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OMB APPROVAL
UNITED STATES --------------------------------
SECURITIES AND EXCHANGE COMMISSION OMB NUMBER 3235-0145
WASHINGTON, D.C. 20549 EXPIRES: DECEMBER 31, 1997
ESTIMATED AVERAGE BURDEN
HOURS PER RESPONSE.......14.90
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SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _______)*
Pac Rim Holding Corporation
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
693-71P-10-0
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(CUSIP Number)
J. Chris Seaman, Superior National Insurance Group, Inc.,
26601 Agoura Rd., Calabasas, CA 91302 (818) 880-1600
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
September 17, 1996
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement /X/. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
CUSIP NO. 693-71P-10-0 PAGE 2
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1 NAME OF REPORTING PERSON
S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON
Superior National Insurance Group, Inc.
95-3994873
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
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NUMBER OF 7 SOLE VOTING POWER
SHARES 100
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BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING 100
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PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
100
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Less than 1%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE,
RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF
THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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Item 1. Security and Issuer
This statement on Schedule 13D (this "Statement") relates to
the Common Stock, $0.01 par value per share, CUSIP Number 693-71P-10-0 (the
"Issuer Common Stock"), of Pac Rim Holding Corporation, a Delaware corporation
(the "Issuer"), which has its principal executive offices at 6200 Canoga Avenue,
Woodland Hills, California 91367.
Item 2. Identity and Background
This Statement is filed by Superior National Insurance Group,
Inc., a California corporation ("SNIG"), with its principal office at 26601
Agoura Road, Calabasas, California 91302. Through its wholly-owned subsidiary,
Superior National Insurance Company, Inc., SNIG is in the business of
underwriting worker's compensation insurance in California and Arizona.
During the last five years, SNIG has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
During the last five years, SNIG was not a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws.
CERTAIN BACKGROUND: SNIG has agreed to acquire the Issuer
under the terms of (1) an Agreement and Plan of Merger ("Merger Agreement")
dated as of September 17, 1996 by and among SNIG, the Issuer and SNTL
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of SNIG
("Merger Sub") and (2) a Series A Convertible Debentures and Series 1, 2 and 3
Detachable Warrant Purchase Agreement ("Purchase Agreement") dated as of
September 17, 1996, by and among SNIG and Prac Limited Partnership, a Nevada
limited partnership ("Prac"). Allstate Insurance Company, an Illinois insurance
company ("Allstate"), may also agree to be a party to the Purchase Agreement,
but it has not, as of the date of the filing of this Schedule 13D, executed such
agreement. Should Allstate execute the Purchase Agreement, SNIG will timely file
an amendment to this Schedule 13D to reflect such execution. The Merger
Agreement and the Purchase Agreement are collectively referred to hereinafter as
the "Acquisition Agreements" and the transactions contemplated thereby as the
"Acquisition." Under the Acquisition Agreements, SNIG will pay approximately
$54,000,000 for all of the outstanding securities of the Issuer. The Acquisition
Agreements are described herein for background purposes only, as they confer no
ownership or voting rights on SNIG or Merger Sub.
SNIG is party to a Voting Agreement ("Voting Agreement") dated
as of September 17, 1996 by and among SNIG and Prac, Dito Caree Limited
Partnership, a Nevada limited partnership, Dito-Devcar Corporation, a Nevada
corporation, and Richard H. Pickup, in his capacity as trustee of each of the
Pickup
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Family Trust, TMP Charitable Unitrust, and DRP Charitable Unitrust (together,
the "Principal Shareholders"). Allstate may also agree to be a party to the
Voting Agreement, but it has not, as of the date of the filing of this Schedule
13D, executed such agreement. Should Allstate execute the Voting Agreement, SNIG
will timely file an amendment to this Schedule 13D to reflect the additional
shares that would be subject to the Voting Agreement upon such execution. Under
the Voting Agreement, the Principal Shareholders have agreed to vote their
shares of Issuer Common Stock and rights to acquire Issuer Common Stock upon
conversion of the Issuer's Series A Convertible Debentures (hereinafter referred
to as "Common Stock Equivalents") in favor of the Acquisition. SNIG is
voluntarily filing this Statement because the agreements of the Principal
Shareholders under the Voting Agreement could be deemed to confer shared voting
power on SNIG with respect to the securities of Issuer beneficially owned by the
Principal Shareholders. SNIG hereby disclaims beneficial ownership of any of the
securities subject to Voting Agreement and disclaims any deemed shared voting
power.
Item 3. Source and Amount of Funds or Other Consideration
The Principal Shareholders delivered the Voting Agreement as
an inducement to SNIG to enter into the Acquisition Agreements. No monetary
consideration was given by SNIG for the Voting Agreement; however, each
Principal Shareholder will receive consideration under the Acquisition
Agreements at the closing of the transactions contemplated thereunder upon the
number of shares of the Issuer's Common Stock (or rights to acquire Issuer
Common Stock, whether upon conversion of convertible securities or exercise of
options or warrants) owned by such Principal Shareholder. The price to be paid
per share of Issuer Common Stock will be determined immediately prior to the
closing of the Acquisition, but is believed by Issuer to be between $3.00 and
$3.10 per share of Issuer Common Stock or Common Stock Equivalent. Each other
owner of Issuer Common Stock will receive the same consideration.
Item 4. Purpose of Transaction
SNIG has entered into the Voting Agreement with the Principal
Shareholders for the purpose of securing the affirmative vote of the Principal
Shareholders in favor of the Acquisition Agreements and the Acquisition at a
meeting of the shareholders of Issuer duly called to consider and vote upon the
Acquisition Agreements. The approval of Acquisition Agreements requires the
affirmative vote of at least 70% of the shares of Issuer Common Stock (treating
the shares into which the Debentures are convertible as voting).
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Item 5. Interest in the Securities of the Issuer
A. The percentage of outstanding Issuer Common Stock reported
in this Item 5 to have committed to vote in favor of the Acquisition Agreements
are based upon the assumption that there are 9,528,000 shares of Issuer Common
Stock outstanding as of August 31, 1996, which is the number of outstanding
shares represented by the Issuer to SNIG to be outstanding in the Acquisition
Agreements. In addition, such percentages are based upon an additional 7,272,727
shares of Common Stock Equivalents. The Series A Convertible Debentures (the
"Debentures") are convertible at a conversion price of $2.75 per share, as set
forth in the Issuer's Form 10-K for the year ending December 31, 1995 filed with
the Commission. The holders of the Debentures are entitled to vote as holders of
the shares of Issuer Common Stock into which the principal amount of Debentures
held by them are convertible on matters concerning a change in control of the
Issuer. Based on 16,800,727 shares of Issuer Common Stock and Common Stock
Equivalents voting upon the Acquisition Agreements, the Principal Shareholders
have committed to vote 9,014,005 shares (the "Voting Agreement Shares") of
Issuer Common Stock and Common Stock Equivalents in favor of the Acquisition
Agreements, which represents approximately 53.7% of the outstanding Issuer
Common Stock plus Common Stock Equivalents. An affirmative vote of 70.0% of the
issued and outstanding shares of Issuer Common Stock and Common Stock
Equivalents at a meeting duly called to approve the Acquisition Agreements is
required to approve them.
B. SNIG has no power or shared power to direct the voting of
the Voting Agreement Shares, but through its wholly-owned subsidiary Infonet
Information System, Inc. ("Infonet"), is the beneficial owner of 100 shares of
Issuer Common Stock. However, the Principal Shareholders have agreed to vote the
Voting Agreement Shares in favor of the Acquisition Agreements and SNIG could
seek to have the Voting Agreement enforced in court if it were breached. The
Voting Agreement terminates if the Board of Directors of Issuer terminates the
Acquisition Agreements. SNIG has no power to dispose or to direct the
disposition of the Voting Agreement Shares but could direct the disposition of
100 shares of Issuer Common Stock owned by its subsidiary, Infonet. However, the
Principal Shareholders have agreed that they will not sell or encumber the
Voting Agreement shares or grant any proxies with respect to such shares unless
such transferee or proxy holder has agreed to be bound by the Voting Agreement
and the provisions thereof requiring a vote in favor of the Acquisition
Agreements.
C. Within the past sixty days, SNIG has entered into the
Voting Agreement described in this Statement.
D. Each of the Principal Shareholders has the right to receive
or the power to direct the receipt of dividends from, or the proceeds from the
sale of, the securities subject to the Voting Agreement. SNIG believes that each
of the Principal Shareholders is affiliated with or
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controlled by Mr. Richard H. Pickup. The Principal Shareholders are the record
owners of Securities of the Issuer as follows:
<TABLE>
<S> <C> <C>
Dito-Devcar Corporation Common Stock 1,421,550 Shares
Dito Caree Limited Partnership Common Stock 896,000 Shares
Pickup Family Trust Common Stock 92,000 Shares
TMP Charitable Unitrust Common Stock 29,000 Shares
Richard H. Pickup, Trustee
DRP Charitable Unitrust Common Stock 30,000 Shares
Richard H. Pickup, Trustee
Prac Limited Partnership Debentures $18,000,000
principal amount
</TABLE>
E. N/A.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
A. Voting Agreement dated as of September 17, 1996, by
and among SNIG and the Principal Shareholders, filed
herewith as Exhibit 1
Pursuant to the Voting Agreement, the Principal Shareholders
have agreed to vote their shares of Issuer Common Stock and Common Stock
Equivalents in favor of the Acquisition Agreements and the Acquisition, and
against any alternative proposal for a merger, recapitalization, sale of any
substantial portion of the assets of Issuer, or other business combination
involving the Issuer. The obligation to vote in favor of the Acquisition
terminates if the Board of Directors of Issuer, acting pursuant to its fiduciary
duties, terminates the Acquisition Agreements due to the receipt of an
Acquisition Proposal (as defined in the Voting Agreement) having terms
financially superior for the shareholders of Issuer to those contained in the
Acquisition Agreements. However, in the event a Breakup Fee becomes payable to
SNIG under the Acquisition Agreements, each of the Principal Shareholders has
agreed to pay to SNIG the difference between the price received for their
Debentures and Series 1,2 and 3 Detachable Warrants of Issuer under the
Acquisition Proposal (when consummated) and the Acquisition Agreements. The
Principal Shareholders have
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agreed that they will not sell or encumber the Voting Agreement shares or grant
any proxies with respect to such shares unless such transferee or proxy holder
has agreed to be bound by the Voting Agreement and the provisions thereof
requiring a vote in favor of the Acquisition Agreements. SNIG may seek specific
performance of the Voting Agreement in a California court.
B. Agreement and Plan of Merger ("Merger Agreement"),
dated as of September 17, 1996, by and among SNIG,
the Issuer and Merger Sub, filed herewith as Exhibit
2
Under the Merger Agreement, at the Effective Time of the
Merger, Merger Sub will be merged with and into Issuer and the separate
existence of Merger Sub will cease (the "Merger"), and the common shares of
Issuer will be cancelled and converted into the right to receive cash. The
parties have agreed that the combined acquisition cost for all of the
outstanding shares of Issuer Common Stock, all options and warrants to acquire
Issuer Common Stock, and the Debentures will not exceed $54,021,032. Because the
Issuer's Series 1 Detachable Warrants are subject to an exercise price
adjustment based on an analysis of Issuer's loss reserves which will occur
immediately prior to or at the Effective Time, the price per share of Issuer
Common Stock is variable. The price is expected by Issuer to be in the range of
$3.00-$3.10 per share. The Merger Agreement contains standard representations,
warranties and covenants of the parties. The Merger is subject to customary
closing conditions, including the approval of the California Department of
Insurance under Section 1215 et. seq. of the California Insurance Code,
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, the absence of a material adverse change in the
business, results of operations or prospects of Issuer, and the approval of
the shareholders of Issuer. Issuer has agreed to refrain from soliciting
additional proposals to acquire the Issuer, and to pay a breakup fee if an
alternative Acquisition Proposal (as defined therein) is accepted by Issuer's
Board of Directors.
C. Series A Convertible Debentures and Series 1, 2 and 3
Detachable Warrant Purchase Agreement dated as of
September 17, 1996 ("Purchase Agreement"), by and
among SNIG and Prac Limited Partnership, a Nevada
limited partnership ("Prac"), filed herewith as
Exhibit 3
Under the Purchase Agreement, SNIG will acquire from Prac all
of Prac's Debentures and warrants to purchase Issuer Common Stock for the
Debenture Purchase Price (as defined therein) and the Warrant Purchase Price (as
defined therein). As discussed in Item 2, Allstate may also agree to be a party
to the Purchase Agreement at a date after the date of the filing of this
Schedule 13D. The Debenture Purchase Price is equal to the price per share of
Issuer Common Stock payable under the Merger Agreement multiplied by the number
of Common Stock Equivalents represented by
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the principal amount of Debentures held by Prac. The Warrant Purchase Price is
equal to the "spread" between the price per share of Issuer Common Stock payable
under the Merger Agreement and the exercise or strike price of the warrants.
Warrants which are "out of the money" will be cancelled. The closing under the
Purchase Agreement is subject to the simultaneous consummation of the Merger
Agreement.
Item 7. Material to be Filed as Exhibits
The Filing Person files as exhibits the following:
Exhibit 1 Voting Agreement dated as of September 17, 1996, by
and among the Filing Person and the parties listed on the signature pages
thereto
Exhibit 2 Agreement and Plan of Merger ("Merger Agreement"),
dated as of September 17, 1996, among the Filing Person, the Issuer and SNTL
Acquisition Corp., a Delaware corporation
Exhibit 3 Series A Convertible Debentures and Series 1, 2 and
3 Detachable Warrant Purchase Agreement dated as of September 17, 1996, by and
among the Filing Person and Prac Limited Partnership, a Nevada limited
partnership
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: September 25, 1996
SUPERIOR NATIONAL INSURANCE GROUP,
INC.
/s/ J. Chris Seaman
-----------------------------------
Signature
J. Chris Seaman
Executive Vice President
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EXHIBIT INDEX
Exhibit 1 Voting Agreement dated as of September 17, 1996, by
and among the Filing Person and the parties listed on
the signature pages thereto
Exhibit 2 Agreement and Plan of Merger ("Merger Agreement"),
dated as of September 17, 1996, among the Filing
Person, the Issuer and SNTL Acquisition Corp., a
Delaware corporation
Exhibit 3 Series A Convertible Debentures and Series 1, 2 and 3
Detachable Warrant Purchase Agreement dated as of
September 17, 1996, by and among the Filing Person
and Prac Limited Partnership, a Nevada limited
partnership
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EXHIBIT 1
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement") is entered into as of
September 17, 1996 (the "Effective Date") by and among Superior National
Insurance Group, Inc., a California corporation ("Superior"), and the holders
listed on the signature pages hereof (each, a "Security Holder" and
collectively, the "Security Holders") of (1) shares of common stock, par value
$.01 per share (the "Pac Rim Shares"), and (2) Series A Convertible Debentures
(the "Pac Rim Debentures") of Pac Rim Holding Corporation, a Delaware
corporation ("Pac Rim").
WHEREAS, in order to induce Superior to enter into an Agreement and
Plan of Merger with Pac Rim dated as of the Effective Date (the "Merger
Agreement"), Superior has requested that each of the Security Holders, and each
of the Security Holders has agreed to, enter into this Agreement.
Capitalized terms used but not defined herein have the respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1.
VOTING AND OTHER COVENANTS
1.1 Agreement to Vote. Except as set forth in Section 1.1(b) below,
each of the Security Holders hereby agrees that during the time that this
Agreement is in effect, at any meeting of the stockholders of Pac Rim, however
called, and in any action by written consent of the stockholders of Pac Rim, and
at any other relevant time, such Security Holder shall:
(i) vote any Pac Rim Shares or Pac Rim Debentures presently
owned by such Security Holder and any additional Pac Rim Shares
acquired by such Security Holder (whether by purchase or otherwise)
after the Effective Date (collectively, the "Security Holder Shares")
in favor of the Merger, the Merger Agreement, as amended from time to
time, and the transactions contemplated by the Merger Agreement;
(ii) vote any Security Holder Shares against any Acquisition
Proposal (as defined in the Merger Agreement) and any other action or
agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation of Pac Rim
under the Merger Agreement (including the Exhibits thereto) or which is
reasonably likely to result in any conditions to Pac Rim's obligations
under the Merger Agreement not being fulfilled; and
(iii) Each Security Holder shall, during the time this
Agreement is in force, conduct him, herself or itself, as the case may
be, in accordance with Section 7.1 of the Merger Agreement as if a
party thereto and bound thereby.
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(b) The obligations of each of the Security Holders to vote its
respective Security Holder Shares in accordance with Section 1.1(a) of this
Agreement shall terminate if Pac Rim's Board of Directors, to the extent, and
only to the extent, permitted by Section 7.1 of the Merger Agreement, recommends
an Acquisition Proposal to its stockholders.
1.2 Competing Transaction. In the event under the terms of Section 10.3
of the Merger Agreement a Breakup Fee (as defined therein) becomes payable to
Superior, whether or not such Breakup Fee has been paid, upon consummation of
the transaction contemplated by the Acquisition Proposal, each Security Holder,
with the exception of Allstate Insurance Company, an Illinois insurance company,
agrees to pay to Superior, in cash, an amount equal to the amount by which (x)
the aggregate consideration for the Pac Rim Debentures and the Series 1, 2 and 3
Detachable Warrants of Pac Rim (the "Pac Rim Warrants") (which, if other than in
cash, shall be based on the fair market value thereof) paid to or received by
such Security Holder in respect of the Competing Transaction exceeds (y) the
aggregate consideration for the Pac Rim Debentures and Pac Rim Warrants payable
to such Security Holder under that certain Series A Convertible Debenture and
Series 1, 2 and 3 Detachable Warrant Purchase Agreement of even date herewith.
Such payment shall be made by wire transfer of immediately available funds
within two (2) business days of such Security Holder's receipt of such
consideration to a bank account designated by Superior.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF EACH SECURITY HOLDER
Each of the Security Holders represents and warrants, severally and not
jointly, to Superior that:
2.1 Authority Relative to this Agreement. Such Security Holder has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. If the Security Holder is a corporate or trust entity, the execution and
delivery of this Agreement by the Security Holder and the consummation by the
Security Holder of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors or other governing body of such
Security Holder, and no other corporate or other proceedings on the part of such
Security Holder are necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly and validly executed and delivered by
such Security Holder and constitutes a legal, valid and binding obligation of
such Security Holder, enforceable against such Security Holder in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
2.2 No Conflicts. The execution and delivery of this Agreement by such
Security Holder do not, and the performance of
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this Agreement by such Security Holder will not, (i) where such Security Holder
is a corporate, partnership or trust entity, conflict with or violate the
organizational documents of such Security Holder, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to such Security
Holder or by which such Security Holder Shares are bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would constitute a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of such Security Holder Shares
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which such
Security Holder is a party or by which such Security Holder or such Security
Holder Shares are bound or affected, except, in the case of clauses (i), (ii)
and (iii) of this Section 2.2(a), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay the performance
by such Security Holder of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Security
Holder do not, and the performance of this Agreement by such Security Holder
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental entity, except for applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended, and
except where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
the performance by such Security Holder of its obligations under the Agreement.
2.3 Title to the Shares. As of the date hereof, such Security Holder is
the record and, except for any Security Holder which is identified as a trust in
Exhibit A hereto (collectively, the "Trust Security Holders"), beneficial owner
of such Security Holder Shares listed opposite the name of such Security Holder
on Exhibit A hereto. Such Security Holder Shares set forth opposite the name of
such Security Holder on Exhibit A hereto are the only Security Holder Shares
owned by such Security Holder. The Security Holder Shares of such Security
Holder are, or, if acquired after the date hereof, will be, owned free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on such Security Holder's voting rights,
charges and other encumbrances of any nature whatsoever, except that the
Security Holder Shares held by Trust Security Holders are held subject to the
applicable trust documents, which will not prevent or delay the performance by
such Security Holder of its obligations under this Agreement. Such Security
Holder has not appointed or granted any proxy, which appointment or grant is
still effective, with respect to the Security Holder Shares.
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ARTICLE 3.
COVENANTS OF EACH SECURITY HOLDER
Each of the Security Holders hereby covenants and agrees that:
3.1 No Sales of or Encumbrances on Security Holder Shares. Except
pursuant to the terms of this Agreement or the Merger Agreement, for so long as
such Security Holder is obligated to vote such Security Holder's Security Holder
Shares in accordance with Section 1.1(a) hereof, each Security Holder shall not
directly or indirectly sell, encumber, suffer a lien to exist upon, convey or
transfer or record beneficial ownership of any such Security Holder Shares by
any means whatsoever to any other person, except with the consent of Superior;
provided, however, that Trust Security Holders may transfer ownership of
Security Holder Shares as required by applicable governing instruments if the
transferee of any Security Holder Shares shall, prior to such transfer, execute
a counterpart to this Agreement and shall have agreed to be bound by the terms
of this Agreement, including, but not limited to, the obligation to vote the
Security Holder Shares in accordance with Section 1.1(a) hereof. Subject to the
foregoing, the Security Holders shall not (without limitation), directly or
indirectly (i) grant any proxies or enter into any voting trust or other
agreement or arrangement with respect to the Security Holder Shares or (ii)
sell, assign, transfer, encumber or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
direct or indirect sale, assignment, transfer, encumbrance or other disposition
of any Security Holder Shares during the term of this Agreement.
ARTICLE 4.
MISCELLANEOUS
4.1 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
4.2 Further Assurances. Each of the Security Holders will execute and
deliver or cause to be executed and delivered all further documents and
instruments and use its best efforts to secure such consents and take all such
further action as may be reasonably necessary in order to consummate the
transactions contemplated hereby.
4.3 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations and
which may be required under any agreements, contracts, commitments, instruments,
understandings, arrangements or restrictions of any kind to which
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such party is a party or by which such party is governed or bound, to consummate
and make effective the transactions contemplated by this Agreement, to obtain
all necessary waivers, consents and approvals and effect all necessary
registrations and filings, and submission of information requested by
governmental authorities, and to rectify any event or circumstances which could
impede consummation of the transactions contemplated hereby.
4.4 Specific Performance. The parties hereto agree that Superior would
be irreparably damaged if for any reason the Security Holders failed to perform
any of their obligations under this Agreement, and that Superior would not have
an adequate remedy at law for money damages in such event. Accordingly, Superior
shall be entitled to specific performance and injunctive and other equitable
relief to enforce the performance of this Agreement by the Security Holders.
This provision is without prejudice to any other rights that Superior may have
against the Security Holders for any failure to perform their obligations under
this Agreement.
4.5 Action in Security Holder Capacity Only. Each of the Security
Holders makes no agreement or understanding herein as director or officer of Pac
Rim. Each of the Security Holders signs solely in his, her or its capacity, as
the case may be, as a recordholder and, except for the Trust Security Holders,
beneficial owner of the Security Holder Shares of such Security Holder, and
nothing herein shall limit or affect any action taken in his, her or its
capacity, as the case may be, as an officer or director of Pac Rim.
4.6 Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile or by registered or certified mail (postage prepaid,
return receipt requested) to such party at its address set forth on the
signature page hereto.
4.7 Amendments; Termination. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by Superior and any Security Holders adversely
affected thereby.
(b) This Agreement shall terminate on the earlier to occur of the date
of the termination of the Merger Agreement in accordance with its terms, the
Effective Time of the Merger, or (iii) December 31, 1997, unless the parties to
this Agreement have been notified that the Termination Date (as defined in the
Merger Agreement) has been extended in accordance with the terms thereof.
Notwithstanding the foregoing, the Security Holders' obligation under Section
1.2 hereof shall survive the termination of this Agreement.
4.8 Successors and Assigns; Third Party Beneficiary. The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. No party may assign,
delegate or otherwise transfer any of
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<PAGE> 6
its rights or obligations under this Agreement without the consent of Superior
and the transferring Security Holder, provided that Trust Security Holders may
assign, delegate or otherwise transfer such rights or obligations in connection
with any transfer pursuant to Section 3.1 hereof as required under applicable
governing instruments, provided that the assignee, delegatee, or transferee
shall be required to execute a counterpart to this Agreement, and shall agree to
be bound by the terms of this Agreement, including, but not limited to, the
obligation to vote the Security Holder Shares in accordance with Section 1.1(a).
4.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its
principles of conflict of law.
4.10 Venue. Any action concerning a dispute arising out of or
concerning this Agreement, regarding the interpretation of this Agreement, or
regarding the relationships among the parties created pursuant to this Agreement
shall be filed only in the United States District Court for the Central District
of California or in the Superior Court of the State of California for the County
of Los Angeles.
4.11 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
4.12 Entire Agreement. This Agreement constitutes the entire agreement
between Superior and each Security Holder with respect to the subject matter
hereto.
4.13 Severability. If any term, condition or provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of this Agreement is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible;
provided, however, that any such determination will not relieve any of the
parties hereto of liability for breach of any warranty or representation set
forth herein.
4.14 Legal Action. In the event of any litigation between or among the
parties hereto respecting or arising out of this Agreement, the prevailing party
or parties shall be entitled to recover reasonable attorneys' fees and costs,
whether or not such litigation proceeds to final judgment or determination.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. Chris Seaman
----------------------------------------------
Name: J. CHRIS SEAMAN
Title: Executive Vice President
Address for Notice:Superior National Insurance
Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Attention: William L. Gentz
ALLSTATE INSURANCE COMPANY
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
Address for Notice:Allstate Insurance Company
2775 Sanders Road, Suite A3
Northbrook, Illinois 60062-6127
Attention: Caryn E. Hank, Strategic
Development Manager
with a copy to
Allstate Insurance Company
Investment law Department
3075 Sanders Road, Suite G5A
Northbrook, Illinois 60062-7127
Attention: Elizabeth J. Lapham, Esq.
DITO-DEVCAR CORPORATION, DITO CAREE LIMITED PARTNERSHIP,
a Nevada corporation a Nevada limited partnership
By: GAMEBUSTERS, INC.
a Nevada corporation
Its:General Partner
By: /s/ David B. Hehn By: /s/ David B. Hehn
-------------------- --------------------
Name: DAVID B. HEHN Name: DAVID B. HEHN
Title: President Title: President
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<PAGE> 8
PRAC LIMITED PARTNERSHIP,
a Nevada limited partnership
By: Somme, Inc.
a Nevada corporation
Its:General Partner
By: /s/ David B. Hehn
--------------------------
Name: DAVID B. HEHN
Title: President
/s/ Richard H. Pickup
-------------------------------------
RICHARD H. PICKUP, in his capacity as
Trustee of: Pickup Family Trust,
TMP Charitable Unitrust, and
DRP Charitable Unitrust
Address for Notices for: Dito-Devcar Corporation,
Dito Caree Limited Partnership
Prac Limited Partnership
Pickup Family Trust
TMP Charitable Unitrust
DRP Charitable Unitrust
Wedbush Morgan Securities
500 Newport Center Drive
Suite 550
Newport Beach, California 92660
Attention: Mr. Richard H. Pickup
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<PAGE> 9
EXHIBIT A
SECURITY HOLDER SECURITY HOLDER SHARES AMOUNT
- --------------- ---------------------- ------
Dito-Devcar Corporation Pac Rim Shares 1,421,550
Dito Caree Limited
Partnership Pac Rim Shares 896,000
Pickup Family Trust Pac Rim Shares 92,000
TMP Charitable Unitrust Pac Rim Shares 29,000
Richard H. Pickup Trustee
DRP Charitable Unitrust Pac Rim Shares 30,000
Richard H. Pickup Trustee
Prac Limited Partnership Pac Rim Debentures $18,000,000
Allstate Insurance Company Pac Rim Debentures $2,000,000
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<PAGE> 1
EXHIBIT 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
--------------------------------------
AGREEMENT AND PLAN OF MERGER
--------------------------------------
AMONG
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
SNTL ACQUISITION CORP.
AND
PAC RIM HOLDING CORPORATION
Dated as of September 17, 1996,
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - THE MERGER .............................................. 1
1.1 The Merger ............................................... 1
1.2 The Closing .............................................. 1
1.3 Effective Time ........................................... 2
ARTICLE 2 - CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION ............................. 2
2.1 Certificate of Incorporation ............................. 2
2.2 Bylaws ................................................... 2
ARTICLE 3 - DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION .............................................. 2
3.1 Directors ................................................ 2
3.2 Officers ................................................. 2
ARTICLE 4 - CONVERSION OF PAC RIM COMMON STOCK ...................... 3
4.1 Conversion of Pac Rim Common Stock ....................... 3
4.2 Exchange of Certificates Representing Pac Rim Common
Stock .................................................... 3
4.3 Dissenting Shares ........................................ 3
4.4 Warrants ................................................. 4
4.5 Definitions .............................................. 4
4.6 Exchange of Certificates Representing
Pac Rim Common Stock ..................................... 5
4.7 Dissenting Shares ........................................ 6
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF PAC RIM ............... 7
5.1 Existence; Good Standing; Corporate Authority;
Compliance With Law ...................................... 7
5.2 Authorization, Validity and Effect of Agreements ......... 8
5.3 Capitalization ........................................... 8
5.4 Subsidiaries ............................................. 9
5.5 Other Interests .......................................... 10
5.6 No Violation ............................................. 10
5.7 SEC Documents ............................................ 11
5.8 Litigation ............................................... 11
5.9 Absence of Certain Changes ............................... 12
5.10 Taxes .................................................... 12
5.11 Certain Employee Plans ................................... 15
5.12 Labor Matters ............................................ 16
5.13 No Brokers ............................................... 16
5.14 Fairness Opinion ......................................... 16
5.15 Liens .................................................... 16
5.16 Leased Real Property ..................................... 17
5.17 Environment Matters ...................................... 17
5.18 Intellectual Property .................................... 18
5.19 Powers of Attorney; Guarantees ........................... 18
5.20 Related Party Transactions ............................... 18
5.21 Information in Proxy Statements .......................... 19
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB .......................................... 19
6.1 Existence; Good Standing; Corporate Authority;
Compliance With Law ..................................... 19
6.2 Authorization, Validity and Effect of Agreements ........ 19
6.3 No Violation ............................................ 19
6.4 Interim Operations of Merger Sub ........................ 20
6.5 Financing ............................................... 20
6.6 No Brokers .............................................. 20
6.7 Fairness Opinion ........................................ 21
6.8 Surviving Corporation After the Merger .................. 21
6.9 No Ownership of Company Capital Stock ................... 21
6.10 Information in Proxy Statement .......................... 21
ARTICLE 7 - COVENANTS ............................................... 21
7.1 Acquisition Proposals ................................... 21
7.2 Conduct of Businesses ................................... 21
7.3 Meeting of Stockholders ................................. 25
7.4 Filings; Other Action ................................... 26
7.5 Inspection of Records; Access ........................... 27
7.6 Publicity ............................................... 27
7.7 Proxy Statement ......................................... 27
7.8 Further Action .......................................... 28
7.9 Expenses ................................................ 28
7.10 Indemnification and Insurance. .......................... 28
7.11 Certain Benefits. ....................................... 30
7.12 Restructuring of Merger ................................. 31
7.13 Additional Agreements; Best Efforts ..................... 32
ARTICLE 8 - CONDITIONS .............................................. 32
8.1 Conditions of Each Party's Obligation to Effect
the Merger .............................................. 32
8.2 Conditions to Obligations of Pac Rim to Effect the
Merger .................................................. 33
8.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger ....................................... 33
ARTICLE 9 - TERMINATION ............................................. 34
9.1 Termination by Mutual Consent ........................... 34
9.2 Termination by Either Parent or Pac Rim ................. 34
9.3 Termination by Pac Rim .................................. 35
9.4 Termination by Parent ................................... 35
9.5 Effect of Termination and Abandonment ................... 36
9.6 Extension; Waiver ....................................... 36
ARTICLE 10 - LIQUIDATED DAMAGES AND BREAKUP FEE ..................... 36
10.1 Payment of Liquidated Damages by Parent ................. 36
10.2 Payment of Liquidated Damages by Pac Rim ................ 37
10.3 Payment of Breakup Fee By Pac Rim ....................... 37
ARTICLE 11 - GENERAL PROVISIONS ..................................... 37
11.1 Nonsurvival of Representations, Warranties and
Agreements .............................................. 37
11.2 Notices ................................................. 37
</TABLE>
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<TABLE>
<S> <C>
11.3 Assignment; Binding Effect; Benefit ................ 38
11.4 Entire Agreement ................................... 39
11.5 Amendment .......................................... 39
11.6 Governing Law ...................................... 39
11.7 Venue .............................................. 39
11.8 Counterparts ....................................... 39
11.9 Headings ........................................... 39
11.10 Interpretation ..................................... 39
11.11 Waivers ............................................ 40
11.12 Incorporation of Exhibits .......................... 40
11.13 Severability ....................................... 40
11.14 Enforcement of Agreement ........................... 40
11.15 Subsidiaries ....................................... 40
11.16 Material Adverse Effect ............................ 41
11.17 Attorney's Fees .................................... 41
11.18 Performance by Merger Sub .......................... 41
SCHEDULE 7.11(e) Severance Program ............................. 43
Exhibit A Certificate of Incorporation of SNTL
Acquisition Corporation .................................. 45
Exhibit B Bylaws of SNTL Acquisition Corp. ............... 46
Exhibit C Series A Convertible Debentures and Series
1, 2 and 3 Detachable Warrant Purchase Agreement ......... 47
Exhibit D Option ......................................... 48
Exhibit E Series 3 Warrant Surrender Agreement ........... 49
Exhibit F Chase Manhattan Bank Commitment Loan Letter .... 50
Exhibit G Executed Insurance Partners Stock
Purchase Agreement ....................................... 51
Exhibit H Voting Agreement ............................... 52
Exhibit I Compensation Plan for Senior Management Plan ... 53
Exhibit J 1996 Annual Incentive Plan Plan Document ....... 54
Exhibit K Stanley Braun Employment Agreement and
Amendments Thereto ....................................... 55
</TABLE>
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<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of September 17, 1996, by and among SUPERIOR NATIONAL INSURANCE GROUP, INC., a
California corporation ("Parent"), SNTL ACQUISITION CORP., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and PAC RIM
HOLDING CORPORATION, a Delaware corporation ("Pac Rim"), with reference to the
following recitals:
R E C I T A L S
A. The Boards of Directors of Parent and Pac Rim each have determined
that a business combination between Parent and Pac Rim is in the best interests
of their respective companies and stockholders and presents an opportunity for
their respective companies to achieve long-term strategic and financial benefits
and, accordingly, have agreed to effect the merger provided for herein upon the
terms and subject to the condition set forth herein.
B. Parent, Merger Sub and Pac Rim desire to make certain
representations, warranties, covenants and agreements in connection with the
merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged
with and into Pac Rim in accordance with this Agreement and the separate
corporate existence of Merger Sub shall thereupon cease (the "Merger"). Pac Rim
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation"). The Merger shall have the effects specified
in Section 259 of the Delaware General Corporation Law (the "DGCL").
1.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger ("the "Closing") shall take place at the offices of
Barger & Wolen LLP, 515 South Flower Street, 34th Floor, Los Angeles, California
90071 at 9:00 a.m., local time, on the first business day immediately following
the day on which the last to be fulfilled or waived of the conditions set forth
in Article 8 shall be fulfilled or waived in accordance herewith, or at such
other time, date or place as Parent and Pac Rim may agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
<PAGE> 6
1.3 Effective Time. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Merger Sub (a copy of which is attached hereto as Exhibit A) in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
applicable law.
2.2 Bylaws. The Bylaws of Merger Sub (a copy of which is attached
hereto as Exhibit B) in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation, until duly amended in accordance with
applicable law.
ARTICLE 3
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
3.2 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
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<PAGE> 7
ARTICLE 4
CONVERSION OF PAC RIM COMMON STOCK AND
OPTIONS; DEBENTURES AND WARRANTS
4.1 Conversion of Pac Rim Common Stock. (a) At the Effective Time, each
share of the common stock, $0.01 par value, of Merger Sub outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock, $0.01 par value, of the Surviving Corporation.
(b) At the Effective Time, each share of the common stock, $0.01 par
value, of Pac Rim (the "Pac Rim Common Stock") issued and outstanding
immediately prior to the Effective Time, other than the Dissenting Shares (as
defined below), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive cash in the
amount of "Merger Price Per Share" (as defined in Section 4.5(c) hereof),
without interest except for that certain interest payable under Section 9.2
hereof, which interest shall be distributed pro rata on a per share basis.
(c) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Pac Rim Common Stock shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of a certificate (a "Certificate") representing any shares of Pac
Rim Common Stock shall thereafter cease to have any rights with respect to such
shares of Pac Rim Common Stock, except the right to receive the Merger Price Per
Share upon the surrender of such Certificate.
(d) Each share of Pac Rim Common Stock issued and held in Pac Rim's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be cancelled and retired without payment of any
consideration therefor.
4.2 Convertible Debentures. At the Effective Time and in accordance
with the terms of the certain Series A Convertible Debentures and Series 1, 2
and 3 Detachable Warrant Purchase Agreement of even date herewith, a copy of
which is attached hereto as Exhibit C (the "Purchase Agreement"), the holders of
the Convertible Debentures (as defined in Section 5.3 hereof) shall be entitled
to receive consideration in an amount equal to the number of shares of Pac Rim
Common Stock issuable upon conversion of the Convertible Debentures pursuant to
the "Debenture/Purchase Agreement" (as defined in Section 5.3 hereof) multiplied
by the Merger Price Per Share. All amounts payable under this Section 4.2 shall
hereinafter be referred to as the "Debenture Consideration."
4.3 Options. At the Effective Time, each holder of a then outstanding
"In The Money Option" (as defined in Section 4.5(a) hereof) to purchase shares
of Pac Rim Common Stock under the Pac Rim Holding Corporation 1987 Stock Option
Plan (the "1987 Plan") and the Pac Rim Holding Corporation 1988 Stock Option
Plan (the "1988 Plan")
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<PAGE> 8
(the 1987 Plan and 1988 Plan, collectively, the "Pac Rim Stock Option Plans")
shall, in settlement thereof, receive from Pac Rim for each share of Pac Rim
Common Stock subject to such option an amount (subject to applicable withholding
tax) in cash equal to the excess of the Merger Price Per Share over the per
share exercise or strike price of such option as of the Effective Time,
multiplied by the total number of shares of Pac Rim Common Stock issuable upon
the exercise of such option (such amount being hereinafter referred to as the
"Option Consideration"). At the Effective Time, each In The Money Option shall
be cancelled and converted into the right to receive Option Consideration. The
surrender of an In The Money Option shall be deemed a release of any and all
rights the holder had or may have had in respect of such option. Each "Out Of
The Money Option" (as defined in Section 4.5(g) hereof) shall be cancelled
without consideration.
4.4 Warrants. At the Effective Time, each holder of a then outstanding
"In The Money Warrant" (as defined in Section 4.5(a) hereof) to purchase shares
of Pac Rim Common Stock pursuant to the terms of the Debenture/Warrant Agreement
shall, in settlement thereof and pursuant to the terms of the Purchase
Agreement, receive from Pac Rim for each share of Pac Rim Common Stock subject
to such warrant an amount in cash equal to the excess of the Merger Price Per
Share over the per share exercise or strike price of such warrant as of the
Effective Time (after adjustment of the exercise or strike price, if applicable,
under the Debenture/Warrant Agreement), multiplied by the total number of shares
issuable upon the exercise of such warrant (such amount being hereinafter
referred to as the "Warrant Consideration"). At the Effective Time, each In The
Money Warrant shall be cancelled and converted into the right to receive Warrant
Consideration. The surrender of a warrant shall be deemed a release of any and
all rights the holder had or may have had in respect of such warrant. Each Out
Of The Money Warrant (as defined in Section 4.5(h) hereof) shall be cancelled
without consideration. All amounts payable under this Section 4.4 shall
hereinafter be referred to as the Warrant Consideration.
