or upon said Premises,
as a result of the negligence of LESSEE, his agents, employees, servants,
licensees, visitors, customers, patrons and invitees. Notwithstanding any
provisions herein to the contrary, all personal property placed or moved into
the Leased Premises or Building shall be at the risk of LESSEE or the owners
thereof, and LESSOR shall not be liable to LESSEE for any damages to said
personal property. LESSEE shall maintain at all times during the term of this
Lease an insurance policy or policies in an amount or amounts sufficient to
indemnify LESSOR to pay LESSOR'S damages, if any, resulting from any matter set
forth hereinbefore in this Paragraph 22.
In case LESSOR shall be made a party to any litigation commenced by or
against LESSEE, then LESSEE shall protect and hold LESSOR harmless and shall pay
all costs, expenses and reasonable attorney's fees incurred or paid by LESSOR in
connection with such litigation. LESSEE agrees that should LESSEE obtain a
judgment against LESSOR that LESSEE will look only to LESSOR'S interest in the
Building in order to attempt to satisfy said judgment and will not pursue any
act against any other assets of LESSOR other than said Building.
23. ATTORNEY'S FEES: If the LESSEE defaults in the performance of any
of the terms, provisions, covenants and conditions of this Lease and by reason
thereof the LESSOR employs the services of an attorney to enforce performance of
same by the LESSEE or to perform any service based upon said default, the LESSEE
does agree to pay reasonable attorney's fees and all expenses, costs and charges
incurred by the LESSOR pertaining thereto and in enforcement of any remedy
available to the LESSOR.
In the event of the institution of litigation to enforce the provisions
of this Lease, to evict LESSEE, or to collect moneys due from the LESSEE, the
prevailing party shall be entitled to costs, interest from the date of default
in the event of a money judgment, and reasonable attorney's fees.
24. GOVERNMENTAL REGULATIONS: LESSEE shall faithfully observe in the
use of the Leased Premises all municipal and county ordinances and codes and
state and federal statutes now in force or which may hereafter be in force.
25. FEE OR CASUALTY: In the event the Building shall be destroyed, or
so damaged, or injured by fire or other casualty during the term of this Lease
whereby the same shall be rendered untenantable, then LESSOR shall have the
right to render such Building tenantable by repairs within one hundred twenty
(120) days therefrom. If said Premises are not rendered tenantable within said
time, it shall be optional with either Party hereto to cancel this Lease, and in
the event of such cancellation, the rent shall be paid only to the date of such
fire or casualty. The cancellation herein mentioned shall be evidenced in
writing. During any time that the Leased Premises are untenantable due to causes
set forth in this Paragraph, the rent or a just and fair proportion thereof
shall be abated.
LESSOR shall not restore fixtures and improvements installed by LESSEE
either at the commencement of the Lease or during the leasehold term.
In the event LESSOR renders the Building tenantable as provided herein,
LESSEE shall be required to restore the Leased Premises to tenantable condition
within ninety (90) days of the date upon which a Certificate of Occupancy is
issued by The Village of North Palm Beach on the Building.
26. EMINENT DOMAIN: If there shall be taken during the term of this
Lease any part of the Leased Premises or Building, other than a part not
interfering with maintenance, operation or use of the Leased Premises, LESSOR
may elect to terminate this Lease or to continue same in effect. If LESSOR
elects to continue the Lease, the rental shall be reduced in proportion to the
area of the Leased Premises so taken and LESSOR shall repair any damage to the
Leased Premises or Building resulting from such taking.
If any pan of the Leased Premises is taken by condemnation or Eminent
Domain, the LESSEE may elect to terminate this Lease or continue same in effect
and if the LESSEE elects to continue this Lease, the rental shall be reduced in
proportion to the area of the Leased Premises so taken and LESSOR shall repair
any damage to the Leased Premises resulting from such taking. If all of the
Leased Premises are taken by condemnation or Eminent Domain, this Lease shall
terminate on the date of taking. All sums awarded or agreed upon between LESSOR
and the condemning authority for the taking of the interest of LESSOR and/or
LESSEE, whether as damages or as compensation, and whether for partial or total
condemnation, will be the property of LESSOR. If this Lease should be terminated
under any provisions of this Paragraph, rental shall be payable
/s/ illegible
--------------
Initial
5
<PAGE>
up to the date that possession is taken by the taking authority, and LESSOR will
refund to LESSEE any prepaid unaccrued rent less any sum or amount then owing by
LESSEE to LESSOR. In the event of a condemnation or taking of the premises, the
Lessee retains its own separate cause of action for damages to its leasehold
interest against the condemning authority.
27. ABANDONMENT: If, during the term of this Lease, LESSEE shall
abandon, vacate or remove from the Leased Premises the major portion of the
good, wares, equipment or furnishing usually kept on said Leased Premises, or
shall cease doing business in said Leased Premises, or shall suffer the rent to
be in arrears, LESSOR may, at its option, cancel this Lease in the manner stated
in Paragraph 28 hereof, or LESSOR may enter said Leased Premises as the agent of
LESSEE by reasonable force or otherwise, without being liable in any way
therefor, and relet the Leased Premises with or without any furniture that may
be therein as the agent of LESSEE, at such price and upon such terms and for
duration of time as LESSOR may determine and receive the rent thereof, applying
the same to the payment of the rent due by LESSEE, and if the full rental herein
provided shall not be realized by LESSOR over and above the expenses to LESSOR
of such reletting, LESSEE shall pay any deficiency. Notwithstanding anything
contained in this paragraph to the contrary, so long as the monthly rental is
paid by Lessee, Lessee shall not be deemed to be in default of this Lease even
if the premises are vacant.
28. BANKRUPTCY: It is agreed between the Parties hereto that: if LESSEE
shall be adjudicated a bankrupt or an insolvent or take the benefit of any
federal reorganization or composition proceeding or make a general assignment or
take the benefit of any insolvency law; or, if LESSEE'S leasehold interest under
this Lease shall be sold under any execution or process of law; or if a trustee
in bankruptcy or a receiver be appointed or elected or had for LESSEE (whether
under Federal or State Laws); or if said Premises shall be abandoned or
deserted; or if LESSEE shall fail to perform any of the terms, provisions,
covenants or conditions of this Lease on LESSEE'S part to be performed; or if
this Lease or the Term thereof be transferred or pass to or dissolve upon any
persons, firms, officers or corporations other than LESSEE by death of the
LESSEE, operation of law or otherwise; then and in any such events this Lease
and the Term of this Lease, at LESSOR'S option, shall expire and end five (5)
days after LESSOR has given LESSEE written notice (in the manner hereinabove
provided) of such act, condition or default and LESSEE hereby agrees immediately
then to quit and surrender said Leased Premises to LESSOR; but this shall not
impair or affect LESSOR'S right to maintain summary proceeding for the recovery
of the possession of the Leased Premises in all cases provided for by law. If
the Term of this Lease shall be so terminated, LESSOR may immediately, or at any
time thereafter, re-enter or repossess the Leased Premises and remove all
persons and property therefrom without being liable for trespass or damages.
29. WAIVER: Failure of LESSOR to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but LESSOR shall have the tight to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, in law and/or in equity. No waiver by LESSOR of a default by LESSEE
shall be implied, and no express waiver by LESSOR shall affect any default other
than the default specified in such waiver and that only for the time and
extension therein stated.
No waiver of any term, provision, condition or covenant of this Lease
by LESSOR shall be deemed to imply or constitute a further waiver by LESSOR of
any other term, provision, condition or covenant of this Lease. The rights and
remedies created by this Lease are cumulative and the use of one remedy shall
not be taken to exclude or waive the right to the use of another.
30. RIGHT OF ENTRY: LESSOR, or any of his agents, shall have the right
to enter the Leased Premises during all reasonable hours, to examine the same or
to make such repairs, additions or alterations as may be deemed necessary for
the safety, comfort or preservation thereof, or of said Building, or to exhibit
said Leased Premises at any time within one hundred eighty (180) days before the
expiration of this Lease. Said right of entry shall likewise exist for the
purpose of removing placards, signs, fixtures, alterations or additions which do
not conform to this Lease.
31. NOTICES: Any notice given LESSOR as provided for in this Lease
shall be sent to LESSOR by registered mail addressed to LESSOR at LESSOR'S
Management Office. Any notice to be given LESSEE under the terms of this Lease
shall be in writing and shall be sent by registered mail to the office of LESSEE
in the Leased Premises. Either Party, from time to time, by such notice, may
specify another address to which subsequent notice shall be sent.
32. RULES AND REGULATIONS: LESSEE agrees to comply with all reasonable
rules and regulations LESSOR may adopt from time to time for operation of the
Building and parking facilities and protection and welfare of Building and
parking facilities, its tenants, visitors and occupants. The present rules and
regulations, which LESSEE hereby agrees to comply with, entitled "Rule and
Regulations" are attached hereto and are by this reference incorporated herein.
Any future rules and regulations shall become a part of this Lease and LESSEE
hereby agrees to comply with the same upon delivery of a copy thereof to LESSEE,
providing the same are reasonable and do not deprive LESSEE of its rights
established under this Lease.
33. CONTROL OF COMMON AREAS AND PARKING FACILITIES BY LESSOR: All
automobile parking areas, driveways, entrances and exits thereto, Common Areas
and other facilities furnished by LESSOR, including all parking areas, truck way
or ways, loading areas, pedestrian walkways and ramps, landscaped areas,
stairways, corridors, Common Areas and other areas and improvements provided by
LESSOR for general use, in common, of tenants, their officers, agents,
employees, servants, invitees, licensees, visitors, patrons and customers, shall
be at all times subject to the exclusive control and management of LESSOR and
LESSOR shall have the right from time to time to establish, modify and enforce
reasonable rules and regulations with respect to all facilities and areas and
improvements; to police same; from time to time to change the area, level and
location and arrangement of parking areas and other facilities hereinabove
referred to; to restrict parking by and enforce parking charges (by operation of
meters or otherwise) to tenants, their officers, agents, invitees, employees,
servants, licensees, visitors, patrons and customers; to close all or any
portion of said areas of facilities to such extent as may, in the opinion of
/s/ illegible
--------------
Initial
6
<PAGE>
LESSOR'S counsel be legally sufficient to prevent a dedication thereof or the
accrual of any rights to any portion of the public areas, Common Areas or
facilities; to discourage non-LESSEE parking; and to do and perform such other
acts in and to said areas and improvements, as, in the sole judgment of LESSOR,
the LESSOR shall determine to be advisable with a view to the improvement of the
convenience and use thereof by tenants, their officers, agents, employees,
servants, invitees, visitors, patrons, licensees and customers, LESSOR will
operate and maintain the Common Areas and other facilities referred to in such
reasonable manner as LESSOR shall determine from time to time. Without limiting
the scope of such discretion, LESSOR shall have the full right and authority to
designate a manager of the parking facilities and/or Common Areas and other
facilities who shall have full authority to make and enforce rules and
regulations regarding the use of the same or to employ all personnel and to make
and enforce all rules and regulations pertaining to and necessary for the proper
operation and maintenance of the parking areas and/or Common Areas and other
facilities. Reference in this Paragraph to parking areas and/or facilities shall
in no way be construed as giving LESSEE hereunder any rights and/or privileges
in connection with such parking areas and/or facilities unless such rights
and/or privileges are expressly set forth in Paragraph 15 hereof.
34. SURRENDER OF PREMISES: LESSEE agrees to surrender to LESSOR, at the
end of the Term of this Lease and/or upon any cancellation of this Lease, said
Leased Premises in as good condition as said Leased Premises were at the
beginning of the Term of this Lease, ordinary wear and tear and damage by fire
or other casualty not caused by LESSEE'S negligence, excepted. LESSEE agrees
that if LESSEE does not surrender said Leased Premises to LESSOR at the end of
the term of this Lease, then LESSEE will pay to LESSOR two (2) times the monthly
rent paid in the final month of LESSEE'S term hereunder for each month that
LESSEE holds over; (in addition, LESSEE shall pay all damages that LESSOR may
suffer on account of LESSEE'S failure to so surrender to LESSOR possession of
said Leased Premises, and will indemnify and save LESSOR harmless from and
against all claims made by a succeeding tenant of said Leased Premises against
LESSOR on account of delay of LESSOR in delivering possession of said Leased
Premises to said succeeding tenants so far as such delay is occasioned by
failure of LESSEE to so surrender said Leased Premises in accordance herewith or
otherwise.)