4.5 Definitions. The following terms shall, when used in this
Agreement, have the following meanings:
(a) "In The Money Option" means an option issued under the Pac Rim
Stock Option Plans whose exercise price per share as of the Effective Time is
less than the Merger Price Per Share.
(b) "In The Money Warrant" means a warrant issued pursuant to the
Debenture-Purchase Agreement whose exercise price per share as of the Effective
Time is less than the Merger Price Per Share.
(c) "Preliminary Merger Price Per Share" is $54,021,032 (the "Purchase
Price") plus the aggregate exercise price for the In The Money Options and In
The Money Warrants divided by the "Deemed Number of Shares" (as defined in
Section 4.5(e) hereof).
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<PAGE> 9
(d) "Merger Price Per Share" shall be the Preliminary Merger Price Per
Share rounded to the nearest $0.0025. In no event will the Merger Price Per
Share cause the amounts calculated pursuant to Sections 4.1, 4.2, 4.3 and 4.4
hereof to exceed $54,021,032 in the aggregate, subject to the effect of rounding
discussed in the preceding sentence.
(e) "Deemed Number of Shares" is the actual number of outstanding
shares of Pac Rim Common Stock as of the Effective Time plus the number of
shares of Pac Rim Common Stock into which the Convertible Debentures may be
converted plus the total number of shares of Pac Rim Common Stock that would be
issued upon exercising all of the In The Money Options and In The Money Warrants
outstanding as of the Effective Time.
(f) "Out Of The Money Options" means all options issued under the Pac
Rim Stock Option Plans that are not In The Money Options.
(g) "Out Of The Money Warrants" means all warrants issued under the
Debenture/Purchase Agreement that are not In The Money Warrants.
4.6 Exchange of Certificates Representing Pac Rim Common Stock.
(a) On the Closing Date, Parent shall deposit, or shall cause to be
deposited, with a bank or trust company selected by Parent, which shall be
Parent's paying and transfer agent (the "Exchange Agent"), for the benefit of
the holders of shares of Pac Rim Common Stock and to settle the In The Money
Options, for payment in accordance with this Article 4, $54,021,032 less that
Debenture Consideration, the Warrant Consideration, and any amounts attributable
to the Dissenting Shares (as hereinafter defined), such amount being hereinafter
referred to as the ("Exchange Fund"), to be paid pursuant to this Section 4.6 in
exchange for outstanding shares of Pac Rim Common Stock and pursuant to Section
4.3 upon settlement of the In The Money Options.
(b) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates (i) a
letter of transmittal which shall specify that delivery of such Certificates
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for payment of the Merger Price Per Share hereunder. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
therefor, in cash, the product of (x) the Merger Price Per Share and (y) the
number of shares of Pac Rim Common Stock represented by such Certificates so
surrendered by such holder, and the Certificate so
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<PAGE> 10
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Pac Rim Common Stock which is not registered in the transfer
records of Pac Rim, the Exchange Agent may condition payment hereunder upon the
surrender of the Certificate representing such Pac Rim Common Stock to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Pac Rim of the shares of Pac Rim Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for payment in accordance with the procedures set forth
in this Article 4.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the former stockholders of Pac
Rim nine (9) months after the Effective Time shall be delivered to the Surviving
Corporation. Any former stockholders of Pac Rim who have not theretofore
complied with this Article 4 shall thereafter look only to the Surviving
Corporation as general creditors thereof for payment of the Purchase Price in
respect of each share of Pac Rim Common Stock that such stockholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
(e) None of Parent, Pac Rim, the Exchange Agent or any other person
shall be liable to any former holder of shares of Pac Rim Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will pay in exchange for such lost, stolen or destroyed Certificate the Merger
Price Per Share as provided in Section 4.6(a), deliverable in respect thereof
pursuant to this Agreement.
4.7 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary, shares
of Pac Rim Common Stock which are held by any recordholder who has not voted in
favor of the Merger or consented thereto in writing and who has demanded
appraisal rights in accordance with Section 262 of the DGCL ("the Dissenting
Shares") shall not be converted into the right to receive the Merger Price Per
Share hereunder but shall become the right to receive such consideration as may
be determined due in respect of such Dissenting
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<PAGE> 11
Shares pursuant to the DGCL; provided, however, that any holder of Dissenting
Shares who shall have failed to perfect, or shall have withdrawn or lost, his
rights to appraisal of such Dissenting Shares, in each case under the DGCL,
shall forfeit the right to appraisal of such Dissenting Shares, and such
Dissenting Shares shall be deemed to have been converted into the right to
receive, as of the Effective Time, the Merger Price Per Share in accordance with
this Article 4, without interest. Notwithstanding anything contained in this
Section 4.7, if (i) the Merger is rescinded or abandoned or (ii) if the
stockholders of Pac Rim revoke the authority to effect the Merger, then the
right of any stockholder to be paid the fair value of such stockholder's
Dissenting Shares shall cease. The Surviving Corporation shall be the only
obligor with respect to and shall comply with all of its obligations under the
DGCL with respect to holders of Dissenting Shares.
(b) Pac Rim shall give Parent (i) prompt notice of any demands for
appraisal, and any withdrawals of such demands, received by Pac Rim and any
other related instruments served pursuant to the DGCL and received by Pac Rim,
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. Pac Rim shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle any such demands.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PAC RIM
Except as set forth in the disclosure letter delivered by or on behalf
of Pac Rim to Parent at or prior to the execution hereof in form and substance
satisfactory to Parent (the "Pac Rim Disclosure Letter") and except to the
extent qualified by Section 11.16(b) hereof, Pac Rim represents and warrants to
Parent as of the date of this Agreement as follows:
5.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
Pac Rim is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Pac Rim is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary. Pac Rim has all requisite corporate
power and authority to own, operate and lease its properties and carry on its
business as now conducted. Each of Pac Rim's "Subsidiaries" (as defined in
Section 11.15 hereof) is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation or
organization, has the corporate power and authority to own its properties and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the ownership of its
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property or the conduct of its business requires such qualification. The Pac Rim
Disclosure Letter sets forth the states in which Pac Rim and its Subsidiaries
are incorporated and licensed or qualified to do business. Neither Pac Rim nor
any of its Subsidiaries is in violation of any order of any court, governmental
authority or arbitration board or tribunal. Neither Pac Rim nor any of its
Subsidiaries is in violation of any law, ordinance, governmental rule or
regulation to which Pac Rim or any Pac Rim Subsidiary or any of their respective
properties or assets is subject. Pac Rim and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions required
by applicable law or governmental regulations in connection with their business
as now conducted. The copies of Pac Rim's Certificate of Incorporation and
Bylaws previously delivered to Parent are true and correct.
5.2 Authorization, Validity and Effect of Agreements.
(a) Pac Rim has the requisite corporate power and authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of this Agreement and the transactions contemplated
hereby by the affirmative vote of at least seventy percent (70%) in the
aggregate of (i) the issued and outstanding shares of Pac Rim Common Stock and
(ii) the number of shares of Pac Rim Common Stock into which the outstanding
Convertible Debentures (as hereinafter defined) may be converted, voting
together, the consummation by Pac Rim of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents contemplated hereby (when executed
and delivered pursuant hereto) will constitute, the valid and legally binding
obligations of Pac Rim, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
(b) The provisions of Section 203 of the DGCL do not apply to the
transactions contemplated by this Agreement.
5.3 Capitalization. The authorized capital stock of Pac Rim consists of
35,000,000 shares of Pac Rim Common Stock, and 500,000 shares of preferred stock
(the "Pac Rim Preferred Stock"). As of August 31, 1996, there were 9,528,200
shares of Pac Rim Common Stock issued and outstanding and no shares of Pac Rim
Preferred Stock issued and outstanding. Since such date, no additional shares of
capital stock of Pac Rim have been issued, except pursuant to the Pac Rim Stock
Option Plans. All options outstanding under the Pac Rim Stock Option Plans and
the exercise price and vesting status thereof (assuming a Closing occurs) is set
forth in Exhibit D. In addition, pursuant to the terms of that certain Agreement
to Purchase Series A Convertible Debentures and Series 1, 2 and 3 Detachable
Warrants dated as of April 15, 1994, as amended (the "Debenture/Warrant
Agreement"), Pac Rim has issued and outstanding (i) TWENTY MILLION AND NO/100
DOLLARS ($20,000,000.00) aggregate amount of its eight percent (8%) Series A
Convertible Debentures
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<PAGE> 13
(the "Convertible Debentures"); (ii) 1,500,000 detachable warrants each
exercisable at the price of $2.50 for one share of Pac Rim Common Stock (the
"Series 1 Warrants"); (iii) 1,500,000 detachable warrants each exercisable at
the price of $3.00 for one share of Pac Rim Common Stock (the "Series 2
Warrants"); and (iv) 800,000 detachable warrants each exercisable at the price
of $3.50 for one share of Pac Rim Common Stock (the "Series 3 Warrants"). The
Series 1 Warrants, Series 2 Warrants and Series 3 Warrants shall be referred to,
collectively, as the "Warrants." The Series 3 Detachable Warrant Surrender
Agreement attached hereto as Exhibit E and the Purchase Agreement will transfer,
if consummated, title to all the outstanding Warrants and Convertible
Debentures.
Except as set forth above, Pac Rim has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of Pac Rim on any matter. All such issued
and outstanding shares of Pac Rim Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Other than as
contemplated by this Agreement, the Pac Rim Stock Option Plans, the Convertible
Debentures and the Warrants, there are not at the date of this Agreement any
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate Pac Rim or any of its
Subsidiaries to issue, transfer or sell any shares of capital stock of Pac Rim
or any of its Subsidiaries. As of June 30, 1996, 12,487,730 shares of Common
Stock were reserved for issuance and are issuable upon or otherwise deliverable
in connection with options outstanding under the Pac Rim Stock Option Plans, the
Convertible Debentures and the Warrants; since that date, no options have been
granted under the Pac Rim Stock Option Plans, no new option plans have been
authorized or adopted and no new warrants or convertible debenture with respect
to the Common Stock have been issued. After the Effective Time, the Surviving
Corporation will have no obligation to issue, transfer or sell any shares of
capital stock of Pac Rim or the Surviving Corporation pursuant to any Pac Rim
Benefit Plans (as defined in Section 5.11). There are no outstanding obligations
of Pac Rim or any of its Subsidiaries to purchase, redeem or otherwise acquire
any shares of Pac Rim Common Stock, any capital voting securities or securities
convertible into or exchangeable for capital stock or voting securities of Pac
Rim. No shares of Pac Rim Common Stock are held in the Pac Rim Benefit Plans.
5.4 Subsidiaries. Pac Rim owns directly or indirectly each of the
outstanding shares of capital stock of each of Pac Rim's Subsidiaries. Each of
the outstanding shares of capital stock of each of Pac Rim's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by Pac Rim free and clear of all liens, pledges,
security interests, claims or other encumbrances. The following information for
each Subsidiary of Pac Rim is set forth in the Pac Rim Disclosure Letter: (i)
its name and jurisdiction of incorporation or organization; (ii)
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its authorized capital stock or share capital; and (iii) the number of issued
and outstanding shares of capital stock or share capital.
5.5 Other Interests. Except for interests in the Pac Rim Subsidiaries
and The Pacific Rim Assurance Company's (the "Assurance Company") interest in
its wholly-owned subsidiary, Regional Benefits Insurance Services, Inc., a
California corporation, neither Pac Rim nor any Pac Rim Subsidiary owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
5.6 No Violation. Neither the execution and delivery by Pac Rim of this
Agreement nor the consummation by Pac Rim of the transactions contemplated
hereby in accordance with the terms hereof will: (i) conflict with or result in
a breach of any provisions of the respective certificates of incorporation or
bylaws (or similar governing documents) of Pac Rim or its Subsidiaries; (ii)
except as disclosed in the Pac Rim Reports (as defined in Section 5.7), result
in a breach or violation of, a default under, or the triggering of any payment
or other obligations pursuant to, or accelerate vesting under, any of its
existing Pac Rim Stock Option Plans, or any grant or award made under any of the
foregoing other than accelerated vesting of outstanding options under stock
option agreements in existence on the date hereof with certain employees of Pac
Rim or any of its Subsidiaries by reason of, in whole or in part, the
consummation of the Merger; (iii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Pac Rim or its
Subsidiaries under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which Pac Rim or any of its Subsidiaries is a party, or by which Pac Rim or any
of its Subsidiaries or any of their properties is bound or affected; (iv)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to Pac Rim or any of its Subsidiaries or any of their respective
properties or assets; or (v) other than the filings provided for in Article 1,
certain federal, state and local regulatory filings, filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), state
insurance law (including California Insurance Code Sections 1215 et seq.), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or applicable
state securities and "Blue Sky" laws or filings in connection with the
maintenance of qualification to do business in other jurisdictions
(collectively, the "Regulatory Filings"), require any consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority.
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<PAGE> 15
5.7 SEC Documents. Pac Rim has delivered to Parent each registration
statement, report, proxy statement or information statement prepared by it since
December 31, 1993, including, without limitation, (i) its Annual Report on Form
10-K for the years ended December 31, 1993, 1994 and 1995, (ii) its Quarterly
Report on Form 10-Q for the periods ended March 31 and June 30, 1996, and (iii)
its Proxy Statements for the Annual Meeting of Stockholders held in 1994, 1995
and on July 10, 1996, each in the form (including exhibits and any amendments
thereto) filed with the Securities and Exchange Commission (the "SEC")
(collectively, the "Pac Rim Reports"), which constitute all such Reports that
were required to be filed during such period. As of their respective dates, the
Pac Rim Reports (including, without limitation, any financial statements or
schedules included or incorporated by reference therein) (i) were prepared in
all respects in accordance with the applicable requirements of the Exchange Act
and the rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of Pac Rim included in or incorporated by reference
into the Pac Rim Reports (including the related notes and schedules) fairly
presents the consolidated financial position of Pac Rim and the Pac Rim
Subsidiaries as of its date and each of the consolidated statements of income,
retained earnings and cash flows of Pac Rim included in or incorporated by
reference into the Pac Rim Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of Pac Rim and the Pac Rim Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments which would not be material in amount or effect), in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Except as reflected
or reserved against or disclosed in the financial statements of Pac Rim (and the
notes thereto) included in the Pac Rim Reports and incurred subsequent to June
30, 1996 in the ordinary course of business consistent with past practice,
neither Pac Rim nor any of its Subsidiaries has any liabilities, of any nature,
whether accrued, absolute, contingent or otherwise, whether due or to become due
and whether required to be recorded or reflected on a balance sheet (or the
notes thereto) under generally accepted accounting principles. Except as
described in the Pac Rim Disclosure Letter, since June 30, 1996, neither Pac Rim
nor any Subsidiary of Pac Rim has incurred any liabilities other than
liabilities which have been incurred in the ordinary course of business
consistent with past practice.
5.8 Litigation. Except as disclosed in the Pac Rim Reports filed with
the SEC prior to the date hereof and as otherwise set forth in this Section 5.8,
neither Pac Rim nor its Subsidiaries have been notified that any governmental
investigations are being conducted with respect to their respective properties,
assets, permits or licenses, and there are no actions, suits or proceedings
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<PAGE> 16
pending against Pac Rim or the Pac Rim Subsidiaries or, to the knowledge of Pac
Rim, threatened against Pac Rim or the Pac Rim Subsidiaries or any of their
respective properties or assets, at law or in equity, or before or by any
federal or state commission, board, bureau, agency or instrumentality, that
would prevent or delay the consummation of the transactions contemplated by this
Agreement. Except as disclosed in the Pac Rim Reports filed with the SEC prior
to the date hereof, neither Pac Rim nor any of its Subsidiaries are subject to
any outstanding order, writ, injunction or decree which, would prevent or delay
the consummation of the transactions contemplated hereby. The California
Department of Insurance (the "California Department") is currently conducting a
triennial examination of the Assurance Company and the Assurance Company was
named as a defendant in the following actions: (1) NPI Medical Group, et al. v.
State Compensation Insurance Fund, et al., Case No. BC 116099, Superior Court of
the State of California, Los Angeles County; and (2) FWHC Medical Group, et al.
v. State Compensation Insurance Fund, et al, Case No. BC 089361, Superior Court
of the State of California, Los Angeles County.
5.9 Absence of Certain Changes. Since June 30, 1996, each of Pac Rim
and its Subsidiaries has conducted its business only in the ordinary course of
such business and there has not been (i) any event or changes with respect to
Pac Rim and its Subsidiaries, (ii) any declaration, setting aside or payment of
any dividend or other distribution with respect to its capital stock or any
repurchase, redemption or other acquisition by Pac Rim or its Subsidiaries of
any outstanding shares of capital stock or other securities in, or other
ownership interests in, Pac Rim or any of its Subsidiaries, (iii) any change in
its accounting principles, practices or methods or (iv) any event or changes or
action taken which would constitute a breach of Section 7.2 of this Agreement if
it had occurred or been taken after the date hereof; provided, however, this
Section 5.9(iv) shall not apply to subsections (c) or (e) of Section 7.2.
5.10 Taxes.
(a) Filing of Tax Returns. Pac Rim (including, for purposes of this
Section 5.10, each of its Subsidiaries from time to time) has timely filed with
the proper taxing or other governmental authorities all returns (including,
without limitation, information returns and other tax-related information) in
respect of Taxes (as such term is defined in Section 5.10(e)) required to be
filed through the date hereof. Such returns and information filed are, to the
knowledge of Pac Rim, complete, correct and accurate in all respects. Pac Rim
has delivered to Parent complete and accurate copies of all of Pac Rim's
federal, state and local Tax returns filed for its taxable years ended 1991
through 1994. Pac Rim has not filed any federal, state or local tax returns for
its taxable years ended December 31, 1995 and 1996, or has delivered to Parent
complete and accurate copies of all such returns that have been filed for such
taxable years.
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<PAGE> 17
(b) Payment of Taxes. All Taxes for which Pac Rim is shown as owing on
any Tax return for any period or portion thereof ending on or before the Closing
Date, shall have been paid, or an adequate reserve (in conformity with generally
accepted accounting principles applied on a consistent basis and in accordance
with Pac Rim's past custom and practice) has been established therefor, and Pac
Rim has no liability (whether or not due and payable) for Taxes in excess of the
amounts so paid or reserves so established. All Taxes that Pac Rim has been
required to collect or withhold have been duly collected or withheld and, to the
extent required when due, have been or will be duly paid to the proper taxing or
other governmental authority. Pac Rim had, as of December 31, 1995, a net
operating loss carryover of $2,676,000 for federal income tax purposes (the
"NOL").
(c) Audit History. Except as set forth in the Pac Rim Disclosure
Letter:
(i) No deficiencies for Taxes or adjustments to the NOL of Pac
Rim have been claimed, proposed or assessed by any taxing or other
governmental authority.
(ii) There are no pending or, to the best of Pac Rim's
knowledge, threatened audits, investigations or claims for or relating
to any liability in respect of Taxes of Pac Rim, and there are no
matters under discussion with any taxing or other governmental
authority with respect to Taxes of Pac Rim.
(iii) All audits of federal, state and local returns for Taxes
by the relevant taxing or other governmental authority have been
completed for all periods.
(iv) Pac Rim has not been notified in writing that any taxing
or other governmental authority intends to audit a return for any other
period.
(v) No extension of a statute of limitations relating to Taxes
is in effect with respect to Pac Rim.
(d) Tax Elections. Except as set froth in Pac Rim Disclosure Letter:
(i) There are no material elections with respect to Taxes
affecting Pac Rim.
(ii) Pac Rim has not made an election and is not required to
treat any asset of Pac Rim as owned by another person or as tax-exempt
bond financed property or tax-exempt use property within the meaning of
Section 168 of the Internal Revenue Code of 1986, as amended (the
"Code"), or under any comparable state or local income Tax or other Tax
provision.
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<PAGE> 18
(iii) Pac Rim is not a party to or bound by any binding tax
sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other person or entity.
(iv) Pac Rim has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or
any corresponding provision of state or local law) or agreed to have
Section 341(f)(2) of the Code (or any corresponding provision of state
or local law apply to any disposition of any asset owned by it.
(e) Additional Tax Representations. Except as set forth in the Pac Rim
Disclosure Letter:
(i) There are no liens for Taxes (other than for Taxes not yet
delinquent upon the assets of Pac Rim).
(ii) Pac Rim has never been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code, nor has
Pac Rim or any present or former Subsidiary of Pac Rim, or any
predecessor or affiliate of any of them, become liable (whether by
contract, as transferee or successor, by law or otherwise) for the
Taxes of any other person or entity under Treasury Regulation Section
1.1502-6 or any similar provision of state, local or foreign law.
(iii) Pac Rim has not made, requested or agreed to make, nor
is it required to make, any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise for any taxable
year.
(iv) Pac Rim is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in
the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code or would require payment of any
amount as to which a deduction may be denied under Section 162(m) of
the Code.
(v) Pac Rim is not a party to any joint venture, partnership,
or other arrangement or contract which could be treated as a
partnership for federal, state, local or foreign Tax purposes.
(vi) Pac Rim has prepared and made available to Parent all of
Pac Rim's books and working papers that clearly demonstrate the income
and activities of Pac Rim for the last full reporting period ending
prior to the date hereof.
(vii) Pac Rim has not been a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section
897(c)(1)(A)(ii).
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<PAGE> 19
(f) Definition of Taxes. For purposes of this Agreement, the term
"Taxes" shall mean all federal, state, local, foreign and other taxes,
assessments or other governmental charges, including, without limitation,
income, estimated income, gross receipts, profits, occupation, franchise,
capital stock, real or personal property, sales, use, value added, transfer,
license, commercial rent, payroll, employment or unemployment, social security,
disability, withholding, alternative or add-on minimum, customs, excise, stamp
or environmental taxes, and further including all interest, penalties and
additions in connection therewith for which Pac Rim may be liable.
5.11 Certain Employee Plans.
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and any
bonus, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, vacation, severance,
death benefit, insurance or other plan, arrangement or understanding (whether or
not legally binding), in each case maintained or contributed to for the benefit
of employees of Pac Rim or any of its Subsidiaries (all the foregoing being
herein called the "Pac Rim Benefit Plans"), individually and in the aggregate,
no event has occurred, and to the knowledge of Pac Rim or any of its
Subsidiaries, there exists no condition or set of circumstances, in connection
with which Pac Rim or any of its Subsidiaries could be subject to any liability
(except liability for benefits claims and funding obligations payable in the
ordinary course), under ERISA or any other applicable law.
(b) With respect to the Pac Rim Benefit Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, established in accordance with
generally accepted accounting principles, or otherwise properly footnoted in
accordance with generally accepted accounting principles, on the financial
statements of Pac Rim or any of its Subsidiaries. Pac Rim has not been nor is it
currently obligated under any multi-employer plans as defined in ERISA.
(c) Except as required by applicable law, neither Pac Rim nor any of
its Subsidiaries provides any health, welfare or life insurance benefits to any
of their former or retired employees.
(d) Except for changes due to increases in the length of employment,
Schedule 5.11(d) of the Pac Rim Disclosure Letter lists the employees of Pac Rim
and its Subsidiaries who are eligible for severance benefits and the amounts
that would be due such employees if they were terminated as of July 24, 1996.
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5.12 Labor Matters.
(a) Neither Pac Rim nor any of its Subsidiaries is a party to, or bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair labor
practice or labor arbitration proceeding pending or, to the knowledge of Pac
Rim, threatened against Pac Rim or its Subsidiaries relating to their business.
To the knowledge of Pac Rim, there are no organizational efforts with respect to
the formation of a collective bargaining unit presently being made or threatened
involving employees of Pac Rim or any of its Subsidiaries.
(b) Pac Rim has delivered to Parent copies of all employment
agreements, consulting agreements, severance agreements, bonus and incentive
plans, profit-sharing plans and other agreements, plans or arrangements with
respect to compensation of the employees or arrangements with respect to
compensation of the employees of Pac Rim and its Subsidiaries (the "Compensation
Arrangements") and, to the extent required by applicable regulation, all
Compensation Arrangements are described in the Pac Rim Reports.
5.13 No Brokers. Pac Rim has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
Pac Rim or Parent to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except
that Pac Rim has retained Salomon Brothers Inc. ("Salomon"), whose fees and
expenses will be paid by Pac Rim, as its financial advisor to render a fairness
opinion with respect to the Purchase Price, which arrangement has been disclosed
in writing to Parent prior to the date hereof. Other than the foregoing
arrangement, Pac Rim is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby.
5.14 Fairness Opinion. Pac Rim has received the opinion of Salomon to
the effect that the consideration to be received in the Merger by the
stockholders of Pac Rim is fair to such stockholders from a financial point of
view.
5.15 Liens. Other than liens, mortgages, security interests, pledges
and encumbrances which do not materially interfere with Pac Rim's or any of its
Subsidiaries' use and enjoyment of their property or assets or diminish or
detract from the value thereof, neither Pac Rim nor any of its Subsidiaries has
granted, created or suffered to exist with respect to any of its assets, any
mortgage, pledge, charge, hypothecation, collateral, assignment, lien (statutory
or otherwise), encumbrance or security agreement of any kind or nature
whatsoever.
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<PAGE> 21
5.16 Leased Real Property. Neither Pac Rim nor any Subsidiary owns any
real property. The Pac Rim Disclosure Letter sets forth a list of all of the
leases and subleases (the "Real Property Leases") under which, as of the date
hereof, Pac Rim or any of its Subsidiaries has the right to occupy space. Pac
Rim has heretofore delivered to the Parent a true, correct and complete copy of
all of the Real Property Leases, including all amendments thereto. All Real
Property Leases and leases pursuant to which Pac Rim or any of its Subsidiaries
leases personal property from others are valid, binding and enforceable in
accordance with their terms; neither Pac Rim nor any Subsidiary has received
notice of any default by Pac Rim or any Subsidiary under any Real Property
Lease; there are no existing defaults, or any condition or event which with the
giving of notice or lapse of time would constitute a default, by any party to
the Real Property Leases.
5.17 Environmental Matters. Attached to the Pac Rim Disclosure Letter
are copies of all environmental audits or other studies or reports that Pac Rim
has in its possession, which were prepared by third parties to assess Hazardous
Material (as hereinafter defined) risks at any site or facility owned or leased
presently or within the last three (3) years by Pac Rim or any of its
Subsidiaries (a "Site"). Pac Rim and each of its Subsidiaries is in compliance
with all, and has no liability under, any Environmental Laws (as defined below).
Neither Pac Rim nor any of its Subsidiaries has been alleged to be in violation
of, or has been subject to any administrative or judicial proceeding pursuant
to, such Environmental Laws either now or any time during the past three (3)
years. There are no facts or circumstances which Pac Rim reasonably expects
could form the basis for the assertion of any Claim (as defined below) against
Pac Rim or any of its Subsidiaries relating to environmental matters including,
but not limited to, any Claim arising from past or present environmental
practices asserted under any Environmental Laws.
For purposes of this Section 5.17, the following terms shall have the
following meanings:
(a) "Hazardous Materials" shall mean asbestos, petroleum
products, underground tanks of any type and all other materials now or
hereafter defined as "hazardous substances," "hazardous wastes," "toxic
substances" or "solid wastes," or otherwise now or hereafter listed or
regulated pursuant to (collectively, the "Environmentally Laws"): the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., and any amendments thereto; the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., and any amendments thereto; the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.; and any other
similar federal, state or local statute, regulation, ordinance, order,
decree, or any other law, common law theory or reported decision of
any state or federal court, as now or at any time hereafter in effect,
relating to, or imposing liability or standards of conduct
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<PAGE> 22
concerning, any hazardous, toxic or dangerous waste, substance or
material.
(b) "Claim" shall mean any and all claims, demands, causes of
actions, suits, proceedings, administrative proceedings, losses,
judgments, decrees, debts, damages, liabilities, court costs,
attorneys' fees and any other expenses incurred, assessed or sustained
by or against Pac Rim or any of its Subsidiaries.
5.18 Intellectual Property. The Pac Rim Disclosure Letter identifies
all registered trademarks, copyrights and patents owned or licensed by Pac Rim
and its Subsidiaries as of the date hereof. To Pac Rim's best knowledge, Pac Rim
or its Subsidiaries own, or are licensed or otherwise have adequate right to
use, all patents, patent rights, trademarks, trademark rights, service marks,
service mark rights, trade names, trade name rights, copyrights, know-how,
technology, trade secrets and other proprietary information (collectively, the
"Intellectual Property") which are material to the conduct of the business of
Pac Rim and its Subsidiaries. Neither Pac Rim nor any of its Subsidiaries have
received any written claims by any person, and neither Pac Rim nor any of its
Subsidiaries has asserted a claim against any person, with respect to any of the
Intellectual Property owned or used by Pac Rim or its Subsidiaries or
challenging or questioning the validity or effectiveness of any license or
agreement relating thereto to which Pac Rim or any Subsidiary is a party.
5.19 Powers of Attorney; Guarantees. Neither Pac Rim nor any of its
Subsidiaries has any power of attorney outstanding, nor any liability as
guarantor, surety, co-signer, endorser (other than for purposes of collection in
the ordinary course of business) or co-maker in respect of the obligation of any
person, corporation (other than wholly-owned Subsidiaries of Pac Rim),
partnership, joint venture, association, organization or other entity.
5.20 Related Party Transactions. No director, officer, partner,
employee, "affiliate" or "associate" (as such terms are defined in rule 12b-2
under the Exchange Act) of Pac Rim or any of its Subsidiaries (i) has borrowed
any monies from or has outstanding any indebtedness or other similar obligations
to Pac Rim or any of its Subsidiaries; (ii) except as disclosed in Pac Rim's
Proxy Statement for its 1996 annual meeting, owns, directly or indirectly, any
interest of any kind in, or is a director, officer, employee, partner, affiliate
or associate of, or consultant or lender to, or borrower from or has the right
to participate in the management, operations or profits of, any person or entity
which is (x) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of Pac Rim or any of its Subsidiaries, (y) engaged in a
business related to the business of Pac Rim or any of its Subsidiaries or (z)
participating in any transaction to which Pac Rim or any of its Subsidiaries is
a party; or (iii) is otherwise a party to any contract, arrangement or
understanding with Pac Rim or any of its Subsidiaries.
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5.21 Information in Proxy Statement. None of the information supplied
by Pac Rim or its Subsidiaries for inclusion or incorporation by reference in
Parent's "Proxy Statement" (as herein after defined) for the special meeting of
its stockholders to be called to consider the Stock Purchase Agreement referred
to in Section 6.5 hereof will, at the date mailed to stockholders and at the
time of the meeting of Parent's stockholders to be held in connection with the
such Stock Purchase Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure letter delivered by or on behalf
of Parent and Merger Sub to Pac Rim at or prior to the execution hereof in form
and substance satisfactory to Pac Rim (the "Parent Disclosure Letter") and
except to the extent qualified by Section 11.16(b) hereof, Parent and Merger Sub
represent and warrant to Pac Rim as of the date of this Agreement as follows:
6.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Parent has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
6.2 Authorization, Validity and Effect of Agreements. Each of Parent
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of the Stock Purchase Agreement described in
Section 6.5 hereof by the holders of a majority of the outstanding shares of
Parent's common stock, the consummation by Parent and Merger Sub of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of Parent
and Merger Sub, enforceable in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
6.3 No Violation. Neither the execution and delivery by Parent and
Merger Sub of this Agreement, nor the consummation by Parent and Merger Sub of
the transactions contemplated hereby in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any provisions of the Articles of
Incorporation of Parent, the Certificate of Incorporation of Merger Sub or
Bylaws of
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Parent or Merger Sub; (ii) violate, or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default), under or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Parent or its
"Subsidiaries" (as defined in Section 11.14 hereof) under, or result in being
declared void, voidable, or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any license, franchise, permit, lease, contact, agreement or other
instrument, commitment or obligation to which Parent or any of its Subsidiaries
is a party, or by which Parent or any of its Subsidiaries or any of their
properties is bound or affected; or (iii) other than the Regulatory Filings,
require any consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority.
6.4 Interim Operations of Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
6.5 Financing. In obtaining the funds necessary to enable Parent and
Merger Sub to consummate the Merger on the terms contemplated by this Agreement,
Parent and Merger Sub have received a written loan commitment from Chase
Manhattan Bank N.A., a copy of which commitment is attached hereto as Exhibit F,
and Parent has simultaneously herewith entered into a "Stock Purchase Agreement"
with Insurance Partners, L.P., a Delaware limited partnership ("IP") and
Insurance Partners Offshore (Bermuda), L.P., a Bermuda limited partnership ("IP
Bermuda") (IP and IP Bermuda, collectively, "Insurance Partners"), and the
additional equity investors party thereto, for the sale of shares of Parent's
common stock, an executed copy of which is attached hereto as Exhibit G. At the
Effective Time, Parent and the Merger Sub will have available all funds
necessary (a) for the acquisition of all the Convertible Debentures and In The
Money Warrants, (b) for the acquisition of all shares of Pac Rim Common Stock
and In The Money Options pursuant to the Merger and (c) to perform their
respective obligations under this Agreement.
6.6 No Brokers. Parent has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
Pac Rim or Parent to pay a finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except
that Parent has retained Donaldson, Lufkin, Jenrette Securities Corporation
("DLJ"), whose fees and expenses will be paid by Parent, as its financial
advisor and to render a fairness opinion with respect to the sale of Parent's
common stock pursuant to the Stock Purchase Agreement, which arrangement has
been disclosed in writing
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to Pac Rim prior to the date hereof. Other than the foregoing arrangement,
Parent is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
6.7 Fairness Opinion. Parent has a received the opinion of DLJ to the
effect that the financing arrangements described in Section 6.5 hereof are fair
to Parent's stockholders from a financial point of view.
6.8 Surviving Corporation After the Merger. Immediately after the
Effective Time and after giving effect to any change in the Surviving
Corporation's assets and liabilities as a result of the Merger, the Surviving
Corporation will not (i) be insolvent (either because its financial condition is
such that the sum of its debts is greater than the fair value of its assets or
because the fair saleable value of its assets is less than the amount required
to pay its probable liability on existing debts as they become absolute and
mature), (ii) have unreasonably small capital with which to engage in its
business or (iii) have incurred liabilities beyond its ability to pay as they
become due.
6.9 No Ownership of Company Capital Stock. Neither Parent nor Merger
Sub own, directly or indirectly, more that five percent (5%) of Pac Rim Common
Stock.
6.10 Information in Proxy Statement. None of the information supplied
by Parent or Merger Sub for inclusion or incorporation by reference in Pac Rim's
"Proxy Statement" (as herein after defined) for the special meeting of its
stockholders to be called to consider the Merger will, at the date mailed to
stockholders and at the time of the meeting of Pac Rim's stockholders to be held
in connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE 7
COVENANTS
7.1 Acquisition Proposals. Prior to the Effective Time, Pac Rim agrees
(a) that neither Pac Rim nor any of its Subsidiaries nor its or their officers,
directors, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) shall (except to the extent necessary to comply with fiduciary
duties to stockholders as provided in this Section 7.1) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its
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stockholders) with respect to a merger, acquisition, consolidation, tender
offer, exchange offer, business combination or similar transaction involving, or
any purchase of more than forty percent (40%) of the assets or any equity
securities of, Pac Rim or any of its Subsidiaries (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will inform any individuals
or entities with whom an Acquisition Proposal is currently being discussed or
hereinafter making an Acquisition Proposal of the obligations undertaken in this
Section 7.1; and (c) that it will notify Parent immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with Pac Rim or its Subsidiaries; provided, however, that nothing contained in
this Section 7.1 shall, prior to approval of the transaction described herein by
the holders of Pac Rim Common Stock, prohibit the Board of Directors of Pac Rim
from (i) furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited bona fide written
Acquisition Proposal, if, and only to the extent that, (A) such Acquisition
Proposal is on terms that the Board of Directors of Pac Rim determines, with the
assistance of its financial advisors, represents a financially superior
transaction to the holders of Pac Rim Common Stock compared with the Merger, (B)
such Acquisition Proposal is not conditioned upon the acquiror obtaining
financing, (C) the Board of Directors of Pac Rim determines in good faith, based
as to legal matters on the written opinion of outside legal counsel, that such
action is required for the Board of Directors to comply with its fiduciary
duties to stockholders imposed by law, (D) two (2) business days prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Pac Rim provides written notice to Parent to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity, and furnishes Parent with the terms of
and a copy of such Acquisition Proposal and (E) thereafter, Pac Rim keeps Parent
informed of the status (and the terms) of any such discussions or negotiations;
and (ii) to the extent applicable, complying with Rule 14e-2(a) promulgated
under the Exchange Act with regard to an Acquisition Proposal. Nothing in this
Section 7.1 shall (x) permit any party to terminate this Agreement (except as
specifically provided in Article 9 hereof) or (z) affect any other obligation of
any party under this Agreement.
7.2 Conduct of Businesses. From the date hereof to the Effective Time,
except as set forth in the Pac Rim Disclosure Letter or as contemplated by any
other provision of this Agreement, unless
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Parent has consented in writing thereto, Pac Rim and its Subsidiaries:
(a) shall conduct their operations according to their usual,
regular and ordinary course in substantially the same manner as
heretofore conducted;
(b) shall use their best commercial efforts to preserve intact
their business organization and goodwill, keep available the services
of their officers and employees and maintain satisfactory relationships
with those persons having business relationships with them;
(c) shall confer on a regular basis with one or more
representatives of Parent to report operational matters of materiality
and any proposals to engage in material transactions;
(d) shall not amend their Certificates of Incorporation or
Articles of Incorporation, as the case may be, or Bylaws;
(e) shall promptly notify Parent of (i) any material emergency
or other material change in the condition (financial or otherwise), of
Pac Rim's or any of its Subsidiary's business, properties, assets,
liabilities, prospects or the normal course of its businesses or in the
operation of its properties, (ii) any material litigation or material
governmental complaints, investigations or hearings, or (iii) the
breach in any respect of any representation or warranty or covenant
contained herein;
(f) shall timely file all reports required by applicable
securities laws, rules or regulations to be filed with the SEC and
promptly deliver to Parent true and correct copies of any report,
statement or schedule filed by Pac Rim with the SEC subsequent to the
date of this Agreement;
(g) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on
the date hereof and disclosed pursuant to this Agreement, issue any
shares of its capital stock, effect any stock split or otherwise change
its capitalization as it exists on the date hereof, (ii) grant, confer
or award any option, warrant, conversion right or other right not
existing on the date hereof to acquire any shares of its capital stock
from Pac Rim, (iii) increase any compensation or enter into or amend
any employment severance, termination or similar agreement with any of
its present or future officers or directors, except for normal
increases in compensation to employees not earning more than $85,000 in
annual base compensation consistent with past practice and the payment
of cash bonuses to employees pursuant to and consistent with existing
plans or programs; provided, however, any such increases in annual base
compensation shall not exceed five
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percent (5%) of such employees' current annual base compensation
without the prior consent of Parent, which consent shall not be
unreasonably withheld, or (iv) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or
amend any existing employee benefit plan in any respect, except for
changes which may be required by applicable law;
(h) shall not (i) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of
its capital stock for purposes other than satisfying its obligation to
pay interest when due under the Debenture/Warrant Agreement; provided,
however, on the Closing Date, Pac Rim shall pay all interest accrued
but unpaid as of such date under the Debenture/Warrant Agreement; (ii)
except in connection with the use of shares of capital stock to pay the
exercise price or tax withholding in connection with stock-based Pac
Rim Benefit Plans, directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action or (iii)
split, combine or reclassify any of its capital stock;
(i) shall not acquire, sell, lease or otherwise dispose of any
of its assets (including capital stock of Subsidiaries) which are
material, individually or in the aggregate, except in the ordinary
course of business, consistent with past practice;
(j) shall not (i) incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing
lines of credit in the ordinary course of business; (ii) except for
obligations of wholly-owned Subsidiaries of Pac Rim; assume, guaranty,
endorse or otherwise become liable or responsible (whether directly,
indirectly, contingently or otherwise) for the obligations of any other
person except in the ordinary course of business consistent with past
practices in an amount not material to Pac Rim and its Subsidiaries,
taken as a whole; (iii) other than wholly-owned Subsidiaries of Pac
Rim, make any loans, advances or capital contributions to or
investments in, any other person; (iv) pledge or otherwise encumber
shares of capital stock of Pac Rim or its Subsidiaries; (v) except for
purchase money liens, mortgage or pledge any of its assets, tangible or
intangible, or create or suffer to create any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind of respect to such
asset; or (vi) forgive any loans to officers, directors, employees or
their affiliates and associates;
(k) Except as provided in Section 7.1 hereof, enter into any
commitment, contract or transaction outside the ordinary course of
business consistent with past practices which would be material to Pac
Rim and its Subsidiaries taken as a whole;
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(l) except as may be required as a result of a change in law
or in generally accepted accounting principles shall not change any of
the accounting principles or practices used by Pac Rim;
(m) shall not (i) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof or any equity interest
therein; (ii) enter into any contract or agreement other than in the
ordinary course of business consistent with past practice which would
be material to Pac Rim and its Subsidiaries taken as a whole; (iii)
without the prior consent of Parent, which consent shall not be
unreasonably withheld, authorize any new capital expenditure or
expenditures which, individually, is in excess of $25,000 or, in the
aggregate, are in excess of $750,000; provided, that none of the
foregoing shall limit any capital expenditure within the aggregate
amount previously authorized by Pac Rim's Board of Directors for
capital expenditures; or (iv) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any
action which would be prohibited hereunder;
(n) shall not make any tax election or settle or compromise
any income tax liability material to Pac Rim and its Subsidiaries taken
as a whole;
(o) shall not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction of business of liabilities reflected or reserved against
in, and contemplated by, the consolidated financial statements (or the
notes thereto) of Pac Rim and its Subsidiaries or incurred in the
ordinary course of business consistent with past practice;
(p) shall not settle or compromise any pending or threatened
suit, action or claim relating to the transaction contemplated hereby;
or
(q) shall not take, or agree in writing or otherwise to take,
any of the actions described in Sections 7.2(a) through 7.2(p) or any
action that would make any of the representations and warranties of Pac
Rim contained in this Agreement untrue and incorrect as of the date
when made.
7.3 Meeting of Stockholders. Pac Rim and Parent (to the extent and if
required on the part of Parent) shall each take all action necessary in
accordance with applicable law and their Certificate of Incorporation or
Articles of Incorporation, as the case may be, and Bylaws to convene a meeting
of their stockholders as promptly as practicable to consider and vote upon the
approval, in the case of Pac Rim, of this Agreement and the transactions
contemplated hereby, and, in the case of Parent, the Stock Purchase Agreement in
connection with the transaction contemplated hereby.
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The Boards of Directors of Pac Rim and Parent shall each recommend such approval
and take all lawful action to solicit such approval, including, without
limitation, timely mailing of the Proxy Statements (as defined in Section 7.7);
provided, however, that Pac Rim's Board of Directors' recommendation or
solicitation is subject to any action taken by, or upon authority of, the Board
of Directors of Pac Rim in the exercise of its good faith judgment as to its
fiduciary duties to its stockholders imposed by law and as permitted in Section
7.1 hereof. In connection with the vote of Pac Rim Common Stock, holders of the
Convertible Debentures shall execute that certain Voting Agreement as of the
date hereof, a copy of which is attached hereto as Exhibit H (the "Voting
Agreement"). Pursuant to the terms thereof, the parties to the Voting Agreement
shall agree to vote in favor of this Agreement and the Merger at a meeting of
Pac Rim's stockholders; provided, however, if Pac Rim's Board of Directors, in
the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law and in accordance with Section 7.1 hereof,
recommends an Acquisition Proposal, the obligation to vote in favor of this
Agreement and the Merger pursuant to the Voting Agreement shall terminate.
7.4 Filings; Other Action. Subject to the terms and conditions herein
provided, Pac Rim and Parent shall: (a) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Merger; (b) use all reasonable efforts to cooperate with one
another in (i) determining which Regulatory Filings are required to be made
prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
third parties or governmental or regulatory authorities of the United States,
the several states and foreign jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely seeking
all such consents, approvals, permits or authorizations; and (c) use all
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
Each of Parent and Pac Rim will use its best efforts to resolve such objections,
if any, as may be asserted with respect to the Merger under the HSR Act or other
antitrust laws. In the event a suit is instituted challenging the Merger as
violative of the HSR Act or other antitrust laws, each of Parent and Pac Rim
will use its best efforts to resist or resolve such suit. Each of Parent and Pac
Rim and will use its best efforts to take such action as may be required (a) by
the Antitrust Division of the Department of Justice or the Federal Trade
Commission in order to resolve such objections as either of them may have to the
Merger under the HSR Act or other antitrust Laws or (b) by any federal or state
court of the United States, in any suit challenging the Merger as violative of
the HSR Act or other antitrust laws, in order to avoid the entry of, or to
effect the dissolution of, any injunction, temporary restraining order or other
order which has the effect of preventing the consummation of the Merger. In
complying with the foregoing,
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each of Parent and Pac Rim shall use all reasonable and appropriate measures
available to them, including, if appropriate, "hold-separate" agreements or
divestitures of Subsidiaries, assets or operations if necessary to consummate
the transactions contemplated hereby, so long as such actions do not, in the
aggregate, have a Pac Rim Material Adverse Effect (after giving effect to the
Merger). If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and directors of Parent and Pac Rim shall take all such necessary
action. Within twenty (20) days following the date of this Agreement, Parent and
Merger Sub shall make all necessary filings with state insurance regulatory
authorities, including the filing with the California Department of a Form A
Information Statement pursuant to California Insurance Code Section 1215 et seq.
Parent and Merger Sub shall use their respective best efforts to promptly
resolve any objections and respond to any inquiries that may arise in connection
with any such filings. Pac Rim shall cooperate with Parent in connection with
the preparation and filing of the Form A.
7.5 Inspection of Records; Access. From the date hereof to the
Effective Time, Pac Rim shall allow all designated officers, attorneys,
accountants and other representatives of Parent ("Parent's Representatives")
access, during normal business hours during the period prior to the Effective
Time, to all employees, offices and other facilities and to the records and
files, including claim files and litigation files, correspondence, audits and
properties, to the accountants and auditors of Pac Rim and their work-papers,
and to all information relating to commitments, contracts, titles and financial
position, or otherwise pertaining to the business and affairs, of Pac Rim and
its Subsidiaries; provided, however, Parent's Representatives shall use their
reasonable best efforts to avoid interfering with, hindering or otherwise
disrupting the employees of Pac Rim in the execution of their employment duties
during any visit to, or inspection of, Pac Rim's facilities or offices;
provided, further, that with respect to the work-papers of Pac Rim's accountants
and auditors, Parent's Representatives shall execute all necessary documents
reasonably required and satisfy all conditions reasonably imposed by such
accountants and auditors in order to obtain such documentation.
7.6 Publicity. Pac Rim and Parent shall, subject to their respective
legal obligations (including requirements of stock exchanges and other similar
regulatory bodies), consult with each other, and use reasonable efforts to agree
upon the text of any press release, before issuing any such press release or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state governmental or
regulatory agency or with any national securities exchange with respect thereto.
7.7 Proxy Statement. Pac Rim and Parent (to the extent and if required
on the part of Parent) shall each promptly prepare and then file with the SEC
their respective proxy statements with respect to
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the meetings of their respective stockholders as provided in Section 7.3 hereof
(collectively, the "Proxy Statements"). Pac Rim and Parent shall each cause
their respective Proxy Statements to comply as to form in all material respects
with the applicable provisions of the Exchange Act and the rules and regulations
thereunder. Pac Rim and Parent each agree that their respective Proxy Statements
and each amendment or supplement thereto at the time of mailing thereof and at
the time of the meeting of the stockholders of Pac Rim or Parent, as the case
may be, will not include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
7.8 Further Action. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
7.9 Expenses. Whether or not the Merger is consummated, except as
provided in Article 10 hereof, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
7.10 Indemnification and Insurance.
(a) For a period of three (3) years from and after the Effective Time,
Parent and the Surviving Corporation shall indemnify, defend and hold harmless
to the fullest extent permitted under the Certificate of Incorporation or Bylaws
(as amended or restated, as the case may be) of Pac Rim and any indemnification
agreement among Pac Rim, its Subsidiaries and their respective officers and
directors (whether current or former) (collectively, the "Indemnification
Documents") each person who is now, or has been at any time prior to the date
hereof, an officer or director of Pac Rim (or any Subsidiary or division
thereof), including, without limitation, each person controlling any of the
foregoing persons (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses to which they are indemnified under
the Indemnification Documents, whether commenced, asserted or claimed before or
after the Effective Time and including, without limitation, liabilities arising
under the Securities Act of 1933, the Exchange Act and state corporation laws in
connection with the Merger. In the event of any indemnifiable claim, action,
suit, proceeding or investigation, the Indemnified Party shall promptly notify
the Surviving Corporation thereof (the failure to give notice, however, shall
not relieve the Surviving Corporation of its duty to indemnify the Indemnified
Party unless the failure to give notice causes the Surviving Corporation to be
unable to assume the defense of such claim, action, suit, proceeding or
investigation reasonably promptly or otherwise prejudices the Surviving
Corporation). Upon receipt of notice (i) the Surviving Corporation shall have
the right to assume the defense thereof and
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shall not be liable to such Indemnified Party for any legal expenses of other
counsel or any other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof, except that if the Surviving Corporation
elects not to assume the defense thereof or counsel for the Indemnified Party
advises in writing that there are issues which raise conflicts of interest
between Parent or Surviving Corporation and the Indemnified Party, the
Indemnified Party may retain counsel satisfactory to it, and the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Party; provided, however, that in no event shall the Surviving
Corporation be required to pay fees and expenses, including disbursements or
other charges, for more than one firm of attorneys in any one legal action or
group of related legal actions unless (A) counsel for the Indemnified Party
advises that there is a conflict of interest that requires more than one firm of
attorneys, or (B) local counsel of record is needed in any jurisdiction in which
any such action is pending, (ii) the Surviving Corporation and the Indemnified
Party shall cooperate in the defense of any matter, and (iii) the Surviving
Corporation shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and
provided, further, that the Surviving Corporation shall not have any obligation
hereunder to any Indemnified Party if and to the extent a court of competent
jurisdiction ultimately determines, and such determination shall have become
final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law or beyond the scope of this
Agreement.
(b) For a period of three (3) years from and after the Effective Time,
Parent shall cause the Surviving Corporation to keep in effect provisions in its
Certificate of Incorporation and Bylaws providing for exculpation of director
and officer liability and indemnification of the Indemnified Parties to the
fullest extent permitted under the DGCL, which provisions shall not be amended
except as required by applicable law or except to make changes permitted by law
that would enlarge the Indemnified Parties' right of indemnification.
(c) For a period of three (3) years after the Effective Time, Parent
shall cause to be maintained officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their capacities
as officers and directors, by Pac Rim and its Subsidiaries' existing officers'
and directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance; provided,
however, through February 16, 1997, the policy limits of such coverage shall not
be less than $20 million and from February 17, 1997 until three (3) years after
the Effective Time, the policy limits of such coverage shall not be less than
the higher of $15 million or such policy limits then provided by Parent for its
officers and directors.
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(d) Parent shall pay all expenses, including attorneys' fees, that may
be incurred by any Indemnified Parties in enforcing the indemnity and other
obligations provided for in this Section 7.10.
(e) The provisions of this Section shall survive the consummation of
the Merger and expressly are intended to benefit each of the Indemnified
Parties.
7.11 Certain Benefits.
(a) From and after the Effective Time, subject to applicable law, and
except as contemplated hereby with respect to the Pac Rim Stock Option Plans,
Parent and its Subsidiaries will honor in accordance with their terms, all Pac
Rim Benefit Plans; provided, however, that nothing herein shall preclude any
change effected on a prospective basis following the Effective Time in any Pac
Rim Benefit Plan in accordance with applicable law. With respect to the employee
benefit or compensation plan or arrangement, including each "employee benefit
plan" as defined in Section 3(3) of ERISA maintained by Parent or any of its
Subsidiaries (the "Parent Benefit Plans"), Parent and the Surviving Corporation
shall grant all Pac Rim employees from and after the Effective Time credit for
all service with Pac Rim and its affiliates and predecessors prior to the
Effective Time for all purposes for which such service was recognized by Pac
Rim. To the extent Parent Benefit Plans provide medical or dental welfare
benefits after the Effective Time to Pac Rim and its Subsidiaries' employees,
Parent or the Surviving Corporation, as the case may be, shall use reasonable
and best efforts to ensure that such plan shall waive any pre-existing
conditions and actively-at-work exclusions and shall provide that any expenses
incurred on or before the Effective Time shall be taken into account under
Parent Benefit Plans for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions.
(b) Parent agrees to employ at the Effective Time all employees of Pac
Rim and its Subsidiaries who are employed on the Closing Date at- will, with all
material terms of their employment at Pac Rim, under Parent's then-current
employment practices and policies. Such employment shall be at-will and Parent
shall be under no obligation to continue to employ any such individuals.
(c) For purposes of this Section 7.11, the term "employees" shall mean
all current employees of Pac Rim and its Subsidiaries (including those on
lay-off, disability or leave of absence, paid or unpaid).
(d) Notwithstanding the provisions of Section 7.11(a), at the Effective
Time, Surviving Corporation shall perform its obligations as the surviving
corporation of the Merger under:
(i) the "Pac Rim Holding Corporation and The Pacific Rim
Assurance Company Compensation Plan For Senior Management" (the "SMT
Plan") (a copy of which is attached hereto as Exhibit I);
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(ii) "The Pacific Rim Assurance Company 1996 Annual Incentive
Plan" (a copy of which is attached hereto as Exhibit J) (the "1996
Incentive Plan"); provided, however, purchase accounting related
adjustments made by the Surviving Corporation following the Effective
Time and any adjustments in the Assurance Company's reserves, to the
extent that such adjustment shall not result in a Pac Rim Material
Adverse Effect, shall not be included in incurred losses of the
Assurance Company in calculating the combined ratio exhibit of the
matrix ("Matrix") referred to in the 1996 Incentive Plan; provided,
further, such reserve adjustment shall be taken into consideration in
calculating the combined ratio exhibit of the Matrix if, upon year-end
review, it is determined that such adjustment was required under
generally accepted accounting principles; and
(iii) that certain Employment Agreement dated as of April 15,
1994 (the "Employment Agreement") by and among Pac Rim, Assurance
Company and Stanley Braun ("Braun"), the Amendment to Employment
Agreement dated as of March 27, 1995 (the "First Amendment") and the
Second Amendment to Employment Agreement dated as of March 30, 1996
(the "Second Amendment") with respect thereto (copies of which are
attached hereto as Exhibit K). The Employment Agreement, the First
Amendment and the Second Amendment shall hereinafter be referred to,
collectively, as the "Employment Documents." Parent and its
Subsidiaries unconditionally guaranty the obligations of Pac Rim,
Assurance Company, Surviving Corporation and any successors to any of
them (each, an "Employer") under the Employment Documents. If any
Employer breaches any of its obligations or otherwise fails to perform
under the Employment Documents, Parent and its Subsidiaries
unconditionally promises to perform such obligations.
On and following the Closing Date and for a period of one (1) year
thereafter, neither Parent nor the Surviving Corporation shall, without the
prior written consent of each of the respective parties or participants thereto,
amend or modify the terms of the SMT Plan, 1996 Annual Incentive Plan, or
Severance Program (as defined in Section 7.11(e) hereof).
(e) At the Closing, Pac Rim shall provide Parent with a list of all
persons employed by Pac Rim and its Subsidiaries on the Closing Date (each, a
"Pac Rim Employee" and, collectively, the "Pac Rim Employees"). In accordance
with Pac Rim and its Subsidiaries' Severance Program, a copy of which is
attached hereto as Schedule 7.11(e) (the "Severance Program"), Parent or
Surviving Corporation, as appropriate, shall pay funds due thereunder in order
to satisfy the severance obligations with respect to any Pac Rim Employees that
are terminated within nine (9) months following the Closing Date.
7.12 Restructuring of Merger. Upon the mutual agreement of Parent and
Pac Rim, the Merger shall be restructured in the form of a forward triangular
merger of Pac Rim into Merger Sub, with Merger
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Sub being the surviving corporation, or as a merger of Pac Rim into Parent, with
Parent being the surviving corporation. In such event, this Agreement shall be
deemed appropriately modified to reflect such form of merger.
7.13 Additional Agreements; Best Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperating fully with the other party, including by
provision of information and making of all necessary filings under the HSR Act
and state insurance laws. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either Pac
Rim or Merger Sub, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
ARTICLE 8
CONDITIONS
8.1 Conditions of Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved in the manner required by applicable law or by
applicable regulations of any stock exchange or other regulatory body
by the holders of the issued and outstanding shares of capital stock of
Pac Rim entitled to vote thereon and the issuance of Parent's common
stock under the Stock Purchase Agreement shall have been approved in
the manner required by applicable law or by applicable regulations of
any stock exchange or other regulatory body by the holders of the
issued and outstanding shares of capital stock of Parent entitled to
vote thereon.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) The required state insurance regulatory approvals,
including the California Department's approval of the consummation of
the transaction contemplated hereunder pursuant to California Insurance
Code Section 1215 et seq., shall have been obtained.
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(d) Neither of the parties hereto shall be subject to any
order or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by this
Agreement. In the event any such order or injunction shall have been
issued, each party agrees to use its reasonable efforts to have any
such injunction lifted.
(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or
made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except
where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a
Pac Rim Material Adverse Effect following the Effective Time.
8.2 Conditions to Obligations of Pac Rim to Effect the Merger. The
obligation of Pac Rim to effect the Merger shall be subject to the fulfillment
at or prior to the Closing Date of the following condition:
(a) Parent shall have performed its agreements contained in
this Agreements required to be performed on or prior to the Closing
Date and the representations and warranties of Parent and Merger Sub
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct as of the Closing Date, and Pac Rim
shall have received a certificate of the President or a Vice President
of Parent, dated the Closing Date, certifying to such effect; provided,
however, that notwithstanding anything herein to the contrary, this
Section 8.2(a) shall be deemed to have been satisfied even if such
representations or warranties are not true and correct, unless the
failure of the representations or warranties to be so true and correct,
individually or in the aggregate, would have or would be reasonably
likely to have a Parent Material Adverse Effect.
(b) Pac Rim shall have received the opinion of Salomon, dated
as of the date of delivery of Pac Rim's Proxy Statement, to the effect
that, as of such date, the consideration to be received in the Merger
by the stockholders of Pac Rim is fair to such stockholders from a
financial point of view.
(c) Pac Rim shall have received, on and as of the Closing
Date, an opinion of Riordan & McKinzie, counsel to Parent and Merger
Sub, in usual and customary form reasonably acceptable to Pac Rim.
8.3 Conditions to Obligation of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
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(a) Pac Rim shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Closing Date
and the representations and warranties of Pac Rim contained in this
Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date and Parent shall have received
a certificate of the President or a Vice President of Pac Rim, dated
the Closing Date, certifying to such effect; provided, however, that
notwithstanding anything herein to the contrary, this Section 8.3(a)
shall be deemed to have been satisfied even if such representations or
warranties are not true and correct, unless the failure of the
representations or warranties to be so true and correct, individually
or in the aggregate, would have or would be reasonably likely to have a
Pac Rim Material Adverse Effect.
(b) From the date of this Agreement through the Effective
Time, there shall not have occurred any changes in the financial
condition, business, operations or prospects of Pac Rim and its
Subsidiaries, taken as a whole, which changes taken together, would
have or would be reasonably likely to have a Pac Rim Material Adverse
Effect.
(c) The parties to that certain Series A Convertible
Debentures and Series 1, 2 and 3 Detachable Warrants Purchase Agreement
shall have sold and transferred to Parent all of such parties' right,
title and interest in and to the Convertible Debentures and Warrants
and the parties to that certain Series 3 Detachable Warrants Surrender
Agreement shall have surrendered and transferred to Pac Rim all of
their right, title and interest in and to the Series 3 Warrants, and
Parent, thereby, upon the Effective Time, will own or control all of
the Convertible Debentures and Warrants.
(d) Parent and Merger Sub shall have received, on and as of
the Closing Date, an opinion of Barger & Wolen, counsel to Pac Rim, in
usual and customary form reasonably acceptable to Parent and Merger
Sub.
ARTICLE 9
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of Pac Rim, by the
mutual consent of Parent and Pac Rim.
9.2 Termination by Either Parent or Pac Rim. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or Pac Rim if (a) the Merger shall not have been consummated by
March 1, 1997 (the "Termination
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Date") or (b) the required approval of Pac Rim and Parent's respective
stockholders required by Section 7.3 shall not have been obtained at meetings
duly convened therefor or at any adjournments thereof, or (c) a United States or
state court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used all reasonable efforts to
remove such injunction, order or decree; and provided, in the case of a
termination pursuant to clause (a) above, that the terminating party shall not
have breached in any material respect its representations or obligations under
this Agreement in any manner that shall have proximately contributed to the
occurrence of the failure referred to in said clause. If the Merger shall not
have been consummated on or before February 1, 1997 and as of such date Pac Rim
has satisfied its conditions to effect the Merger set forth in Article 8 hereof
and is prepared to consummate the Merger, Parent shall pay interest of $5,000.00
per day, without offset or deduction for amounts Parent claims owed to it by Pac
Rim or any of its Subsidiaries, for the benefit of the holders of shares of Pac
Rim Common Stock (the "Extension Consideration") for each day commencing on
February 2, 1997 and ending with the earlier to occur of the Closing Date or the
termination of this Agreement. Parent shall pay the Extension Consideration to
the Exchange Agent on the Closing Date in order to effect pro rata distribution
of such amount to the holders of shares of Pac Rim Common Stock, or if the
Closing does not occur and this Agreement is terminated, Parent shall promptly,
but in no event later than two (2) days after such termination, pay the same by
wire transfer to Pac Rim of same day funds.
9.3 Termination by Pac Rim. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before the
adoption and approval by the stockholders of Pac Rim referred to in Section 7.3,
by action of the Board of Directors of Pac Rim, if (i) in the exercise of its
good faith judgment as to its fiduciary duties to its stockholders imposed by
law the Board of Directors of Pac Rim determines that such termination is
required by reason of an Acquisition Proposal complying with Section 7.1 hereof
being made, or (ii) there have been breaches by Parent or Merger Sub of
representations or warranties contained in this Agreement which, in the
aggregate, would have or would be reasonably likely to have a Parent Material
Adverse Effect, or (iii) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of Parent, which
breach is not curable or, if curable, is not cured within thirty (30) days after
written notice of such breach is given by Pac Rim to Parent.
9.4 Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent, if (a) there
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have been breaches by Pac Rim of representations or warranties contained in this
Agreement which, in the aggregate, would have or would be reasonably likely to
have a Pac Rim Material Adverse Effect, (b) there has been a material breach of
any of the covenants or agreements set forth in this Agreement on the part of
Pac Rim, which breach is not curable or, if curable, is not cured within thirty
(30) days after written notice of such breach is given by Parent to Pac Rim or
(c) the holders of more than 1,000,000 shares of Pac Rim Common Stock have
demanded appraisal rights in accordance with Section 4.7 hereof.
9.5 Effect of Termination and Abandonment. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article 9,
all obligations of the parties hereto shall terminate, except the obligations of
the parties pursuant to this Section 9.5 and Sections 7.9, Article 10 and
Sections 11.3, 11.4, 11.6, 11.10, 11.13 and 11.17 and the Confidentiality
Agreement referred to in Section 11.4.
9.6 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of the party granting such extension or waiver.
ARTICLE 10
LIQUIDATED DAMAGES AND BREAKUP FEE
10.1 Payment of Liquidated Damages by Parent. The parties hereto agree
that if this Agreement shall not be consummated in accordance with its terms and
conditions as a result of: (a) the occurrence of the events described in Section
9.3(ii) and (iii); (b) Parent or Merger Sub's failure to comply with the
covenants described in Sections 7.3, 7.4, 7.7, 7.8 or 7.13 or the conditions
described in Section 8.2(a) or (c); or (c) Parent refusing to consummate the
transaction contemplated hereunder after satisfying each of the covenants,
conditions and events referred to in subsections (a) and (b) of this Section
10.1, then the resulting damages would be impracticable or extremely difficult
to determine. Because of the difficulty in determining the damages resulting
from the acts described in subsections (a), (b) and (c) of this Section 10.1,
the parties hereto agree that in such event, Parent must pay the sum of
$5,000,000.00 to Pac Rim immediately upon demand therefor as liquidated damages.
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10.2 Payment of Liquidated Damages by Pac Rim. The parties hereto agree
that if this Agreement shall not be consummated in accordance with its terms and
conditions as a result of: (a) the occurrence of the events described in Section
9.4(a) or (b); (b) Pac Rim's failure to comply with the covenants described in
Sections 7.2, 7.3, 7.4, 7.5, 7.7, 7.8 or 7.13, or the conditions described in
Section 8.3(a) or (d); or (c) Pac Rim refusing to consummate the transaction
contemplated hereunder after satisfying each of the covenants, conditions or
events referred to in subsections (a) and (b) of this Section 10.2, then the
resulting damages would be impracticable or extremely difficult to determine.
Because of the difficulty in determining the damages resulting from the acts
described in subsections (a), (b) and (c) of this Section 10.2, the parties
hereto agree that in the event of such breach, Pac Rim must pay the sum of
$2,500,000.00 to Parent immediately upon demand therefor as liquidated damages.
10.3 Payment of Breakup Fee By Pac Rim. In the event that (a) Pac Rim's
Board of Directors terminates this Agreement pursuant to Section 9.3(i) hereof
by reason of an Acquisition Proposal or (b) following public announcement of an
Acquisition Proposal, Pac Rim's Board of Directors terminates this Agreement
pursuant to Section 9.2(b) due to the failure to obtain the required vote in
favor of this Agreement from the holders of Pac Rim Common Stock and Convertible
Debentures at a meeting duly called therefor, and, in either event, the
definitive transaction document with respect to such Acquisition Proposal is
executed by Pac Rim within six (6) months following any such termination, Pac
Rim shall pay Parent a breakup fee of $5 million (the "Breakup Fee"). The
Breakup Fee is not separately payable in the event that liquidated damages are
due and paid under Section 10.2 hereof.
ARTICLE 11
GENERAL PROVISIONS
11.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger, provided, however, that the agreements contained in Article 4 and in
Sections 7.10, 7.11 and 7.13 and this Article 11 and the agreements delivered
pursuant to this Agreement shall survive the Merger.
11.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
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(a) if to Parent or Merger Sub, to
Superior National Insurance
Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Attention: William L. Gentz
Telecopy No.: 818-880-8615
with a copy to
Dana M. Warren, Esq.
Riordan & McKinzie
5743 Corsa Avenue
Suite 116
Westlake Village, California 91362
Telecopy No.: 818-706-2956
(b) if to Pac Rim, to
Pac Rim Holding Corporation
6200 Canoga Avenue
Woodland Hills, California 91367
Attention: Stanley Braun
Telecopy No.: 818-595-0099
with a copy to
Dennis W. Harwood, Esq.
Barger & Wolen LLP
19800 MacArthur Boulevard
8th Floor
Irvine, California 92612
Telecopy No. 714-752-6313
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
in Article 4 and Sections 7.10, 7.11, and 7.13 (collectively, the "Third Party
Provisions"), nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, and
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no Third Party Provision shall be enforceable until after the Effective Time.
11.4 Entire Agreement. This Agreement, the Exhibits, the Pac Rim
Disclosure Letter, the Parent Disclosure Letter, the Confidentiality Agreement
between Pac Rim and Parent and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto. No
addition to or modification of any provision of this Agreements shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
During the term of this Agreement, neither party hereto shall terminate the
foregoing Confidentiality Agreement.
11.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Board of Directors, at any time before or after
approval of matters presented in connection with the Merger by the stockholders
of Pac Rim, but after any such stockholder approval, no amendment shall be made
which by law requires the further approval of stockholders without obtaining
such further approval. This Agreement may not be amended except by an instrument
in writing signed by or on behalf of each of the parties hereto.
11.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws.
11.7 Venue. Any action concerning or dispute arising out of or
concerning this Agreement, regarding the interpretation of this Agreement, or
regarding the relationships among the parties created pursuant to this Agreement
shall be filed only in the United States District Court for the Central District
of California or in the Superior Court of the State of California for the County
of Los Angeles.
11.8 Counterparts. This Agreements may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies of
this Agreement, each of which may be signed by less than all of the parties
hereto, but together all such copies are signed by all of the parties hereto.
11.9 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
11.10 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender
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shall include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa.
11.11 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitations, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
11.12 Incorporation of Exhibits. The Pac Rim Disclosure Letter, the
Parent Disclosure Letter and all Exhibits and Schedules attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
11.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
11.14 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any California Court,
this being in addition to any other remedy to which they may be entitled at law
or in equity.
11.15 Subsidiaries. As used in this Agreement, the word "Subsidiary"
when used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner. When a reference is made in this Agreement to Significant
Subsidiaries, the words "Significant Subsidiaries" shall refer to Subsidiaries
(as defined above) which constitute "significant subsidiaries" under Rule 405
promulgated by the SEC under the Securities Act.
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11.16 Material Adverse Effect. (a) As used in this Agreement, the term
"Pac Rim Material Adverse Effect" means an adverse effect on the business,
results of operations, prospects or financial condition of Pac Rim and its
Subsidiaries, taken as a whole, having an economic value of $1,000,000 or more;
provided, however, based upon the reserves booked by the Assurance Company, no
adverse development in Assurance Company's reserves, to the extent that such
adverse development does not exceed the sum of (i) the $4,500,000 and (ii)
$1,000,000, shall be included in determining whether a Pac Rim Material Adverse
Effect exists; provided, further, any change in the book value of Pac Rim or any
of its Subsidiaries based on an adjustment of the market value of securities
valued at book value on such companies' books and records shall not be included
in determining if a Pac Rim Material Adverse Effect exists; provided, further,
any amounts that may be payable under the SMT Plan, the 1996 Incentive Plan, the
Employment Documents or the Severance Program that are not reflected in Pac
Rim's financial statements shall not be included in determining if a Pac Rim
Material Adverse Effect exists. As used in this Agreement, the term "Parent
Material Adverse Effect" means an adverse effect on the business, results of
operations, prospects or financial condition of Parent and its Subsidiaries,
taken as a whole, having an economic value of $1,000,000 or more; provided,
however, any change in the book value of Parent or any of its Subsidiaries based
on an adjustment of the market value of securities valued at book value on such
companies' books and records shall not be included in determining if a Parent
Material Adverse Effect exists.
(b) The existence of facts or circumstances which constitute a breach
of the representations and warranties set forth in Article 5 hereof shall not be
considered to be a breach of any representation and warranty if all such facts
and circumstances do not have, individually or in the aggregate, a Pac Rim
Material Adverse Effect. The existence of facts or circumstances which
constitute a breach of the representations and warranties set forth in Article 6
hereof shall not be considered to be a breach of any representation and warranty
if all such facts and circumstances do not have, individually or in the
aggregate, a Parent Material Adverse Effect.
11.17 Attorney's Fees. In any legal action to enforce this Agreement or
any provision hereof, the prevailing party in such action shall, in addition to
any other remedy to which it may be entitled hereunder, receive from the party
from which enforcement was sought reasonable attorney's fees and its court costs
in connection with such action.
11.18 Performance by Merger Sub. Parent hereby agrees to cause Merger
Sub to comply with its obligations hereunder and to cause Merger Sub to
consummate the Merger as contemplated herein.
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IT WITNESS WHEREOF, the parties have caused this Agreement and caused
the same to be duly delivered on their behalf as of the day and year first
written above.
PARENT: SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. Chris Seaman
--------------------------------
Name: J. CHRIS SEAMAN
Title: Executive Vice President
MERGER SUB: SNTL ACQUISITION CORP.
By: /s/ J. Chris Seaman
--------------------------------
Name: J. CHRIS SEAMAN
Title: Executive Vice President
PAC RIM: PAC RIM HOLDING CORPORATION
By: /s/ Timothy R. Busch
--------------------------------
Name: TIMOTHY R. BUSCH
Title: Chairman
By: /s/ Stanley Braun
--------------------------------
Name:
Title:
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SCHEDULE 7.11(e)
SEVERANCE PROGRAM
Termination.
(a) A Pac Rim Employee's employment may be terminated by the Surviving
Corporation or Parent, as appropriate, or by a Pac Rim Employee him or herself,
for any reason by written notice. The Pac Rim Employee will be treated, for
purposes of the Severance Program, as having been terminated if the Pac Rim
Employee's employment is terminated within nine (9) months following the Closing
Date.
(b) Subject to any benefit continuation requirements of applicable
laws, in the event a Pac Rim Employee's employment is terminated for any reason
whatsoever within (9) months following the Closing Date, all compensation and
benefit obligations of the Surviving Corporation or Parent, as appropriate,
shall cease as of the effective date of such termination, except for any
compensation and benefits earned or accrued but unpaid through such date.
Payments under The Pac Rim Assurance Company 1996 Annual Incentive Plan due such
terminated Pac Rim Employee shall be pro rated for any partial year, and paid on
the basis of the actual performance level achieved prior to the Closing Date
without reduction for any additional reserves, restructuring charges or other
accounting charges that the Surviving Corporation or Parent, as appropriate,
deems to be in its best interest following the Closing Date.
TERMINATION PAYMENTS AND BENEFITS.
If a Pac Rim Employee's employment hereunder is terminated by Parent or
Surviving Corporation, as appropriate, other than for Cause (as defined herein)
within nine (9) months following the Closing Date, then the Surviving
Corporation or Parent, as appropriate, shall be obligated to pay to the Pac Rim
Employee certain termination payments and make available benefits as follows:
(a) Calculation of Termination Payments for Officers of Pac Rim and its
Subsidiaries. Officers of Pac Rim and its Subsidiaries terminated within the
nine (9) months following the Closing Date shall receive payment equal to (i)
the Pac Rim Employee's annual base salary divided by twelve (12), multiplied by
(ii) the Pac Rim Employee's years of service with Pac Rim and/or its
Subsidiaries, rounded to the nearest full year, multiplied by two. Six months of
employment would round to the next highest year.
(b) Calculation of Termination Payments for Other Employees of Pac Rim
and its Subsidiaries. Other Employees of Pac Rim and its Subsidiaries terminated
within the nine (9) months following the Closing Date shall receive payment
equal to (i) the Pac Rim Employee's annual base salary divided by twelve (12),
multiplied by (ii) the Pac Rim Employee's years of service with Pac Rim and/or
its Subsidiaries rounded to the nearest full year. Six months of employment
would round to the next highest year.
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(c) Method of Payment. Termination payments shall be paid to the Pac
Rim Employee in a lump sum on the Pac Rim Employee's final date of service.
(d) Benefits. Parent or the Surviving Corporation, as appropriate,
shall pay on behalf of terminated Pac Rim Employees all costs associated with
Consolidated Omnibus Reconciliation Act of 1985 (COBRA) healthcare continuation
benefits for the periods described below:
(i) Officers of Pac Rim and its Subsidiaries shall receive
COBRA continuation benefits equal to two months of benefits for each
year of service rounded to the nearest whole year.
(ii) Other Employees of Pac Rim and its Subsidiaries shall
receive COBRA continuation benefits equal to one month of benefits for
each year of service rounded to the nearest whole year.
TERMINATION FOR CAUSE.
For purposes of the Severance Program, "Cause" shall mean (i) the
willful engaging by the Pac Rim Employee in misconduct which is materially
injurious to the Parent or the Surviving Corporation, as the case may be,
monetarily or otherwise, (ii) stealing from the Parent or the Surviving
Corporation, as the case may be, or (iii) the conviction of a felony while in
the employ of Parent or the Surviving Corporation, as the case may be.
No act, or failure to act, on the Pac Rim Employee's part shall be
considered "willful" unless done, or omitted to be done, by the Pac Rim Employee
not in good faith and without reasonable belief that his or her action or
omission was in the best interest of the Parent or the Surviving Corporation, as
the case may be.
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EXHIBIT A
CERTIFICATE OF INCORPORATION OF SNTL ACQUISITION CORP.
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CERTIFICATE OF INCORPORATION
OF
SNTL ACQUISITION CORP.
First: The name of the corporation is SNTL Acquisition Corp. (the
"Corporation").
Second: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle 19801. The name and address of the
Corporation's registered agent in the State of Delaware is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801.
Third: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code.
Fourth: The total number of shares of stock which the Corporation
shall have authority to issue is Ten Thousand (10,000), consisting of Ten
Thousand (10,000) shares of common stock, $.01 par value per share (the "Common
Stock").
Fifth: The business and affairs of the Corporation shall be managed
by and under the direction of the Board of Directors. The exact number of
directors of the Corporation shall be fixed by or in the manner provided in the
Bylaws of the Corporation (the "Bylaws").
Sixth: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors
of the Corporation in addition to the powers and authorities expressly
conferred upon them by statute;
(b) from time to time to set apart out of any funds or assets of the
Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve so
created and to determine whether any, and, if any, what part, of the surplus of
the Corporation or its net profits applicable to dividends shall be declared in
dividends and paid to its stockholders, and all rights of the holders of stock
of the Corporation in respect of dividends shall be subject to the power of the
Board of Directors so to do;
(c) subject to the laws of the State of Delaware, from time to time
to sell, lease or otherwise dispose of any part or parts of the properties of
the Corporation and to
<PAGE> 51
cease to conduct the business connected therewith or again to resume the same,
as it may deem best; and
(d) in addition to the powers and authorities hereinbefore and by the
laws of the State of Delaware conferred upon the Board of Directors, to execute
all such powers and to do all acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the express provisions of said laws,
of the Certificate of Incorporation of the Corporation and its Bylaws.
Seventh: Meetings of stockholders of the Corporation may be held
within or without the State of Delaware, as the Bylaws may provide. The books
of the Corporation may be kept (subject to any provision of applicable law)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws.
Eighth: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
Ninth: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended or (iv) for any
transaction from which the director derived an improper benefit. If the
Delaware General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of
a director of the Corporation, in addition to the limitation on personal
liability provided herein, shall be limited to the fullest extent permitted by
the amended Delaware Corporation Law. No amendment to or repeal of this
Article Ninth shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
Tenth: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, indemnify
directors, and may indemnify in the discretion of the Board of Directors any
and all persons whom the Corporation 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 be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action
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in another capacity while holding such office, and shall continue as to a
person who has ceased to be director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Eleventh: The name and mailing address of the incorporator of the
Corporation are:
Thomas A. Waldman
300 South Grand Avenue
28th Floor
Los Angeles, California 90071
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 13th day of September, 1996.