No receipt of money by LESSOR from LESSEE after termination of this
Lease or the service of any notice of commencement of any suit of final judgment
for possession shall reinstate, continue or extend the term of this Lease or
affect any such notice, demand, suit or judgment.
No act or thing done by LESSOR or its agents during the term hereby
granted shall be deemed an acceptance of a surrender of the Leased Premises and
no agreement to accept a surrender of the Leased Premises shall be valid unless
it be made in writing and subscribed by a duly authorized officer or agent of
LESSOR.
35. TAXES ON LESSEE'S PERSONAL, PROPERTY: LESSEE shall be responsible
for and pay before delinquency all municipal, county or state taxes assessed
during the term of this Lease against any occupancy interest or personal
property of any kind, owned by or placed in, upon or about the Leased Premises
by the LESSEE.
36. PRIOR OCCUPANCY: If LESSEE, with LESSOR'S consent, shall occupy the
Leased Premises prior to the beginning of the Lease Term specified in Paragraph
2 hereof, all provisions of this Lease shall be in full force and effect
commencing upon such occupancy, (and rent for such period shall be paid by
LESSEE at the same rate herein specified.)
37. SIGNS: LESSOR shall have the right to install signs on the interior
or exterior of the Building and Leased Premises and/or change the Building's
name or street address. For installation of signs by LESSEE, see Rules and
Regulations. LESSEE does not have any right to and shall not install any sign on
the exterior of the Building. Lessor hereby acknowledges on the outside of the
building the Lessee is hereby granted the right of first refusal to put its name
on the building subject to obtaining the necessary approvals from the Village of
North Palm Beach.
38. SHORT FORM LEASE: LESSEE shall, if so required by LESSOR any time,
execute a short form Lease in recordable form setting forth the name of the
Parties, the Term of the Lease (stating declaration of commencement of Lease
Term called for in Paragraph 2), and the description of the Leased Premises.
39. WAIVER OF TRIAL BY JURY: It is mutually agreed by and between
LESSOR and LESSEE that the respective Parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the Parties hereto against the other on any matter arising out of or in any
way connected with this Lease, the relationship of LESSOR and LESSEE and
LESSEE'S use of or occupancy of the Premises. LESSEE further agrees that it
shall not interpose any counterclaim or counterclaims in a summary proceeding or
in any action based upon non-payment or rent or any other payment required of
LESSEE hereunder.
40. DEFAULT UNDER OTHER LEASE: If the terms of any lease, other than
this Lease, made by LESSEE for any other space in this Building shall be
terminated or terminable after the making of this Lease because of any default
by LESSEE under such other Lease, such default shall, ipso facto, constitute a
default hereunder and empower LESSOR, at LESSOR'S sole option, to terminate this
Lease as herein provided in the event of default. A default under any other
Lease between Lessor and Lessee by Lessor shall also constitute a default under
this lease.
41. SEVERABILITY: If any term, provision, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent be invalid or unenforceable, the remainder of this Lease, or the
application of such terms, provisions, covenant or condition to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected thereby and each term, provisions, covenant or condition
of this Lease shall be valid and be enforceable to the fullest extent permitted
by law. This Lease shall be construed in accordance with the laws of the State
/s/ illegible
--------------
Initial
7
<PAGE>
of Florida.
42. TIME: It is understood and agreed between the Parties hereto that
time is of the essence of all the terms, provisions, covenants and conditions of
this Lease. Whenever the consent of LESSEE or LESSOR shall be required hereunder
such consent shall not be unreasonably withheld or delayed.
43. TENDER AND DELIVERY OF LEASE INSTRUMENT: Submission of this
instrument for examination does not constitute an offer, right of first refusal,
reservation of or option for the Leased Premises or any other space or premises
in, on or about the Building. This instrument becomes effective as a Lease upon
execution and delivery by both LESSOR and LESSEE.
44. WRITTEN AGREEMENT: This Lease contains the entire agreement between
the Parties hereto and all previous negotiations leading thereto, and it may be
modified only by an agreement in writing signed and sealed by LESSOR and LESSEE.
No surrender of the Leased Premises or of the remainder of the terms of this
Lease shall be valid unless accepted by LESSOR in writing. LESSEE acknowledges
and agrees that LESSEE has not relied upon any statement, representation, prior
written or prior or contemporaneous oral promises, agreements or warranties
except such as are expressed herein.
45. RADON GAS: Radon is a naturally occurring gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of Radon that exceed Federal and
State guidelines have been found in buildings in Florida. Additional information
regarding Radon and Radon testing may be obtained from your County Public Health
Unit.
46. CONSTRUCTION: This Lease shall be construed in accordance with the
laws of the State of Florida, with venue laid in Palm Beach County, Florida.
47. DRUG FREE ENVIRONMENT: LESSEE acknowledges that it understands that
LESSOR wishes to promote a Drug Free working environment and LESSEE will do all
that it can to keep illegal drugs, chemical substances and paraphernalia from
the property. LESSEE will not knowingly allow any person to use or possess any
illegal substance on the property. Knowledgeable violation of this policy may,
at the discretion of the LESSOR, be considered grounds for the termination of
this Lease.
48. OPTION TO RENEW: Provided the Lessee is not in default under any of
the terms and conditions of this Lease, Lessee shall have the option to extend
this lease for one additional 5 year term provided Lessee notifies Lessor on/or
before June 30, 2001 that Lessee is exercising its option to extend. Should
Lessee exercise said option to extend all of the terms and conditions of this
lease shall remain the same and the annual rental shall continue to increase
based upon the Cost of Living increases as set forth herein on an annual basis.
In the event the real estate taxes and/or the fire and casualty insurance on the
leased premises or the building have increased between January 1, 1997 and June
30, 2001, then, in addition to the cost of living increases set forth herein,
the per square foot base annual rental shall increase by the per square foot
increase of the said real estate taxes and fire and casualty insurance premiums
(i.e. should the taxes and insurance increase by $25,000.00, then the annual
base rental would increase by $.50 per square foot determined by diving the
increase by 50,000 square feet). Should the taxes and insurance increase at any
time during the option period, then, in addition to the cost of living increases
set forth herein, beginning with the next calendar year, the base annual rental
shall be increased by the per square foot increase set forth in this paragraph.
IN WITNESS WHEREOF, the Parties hereto have signed, and delivered this
Lease in triplicate at Palm Beach County, Florida on the day and year first
above written.
LESSEE:
WITNESSES: FLORIDA ADMINISTRATORS, INC.
a Florida Corporation
- ---------------------- --------- By:/s/ illegible V.P.
Date ------------------------
- ---------------------
LESSOR:
701 U.S. 1, INC.
A Florida Corporation
/s/ illegible 2/21/97
- ---------------------- --------- By:/s/ illegible V.P.
/s/ illegible Date ------------------------
- ---------------------
8
<PAGE>
GINN, SCHIRALLI GARY PARTNERSHIP
A Florida General Partnership
/s/ illegible 2/21/97
- ---------------------- --------- By:/s/ illegible V.P.
/s/ illegible Date ------------------------
- ---------------------
EXHIBITS:
1. Exhibit A - Leased Premises (Suites)
2. Rules and Regulations
/s/ illegible
--------------
Initial
9
<PAGE>
EXHIBIT "A"
SECOND FLOOR
- ------------
All of second floor
THIRD FLOOR
- -----------
Suites 303, 304, 306 and 308
FOURTH FLOOR
- ------------
Suite 400
/s/ illegible
--------------
Initial
10
<PAGE>
RULES AND REGULATIONS
EXHIBIT "B"
The following Rules and Regulations, hereby accepted by LESSEE, are
prescribed by LESSOR to enable LESSOR to provide, maintain, and operate, to the
best of LESSOR'S ability, orderly, clean and desirable premises, building and
parking facilities for the LESSEES therein at as economical a cost as reasonably
possible and in as efficient a manner reasonably possible, to assure security
for the protection of LESSEES so far as reasonably possible, and to regulate
conduct in and use of said Premises, building and parking facilities in such
manner as to minimize interference by others in the proper use of same by
LESSEE.
1. LESSEE, its officers, agents, servants and employees shall not block
or obstruct any of the entries, passages, doors, elevators, elevator doors,
hallways or stairways of building or garage or place, empty or throw any
rubbish, liner, trash or material of any nature into such areas, or permit such
areas to be used at any time except for ingress or egress of LESSEE, its
officers, agents, servants, employees, patrons, licensees, customers, visitors
or invitees.
2. No sign, door plaque, advertisement or notice shall be displayed,
painted or affixed by LESSEE, its officers, agents, servants, employees,
patrons, licensees, customers, visitors or invitees in or on any part of the
inside of building, parking facilities or Leased Premises without prior written
consent of LESSOR and then only of such color, size, character, style and
material and in such places as shall be approved and designated by LESSOR. Signs
on doors and entrances to Leased Premises shall be placed thereon by a
contractor designated by LESSOR and paid for by LESSEE. LESSOR shall have the
right to install signs on the interior or exterior of the Building and Leased
Premises and/or change the Building's name or street address. For installation
of signs by LESSEE, see Rules and Regulations. LESSEE does not have any right to
and shall not install any sign on the exterior of the Building.
3. LESSOR will maintain a Directory Board on the ground floor lobby of
the building containing one name for each LESSEE. Additional listing will be
limited to only those required by law or to those approved by LESSOR.
4. LESSOR will not be responsible for lost or stolen personal property,
equipment, money or any article taken from Leased Premises, building or parking
facilities regardless of how or when loss occurs.
5. LESSEE, shall not bring into building any inflammable fluids or
explosives.
6. LESSEE, its officers, agents, servants, or employees shall not use
Leased Premises, building or parking facilities for housing, lodging or sleeping
purposes. Cooking or preparation of food and refrigeration will be permitted in
the existing employees kitchen and lounge area.
7. LESSEE, its officers, agents, servants, employees, patrons,
licensees, customers, visitors or invitees shall not bring into parking
facilities, building or Leased Premises or keep on Leased Premises any fish,
fowl, reptile, insect or animal or into the building any bicycle or other
vehicle, except baby carriages or wheelchairs, without the prior written consent
of LESSOR.
8. No additional locks shall be placed on any door in building without
the prior written consent of LESSOR. LESSOR will furnish two keys to each lock
on doors in the Leased Premises and LESSOR, upon request of LESSEE, shall
provide additional duplicate keys at LESSEE'S expense. LESSOR may at all times
keep a pass key to the Leased Premises. All keys shall be returned to LESSOR
promptly upon termination of this Lease.
9. LESSEE, its officers, agents, servants, or employees shall do no
painting or decorating in Leased Premises; or mark, paint or cut into, nor in
any way deface any part of Leased Premises or building without the prior written
consent of LESSOR. If LESSEE desires signal, communication, alarm or other
utility or service connection installed or changed, such work shall be done at
expense of LESSEE with the approval and under the direction of LESSOR.
10. LESSOR reserves the right to close building at 7:00 p.m., subject,
however, to LESSEE'S right to 24 hour access and to require that person(s)
entering the building identify themselves and establish their right to enter or
to leave the building.
11. LESSEE, its officers, agents, servants and employees shall not
permit the operation of any musical or sound producing instruments or device
which may be heard outside Leased Premises, building or parking facilities, or
which may emanate electrical waves which will impair radio or televisions
broadcasting or reception from or in building.
12. LESSEE, its officers, agents, servants and employees shall, before
leaving Leased Premises unattended, close and lock all doors and shut off all
utilities; damages resulting from failure to do so shall be paid by LESSEE. Each
LESSEE, before the closing of the day and leaving said Leased Premises, shall
see that all doors are locked.
13. All plate and other glass now in Leased Premises or building which
is broken through cause attributable to LESSEE, its officers, agents, visitors
or invitees shall be replaced by and at expense of LESSEE under the direction of
LESSOR.
14. LESSEE shall give LESSOR prompt notice of all accidents to or
defects in air conditioning equipment, plumbing, electric facilities or any part
or appurtenance of Leased Premises.