/s/ Thomas A. Waldman
-------------------------------------
Thomas A. Waldman, Incorporator
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EXHIBIT B
BYLAWS OF SNTL ACQUISITION CORP.
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BYLAWS
OF
SNTL ACQUISITION CORP.
ARTICLE I
Offices
Section 1.1 Registered Office. The registered office of SNTL
Acquisition Corp. (the "Corporation") in the State of Delaware shall be at 1209
Orange Street, in the City of Wilmington, County of New Castle, and the name of
the registered agent at that address shall be The Corporation Trust Company.
Section 1.2 Principal Executive Office. The principal executive
office of the Corporation shall be located at such place within or outside of
the State of Delaware as the board of directors of the Corporation (the "Board
of Directors") from time to time shall designate.
Section 1.3 Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors may from time to time determine or
as the business of the Corporation may require.
ARTICLE II
Stockholders
Section 2.1 Annual Meetings. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place,
either within or without the State of Delaware, as may be designated by the
Board of Directors from time to time. In the absence of any such designation,
stockholders' meetings shall be at the principal executive office of the
Corporation. Any other proper business may be transacted at the annual
meeting.
Section 2.2 Special Meetings. Special meetings of stockholders
may be called at any time by the Board of Directors, the Chairman of the Board,
the President or the holders of shares entitled to cast not less than 10% of
the votes at such meeting. Special meetings may not be called by any other
person or persons. Each special meeting shall be held at such date and time as
is requested by the person or persons calling the meeting, within the limits
fixed by law.
Section 2.3 Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which
<PAGE> 55
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, the written notice of any meeting shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. If mailed, such 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 2.4 Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. 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 meeting.
Section 2.5 Quorum. At each meeting of stockholders, except
where otherwise provided by law, the Certificate of Incorporation or these
Bylaws, the holders of a majority of the outstanding shares of each class of
stock entitled to vote at the meeting, present in person or represented by
proxy, shall constitute a quorum. For purposes of the foregoing, two or more
classes or series of stock shall be considered a single class if the holders
thereof are entitled to vote together as a single class at the meeting. In the
absence of a quorum the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided by Section 2.4 of these
Bylaws until a quorum shall attend. Shares of its own capital stock belonging
on the record date for the meeting to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of
the Corporation to vote stock, including, but not limited to, its own stock,
held by it in a fiduciary capacity.
Section 2.6 Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
President, or in his absence, by a Vice President, or in the absence of the
foregoing persons, by a chairman designated by the Board of Directors, or in
the absence of such designation, by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.7 Voting; Proxies. Unless otherwise provided in the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. If the Certificate of
Incorporation provides for more or less than one vote for any share on any
matter, every reference in these Bylaws to a majority or other proportion of
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<PAGE> 56
stock shall refer to such majority or other proportion of the votes of such
stock. A stockholder may vote the shares owned of record by him either in
person or by proxy executed in writing (which shall include writings sent by
telex, telegraph, cable, facsimile transmission or other means of electronic
transmission) by the stockholder himself or his duly authorized
attorney-in-fact; provided, however, that any such telex, telegram, cablegram,
facsimile transmission or other means of electronic transmission must either
set forth or be submitted with information from which it can be determined that
the telex, telegram, cablegram, facsimile transmission or other means of
electronic transmission was authorized by the stockholder. If it is determined
that such telexes, telegrams, cablegrams, facsimile transmissions or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied. Any copy, facsimile telecommunication or
other reliable reproduction of the writing or transmission created pursuant to
the foregoing sentences of this Section 2.7 may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. Execution of the
proxy may be accomplished by the stockholder or his authorized officer,
director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature. No such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke
any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and need not
be conducted by inspectors unless required by Section 2.10 of these Bylaws or
unless the holders of a majority of the outstanding shares of all classes of
stock entitled to vote thereon present in person or by proxy at such meeting
shall so determine. At all meetings of stockholders for the election of
directors or otherwise, all elections and questions shall, unless otherwise
provided by law, by the Certificate of Incorporation or these Bylaws, be
decided by the vote of the holders of a majority of the outstanding shares of
all classes of stock entitled to vote thereon present in person or by proxy at
the meeting.
Section 2.8 Fixing Date for Determination of Stockholders of
Record. 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 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other
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<PAGE> 57
action. If no record date is fixed: (1) 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; (2) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting (to the extent such action by the stockholders is
permitted by these Bylaws) when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed;
and (3) the record date for determining stockholders 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. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 2.9 List of Stockholders Entitled to Vote. The Secretary
shall prepare and make, 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. Such list 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, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also 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 2.10 Inspectors of Election. Before any meeting of
stockholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If the Corporation has a class of voting stock that is (1) listed
on a national securities exchange, (2) authorized for quotation on an
inter-dealer quotation system of a registered national securities exchange, or
(3) held of record by more than 2,000 stockholders, the Board of Directors
shall, in advance of any meeting of stockholders, appoint one or more
inspectors other than nominees for office to act at the meeting. If no
inspectors of election are appointed, the chairman of the meeting may, and on
the request of any stockholder or his proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one or
three. If inspectors are appointed at a meeting on the request of one or more
stockholders or proxies, the holders of a majority of shares or other proxies
present at the meeting shall determine whether one or three inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors before the meeting, or by the meeting chairman at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
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The duties of these inspectors shall be as follows: (i) ascertain the
number of shares outstanding and the voting power of each; (ii) determine the
shares represented at a meeting and the validity of proxies and ballots; (iii)
count all votes and ballots; (iv) determine and retain for a reasonable period
a record of the disposition of any challenges made to any determination by the
inspectors; and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto shall be accepted by the inspectors after the closing of the
polls.
Except as otherwise required by applicable law, in determining the
validity and counting of proxies and ballots, the inspectors shall be limited
to an examination of the proxies, any envelopes submitted with those proxies,
any information provided in accordance with Section 2.7 hereof, ballots and the
regular books and records of the Corporation.
Section 2.11 Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required by
law to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice or
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. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
Board of Directors
Section 3.1 Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors, except as
may be otherwise provided by law or in the Certificate of Incorporation.
Section 3.2 Number of Directors. The Board of Directors shall
consist of one or more members, the members thereof to be determined from time
to time by resolution of the Board of Directors. Directors need not be
stockholders.
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Section 3.3 Election and Term of Office. Each director shall
hold office until the annual meeting of stockholders next succeeding his
election and until his successor is elected and qualified. No decrease in the
authorized number of directors shall shorten the term of any incumbent
directors.
Section 3.4 Election of Chairman of the Board. At the
organizational meeting immediately following the annual meeting of
stockholders, the directors shall elect a Chairman of the Board from among the
directors who shall hold office until the corresponding meeting of the Board of
Directors in the next year and until his successor shall have been elected or
until his earlier resignation or removal. Any vacancy in such office may be
filled for the unexpired portion of the term in the same manner by the Board of
Directors at any regular or special meeting.
Section 3.5 Vacancies and Additional Directorships. Newly
created directorships resulting from any increase in the number of directors
and any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though such majority is less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall, if elected to
fill a vacancy, hold office for the remainder of the full term of the departed
director and, if elected to a newly created directorship, hold office until the
next annual meeting of stockholders, and, in either case, until such director's
successor shall have been elected and qualified.
Section 3.6 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware
and at such times as the Board of Directors may from time to time determine
and, if so determined, notice thereof need not be given.
Section 3.7 Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the
President, or by any director. Reasonable notice thereof shall be given by the
person or persons calling the meeting.
Section 3.8 Telephonic Meetings Permitted. Members of the Board
of Directors, or any committee thereof, as the case may be, may participate in
a meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Bylaw shall constitute presence in person at such
meeting.
Section 3.9 Quorum; Vote Required for Action. At all meetings of
the Board of Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which
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a quorum is present shall be the act of the Board of Directors unless the
Certificate of Incorporation or these Bylaws shall require a vote of a greater
number. In case at any meeting of the Board of Directors a quorum shall not be
present, the members of the Board of Directors present may adjourn the meeting
from time to time until a quorum shall attend.
Section 3.10 Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in his absence
by the President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 3.11 Action by Directors Without a Meeting. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws, 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 committee.
Section 3.12 Compensation of Directors. The Board of Directors
shall have the authority to fix the compensation of directors.
Section 3.13 Removal. Subject to the provisions of the
Certificate of Incorporation, any director may be removed from office at any
time, either with or without cause, by the affirmative vote of the stockholders
having a majority of the voting power of the Corporation given at a special
meeting of the stockholders called for the purpose.
ARTICLE IV
Committees
Section 4.1 Committees. The Board of Directors may, by
resolution passed by a majority of the Board of Directors, designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of the committee. 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 place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
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 and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but
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no such committee shall have power or 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 dissolution,
removing or indemnifying directors or amending these Bylaws; and, unless the
resolution expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 4.2 Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
adopt, amend and repeal rules for the conduct of its business. In the absence
of a provision by the Board of Directors or a provision in the rules of such
committee to the contrary, a majority of the entire authorized number of
members of such committee shall constitute a quorum for the transaction of
business, the vote of a majority of the members present at a meeting at the
time of such vote if a quorum is then present shall be the act of such
committee, and in other respects each committee shall conduct its business in
the same manner as the Board of Directors conducts its business pursuant to
Article III of these Bylaws.
ARTICLE V
Officers
Section 5.1 Officers; Election. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board. The Board of Directors may also elect one
or more Executive Vice Presidents, one or more Vice Presidents, one or more
Assistant Secretaries, a Treasurer or Chief Financial Officer and one or more
Assistant Treasurers or Assistant Chief Financial Officers and may give any of
them such further designations or alternate titles as it considers desirable.
Any number of offices may be held by the same person.
Section 5.2 Term of Office; Resignation; Removal; Vacancies.
Except as otherwise provided in a resolution of the Board of Directors electing
any officer, each officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders next succeeding his
election, and until his successor is elected and qualified or until his earlier
death, resignation or removal. Any officer may resign at any time upon written
notice to the Board of Directors or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. The Board of Directors may remove any
officer with or without cause at any time. Any such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights.
8
<PAGE> 62
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
Board of Directors at any regular or special meeting.
Section 5.3 Powers and Duties. The officers of the Corporation
shall have such powers and duties in the management of the Corporation as shall
be stated in these Bylaws or in a resolution of the Board of Directors which is
not inconsistent with these Bylaws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board of Directors. The Secretary shall have the duty to record the
proceedings of the meetings of stockholders, the Board of Directors and any
committees in a book to be kept for that purpose and shall have custody of the
corporate seal of the Corporation with the authority to affix such seal to any
instrument requiring it. The Board of Directors may require any officer, agent
or employee to give security for the faithful performance of his duties.
ARTICLE VI
Indemnification of Directors, Officers,
Employees and Other Corporate Agents
Section 6.1 Actions, Suits or Proceedings Other Than Those by or
in the Right of the Corporation. The Corporation may indemnify, in the manner
and to the full extent permitted by law, 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, that he had reasonable cause to believe that his conduct was
unlawful.
Section 6.2 Actions, Suits or Proceedings by or in the Right of
the Corporation. The Corporation may 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
9
<PAGE> 63
the right 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 or has agreed to serve at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or by reason of any
action alleged to have been taken or omitted in such capacity against costs,
charges and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection with the defense or settlement
of such action or suit and any appeal therefrom 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
adjudication of liability but in view or 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.
Section 6.3 Expenses Incurred. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 6.1 and 6.2 above, or in defense of any claim, issue or matter
therein, he may be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 6.4 Determination of Indemnification. Any
indemnification provided under Sections 6.1 and 6.2 above (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 in Sections 6.1 and 6.2 above. Such determination shall be made (1)
by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (3) by the stockholders
of the Corporation.
Section 6.5 Advance of Expenses. Costs and expenses (including
attorneys' fees) incurred by or on behalf of a director, officer, employee or
agent in defending or investigating a civil or criminal action, suit,
proceeding or investigation may be paid by the Corporation in advance of the
final disposition of such matter, if such director, officer, employee or agent
shall undertake in writing to repay any such advances in the event that it is
ultimately determined that he is not entitled to indemnification.
Section 6.6 Non-exclusivity. The right of indemnity and
advancement of expenses provided herein shall not be deemed exclusive of any
other rights to which any person seeking indemnification or advancement of
expenses from the Corporation may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both
10
<PAGE> 64
as to action in his official capacity and as to action in another capacity
while holding such office. Any agreement for indemnification of or advancement
of expenses to any director, officer, employee or agent or other person may
provide rights of indemnification or advancement of expenses which are broader
or otherwise different from those set forth herein.
Section 6.7 Insurance. 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 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 or as a member of any
committee or similar body 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 Article or applicable law.
Section 6.8 Inclusion of Constituent Corporation. For purposes
of this Article VI, 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 Article VI with respect to the resulting
or, surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
Section 6.9 Inclusion of Other Terms. For purposes of this
Article VI, reference 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 services 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 he reasonably believed to be in the
interest of the participants and beneficiaries of an 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 Article VI.
Section 6.10 Continuation of Indemnification. The indemnification
and advancement of expenses provided by, or granted pursuant to, this Article
VI may, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and may
inure to the benefit of the heirs, executors and administrators of such a
person.
11
<PAGE> 65
ARTICLE VII
Stock
Section 7.1 Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairman of the Board, if any, or the President, or a
Vice President, and by the Treasurer or Chief Financial Officer or an Assistant
Treasurer or Assistant Chief Financial Officer, if any, or the Secretary or an
Assistant Secretary, of the Corporation, certifying the number of shares owned
by him in the Corporation. Any or all signatures on the certificate may be a
facsimile. In case 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 7.2 Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE VIII
Miscellaneous
Section 8.1 Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 8.2 Seal. The Corporation may have a corporate seal
which shall have the name of the Corporation inscribed thereon and shall be in
such form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 8.3 Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Whenever notice is required to be given by law or
under any provision of the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, 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
12
<PAGE> 66
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 unless so required by the Certificate of Incorporation or these Bylaws.
Unless either proper notice of a meeting of the Board of Directors, or any
committee thereof, has been given or else the persons entitled thereto have
waived such notice (either in writing or by attendance as set forth above), any
business transacted at such meeting shall be null and void.
Section 8.4 Interested Directors; Quorum. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (1) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum, (2)
the material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders or (3) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
Section 8.5 Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 8.6 Amendment of Bylaws. These Bylaws may be amended or
repealed, and new Bylaws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional Bylaws and may amend or
repeal any Bylaw whether or not adopted by them.
Section 8.7 Gender. Any reference to the masculine gender in
these Bylaws shall be construed to mean the feminine gender, as the situation
may demand.
13
<PAGE> 67
EXHIBIT C
SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2
AND 3 DETACHABLE WARRANT PURCHASE AGREEMENT
Filed as Exhibit 3 to this Schedule 13D filing.
-47-
<PAGE> 68
EXHIBIT D
OPTION
-48-
<PAGE> 69
PAC RIM HOLDING CORPORATION
RECAP OF OPTIONS
<TABLE>
<CAPTION>
1987 PLAN 1988 PLAN TOTAL
--------- --------- --------------------------
<S> <C> <C> <C>
Options Active at 12/31/91 50,000 894,000 944,000
50,000 894,000 944,000
Options Granted in 1992 0 305,500 305,500
Options Exercised in 1992 (8,000) (5,500) (13,500)
Options Canceled in 1992 (2,000) (61,000) (63,000)
(10,000) 239,000 229,000
Options Active at 12/31/92 40,000 1,133,000 1,173,000
Options Granted in 1993 0 123,500 123,500
Options Exercised in 1993 0 0 0
Options Canceled in 1993 0 (82,500) (82,500)
0 41,000 41,000
Options Active at 12/31/93 40,000 1,174,000 1,214,000
Options Granted in 1994 0 500,000 500,000
Options Exercised in 1994 0 0 0
Options Canceled in 1994 0 (736,375) (736,375)
0 (236,375) (236,375)
Options Active at 12/31/94 40,000 937,625 977,625
Options Granted in 1995 0 65,000 65,000
Options Exercised in 1995 0 0
Options Canceled in 1995 0 (85,000) (85,000)
0 (20,000) (20,000)
Options Active at 12/31/95 40,000 917,625 957,625
Options Granted in 1996 0 0
Options Exercised in 1996 0 0
Options Canceled in 1996 0 (28,000) (28,000)
0 (28,000) (28,000)
Options Active at 6/30/96 40,000 889,625 929,625
3,752,199 929,625
40,000 4,079277935
3,792,199 AVG PRICE PER ACTIVE SHARE
</TABLE>
<PAGE> 70
STOCK OPTIONS
1987 PLAN
6/30/96
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Richards, Sandra A 31-Dec-87 10,000 10,000 $1.000 1987
Tonani, Ronald A 31-Dec-87 30,000 30,000 $1.000 1987
40,000 40,000
</TABLE>
A = Active Grant, Active Employee
AV = Vested Grant Terminated Employee
E = Returned Grant, Terminated Employee
<PAGE> 71
STOCK OPTIONS
1988 PLAN
6/30/96
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Braun, Dina A 28-Oct-88 2,000 2,000 $2.500 1988
Braun, Stanley A 28-Oct-88 50,000 50,000 $2.500 1988
Fernandez, Regina A 28-Oct-88 2,500 2,500 $2.500 1988
Richards, Sandra L. A 28-Oct-88 15,000 15,000 $2.500 1988
Tonani, Ronald A 28-Oct-88 10,000 10,000 $2.500 1988
Lee, Kevin D. A 07-Dec-88 1,500 1,500 $2.500 1988
Galisz, Agnes A 11-Jan-89 1,000 1,000 $2.500 1988
Likins, James W. A 19-Mar-89 1,000 1,000 $2.500 1988
Rodriguez, Angelica A 17-Apr-89 1,000 1,000 $2.500 1988
Boyer, Mariko M. A 09-Jul-89 5,000 5,000 $4.000 1988
Limtao, Delfin T. A 09-Jul-89 1,000 1,000 $4.000 1988
Richards, Sandra L. A 01-Sep-89 10,000 10,000 $4.000 1988
Murillo, Corey D. A 17-Oct-89 1,500 1,500 $4.000 1988
Librando, Maebelle A 01-Nov-89 1,500 1,500 $4.000 1988
Weisbly, Natalie A 15-Nov-89 2,000 2,000 $4.000 1988
Craig, Paul W. A 06-Mar-90 25,000 25,000 $4.000 1988
Velasquez, Armeda A 30-Oct-90 2,000 2,000 $5.000 1988
Varko, Maria A 17-Jun-91 1,500 1,500 $8.500 1988
Braun, Stanley A 02-Feb-91 50,000 50,000 $7.500 1988
Craig, Paul W. A 02-Feb-91 25,000 25,000 $7.500 1988
Fogle, Joanne A 17-Jun-91 1,000 1,000 $8.500 1988
Liwag, Rosita A 17-Jun-91 1,000 1,000 $8.500 1988
Spikings, Becky A 17-Jun-91 1,000 1,000 $8.500 1988
Farriola, Stella A 17-Jun-91 4,000 4,000 $8.500 1988
Gutierrez, Claudia A 17-Jun-91 1,000 1,000 $8.500 1988
Modes, Jeffery A 17-Jun-91 2,000 2,000 $8.500 1988
Johnson, Frances A 17-Jun-91 2,000 2,000 $8.500 1988
Gaschler, Robert A 17-Jun-91 1,500 1,500 $8.500 1988
Kulberg, Erika A 17-Jun-91 1,500 1,500 $8.500 1988
Boyer, Maragee A 16-Jun-92 2,500 2,500 $3.875 1988
Braun, Dina A 16-Jun-92 8,000 8,000 $3.875 1988
Farriola, Stella A 16-Jun-92 2,000 2,000 $3.875 1988
Lee, Kevin A 16-Jun-92 3,500 3,500 $3.875 1988
Murillo, Corey A 16-Jun-92 2,500 2,500 $3.875 1988
Ortiz, Adrianna A 16-Jun-92 5,000 5,000 $3.875 1988
Richards, Sandra A 16-Jun-92 10,000 10,000 $3.875 1988
Alcantara, Jesus A 30-Oct-92 2,000 2,000 $3.380 1988
Avila, Martha A 30-Oct-92 1,000 1,000 $3.380 1988
Carson, Mattie A 30-Oct-92 1,500 1,500 $3.380 1988
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coughlin, Carolin A 30-Oct-92 1,500 1,500 $3.380 1988
Davis, Teresita A 30-Oct-92 1,000 1,000 $3.380 1988
Galustian, Jackie A 31-Aug-92 1,500 1,500 $3.500 1988
Gonzalez, Anna A 30-Oct-92 1,000 1,000 $3.380 1988
Levenson, Jeffrey A 30-Oct-92 1,500 1,500 $3.380 1988
Slott, Adrianne A 31-Aug-92 1,000 1,000 $3.500 1988
Solomon, Myrtle A 31-Aug-92 2,000 2,000 $3.500 1988
Yeretzian, Rita A 30-Oct-92 1,000 1,000 $3.380 1988
Hedges, Florence A 31-Aug-92 1,000 1,000 $3.500 1988
Radu, Steven A 31-Aug-92 1,500 1,500 $3.500 1988
Rammelkamp, Joseph A 31-Aug-92 1,500 1,500 $3.500 1988
DeVine, Gretchen (McCO A 30-Oct-92 2,000 2,000 $3.380 1988
Garcia, Nidia A 30-Oct-92 1,000 1,000 $3.380 1988
Jiminez, Oralia A 30-Oct-92 1,500 1,500 $3.380 1988
Shuseett, Gale A 30-Oct-92 1,500 1,500 $3.380 1988
Winter, Kenneth A 30-Oct-92 2,000 2,000 $3.380 1988
Calabrese, Don A 30-Oct-92 2,500 2,500 $3.380 1988
Glass, Kathy A 31-Dec-92 2,000 2,000 $3.250 1988
Kohanoff, Rozita AV 31-Dec-92 14-Jun-96 1,125 1,500 $3.250 1988 375
Ward, Jay A 31-Dec-92 1,500 1,500 $3.250 1988
Gimeno, Christa A 29-Jan-93 1,500 1,500 $4.750 1988
Stevenson, Gary A 26-Feb-93 2,500 2,500 $5.000 1988
Whelply, Gerald A 26-Feb-93 5,000 5,000 $4.000 1988
Bierend, Bridgette A 31-Mar-93 1,500 1,500 $4.880 1988
Chisum, Alan A 31-Mar-93 1,500 1,500 $4.880 1988
Georgeson, Helen A 31-Mar-93 1,500 1,500 $4.880 1988
Franklin, Ronnie A 31-Mar-93 1,000 1,000 $4.800 1988
Drews, Steven A 30-Apr-93 1,500 1,500 $5.250 1988
Jeong, Grace A 30-Apr-93 1,500 1,500 $5.250 1988
Cook, Joseph A 30-Apr-93 1,500 1,500 $5.250 1988
Les, Harvey A 31-May-93 1,500 1,500 $4.500 1988
Martinsson, Cynthia A 31-May-93 2,000 2,000 $4.500 1988
Ortiz, Adriana A 31-May-93 5,000 5,000 $4.500 1988
Yeretzian, Kevork A 31-May-93 1,000 1,000 $4.500 1988
Van Note, Evelyn A 30-Jun-93 1,500 1,500 $3.750 1988
Canada, Janet A 30-Jun-93 2,000 2,000 $3.750 1988
Dunn, Brian A 30-Jun-93 1,500 1,500 $3.750 1988
Steinfeld, Richard A 31-Jul-93 1,500 1,500 $4.250 1988
Stone, Denise A 31-Jul-93 2,000 2,000 $4.250 1988
Carruth, Ingrid A 31-Jul-93 1,500 1,500 $4.250 1988
Forde, Philip A 31-Jul-93 1,500 1,500 $4.250 1988
Stephens, Eunice A 31-Aug-93 1,500 1,500 $4.000 1988
Levine, Stewart A 31-Aug-93 1,500 1,500 $4.000 1988
Shaw, Kevin A 30-Sep-93 2,500 2,500 $3.630 1988
Rivera, Manuel A 30-Sep-93 1,500 1,500 $3.630 1988
Estacio, Teresita A 30-Nov-93 1,500 1,500 $3.380 1988
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Braun, Stanley A 16-Aug-94 250,000 250,000 $2.750 1988
Braun, Stanley A 16-Aug-94 250,000 250,000 $5.500 1988
Chatfield, David A 02-Oct-95 15,000 15,000 $3.188 1988
Walker, David A 30-Oct-95 10,000 10,000 $2.875 1988
Hindes, James A 29-Dec-95 5,000 5,000 $2.500 1988
Calabrese, Don A 29-Dec-95 5,000 5,000 $2.500 1988
Whelply, Gerald A 29-Dec-95 5,000 5,000 $2.500 1988
Shaw, Kevin A 29-Dec-95 5,000 5,000 $2.500 1988
Popalardo, Dennis A 29-Dec-95 5,000 5,000 $2.500 1988
TOTAL 1996 GRANTS
TOTALS 890,000 889,625 375
</TABLE>
A = Active Grant, Active Employee
AV = Vested Grant Terminated Employee
E = Returned Grant, Terminated Employee
<PAGE> 74
STOCK OPTIONS
1988 - PLAN FORMER EMPLOYEES
6/30/96
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deloffre, Anita E 28-Oct-88 17-Aug-90 10,000 0 $2.500 1988
Kent, Michelle E 28-Oct-88 08-Sep-89 1,000 0 $2.500 1988
Long, T. Daniel E 28-Oct-88 14-Sep-90 4,000 0 $2.500 1988
Moreira, Julio E 28-Oct-88 12-Dec-88 1,500 0 $2.500 1988
Narabonne, Marty E 28-Oct-88 22-May-89 1,000 0 $2.500 1988
Scown, Richard E 28-Oct-88 20-Apr-89 10,000 0 $2.500 1988
Serrano, Alice E 28-Oct-88 03-Jan-89 1,000 0 $2.500 1988
Whittlinger, Robert E 28-Oct-88 19-Jan-92 4,000 0 $2.500 1988
Monaog, Divinia E 20-Dec-88 05-Jan-90 1,000 0 $2.500 1988
Johnston, Kimberly E 31-Jan-89 14-Jun-89 1,000 0 $2.500 1988
Pugsley, Blaine E 07-Feb-89 21-Jun-89 1,000 0 $1.000 1988
McDonald, Carlie E 08-Feb-89 20-Oct-89 1,000 0 $2.500 1988
Terry, Karen E 06-Mar-89 03-Jan-92 5,000 0 $2.500 1988
Malone, Reyna E 26-Mar-89 09-May-89 1,000 0 $2.500 1988
Townsend, Dorothy E 10-Apr-89 30-Jun-89 1,000 0 $1.000 1988
Bian, Elda E 12-Apr-89 23-Jun-89 1,000 0 $1.000 1988
Alexander, Evelyn E 03-Jul-89 01-Jan-90 1,500 0 $4.000 1988
Gillen, Leah E 03-Jul-89 28-Feb-90 1,000 0 $4.000 1988
Stewart, Celia E 03-Jul-89 20-Oct-89 3,000 0 $4.000 1988
Bobotis, Connie E 27-Aug-89 23-Jan-90 25,000 0 $4.000 1988
Ryan, John T. E 21-Sep-89 01-Jan-90 1,500 0 $4.000 1988
Coberty, Mark E. E 27-Sep-89 29-May-92 1,500 0 $4.000 1988
Salas, Eden J. E 17-Oct-89 17-Mar-92 1,500 0 $4.000 1988
Heaney, Diane E 05-Nov-89 07-Mar-90 1,000 0 $4.000 1988
Brown, Tanya E 08-Nov-89 22-Jan-90 1,500 0 $4.000 1988
Jaroncyk, John S. E 08-Nov-89 28-Sep-90 1,500 0 $4.000 1988
Kaye, Joseph S. E 08-Nov-89 06-Nov-91 1,500 0 $4.000 1988
Trujillo, Anna E 08-Nov-89 27-May-92 1,500 0 $4.000 1988
Frias, Joy E 10-Nov-89 23-Feb-90 2,000 0 $4.000 1988
Nalukas, Anton E 22-Nov-89 13-Mar-92 1,500 0 $4.000 1988
Quezada, Manuel E 24-Jul-90 26-Feb-91 1,500 0 $5.000 1988
Fefferman, Vivian E 18-Sep-90 31-Oct-90 2,000 0 $5.000 1988
Brown, Ronald E 30-Oct-90 01-Feb-91 1,500 0 $5.000 1988
Diaz, Sylvia E 30-Oct-90 02-Aug-91 1,500 0 $5.000 1988
Herrera, Irene E 30-Oct-90 30-Jul-91 1,500 0 $5.000 1988
Lee, William E 30-Oct-90 14-Jul-92 1,500 0 $5.000 1988
Scott, Anne E 30-Oct-90 19-Jun-92 2,000 0 $5.000 1988
Welton, Melody E 17-Jun-91 15-Oct-91 2,500 0 $8.500 1988
Landgraf, Joy E 17-Jun-91 23-Jun-92 2,000 0 $8.500 1988
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mariano, Linda E 17-Jun-91 12-Jun-92 1,000 0 $8.500 1988
Jiminez, Jaime E 17-Jun-91 17-Apr-92 1,500 0 $8.500 1988
Nalukas, Anton E 17-Jun-91 13-Mar-92 1,000 0 $8.500 1988
Sorenson, Brent E 26-Feb-92 13-Mar-92 25,000 0 $7.880 1988
Wainess, Paul E 16-Jun-92 20-Aug-92 5,000 0 $3.875 1988
DeLaPaz, Roberto E 31-Aug-92 21-Jan-93 1,000 0 $3.500 1988
Tovar, Jose E 30-Oct-92 01-Jan-93 1,500 0 $3.380 1988
Hopkins, John E 30-Nov-92 01-Jan-93 1,500 0 $3.380 1988
Ball, Geoffrey E 16-Jun-92 03-Mar-93 15,000 0 $3.875 1988
Case, Bob E 16-Jun-92 19-Mar-93 3,500 0 $3.875 1988
Ashour, Sam E 30-Sep-92 08-Mar-93 2,000 0 $3.500 1988
Birdt, Cheryl E 15-Nov-89 03-Mar-93 2,000 0 $4.000 1988
Bederman, Jodi E 16-Jun-92 15-Apr-93 3,500 0 $3.875 1988
Case, Robert E 10-Apr-89 19-Mar-93 1,500 0 $2.500 1988
Bederman, Jodi E 24-Jul-90 15-Apr-93 1,500 0 $5.000 1988
Steward, Torild E 17-Jun-91 11-Jun-93 2,000 0 $8.500 1988
Cody, Pam E 17-Jun-91 07-May-93 2,000 0 $8.500 1988
Floriano, Dave E 31-Aug-92 27-Aug-93 1,500 0 $3.500 1988
Jones, Kathleen E 30-Oct-92 23-Jul-93 1,500 0 $3.380 1988
Luisi, Nancy E 31-Aug-92 29-Jul-93 2,000 0 $3.500 1988
Marutsos, Vasilios E 31-Aug-92 09-Jul-93 1,500 0 $3.500 1988
Baker, Marc E 30-Oct-92 10-Aug-93 1,500 0 $3.380 1988
Cohen, Richard E 30-Oct-92 10-Aug-93 1,500 0 $3.380 1988
DiLeva, Tony E 30-Oct-92 15-Jul-93 2,500 0 $3.380 1988
Villalobos, Chuck E 30-Nov-92 30-Jul-93 1,500 0 $3.380 1988
Wagennecht, Kevin E 31-Mar-93 06-Aug-93 1,500 0 $4.880 1988
Pendleton, Brian E 30-Oct-92 29-Oct-93 2,000 0 $3.380 1988
Nemenzo, Nazarita E 17-Jun-91 17-Aug-93 1,500 0 $8.500 1988
Burnam, Norman E 06-Mar-90 21-Dec-92 15,000 0 $5.000 1988
Burnam, Norman E 21-Feb-92 21-Dec-92 10,000 0 $8.250 1988
Cartwright, Marion E 29-Jan-93 10-Dec-93 1,000 0 $4.750 1988
Kanji, Saner E 31-Mar-93 31-Dec-93 1,500 0 $4.880 1988
Holman, Sandra E 31-Aug-93 10-Dec-93 1,000 0 $4.250 1988
Stevens, Anita E 31-Aug-93 31-Dec-93 5,000 0 $4.250 1988
Snell, Elizabeth E 31-Aug-92 30-Nov-93 1,500 0 $3.500 1988
Martin, Howard E 31-Aug-92 03-Dec-93 1,500 0 $3.500 1988
Preston, Sharon E 30-Apr-93 14-Jan-94 1,000 0 $5.250 1988
Brim, Sheila E 30-Jun-93 07-Jan-94 1,000 0 $4.500 1988
Luevano, Vernica E 15-Mar-89 11-Nov-93 1,000 0 $2.500 1988
Martens, Cynthia E 15-Nov-89 16-Nov-93 1,000 0 $4.000 1988
Santucci, Marcia E 30-Sep-93 04-Feb-94 2,500 0 $3.630 1988
Williams, Lourdes E 31-0ct-93 24-Mar-94 1,500 0 $4.000 1988
Hinks, Elia O. E 30-Jun-93 04-Mar-94 1,500 0 $3.750 1988
Carrillo, Henry E 30-Oct-92 24-Dec-93 1,500 0 $3.380 1988
Liwag, Beth E 16-Jun-92 01-Dec-93 3,500 0 $3.875 1988
Liwag, Mariabeth E 07-May-89 01-Dec-93 1,500 0 $2.500 1988
Spencer, Pamela E 14-Mar-89 31-Dec-93 1,000 0 $2.500 1988
Siglar, Elise E 31-Dec-92 07-Jan-94 1,500 0 $3.250 1988
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Moore, J. Thomas E 16-Jun-92 07-Jan-94 35,000 0 $3.875 1988
Strong, Kathy E 31-Aug-92 18-Mar-94 1,500 0 $3.500 1988
Green, Kim L. E 01-Nov-89 01-Apr-94 7,500 0 $4.000 1988
Green, Kim E 16-Jun-92 01-Apr-94 2,500 0 $3.875 1988
Estrada, Armando E 31-Aug-92 29-Apr-94 1,500 0 $3.500 1988
Munguia, Thelma E 24-Apr-89 06-May-94 1,000 0 $2.500 1988
Truong, Christian E 17-Jun-91 24-Jun-94 2,500 0 $8.500 1988
DeJoya, B.J. E 31-Aug-92 24-Jun-94 1,000 0 $3.500 1988
Rose, Jean E 26-Feb-93 17-Jun-94 1,500 0 $5.000 1988
Armour, Nola E 31-Mar-93 06-Jun-94 1,500 0 $4.880 1988
Burton, Thomas E 30-Sep-93 02-Sep-94 1,500 0 $3.630 1988
Braun, Stanley A 21-Feb-92 16-Aug-94 475,000 0 $11.410 1988
McNabb, Roselyn A. E 03-Jul-89 14-Jul-94 1,000 0 $4.000 1988
Gallegos, Earl E 24-Jul-89 01-Jul-94 2,000 0 $4.000 1988
Braun, Cindy E 17-Jun-91 18-Jul-94 1,500 0 $8.500 1988
Gallegos, Earl E 17-Jun-91 01-Jul-94 2,000 0 $8.500 1988
Gallegos, Earl E 16-Jun-92 01-Jul-94 6,000 0 $3.875 1988
Gallegos, Earl E 06-May-93 01-Jul-94 15,000 0 $4.500 1988
Green, Karen E 31-May-93 29-Jul-94 1,500 0 $4.500 1988
Dolin, Armin E 01-Jul-87 15-Aug-94 15,000 0 $5.000 1988
Glikbarg, William K. E 01-Jul-87 15-Aug-94 15,000 0 $5.000 1988
Lappen, Chester E 01-Jul-87 15-Aug-94 20,000 0 $5.000 1988
Rousso, David P. E 01-Jul-87 15-Aug-94 15,000 0 $5.000 1988
Marshall, Frank E 03-Mar-89 15-Aug-94 15,000 0 $5.000 1988
King, Willis E 21-Feb-91 15-Aug-94 7,500 0 $7.500 1988
Caruthers, Deirdre E 30-Oct-92 12-Aug-94 2,000 0 $3.380 1988
Erlich, Martin E 31-Aug-92 26-Aug-94 2,500 0 $3.500 1988
Lappen, Chester E 21-Feb-92 15-Aug-94 20,000 0 $8.250 1988
Dolin, Armin E 21-Feb-92 15-Aug-94 10,000 0 $8.250 1988
Glikbarg, William K. E 21-Feb-92 15-Aug-94 10,000 0 $8.250 1988
Marshall, Frank E 21-Feb-92 15-Aug-94 10,000 0 $8.250 1988
Rousso, David P. E 21-Feb-92 15-Aug-94 10,000 0 $8.250 1988
Marsh, Denise E 31-Mar-93 29-Aug-94 1,500 0 $4.880 1988
Figuerres, Jerry E 31-May-93 05-Aug-94 1,500 0 $4.500 1988
Glend, Phyllis J. E 03-Oct-89 29-Sep-94 1,000 0 $4.000 1988
Olivarez, Robert E 31-Dec-92 22-Nov-94 1,500 0 $3.250 1988
Lusher, Donna E 05-Jun-89 09-Dec-94 1,000 0 $4.000 1988
Henderson, Robert B. E 27-Sep-89 15-Dec-94 5,000 0 $4.000 1988
Thompson, Arlyne E 31-Aug-92 09-Dec-94 1,000 0 $3.500 1988
Jones, Trina E 31-Mar-93 22-Dec-94 1,500 0 $4.880 1988
McIntyre, Debra E 31-Jul-93 07-Dec-94 1,500 0 $4.250 1988
Lazea, Gabriella E 31-Mar-93 31-Jan-95 1,500 0 $4.880 1988
Figueroa, Lloyd E 31-Aug-93 03-Jan-95 5,000 0 $4.250 1988
Lee, La Shawn E 30-Nov-93 20-Jan-95 1,500 0 $3.380 1988
Rossin, Mitch E 16-Jun-92 17-Feb-95 10,000 0 $3.875 1988
Sternberg, Kay E 31-Aug-92 03-Feb-95 1,000 0 $3.500 1988
Burns, Harvey E 29-Aug-90 13-Mar-95 2,000 0 $5.000 1988
Padua Isabelito E 29-Aug-90 15-Mar-95 1,500 0 $5.000 1988
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
#SHARES 1995 1995
DATE DATE ORIG #SHARES SHARES SHARES
NAME OF HOLDER STATUS GRANTED TERMINATED GRANTED ACTIVE PRICE YEAR CANCELED EXERCISED
- ---------------------- ------- --------- ----------- ------- ------- ------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Monaco, Jackie E 17-Jun-91 10-Mar-95 1,500 0 $8.500 1988
Smith, Julie E 17-Jun-91 15-Mar-95 1,500 0 $8.500 1988
Long, Charles E 31-Aug-92 15-Mar-95 1,500 0 $3.500 1988
Logie, Allan E 31-Mar-93 14-Apr-95 1,500 0 $4.880 1988
Methven, Craig E 31-Oct-93 25-Apr-95 2,500 0 $4.000 1988
Lord, Lorraine E. E 25-Nov-89 15-May-95 1,000 0 $4.000 1988
Martin-Grayson, N. E 17-Jun-91 11-May-95 1,500 0 $8.500 1988
Martin-Grayson, N. E 16-Jun-92 11-May-95 2,500 0 $3.875 1988
Jordan, Bruce E 31-Aug-92 27-Jun-95 1,500 0 $3.500 1988
Castillo, Jorge E 31-Mar-93 15-Jun-95 1,500 0 $4.880 1988
Schwarz, Joan E 20-Sep-89 31-Jul-95 1,000 0 $4.000 1988
Clabaugh, Bill E 30-Oct-90 31-Jul-95 1,500 0 $5.000 1988
Hermann, Kathleen E 17-Jun-91 31-Jul-95 1,500 0 $8.500 1988
Souza, Paul E 15-Jul-91 07-Jul-95 15,000 0 $8.000 1988
Souza, Paul E 16-Jun-92 07-Jul-95 10,000 0 $3.875 1988
Miller, Elizabeth E 30-Apr-93 31-Jul-95 1,500 0 $5.250 1988
Tremble, Charlene E 30-Nov-93 31-Jul-95 1,500 0 $3.380 1988
Tanaka, Laurel E 30-Sep-93 19-Sep-95 1,500 0 $3.630 1988
Thompson, Tom E 17-Jun-91 21-Dec-95 1,500 0 $8.500 1988 1,500
Harris, Verna E 30-Oct-92 04-Dec-95 1,500 0 $3.380 1988 1,125
Sanvictores, Imelda E 31-Dec-92 08-Dec-95 2,000 0 $3.250 1988 1,000
Rice, Nancey E 30-Jun-93 14-Nov-95 5,000 0 $3.750 1988 2,500
Villanueva, Sally E 30-Sep-93 14-Nov-95 2,000 0 $3.630 1988 1,000
Brown, Tom E 16-Oct-95 05-Feb-96 15,000 0 $2.938 1988 15,000
Peterson, Erik E 31-Mar-93 01-Jan-96 1,500 0 $4.880 1988 1,500
Abracosa, Gerwin E 30-Jun-93 31-Jan-96 2,000 0 $3.750 1988 2,000
Ried, Marion E 31-May-93 01-Mar-96 2,000 0 $4.500 1988 2,000
TOTAL 1996 GRANTS
TOTAL 1996 CANCELS 27,625
TOTALS 1,083,500 0 27,625 0
</TABLE>
A = Active Grant, Active Employee
AV = Vested Grant Terminated Employee
E = Returned Grant, Terminated Employee
<PAGE> 78
EXHIBIT E
SERIES 3 WARRANT SURRENDER AGREEMENT
-49-
<PAGE> 79
EXHIBIT E
SERIES 3 DETACHABLE WARRANT SURRENDER AGREEMENT
This SERIES 3 DETACHABLE WARRANT SURRENDER AGREEMENT (this "Agreement")
is entered into as of September 17, 1996 (the "Effective Date") by and among PAC
RIM HOLDING CORPORATION, a Delaware corporation ("Pac Rim"), and DENNIS W.
HARWOOD, an individual ("Harwood"), THE BUSCH FAMILY TRUST (the "Busch Trust"),
Timothy R. Busch ("Busch"), Trustee of the Busch Trust, ROBERT M. ANDERSON, an
individual ("Anderson"), and CARL A. STRUNK, an individual ("Strunk") (Harwood,
the Busch Trust, Anderson and Strunk, each a "Warrant Holder" and collectively,
the "Warrant Holders"), with reference to the following recitals:
R E C I T A L S
A. The Warrant Holders own beneficially and of record Series 3
Detachable Warrants ("Warrants") issued by Pac Rim pursuant to that certain
Agreement to Purchase Series A Convertible Debentures and Series 1, 2 and 3
Detachable Warrants dated as of April 15, 1994, as amended (the
"Debenture/Warrant Agreement"), as follows:
Warrant Holder Warrants
-------------- --------
Harwood 103,500
The Busch Trust 205,500
Anderson 205,500
Strunk 205,500
B. Superior National Insurance Group, Inc., a California corporation
("Superior") and Pac Rim have entered into an Agreement and Plan of Merger (the
"Merger Agreement") dated as of the Effective Date pursuant to the terms of
which Superior will acquire all the issued and outstanding shares of Pac Rim's
common stock. Capitalized terms used but not defined herein have the respective
meanings set forth in the Merger Agreement.
C. The surrender of the Warrants to Pac Rim by the Warrant Holders is a
condition to Superior's obligation to consummate the transaction contemplated
pursuant to the Merger Agreement.
D. Harwood, Strunk and Busch are currently members of Pac Rim's Board
of Directors and Anderson was formerly a member of such board.
E. In order to facilitate the transaction contemplated under the Merger
Agreement and as the Warrants are "out-of-the-money" thereunder, the Warrant
Holders desire to surrender their respective Warrants to Pac Rim for
cancellation and Pac Rim desires to accept such surrender.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 80
ARTICLE 1.
SURRENDER OF WARRANTS
1.1 Surrender of Warrants. Subject to the terms, conditions, covenants,
representations, warranties and other obligations set forth or incorporated
herein, on the Closing Date (as defined in Section 1.2 of the Merger Agreement)
the Warrants Holders shall each surrender, assign, transfer and convey to Pac
Rim all of the Warrant Holders' right, title and interest in and to the
Warrants.
1.2 Closing Date. At the Closing (as defined in Section 1.2 of the
Merger Agreement), the Warrant Holders shall deliver to Pac Rim all certificates
for the Warrants, duly assigned and endorsed to Pac Rim in good form for
transfer.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF EACH WARRANT HOLDER
Each of the Warrant Holders represents and warrants, severally and not
jointly, to Pac Rim as of the Effective Date and the Closing Date that:
2.1 Authority Relative to this Agreement. Such Warrant Holder has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. If the Warrant Holder is a corporate, partnership or trust entity, the
execution and delivery of this Agreement by the Warrant Holder and the
consummation by the Warrant Holder of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors or other governing
body of such Warrant Holder, and no other corporate or other proceedings on the
part of such Warrant Holder are necessary to authorize this Agreement or to
consummate such transactions. This Agreement has been duly and validly executed
and delivered by such Warrant Holder and constitutes a legal, valid and binding
obligation of such Warrant Holder, enforceable against such Warrant Holder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
2.2 No Conflicts. The execution and delivery of this Agreement by such
Warrant Holder do not, and the performance of this Agreement by such Warrant
Holder will not, (i) where such Warrant Holder is a trust entity, conflict with
or violate the organizational documents of such Warrant Holder, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to such Warrant Holder or by which such Warrant Holder's Warrants are bound or
affected or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would constitute a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of,
-2-
<PAGE> 81
or result in the creation of a lien or encumbrance on any of such Warrant
Holder's Warrants pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Warrant Holder is a party or by which such Warrant Holder or such
Warrant Holder's Warrants are bound or affected, except, in the case of clauses
(i), (ii) and (iii) of this Section 2.2(a), for any such conflicts, violations,
breaches, defaults or other occurrences which would not prevent or delay the
performance by such Warrant Holder of his obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Warrant Holder
do not, and the performance of this Agreement by such Warrant Holder will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity or other third party, except where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not (i) prevent or delay the
performance by such Warrant Holder of his obligations under this Agreement or
(ii) result in any costs or liabilities on the part of Superior or the Surviving
Corporation.
2.3 Title to the Warrants. Such Warrant Holder is the record and,
except for any Warrant Holder that is a trust, beneficial owner of such Warrants
listed opposite the name of such Warrant Holder in Recital A, above. Such
Warrant Holder's Warrants are the only Warrants owned by such Warrant Holder.
The Warrants of such Warrant Holder are owned free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, charges and
other encumbrances of any nature whatsoever, except that the Warrants held by a
Warrant Holder that is a trust are held subject to the applicable trust
documents, which trust documents will not prevent or delay the performance by
such Warrant Holder of its obligations under this Agreement. Such Warrant Holder
has not appointed or granted any proxy, which appointment or grant is still
effective, with respect to the Warrant Holder's Warrants.
2.4 Litigation. There are no actions, suits, proceedings or
arbitrations pending, or to the knowledge of such Warrant Holder threatened,
against such Warrant Holder or with respect to the Warrants held by such Warrant
Holder that could reasonably be expected to prevent or delay the consummation of
the transactions contemplated by this Agreement. Such Warrant Holder and the
Warrants held by such Warrant Holder are not subject to any outstanding order,
writ, injunction or decree which could reasonably be expected to prevent or
delay the consummation of the transactions contemplated by this Agreement.
2.5 No Brokers. No Warrant Holder has entered into any contract,
commitment, agreement or understanding with any person or firm which may result
in the obligation of any Warrant Holder, Pac Rim or Superior to pay and finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the transactions
-3-
<PAGE> 82
contemplated hereby or by the Merger Agreement. Except as provided in Sections
5.13 and 6.6 of the Merger Agreement, no Warrant Holder is aware of any claim
for payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
transactions contemplated hereby or by the Merger Agreement.
2.7 No Conversion or Exercise. No Warrant Holder has exercised any
Warrant, and each Warrant Holder hereby covenants and agrees that no exercise
shall occur on or prior to the Closing Date.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF PAC RIM
Pac Rim hereby represents and warrants to each of the Warrant Holders
as of the Effective Date and the Closing Date that:
3.1 Compliance with Law and Other Instruments. The execution and
delivery of this Agreement and compliance with the provisions hereof by Pac Rim
will not violate any provision of law or any regulation or order applicable to
Pac Rim and will not conflict with, result in any breach of any of the terms,
conditions or provisions of, or constitute a default under or result in the
creation of any lien, charge or encumbrance upon, any of the properties or
assets or outstanding stock of Pac Rim pursuant to any charter provision, bylaw,
indenture, mortgage, lease, loan agreement or other instrument to which Pac Rim
is a party or to which it is bound.
3.2 Organization. Pac Rim is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
power and authority, corporate and other, to carry on its business as it is now
being conducted and to own or lease the properties and assets which it now owns
or leases and has all licenses or certificates necessary to conduct the business
it now conducts.
3.3 Authority. The execution, delivery and performance of this
Agreement and the transactions contemplated by this Agreement by Pac Rim have
been duly authorized by any necessary corporate action, including, without
limitation, any necessary director or shareholder approval. Pac Rim has full
power and authority to execute and deliver this Agreement, and to perform its
obligations hereunder and thereunder.
3.4 Binding Agreement. This Agreement is a legal, valid and binding
obligation of Pac Rim, enforceable against Pac Rim in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
-4-
<PAGE> 83
ARTICLE 4.
CONDITIONS OF EACH PARTY'S OBLIGATION
The respective obligations of each party hereto to effect the surrender
of the Warrants provided hereunder shall be subject to the fulfillment at or
prior to the Closing Date of the conditions set forth in Article 8 of the Merger
Agreement. In addition, each of the respective representations and warranties of
the Warrant Holders and Pac Rim contained in this Agreement shall be true and
correct on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of such date.
ARTICLE 5.
TERMINATION
5.1 Termination. This Agreement shall be terminated in the event that
the Merger Agreement is terminated as provided in Sections 9.1, 9.2, 9.3 or 9.4
of the Merger Agreement.
5.2 Effect of Termination and Abandonment. In the event of termination
of this Agreement pursuant to this Article 5, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to this
Section 5.2 and Sections 6.4 through 6.8, 6.10 through 6.13, 6.15 and 6.16
hereof.
ARTICLE 6.
MISCELLANEOUS
6.1 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
6.2 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Closing.
6.3 Release. (a) As of the Closing Date, each of the Warrant Holders,
on behalf of themselves and their respective affiliates, successors, assigns and
heirs (each a "Releasing Party" and collectively, the "Releasing Parties"),
hereby agrees to release, remise, discharge and hold harmless, absolutely and
forever, Superior, SNTL Acquisition Corp., a Delaware corporation, Pac Rim as
the "Surviving Corporation" after the Effective Time of the Merger, and each of
their respective direct and indirect subsidiaries, and each of such parties'
successors, directors, officers, employees, agents and all persons acting by,
through, under or in concert with them, or any of them (collectively, the
"Released Parties") of and
-5-
<PAGE> 84
from any and all manner of action or actions, cause or causes of action, in law
or in equity, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, demands, damages, losses, costs or expenses of any nature whatsoever,
known or unknown, fixed or contingent, based on any circumstances or state of
facts existing on or prior to the Closing Date, to the extent arising out of
such Warrant Holder's status as an employee, director, officer, stockholder,
agent, representative or creditor of Pac Rim or its subsidiaries, other than (i)
as provided in the provisions with respect to indemnification and elimination of
liability, the Restated Certificate of Incorporation and Bylaws of Pac Rim and
all amendments thereto and the Articles of Incorporation or Bylaws of The
Pacific Rim Assurance Company, a California corporation, and all amendments
thereto, or (ii) arising from or related to this Agreement, the Merger Agreement
or the transactions contemplated by the Merger Agreement which the Releasing
Party has or may hereafter have against the Released Parties, including rights
to indemnification as provided in Section 7.10 of the Merger Agreement.
(b) If a Warrant Holder is a resident of California, the Warrant Holder
is, notwithstanding that this Agreement is governed by Delaware law, waiving
certain rights with respect to unknown or undiscovered claims. In connection
therewith each Warrant Holder expressly waives the benefit of California Civil
Code section 1542, which reads:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
The parties acknowledge that the foregoing waiver was separately
bargained for and expressly consent that this release shall be given full force
and effect in accordance with its express terms and provisions.
6.4 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(i) if to Pac Rim, to
Pac Rim Holding Corporation
6200 Canoga Avenue
Woodland Hills, California 91367
Attention: Stanley Braun
Telecopy No.: 818-595-0099
-6-
<PAGE> 85
with a copy to
Michael L. Rosenfield, Esq.
Barger & Wolen LLP
515 South Flower Street
34th Floor
Los Angeles, California 90071
Telecopy No. 213-614-7399
(ii) if to Harwood, to
Dennis W. Harwood, Esq.
c/o Barger & Wolen
19800 MacArthur Boulevard
8th Floor
Irvine, California 92715
Telecopy No.: 714-752-6313
(iii) if to The Busch Trust, to
Timothy R. Busch, Esq.
c/o The Busch Firm
2532 Dupont Drive
Irvine, California 92715
Telecopy No.: 714-474-7732
(iv) if to Strunk, to
Carl A. Strunk
c/o Fidelity National Title Insurance
17911 Von Karman
Irvine, California 92714
Telecopy No.: 714-622-4153
(v) if to Anderson, to
Robert M. Anderson
c/o Anderson & Anderson
2495 Campus Drive
Irvine, California 92715-1583
Telecopy No.: 714-752-7587
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6.5 Assignment; Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder
-7-
<PAGE> 86
shall be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
6.6 Entire Agreement. This Agreement contains the entire understanding
of the parties hereto relating to the subject matter hereof and supersedes all
prior and collateral agreements, understandings, statements and negotiations of
the parties. Each party acknowledges that no representations, inducements,
promises, or agreements, oral or written, with reference to the subject matter
hereof have been made other than as expressly set forth herein.
6.7 Amendment. This Agreement may be supplemented, amended or modified
only by the mutual agreement of the parties hereto. No supplement, amendment or
modification of this Agreement shall be binding unless it is in writing and
signed by all the parties hereto.
6.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws.
6.9 Counterparts. This Agreements may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
6.10 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
6.11 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
6.12 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitations, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed
-8-
<PAGE> 87
as a waiver of any prior or subsequent breach of the same or any other provision
hereunder.
6.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
6.14 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any California Court (as
provided in Section 6.15 hereof), this being in addition to any other remedy to
which they may be entitled at law or in equity.
6.15 Legal Action. In the event of any litigation between or among the
parties hereto respecting or arising out of this Agreement, the prevailing party
or parties shall be entitled to recover reasonable attorneys' fees and costs,
whether or not such litigation proceeds to final judgment or determination.
6.16 Venue. Any action concerning a dispute arising out of or
concerning this Agreement, regarding the interpretation of this Agreement, or
regarding the relationships among the parties created pursuant to this Agreement
shall be filed only in the United States District Court for the Central District
of California or in the Superior Court of the State of California for the County
of Los Angeles.
-9-
<PAGE> 88
IN WITNESS WHEREOF, the parties have caused this Agreement and caused
the same to be duly delivered on their behalf as of the day and year first
written above.
PAC RIM: PAC RIM HOLDING CORPORATION
By: /s/ Stanley Braun
-----------------------------------
Name: STANLEY BRAUN
Title:
WARRANT HOLDERS:
/s/ Dennis W. Harwood /s/ Timothy R. Busch
- --------------------------- ---------------------------
DENNIS W. HARWOOD TIMOTHY R. BUSCH, in his capacity
as Trustee of The Busch Family Trust
/s/ Carl A. Strunk /s/ Robert M. Anderson
- --------------------------- ---------------------------
CARL A. STRUNK ROBERT M. ANDERSON
-10-
<PAGE> 89
EXHIBIT F
CHASE MANHATTAN BANK COMMITMENT LOAN LETTER
-50-
<PAGE> 90
EXHIBIT F
THE CHASE MANHATTAN BANK
ONE CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10081
CHASE SECURITIES INC.
270 PARK AVENUE
NEW YORK, NEW YORK 10017
September 14, 1996
Superior National Insurance Group
26601 Agoura Road
Calabasas, California 91302
Attention: J. Chris Seaman
Executive Vice President/Chief Financial Officer
Re: Acquisition Financing
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase") and Chase Securities Inc.
("CSI") that Intermediate Holdings Inc. (the "Borrower"), a wholly-owned
subsidiary of Superior National Insurance Group ("SNIG") to be formed in
connection with the Acquisition referred to below, requires senior bank
financing (i) to effect the acquisition (the "Acquisition") of Pacific Rim
Holding Corp. ("Pac Rim"), (ii) to redeem Pac Rim warrants and convertible debt,
(iii) to repay certain existing SNIG debt (each transaction described in any of
clauses (i) through (iii) above, a "Transaction" and collectively, the
"Transactions"), and (iv) for certain related corporate purposes. In that
connection, you have requested that CSI agree to structure, arrange and
syndicate a senior secured facility in an aggregate principal amount of
$44,000,000 (the "Senior Facility") in the form of a term loan facility (the
"Term Loan Facility") in the amount of $44,000,000, and that Chase commit to
provide the entire principal amount of the Senior Facility and to serve as
administrative agent (the "Administrative Agent") for the Senior Facility.
CSI is pleased to advise you that it is willing to act as exclusive advisor and
arranger for the Senior Facility.
Furthermore, Chase is pleased to advise you of its commitment to provide the
entire amount of the Senior Facility upon the terms and subject to the
conditions set forth or referred to in this commitment letter (the "Commitment
Letter") and in the Summary of Terms and Conditions attached hereto as Exhibit A
(the "Term Sheet").
<PAGE> 91
-2
It is agreed that Chase will act as the sole and exclusive Administrative Agent,
and that CSI will act as the sole and exclusive advisor and arranger, for the
Senior Facility, and each will, in such capacities, perform the duties and
exercise the authority customarily performed and exercised by it in such roles.
You agree that no other agents, co-agents or arrangers will be appointed, no
other titles will be awarded and no compensation (other than that expressly
contemplated by the Term Sheet and the Fee Letter referred to below) will be
paid in connection with the Senior Facility unless you and we shall so agree.
We intend to syndicate the Senior Facility (including, in our discretion, all or
part of Chase's commitment hereunder) to a group of financial institutions
(together with Chase, the "Lenders") identified by us in consultation with you.
CSI intends to commence syndication efforts promptly upon the execution of this
Commitment Letter, and you agree actively to assist and to cause the management
of Pac Rim to cooperate with CSI in completing a syndication satisfactory to it.
Such assistance shall include (a) your using commercially reasonable efforts to
ensure that the syndication efforts benefit materially from your existing
lending relationships, (b) direct contact between senior management and advisors
of SNIG, the Borrower, Pac Rim and the proposed Lenders, (c) assistance in the
preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication and (d) the hosting,
with CSI, of one or more meetings of prospective Lenders.
CSI will manage all aspects of the syndication, including decisions as to the
selection of institutions to be approached and when they will be approached,
when their commitments will be accepted, which institutions will participate,
the allocations of the commitments among the Lenders and the amount and
distribution of fees among the Lenders. To assist CSI in its syndication
efforts, you agree promptly to prepare and provide to CSI and Chase all
information with respect to SNIG, the Borrower, Pac Rim, the Transactions and
the other transactions contemplated hereby, including all financial information
and projections (the "Projections"), as we may reasonably request in connection
with the arrangement and syndication of the Senior Facility. You hereby
represent and covenant that (a) all information other than the Projections (the
"Information") that has been or will be made available to Chase or CSI by you or
any of your representatives is or will be, when furnished, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which such statements are made and (b) the Projections
that have been or
<PAGE> 92
-3
will be made available to Chase or CSI by you or any of your representatives
have been or will be prepared in good faith based upon reasonable assumptions.
You understand that in arranging and syndicating the Senior Facility we may use
and rely on the Information and Projections without independent verification
thereof.
As consideration for Chase's commitment hereunder and CSI's agreement to perform
the services described herein, you agree to pay, and/or cause the Borrower to
pay, to Chase the nonrefundable fees set forth in the Fee Letter dated the date
hereof and delivered herewith (the "Fee Letter").
Chase's commitment hereunder and CSI's agreement to perform the services
described herein are subject to (a) there not occurring or becoming known to us
any material adverse condition or material adverse change in or affecting the
business, operations, property, condition (financial or otherwise) or prospects
of SNIG and its subsidiaries (taken as a whole), the Borrower and its
subsidiaries (taken as a whole) and Pac Rim and its subsidiaries (taken as a
whole), (b) our not becoming aware after the date hereof of any information or
other matter affecting SNIG and its subsidiaries, the Borrower and its
subsidiaries or Pac Rim and its subsidiaries or the transactions contemplated
hereby, which is inconsistent in a material and adverse manner with any such
information or other matter disclosed to us prior to the date hereof, (c) there
not having occurred a material disruption of or material adverse change in
financial, banking or capital market conditions that, in our judgment, could
materially impair the syndication of the Senior Facility, (d) our satisfaction
that prior to and during the syndication of the Senior Facility there shall be
no competing offering, placement or arrangement of any debt securities or bank
financing by or on behalf of SNIG or the Borrower or any affiliate of any
thereof and (e) the other conditions set forth or referred to in the Term Sheet.
The terms and conditions of Chase's commitment hereunder and of the Senior
Facility are not limited to those set forth herein and in the Term Sheet. Those
matters that are not covered by the provisions hereof and of the Term Sheet are
subject to the approval and agreement of Chase, CSI and the Borrower.
You agree (a) to indemnify and hold harmless Chase, CSI, their affiliates and
their respective officers, directors, employees, advisors, and agents (each, an
"indemnified person") from and against any and all losses, claims, damages and
liabilities to which any such indemnified person may become subject arising out
of or in connection with this Commitment Letter, the Senior Facility, the use of
the proceeds thereof or any related transaction or any claim, litigation,
investigation or proceeding relating to any of the foregoing, regardless of
whether any
<PAGE> 93
-4
indemnified person is a party thereto, and to reimburse each indemnified person
upon demand for any legal or other expenses incurred in connection with
investigating or defending any of the foregoing, provided that the foregoing
indemnity will not, as to any indemnified person, apply to losses, claims,
damages, liabilities or related expenses to the extent they are found by a
final, non-appealable judgment of a court to arise from the willful misconduct
or gross negligence of such indemnified person, and (b) to reimburse Chase, CSI
and their affiliates on demand for all out-of-pocket expenses (including due
diligence expenses, syndication expenses, travel expenses, and reasonable fees,
charges and disbursements of counsel) incurred in connection with the Senior
Facility and any related documentation (including this Commitment Letter, the
Term Sheet, the Fee Letter and the definitive financing documentation) or the
administration, amendment, modification or waiver thereof. No indemnified person
shall be liable for any indirect or consequential damages in connection with its
activities related to the Senior Facility.
This Commitment Letter shall not be assignable by you without the prior written
consent of Chase and CSI (and any purported assignment without such consent
shall be null and void), and is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This Commitment
Letter may not be amended or waived except by an instrument in writing signed by
you, Chase and CSI. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature page
of this Commitment Letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. This Commitment Letter and
the Fee Letter are the only agreements that have been entered into among us with
respect to the Senior Facility and set forth the entire understanding of the
parties with respect thereto. This Commitment Letter and the Fee Letter shall be
governed by, and construed in accordance with, the law of the State of New York.
This Commitment Letter is delivered to you on the understanding that neither
this Commitment Letter, the Term Sheet or the Fee Letter nor any of their terms
or substance shall be disclosed, directly or indirectly, to any other person
except (a) to your officers, agent and advisors, and those of the Borrower, who
are directly involved in the consideration of this matter or (b) as may be
compelled in a judicial or administrative proceeding or as otherwise required by
law (in which case you agree to inform us promptly thereof), provided, that the
foregoing restrictions shall cease to apply (except in respect of the Fee Letter
and its
<PAGE> 94
-5
terms and substance) after this Commitment Letter has been accepted by you.
The compensation, reimbursement, indemnification and confidentiality provisions
contained herein and in the Fee Letter shall remain in full force and effect
regardless of whether definitive financing documentation shall be executed and
delivered and notwithstanding the termination of this Commitment Letter or
Chase's commitment hereunder.
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us execute counterparts hereof and of the Fee Letter not later than
5:00 p.m., New York City time, on September 16, 1996. Chase's commitment and
CSI's agreements herein will expire at such time in the event Chase has not
received such executed counterparts in accordance with the immediately preceding
sentence. If you accept this Commitment Letter and the Fee Letter as aforesaid,
Chase's commitment herein will terminate at the close of business on March 1,
1997 unless definitive documentation with respect to the Senior Facility
satisfactory to Chase and its counsel is executed and delivered on or before
such date, provided that if a borrowing under the Senior Facility shall not have
occurred on or prior to December 16, 1996, Chase and CSI shall have the right to
reprice the Senior Facility (including all rates and fees connected thereunder),
and to the extent Intermediate does not agree to the terms of such repricing,
Chase shall have the right to terminate its commitment under this letter and at
such time all amounts owing thereunder shall be due and payable to Chase and
CSI.
<PAGE> 95
-6
Chase and CSI are pleased to have been given the opportunity to assist you in
connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ Robert Foster
-------------------------------
Name: Robert Foster
Title: Vice President
CHASE SECURITIES INC.
By: /s/ Miguel Roman
-------------------------------
Name: Miguel Roman
Title: Vice President
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST
WRITTEN ABOVE BY:
SUPERIOR NATIONAL INSURANCE GROUP
By: /s/ J. Chris Seaman
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
<PAGE> 96
EXHIBIT G
EXECUTED INSURANCE PARTNERS STOCK PURCHASE AGREEMENT
-51-
<PAGE> 97
EXHIBIT G
_____________________________________________________________________
STOCK PURCHASE AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
INSURANCE PARTNERS, L.P.,
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
AND
THE PERSONS OR ENTITIES ON THE SIGNATURE PAGES TO
THE SUBSCRIPTION AGREEMENTS ATTACHED HERETO
_________________________________________________________________
Dated as of September 17, 1996
_________________________________________________________________
<PAGE> 98
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
THE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Funds Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Securities Act Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Participation by Robert A. Spass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Newly Issued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 No Material Adverse Change; Ordinary Course of Business . . . . . . . . . . . . . . . . . . . . . 9
3.10 Private Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 99
TABLE OF CONTENTS (Continued)
<TABLE>
<S> <C>
ARTICLE IV
COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Proxy Statement and Meeting of Company's Shareholders . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Board Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 IP Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.7 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.8 Indemnification by the Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.9 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.11 HSR Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Conditions to Each Party's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2 Conditions to the Obligations of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Conditions to the Obligations of Purchasers. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 Headings; Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 Conveyance Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.10 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.13 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.14 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
ii
<PAGE> 100
EXHIBITS
Exhibit A Form of Subscription Agreement
Exhibit B Purchasers of the Shares of Common Stock
Exhibit C Registration Rights Agreement
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement") dated as of September 17, 1996
by and among Superior National Insurance Group, Inc., a California corporation
(the "Company"), Insurance Partners, L.P., a Delaware limited partnership ("IP
Delaware"), Insurance Partners Offshore (Bermuda), L.P., a Bermuda limited
partnership ("IP Bermuda" and together with IP Delaware,"IP"), and such other
persons or entities who execute the form of Stock Subscription Agreement (the
"Subscription Agreement") attached hereto as Exhibit A (the "Subscribing
Shareholders" and together with IP, the "Purchasers").
R E C I T A L S:
WHEREAS, the Purchasers wish to purchase from the Company, and the
Company wishes to issue and sell to the Purchasers, the number of shares of
common stock, no par value, of the Company (the "Common Stock") as is set forth
in Section 1.1 below, on the terms and subject to the conditions set herein;
WHEREAS, it is a standard and customary practice of IP, in connection
with transactions substantially similar to those contemplated herein, to
require certain members of senior management of the issuer to make a
contemporaneous, personal, financial commitment to the issuer;
WHEREAS, in order to comply with such practice of IP, certain members
of management of the Company have agreed to make a contemporaneous, personal,
financial commitment to the Company by purchasing shares of Common Stock and by
consummating the transactions contemplated herein on the terms and conditions
set forth below;
WHEREAS, concurrently with the execution of this Agreement, the
Company, the Purchasers, Pac Rim Holding Corporation ("Pac Rim"), SNTL
Acquisition Corp. ("SNTL"), The Chase Manhattan Bank, N.A., Chase Securities
Inc. (collectively, "Chase") and the Subscribing Shareholders shall enter into
among themselves certain agreements relevant thereto as set forth below; and
WHEREAS, the Board of Directors of the Company has approved this
Agreement and the transactions contemplated hereby, upon the terms and subject
to the conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the sufficiency of which is hereby acknowledged, and in order to set
forth the terms and
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conditions of the transactions described herein and the mode of carrying the
same into effect, the parties hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale. Subject to the terms and conditions of
this Agreement, each of the Purchasers agrees to purchase from the Company and
the Company agrees to issue and sell to each of the Purchasers (the "Purchase")
at the Closing (as defined below) the aggregate number of shares of Common
Stock (the "Shares") set forth opposite such Purchaser's name on Exhibit B
hereto, for the aggregate purchase price set forth opposite such Purchaser's
name on Exhibit B hereto. Each Subscription Agreement executed by a Purchaser
shall be attached hereto and become part of this Agreement.
1.2 Purchase Price. The purchase price to be paid for each
Share of Common Stock shall be Seven Dollars and Fifty-Three Cents ($7.53) (the
"Share Price"), constituting an aggregate purchase price for the Shares of
Eighteen Million Dollars ($18,000,000) (the "Purchase Price").
1.3 Closing Matters. At the Closing each of the Purchasers
shall wire transfer or otherwise make available in same day funds to the
Company its portion of the Purchase Price and the Company shall deliver to such
Purchaser certificates representing the Shares purchased by such Purchaser.
1.4 The Closing. Subject to the fulfillment of the conditions
precedent specified in Article V (any or all of which may be waived in writing
by the respective parties whose performance is conditioned upon satisfaction of
such conditions precedent), the purchase and sale of the Shares shall be
consummated at a closing (the "Closing") to be held at the offices of Barger &
Wolen LLP, 515 South Flower Street, 34th Floor, Los Angeles, California 90071
at 9:00 a.m., local time, or as soon as practicable, following the satisfaction
or waiver of all conditions precedent specified in Article V, or at such other
place and time as the Company and IP shall mutually agree in writing after the
satisfaction or waiver of all conditions precedent specified in Article V,
provided that in no circumstance shall the Closing occur on or after March 1,
1997 (such date and time being herein referred to as the "Closing Date").
1.5 Fee. At the Closing, the Company shall pay to Insurance
Partners Advisors, L.P. ("IPA") a transaction fee of Six Hundred and
Thirty-Five Thousand Dollars ($635,000), by wire transfer of immediately
available funds to an account or accounts designated by IPA. If Pac Rim shall
pay to the Company the Breakup Fee (as defined in Section 10.3 of the Merger
Agreement, dated as of the date hereof, among Pac Rim, the Company and SNTL
(the "Merger Agreement")) in accordance with Section 10.3 of the
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Merger Agreement, then the Company shall pay to IP that portion of the Breakup
Fee equal to the percentage of voting securities of the Company owned by IP on
a fully diluted basis (excluding the Voting Notes, as hereinafter defined) as
if the purchase by IP of the Shares shall have occurred (notwithstanding that
no such purchase shall have taken place).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each of the Purchasers, severally but not jointly, represents and
warrants to the Company, solely as to such Purchaser, as to all matters
relevant thereto, as follows:
2.1 Organization. Each of the Purchasers is either (a) a
limited partnership duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of formation or (b) a natural person
(or nominee of a natural person) who is a resident of the State of California.
2.2 Authority. With respect to the Purchasers that are limited
partnerships (the "Partnerships"), (i) each such Partnership has full
partnership power and authority to execute and deliver this Agreement and each
other agreement contemplated hereby to which it is a party, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated on its part hereby and thereby, (ii) the execution, delivery and
performance by such Partnership of this Agreement and each other agreement
contemplated hereby to which it is a party have been duly authorized by all
necessary partnership action on the part of such Partnership and (iii) no other
action on the part of such Partnership or its respective partners is necessary
to authorize the execution and delivery of this Agreement and each other
agreement contemplated hereby by such Partnership or the performance by such
Partnership of its obligations hereunder. With respect to all Purchasers, this
Agreement has been duly executed and delivered by such Purchaser and
constitutes a legal, valid and binding agreement of such Purchaser, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting creditors'
rights generally and subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Each other agreement to be executed by such Purchaser to which it is a party in
connection with this Agreement on or prior to the Closing Date will be duly
executed and delivered by such Purchaser, and (assuming due execution and
delivery by the other party or parties thereto) will constitute a legal, valid
and binding obligation of such Purchaser, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and
subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
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2.3 No Violation. The execution and delivery of this Agreement
and each other agreement contemplated hereby, the performance by each Purchaser
of its obligations hereunder and the consummation by it of the transactions
contemplated hereby and thereby will not (a) violate any provision of law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to such Purchaser, (b) require the consent, waiver, approval,
license or authorization of or any filing by such Purchaser with any person or
governmental authority except for, (i) filings to be made in connection with or
in compliance with the provisions of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Regulation D as promulgated under the Securities
Act of 1933, as amended (the Securities Act") and applicable state securities
laws, (ii) with respect to IP, if required, the filing of a pre-merger
notification report under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (an "HSR Report"), and (iii) with respect to TJS Partners,
L.P. ("TJS"), if required, and IP, the filing of a Form A Information Statement
("Form A") with the California Department of Insurance under Section 1215.2 of
the California Insurance Code and Title 10, California Code of Regulations
Section 2683 et seq. or (c) violate, result (with or without notice or the
passage of time, or both) in a breach of or give rise to the right to
accelerate, terminate or cancel any obligation under or constitute (with or
without notice or the passage of time, or both) a default under, any of the
terms or provisions of any charter or bylaw, partnership agreement, indenture,
mortgage, agreement, contract, order, judgment, ordinance, regulation or decree
to which such Purchaser is subject or by which such Purchaser is bound, except
for any of the foregoing matters which would not have, individually or in the
aggregate, a material and adverse effect upon the operations, financial
condition, prospects or results of operations of such party (a "Material
Adverse Effect").
2.4 Brokers. Such Purchaser has not paid or become obligated to
pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
2.5 Funds Available. Such Purchaser has funds available, or
commitments from third parties to provide funds, sufficient to pay such
Purchaser's respective portion of the Purchase Price.
2.6 Securities Act Representation. Such Purchaser is an
"accredited investor" as defined in Rule 501 promulgated as part of Regulation
D under the Securities Act and an "excluded purchaser" under Title 10,
California Code of Regulations Section 260.102.13. Such Purchaser is not
purchasing such Purchaser's respective portion of the Shares with a view to a
distribution or resale of any of such securities in violation of any applicable
securities laws.
2.7 Participation by Robert A. Spass. Robert A. Spass abstained
from the formal partnership approval process by IP of its investment in the
Company.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Organization. Each of the Company and its
Subsidiaries is a corporation or limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, with all requisite corporate power and authority to
lease the properties it operates as lessee and to carry on its business as it
is now being conducted as described in the SEC Filings (as defined herein), and
is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which it currently carries on business, except where the
failure to be so qualified or licensed or be in good standing would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on the Company. With respect to the Company, a "Material
Adverse Effect" shall refer to the Company and its Subsidiaries on a
consolidated basis. True and complete copies of the Amended and Restated
Articles of Incorporation and the Bylaws of the Company, each as amended to
date, have been delivered to IP. "Subsidiaries" means, with respect to the
Company, a corporation or other entity of which 50% or more of the voting power
of the outstanding voting securities or 50% or more of the outstanding equity
interests is held, directly or indirectly, by the Company.
3.2 Capital Stock. The authorized capital stock of the Company
consists in its entirety of 25,000,000 shares of Common Stock, of which, as of
the date hereof, 3,433,446 are issued and outstanding. All of the outstanding
shares of Common Stock have been duly and validly authorized and issued, are
fully paid and nonassessable and were issued in compliance with all applicable
federal and state securities laws. Except for warrants described in the SEC
Filings and except for options and other stock rights authorized for issuance
pursuant to the Company's stock plans and employee stock purchase plans
described in the SEC Filings, there are no options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of capital stock or other securities
of the Company or any of the Subsidiaries.
3.3 Newly Issued Shares. The Shares to be sold and issued by
the Company to the Purchasers in accordance with the terms of this Agreement
have been duly authorized and, when issued as contemplated hereby at the
Closing, will be validly issued, fully paid and non- assessable and no other
person has any preemptive right, option, warrant, subscription agreement or
other right with respect to such Shares, other than the preemptive rights held
by the holders of the Common Stock Purchase Warrants issued under each of the
Note Purchase Agreement, dated as of March 31, 1992 (the "Note Purchase
Agreement") and the Preferred Securities Purchase Agreement, dated as of June
30, 1994 (the "Preferred
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Securities Purchase Agreement"). At the Closing, the Purchasers will acquire
good and marketable title to the Shares free and clear of any and all liens,
encumbrances, security interests, preemptive rights, adverse claims or equities
or rights in favor of another ("Encumbrances"), except such Encumbrances as may
be created pursuant to this Agreement.
3.4 Authority. The Company has full corporate power and
authority to execute and deliver this Agreement and each other agreement
contemplated hereby, to carry out its obligations hereunder and thereunder and
to consummate the transactions contemplated on its part hereby and thereby.