15. The plumbing facilities shall not be used for any other purpose
than that for which they are constructed, and no
/s/ illegible
--------------
Initial
11
<PAGE>
foreign substance of any kind shall be thrown therein, and the expense of any
breakage, stoppage, or damage resulting from a violation of this provision shall
be borne by LESSEE who shall, or whose officers, employees, agents, servants,
patrons, customers, licensees, visitors, or invitees shall have caused it.
16. No showcases or other articles shall be put in front of or affixed
to any part of the exterior of the building, nor placed in the halls, corridors
or vestibules without the prior written consent of LESSOR.
17. Glass panel doors that reflect or admit light into the passageways
or into any place in the building shall not be covered or obstructed by the
LESSEE and LESSEE shall not permit, erect and/or place drapes, furniture,
fixtures, shelving, display cases or tables, lights or signs and advertising
devices in front of or in proximity or interior and exterior windows, glass
panels, or glass doors providing a view into the interior of the Leased Premises
unless same shall have first been approved in writing by LESSOR.
18. No space in the building or parking facilities shall, without the
prior written consent of LESSOR, be used for manufacturing, public sales, or for
the sale of merchandise, goods or property of any kind, or auction.
19. Canvassing, soliciting and peddling in the building or parking
facilities is prohibited and each LESSEE shall cooperate to prevent the same. In
this respect, LESSEE shall promptly report such activities to the Building
Manager's office.
20. There shall not be used in any space, or in the public halls of the
buildings, either by any LESSEE or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
21. Neither LESSEE nor any officer, agent, employee, servant, patron,
customer, visitor, licensee or invites of any LESSEE shall go upon the roof of
the building without the written consent of the LESSOR.
22. LESSEE shall not place any waste, trash, crates, boxes, etc., in
the public hallways or any areas of the building or parking facilities. LESSEE
shall insure that all wastes from Leased Premises are disposed of by placing
them in the appropriate trash receptacles.
23. LESSEES are cautioned in purchasing furniture and equipment that
the size is limited to such as can be placed on the elevator and will pass
through the doors of the Leased Premises. Large pieces should be made in parts
and set up in the Leased Premises.
24. LESSEE will be responsible for any ordinary damage to the Leased
Premises, including carpeting and flooring, as a result of: rust or corrosion of
file cabinets; roller chairs; metal objects; or, spills of any type of liquid.
25. If the Premises demised to any LESSEE become infested with vermin,
such LESSEE, at its sole cost and expense, shall cause its premises to be
exterminated from time to time, to the satisfaction of LESSOR, and shall employ
such exterminators therefor as shall be approved by LESSOR.
26. LESSEE shall not install any antenna or aerial wires, or radio or
television equipment, or any other type of equipment, inside or outside of the
building, without LESSOR'S prior approval in writing and upon such terms and
conditions as may be specified by LESSOR in each and every instance.
27. LESSEE shall not make or permit any use of Leased Premises,
building or parking facilities which, directly or indirectly, is forbidden by
law, ordinance or governmental or municipal regulation, code or order, or which
may be disreputable, or which may be dangerous to life, limb or property.
28. LESSEE shall not advertise the business, profession or activities
of LESSEE in any manner which violates the letter or spirit of any code or
ethics adopted by any recognized association or organization pertaining therein,
or use the name of the building for any purpose other than that of the business
address of LESSEE, or use any picture or likeness of building or the building
name in any letterheads, envelopes, circulars, notices, advertisements,
containers or wrapping material, without LESSOR'S express consent in writing.
29. LESSEE, its officers, agents, employees, servants, patrons,
customers, licensees, invitees and visitors shall not solicit business in the
building's parking facilities or common areas, nor shall LESSEE distribute any
handbills or other advertising matter in automobiles parked in the building's
parking facilities.
30. LESSEE shall not conduct its business and/or control of its
officers, agents, employees, servants, patrons, customers, licensees, and
visitors in such manner as to create any nuisance, or interfere with, annoy or
disturb any other tenant or LESSOR in its operation of the building or commit
waste or suffer or permit waste to be committed in Leased Premises, building or
parking facilities.
31. LESSEE shall permit LESSOR, or its agent, to enter Premises upon
notice to LESSEE to make inspections, repairs, alterations or additions in or to
Leased Premises or building, and at any time in event of emergency permit LESSOR
to perform any acts related to the safety, protection, preservation, reletting,
or improvement of Leased Premises or building.
32. Janitorial services will be provided by LESSEE.
/s/ illegible
--------------
Initial
12
Lease Agreement
For
Office Facilities
300 Lincoln Place
TENANT: Pinnacle Assurance Corporation
---------------------------------
SUITE: ______________________________
SQ. FT. 8,289
---------------------------------
TERM: February 24, 1997 - June 30, 2003
---------------------------------
<PAGE>
Index
No. Paragraph Heading
1. Definitions
2. Lease Grant
3. Lease Term
4. Use
5. Base Rental
6. Services to be Furnished by Landlord
7. Improvements to be Made by Landlord
8. Graphics
9. Care of the Premises by Tenant
10. Repairs and Alterations by Tenant
11. Use of Electrical Services by Tenant
12. Parking
13. Laws, Regulations and Rules
14. Entry by Landlord
15. Assignment and Subletting
16. Mechanic's Lien
17. Property Insurance
18. Liability Insurance
19. Assumption of Risk
20. Casualty Damage
21. Condemnation
22. Damages from Certain Causes
23. Events of Default / Remedies
24. Base Rental Adjustment
25. Peaceful Enjoyment
26. Relocation
27. Holding Over
28. Subordination to Mortgage
29. Landlord's Lien
30. Attorney's Fees
31. No Implied Waiver
32. Personal Liability
33. Security Deposit
34. Force Majeure
35. Relationship of parties
36. Miscellaneous
37. Special Provisions
-2-
<PAGE>
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), is made and entered into on the _________
day of ____________, 19_, between LINCOLN-300 LINCOLN PLACE, LTD., ("Landlord"),
and Pinnacle Assurance Corporation. ("Tenant").
1. Definitions
1.1 "The Building" means the office building known as.300 LINCOLN PLACE
located at 851 Trafalgar Court, Maitland, Florida 32751.
1.2 "Premises" means the suite of offices located within the Building.
The Premises are depicted in Exhibit "A" and outlined on the floor plan attached
as Exhibit "B". The Premises are stipulated for all purposes to contain
approximately 8.289 square feet of "Net Rentable Area" (as defined below).
* 1.3 "Base Rental" means the sum of ______________ ($_____) per annum as
adjusted pursuant to Paragraph 24(c). The Base Rental due for the first month
during the Lease Term (hereafter defined), is in the amount of ($___________)
plus applicable state sales tax.
1.4 "Commencement Date" means the first day of the Lease Term as set
forth in Paragraph 1.5.
1.5 "Lease Term" means a term commencing on the 24th day of February
1997, and continuing until the 30th day of June 2003 at midnight.
1.6 "Security Deposit" means the sum of Ten Thousand Fifteen and 88/100
dollars, ($ 10,015.88) to be deposited with Landlord at the time of execution
hereof.
1.7 "Common Areas" means those areas devoted to corridors, elevator
foyers, restrooms, mechanical rooms, janitorial closets, electrical and
telephone closets, vending areas and other similar facilities provided for the
common use or benefit of Tenant generally and/of the public.
1.8 "Service Areas" means those areas within the outside walls used for
elevator mechanical rooms, building stairs, fire towers, elevator shafts, flues,
vents, stacks, pipe shafts and vertical ducts (but shall not include any such
areas for the exclusive use of the particular Tenant).
1.9 "Net Rentable Area" of the Premises means the gross area within the
outside surface of the outer glass of the exterior walls, to the midpoint of any
walls separating portions of the Premises from those of adjacent tenants and to
the finished side of Common Area and Service Area walls separating the Premises
form Common Areas and Service Areas, subject to the following:
Net Rentable Area shall not include any Service Areas, nor the atrium
area.
Net Rentable Area shall include Tenant's prorata part of the Common
Areas within the Building, based upon the ratio of the Net Rentable
Area within the Premises to the total Net Rentable Area within the
Building, both determined without regard to the Common Areas.
The Net Rentable Area in the Building is 170,018 square feet. The above
set forth estimate of Net Rentable Area within the Premises may be
revised, at Landlord's election, if Landlord's architect determines
such estimate to be inaccurate in any material degree after examination
of the final drawings of the Premises and the Building.
1.10 "Exterior Common Areas" means the portion of the Property (and
other tracts of real property comprising the multi-building project in the event
the Building is located in such a
* See Special Provisions, Section 37
<PAGE>
project) which are not located within the Building (or other Building in a
multi-building project) and which are provided and maintained for the common use
and benefit of Landlord and tenants of the Building (or multi-building project)
generally and the employees, invitees and licensees of Landlord and such
tenants; including, without limitation, all parking areas, enclosed or
otherwise, and all streets, sidewalks and landscaped areas.
1.11 "Building Standard" means the quality, amount, level of
performance, or standards, as the case may be, as established in Building Rules.
1.12 "Building Standard Improvements" means those improvements
(including the "Shell Improvements" and the "Allowance Items") to the Premises
which Landlord shall agree to provide according to the Work Letter attached as
Exhibit "D".
1.13 "Building Grade" means the type, brand and/or quality of materials
Landlord designates from time to time to be the minimum quality to be used in
the Building or the exclusive type, grade or quality of material to be used in
the Building.
2. LEASE GRANT
Subject to and upon the terms herein set forth, Landlord leases to
Tenant and Tenant leases from Landlord the Premises.
3. LEASE TERM
3.1 This Lease shall continue in force during the period specified in
Paragraph 1.5, unless this Lease is sooner terminated or extended to a later
date under any other term or provision of this Lease.
3.2 If by the date specified as the Commencement Date, the Premises
have not been substantially completed pursuant to the Work Letter, due to
omission, delay or default by Tenant or anyone acting under or for Tenant due to
any cause other than Landlord's default, Landlord shall have no liability, and
the obligations of this Lease (including without limitation, the obligation to
pay rent) shall nonetheless commence as of the Commencement Date.
3.3 If, however, the Premises are not substantially completed by the
Commencement Date, the rent herein provided shall not commence until the earlier
of actual occupancy by Tenant or substantial completion of the work which
Landlord has agreed to perform.
3.4 Tenant agrees to accept possession of the Premises when the
Premises have been substantially completed, with all facilities in operating
order. If there are any finishing touches remaining to be done which will not
interfere with the conduct of Tenant's business on the Premises, Tenant will
nevertheless accept delivery of possession and allow Landlord to complete such
finishing touches.
4. USE
4.1 Tenant will use and occupy the Premises for the following use or
purpose and for no other use or purpose: General Office Space.
4.2 Tenant agrees not to use or permit the use of the Premises for any
purpose which is illegal, or which, in Landlord's sole opinion, creates a
nuisance or which would increase the cost of insurance coverage with respect to
the Building.
5. BASE RENTAL
5.1 Tenant shall pay to Landlord during the Lease Term without any
setoff or deduction whatsoever, the Base Rental and all such other money as
shall become due hereunder as additional rent, all of which are sometimes herein
collectively called "rent".
5.2 The annual Base Rental for each calendar year or portion thereof
during the Lease Term, together with any adjustments thereto as set forth in
Section 37.1, then in effect, shall be due and payable in twelve (12) equal
installments on the first day of each calendar month during the initial term of
this Lease and any extensions or renewals thereof. Tenant agrees to pay all such
sums in advance and without demand.
-4-
<PAGE>
5.3 Tenant shall pay such Base Rental and any adjustments thereto to
Landlord at Landlord's address provided herein (or such other address as may be
designated by Landlord in writing from time to time).
5.4 If the term of this Lease commences on a day other than the first
day of a month, or terminates on a day other than the last day of a month, then
the installments of Base Rental and any adjustments thereto for such month or
months shall be prorated, based on the number of days in such month.
5.5 All installments of rent not paid when due shall bear interest at
the maximum lawful contract rate in the state of Florida until paid.
5.6 The Base Rental shall be adjusted upward from time to time in
accordance with the provisions of Paragraph 24.
5.7 Tenant shall pay all sales taxes levied or assessed against all
rent payments due under this Lease simultaneously with each rent payment
required.
6. SERVICES TO BE FURNISHED BY LANDLORD
6.1 Landlord agrees to furnish Tenant the following services (defined
services):
(a) Hot and cold water at those points of supply provided for
general use of other tenants in the Building.
(b) Central heat and air conditioning at such temperatures and in
such amounts as are considered by Landlord to be standard or
as required by governmental authority; provided, however,
heating and air conditioning service at times other than for
"Normal Business Hours" for the Building (as established by
the Building Rules) shall be furnished only upon the written
request of Tenant delivered to Landlord in accordance with the
Building Rules. Tenant shall bear the entire cost of such
additional service as such costs are determined by Landlord
from time to time. The current charge for after hours air
conditioning is $25.00 per hour.
(c) Routine maintenance and electric lighting service for all
Common Areas and Service Areas of the Building in the manner
and to the extent deemed by Landlord to be standard.
(d) Janitorial service, Monday through Friday, exclusive of normal
business holidays; provided, however, if Tenant's floor
covering or other improvements require special treatment,
Tenant shall pay all additional cleaning cost attributable
thereto as additional rent upon presentation of a statement
therefore by Landlord.
(e) Subject to the provisions of Paragraph 11, facilities to
provide all electrical current required by Tenant in its use
and occupancy of the Premises.
(f) All building Standard fluorescent bulb replacement in the
Premises and fluorescent and incandescent bulb replacement in
the Common Areas and Service Areas.
(g) Security in the form of limited access to the Building during
other than Normal Business Hours shall be provided in such
form as Landlord deems appropriate. Landlord, however, shall
have no liability to Tenant, its employees, agents, invitees
or licensees for losses due to theft or burglary, or for
damages done by unauthorized person s on the Premises and
neither shall Landlord be required to insure against any such
losses. Tenant shall cooperate fully in Landlord's efforts to
maintain security in the Building and shall follow all
regulations promulgated by Landlord with respect thereto.
6.2 The failure by Landlord to any extent to furnish, or the
interruption or termination of the defined services in whole or in part,
resulting from causes beyond the reasonable control of Landlord shall not render
Landlord liable in any respect nor be construed as an eviction (constructive or
otherwise) of Tenant, nor work and abatement of rent, nor relieve Tenant from
the obligation to fulfill any covenant or agreement of this Lease.
6.3 Should any of the equipment or machinery used in the provision of
defined services for any cause cease to function properly, Tenant shall have no
claim for offset or abatement of rent or damages on account of an interruption
in service occasioned thereby or resulting therefrom notwithstanding Tenant's
rights under Section 23.4.
-5-
<PAGE>
6.4 Except as otherwise expressly provided herein Landlord shall not be
required to make any repairs to the Premises other than structural remails to
the Premises.
7. IMPROVEMENTS TO BE MADE BY LANDLORD Except as otherwise provided in the Work
Letter attached as Exhibit "D", all installations and improvements now or
hereafter placed on the Premises other than Building Standard Improvements shall
be for Tenant's account and at Tenant's cost (and Tenant shall pay ad valorem
taxes and increased insurance thereon or attributable thereto), which cost shall
be payable by Tenant to Landlord as additional rent in accordance with
provisions of the Work Letter.
8. GRAPHICS
8.1 Landlord shall provide and install, at Landlord's cost, all letters
or numerals at the entryway to the Premises. All such letters and numerals shall
be in the standard graphics for the Building and no others shall be used or
permitted on the Premises without Landlord's prior written consent.
8.2 Signage, wall coverings, graphics, or furniture that will be
visible from the atrium or from exterior entryways must first be approved, in
writing, by Landlord.
9. CARE OF THE PREMISES BY TENANT Tenant shall not commit or allow any waste to
be committed on any portion of the Premises, and at the termination of the Lease
Tenant shall deliver the Premises to Landlord in as good condition as at the
date of the commencement of the term of this Lease, ordinary wear and use
excepted.
10. REPAIRS AND ALTERATIONS BY TENANT
10.1 Tenant shall, at Tenant's own cost and expense, repair any damage
done to the Building, or any part thereof, including replacement of damaged
portions or item, caused by Tenant or Tenant's agents, employees, invitees, or
visitors, and Tenant covenants and agrees to make all such repairs as may be
required to restore the Building to as good a condition as it was in prior to
such damage.
10.2 All such work or repairs by Tenant shall be effected in compliance
with all applicable laws; provided, however, if Tenant fails to make such
repairs or replacements promptly, Landlord may, after written notice, make
repairs or replacements, and Tenant shall pay the cost thereof to the Landlord
within ten (10) days of Landlord's demand therefor, as additional rent.
10.3 Tenant agrees with Landlord not to make or allow to be made any
repairs or alterations to the Premises, install any vending machines on the
Premises, or place signs on the Premises which are visible from outside the
Premises, without first obtaining the prior written consent of Landlord in each
such instance which consent may be given on such conditions as Landlord may
elect. Such consent shall not apply to structural repairs or alterations as
Tenant may not perform same.
10.4 Any and all alterations to the Premises shall become the property
of Landlord upon termination of this Lease (except for movable equipment or
furniture owned by Tenant). Landlord may, nonetheless, require Tenant to remove
such fixtures, equipment and other improvements installed on the Premises and
restore the Premises to the condition as originally occupied by the Tenant. If
Landlord so requires, and Tenant fails to remove such improvements, Landlord may
remove such improvements at Tenant's cost, and Tenant shall pay Landlord on
demand the cost of restoring the Premises to the condition as originally
occupied by Tenant.
11. USE OF ELECTRICAL SERVICES BY TENANT Tenant's use of electrical
services furnished by Landlord shall not exceed, either in voltage, rated
capacity, or overall load of 6 watts per usable square foot. If Tenant shall
request that it be allowed to consume electrical services in excess of that
deemed by Landlord, Landlord may refuse to consent to the usage or may consent
upon such conditions as Landlord elects (including the requirement that
submeters be installed at Tenant's expense).
12. PARKING
-6-
<PAGE>
12.1 During the term of this Lease, Tenant shall have the non-exclusive
use in common with Landlord, other tenants of the Building (or project in which
the Building is located, in a multi-building project), their guests and
invitees, of the non-reserved common automobile parking areas, driveways and
footways, subject to rules and regulations for the use thereof as prescribed
from time to time by landlord.
12.2 No specific designated parking spaces shall be assigned to Tenant
unless otherwise agreed by Landlord and Tenant in writing. Landlord shall have
the right to reserve parking spaces as it elects and condition the use thereof
on such terms as it elects.
12.3 Landlord has provided in its planning for Seventy Five (75)
unreserved, non- assigned parking spaces for Tenant's use and Tenant will not
exceed this planned use.
13. LAWS, REGULATIONS AND RULES
13.1 Tenant shall comply with all applicable laws, ordinances, rules
and regulations of any governmental entity, agency or authority having
jurisdiction of the Premises of Tenant's use of the Premises.
13.2 Tenant shall comply with the Building Rules adopted and amended by
Landlord from time to time and will cause all of its agents, employees, invitees
and visitors to do so. All changes to such rules will be furnished by Landlord
to Tenant in writing.
14. ENTITY BY LANDLORD Tenant shall permit Landlord or its agents or
representatives to enter into and upon any part of the Premises at all
reasonable hours (and in emergencies at all times) to inspect the condition,
occupancy or use; to show the Premises to prospective purchasers, mortgagees,
tenant or insurers; or to clean or make repairs, alterations or additions.
Tenant shall not be entitled to any abatement or reduction of rent by reason of
this right of entry.
15. ASSIGNMENT AND SUBLETTING
15.1 Tenant shall not assign, sublease, transfer, pledge or encumber
this Lease or any interest therein without Landlord's prior written consent
which not be unreasonably withheld. Any attempted assignment, sublease or other
transfer or encumbrance by Tenant in violation of the terms and covenants of
this Paragraph shall be void. Landlord agrees not to unreasonably withhold its
consent to any proposed assignment or subletting by Tenant. In addition to any
other factors that Landlord may reasonably consider in connection with a request
for Landlord's consent to any assignment or subletting, Landlord shall be deemed
to be acting reasonably if Landlord requires that all of the following
conditions be satisfied in connection with any such proposed assignment or
subletting by Tenant: (i) the proposed sublessee or assignee is engaged in a
business which is in keeping with the then standards of the Building and is of
similar character and quality of other tenants in the Building, (ii) Tenant and
each successor and assign as lessee hereunder shall remain primarily liable
under this Lease, (iii) the occupancy of the proposed assignee or sublessee will
not create unreasonable elevator loads or otherwise unreasonably interfere with
standard Building operations, (iv) the proposed sublessee or assignee shall not
detract from or negatively impact the character of the Building, nor be a person
or entity convicted of or currently under indictment for a felony under state or
federal law, (v) the proposed sublessee or assignee is not then occupying, and
has not occupied in the last six months, any space in the Building, (vi) the
proposed use of the Premises by any such assignee or sublessee does not violate
any exclusive use or prohibited use covenants binding Landlord or the Building,
(vii) the proposed assignee or sublessee can demonstrate, to the reasonable
satisfaction of Landlord, that it has sufficient financial creditworthiness to
satisfy the obligations of the lessee under this Lease and (viii) Tenant is not
then in default under this Lease, (ix) the configuration of the space proposed
to be assigned or sublet.
15.2 If Tenant shall desire Landlord's consent to the subletting or
assignment, Tenant shall give Landlord thirty (30) days prior written notice
thereof. Such notice shall be deemed to be an offer by Tenant to sublet the
Premises to Landlord for the balance of the term upon all the same terms,
covenants and conditions as are contained in this Lease or to assign this Lease
to Landlord at Landlord's option. In the event of a subletting or assignment to
another party, Tenant shall remain responsible for all of the Tenant
obligations, including the payment of rent.
-7-
<PAGE>
15.3 If Landlord does not accept such offer in writing within the
thirty (30) day notice period, then Landlord's right to sublease the Premises or
acquire this Lease by assignment shall be deemed to be waived, but nothing
herein contained shall be deemed to be a consent by Landlord to any subletting
or assignment unless Landlord delivers to Tenant its written consent.
15.4 Notwithstanding Landlord's consent on any occasion, the right of
Landlord to receive an offer of sublet or assignment from Tenant as noted in
Paragraph 15.2 shall apply to any further subletting or assignment.
15.5 If Tenant shall become involved in bankruptcy proceedings under
the Bankruptcy Code of the United States, as the same may be amended from time
to time, and the bankruptcy trustee or debtor intends to assign or sublease this
Lease, Landlord shall have the right of first refusal to re-acquire the Lease on
the same terms and conditions as may be contained in any bona fide offer made by
any third party, which offer Tenant intends to accept.
15.6 The covenants in this paragraph are personal to Tenant and may not
be exercised by any person or entity other than Tenant.
15.7 Anything contained in the foregoing provisions of this section to
the contrary notwithstanding, neither Tenant nor any other person having an
interest in the possession, use, occupancy or utilization of the Premises shall
enter into any lease, sublease, license, concession or other agreement for use,
occupancy or utilization of space in the Premises which provides for rental or
other payment for such use, occupancy or utilization based in whole or in part,
on the net income or profits derived by any person from the Premises leases,
used, occupied or utilized (other than an amount based on a fixed percentage or
percentages or receipts of sales), and any such proposed lease, sublease,
license, concession or other agreement shall be absolutely void and ineffective
as a conveyance or any right or interest in the possession, use occupancy or
utilization of any part of the Premises. Landlord reserves the right to make
exception to the above, provided that Tenant agrees to pay Landlord any and all
rent, profit or other payment which exceeds the rent obligation of Tenant.
15.8 Anything contained in the foregoing provisions of this Paragraph
15 to the contrary notwithstanding, Landlord's consent or approval (i) shall not
be required and nothing shall prohibit or restrict the subletting or assignment
of this Lease to any corporation affiliated with Tenant or (ii) any transfer of
all or any of Tenant's corporate stock or assets to any corporation affiliated
with Tenant, provided that in either such case the assignee shall assume in
writing, in form reasonably satisfactory to Landlord, all of Tenant's
obligations under this Lease, and provided that no such assignment or subletting
shall release Tenant or Lease Guarantor from their liability under the terms and
conditions of this Lease and the Lease Guarantee, respectively.