The execution, delivery and performance by the Company of this Agreement and
each other agreement contemplated hereby and the consummation of the
transactions contemplated on its part hereby have been duly authorized by the
Board, and no other corporate proceedings on the part of the Company, except
for the approval by the shareholders of the Company of those matters for which
such approval is required as specified in Article V hereof, are necessary to
authorize the execution and delivery of this Agreement and each other agreement
contemplated hereby by the Company or the performance by the Company of its
obligations hereunder or thereunder. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and
subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Each other
agreement to be executed by the Company in connection with this Agreement on or
prior to the Closing Date will be duly executed and delivered by the Company,
and (assuming due execution and delivery by the other party or parties thereto)
will constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization, or
similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
3.5 No Violation. The execution, delivery and performance of
this Agreement and each other agreement contemplated hereby by the Company and
the consummation by it of the transactions contemplated hereby and thereby do
not (a) violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award (collectively, "Requirements of
Law") applicable to the Company or any of the Subsidiaries, (b) require the
consent, waiver, approval, license or authorization of or any notice or filing
by the Company or any of the Subsidiaries with any person or governmental
authority except for, (i) filings to be made in connection with or in
compliance with the provisions of the Exchange Act, Regulation D as promulgated
under the Securities Act and applicable state securities laws and (ii) the
filing of (A) HSR Reports by Pac Rim and the Company in connection with the
transactions contemplated by the Merger Agreement (the "Merger"), (B) HSR
Reports by IP, if required, and the Company (only if IP is required to file
such a report) in connection with this Agreement, (C) a Form A by the Company
in
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connection with the Merger and (D) a Form A by each of TJS (if required) and IP
in connection with this Agreement or (c) violate, result (with or without
notice or the passage of time, or both) in a breach of or give rise to the
right to accelerate, terminate or cancel any obligation under or constitute
(with or without notice or the passage of time, or both) a default under, any
of the terms or provisions of any charter or bylaw, indenture, mortgage,
agreement, contract, order, judgment, ordinance, regulation or decree to which
the Company or any of its Subsidiaries is subject or by which the Company or
any of its Subsidiaries is bound, except for any of the foregoing matters which
would not have, individually or in the aggregate, a Material Adverse Effect on
the Company. Neither the Company nor any of the Subsidiaries previously
entered into any agreement which is currently in effect, or by which the
Company or any of the Subsidiaries is currently bound, granting any rights to
any person which are inconsistent with the rights to be granted by the Company
in this Agreement and each other agreement contemplated hereby, other than the
registration rights granted to the holders of the Common Stock Purchase
Warrants issued pursuant to the Note Purchase Agreement and the Preferred
Securities Purchase Agreement.
3.6 SEC Filings. The Company has filed all SEC Filings required
to be filed by it since the date of its Registration Statement (as hereinafter
defined) under the Securities Act or the Exchange Act, and all amendments
thereto. The Company heretofore has delivered to each Partnership true and
complete copies of (d) its audited consolidated financial statements of the
Company and the Subsidiaries (balance sheet and statements of operations, cash
flows and shareholders' equity, together with the notes thereto) for the fiscal
year ended and as at December 31, 1995 (as such financial statements appear in
the Company's Form 10-K for the fiscal year ended December 31, 1995, which was
filed with the Commission on April 1, 1996, the "Audited Financial
Statements"), and the unaudited consolidated financial statements (balance
sheet and statement of operations) for the six (6) months ended and as at June
30, 1996 (as such financial statements appear in the Company's Form 10-Q for
the fiscal quarter ended June 30, 1996, which was filed with the Commission on
August 15, 1996, the "Unaudited Financial Statements"; the Audited Financial
Statements and Unaudited Financial Statements being collectively referred to as
the "Financial Statements"), (e) the final form, including all amendments, of
the Company's Registration Statement on Form 10 (the "Registration Statement"),
(f) its Quarterly Reports on Form 10-Q for the quarters ended June 30, 1995 and
September 30, 1995 and March 31, 1996 and June 30, 1996, (g) its Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, (h) its Proxy
Statement on Schedule 14A under the Exchange Act, dated April 26, 1996 and (i)
all other reports, statements, registration statements and other documents
(including Current Reports on Form 8-K) filed by it with the Securities and
Exchange Commission (the "Commission") under the Securities Act or the Exchange
Act, and all amendments and supplements thereto, subsequent to the filing of
the Registration Statement, if any (the foregoing subsections (a) through (f),
including all exhibits and Schedules thereto and documents incorporated by
reference therein, are referred to in this Agreement as the "SEC Filings"). As
of the respective date that it was filed with the Commission, each of the SEC
Filings complied as to form and content, in all material respects, with the
requirements
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of the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations promulgated thereunder, and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Financial
Statements included in the SEC Filings were prepared in accordance with
generally accepted accounting principles, consistently applied, and (except as
may be indicated therein or in the notes thereto) present fairly the
consolidated financial position, results of operations and cash flows of
Company as of the dates and for the respective periods indicated (subject, in
the case of Unaudited Financial Statements, to normal recurring year-end
adjustments and any other adjustments described therein). The Company has (i)
delivered to IP true and complete copies of (x) all correspondence relating to
the Company between the Commission and the Company or its legal counsel and, to
the Company's knowledge, accountants since the date of the Registration
Statement (other than routine filing package cover letters) and (y) all
correspondence between the Company or its counsel and the Company's auditors
since the date of the Registration Statement, relating to any audit, financial
review or preparation of financial statements of the Company (other than
correspondence which the Company reasonably believes is subject to a
privilege), and (ii) disclosed to IP the content of all material discussions
between the Commission and the Company or its legal counsel and, to the
Company's knowledge, accountants concerning the adequacy or form of any SEC
Filings filed with the Commission since the date of its Registration Statement.
The Company is not aware of any issues raised by the Commission with respect to
any of the SEC Filings, other than those disclosed to IP pursuant to this
paragraph.
3.7 Litigation. Except as set forth in the SEC Filings, there
are no actions, suits, proceedings, claims, complaints, disputes or
investigations pending or, to the knowledge of the Company, threatened, at law,
in equity, in arbitration or before any governmental authority against the
Company or any of its Subsidiaries and with respect to which the Company or any
of its Subsidiaries is responsible by way of indemnity or otherwise, that
would, if adversely determined, (a) have a Material Adverse Effect on the
Company or (b) have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement and each other agreement
contemplated hereby. No injunction, writ, temporary restraining order, decree
or order of any nature has been issued by any court or other governmental
authority against the Company or any of its Subsidiaries purporting to enjoin
or restrain the execution, delivery or performance of this Agreement or each
other agreement contemplated hereby.
3.8 Compliance with Laws.
(a) Each of the Company and the Subsidiaries is in compliance
with all Requirements of Law in all respects, except to the extent that the
failure to comply with such Requirements of Law would not have a Material
Adverse Effect on the Company.
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(b) (i) Each of the Company and the Subsidiaries has all
licenses, permits, orders or approvals of any governmental authority
(collectively, "Permits") that are material to or necessary for the conduct of
the business of the Company in the manner described in the SEC Filings filed
with the SEC prior to the date hereof, except to the extent that the failure to
have such Permits would not have a Material Adverse Effect on the Company; (ii)
such Permits are in full force and effect; and (iii) no material violations are
recorded in respect to any Permit.
3.9 No Material Adverse Change; Ordinary Course of Business.
Except as set forth in the SEC Filings and except as previously disclosed to IP
in writing, since June 30, 1996, (i) there has not been any material adverse
change in operations, financial condition, prospects or results of operations
of the Company and the Subsidiaries, taken as a whole and (ii) neither the
Company nor any of the Subsidiaries has participated in any transaction or
acted outside the ordinary course of business.
3.10 Private Offering. No form of general solicitation or
general advertising was used by the Company or the Subsidiaries or their
respective representatives in connection with the offer or sale of the Shares.
No registration of the Shares, pursuant to the provisions of the Securities Act
or any state securities or "blue sky" laws, will be required by the offer, sale
or issuance of the Shares.
3.11 Taxes. The Company and its Subsidiaries have filed or
caused to be filed, or have properly filed extensions for, all income tax
returns that are required to be filed and have paid or caused to be paid all
taxes as shown on said returns and on all assessments received by it to the
extent that such taxes have become due, except taxes the validity or amount of
which is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves, in accordance with generally accepted
accounting principles, have been set aside. The Company and its Subsidiaries
have paid or caused to be paid, or have established reserves in accordance with
generally accepted accounting principles that the Company or such Subsidiaries
reasonably believes to be adequate in all material respects, for all income tax
liabilities applicable to the Company and its Subsidiaries for all fiscal years
that have not been examined and reported on by the taxing authorities (or
closed by applicable statutes). United States federal income tax returns of
the Company and its Subsidiaries have been examined and closed through the
fiscal year ended December 31, 1991. The Company has delivered to IP (a)
copies of any tax sharing agreements to which it or any of its Subsidiaries is
party and such agreements have not been amended in any manner and (b) an
analysis of the ownership of capital stock of the Company by "5-percent
shareholders" as such term is defined in Section 382 of the Internal Revenue
Code of 1986, as amended, and the Treasury regulations promulgated thereunder
(collectively, "Section 382").
3.12 Brokers. Except with respect to any investment banking fee
due to Donaldson, Lufkin & Jenrette ("DLJ"), the Company has not paid or become
obligated to
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pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Proxy Statement and Meeting of Company's Shareholders.
(a) As soon as reasonably practicable following the date hereof,
the Company shall (i) prepare and file with the Commission, (ii) use its
reasonable best efforts to cause to be cleared by the Commission and (iii)
within five (5) business days following clearance with the Commission, mail to
its shareholders the Proxy Statement (as defined below) with respect to a
special meeting of the Company's shareholders (the "Special Meeting") to
consider and vote, among other things, upon (A) the issuance of the Shares as
contemplated hereby and (B) the amending or adopting of the Company's charter,
the amending of its Bylaws and the election of certain nominees to be directors
that are referred to in Section 5.3(e) and Section 5.3(l). The Board of
Directors of the Company shall recommend such approval and take all reasonable
lawful action to solicit such approval. Each Purchaser agrees to assist and
cooperate with the Company in the preparation of the Proxy Statement with
respect to information therein concerning any such Purchaser.
(b) The Company, on the one hand, and each Purchaser, on the
other hand, hereby represents, warrants and agrees with the other that the
Proxy Statement will not, at the time the Proxy Statement is mailed, and at the
date of the Special Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading, or to correct any statement made in any earlier
communication with respect to the solicitation of any proxy or approval of the
transactions contemplated by this Agreement in connection with which the Proxy
Statement shall be mailed, except that no representation or warranty is being
made by either with respect to information supplied in writing by the other for
inclusion in the Proxy Statement. The Company further represents, warrants and
agrees that the Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act. The letter to shareholders, notice of
meeting, proxy statement and form of proxy, or any information statement filed
under the Exchange Act, as the case may be, that may be provided to
shareholders of the Company in connection with the transactions contemplated by
this Agreement (including any supplements), and any schedules required to be
filed with the Commission in connection therewith, as from time to time amended
or supplemented, are collectively referred to as the "Proxy Statement."
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(c) The Company shall take all actions necessary in accordance
with the California Corporations Code and the bylaws of the Company to duly
call, give notice of, convene and hold the Special Meeting within forty-five
(45) calendar days after the mailing of the Proxy Statement to approve the
matters set forth therein.
4.1 Standstill.
(a) Each of IP's "Associates" (which term shall be defined for
this purpose to include CentreLine Reinsurance Limited, Centre Reinsurance
Limited, International Insurance Investors, L.P. ("III"), International
Insurance Advisors, Inc. ("IIA") and any person or entity that controls, is
under common control with, or is controlled by IP or such persons or entities,
and all individuals who are officers, directors or control persons of any such
entities, including IP) that is a signatory hereto covenants and agrees with
respect to itself, and IP covenants and agrees with respect to itself and its
Associates that are not signatories hereto, that it or they will not (i)
acquire or offer or agree to acquire, directly or indirectly, by purchase or
otherwise, any shares of Common Stock or voting securities of the Company (or
direct or indirect rights or options to acquire any such securities); (ii)
enter, agree to enter into or propose to enter into, directly or indirectly,
any merger or business combination involving the Company; (iii) make, or in any
way participate, directly or indirectly, in any "solicitation" of "proxies" (as
such terms are used in the rules of the Commission) or consent to vote, or seek
to advise or influence any person or entity with respect to the voting of, any
voting securities of the Company; or (iv) form, join or in any way participate
in a "group" (within the meaning of Section 13d-3 of the Exchange Act) with any
persons not referred to herein with respect to any of the foregoing; provided,
however, that nothing in this Section 4.2(a) shall restrict IP or any of its
Associates from (A) acquiring shares of Common Stock or voting securities as a
result of a stock split, stock dividend or similar recapitalization of the
Company, (B) exercising the warrant issued to IIA pursuant to the Note Purchase
Agreement and the warrant issued to CentreLine pursuant to the Preferred
Securities Purchase Agreement, (C) making, or in any way participating,
directly or indirectly, in any "solicitation" of "proxies" (as such terms are
defined in Rule 14a-1 under the Exchange Act) in connection with the election
to the Board of Directors of directors nominated by IP or any of its Associates
(to the extent not otherwise inconsistent with this Agreement) or (D) with
respect to a tender or exchange offer or a merger or other business combination
involving the Company (a "Business Combination"), which was initiated without
the encouragement by or the participation of IP or any of its Associates,
making a tender or exchange offer or a proposal with respect to a Business
Combination, or forming, joining or participating as a "group" to make such
offer or proposal, in either case upon more favorable terms than those of the
unsolicited tender or exchange offer or Business Combination; and provided
further, that nothing contained in this Section 4.2(a) shall affect or impair
the right of any director of the Company to (x) act as a member of the Board of
Directors or any committee thereof or (y) take any action necessary or
advisable to carry out his obligations and duties as a director of the Company.
Notwithstanding anything to the contrary contained in this Agreement, nothing
in this Section 4.2(a) shall prohibit or restrict any Associate who
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is a director of the Company from acquiring, in one or more transactions, in
his individual capacity, an aggregate of 25,000 shares of Common Stock so long
as such acquisition does not violate any provision of the Company's charter as
in effect from time to time.
(b) The limitations set forth in Section 4.2(a) above and
Section 4.3 below may be waived by the affirmative vote of the nearest whole
number representing 66 2/3% or more of (i) the directors of the Company,
excluding from the total number of directors voting, those who are Associates
of IP and those who are employees of the Company or (ii) the shares of the
Company, not including in such total number of shares voting, those
beneficially owned by those executive officers of the Company subject to the
reporting requirements of Section 16 of the Exchange Act and those owned by IP
and its Associates.
(c) In furtherance of the standstill covenants set forth in this
Section 4.2, each of the Company and IP covenants and agrees that any material
business relationship between the Company and IP or any Associate of IP must be
approved in the manner provided in Section 4.2(b) above.
(d) Other than with respect to the election of directors of the
Company, IP covenants and agrees that, with respect to any vote of the
shareholders of the Company on a particular matter, if the aggregate number of
all shares that are voted in like manner by IP and its Associates shall be
greater than 35% of the total number of shares voted, then those votes that
exceed such 35% threshold shall be voted in the same proportion as the other
shareholders voted their shares with respect to such matter.
(e) IP covenants and agrees that IP and its Associates will not
vote their shares of Common Stock, the Voting Notes issued pursuant to the Note
Purchase Agreement (the "Voting Notes") or shares of Common Stock issued upon
exercise of the Common Stock Purchase Warrants issued to them under the Note
Purchase Agreement and the Preferred Securities Purchase Agreement, to elect a
total of more than five (5) persons (or the highest number that is less than a
majority of the Board of Directors, as the case may be), including the person
nominated pursuant to Section 4.4 below, who are Associates of IP or its
Associates to be directors of the Company.
(f) The agreements set forth in this Section 4.2 shall continue
so long as the shares of Common Stock owned by IP and its Associates, directly
or indirectly, represent 15% of the outstanding shares of the Company on a
fully diluted basis (including, without limitation, the Voting Notes).
4.3 Transfer of Shares. So long as the shares of Common Stock
owned by IP and its Associates, directly or indirectly, represent 15% of the
shares of Common Stock outstanding on a fully diluted basis (including, without
limitation, the Voting Notes), IP shall not transfer, assign, sell or otherwise
dispose of (each, a "Transfer") any of its shares of
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Common Stock, except for Transfers made in accordance with this Section 4.3.
IP may at any time Transfer any or all of its shares of Common Stock (i) to any
Associate of IP, if such Associate executes and delivers to the Company, prior
to any such Transfer, an instrument in form and substance reasonably
satisfactory to the Company pursuant to which such Associate agrees to be bound
by the provisions of Section 4.2 above and this Section 4.3, (ii) pursuant to
Rule 144 under the Securities Act or any successor to such rule, (iii) pursuant
to a tender offer or exchange offer made by the Company or any "Affiliate" (as
such term is defined in Rule 12b-2 of the Exchange Act) of the Company, (iv)
pursuant to a tender offer or exchange offer initiated by any person or "group"
(within the meaning of Section 13d-3 of the Exchange Act) other than IP or any
Associate thereof or a Business Combination, which is approved or recommended
by the Board of Directors of the Company or with respect to which the Board of
Directors of the Company has announced its intention to remain neutral, (v) so
long as the shares of Common Stock to be Transferred represent, in the
aggregate, not greater than 10% of the outstanding Common Stock, in a
transaction or series of transactions exempt from the registration and
prospectus delivery requirements of the Securities Act, (vi) by the Transfer of
greater than 10% of the outstanding shares of Common Stock in a transaction or
series of transactions exempt from the registration and prospectus delivery
requirements of the Securities Act to (x) one purchaser, (y) one purchaser and
its Affiliates or (z) a "group" of purchasers, if such purchaser or purchasers
of Common Stock in any such transaction or series of transactions execute and
deliver to the Company prior to any such purchase or purchases an instrument in
form satisfactory to the Company pursuant to which such purchaser or purchasers
agree to be bound by the provisions of Section 4.2 above and this Section 4.3
(treating such purchaser or purchasers as an "Associate" for purposes of such
sections) or (vii) pursuant to a registration statement filed under the
Securities Act pursuant to the Registration Rights Agreement, in the form
attached hereto as Exhibit C (the "Registration Rights Agreement"), or
otherwise.
4.4 Board Representation. The Company shall present two
proposals relating to the Board of Directors of the Company to its shareholders
at the Special Meeting, one of which shall provide for the amendment of the
Bylaws of the Company to increase the size of the Board of Directors of the
Company from nine (9) members to eleven (11) members and the other of which
shall nominate for election to such newly created vacancies, an independent
director of the Company and a director who is a designee of IP. The Board of
Directors shall recommend approval of each proposal and take all reasonable
lawful action to solicit approval of them. During the term of this Agreement,
the Board of Directors shall nominate one individual designated by IP (provided
that such individual is reasonably acceptable to the Board of Directors) for
election as a director of the Company at each annual meeting of shareholders,
provided that the person nominated to be director shall not be in addition to
the number of directors that IP has agreed to elect pursuant to Section 4.2(e)
hereof. If the director designated by IP shall cease to be a director of the
Company for any reason, the Board of Directors of the Company shall, promptly
upon the request of IP, elect a replacement designated by IP, provided that
such individual is reasonably acceptable to the Board of Directors.
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4.5 IP Management. Robert Spass will abstain from the votes of
the Investment Committees of each of IP Delaware and IP Bermuda with respect to
their investment in the Company.
4.6 Best Efforts. Upon the terms and subject to the conditions
herein provided, each of the Purchasers and the Company agrees to use its
reasonable best efforts to take, or cause to be taken, all action, and to do,
or cause to be done, all things necessary, proper or advisable to consummate
the transactions contemplated by this Agreement and each other agreement
contemplated hereby including (g) to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby and (h) to fulfill all
conditions on its part to be fulfilled under this Agreement and each other
agreement contemplated hereby. In case at any time after the Closing Date any
further action is reasonably necessary or desirable to carry out the purposes
of this Agreement and each other agreement contemplated hereby, each party to
this Agreement who is a natural person and the proper partners, officers or
directors of all other parties to this Agreement shall take all such reasonably
necessary action. No party hereto will take any action for the purpose of
delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any required filing. Each
party hereto shall give prompt notice to all other parties of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty of such party contained in
this Agreement, as the case may be, to be untrue or inaccurate in any material
respect any time from the date hereof to the Closing Date and (ii) any material
failure of such party, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, and such party shall use all reasonable efforts to remedy such
failure.
4.7 Indemnification by the Company.
(a) The Company agrees to indemnify the Purchasers, and each of
the Purchaser's respective partners, employees, agents and representatives,
against and hold the Purchasers, and each of the Purchaser's respective
partners, employees, agents and representatives, harmless from all claims,
obligations, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses incurred by the Purchasers in any action between
the Purchasers and the Company or between the Purchasers and any third party or
otherwise) and liabilities of and damages to the Purchasers arising out of the
material breach of any representation, warranty, covenant or agreement of the
Company in this Agreement.
(b) The Purchasers agree to give the Company prompt written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which they have knowledge concerning any liability or damage as to
which they may request indemnification hereunder. The Company shall have the
right to direct, through counsel of its own choosing, the defense or settlement
of any such claim, assertion, event or proceeding (provided that the Company
shall have first acknowledged its indemnification obligations
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<PAGE> 115
hereunder specifically in respect of such claim, assertion, event or
proceeding) at its own expense, which counsel shall be reasonably satisfactory
to the Purchasers. If the Company elects to assume the defense of any such
claim, assertion, event or proceeding, the Purchasers may participate in such
defense, but in such case the expenses of the Purchasers incurred in connection
with such participation shall be paid by the Purchasers. The Purchasers shall
cooperate with the Company in the defense or settlement of any such claim,
assertion, event or proceeding. If the Company elects to direct the defense of
any such claim or proceeding, the Purchasers shall not pay, or permit to be
paid, any part of any claim or demand arising from such asserted liability,
unless the Company consents in writing to such payment or unless the Company
withdraws from the defense of such asserted liability, or unless a final
judgment from which no appeal may be taken by or on behalf of the Company is
entered against the Purchasers for such liability. If the Company shall fail
to defend, or if, after commencing or undertaking any such defense, the Company
fails to prosecute or withdraws from such defense, the Purchasers shall have
the right to undertake the defense or settlement thereof at the Company's
expense.
4.8 Indemnification by the Purchasers.
(a) Each of the Purchasers, severally and not jointly, agrees to
indemnify the Company, and each of the Company's officers, directors,
employees, agents and representatives, against and hold the Company, and each
of the Company's officers, directors, employees, agents and representatives,
harmless from all claims, obligations, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses incurred by the Company in
any action between the Company and such Purchaser or between the Company and
any third party or otherwise) and liabilities of and damages to the Company
arising out of the material breach of any representation, warranty, covenant or
agreement of such Purchaser in this Agreement.
(b) The Company agrees to give the Purchasers prompt written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which it has knowledge concerning any liability or damage as to which
it may request indemnification hereunder. The indemnifying Purchasers shall
have the right to direct, through counsel of their own choosing, the defense or
settlement of any such claim, assertion, event or proceeding (provided that
such Purchasers shall have first acknowledged their indemnification obligations
hereunder specifically in respect of such claim, assertion, event or
proceeding) at their own expense, which counsel shall be reasonably
satisfactory to the Company. If the indemnifying Purchasers elect to assume
the defense of any such claim, assertion, event or proceeding, the Company may
participate in such defense, but in such case the expenses of the Company
incurred in connection with such participation shall be paid by the Company.
The Company shall cooperate with the indemnifying Purchasers in the defense or
settlement of any such claim, assertion, event or proceeding. If the
indemnifying Purchasers elect to direct the defense of any such claim,
assertion, event or proceeding, the Company shall not pay, or permit to be
paid, any part of any claim or
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<PAGE> 116
demand arising from such asserted liability, unless such Purchasers consent in
writing to such payment or unless such Purchasers withdraw from the defense of
such asserted liability, or unless a final judgment from which no appeal may be
taken by or on behalf of such Purchasers is entered against the Company for
such liability. If the indemnifying Purchasers shall fail to defend, or if,
after commencing or undertaking any such defense, such Purchasers fail to
prosecute or withdraw from such defense, the Company shall have the right to
undertake the defense or settlement thereof at such Purchaser's expense.
4.9 Consents. The Company and each of the Purchasers will use
its reasonable best efforts to obtain all necessary waivers, consents and
approvals of all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement and each
agreement contemplated hereby, including, but not limited to, those required in
connection with the filing of any required HSR Reports and Forms A and any
filings to be made in connection with or in compliance with the provisions of
each of the Securities Act, the Exchange Act and any applicable state
securities laws.
4.10 Use of Proceeds. The Company covenants and agrees that it
will use the proceeds from the sale of the Shares hereunder to consummate the
transactions contemplated by the Merger Agreement.
4.11 HSR Reports. If IP is required to file an HSR Report in
connection with the Purchase by IP pursuant to the terms of this Agreement,
then IP shall so notify the Company in writing and, within five (5) business
days from the receipt by the Company of such notice, each of IP and the Company
shall file with the Federal Trade Commission and the Antitrust Division of the
Department of Justice, an HSR Report and any supplemental information which may
be requested in connection with such HSR Reports. IP and the Company shall
cooperate fully in the preparation of such filings.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver by IP and the Company
on or prior to the Closing Date of the following conditions:
(a) No United States or state governmental authority or other
agency or commission or United States or state court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order (whether temporary, preliminary, or
permanent) which is in effect and has the effect of prohibiting consummation of
the transactions contemplated by this Agreement or
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restricting the operation of the business of the Company and the Subsidiaries
as conducted on the date hereof in a manner that would have a Material Adverse
Effect on the Company.
(b) Any waiting period applicable to the transactions
contemplated by this Agreement and each agreement contemplated hereby,
including, without limitation, those applicable to any HSR Report or Form A or
any filing in connection with or in compliance with the provisions of each of
the Securities Act, the Exchange Act and any applicable state securities laws
shall have expired or been terminated.
(c) The Merger Agreement, dated as of the date hereof (the
"Merger Agreement"), among the Company, SNTL and Pac Rim shall not have been
materially amended or modified, nor any material provision thereof waived by
the Company, except upon the consent of IP in its sole discretion (such consent
not to be unreasonably withheld), and the Closing provided for in Section 1.4
hereof shall occur simultaneously with the closing of the transactions
contemplated by the Merger Agreement.
5.2 Conditions to the Obligations of the Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver by the Company on or
prior to the Closing Date of the following additional conditions:
(a) The Purchasers shall have performed in all material respects
their obligations under this Agreement required to be performed by them on or
prior to the Closing Date pursuant to the terms hereof.
(b) The representations and warranties of the Purchasers
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as if made at and as of such date, except to the
extent that any such representation or warranty is made as of a specified date
in which case such representation or warranty shall have been true and correct
as of such date. The Purchasers shall have delivered a certificate to the
effect set forth in Sections 5.2(a) and (b).
(c) The Company shall have received fully executed copies of the
Merger Agreement, the term loan facility to be entered into between the
Company, Chase and certain other lenders as contemplated by the Commitment
Letter from Chase to the Company dated September 14, 1996 (the "Term Loan
Facility"), the Subscription Agreements, the Registration Rights Agreement and
any and all other agreements, documents, certificates or instruments
contemplated by this Agreement and any of the foregoing.
(d) All of the conditions to Closing set forth in Article 8 of
the Merger Agreement shall have been satisfied or waived.
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(e) The warrants issued to III and held by IIA as its agent
shall be distributed to all limited partners of III.
(f) The shareholders of the Company (including, without
limitation, the holders of the Voting Notes) shall have duly approved at the
Special Meeting (i) the issuance of the Shares pursuant to this Agreement, (ii)
the amendment of the Bylaws of the Company, in form and substance reasonably
satisfactory to IP, to increase the size of the Board of Directors from nine
(9) to eleven (11) members, (iii) the election to such newly created vacancies
of one independent director of the Company and a director designated by IP and
(iv) the amendment to, or adoption of, its charter as contemplated by Section
5.3(l) hereof; provided, however, that a majority of shares held by persons not
party to this Agreement or Associates of parties to this Agreement shall have
voted in favor of each of such proposals.
(g) The Company shall have received, in a form reasonably
satisfactory to the Company, the favorable opinions of Paul, Weiss, Rifkind,
Wharton & Garrison, counsel to IP.
(h) The Company shall have received, in a form reasonably
satisfactory to the Company, the favorable opinion of DLJ, as of the date of
the mailing of the Proxy Statement, financial advisor to the Company, as to the
fairness on a financial basis of the terms of the Purchase and the transactions
contemplated by this Agreement.
(i) All necessary waivers or consents to, approvals of and
notices or filings with respect to the transactions contemplated by this
Agreement and each agreement contemplated hereby shall have been obtained or
made.
(j) The Company shall have received such other documents and
instruments in connection with the Closing as are reasonably requested by it.
5.3 Conditions to the Obligations of Purchasers. The
obligations of the Purchasers to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver by IP on or prior to
the Closing Date of the following additional conditions:
(a) The Company shall have performed in all material respects
its obligations under this Agreement required to be performed by it on or prior
to the Closing Date pursuant to the terms hereof.
(b) The representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects at and as
of the Closing Date as if made at and as of such date, except to the extent
that any such representation or warranty is made as of a specified date in
which case such representation or warranty shall
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have been true and correct as of such date. The Company shall have delivered
to IP a certificate to the effect set forth in Sections 5.3(a) and (b).
(c) Since June 30, 1996, there shall have been no Material
Adverse Effect on the Company.
(d) The Company shall have delivered to each of the Purchasers
stock certificates in definitive form representing the number of Shares set
forth opposite such Purchaser's name on Exhibit B hereto, registered in the
name of such Purchaser.
(e) The shareholders of the Company (including, without
limitation, the holders of the Voting Notes) shall have duly approved at the
Special Meeting (i) the issuance of the Shares pursuant to this Agreement, (ii)
the amendment of the Bylaws of the Company, in form and substance reasonably
satisfactory to IP, to increase the size of the Board of Directors from nine
(9) to eleven (11) members and (iii) the election to such newly created
vacancies of one independent director of the Company and a director designated
by IP; provided, however, that a majority of shares held by persons not party
to this Agreement or Associates of parties to this Agreement shall have voted
in favor of each of such proposals.
(f) IP shall have received fully executed copies of the Merger
Agreement, the Term Loan Facility, the Registration Rights Agreement and any
and all other agreements, documents, certificates or instruments contemplated
by this Agreement and any of the foregoing.
(g) The Purchasers shall have received fully executed copies of
this Agreement and the Subscription Agreements.
(h) The Purchasers shall have received, in a form reasonably
satisfactory to the Company, the favorable opinions of Riordan & McKinzie,
counsel to the Company.
(i) The Purchasers shall have received such other documents and
instruments in connection with the Closing as are reasonably requested by them.
(j) All necessary waivers or consents to, approvals of and
notices or filings with respect to the transactions contemplated by this
Agreement and each other agreement contemplated hereby and thereby shall have
been obtained, including, without limitation, the waiver of all preemptive
rights arising under the Common Stock Purchase Warrants issued pursuant to the
Note Purchase Agreement and the Preferred Securities Purchase Agreement.
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(k) No action, suit, proceeding, claim or dispute shall have
been brought or otherwise arisen at law, in equity, in arbitration or before
any governmental authority against the Company or any of its Subsidiaries which
would, if adversely determined, (a) have a Material Adverse Effect on the
Company or (b) have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or each of the agreements
contemplated hereby.
(l) (i) The Company shall have amended its Restated Articles of
Incorporation or adopted a charter, in each case in a manner satisfactory to IP
and its counsel, to restrict the issuance or transfer of any Common Stock by
the Company or any of its shareholders so as to reduce, to the extent
practicable, the risk of an "ownership change" within the meaning of Section
382 of the Internal Revenue Code of 1986, as amended, and the Treasury
regulations promulgated thereunder (collectively, "Section 382") and (ii) the
Company shall have entered into agreements, in form and substance reasonably
satisfactory to IP and its counsel, with all of its warrant holders in which
such holders shall agree not to exercise any of their warrants in a manner that
would cause, or increase the risk of, an "ownership change" within the meaning
of Section 382 or otherwise conflict with the restrictions described in the
immediately preceding subsection (i).
(m) The Company shall have delivered to IP at the Closing a
schedule that has been prepared by the Company solely in reliance upon its
review of its stock ledger, public filings of Schedules 13D and 13G under the
Exchange Act as they relate to ownership in the capital stock of the Company
and other matters to which it has actual knowledge, presenting information
reasonably satisfactory to IP as of the Closing Date that there has been no
increase in the Common Stock owned directly, indirectly or constructively by a
"5-percent shareholder" (as such term is defined in Section 382) over the
three-year period immediately preceding the Closing Date.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement shall terminate and the
transactions contemplated hereby may be abandoned at any time simultaneous with
or following the termination of the Merger Agreement. This Agreement shall
terminate at such time as, by their terms, all of the obligations under
Sections 4.2 and 4.3 are no longer in effect.
6.2 Amendment. This Agreement may be amended by the parties
hereto. This Agreement may be amended by an instrument in writing without each
party's written agreement, but no such amendment shall be enforceable against
any party which has not signed such amendment.
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6.3 Waiver. At any time prior to the Closing Date, the Company
or IP may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions herein, provided that any such waiver of or failure to insist on
strict compliance with any such representation, warranty, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Any agreement on the part of the Company or IP to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
6.4 Survival. The representations, warranties, covenants and
agreements set forth in Articles II, III and IV shall survive the Closing.
6.5 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally, sent by commercial carrier or
registered or certified mail (postage prepaid, return receipt requested) or
transmitted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
If to the Company, to:
Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Fax: (818) 880-8615
Attention: J. Chris Seaman
with copies to:
Riordan & McKinzie
5473 Corsa Avenue, Suite #116
Westlake Village, California 91362
Fax: (818) 706-2956
Attention: Dana M. Warren, Esq.
If to IP, to:
Insurance Partners, L.P.
201 Main Street, Suite 2600
Fort Worth, TX 76102
Fax: (817) 338-2047
Attention: Mr. Charles Irwin
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and
Insurance Partners Offshore (Bermuda), L.P.
Cedar House
41 Cedar Avenue
P.O. Box HM 1179
Hamilton, HM-EX, Bermuda
Fax: (809) 292-7768
Attention: Kenneth E.T. Robinson, Esq.
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Fax: (212) 757-3990
Attention: Judith R. Thoyer, Esq.
and
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Fax: (212) 898-8720
Attention: Mr. Steven B. Gruber
If to the Purchasers who executed the Subscription Agreements, to
the address and facsimile number set forth in their respective Subscription
Agreement, or at such other addresses as shall be furnished by the parties by
like notice, and such notice or communication shall be deemed to have been
given or made as of the date actually received.
6.6 Headings; Agreement. The headings contained in this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement. The term "Agreement" for purposes of representations and
warranties hereunder shall be deemed to include the Exhibits hereto to be
executed and delivered by parties relevant thereto.
6.7 Publicity. So long as this Agreement is in effect, except
as required by law, regulation or stock exchange requirements, the parties
hereto shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
transactions contemplated by this Agreement or the other agreements
contemplated hereby without the consent of the other parties, which consent
shall
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not be unreasonably withheld or delayed or without consulting with the other
parties as to the content of such press release or other announcement.
6.8 Entire Agreement. This Agreement (including all Exhibits
hereto) constitutes the entire agreement among the parties and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof.
6.9 Conveyance Taxes. The Company agrees to assume liability
for and to hold the Purchasers harmless against any sales, use, transfer,
stamp, stock transfer, real property transfer or gains, and value added taxes,
any transfer, registration, recording or other fees, and any similar taxes
incurred as a result of the issuance and sale of the Shares as contemplated
hereby.
6.10 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Except as otherwise provided in
the Exhibits to this Agreement or the other agreements contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations shall be
assigned by any of the parties hereto without the prior written consent of the
other parties.
6.11 Counterparts. This Agreement, including the Subscription
Agreements, may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and each of which shall be deemed an
original.
6.12 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of California, without
reference to the conflict of laws principles thereof.
6.13 Third Party Beneficiaries. This Agreement is not intended
to confer upon any other person any rights or remedies hereunder.
6.14 Costs and Expenses. The Company will pay all costs and
expenses incurred by IP in connection with the transactions contemplated
hereby, including without limitation, the reasonable legal fees and expenses of
Paul, Weiss, Rifkind, Wharton & Garrison and any filing fees paid in connection
with the filing of HSR Reports by IP, whether or not the transactions
contemplated hereby are consummated.
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IN WITNESS WHEREOF, each of the Purchasers and the Company has caused
this Agreement to be duly signed as of the date first written above.
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a California corporation
By: /s/ J. Chris Seaman
--------------------------------
Name: J. Chris Seaman
Title:
INSURANCE PARTNERS, L.P.,
a Delaware limited partnership
By: Insurance GenPar, L.P., its
General Partner
By: Insurance GenPar MGP, L.P., its
General Partner
By: Insurance GenPar MGP, Inc., its
General Partner
By:/s/ Steven B. Gruber
--------------------------------
Name: Steven B. Gruber
Title: Vice President
INSURANCE PARTNERS OFFSHORE (BERMUDA),
L.P., a Bermuda limited partnership
By: Insurance GenPar (Bermuda), L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, L.P.,
its General Partner
By: Insurance GenPar (Bermuda), Ltd.,
its General Partner
By:/s/ Steven B. Gruber
--------------------------------
Name: Steven B. Gruber
Title: Vice President
[Acknowledgment and Agreement on Following Page]
24
<PAGE> 125
Acknowledgement and Agreement:
Each of the undersigned acknowledges that this Agreement affects
its rights and by its signature below, the undersigned covenants and agrees
that it and its officers, directors and managing partners shall be bound by the
terms of this Agreement to the extent such terms apply to them. Each of the
undersigned hereby provides the waiver required by Section 5.3(j) hereof.
CENTRELINE REINSURANCE LIMITED,
a Bermuda corporation
By: /s/ Steven D. Germain
--------------------------------
Name: STEVEN D. GERMAIN
Title: Senior Vice President
CENTRE REINSURANCE LIMITED,
a Bermuda corporation
By: /s/ Steven D. Germain
--------------------------------
Name: STEVEN D. GERMAIN
Title: Senior Vice President
INTERNATIONAL INSURANCE INVESTORS, L.P.,
a Bermuda limited partnership
By: International Insurance Investors (Bermuda)
Limited, a Bermuda corporation
Its: General Partner
By: /s/ Robert Spass
--------------------------------
Name: ROBERT SPASS
Title:
INTERNATIONAL INSURANCE ADVISORS, INC.,
a Delaware corporation
By: /s/ Robert Spass
--------------------------------
Name: ROBERT SPASS
Title: President
25
<PAGE> 126
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
This Amendment No. 1 to Stock Purchase Agreement is dated as of
September 20, 1996 (this "Amendment") and amends that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") dated as of September 17, 1996 by
and among Superior National Insurance Group, Inc., a California corporation
(the "Company"), Insurance Partners, L.P., a Delaware limited partnership,
Insurance Partners Offshore (Bermuda), L.P., a Bermuda limited partnership, and
such other persons or entities who execute the form of Stock Subscription
Agreement attached thereto as Exhibit A. Capitalized terms used herein, but
otherwise not defined herein, shall have the meanings ascribed to such terms in
the Stock Purchase Agreement.