16. MECHANIC'S LIEN
16.1 Tenant will not permit any mechanic's lien or liens to be placed
upon the Premises or the Building. Nothing in this Lease shall be deemed or
construed in any way as constituting the consent or request of Landlord, express
or implied, to any person for the performance of any labor or the furnishing of
any materials to all or part of the Premises, nor as giving Tenant any right,
power, or authority to contract for or permit the rendering of any services or
the furnishing thereof that would or might give rise to any mechanic's or other
liens against the Premises.
16.2 If any such lien is claimed against the Premises, then, in
addition to any other right or remedy of Landlord, Landlord may, but shall not
be obligated to, discharge the same. Any amount paid by Landlord for such
purposes shall be paid by Tenant to Landlord as additional rent within ten (10)
days of Landlord's demand therefor.
17. PROPERTY INSURANCE
17.1 Landlord shall maintain and pay for fire and extended coverage
insurance on the Building and the Premises in such amounts as Landlord's
mortgagees shall require. Payments for losses thereunder shall be made solely to
Landlord or the mortgagees of Landlord as their
-8-
<PAGE>
interest shall appear. Landlord shall also maintain rent insurance for the
Building and the Premises.
17.2 Tenant shall maintain at its expense, in an amount equal to full
replacement cost, fire and extended coverage insurance on all of its personal
property, including removable trade fixtures located in the Premises and in such
additional amounts as are required to meet Tenant's obligations pursuant to
paragraph 20 hereof.
17.3 Tenant shall, at Landlord's request from time to time, provide
Landlord with current certificates of insurance evidencing Tenant's compliance
with this paragraph 17 and paragraph 18.
17.4 Tenant shall obtain the agreement of Tenant's insurers to notify
Landlord at least ten (10) days prior to cancellation or expiration of any such
insurance coverage required by Tenant.
18. LIABILITY INSURANCE
18.1 Tenant and Landlord shall, each at its own expense, maintain a
policy or policies of comprehensive general liability insurance with respect to
the respective activities of each in the Building, and on the Property (or
within the project if the Building is located in a multi-building project) with
the premiums thereon fully paid for on or before due date, issued by and binding
upon an insurance company with an A.M. best "A" rating, such insurance to afford
minimum protection of not less than $1,000,000 combined single limit coverage of
bodily injury, property damage or combination thereof.
18.2 Landlord shall not be required to maintain insurance against
thefts within the Premises, the Building or any project within which the
Building is located.
19. ASSUMPTION OF RISK
19.1 Except in the case of Landlord's negligence or willful misconduct,
Landlord shall not be liable to Tenant or Tenant's customers, licensees, agents,
guests or employees for any injury or damages to its, his or their persons or
property by any cause whatsoever, including, but not limited to acts or
omissions of any other tenant in the Building, construction defects, water,
rain, sleet, fire, storms, negligence and accidents, breakage, stoppage, or
leaks of gas, water, heating, sewer pipes, boilers, wiring or plumbing or any
other defect in, on or about the Premises.
19.2 Tenant expressly assumes all liability for or on account of any
such injury, loss or damage, and will at all times, indemnify and save Landlord
harmless from and against all liability, damage or expense caused by or arising
out of any such injury, loss or damage to persons or property upon the Premises
except for damages arising from Landlord's negligence or willful misconduct.
20. CASUALTY DAMAGE
20.1 If the Premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give prompt written notice thereof to Landlord.
20.2 If the Building shall be so damaged that substantial alteration or
reconstruction of the Building shall, in Landlord's sole but reasonable opinion,
be required (whether or not the Premises shall have been damaged by such
casualty) or in the event any mortgagee of Landlord's should require that the
insurance proceeds payable as a result of a casualty be applied to the payment
of the mortgage debt or in the event of any material uninsured loss to the
Building, Landlord may, at its option, terminate this Lease by notifying Tenant
in writing of such termination within thirty (30) days after the date of such
damage.
20.3 It the Premises are damaged by fire or other casualty and in the
reasonable estimation of the Landlord's contractor for the Building, such damage
cannot be substantially restored within one hundred twenty (120) days of such
damage, then Tenant may, at its option, terminate this Lease as of the date of
such fire or casualty and the Lease Term shall end on such date as if that date
have been originally fixed in this Lease for the expiration of the Lease Term.
Landlord shall use its best efforts to cause such general contractor to give
Landlord and Tenant a written estimate of the estimated restoration period
within thirty (30) days after the fire
-9-
<PAGE>
or other casualty. Tenant shall exercise its option provided herein by written
notice to Landlord within fifteen (15) days after receipt of the general
contractor's written estimate.
20.4 If neither Landlord nor Tenant thus elects to terminate this
Lease, Landlord shall commence and proceed with reasonable diligence to restore
the Building to substantially the same condition in which it was immediately
prior to the happening of the casualty, except that Landlord's obligation to
restore shall not exceed the scope of the work required to be done by Landlord
in originally constructing the Building and installing Shell Improvements (as
described in the Work Letter) in the Premises, nor shall Landlord be required to
spend for such work an amount in excess of the insurance proceeds actually
received by Landlord as a result of the casualty.
20.5 Except for the reconstruction by Landlord of Landlord's as set
forth in the original Work Letter, all costs and expenses for reconstruction,
including the restoration of Tenant's furniture and equipment, shall be borne by
Tenant.
20.6 Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from such damage
or the repair thereof, except that, subject to the provisions of paragraph 20.7,
Landlord shall allow Tenant a fair diminution of rent during the time and to the
extent the Premises are unfit for occupancy or access thereto is impaired.
20.7 If the Premises or any other portion of the Building shall be
damaged by fire or other casualty resulting from the fault or negligence of
Tenant or any of Tenant's agents, employees, or invitees, the rent hereunder
shall not be diminished during the repair of such damage and Tenant shall be
liable to Landlord for the cost of the repair and restoration of the Building
caused thereby to the extent such cost of the repair and restoration of the
Building is not covered by Landlord's insurance proceeds.
21. CONDEMNATION
21.1 If the whole or substantially the whole of the Building or the
Premises should be taken for any public or quasi-public use, by right of eminent
domain or otherwise, or if it should be sold in lieu of condemnation, then this
Lease shall terminate as of the date when physical possession of the Building or
the Premises is taken by condemning authority.
21.2 If less than the whole or substantially the whole of the Building
or the Premises is thus taken or sold (whether or not the Premises are affected
thereby), Landlord may terminate this Lease by giving written notice thereof to
Tenant, in which event this Lease shall terminate as of the date when physical
possession of such portion of the Building or Premises is taken by the
condemning authority.
21.3 If this Lease is not so terminated upon any such taking or sale,
the Base Rental payable hereunder shall be diminished by an equitable amount,
and the Landlord shall, to the extent Landlord deems feasible, restore the
Building and the Premises to substantially its former condition, but such work
shall not exceed the scope of the work done by Landlord in originally
constructing the Building and installing Building Standard Improvements in the
Premises, nor shall Landlord in any event be required to spend for such work an
amount in excess of the amount received by Landlord as compensation for such
damage.
21.4 All amounts awarded upon a taking of any part or all of the
Building or the Premises shall belong to Landlord, and Tenant shall not be
entitled to and expressly waives all claim to any such compensation.
21.5 Tenant shall be entitled to claim independently against condemning
authority any damages expressly referable to Tenant's business as the same may
be permitted by law provided such claim shall not reduce any award payable to
Landlord.
-10-
<PAGE>
22. DAMAGES FROM CERTAIN CAUSED Landlord shall not be liable to Tenant for
any loss or damage to any property or persons occasioned by theft, fire, act of
God, public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or by any other cause beyond the
control of Landlord, nor shall Landlord be liable for any damage or
inconvenience which may arise through repair or alterations of any part of the
Building or Premises, except for occurrences by the gross negligence or willful
misconduct of Landlord, its agents, contractors, or employees.
23. EVENTS OF DEFAULT/REMEDIES
23.1 Events of Default by Tenant. The happening of any one or more of
the following listed events (Events of Default) shall constitute a breach of
this Lease by Tenant:
(a) The failure of Tenant to pay any rent or any other
sums of money due hereunder and such failure
continues for a period of ten (10) days after the
date such sum is due;
(b) The failure of Tenant to comply with any material
provision of this Lease or any other agreement
between Landlord and Tenant, including the Work
Letter, all of which terms, provisions and covenants
shall be deemed material;
(c) The taking of the leasehold on execution or other
process of law in any action against Tenant:
(d) The failure of Tenant to accept the Premises, to
promptly move into, to take possession of, and to
operate its business on the Premises when the
Premises are substantially complete, or if Tenant
ceases to do business in or abandons any substantial
portion of the Premises within the first year of the
lease.
(e) Tenant becoming insolvent or unable to pay its debts
as they become due, or Tenant's notification to
Landlord that it anticipates either condition;
(f) The filing of any bankruptcy or similar proceeding by
or against Tenant under any state law.
(g) The appointment of a receiver or trustee for Tenant's
leasehold interest in the Premises or for all or a
substantial part of the assets of Tenant.
23.2 Landlord's Remedies for Tenant Default. Upon the occurrence of any
event or Events of Default by Tenant, whether enumerated in paragraph 23.1 or
not, if Tenant fails to cure any such default within thirty (30) days of written
notice from Landlord, Landlord shall have the option, at Landlord's election, to
pursue any one or more of the following remedies:
(a) Landlord may cancel and terminate this Lease and
dispossess Tenant;
(b) Landlord may without terminating or canceling this
Lease, declare all amounts and rents due under this
Lease for the remainder of the existing term (or any
applicable extension or renewal thereof) to be
immediately due and payable, and thereupon all rents
and other charges due hereunder to the end of the
initial term or any renewal term, if applicable,
shall be accelerated;
(c) Landlord may elect to enter and repossess the
Premises and relet the Premises for Tenant's account,
holding Tenant liable in damages for all expenses
incurred in any such reletting and the amount due and
payable under the terms of this Lease;
(d) Landlord may enter upon the Premises and do whatever
Tenant is obligated to do under the terms of this
Lease (and Tenant shall reimburse Landlord on demand
for any expenses which Landlord may incur in
effecting compliance with Tenant's obligations under
this Lease, and Landlord shall not be liable for any
damages resulting to the Tenant from such action).
23.3 Landlord's Remedies are cumulative. All the remedies of Landlord
in the event of Tenant default shall be cumulative and in addition, Landlord may
pursue any other remedies permitted by law or in equity. Forbearance by Landlord
to enforce one or more of the remedies upon an Event of Default, shall not
constitute a waiver of such default.
23.4 Events of Landlord Default.
(a) If Tenant asserts that Landlord has failed to meet
its obligations under this Lease, Tenant shall give
written notice (Notice of Default) to Landlord
specifying the alleged failure to perform, and Tenant
shall send by certified mail, return receipt
requested, a copy of such Notice of Default to any
mortgage holder,
-11-
<PAGE>
(provided that Tenant has been previously advised of
the address of the mortgage holder by assignment of
rents or otherwise). (b) If Landlord has not begun
and pursued with reasonable diligence the cure of any
failure of any Landlord to meet its obligations under
this Lease within thirty (30) days of receipt of the
Notice of Default, then Landlord shall be in default.
(c) If Landlord shall have failed to cure such
default within the time set forth above, then the
mortgagees shall have an additional thirty (30) days
within which to cure such default, or if such default
cannot be cured within that time, then such
additional time as may be necessary if within such
thirty (30) days any mortgagee has commenced and is
diligently pursuing the remedies necessary to cure
such default, including, but not limited to,
commencement of foreclosure proceedings if necessary
to effect such a cure, in which event this Lease
shall not be terminated while such remedies are being
so diligently pursued. (d) In no event shall Tenant
have the right to terminate or rescind this Lease as
a result of Landlord's default as to any covenant or
agreement contained in this Lease or as a result of
the breach of any promise or inducement hereof,
whether in this Lease or elsewhere. Tenant hereby
waives such remedies of termination and rescission
and hereby agrees that Tenant's remedies for default
hereunder and for breach of any promise or inducement
shall be limited to a suit for damages or an
injunction, or both.
24. BASE RENTAL ADJUSTMENT
24.1 The Base Rental payable hereunder shall be further adjusted upward
from time to time in accordance with the following provision:
(a) Tenant shall during the term of this Lease pay as an
adjustment to the Base Rental hereunder an amount (per each
square foot of Net Rentable Area within the Premises) equal to
the excess ("Excess") of the then current year's actual Basic
Costs per square foot of Net Rentable Area in the Building
over the Base Year which will be defined as January 1st
through December 31, 1997. No pass thrus on expenses will go
into effect until January 1, 1998. Landlord may collect such
additional Base Rental in arrears on a yearly basis.
Notwithstanding any language in the Lease seemingly to the
contrary, if the Building is not fully occupied during any
calendar year of the Lease Term, actual Basic Costs and the
Excess shall be determined as if the Building had been fully
occupied during such year. Landlord shall also have the option
to make a good faith estimate of the Excess for each upcoming
calendar year and upon thirty (30) days written notice to
Tenant may require the monthly payment of Base Rental adjusted
in accordance with such estimate. Any amounts paid based on
such an estimate shall be subject to adjustment pursuant to
Paragraph 24.1(b) when actual Basic Costs are available for
such calendar year.
(b) Landlord shall furnish to Tenant a statement of Landlord's
actual Basic Costs for the previous calendar year. If, for any
calendar year additional Base Rental collected for the prior
year, as a result of Landlord's estimate of Basis Costs, is in
excess of the additional Base Rental actually due during such
prior year, then Landlord shall refund to Tenant any
overpayment (or at Landlord's option, apply such amount
against rent due or to become due hereunder). Likewise, Tenant
shall pay to Landlord on demand, any underpayment with respect
to the prior year.
(c) Tenant, at its expense, shall have the right no more
frequently than once per calendar year, following prior
written notice to Landlord, to audit Landlord's books and
records relating to Basic Costs; or at Landlord's sole
discretion, Landlord will provide such audit in accordance
with general standard principles of sound management and
accounting.
(d) Failure of Landlord to furnish a statement of actual Operating
Expenses or to give notice of an adjustment to Base Rental
under this Paragraph 24 by March 31 of the following year in a
timely manner shall not prejudice or act as a waiver of
Landlord's right to furnish such statements or give such
notice at a subsequent time or to collect any adjustments to
the Base Rental or any preceding period.
24.2 "Basic Costs" means all direct and indirect costs and expenses in
each calendar year of operating, maintaining, insuring, managing and owning the
Building and the real property in its immediate proximity, real estate taxes and
assessments of the Building, plus the
-12-
<PAGE>
Building's allotted share from time to time of the operating expenses for the
exterior Common areas (as defined below). Basic Costs shall not include the cost
of capital improvements, depreciation, interest, lease commissions, and
principal payments on mortgage and other nonoperating debts of Landlord. Basic
Costs shall, however, include the amortization of capital improvements which are
primarily for the purpose of reducing Basic Costs, or which are required by
governmental authorities.
24.3 "Exterior Common Areas" means the portion of the Property which is
not located within the Building, and which is provided and maintained for the
common use and benefit of Landlord and tenants of the Building generally
including, without limitation, all parking areas, enclosed or otherwise, and all
streets, sidewalks and landscaped areas.
25. PEACEFUL ENJOYMENT
25.1 Tenant shall, and may peacefully enjoy the Premises against all
persons claiming by, through or under Landlord, subject to the other terms
hereof, provided that Tenant pays the rent and other sums here in recited to be
paid by the Tenant and performs all of Tenant's covenants and agreements in this
Lease.
25.2 The foregoing covenant and any and all other covenants of the
Landlord shall be binding upon Landlord and its successors, only with respect to
breaches occurring during its or their respective periods of ownership of the
Tenant's interest hereunder.
-13-
<PAGE>
26. RELOCATION
26.1 Landlord shall be entitled to cause Tenant to relocate from the
Premises to a substantially comparable space (a Relocation Space") within the
Building (or within the project that the Building is located in a multi-building
project) at any time after ninety (90) days written notice of Landlord's
election (not less Premises as herein defined).
26.2 Any such relocation shall be entirely at the expense of Landlord
or the third party tenant replacing Tenant in the Premises. Such a relocation
shall not terminate or otherwise affect or modify this Lease except that from
and after the date of relocation, Premises shall refer to the relocation space
into which Tenant has been moved, rather than the original Premises as herein
defined.
27. HOLDING OVER
27.1 If Tenant holds over without Landlord's written consent after
expiration or other termination of this Lease, or it Tenant continues to occupy
the Premises after termination of Tenant's right of possession pursuant to the
provisions of Paragraph 23.2(c), Tenant shall throughout the entire hold-over
period pay rent equal to twice the Base Rental and additional Base Rental which
would have been applicable had the term of this Lease continued through the
period of such holding over by the Tenant. Landlord and Tenant maintain the
right to terminate this month-to-month tenancy with thirty (30) day written
notification to the other party.
27.2 No possession by Tenant after the expiration of the term of this
Lease shall be construed to extend the term of this Lease unless Landlord has
consented to such possession in writing.
28. SUBORDINATION TO MORTGAGE
28.1 This Lease is and shall be subject and subordinate only to a first
mortgage, whether presently existing or hereafter arising upon the Premises, or
upon the Building and to any renewals, modifications, refinancing or extensions
thereof, but Tenant agrees that any such first mortgagee shall have the right at
any time to subordinate such mortgage to this Lease on such terms and subject to
such conditions as such mortgagee may deem appropriate in its sole discretion
provided mortgage provides a non-disturbance agreement for Tenant.
28.2 Landlord is hereby irrevocably vested with full power and
authority to subordinate this Lease to any first mortgage, now existing or
hereafter placed upon the Premises or the Building, and Tenant agrees upon
demand to execute such further instruments subordinating the Lease or attorning
to the holder of any such first lien as Landlord may request.
28.3 The terms of this Lease are subject to approval by the Landlord's
permanent lender(s), and such approval is a condition precedent to Landlord's
obligations hereunder. In addition, all leases of portions of the Building will
be subordinate to such permanent lender's mortgage.
28.4 If Tenant should fail to execute any subordination or other
agreement required by this paragraph, promptly as requested, Tenant hereby
irrevocably constitutes Landlord as its attorney-in-fact to execute such
instrument in Tenant's name, place and stead, it being agreed that such power is
one occupied with an interest.
28.5 Tenant agrees that it will from time to time upon request by
Landlord, execute and deliver to such persons as Landlord shall request, a
statement in recordable form certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as so modified), stating the dates to which rent and other
charges payable under this Lease have been paid, stating that Landlord is not in
default hereunder (or if Tenant alleges default stating the nature of such
alleged default) and further stating such other matters as Landlord or its
mortgagee(s) shall reasonably require.
28.6 Tenant shall, in the event of the sale or assignment of Landlord's
interest in the Building of which the Premises form a part, or in the event of
any proceedings brought for the foreclosure of, or in the event of exercise of
the power of sale under any mortgage made by Landlord covering the Premises,
attorn to the purchaser and recognize the purchaser as Landlord under this
Lease.
-14-
<PAGE>
29. LANDLORD'S LIEN
29.1 Tenant hereby grants to Landlord a lien and security interest on
all property of Tenant now or hereafter placed in or upon the Premises, and such
property shall be and remain subject to such lien and security interest of
Landlord for payment of all rent and other sums agreed to be paid by Tenant
herein. It is provided, however, that the Landlord shall not have a lien which
would be superior to a lien from a lending institution, supplier or leasing
company, if such lending institution, supplier or leasing company has a security
interest in the equipment, furniture or other tangible personal property and
which security interest has its origin in a transaction whereby Tenant acquired
such equipment, furniture or other tangible personal property.
29.2 The provisions of this paragraph relating to such lien and
security interest shall constitute a security agreement under and subject to the
Uniform Commercial Code of the State of Florida so that Landlord shall have and
may enforce a security interest on all property of Tenant now or hereafter
placed in or on the Premises, in addition to and cumulative of the Landlord's
liens and rights provided by law or by the other terms and provisions of this
Lease.
29.3 Tenant agrees to execute as debtor such financing statement or
statements and such other documents as Landlord may now or hereafter request in
order to protect or further perfect Landlord's security interest.
Notwithstanding the above, Landlord shall neither sell nor withhold from Tenant,
Tenant's business records.
30. ATTORNEY'S FEES The prevailing party will pay all collection or court costs
incurred by Landlord and Landlord's reasonable attorneys' fees incurred for the
collection of unpaid rentals or the enforcement, defense or interpretation of
Landlord's rights under this Lease, whether such fees and costs be incurred out
of court, at trial, on appeal, or in bankruptcy proceedings.
31. NO IMPLIED WAIVER
31.1 The failure of Landlord to insist at any time upon the strict
performance of any covenant or agreement or to exercise any option, right, power
or remedy contained in this Lease shall not be construed as a waiver or a
relinquishment thereof for the future.
31.2 No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly installment of rent due under this Lease shall be deemed to be
other than on account of the earliest rent due, or shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy provided in this Lease.
32. PERSONAL LIABILITY The liability of Landlord to Tenant for any default by
Landlord under this Lease shall be limited to the interest of Landlord in the
Building and property and Tenant agrees to look solely to Landlord's interest in
the Building and the property for the recovery of any judgment from the
Landlord, it being intended that Landlord shall not be personally liable for any
judgment or deficiency.
33. SECURITY DEPOSIT
33.1 The Security Deposit shall be held by Landlord without liability
for interest and as security for the performance by Tenant of Tenant's covenants
and obligations under this Lease, it being expressly understood that the
Security Deposit shall not be considered an advance payment of rental or a
measure of Tenant's damages in case of default by Tenant. Landlord may commingle
the Security Deposit with Landlord's other funds.
33.2 Landlord may, from time to time without prejudice to any other
remedy, use the Security Deposit to the extent necessary to make good any
arrearages of rent or to satisfy any other covenant or obligation of Tenant
hereunder. Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount.
-14-
<PAGE>
33.3 If Tenant is not in default at the termination of this Lease, the
balance of the Security Deposit remaining after any such application shall be
returned by Landlord to Tenant.
33.4 If Landlord transfers its interest in the Premises during the term
of the Lease, Landlord may assign the Security Deposit to the transferee and
thereafter Landlord shall have no further liability for the return of such
Security Deposit.
34. FORCE MAJEURE Whenever a period of time is herein prescribed for the taking
of any action by Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation of such period of time, any delays
due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions, financing, or any other cause
whatsoever beyond the control of Landlord.
35. RELATIONSHIP OF PARTIES Nothing contained in this Lease shall be deemed
or construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of rent, nor any other provision contained herein, nor any
acts of the parties herein, shall be deemed to create any relationship between
the parties hereto other than the relationship of Landlord and Tenant.
36. MISCELLANEOUS
36.1 Severability If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to the persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
36.2 Recordation Tenant agrees not to record this Lease or any
memorandum hereof but Landlord may record this Lease or a memorandum thereof, at
its sole election.
36.3 Governing Law This Lease and the rights and obligations of the
parties hereto are governed by the laws of the State of Florida.
36.4 Time of Performance Except as expressly otherwise herein
provided, with respect to all required acts of Tenant, time is of the essence of
this Lease.
36.5 Transfers by Landlord Landlord shall have the right to transfer
and assign in whole or in part, all its rights and obligations hereunder and in
the Building and the Premises referred to herein, and in such event and upon
such transfer Landlord shall be released from any further obligations hereunder,
and Tenant agrees to look solely in such successor in interest of Landlord for
the performance of such obligations accruing after such transfer.
36.6 Commissions Landlord and Tenant hereby indemnify and agree to
hold each other harmless against any loss, claim, expense or liability with
respect to any commissions or brokerage fees claimed on account of the execution
of this Lease due to any action of the indemnifying party other than brokerage
commissions paid to Lincoln Property Company of Florida, Inc. and Pizzuti
Realty. Such commissions will be paid under a separate agreement.
36.7 Effect of Delivery of This Lease Landlord has delivered a copy of
this Lease to Tenant for Tenant's review only, and the delivery hereof does not
constitute an offer to Tenant or an option to Lease. This Lease shall not be
effective until it is executed by both Landlord and Tenant.