R E C I T A L S
WHEREAS, the Company has determined that it is in its best
interest to decrease by $4 million the amount of the commitment it has received
from Chase in connection with the Term Loan Facility;
WHEREAS, the transaction fee IPA is to receive under the Stock
Purchase Agreement (the "Fee") is based in part on the aggregate amount of
money the Company shall receive pursuant to the Term Loan Facility; and
WHEREAS, the Company and IP desire to clarify the manner in
which the Fee shall be calculated if Pac Rim were to terminate the Merger
Agreement pursuant to Section 10.3 thereof.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, the parties hereto agree to
amend the Stock Purchase Agreement as follows:
A G R E E M E N T
1. Amendment of Section 1.5 of the Stock Purchase Agreement.
Section 1.5 of the Stock Purchase Agreement, entitled "Fee," is hereby
deleted in its entirety and the following is hereby substituted therefor:
1.5 Fee. At the Closing, the Company shall pay to
Insurance Partners Advisors, L.P. ("IPA") a transaction fee of Six
Hundred Twenty-Five Thousand Dollars ($625,000), by wire transfer of
immediately available funds to an account or accounts designated by
IPA. If Pac Rim shall pay to the Company the Breakup Fee (as defined
in Section 10.3 of the Merger Agreement, dated as of the date hereof,
among Pac Rim, the Company and SNTL (the "Merger Agreement")) in
accordance with Section 10.3 of the Merger Agreement, then the Company
shall pay to IPA, promptly following the Company's receipt of the
Breakup Fee, that portion of the Breakup Fee equal to the percentage
of voting securities of the Company owned by IP (the
<PAGE> 127
"IPA Fee Ratio") on a fully diluted basis (excluding the Voting Notes,
as hereinafter defined) as if the purchase by IP of the Shares shall
have occurred (notwithstanding that no such purchase shall have taken
place). In addition, if the Company shall receive the payments (the
"Disgorgement Payments") owed to it under Section 1.2 of the Voting
Agreement dated as of September 17, 1996 by and among the Company and
the holders listed on the signature pages thereto, then the Company
shall pay to IPA, promptly after receipt of all Disgorgement Payments,
the amount that results from multiplying the aggregate Disgorgement
Payments received by the Company by the IPA Fee Ratio (notwithstanding
that no purchase by IP of the Shares shall have taken place
hereunder). Notwithstanding the provisions of Section 6.4 hereof,
this Section 1.5 shall survive the termination of this Agreement.
2. Amendment of Section 6.13 of the Stock Purchase Agreement.
Section 6.13 of the Stock Purchase Agreement, entitled "Third Party
Beneficiaries," is hereby deleted in its entirety and the following is hereby
substituted therefor:
6.13 Third Party Beneficiaries. Subject to Sections 1.5,
4.7 and 4.8, this Agreement is not intended to confer upon any other
person any rights or remedies hereunder.
3. Full Force and Effect. Except as provided in this Amendment,
all of the terms and provisions of the Stock Purchase Agreement shall remain
unmodified and in full force and effect and are hereby ratified and confirmed.
4. Counterparts. This Amendment may be executed in counterparts,
each of which shall be deemed an original, and all of which shall constitute
one and the same instrument.
2
<PAGE> 128
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment
to be duly signed as of the date first written above.
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a California corporation
By: /s/ J. Chris Seaman
----------------------------------
Name: J. Chris Seaman
Title: Executive Vice President
INSURANCE PARTNERS, L.P.,
a Delaware limited partnership
By: Insurance GenPar, L.P., its
General Partner
By: Insurance GenPar MGP, L.P., its
General Partner
By: Insurance GenPar MGP, Inc., its
General Partner
By: /s/ Steven B. Gruber
---------------------------
Name: Steven B. Gruber
Title: Vice President
INSURANCE PARTNERS OFFSHORE (BERMUDA),
L.P., a Bermuda limited partnership
By: Insurance GenPar (Bermuda), L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, L.P.,
its General Partner
By: Insurance GenPar (Bermuda), Ltd.,
its General Partner
By: /s/ Steven B. Gruber
----------------------------
Name: Steven B. Gruber
Title: Vice President
3
<PAGE> 129
EXHIBIT A
STOCK SUBSCRIPTION AGREEMENT
THIS STOCK SUBSCRIPTION AGREEMENT (this "Subscription Agreement") is
made and entered into as of ______ __, 1996 by and between Superior National
Insurance Group, Inc., a [California] corporation (the "Company"), and
_______________ (the "Purchaser"). All Capitalized terms used herein shall
have the meaning ascribed to such terms in the Stock Purchase Agreement (as
defined below) to which this Subscription Agreement is attached as an Exhibit.
R E C I T A L S
WHEREAS, The Company desires to issue and sell to the
Purchaser, and the Purchaser desires to subscribe for and purchase from the
Company, the number of Shares set forth below in Section 1 hereof on the terms
and conditions set forth in this Subscription Agreement and the Stock Purchase
Agreement (the "Stock Purchase Agreement") dated as of September 16, 1996 by
and among the Company, IP and such other persons or entities that execute the
Subscription Agreements attached thereto.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein and in the Stock Purchase
Agreement, the parties hereto agree as follows:
(a) Sale and Purchase of Stock. The Company hereby agrees to
issue and sell to the Purchaser, and the Purchaser agrees to purchase from the
Company, subject to the terms and conditions set forth in this Subscription
Agreement and the Stock Purchase Agreement, __________ Shares, at a price of
Seven Dollars and Fifty-Three Cents ($7.53) per Share, for an aggregate
purchase price of $__________________.
(b) One Agreement. This Subscription Agreement, when fully
executed, shall be attached as an Exhibit to the Stock Purchase Agreement and
become a part of the Stock Purchase Agreement. The Purchaser agrees (i) that
he/she/it is a "Purchaser" as such term is defined in the Stock Purchase
Agreement and (ii) to be bound by all terms, provisions and conditions of the
Stock Purchase Agreement applicable to such Purchaser.
(c) Notices. Any notice or other writing given by either party
hereto to the other party relating to the subject matter of this Agreement
shall be delivered in the manner set forth in Section 6.5 of the Stock Purchase
Agreement. Any such notice, if to the Purchaser, shall be delivered to:
<PAGE> 130
__________________________
__________________________
__________________________
(d) Amendments. This Subscription Agreement may be amended only
by a written agreement executed by the Company and the Purchaser.
(e) Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same Agreement.
27
<PAGE> 131
IN WITNESS WHEREOF, the parties hereto have duly executed this
Subscription Agreement as of the day and year first above written.
THE COMPANY:
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a [California] corporation
By:
----------------------------
PURCHASER:
---------------------------------
28
<PAGE> 132
EXHIBIT B
PURCHASERS OF THE SHARES OF COMMON STOCK
1. IP shall purchase up to Eighteen Million Dollars ($18,000,000) worth
of Shares.*
*IP's portion of the Purchase Price shall be reduced by those amounts
used to purchase Shares pursuant to the Subscription Agreements.
29
<PAGE> 133
Exhibit C
REGISTRATION RIGHTS AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
INSURANCE PARTNERS, L.P.
and
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
____________________________________
Dated: ________, 199_
_____________________________________
<PAGE> 134
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. General; Securities Subject to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Grant of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Holders of Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Request for Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Limitation on Demand Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Effective Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Underwriting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(f) Selection of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Incidental or "Piggy-Back" Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Request for Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Reduction in Registrable Securities to be Registered . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. Holdback Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Restrictions on Public Sale by Designated Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Restrictions on Public Sale by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Seller Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Preparation; Reasonable Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Notice to Discontinue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7. Indemnification; Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 135
<TABLE>
<CAPTION>
<S> <C>
Page
----
(b) Indemnification by Designated Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Conduct of Indemnification Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Other Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(f) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Recapitalizations, Exchanges, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Successors and Assigns; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(g) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(h) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(I) GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(j) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(k) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(l) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
ii
<PAGE> 136
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated ___________, 199_ (this
"Agreement"), among Superior National Insurance Group, Inc., a California
corporation (the "Company"), Insurance Partners, L.P., a Delaware limited
partnership ("IP"), and Insurance Partners Offshore (Bermuda), L.P., a Bermuda
limited partnership ("IP Bermuda" and, together with IP, "Insurance Partners").
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of
September 17, 1996 (the "Stock Purchase Agreement"), by and among the Company,
IP, IP Bermuda and such other persons or entities who execute the form of
subscription agreement attached thereto as Exhibit A, pursuant to which the
Company has agreed to, among other things, issue and sell to (a) IP, and IP has
agreed to purchase from the Company, an aggregate of _____ shares of Common
Stock and (b) IP Bermuda, and IP Bermuda has agreed to purchase from the
Company, an aggregate of _____ shares of Common Stock; and
WHEREAS, in order to induce each of IP and IP Bermuda to
purchase its shares of Common Stock (in the aggregate, the "Shares"), the
Company has agreed to grant registration rights with respect to the Registrable
Securities (as hereinafter defined) as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereby agree
as follows:
1. Definitions. As used in this Agreement the following
terms have the meanings indicated:
"Affiliate" shall mean any Person who is an
"affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Approved Underwriter" has the meaning set forth in
Section 3(f).
"CentreLine" means CentreLine Reinsured Limited, a
Bermuda corporation.
"CentreLine Warrant" means the Common Stock Purchase
Warrant, dated as of June 30, 1994, issued by the Company to CentreLine
pursuant to the Preferred Securities Purchase Agreement, dated as of June 30,
1994, by and
<PAGE> 137
2
between the Company, Superior National Capital Holding Corporation, Superior
National Capital, L.P. and Centre Reinsurance Services (Bermuda) III Limited.
"Commission" means the Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"Common Stock" means the Common Stock, no par value
per share, of the Company or any other equity securities of the Company into
which such securities are converted, reclassified, reconstituted or exchanged.
"Company" has the meaning assigned to such term in
the recital to this Agreement.
"Company indemnified party" has the meaning set
forth in Section 7(b).
"Demand Registration" has the meaning set forth in
Section 3(a).
"Designated Holder" means each of the Insurance
Partners Stockholders and any transferee thereof to whom Registrable Securities
have been transferred in accordance with Section 9(f).
"Designated indemnified party" has the meaning set
forth in Section 7(a).
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"IIA" means International Insurance Advisors, Inc.,
a Delaware corporation.
"III" means International Insurance Investors, L.P.,
a Bermuda limited partnership.
"Incidental Registration" has the meaning set
forth in Section 4(a).
"indemnified party" has the meaning set forth in
Section 7(c).
"Initiating Holder" has the meaning set forth in
Section 3(a).
"Insurance Partners" has the meaning assigned to
such term in the recital to this Agreement.
<PAGE> 138
3
"Insurance Partners Stockholders" means each of IP,
IP Bermuda and any Affiliate thereof to whom or which Registrable Securities
are transferred.
"IP" has the meaning assigned to such term in the
recital to this Agreement.
"IP Bermuda" has the meaning assigned to such term in
the recital to this Agreement.
"1992 Common Stock Purchase Warrants" means each of
the Common Stock Purchase Warrants, dated as of March 31, 1992, issued by the
Company pursuant to the Note Purchase Agreement, dated as of March 31, 1992,
among the Company and the purchasers listed on Schedule I thereto.
"Other Rightholders" has the meaning set forth in
Section 3(a).
"Person" means any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, limited liability company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Registrable Securities" means each of the following:
(a) any and all Shares owned by the Designated Holders and (b) any shares of
Common Stock issued or issuable to any of the Designated Holders with respect
to the Shares by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise and shares of Common Stock issuable upon
conversion, exercise or exchange thereof.
"Registration Expenses" means all expenses arising
from or incident to the Company's performance of, or compliance with, this
Agreement, including, without limitation, all registration, filing and listing
fees; all fees and expenses of complying with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with
"blue sky" qualifications of Registrable Securities); all printing, messenger
and delivery expenses; the fees and disbursements of counsel for the Company
and its independent public accountants; the fees and disbursements of one firm
of counsel (other than in-house counsel) retained by the holders of Registrable
Securities being registered; the expenses of any special audits required by or
incident to such performance and compliance; and any liability insurance or
other premiums for insurance obtained in connection with any registration
pursuant to the terms of this Agreement; provided, however, that Registration
Expenses shall not include underwriting discounts and commissions and transfer
taxes, if any; and provided further, that in any case where Registration
<PAGE> 139
4
Expenses are borne by the holders pursuant to Section 3(d), Registration
Expenses shall not include general overhead expenses of the Company or other
expenses for the preparation of financial statements or other data normally
prepared by the Company in the ordinary course of its business.
"Registration Statement" means a registration
statement filed pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
"Shares" has the meaning assigned to such term in
the recital to this Agreement.
"Stock Purchase Agreement" has the meaning assigned
to such term in the recital to this Agreement.
"Subsidiaries" has the meaning set forth in Section
6(c).
2. General; Securities Subject to this Agreement.
(a) Grant of Rights. The Company hereby grants
registration rights to the Insurance Partners Stockholders upon the terms and
conditions set forth in this Agreement.
(b) Registrable Securities. For the purposes of
this Agreement, Registrable Securities will cease to be Registrable Securities
when (i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the Commission and such
Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) the entire amount of Registrable Securities
proposed to be sold in a single sale by a Designated Holder, in the opinion of
counsel satisfactory to the Company and the Designated Holder, each in their
reasonable judgment, may be distributed to the public without any limitation as
to volume pursuant to Rule 144 (or any successor provision then in effect)
under the Securities Act and the Designated Holder is not then an Affiliate of
the Company, or (iii) the Registrable Securities are proposed to be sold or
distributed by a Person not entitled to the registration rights granted by this
Agreement.
(c) Holders of Registrable Securities. A Person
is deemed to be a holder of Registrable Securities whenever such Person owns of
record Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights. If the
Company receives conflicting
<PAGE> 140
5
instructions, notices or elections from two or more Persons with respect to the
same Registrable Securities, the Company may act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities. Registrable Securities issuable upon exercise of an
option or upon conversion of another security shall be deemed outstanding for
the purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. At any time
any of the Insurance Partners Stockholders (the "Initiating Holders") shall be
entitled to request in writing that the Company use its best efforts to effect
the registration under the Securities Act, and under the securities or "blue
sky" laws of any jurisdiction designated by such Initiating Holders, of all or
part of such Initiating Holders' Registrable Securities in accordance with this
Section 3 (a "Demand Registration"). Any such request for a Demand
Registration shall specify the amount of Registrable Securities proposed to be
sold and the intended method of disposition thereof. Upon receiving a request
for a Demand Registration, the Company will promptly, but in no event more than
10 days after the receipt from the Initiating Holders of a request for a Demand
Registration, give written notice of such Demand Registration to all of the
Insurance Partners Stockholders (other than the Initiating Holders) and all
holders of (x) the 1992 Common Stock Purchase Warrants and (y) the CentreLine
Warrant (the "Other Rightholders"), and thereupon will, as provided in Section
6, use its best efforts to effect the registration under the Securities Act of
(i) the Registrable Securities which the Company has been so requested by the
Initiating Holders to register and (ii) all other shares of Common Stock which
the Company has been requested in writing to register by such Insurance
Partners Stockholders and Other Rightholders (which requests shall specify the
number of shares of Common Stock proposed to be sold and the intended method of
disposition thereof and shall be given to the Company within 30 days after the
giving of such written notice of the Demand Registration by the Company).
(b) Limitation on Demand Registrations.
Notwithstanding anything to the contrary set forth in Section 3(a), the Company
shall not be obligated to file a Registration Statement with respect to a
Demand Registration upon a request by the Initiating Holders under Section 3(a)
if (i) the Company has any other Registration Statement on file but not yet
declared effective, (ii) the Company has filed any other Registration Statement
that has an effective date within a period of 180 days prior to the filing of
the Registration Statement with respect to the Demand Registration, (iii)
Registrable Securities having an anticipated aggregate net offering price of
less than $7,500,000 are to be registered in such Demand Registration or (iv)
the Company has paid the Registration Expenses for the maximum number of Demand
Registrations for which it is obligated to pay under Section 3(d).
<PAGE> 141
6
(c) Effective Demand Registration. A
registration shall not constitute a Demand Registration until it has become
effective and remains continuously effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) 180 days; provided, however, that a registration shall not
constitute a Demand Registration if (x) after such Demand Registration has
become effective, such registration or the related offer, sale or distribution
of Registrable Securities thereunder is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such Demand Registration are not satisfied or waived,
other than by reason of a failure by the Initiating Holders.
(d) Expenses. The Company will pay all
Registration Expenses in connection with three Demand Registrations under this
Section 3 that either become effective under the Securities Act or are
withdrawn prior to the effective date thereof; provided, however, that the
Company shall be obligated to pay all Registration Expenses in connection with
only two Demand Registrations under this Section 3 that either become effective
under the Securities Act or are withdrawn prior to the effective date thereof
if (i) there shall have been an Incidental Registration pursuant to Section
4(a) and (ii) the Company shall have registered in such Incidental Registration
Registrable Securities held by the Insurance Partners Stockholders having an
anticipated aggregate net offering price of not less than $5,000,000; provided
further, that any such withdrawal as the result of the actions of any Person or
Persons other than the Initiating Holders, or based upon material adverse
information relating to the Company that is different from the information
known by or available (upon request from the Company or otherwise) to the
Initiating Holders at the time of their request for a Demand Registration under
this Section 3, shall not diminish the number of registrations in connection
with which the Company agrees to pay Registration Expenses; and provided
further, that if such withdrawal is the result of the actions of the Initiating
Holders, then such Initiating Holders may in their sole and unlimited
discretion elect to bear the Registration Expenses of such Demand Registration,
in which case such registration shall not be counted as a Demand Registration
pursuant to this Section 3. In the event that the Initiating Holders elect to
bear the Registration Expenses (and underwriting discounts and commissions and
transfer taxes, if any) in connection with any Demand Registration requested
under this Section 3, such Registration Expenses shall be apportioned among the
holders whose shares of Common Stock are then being registered, on the basis of
the respective amounts (by number of shares) of Common Stock then being
registered by them or on their behalf.
(e) Underwriting Procedures. If the Initiating
Holders so elect, the offering of Registrable Securities pursuant to a Demand
Registration shall be in the form of a firm commitment underwritten offering
and the managing
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7
underwriter or underwriters selected for such offering shall be the Approved
Underwriter (as hereinafter defined) selected in accordance with Section 3(f).
In connection with any Demand Registration under this Section 3 involving an
underwriting, none of the Registrable Securities held by any of the Insurance
Partners Stockholders (other than the Initiating Holders) or shares of Common
Stock held by any Other Rightholders making a request for inclusion thereof
pursuant to Section 3(a) shall be included in such underwriting unless such
Insurance Partners Stockholders or Other Rightholders, as the case may be,
accept the terms of the underwriting as agreed upon by the Company, the
Initiating Holders and the Approved Underwriter, and then only in such quantity
as will not, in the opinion of the Approved Underwriter, jeopardize the success
of such offering. If the Approved Underwriter advises the Company in writing
that in its opinion the aggregate amount of Common Stock requested to be
included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, then the Company shall include in such
registration only the aggregate amount of Common Stock that in the opinion of
the Approved Underwriter may be sold without any such material adverse effect
and shall reduce, as to the Initiating Holders, the Insurance Partners
Stockholders (other than the Initiating Holders) and the Other Rightholders as
a group, the amount of Common Stock to be included in such registration, pro
rata within such group based on the number of Registrable Securities and other
shares of Common Stock included in the request for registration pursuant to
Section 3(a).
(f) Selection of Underwriters. If any Demand
Registration of Registrable Securities is in the form of an underwritten
offering, the Initiating Holders holding a majority of the Registrable
Securities held by all such Initiating Holders shall select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"); provided, however,
that the Approved Underwriter shall, in any case, be acceptable to the Company
in its reasonable judgment.
4. Incidental or "Piggy-Back" Registration.
(a) Request for Incidental Registration. If the
Company, at any time or from time to time, proposes to register any of its
shares of Common Stock for its own account under the Securities Act (other than
a registration of shares of Common Stock solely in connection with any plan for
the acquisition of shares of Common Stock by employees of the Company or any
dividend reinvestment plan, and other than a registration of shares of Common
Stock, the Registration Statement pertaining to which does not permit secondary
sales or include substantially the same information as would be required to be
included in a Registration Statement covering the sale of Registrable
Securities), then it will at each such time give written notice (given at least
30 days prior to the proposed filing date) describing the proposed registration
and distribution to each of the Designated Holders of its intention to do so
and, upon the written request of each of the Designated Holders, made within 30
days
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8
after the receipt of any such notice (which request shall specify the amount of
Registrable Securities proposed to be sold by such Designated Holder and the
intended method of disposition thereof), the Company will, as provided in
Section 6, use its best efforts to effect the registration under the Securities
Act of all of the Registrable Securities that the Company has been so requested
to register by the Designated Holders, to the extent required to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities to be registered (each, an "Incidental
Registration"); provided, however, that if, at any time after giving written
notice of its intention to register any of its shares of Common Stock and prior
to the effective date of the Registration Statement filed in connection with
such Incidental Registration, the Company shall determine for any reason not to
register such shares of Common Stock, the Company may, at its election, give
written notice of such determination to each of the Designated Holders and,
thereupon, shall be relieved from its obligation to register any Registrable
Securities in connection with such Incidental Registration (but not from its
obligation to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any Insurance Partners Stockholder to
request that such registration be effected as a Demand Registration under
Section 3. In connection with any Incidental Registration under this Section
4(a) involving an underwriter, or a distribution with the assistance of a
selling agent, the right of any Designated Holder to participate in such
Incidental Registration shall be conditioned upon such Designated Holder's
participation in such underwriting or distribution.
(b) Reduction in Registrable Securities to be
Registered. Notwithstanding anything to the contrary set forth in Section
4(a), if a proposed Incidental Registration is for a registered public offering
involving an underwriting and the representative of the underwriters advises
the Company in writing that the registration of all or part of the shares of
Common Stock to be underwritten in such Incidental Registration would
materially adversely effect such offering, then the Company shall so advise the
Designated Holders and any other holders of shares of Common Stock requesting
registration in such Incidental Registration, and the number of shares of
Common Stock that are entitled to be included in the Incidental Registration
shall be allocated (i) first, to the Company for shares of Common Stock being
sold for its own account, (ii) second, among the Designated Holders and any
other holders of shares of Common Stock entitled to "incidental" registration
rights and requesting inclusion of shares of Common Stock in such Incidental
Registration, pro rata on the basis of the number of shares of Common Stock
requested to be included in such Incidental Registration, and (iii) third, any
other shares of Common Stock requested to be included in such Incidental
Registration; provided, however, that if any Insurance Partners Stockholder or
Other Rightholder does not request inclusion of the maximum number of shares of
Common Stock allocated to it pursuant to the foregoing procedure, then the
remaining portion of its allocation shall be reallocated among those Insurance
Partners Stockholders and Other Rightholders whose allocations were not
satisfied on the basis of the number of shares of Common
<PAGE> 144
9
Stock requested to be included in such Incidental Registration, and this
procedure shall be repeated until all of the shares of Common Stock that may be
included in the registration on behalf of the Insurance Partners Stockholders
and the Other Rightholders have been so allocated. The Company shall not limit
the number of shares of Common Stock to be included in an Incidental
Registration pursuant to this Agreement in order to include shares held by
stockholders with no registration rights or to include any shares of stock
issued to employees, officers, directors or consultants pursuant to any stock
option plan, or in order to include in such registration securities registered
for the Company's own account.
If any shares of Common Stock are withdrawn from the
Incidental Registration or if the number of shares of Common Stock to be
included in such Incidental Registration was previously reduced as a result of
marketing factors, then the Company shall then offer to all Persons who have
retained the right to include Common Stock in the Incidental Registration the
right to include additional shares of Common Stock in the registration in an
aggregate amount equal to the number of shares of Common Stock so withdrawn,
with such shares of Common Stock to be allocated among the Persons requesting
additional inclusion pro rata in accordance with the terms of this Section
4(b).
(b) Expenses. The Company shall pay all
Registration Expenses in connection with any Incidental Registration pursuant
to this Section 4, whether or not such Incidental Registration becomes
effective. No Incidental Registration under this Section 4 shall relieve the
Company of its obligations to effect a Demand Registration upon request under
Section 3(a).
5. Holdback Agreements.
(a) Restrictions on Public Sale by Designated
Holders. Each of the Designated Holders agrees not to effect any public sale
or distribution of any Registrable Securities being registered or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Securities Act,
during the 90 day period beginning on the effective date of such Registration
Statement (except as part of such registration), (i) in the case of a
non-underwritten public offering, if and to the extent requested by the Company
or (ii) in the case of an underwritten public offering, if and to the extent
requested by the Approved Underwriter (in the event of a Demand Registration
pursuant to Section 3) or the Company's underwriters (in the event of an
Incidental Registration pursuant to Section 4(a)), as the case may be.
(b) Restrictions on Public Sale by the Company.
The Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or Form S-8
or any successor thereto),
<PAGE> 145
10
during the period beginning on the effective date of any Registration Statement
in which the Designated Holders of Registrable Securities are participating and
ending on the earlier of (i) the date on which all Registrable Securities
registered on such Registration Statement are sold and (ii) 180 days after the
effective date of such Registration Statement.
6. Registration Procedures.
(a) Obligations of the Company. If and whenever
the Company is requested to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 3 and 4, then the
Company will promptly use its best efforts to:
(i) prepare and (in any event within 90
days after the end of the period within which requests for
registration may be given to the Company) file with the Commission a
Registration Statement with respect to such Registrable Securities and
use its best efforts to cause such Registration Statement to become
effective;
(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 Registrable Securities covered by such Registration Statement
until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition thereof by the
seller or sellers thereof set forth in such Registration Statement,
but in no event for a period of more than six months (or, with respect
to any Registration Statement covering Registrable Securities the
distribution of which has been deferred pursuant to Section 4(c), nine
months) after such Registration Statement becomes effective;
(iii) as soon as reasonably possible,
furnish to each seller of Registrable Securities, prior to filing a
Registration Statement, such number of conformed copies of such
Registration Statement and of each such amendment and supplement
thereto (in each case including all exhibits, except that the Company
shall not be obligated to furnish any seller of Registrable Securities
with more than two copies of such exhibits), such number of copies of
the prospectus contained in such Registration Statement (including
each preliminary prospectus and any summary prospectus), in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
<PAGE> 146
11
(iv) register or qualify such Registrable
Securities covered by such Registration Statement under such other
securities or "blue sky" laws of such jurisdictions as each seller of
Registrable Securities shall request, and do any and all other acts
and things which may be necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so
qualified, or to subject itself to taxation in any such jurisdiction,
or to consent to general service of process in any such jurisdiction;
(v) cause the Registrable Securities
covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to
enable the seller or sellers of Registrable Securities to consummate
the disposition of such Registrable Securities;
(vi) notify each seller of any
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 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 statements therein
not misleading in the light of the circumstances then existing, and
prepare and furnish to such seller 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 Registrable
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;
(vii) advise each seller of Registrable
Securities as to the time when such Registration Statement becomes
effective and as to the threat of or the issuance by the Commission of
any stop order suspending the effectiveness of such Registration
Statement or the institution of any proceedings for that purpose, and
use its best efforts to prevent the issuance of any such stop order
and to obtain as soon as possible the removal thereof, if issued;
(viii) comply with all applicable rules and
regulations of the Commission, and make available to each seller of
Registrable Securities, as soon as reasonably practicable, an earnings
statement covering the period of
<PAGE> 147
12
at least 12 months, but not more than 18 months, beginning with the
first month after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder;
(ix) list all the Registrable Securities
on any securities exchange (or The Nasdaq Stock Market, Inc. or the
over-the-counter market) on which similar securities are then listed,
if such securities are not already so listed and such listing is then
permitted under the rules of such exchange;
(x) cooperate with each seller of
Registrable Securities and each underwriter participating in the
disposition of such Registrable Securities and their respective
counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; and
(xi) furnish to each seller a signed
counterpart, addressed to the sellers, of (x) an opinion of counsel
representing the Company for purposes of such registration, dated the
effective date of such Registration Statement, and (y) a "comfort
letter" signed by the independent public accountants of the Company
who have certified the Company's financial statements included in such
Registration Statement, in each case, covering substantially the same
matters with respect to such Registration Statement (and the
prospectus included therein) and, in the case of such 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' letters delivered to the
underwriters in underwritten public offerings of securities; provided,
however, that the Company shall not be obligated to furnish such
accountants' letter except in connection with an underwritten
offering.
(b) Seller Information. The Company may require
each seller of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the distribution
of such securities as the Company may from time to time reasonably request in
writing and as shall be required by law in connection therewith.
(c) Preparation; Reasonable Investigation. In
connection with the preparation and filing of each Registration Statement
registering Registrable Securities under the Securities Act, the Company will
give the holders of such Registrable Securities so registered and their
underwriters, if any, and their respective counsel and financial advisors, the
opportunity to participate in the preparation of such Registration Statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each
<PAGE> 148
13
of them such access to its books and records (including the books and records
of its Subsidiaries (as hereinafter defined)) and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act;
provided, however, that the Company shall not be obligated to give such
opportunities and access to any holder of Registrable Securities holding less
than 150,000 Registrable Securities other than the Initiating Holders, as a
group, requesting a Demand Registration pursuant to Section 3(c).
"Subsidiaries" means, with respect to the Company, a corporation or other
entity of which 50% or more of the voting power of the outstanding voting
securities or 50% or more of the outstanding equity interests is held, directly
or indirectly, by the Company.
(d) Notice to Discontinue. Each Designated
Holder of Registrable Securities agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
6(a)(vi), such Designated Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Designated Holder's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 6(a)(vi) and, if
so directed by the Company, such Designated Holder shall deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Designated Holder's possession, of the prospectus covering such
Registrable Securities that is current at the time of receipt of such notice.
If the Company shall give any such notice, the Company shall extend the period
during which such Registration Statement shall be maintained effective pursuant
to this Agreement (including, without limitation, the period referred to in
Section 6(a)(ii)) by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 6(a)(vi) to and
including the date when the Designated Holder shall have received the copies of
the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 6(a)(vi).
7. Indemnification; Contribution.
(a) Indemnification by the Company. In the event
of any registration of any Registrable Securities pursuant to the terms of
Section 3 or Section 4, (i) the Company will indemnify and hold harmless, to
the fullest extent permitted by law, each of the Designated Holders and their
respective directors, officers, partners, trustees, employees, legal counsel,
accountants, financial advisors and agents, and each other Person, if any, who
controls (within the meaning of the Securities Act and the Exchange Act) such
Designated Holder or any such directors, officers, partners, trustees,
employees, legal counsel, accountants, financial advisors and agents (each of
the foregoing, a "designated indemnified party") against any and
<PAGE> 149
14
all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation), joint or several, to which such designated indemnified
party may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings in
respect thereof) arise out of or are based upon (x) any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, any notification or offering circular, or any
amendment or supplement thereto or (y) 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 (ii) the Company will reimburse
such designated indemnified party for any legal or any other expenses
reasonably incurred by it in connection with investigating or defending any
such loss, claim, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability (or actions or proceedings in respect thereof) arises out
of or is based upon (x) any untrue statement or alleged untrue statement of any
material fact made in such Registration Statement, any such preliminary
prospectus, final prospectus, summary prospectus, notification or offering
circular, or any amendment or supplement thereto or (y) any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, in reliance upon and in conformity
with written information concerning such Designated Holder and furnished to the
Company through an instrument duly executed by such Designated Holder
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such designated indemnified party and shall survive the
transfer of such securities by any Designated Holder.
(b) Indemnification by Designated Holders. The
Company may require, as a condition to including any Registrable Securities in
any Registration Statement filed pursuant to Section 3 or Section 4, that the
Company shall have received an undertaking from each Designated Holder selling
such Registrable Securities to indemnify and hold harmless the Company, its
directors, officers, legal counsel, accountants and financial advisors and each
other Person, if any, who controls (within the meaning of the Securities Act
and the Exchange Act) the Company or any such directors, officers, legal
counsel, accountants and financial advisors (each of the foregoing, a "Company
indemnified party") against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Company indemnified party may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon any statement of a material fact or omission to
state a material fact in such Registration Statement, any preliminary
prospectus or final prospectus contained therein, any notification or offering
circular, or any amendment or supplement thereto, if such statement or omission
was made in
<PAGE> 150
15
reliance upon and in conformity with written information concerning such
Designated Holder and furnished to the Company through an instrument duly
executed by such Designated Holder specifically stating that it is for use in
the preparation of such Registration Statement, preliminary prospectus, final
prospectus, summary prospectus, notification or offering circular, or amendment
or supplement thereto. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Company
indemnified party and shall survive the transfer of such securities by any
Designated Holder.
(c) Conduct of Indemnification Proceedings.
Promptly after receipt by any designated indemnified party or Company
indemnified party (each, an "indemnified party") of notice of the commencement
of any action, suit, proceeding or investigation or threatened thereof in
writing for which the indemnified party intends to claim indemnification or
contribution pursuant to this Agreement, such indemnified party will give
written notice thereof to the indemnifying party; provided, however, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Agreement, except
to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. If notice of commencement of any such action is
brought against an indemnified party, the indemnifying party may (and, upon
request by the indemnified party, will), at its expense, participate in and
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that in the event of any failure by the
indemnifying party diligently to assume and conduct such defense, the
indemnifying party will pay all costs and expenses (including legal fees and
expenses) incurred by such indemnified party in connection with such claim or
litigation. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be paid by the indemnified party unless (i)
the indemnifying party agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel satisfactory to the
indemnified party in its reasonable judgment or (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
in writing that either (x) representation of such indemnified party and the
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct or (y) there may be one or more legal
defenses available to the indemnified party which are different from or
additional to those available to the indemnifying party. In either of such
cases, the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the written consent
of each indemnified party, consent to entry of any judgment or enter into any
settlement 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 of such claim or litigation.
<PAGE> 151
16
(d) Other Indemnification. Indemnification
similar to that specified in this Section 7 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any registration or other qualification of such Registrable
Securities under any federal or state law or regulation of governmental
authority other than the Securities Act.
(e) Contribution. If the indemnification
provided for in this Section 7 from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the 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 losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified party in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative faults of such indemnifying party and indemnified
party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Sections 7(a), 7(b) and 7(c), any legal or other fees,
charges or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(e) were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. 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.
(f) Insurance. In connection with any Demand
Registration or Incidental Registration, the Company will provide at its
expense a binder or binders of insurance in form satisfactory to the Designated
Holders participating in such registration, and, as soon as practicable
thereafter, a policy or policies of insurance, insuring each such Designated
Holder, and each Person, if any, who controls such Designated Holder within the
meaning of the Securities Act and the Exchange Act, for the aggregate amount of
the public offering price received for the Registrable Securities disposed of
by such Designated Holder (subject to such deductible as is customarily
contained in underwriting insurance policies at such time) against all losses,
claims, damages, liabilities and expenses which arise out of or are based upon
any untrue statement, alleged untrue statement, omission or alleged
<PAGE> 152
17
omission of the character described in this Section 7 in connection with such
registration and disposition and which are customarily covered under
underwriting insurance policies; provided, however, that the Company shall not
be obligated to provide such insurance if it determines in good faith that such
insurance is not available on commercially reasonable terms at the time of such
registration, and the holders of a majority of the Registrable Securities to be
registered reasonably agree.
8. Rule 144. The Company covenants that it shall file
(a) any reports required to be filed by it under the Exchange Act and (b) take
such further action as each Designated Holder of Registrable Securities may
reasonably request (including providing any information necessary to comply
with Rule 144 under the Securities Act), all to the extent required from time
to time to enable such Designated 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 rules or regulations hereafter adopted
by the Commission. The Company shall, upon the request of any Designated
Holder of Registrable Securities, deliver to such Designated Holder a written
statement as to whether it has complied with such requirements.
9. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The
provisions of this Agreement shall apply, to the full extent set forth herein,
with respect to (i) the shares of Common Stock and (ii) any and all equity
securities of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise), which may be issued in
respect of, in conversion of, in exchange for or in substitution of, the shares
of Common Stock, and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date hereof. The Company shall cause any successor or assign
(whether by merger, consolidation, sale of assets or otherwise) to enter into a
new registration rights agreement with the Designated Holders on terms
substantially similar to this Agreement as a condition of any such transaction.
(b) No Inconsistent Agreements. The Company
shall not enter into any agreement with respect to its securities that is
inconsistent with the registration rights granted in this Agreement or grant
any additional registration rights to any Person or with respect to any
securities that are not Registrable Securities that are prior in right to or
inconsistent with the rights granted in this Agreement. If at any time after
the date hereof, any Person other than an Other Rightholder shall advise or
give notice to the Company of such Person's exercise of registration rights
granted by the Company to such Person prior to the date hereof, the Company
shall use its best efforts to cause such Person to acknowledge the registration
rights granted pursuant to this Agreement and agree that such Person's
registration rights shall not be prior in right to the rights granted in this
Agreement.
<PAGE> 153
18
(c) Remedies. The Designated Holders, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, shall be entitled to specific performance of their rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive in any action for
specific performance the defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless consented to in writing by (i) the Company and
(ii) the Insurance Partners Stockholders holding Registrable Securities
representing (after giving effect to any adjustments) at least 60% of the
aggregate number of Registrable Securities owned by all of the Insurance
Partners Stockholders. Any such written consent shall be binding upon the
Company and all of the Designated Holders.
(e) Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be made by registered or certified first-class mail, return receipt
requested, telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company:
Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Telecopy: (818) 880-8615
Attention: Chief Financial Officer
with a copy to:
Riordan & McKinzie
5743 Corsa Avenue, Suite 116
Westlake Village, California 91362
Telecopy: (818) 706-2956
Attention: Dana M. Warren, Esq.
<PAGE> 154
19
(ii) if to IP or IP Bermuda
c/o Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Telecopy: (212) 898-8720
Attention: Mr. Steven B. Gruber
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Judith R. Thoyer, Esq.
(iii) if to any other Designated Holder, at
its address as it appears on the
record books of the Company.
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
(f) Successors and Assigns; Third Party
Beneficiaries. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto. The Demand
Registration rights of the Insurance Partners Stockholders contained in Section
3 and the other rights of each of the Insurance Partners Stockholders with
respect thereto and the incidental or "piggy-back" registration rights of the
Designated Holders contained in Section 4 and the other rights of each of the
Designated Holders with respect thereto shall be, with respect to any
Registrable Security, automatically transferred to any Person who is the
transferee of such Registrable Security, provided that such transfer was made
in compliance with applicable securities laws and such transferee is made a
party to this Agreement and, after such transfer, is the holder of not less
than 150,000 Registrable Securities. All of the obligations of the Company
hereunder shall survive any such transfer. Subject to Section 7, no Person
other than the parties hereto and their successors and permitted assigns is
intended to be a beneficiary of any of the rights granted hereunder.
<PAGE> 155
20
(g) Counterparts. This Agreement may be executed
in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(j) Severability. If 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 hereof shall not be in any way
impaired, it being intended that all of the rights and privileges of the
Designated Holders shall be enforceable to the fullest extent permitted by law.
(k) Entire Agreement. This Agreement is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and in the Stock Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(l) Further Assurances. Each of the parties
shall execute such documents and perform such further acts as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement.
<PAGE> 156
21
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Agreement on the date first written above.
SUPERIOR NATIONAL INSURANCE
GROUP, INC.
By:__________________________________
Name:
Title:
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P., its
General Partner
By: Insurance GenPar MGP, L.P., its
General Partner
By: Insurance GenPar MGP, Inc., its
General Partner
By:__________________________________
Name: Steven B. Gruber
Title: Vice President
INSURANCE PARTNERS OFFSHORE
(BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP,
L.P., its General Partner
By: Insurance GenPar (Bermuda), Ltd.,
its General Partner
By:___________________________________
Name: Steven B. Gruber
Title: Vice President
<PAGE> 157
EXHIBIT H
VOTING AGREEMENT
Filed as Exhibit 1
to this Schedule 13D filing.
-52-
<PAGE> 158
EXHIBIT I
COMPENSATION PLAN FOR SENIOR MANAGEMENT TEAM
-53-
<PAGE> 159
EXHIBIT I
PAC RIM HOLDING CORPORATION
AND THE PACIFIC RIM ASSURANCE COMPANY
COMPENSATION PLAN
FOR SENIOR MANAGEMENT TEAM
1.0 PREFACE. The purpose of this Compensation Plan is to arrange for
the SMT as the Corporation and Employer seeks strategic alternatives through its
investment banker.