36.8 Paragraph Headings The paragraph or sub-paragraph headings are
used for convenience of reference only and do not define, limit or extend the
scope or intent of the paragraphs.
36.9 Definitions The definitions set forth in Paragraph 1 are hereby
made part of this Lease.
36.10 Exhibits The following exhibits are attached hereto and
incorporated herein and made a part of this Lease for all purposes:
-14-
<PAGE>
Exhibit Description
Exhibit "A" Premises Location in Building
Exhibit "B" Tenant Floor Plan
Exhibit "C" Building Rules and Regulations
Exhibit "D" Workletter
36.11 Notices
(a) The Tenant shall pay the rent and shall forward all notices to
Landlord at the following address (or at such other place as
Landlord may hereafter designate in writing):
Lincoln Property Company
851 Trafalgar Court, Suite 114
Maitland, FL 32751
(b) The Landlord shall forward all notices to Tenant at the
following address (or at such other place as Tenant may
hereafter designate in writing):
Pinnacle Assurance Corporation
701 U. S Highway 1, Suite 200
North Palm Beach, Florida 33408
(c) Any notice provided for in this Lease must, unless otherwise
expressly provided herein, be in writing, and may, unless
otherwise expressly provided, be given or be served by
depositing the same in the United States mail, postage
pre-paid and certified and addressed to the party to be
notified with return receipt requested, or by delivering the
same in person to an officer of such party.
(d) Notice deposited in the mail in the manner hereinabove
indicated shall be effective upon receipt, unless such mail is
unclaimed, in which event notice shall be effective five (5)
days after the date of mailing.
37. SPECIAL PROVISIONS
37.1 Base Rental. Reference paragraph 1.3. The base rental means the
following amounts per annum per square foot of Net Rentable Area in the
Premises.
(a) February 24, 1997 - June 30, 1998, $14.50 per year
per square foot of net rentable area.
(b) July 1, 1998 - June 30, 1999, $17.50 per year per
square foot of net rentable area.
(c) July 1, 1999 - June 30, 2000, $18.00 per year per
square coot of net rentable area.
(d) July 1, 2000 - June 30, 2001, $18.50 per year per
square foot of net rentable area.
(e) July 1, 2001 - June 30, 2002, $19.00 per year per
square foot of net rentable area.
(f) July 1, 2002 - June 30, 2003, $19.00 per year per
square foot of net rentable area.
-17-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in multiple
original counterparts as of the day and year first above written.
Executed in the presence of: LANDLORD
LINCOLN-300 LINCOLN PLACE, LTD.
By: Noro-Maitland, Inc., GP
/s/ illegible By: /s/ illegible
- --------------------------- -------------------------------------
Witness Vice President
/s/ illegible Date: 3/17/97 (SEAL)
- --------------------------- -------------------------------------
Witness
TENANT
PINNACLE ASSURANCE CORPORATION
/s/ Mary Baldo By: /s/ Sam A. Stephens
- --------------------------- -------------------------------------
Witness President
/s/ Laura Jett Date: January 19, 1997 (SEAL)
- --------------------------- -------------------------------------
Witness
-18-
<PAGE>
EXHIBIT A
PREMISES LOCATION IN BUILDING
-19-
<PAGE>
EXHIBIT B
TENANT FLOOR PLAN
-20-
<PAGE>
EXHIBIT C
BUILDING RULES AND REGULATIONS
Landlord has adopted the following Building Rules and Regulations for
the care, protection and benefit of your Premises and the Building and for the
general comfort and welfare of all Tenants. These Rules and Regulations are
subject to amendment by the Landlord from time to time.
1. Building Hours and Access
1.1 Normal Building Hours are from 8:00 a.m. to 6:00 p.m., Monday
through Friday, and on Saturday from 8:00 a.m. to 1:00 p.m.
1.2 HVAC service at times other than for Normal Building Hours shall be
furnished only upon written request of Tenant delivered to the Landlord by 4:00
p.m. on the day such usage is requested. Tenant shall bear the entire cost of
such additional service as such costs are determined prior to occupancy.
1.3 Building entry at times other than Normal Building Hours shall be
limited to the Security Entrance (________ door) by use of the after hours keys
access entry systems. Instructions for use of this system will be provided prior
to occupancy.
1.4 Landlord reserves the right to designate the time when freight,
furniture, goods, merchandise and other articles may be brought into, moved or
taken from Premises or the Building. Tenants must make arrangements with the
management office when the elevator is required for the purpose of carrying any
kind of freight.
1.5 Landlord reserves the right at all times to exclude loiterers,
vendors, solicitors, and peddlers from the Building.
1.6 At all times other than Normal Building Hours, Landlord reserves
the right to require registration, satisfactory identification or credentials
from all persons seeking access to any part of the Building. The Landlord will
exercise its best judgment in the execution of such control but not be liable
for the granting or refusal of such access.
2. Building
2.1 The sidewalks, entry passages, corridors, halls, elevators, and
stairways shall not be obstructed by the Tenant or used by it for purposes other
than those of ingress and egress.
2.2 Skylights and windows that reflect or admit light into any place in
the Building shall not be covered or obstructed by the Tenant, except for
Building Standard window treatment designated by Landlord. Floors will not be
obstructed by Tenant.
2.3 Restroom facilities, water fountains, and other water apparatus
shall not be used for any purpose other than that for which they were
constructed, and no rubbish or other obstructing substances shall be thrown
therein. The expense of any breakage, stoppage, or damage resulting from a
violation of this provision shall be borne by Tenant, who shall, or whose
officers, employees, agents, patrons, customers, licensees, visitors, or
invitees, shall have caused the damage.
2.4 Tenant shall not injure, overload or deface the Building, the
woodwork, or the walls of the Premises, nor carry on upon the Premises any
noxious, noisy or offensive business, nor store in the Building or the Premises
any flammable or odorous materials.
2.5 Tenant, its officers, agents, employees, patrons, customers,
licensees, invitees, and visitors shall not solicit in the buildings, parking
facilities or common areas, nor shall Tenant distribute any handbills or other
advertising matter in automobiles parked in the Building's parking facilities.
-21-
<PAGE>
2.6 Landlord will not be responsible for lost or stolen property,
equipment, money, or any article taken from the Premises, Building or parking
facilities, regardless of how or when loss occurs.
3. Doors and Windows and Graphics
3.1 Except for ordinary entry and exit purposes, Tenant entrance doors
shall be kept closed at all times in accordance with the fire code.
3.2 The Tenant shall not put additional locks or latches upon any door
without the written consent of the Landlord.
3.3 Landlord will provide and install, at Landlord's cost, all letters,
or numerals at the entry of the Premises. All such letters and numbers shall be
in the standard graphics for the Building, and no other shall be used or
permitted on the Premises without Landlord's prior written consent.
3.4 All glass, locks and trimmings in or upon the doors and windows of
the Building shall be kept whole and when any part thereof shall be broken, the
same shall be immediately replaced or repaired and put in good repair.
3.5 Window blinds of a uniform Building Standard, color and pattern
only shall be used throughout the Building to give uniform color exposure
through interior and exterior windows. These blinds shall remain in the lower
position at all times to provide uniform exposure to the outside.
3.6 Signage, wall coverings, graphics, or furniture that will be
visible from the atrium or from the exterior entryways must first be approved in
writing by the Landlord.
4. Premises Use
4.1 The Tenant shall not install any heavy equipment or fixtures or
permit any concentration of excessive weight in any portion of the Premises
without first having obtained Landlord's written consent.
4.2 Tenant shall not (without Landlord's written consent) install or
operate any computer, duplicating or other large business machine, equipment or
any other machinery upon the Premises or carry on any mechanical business
thereon. Tenant shall not operate any device which may emanate electrical waves
which will impair radio or television broadcasting or reception from or in the
Building.
4.3 No wires of any kind or type (including but not limited to T.V. and
radio antennas) shall be attached to the outside of the Building and no wires
shall be run or installed in any part of the Building without the Landlord's
prior written consent. Such wiring shall be done by the electrician of the
Building only, and no outside electrician shall be allowed to do work of this
kind unless by the written permission of the Landlord or its representatives.
4.4 If Tenant desires any signal, communication, alarm or other utility
or service connection installed or changed, such work will be done at expense of
Tenant, with the approval and under the direction of Landlord.
4.5 No painting shall be done, nor shall any alterations be made, to
any part of the Building by putting up or changing any partition, doors or
windows, nor shall there be any nailing, boring, or screwing into the woodwork
or plastering, nor shall any connection be made to the electrical wires or
electrical fixtures without the written consent of Landlord or its agents on
each occasion.
4.6 All contractors or technicians performing work for Tenant within
Premises, Building or parking facilities shall be referred to Landlord for
approval before performing such work. This shall apply to all work including,
but not limited to, installation of telephones, telegraph equipment, electrical
devices and attachments, and all installations affecting floors, walls, windows,
doors, ceiling, equipment, or any other physical feature of the Building, the
Premises or parking facilities. None of this work shall be done by Tenant
without Landlord's prior written approval.
-22-
<PAGE>
4.7 If Tenant must dispose of crates, boxes, or other waste which will
not fit into office wastepaper baskets, it will be the responsibility of Tenant
with Landlord's assistance to dispose of same. In no event shall Tenant set such
items in the public hallways or other areas of Building or parking facilities,
(excepting Tenant's own Premises) for disposal.
4.8 Tenant will be responsible for any damage to the Premises,
including carpeting and flooring, as a result of rust or corrosion of file
cabinets, roller chairs, metal objects or spills of any type of liquid.
4.9 If the Premises becomes infested with vermin and if caused by
Tenant, Tenant, at its sole cost and expense, shall cause its Premises to be
exterminated from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
4.10 Tenant shall not conduct its business in such manner as to create
any nuisance, or interfere with, annoy or disturb any other Tenant in the
Building, or Landlord in its operation of the Building or commit waste or suffer
or permit waste to be committed in the Premises, Building or parking facilities.
In addition, Tenant shall not allow its officers, agents, employees, patrons,
customers, licensees and visitors to conduct themselves in such a manner as to
create any nuisance or interfere with, annoy or disturb any other Tenant in the
Building or Landlord in its operation of the Building or commit waste or suffer
or permit waste to be committed in the leased Premises, Building or parking
facilities.
4.11 Tenant shall give Landlord prompt notice of all accidents to or
defects in air-conditioning equipment, plumbing, electric facilities or any part
or appurtenance of the Premises.
4.12 The work of Landlord's janitors or cleaning personnel shall not be
hindered by Tenant after 6:30 p.m. and such work may be done at any time when
the offices are vacant.
5. Auto Registration and Parking
5.1 Landlord has provided unreserved and unassigned parking spaces in
the parking lot for Tenant's convenience. Tenant will not exceed the number of
unreserved, unassigned parking spaces planned for Tenant's use by the Landlord
as set forth in Tenant's Lease.
5.2 Auto decals will be provided for all Tenant vehicles. Tenant will
be provided with Vehicle Registration forms to be filled in with Tenant's staff
names, make and type of car, year, color, and license tag number. This will help
Landlord to locate a driver who may have left his lights on, and prevent
unauthorized use of the parking lot.
6. Miscellaneous
6.1 Paragraph Headings. All paragraph headings are for convenience of
reference only and are not intended to qualify the meaning of any paragraph.
6.2 Lease to Control. If there should be any conflict between the
provisions of the Rules and Regulations and the Lease Agreement, the Lease
Agreement shall control.
-23-
<PAGE>
EXHIBIT D
WORKLETTER
This work letter is part of the Lease dated _________, 19__, between
____________, as Tenant, and _______________, as Landlord, and shall be subject
to all of the terms, definitions and conditions of the Lease. Landlord and
Tenant agree as follows:
1. Landlord's Work
1.1 Base Building Improvements. Landlord shall provide, at its own
expense, as part of the base building improvements, in accordance with building
standard materials, specifications and base building code requirements, the
following:
(a) Finished central core including elevator lobby, restrooms,
stairwells and mechanical rooms.
(b) Central HVAC system including primary air distribution system,
excluding flex duct and diffusers.
(c) Life safety systems including automatic sprinklers, exit signs
at stairways, smoke detectors at the elevator lobby and fire
extinguishers as required for the base building by the
applicable code for light hazard.
(d) Electrical distribution to each floor including power and
lighting panels and emergency lights installed per code.
(e) All base building work will be installed in accordance with
reasonable construction standards in the area.
2. Tenant Improvements
2.1 Definition. Except for the Base Building Work, all tenant
improvements in the Premises, to prepare the Premises for occupancy by the
Tenant, will be charged to the cost of the Improvements, subject to the terms of
the Lease.
2.2 Plans and Specifications. An Architect and Engineers licensed by
the State of Florida shall prepare the architectural, mechanical and electrical
plans and specifications for the layout and improvements of the Premises
("Plans"). The plans shall be in such form and detail as required by the
Landlord in order to determine (a) if the materials requested by the Tenant meet
the quality standards prescribed by the Landlord for Building Standard
materials; and (b) the effect of Improvements on the structural components and
service systems and facilities of the Building.
(a) Space Plan: The "Space Plan" shall be a schematic space plan
for the Premises, including a full and accurate description of
the size and location of all partitions, doors as well as
equipment that could affect structural components and service
systems and facilities of the Building.
(b) Final Plan: The "Final Plans" shall consist of all plans and
specifications necessary to construct Tenant's Work, including
mechanical and electrical working drawings. Tenant's Final
Plans will be certified by an architect licensed to do
business in Florida and will be in a form in which building
and occupancy permits can be obtained.
2.3 Permits. The plans will be submitted to City for plan check and
permit. Any changes required by the City will be incorporated into the plans and
costs will be charged to the cost of the Improvements. Landlord will not be
responsible for delays caused by the City beyond what was anticipated in the
schedule.
2.4 "As-Built" Plans. A set of "as-built" plans of the Premises, in
such form and detail as required by Landlord, shall be delivered to Landlord
within sixty (60) days after Tenant's occupancy. The "as-built" plans required
by this paragraph may consist of the original reproducible drawings from the
Final Plans, accurately marked to show all material changes from the Final Plans
made in actual construction of Tenant's Work.
2.5 Tenant will comply with the attached Schedule of Submissions and
Approvals (Exhibit A) which outline a timetable of responsibilities for actions
and response on the part of
-24-
<PAGE>
Tenant. Failure on the part of Tenant to meet the requirements outlined in the
schedule may result in a delay to the work and non-extension of the Commencement
Date.
3. Construction
3.1 Landlord's Contractor. Landlord will enter into a contract with a
contractor or contractors to perform the work for the Tenant's Improvements. For
the Landlord's services of coordination of the Improvements with the Base
Building and other administrative work, the Landlord will receive a fee of 5% of
the cost of the Improvements. Landlord's cost for the Improvements less credits
shall constitute rent due pursuant to the Lease. All requests for extras or
changes to the work in addition to instructions regarding the work to be
performed by the Contractor shall be made through the Landlord.
3.2 Performance. All work shall be performed in accordance with the
Improvement's Plans and in conjunction with Base Building as-built conditions.
3.3 Landlord's Services. Landlord shall provide at Landlord's expense
to contractor all necessary utilities, elevators or hoisting, general security
and access during normal working hours. At times other than normal working
hours, the contractor will reimburse Landlord for Landlord's actual HVAC costs,
elevator services and security.
3.4 Deliveries. The scheduling of deliveries of materials will be
coordinated with the Landlord. In the event that Landlord reasonably determines
that a delivery during Business Hours would disrupt the normal operation of the
Building, Landlord may require that such delivery be made at a time other than
during Business Hours.
3.5 Inspection by Landlord. Landlord shall have the right to inspect
Tenant's Work at any time, and may reject work that does not (a) strictly
conform with code or with Tenant's Plans as to any matter that might affect the
exterior appearance of the Premises or the structural components or service
systems and facilities of the Building, or (b) substantially conform with
Tenant's Plans in all other aspects.
3.6 Should any material (such as wall covering, carpet, special
equipment, special fixtures, or the like) that Tenant specifies have an
unusually long delivery date or cannot be located within a reasonable time in
order for Landlord to complete the Premises or Landlord finds that any of the
specified materials would delay completion of the space, Landlord will provide
Tenant with written notification of that fact. Tenant shall have seven (7)
calendar days to change the specifications to materials which are readily
available. If Tenant fails to change the specifications in writing to Landlord
within seven (7) calendar days, then the Premises will be deemed to be
substantially complete without those items and other items delayed as a result
of them not having been installed.
3.7 Any material or items that Tenant may be supplying to Landlord for
Landlord's installation in the Premises must be delivered on site November 1,
1996, or the Premises will be deemed substantially complete without those items
or other items delayed as a result of late delivery by Tenant having been
installed.
3.8 Substantial Completion of the Premises is defined as the
availability of the Premises for its intended use, notwithstanding the
provisions of Paragraphs 3.7 and 3.8 above and punch list items not affecting
the function of the Premises.
3.8:1 If Tenant requests any changes in the specifications for the
Building Standard Improvements or in the approved working drawing plans and
specifications for Tenant Improvements, Tenant shall present Landlord with
revised plans and specifications. If Landlord approves such changes, Landlord
shall incorporate such changes in the improvements. However, Landlord may
require prior to proceeding with any changes, additional cash advances against
the Tenant's cost (if Landlord determines that Tenant's proposed changes will
increase the amount of such costs).
3.8:2 If Tenant requests changes in the Building Standard Improvements
or in the approved working drawing plans and specifications for Tenant
Improvements and if such changes delay and/or increase the cost of the work to
be performed hereunder, or if Tenant shall otherwise delays the completion of
the work, Tenant's Obligations to pay rent hereunder shall nevertheless commence
on the date set forth in Paragraph 1 of the Lease and the
-25-
<PAGE>
"Commencement Date" under the Lease shall not be delayed pursuant to Paragraph 3
of the Lease.
4. Payment for Tenant Improvements
4.1 All costs and expenses incurred for the construction of the
Improvements shall be paid by the Tenant, less credit to the Tenant from the
Landlord.
4.2 Any modifications or additions required to the Premises' life
safety systems brought about by final schematic drawings and specifications
(such as the addition and/or relocation of demising walls, sprinkler heads, exit
lights, emergency lighting, firehorns, or the like) shall be a cost of the
Improvements.
4.3 Tenant's Cost shall be payable as follows:
(a) Tenant shall pay to Landlord prior to the commencement of
construction of the improvements, an amount equal to fifty
percent (50%) of the Tenant's Costs (as then estimated by
Landlord).
(b) Prior to occupancy of the Premises, Tenant shall pay to
Landlord the unpaid balance (as such amount can then be
reasonably estimated based on available data) of Tenant's
Costs, plus any approved modifications thereto.
4.4 The amounts payable hereunder shall constitute additional rent due
under the Lease and shall be due at the time specified herein. Tenant's failure
to make any such payments when due shall constitute a default under the Lease,
entitling Landlord to all of its remedies thereunder.
4.5 Allowance. The Tenant shall receive an allowance ("Allowance") of
$10.00 per square foot of net rentable area to offset the Tenant's cost of
improvement of the Premises.
4.6 Payment of Allowance. Landlord shall charge the cost of the
improvements to the amount provided as an Allowance. Certain items of
Improvement work such as ceiling grid and tile, blinds, light fixtures and
mechanical work will have been supplied and/or installed by the Landlord during
the Base Building Schedule for the benefit of the Tenant. These items will be
charged to the Allowance on a unit cost basis.
4.7 Substitution and Credits. The Tenant may request the Landlord to
substitute alternate materials for the specified Building Standard materials
provided such substitutes are new and are of a quality at least comparable to
those replaced, as approved by the Landlord. In the event that Tenant chooses
not to use or to substitute for the Building Standard materials, the cost of the
work will be charged with the value of the materials purchased by the Landlord
for Tenant space. All building standard materials, whether installed by the
Landlord or not, shall be purchased from the Landlord.
5. Delay
5.1 Force Majeure. "Force Majeure" as used in this Work Letter means a
strike or other labor trouble, governmental preemption of priorities or other
controls in connection with a national or other public emergency, or shortage of
fuel, supplies or labor resulting from a national or other public emergency, or
any other cause, whether similar of dissimilar to the above, beyond Tenant's
reasonable control that delays the performance of Tenant's Work, except that if
Tenant employs an outside contractor no strike against such contractor of other
labor trouble will be reason for any postponement of Commencement Date.
Upon occurrence of an event of Force Majeure, Tenant shall within three
(3) business days give notice to Landlord, specifying the event of Force Majeure
and the anticipated delay in completion of Tenant's Work resulting therefrom.
The Commencement Date shall be postponed by the number of days that completion
of Tenant's Work was actually delayed by event of force Majeure, provided, that
in no event shall the Commencement Date be postponed until later than the date
of completion of Tenant's Work. "Completion of Tenant's Work" as used in this
Paragraph 5.1 means Substantial Completion of the Tenant's Work. When Tenant
gives Landlord notice of an event of Force Majeure, Landlord shall have the
right, but shall not be required to take action to mitigate the effect of the
event of force Majeure and to shorten the delay resulting therefrom.
-26-
<PAGE>
5.2 Delays Caused by Landlord. In the event the completion of Tenant's
Work has been materially delayed by acts or omissions of Landlord, then the
Commencement Date shall be postponed by the number of days of delay caused by
such acts or omissions of Landlord. On the condition that upon occurrence of a
delay caused by Landlord, Tenant shall give notice of the delay to Landlord
within three (3) business days, specifying the act of omission of Landlord that
caused the delay and the anticipated length of the delay. In the event that a
delay caused by an event of Force Majeure runs concurrently with a delay caused
by Landlord, the concurrent period of delay shall not be counted twice in
determining the period of postponement of the Commencement Date.
5.3 Other Delays. Except for delays caused by the acts or omissions of
Landlord or by events of Force Majeure, no delays in completion of Tenant's Work
for any reason whatsoever shall postpone the Commencement Date. Specifically,
without limiting the generality of the foregoing, the Commencement Date shall
not be postponed on account of any delay caused by Tenant's requirements for
Tenant's Work, including delays caused by shortages, unavailability of long lead
procurement items for unusual or non-standard materials required for Tenant's
Work; or on account of any other delay caused by Tenant or Tenant's Contractor
unless Landlord is Tenant's Contractor.
6. _________________. In the event of a conflict between the terms and
conditions of this Work Letter and the Lease, the provisions of the Lease shall
control.
TENANT LANDLORD
By:_______________________________ By:________________________________
Address:__________________________ Address:___________________________
__________________________ ___________________________
__________________________ ___________________________
Attention:________________________ Attention:_________________________
-27-
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
Pinnacle Administrative Company Florida
Pinnacle Benefits, Inc Florida
AmComp Preferred Insurance Company Florida
AmComp Assurance Corporation Florida
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the captions "Summary Consolidated
Financial Data"; "Selected Consolidated Financial Data"; and "Experts" and to
the use of our reports dated March 4, 1998, in the Registration Statement (Form
S-1 No. 33-______) and related Prospectus of AmComp Incorporated, dated November
12, 1998.
/s/ Ernst & Young LLP
November 12, 1998
West Palm Beach, Florida
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MCM CORPORATION FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 65,896
<DEBT-CARRYING-VALUE> 26,915
<DEBT-MARKET-VALUE> 37
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 92,848
<CASH> 26,871
<RECOVER-REINSURE> 30,502
<DEFERRED-ACQUISITION> 824
<TOTAL-ASSETS> 226,986
<POLICY-LOSSES> 86,511
<UNEARNED-PREMIUMS> 38,478
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 15,847
<NOTES-PAYABLE> 20,000
22,100
0
<COMMON> 126
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 222,986
102,505
<INVESTMENT-INCOME> 5,178
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 870
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 7,494
<INCOME-TAX> 2,060
<INCOME-CONTINUING> 5,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,434
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.29
<RESERVE-OPEN> 41,307
<PROVISION-CURRENT> 62,991
<PROVISION-PRIOR> 1,430
<PAYMENTS-CURRENT> 16,863
<PAYMENTS-PRIOR> 20,993
<RESERVE-CLOSE> 67,872
<CUMULATIVE-DEFICIENCY> 0
</TABLE>