2.0 DEFINITIONS. The following definition shall be controlling in
interpreting this Plan:
2.1 AFFILIATES: "Affiliate" shall have the meaning ascribed to
it by the Securities Act of 1933 as amended and the rules and regulations
promulgated thereunder.
2.1 CORPORATION: "Corporation" shall mean PAC RIM HOLDING
CORPORATION, a Delaware corporation.
2.2 EMPLOYER: "Employer" shall mean THE PACIFIC RIM ASSURANCE
COMPANY, a California corporation.
2.3 CHANGE IN CONTROL: "Change in Control" shall mean the
closing of an acquisition by no later than June 30, 1996 of more than fifty-one
percent (51%) of the outstanding common stock of Corporation through a merger,
sale, or reorganization by an entity, individual, or group acting in concert
which satisfies all of the following:
(i) The affirmative vote by a required majority of the
Board of Directors of Corporation (as required by
the By-Laws of Corporation for the proposed
transaction) approving the proposed transaction
subject to shareholder approval;
(ii) The affirmative vote of a required majority (as
required by the By-Laws of Corporation for the
proposed transaction) of shares of the stock of
Corporation in favor of the proposed transaction
causing the Change in Control as well as approving
this Amendment;
(iii) Subject to the approval of the SEC, Corporation
shall submit the request for shareholder approval
of certain elements of the Compensation Plan which
become effective upon shareholder approval as a
joint resolution with the proposed transaction
effectuating a Change in Control; and
1
<PAGE> 160
(iv) SMT member's continuing to provide services to
Employer unless said cessation of services was the
result of the SMT member's resignation or
Termination Without Cause.
Change in Control shall not occur as a result of stock
acquisition by Mr. Richard H. Pickup or his Affiliates through the exercise of
options, warrants, conversion of debentures, or through other capitalization
resulting from capital infusion recommended by a State regulatory agency for
which Employer is subject or Employee on behalf of Employer is subject.
2.4 COMPENSATION PLAN: "Compensation Plan shall mean this Plan
of Compensation adopted by the Board of Directors at a meeting as of February
27, 1995 of the Corporation and Employer.
2.5 DISCHARGE FOR CAUSE: "Discharge for Cause" shall mean: (a)
a violation or termination of employment for proven embezzlement, intoxication
or illegal drug use which materially interferes with job performance,
absenteeism in excess of two (2) times normal corporate policy, wrongful
disclosure of the Employer's confIdential information, gross insubordination,
conviction of a felony adversely affecting the ability of the SMT member to
carry on his/her normal duties, receipt of any rebate, kickback or other
remuneration or consideration from any party that conducts business with
Employer.
2.6 TERMINATION WITHOUT CAUSE: "Termination Without Cause"
shall mean the termination of services for reasons other than Discharge for
Cause.
2.7 OFFER: "Offer" shall occur when the Corporation's President
and investment banker, before June 30, 1996, jointly recommend to the Board of
Directors the acceptance of a bona fide offer to purchase more than fifty-one
percent (51%) of the outstanding common stock of Corporation in the form of a
merger, sale or reorganization by an entity, individual or group acting in
concert that is received at a value equal to or greater then one (1) times the
net book value of the Corporation as of the preceding calendar quarter by an
acquirer that is ready, willing and able to consummate the proposed transaction,
while the SMT member is providing services to Employer (unless a cessation of
services by SMT member was the result of Termination Without Cause). For
purposes of this provision, being recommended by the investment banker shall
include the requirement that the investment banker has delivered a fairness
opinion to the Board of Directors with authority to submit that fairness opinion
to the shareholders as part of the shareholder approval of the transaction
proposed.
2.8 SMT: "SMT" shall mean Ron Tonani, Sandy Richards, Paul W.
Craig, and Paul W. Souza.
2
<PAGE> 161
PAC RIM HOLDING CORPORATION
AND THE PACIFIC RIM ASSURANCE COMPANY
AMENDMENT TO COMPENSATION PLAN
FOR SENIOR MANAGEMENT TEAM
1.0 PREFACE. The purpose of this Amendment to the Compensation Plan
is to refine the arrangement made for the SMT as the Corporation and Employer
seeks strategic alternatives through its investment banker. This Plan was
initially adopted at the February 27, 1995 Board Meeting. As a result of the
termination of Paul Souza's employment there are additional funds available to
compensate the remaining SMT members. It has been decided to allocate the
deferred benefits that were provided to Mr. Souza on a pro rata basis to the
remaining members of the SMT based on the weighted benefit they were initially
receiving under the Plan under Section 6.0. Therefore the following sections of
the original Plan are amended as indicated:
2.0 DEFINITIONS. The following definition is replaced in its entirety
with the following language (by removing the name of Paul Sousa):
"2.8 "SMT" shall mean Ron Tonani, Sandy Richards and Paul W.
Craig."
3.0 BONUS FOR PAST SERVICES
Section 3.0 of the original plan is deleted and replaced in its
entirety with the following:
"In accordance with the provisions of the original Plan the
Employer has paid to each of the members of the SMT and Paul Souza, a cash bonus
in the amount of TEN THOUSAND DOLLARS ($10,000), subject to payroll tax
withholding as required by law, in recognition for their services rendered
during the 1994 calendar year."
6.0 SEVERANCE
Section 6.0 of the original Plan read as follows:
<PAGE> 162
"The Employer shall pay to each member of the SMT a bonus ninety
(90) days after the Change in Control, so long as that individual member has
performed in accordance with his or her compensation agreement. Each member of
the SMT shall receive a single life annuity retirement benefit vested at age 60
equal to the following present cash values, or cash in the same amount, less any
amount paid under Section 4.0, as follows:
<TABLE>
<S> <C>
Ron Tonani $155,000
Sandy Richards $110,000
Paul W. Craig $ 50,000
Paul W. Sousa $ 35,000
--------
TOTAL $350,000"
</TABLE>
Section 6.0 is replaced in its entirety with the following language:
"The Employer shall pay to each member of the SMT a bonus ninety
(90) days after the Change in Control, so long as that individual member has
performed in accordance with his or her compensation agreement. Each member of
the SMT shall receive a single life annuity retirement benefit vested at age 60
equal to the following present cash values, or cash in the same amount, less any
amount paid under Section 4.0, as follows:
<TABLE>
<S> <C>
Ron Tonani $172,222
Sandy Richards $122,222
Paul W. Craig $ 55,556
--------
TOTAL $350,000"
</TABLE>
4.
<PAGE> 163
3.0 BONUS FOR PAST SERVICES
Upon the acceptance of the Compensation Plan, the Employer shall
pay to each of the members of the SMT, a cash bonus in the amount of TEN
THOUSAND DOLLARS ($10,000), subject to payroll tax withholding as required by
law, in recognition for their services rendered during the 1994 calendar year.
4.0 BONUS ON REJECTION OF OFFER
Employer agrees to pay each member of the SMT a cash bonus in the
amount of TWELVE THOUSAND FIVE HUNDRED DOLLARS ($12,500), subject to payroll tax
withholding as required by law, within thirty (30) days of the rejection of an
Offer by the Board of Directors of Corporation or a failure to act on such Offer
within thirty (30) days of its required joint submission by the President of
Corporation and investment banker. However, in the event of more than one Offer
received by Board of Directors, this bonus shall not be payable if there is an
Offer presented to the Board which has been pending Board action for less than
thirty (30) days or has been accepted by the Board of Directors within such
thirty (30) day period.
5.0 CURRENT SALARY AND BENEFITS
Each member of the SMT shall individually agree to continue
providing services and to be reasonably available through a Change in Control
and for a term of ninety (90) days thereafter.
6.0 SEVERANCE
The Employer shall pay to each member of the SMT a bonus ninety
(90) days after the Change in Control, so long as that individual member has
performed in accordance with his or her compensation agreement. Each member of
the SMT shall receive a single life annuity retirement benefit vested at age 60
equal to the following present cash values, or cash in the same amount, less any
amount paid under Section 4.0, as follows:
<TABLE>
<S> <C>
Ron Tonani $155,000
Sandy Richards $110,000
Paul W. Craig $ 50,000
Paul W. Sousa $ 35.000
--------
TOTAL $350,000
</TABLE>
7.0 LOSS OF BENEFITS
In the event that a member of the SMT resigns, or is Discharged
for Cause, then the benefits of the Compensation Plan unpaid at the point of
termination shall be lost for that member.
5.
<PAGE> 164
PAC RIM HOLDING CORPORATION
AND THE PACIFIC RIM ASSURANCE COMPANY
2D AMENDMENT TO COMPENSATION PLAN
FOR SENIOR MANAGEMENT TEAM
1.0 PREFACE. The purpose of this Second Amendment to the Compensation
Plan is to extend the time in which additional compensation can be earned by the
SMT in the event of a "Change in Control" or an "Offer" occurring on or before
June 30, 1997, instead of the current date of June 30, 1996. The Board believes
that it is the best interests of both companies to extend the time frame of
these events by one year to provide additional necessary incentive to the SMT
members because it is not anticipated that these events will happen by June 30,
1996. This Plan was initially adopted at the February 27, 1995 Board Meeting and
was amended to redistributed the benefits of the plan that became available as a
result of the termination of Paul Souza's employment "First Amendment." To
effectuate this change it is necessary to change the definitions of "Change in
Control" and "Offer" as is described below.
2.0 DEFINITIONS. The following definitions are replaced in their
entirety with the following language:
2.3 CHANGE IN CONTROL: "Change in Control" shall mean the
closing of an acquisition by no later than June 30, 1997 of more than fifty-one
percent (51%) of the outstanding common stock of Corporation through a merger,
sale, or reorganization by an entity, individual, or group acting in concert
which satisfies all of the following:
(i) The affirmative vote by a required majority of the
Board of Directors of Corporation (as required by
the By-Laws of Corporation for the proposed
transaction) approving the proposed transaction
subject to shareholder approval;
(ii) The affirmative vote of a required majority (as
required by the By-Laws of Corporation for the
proposed transaction) of shares of the stock of
Corporation in favor of the proposed transaction
causing the Change in Control as well as approving
this Amendment;
(iii) Subject to the approval of the SEC, Corporation
shall submit the request for shareholder approval
of certain elements of the Compensation Plan which
become effective upon shareholder approval as a
joint resolution with the proposed transaction
effectuating a Change in Control; and
<PAGE> 165
(iv) SMT member's continuing to provide services to
Employer unless said cessation of services was the
result of the SMT member's resignation or
Termination Without Cause.
Change in Control shall not occur as a result of stock
acquisition by Mr. Richard H. Pickup or his Affiliates through the exercise of
options, warrants, conversion of debentures, or through other capitalization
resulting from capital infusion recommended by a State regulatory agency for
which Employer is subject or Employee on behalf of Employer is subject.
2.7 OFFER: "Offer" shall occur when the Corporation's President
and investment banker, before June 30, 1997, jointly recommend to the Board of
Directors the acceptance of a bona fide offer to purchase more than fifty-one
percent (51%) of the outstanding common stock of Corporation in the form of a
merger, sale, or reorganization by an entity, individual or group acting in
concert that is received at a value equal to or greater than one (1) times the
net book value of the Corporation as of the preceding calendar quarter by an
acquirer that is ready, willing, and able to consummate the proposed
transaction, while the SMT member is providing services to Employer (unless a
cessation of services by SMT member was the result of Termination Without
Cause). For purposes of this provision, being recommended by the investment
banker shall include the requirement that the investment banker has delivered a
fairness opinion to the Board of Directors with authority to submit that
fairness opinion to the shareholders as part of the shareholder approval of the
transaction proposed.
3.0 RATIFICATION. To the extent not otherwise modified by the
change in definitions contained in this Second Amendment, all of the terms of
the Compensation Plan as previously modified by the First Amendment are ratified
and republished.
7.
<PAGE> 166
EXHIBIT J
1996 ANNUAL INCENTIVE PLAN
PLAN DOCUMENT
-54-
<PAGE> 167
EXHIBIT J
PACIFIC RIM ASSURANCE COMPANY
1996 Annual Incentive Plan
Plan Document
- --------------------------------------------------------------------------------
1.0 Purpose
The purpose of the Pac Rim Assurance Company 1996 Annual
Incentive Plan (the "Plan") is to reward key employees of Pac Rim
Assurance Company (the "Company") for the accomplishment of the
annual objectives of the Company as measured by revenue and the
combined ratio.
2.0 Administration
2.0(a) The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors of the
Company. Subject to the provisions of the Plan herein, the
Committee shall have exclusive power to approve the participants
in the Plan. The authority granted to the Committee by the
preceding sentence will be exercised based upon the
recommendations received from management of the Company.
2.0(b) The Committee shall have authority to interpret the Plan,
to adopt and revise rules and regulations relating to the Plan,
to determine the conditions subject to which any awards may be
made or payable, and to make any other determinations which it
believes necessary or advisable for the administration of the
Plan. Determinations by the Committee shall be made by majority
vote and shall be final and binding on all parties with respect
to all matters relating to the Plan.
3.0 Incentive Plan Elements
3.1 Plan Duration
The Plan shall begin on January 1, 1996 and shall be extended
annually at the discretion of the Committee.
3.2 Initial Incentive Period
For the purposes of the Plan, the Initial Incentive Period shall
be one (1) year commencing on January 1, 1996 and terminating on
December 31, 1996.
3.3(a) The Committee shall identify the participants during each
year of the incentive plan.
1
<PAGE> 168
PACIFIC RIM ASSURANCE COMPANY
1996 Annual Incentive Plan
Plan Document
- --------------------------------------------------------------------------------
(b) A targeted incentive payment, expressed as a percentage of
base salary, shall be established by the Committee for each
participant. For the purposes of the initial Incentive Period,
the following participants and target award levels have been
established:
<TABLE>
<CAPTION>
Participant Position Target Incentive Award
- --------------------------------------------------------------------------------
(Expressed as a percent
of base salary)
<S> <C> <C>
Stanley Braun CEO 50%
Paul Craig CFO 25%
Sandra Richards S.V.P. 25%
Ronald Tonani S.V.P. 25%
David Chatfield General Counsel 10%
David Walker Corporate Actuary 10%
Dina Braun-Puetz V.P. Claims 10%
</TABLE>
3.3(b) The incentive will be determined by the relationship as of
December 31, 1996 between the combined ratio (defined as the sum
of losses, loss adjustment expenses, other underwriting expenses,
and dividends to policyholder, divided by net premiums earned);
and annual revenue (defined as the net written premiums during
the Initial Incentive Period. The combined ratio and revenue
determination will be completed prior to any deduction for the
awards under this Plan. The matrix which presents the percentage
of the participants award earned is illustrated by the below
table:
2
<PAGE> 169
PACIFIC RIM ASSURANCE COMPANY
1996 Annual Incentive Plan
Plan Document
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REVENUE
=========================================================================================================
Combined Ratio $75M $77.5M $80M $80.5M $85M $85.5M $90M $92.5M $95M
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
110 50.00% 56.25% 62.50% 68.75% 75.00% 81.25% 87.50% 93.75% 100.00%
- ---------------------------------------------------------------------------------------------------------
109 60.00% 66.25% 72.50% 78.75% 85.00% 91.25% 97.50% 103.75% 110.00%
- ---------------------------------------------------------------------------------------------------------
108 70.00% 76.25% 83.50% 88.75% 95.00% 101.25% 107.50% 113.75% 120.00%
- ---------------------------------------------------------------------------------------------------------
107 80.00% 86/25% 92.50% 98.75% 105.00% 111.25% 117.50% 123.75% 130.00%
- ---------------------------------------------------------------------------------------------------------
106 90.00% 96.25% 102.50% 108.75% 115.00% 121.25% 127.50% 133.75% 140.00%
- ---------------------------------------------------------------------------------------------------------
105 100.00% 106.25% 112.50% 118.75% 125.00% 131.25% 137.50% 143.75% 150.00%
- ---------------------------------------------------------------------------------------------------------
104 110.00% 116.25% 122.50% 128.75% 135.00% 141.25% 147.50% 153.75% 160.00%
- ---------------------------------------------------------------------------------------------------------
103 120.00% 126.35% 132.50% 138.75% 145.00% 151.25% 157.50% 163.75% 170.00%
- ---------------------------------------------------------------------------------------------------------
102 130.00% 136.25% 142.50% 148.75% 155.00% 161.25% 167.50% 173.75% 180.00%
- ---------------------------------------------------------------------------------------------------------
101 140.00% 146.25% 152.50% 158.75% 165.00% 171.25% 177.50% 183.75% 190.00%
- ---------------------------------------------------------------------------------------------------------
100 150.00% 156.25% 162.50% 168.75% 175.00% 181.25% 187.50% 193.75% 200.00%
=========================================================================================================
</TABLE>
For the purposes of this document, net written premiums shall
mean the total of all gross, or direct, premiums billed or
estimated by the Company on its policies in force during the
applicable period; plus premiums assumed from others, and less
premiums ceded to others, during the applicable period. For the
purposes of the Plan, premiums obtained from future acquisitions
of corporations will be excluded from the revenue calculation.
3.3(c) In the event that the combined ratio exceeds 110, the
incentive award will be determined using an industry average
matrix, based upon the average combined ratio in the industry,
defined by the weighted average of the combined ratios for the
companies identified in the Smart Bulletin (see Exhibit I
attached), with the exception of Golden Eagle. The average shall
be weighted by the net written premiums of each company. If any
of the companies fail to file the necessary documentation with
FAHNCKE within 60 days of the close of the fiscal year, that
company shall be dropped from the peer group average, the average
calculated from the available companies' information. The matrix
begins at industry average and progresses for each point below
industry average achieved by the Company as illustrated below:
3
<PAGE> 170
PACIFIC RIM ASSURANCE COMPANY
1996 Annual Incentive Plan
Plan Document
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REVENUE
==================================================================================================================
Combined Ratio $75M $77.5M $80M $82.5M $85M $87.5M $90M $92.5M $95M
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industry Average 33.33% 37.50% 41.67% 45.83% 50.00% 54.17% 58.33% 62.50% 66.67%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-1 40.00% 44.17% 48.33% 52.50% 56.67% 60.83% 65.00% 69.17% 73.33%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-2 46.67% 50.83% 55.00% 59.17% 63.33% 67.50% 72.67% 75.83% 80.00%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-3 53.33% 57.50% 61.67% 65.83% 70.00% 74.17% 78.33% 82.50% 86.67%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-4 60.00% 64.17% 68.33% 72.50% 76.67% 80.83% 85.00% 89.17% 93.33%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-5 66.67% 70.83% 75.00% 79.17% 83.33% 87.50% 91.67% 95.83% 100.00%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-6 73.33% 77.50% 81.67% 85.83% 90.00% 94.17% 98.33% 102.50% 106.67%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-7 80.00% 84.17% 88.33% 92.50% 96.67% 100.83% 105.00% 109.17% 113.33%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-8 86.67% 90.83% 95.00% 99.17% 103.33% 107.50% 111.67% 115.83% 120.00%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-9 93.33% 97.50% 101.67% 105.83% 110.00% 114.17% 118.33% 122.50% 126.67%
- ------------------------------------------------------------------------------------------------------------------
Industry Average-10 100.00% 104.17% 108.33% 112.50% 116.67% 120.83% 125.00% 129.17% 133.33%
==================================================================================================================
</TABLE>
3.3(d) In the event that performance is at a level not displayed
on either matrix, linear interpolation will be used between the
two points displayed on the applicable matrix to determine the
actual award level.
3.3(e) In no event will incentive payments be calculated from
more than one matrix.
4. Award Payments
4.1 Determination of Payments
Payments shall be determined within 90 days of the close of the
Company's fiscal year.
4.2 Form of Payment
Payments to a Participant shall be made in cash.
4.3 Forfeiture of Payment
Notwithstanding any other provision of the Plan, all rights to
any payments hereunder to a Participant will be discontinued and
forfeited, and the Company will have no further obligation
hereunder to such Participant, if the Participant
4
<PAGE> 171
PACIFIC RIM ASSURANCE COMPANY
1996 Annual Incentive Plan
Plan Document
- --------------------------------------------------------------------------------
has completed less than 1,000 hours of work during the Company's
fiscal year on the date the incentive award payment is to be paid
per Section 4.5 below.
4.4 Pro-Ration of Payment
(a) Notwithstanding any other provision of the Plan, the
participant shall be entitled to a pro-rata portion of the
incentive providing a minimum of 1,000 hours of work have been
provided to and paid by the Company according to the Company's
normal payroll records. The portion of the incentive earned shall
equal the actual number of hours worked divided by 2,080 hours.
(b) The pro-rated incentive amount shall be determined by
multiplying the result of 4.4(a) times the incentive determined
from section 3.3.
4.5 Timing of Payment
The bonuses determined under the Plan will be paid no later than
90 days following the completion of the Company's fiscal year.
5. Miscellaneous
5.1 Amendment of the Plan
No amendment to the Plan for a current year once the Plan has
been communicated to the Participants in its final approved form
shall be made which may alter, impair or reduce the awards
granted without the written consent of any affected Participant
unless the Company shall be compelled to do so by regulatory
action or by an order of a court of competent jurisdiction.
5.2 Funding
The Plan shall at all times be entirely unfunded and no provision
shall at any time be made with respect to segregating assets of
the Company for payment of any benefits hereunder. No Participant
or other person shall have any interest in any particular assets
of the Company by reason of the right to receive a benefit under
the Plan and any such Participant or other person shall have only
the rights of a general unsecured creditor of the Company with
respect to any rights under the Plan.
5
<PAGE> 172
PACIFIC RIM ASSURANCE COMPANY
1996 Annual Incentive Plan
Plan Document
- --------------------------------------------------------------------------------
5.3 Discretionary Incentive
The Plan does not preclude the granting of discretionary
incentive payments for the acquisition of additional Companies.
Payments for such acquisitions are provided at the discretion of
the Board of Directors.
5.4 Withholding
The Company shall have the right to deduct from all amounts paid
pursuant to the Plan any taxes required by law to be withheld
with respect to such payments.
5.5 Rights of Participation and Employment
No employee or other person shall have any claim or right to be
granted an award under the Plan. Neither the Plan nor any action
taken hereunder shall be constructed as giving any employee any
right to be retained in the employ of the Company.
5.6 Interpretation
The masculine pronoun shall include the feminine and neuter, and
the singular the plural, except where the context explicitly
indicates otherwise.
5.7 Paragraph Titles
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this
Agreement.
6
<PAGE> 173
EXHIBIT K
STANLEY BRAUN EMPLOYMENT AGREEMENT AND AMENDMENTS THERETO
The Employment Agreement, dated April 15, 1994, by and between Pac Rim
Holding Corporation ("Pac Rim"), The Pacific Rim Assurance Company and Stanley
Braun was previously filed with Exhibit 27.3 to Pac Rim's Annual Report on Form
10-K for the year ended December 31, 1994.
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<PAGE> 174
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, executed this 27th day of
March, 1995, is entered into by and between PAC RIM HOLDING CORPORATION, a
Delaware corporation (the "Corporation"), THE PACIFIC RIM ASSURANCE COMPANY, a
California corporation ("Employer"), and STANLEY BRAUN, an individual
("Employee").
1.0 RECITALS
1.1 Employer, Corporation, and Employee have previously
entered into that certain Employment Agreement executed on April 15, 1994, which
became effective under its terms on August 16, 1995.
1.2 As of the date of this Amendment, the Agreement
constitutes the entire understanding concerning Employee's employment with
Employer.
1.3 Employer, Corporation, and Employee desire to enter into
this Amendment upon the terms and conditions set forth herein, to amend the
Agreement.
NOW THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby admitted and acknowledged, the parties hereto agree
as follows:
2.0 DEFINITIONS. The following definitions, to the extent differing
from the definitions contained in the Agreement supersede same and shall be
controlling in interpreting this Amendment:
2.1 Affiliate: "Affiliate" shall have the meaning ascribed to
it by the Securities Act of 1933 as amended and the rules and regulations
promulgated thereunder.
2.1a Agreement: "Agreement" shall mean that certain Employment
Agreement executed on April 15, 1994, which became effective under its terms on
August 16, 1994 and this Amendment by and among Corporation, Employer and
Employee.
2.1b Amendment: "Amendment" shall mean this Amendment to
Employment Agreement.
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2.1c Base Salary: Base Salary shall mean FOUR HUNDRED THOUSAND
DOLLARS ($400,000) in annual compensation paid in accordance with the general
payroll practices of Employer as same exists from time to time.
2.2a Change in Control: "Change in Control" shall mean the
closing of an acquisition by no later than June 30, 1996 of more than fifty-one
percent (51%) of the outstanding common stock of Corporation through a merger,
sale, or reorganization by an entity, individual, or group acting in concert
which satisfies all of the following:
(i) The affirmative vote by a required majority
of the Board of Directors of Corporation (as
required by the By-Laws of Corporation for
the proposed transaction) approving the
proposed transaction subject to shareholder
approval;
(ii) The affirmative vote of a required majority
(as required by the ByLaws of Corporation
for the proposed transaction) of shares of
the stock of Corporation in favor of the
proposed transaction causing the Change in
Control as well as approving this Amendment;
(iii) Subject to the approval of the SEC,
Corporation shall submit the request for
shareholder approval of certain elements of
the Amendment which became effective upon
shareholder approval as a joint resolution
with the proposed transaction effectuating a
Change in Control; and
(iv) Employee continuing to provide services to
Employer unless said cessation of services
was the result of Termination Without Cause.
Change in Control shall not occur as a result of stock
acquisition by Mr. Richard H. Pickup or his Affiliates through the exercise of
options, warrants, conversion of debentures, or through other capitalization
resulting from capital infusion recommended by a State regulatory agency for
which Employer is subject or Employee on behalf of Employer is subject.
2.6 Covenant Term: "Covenant Term" shall mean a period
beginning on the Effective Date and ending when Employee is no longer receiving
Base Salary under Section 7.1.
2.7 Covenant Territory: "Covenant Territory" shall mean the
States of California, Arizona, and Hawaii provided that Employer conducts the
Business of Employer in such State during the Covenant Term.
2.10 Discharge for Cause: "Discharge for Cause" shall mean a
violation or termination of employment for proven embezzlement, intoxication or
illegal drug use which
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materially interferes with job performance, absenteeism in excess of two (2)
times normal corporate policy, wrongful disclosure of Employer's Confidential
Information (including but not limited to violation of the Confidentiality
Agreement), gross insubordination, conviction of a felony adversely affecting
the ability of the Employee to carry on his normal duties, breach of
Sections 4.4 and/or 4.5 hereof, receipt of any rebate, kickback or other
remuneration or consideration from any party that conducts business with
Employer, or other material breach of the Agreement and this Amendment.
2.14a Investment Banker: "Investment Banker" shall mean
Salomon Brothers who have been retained by the Corporation to pursue strategic
alternatives for the Corporation, or its replacement as appointed by the Board
of Directors of Corporation.
2.14b Offer: "Offer" shall occur when Employee and Investment
Banker, before June 30, 1996, jointly recommend to the Board of Directors the
acceptance of a bona fide offer to purchase more than fifty-one percent (51%) of
the outstanding common stock of Corporation in the form of a merger, sale, or
reorganization by an entity, individual or group acting in concert that is
received by the Board of Directors at a value equal to or greater than one (1)
times the net book value of the Corporation as of the preceding calendar quarter
by an acquirer that is ready, willing, and able to consummate the proposed
transaction, while Employee is providing services to Employer (unless a
cessation of services by Employee was the result of Termination Without Cause).
For purposes of this provision, being recommended by the Investment Banker shall
include the requirement that the Investment Banker has delivered a fairness
opinion to the Board of Directors with authority to submit that fairness opinion
to the shareholders as part of the shareholder approval of the transaction
proposed.
2.15a Part-Time: Employee shall be considered to be employed
Part-Time if following a Change in Control, during the two (2) years thereafter
Employer requires Employee to provide services to Employer, of less than seventy
(70) hours of service to Employer each month.
2.17a Successor: "Successor" shall mean the entity acquiring
all or substantially all of the business of Employer if Employer is dissolved,
or merged out of existence, or if substantially all of the assets of Employer
are transferred from Employer to another entity.
4.0 CAPACITIES AND DUTIES
Upon a Change in Control Section 4.2 is replaced in its
entirety as follows:
"4.2 Employee shall render these services as determined by
Employer at 6200 Canoga Avenue, Woodland Hills, California 91367 or within a ten
(10) mile radius of this location or of Employee's residence as of the date of
this Amendment as Employer may designate from time to time."
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<PAGE> 177
Upon a Change in Control Section 4.3 is replaced in its
entirety with the following:
"4.3 Corporation may also cause Employee to be elected to
Employer's and/or Corporation's and/or a successor entity's Board of Directors,
and/or be appointed as Chairman or Vice-Chairman of these boards, but same shall
not entitle Employee to any additional compensation hereunder."
6.0 TERM
Upon a Change in Control, Section 6.1 is replaced in its
entirety with the following:
"6.1 Subject to the rights of parties to prior termination,
the Employee shall perform the capacities and duties under Section 4.0 for a
period of two (2) years commencing on the Change in Control. At the end of this
two (2) year period, Employee's obligation to perform the capacities and duties
under Section 4.0 shall cease, but Employee shall continue to be bound for the
following two (2) years to honor the provisions of Section 11.0 and the
Confidentiality Agreement, as well as to cooperate with Employer and Corporation
in responding to requests for information that may arise in the Business of
Employer."
Upon a Change in Control, Section 6.3 is replaced in its
entirety with the following:
"6.3 For a term of four (4) years after a Change in Control,
Employee agrees to not violate the provisions of Section 11.0 or the
Confidentiality Agreement."
Upon a Change in Control, Section 6.4 is replaced in its
entirety with the following:
"6.4 Employee may terminate this Agreement prior to the
expiration of its term only if Employer and/or Corporation breaches any of its
material covenants or obligations hereunder. In such circumstances, Employee
shall provide Employer and Corporation with written notice, specifying
Employer's and/or Corporation's alleged breach, providing at least thirty (30)
days for Employer and/or Corporation to cure such default before the effective
date of Employee's termination."
Upon a Change in Control, Section 6.5 is replaced in its
entirety with the following:
"6.5 Employer or Corporation may unilaterally terminate this
Agreement upon a Discharge for Cause, which shall take effect immediately upon
either Employer's or Corporation's written notification to Employee, outlining
the reasons for cause."
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<PAGE> 178
7.0 BASE COMPENSATION AND NORMAL BENEFITS
Upon a Change in Control, Section 7.1 is replaced in its
entirety with the following:
"7.1 Base Salary: For four (4) years after a Change in
Control, Base Salary is an annual amount equal to FOUR HUNDRED THOUSAND DOLLARS
($400,000), which will be paid according to the general payroll practices of
Employer as same exists from time to time."
Upon the date of the Amendment, Section 7.2 is replaced in its
entirety with the following:
"7.2 Performance Bonus:
(a) In addition to other compensation payable
hereunder, Employer agrees to pay Employee a ONE HUNDRED THOUSAND DOLLAR
($100,000) bonus, within five (5) business days of the execution of this
Amendment as a bonus for past services rendered in 1994.
(b) In addition to other compensation payable
hereunder, Employer agrees to pay Employee a TWO HUNDRED THOUSAND DOLLAR
($200,000) bonus, within thirty (30) days of the rejection of an Offer by the
Board of Directors of Corporation or a failure to act on such Offer within
thirty (30) days of its required joint submission by Employee and Investment
Banker. However, in the event of more than one Offer received by the Board of
Directors, this bonus shall not be payable if there is an Offer presented to the
Board which has been pending Board action for less than thirty (30) days or has
been accepted by the Board of Directors within such thirty (30) day period."
Upon a Change in Control, Section 7.6 is replaced in its
entirety with the following:
"7.6 Severance:
(a) For the period of two (2) years from a Change in
Control, Employee shall receive the compensation and benefits provided for in
this Section 7.0. In the event Employee is Terminated Without Cause or reduced
by Employer to Part-Time status, Employee shall continue to receive for the
remainder of the two (2) year term Base Salary, excess medical cost benefit, and
disability insurance coverage under Section 7.4(b) and (c), but no other form of
perquisite under Sections 7.3 and 7.4. For the two (2) years following the
initial two (2) year term, Employee shall receive the payment due under Section
7.1."
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<PAGE> 179
(b) In the event Employee is Discharged for Cause or
voluntarily resigns without cause, the payment due under Section 7.1 will
continue for a period of two (2) years, then terminate. All other payments shall
terminate on the cessation of services.
Upon a Change in Control, Section 7.7 is added as follows:
"7.7 Termination of Payments: In the event that Employee
violates the provisions of Section 11.0 or the Confidentiality Agreement during
the four (4) year period after a Change in Control, Employer may cease making
payments under the Agreement and this Amendment."
Upon a Change in Control, Section 7.8 is added as follows:
"7.8 Closing Bonus:
(a) Employer agrees to pay or cause Successor to pay
Employee a bonus at the closing of the Change in Control in the amount of FOUR
HUNDRED THOUSAND DOLLARS ($400,000) (less any bonus paid under Section 7.2(b))
so long as Employee is not in violation of the Agreement and this Amendment.
However, the bonus amount will first be subject to the normal payroll
withholding tax required by law, with the excess amount being offset against the
Loan Balance.
(b) Employer agrees to pay or agrees to cause
Successor to assume the obligation to pay, and on said assumption, Employer is
relieved an ongoing liability to pay Employee an additional bonus in the amount
of FIVE HUNDRED THOUSAND DOLLARS ($500,000) as of the tenth (10th) day of
January, of the calendar year following the closing of a Change in Control less
payroll taxes withheld as required by law and less any outstanding Loan Balance
as of the date of this payment."
Upon a Change in Control, Section 7.9 is added as follows:
"7.9 Liability of Successor: In the event of a Change in
Control, in which all or substantially all of the assets of Employer or
Corporation are acquired by a Successor, all obligations under the Amendment and
the Agreement of Employer and Corporation shall be assumed by Successor and
Employer and Corporation shall be relieved of the burden but not the benefits of
this Agreement."
8.0 STOCK OPTIONS
Upon a Change in Control, Section 8.7 is added as follows:
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<PAGE> 180
"8.7 Accelerated Vesting on Change of Control: Notwithstanding
any language to the contrary in the Agreement or in the Option Agreement,
Employee's rights in all Options described in Section 8.0, except for those that
have lapsed as described in Section 8.6(b) shall be fully vested."
Upon a Change in Control, Section 8.8 is added as follows:
"8.8 Corporation Option to Purchase: Corporation, Employer, or
their assign, may at their option purchase any and all options owned by Employee
within thirty (30) days of a Change in Control. Any and all options "not in the
money" shall be valued in total at ONE HUNDRED DOLLARS ($100.00) and may be
purchased by the Corporation, Employer, or their assigns for this amount. All
remaining options "in the money" shall be valued in an amount equal to the
spread between the fair market value of a share of Corporation as of the closing
date of a Change in Control and the exercise price for a share under the option
and may be purchased by the Corporation, Employer, or their assigns for the
amount. In determining the purchase price of any options the value of options in
the money can not be offset by the negative value of options not in the money.
11.0 RESTRICTIVE COVENANT NOT TO COMPETE
Upon a Change in Control, the parenthetical phrase in Section
11.3 shall be deleted.
Upon a Change in Control, Section 11.7 Extension of Covenant
Term is deleted in its entirety.
Section 20.0 is replaced in its entirety with the following:
"20.0 SPOUSAL CONSENT
By executing this Amendment, Employee represents and warrants
that he has secured the permission and consent of his spouse to enter into the
Amendment as well as the Agreement and fully perform his respective obligations
hereunder. Employee has obtained the signature of his spouse on the Spousal
Consent attached hereto as EXHIBIT A."
Section 31.0 is added as follows:
"31.0 SUBSEQUENT AMENDMENTS
Neither Employee, any acquirer of Corporation or Employer, any
Successor, or the Board of Directors of Corporation, shall prior to Change in
Control re-negotiate the Agreement, this Amendment, or Employee's compensation
in any respect without the written
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<PAGE> 181
consent of Employee and the approval of a simple majority vote of the Board of
Corporation. No member of the Board of Directors of Corporation will
individually or collectively attempt to renegotiate Employee's services with
Employer prior to Change in Control, unless the Board of Directors has given its
consent to Employee to negotiate with an acquirer and Employee also gives his
written consent back to Corporation. In the event Employee negotiates a change
to his compensation, this Agreement, or Amendment with any acquirer of
Corporation, or Employer, or any Successor prior to Change in Control without
first meeting the requirements of this Section , Employer and Corporation shall
be relieved of the burden of making any payments required under the Agreement
and the Amendment, but Employee will continue to be bound to honor this
Agreement and Amendment notwithstanding any language to the contrary contained
within."
Section 32.0 is added as follows:
"32.0 LEGAL FEES
Corporation and Employer agree to reimburse Employee for his
actual reasonable out-of-pocket legal fees for the review of this document by
Pillsbury, Madison up to amount not to exceed TWENTY-FIVE THOUSAND DOLLARS
($25,000) including any fee for services rendered to executive management,
subject to the routine review by the Chief Financial Officer of Employer."
Section 33.0 is added as follows:
"33.0 RATIFICATION
To the extent not otherwise modified by the terms and
conditions of this Amendment, all of the terms of the Agreement are hereby
ratified and republished."
Section 34.0 is added as follows:
"34.0 BOARD AND SHAREHOLDER DISCRETION. Nothing in this Amendment or
the Agreement shall be construed as obligating the Board of Directors of
Corporation or Employer, or any shareholder of Corporation or Employer to accept
any Offer or any proposed transaction of any kind, presented to any of these
parties by Salomon Brothers or by Employee. An Offer or proposed transaction may
be rejected in the complete and utter discretion of the Board of Directors of
Corporation and Employer, and/or their shareholders in their absolute
discretion. In this event, Employee shall as a result of the rejection only be
entitled to the bonus provided under Section 7.2(b) of this Amendment if its
terms and conditions are met."
Section 35.0 is added as follows:
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<PAGE> 182
"35.0 PURCHASE OF SUBSTANTIAL GOODWILL
The parties hereto agree that valid consideration shall be
considered deemed paid by Employer, Corporation, Successor, or assigns for the
substantial goodwill of the Corporation and/or Employer, within the meaning of
California Business and Professions Code Section 16600, et seq. to Employee."
Section 36.0 is added as follows:
"36.0 BOARD OF DIRECTORS' APPROVAL
The execution of this Amendment has been authorized by a
meeting of the Board of Directors of the Corporation and Employer as duly called
with Employee absent due to the conflict of interest as ratified by a telephonic
board meeting occurring March __, 1996. However, the terms and conditions of
this Amendment which become effective upon a Change in Control are subject to a
shareholder approval in accordance with the provisions of Section 2.2a. The
undersigned officers of the Corporation and Employer have been duly authorized
to execute this Amendment on behalf of the Corporation and Employer pursuant to
this resolution of the Board of Directors of each."
IN WITNESS WHEREOF, the parties hereto have set their hands the day and
year first above written.
PAC RIM HOLDING CORPORATION,
a Delaware corporation
By: /s/ PAUL W. CRAIG
--------------------------
Paul W. Craig
Its: Executive Vice President
"CORPORATION"
THE PACIFIC RIM ASSURANCE COMPANY,
a California corporation
By: /s/ PAUL W. CRAIG
____________________________
Paul W. Craig
Its: Executive Vice President
"EMPLOYER"
/s/ STANLEY BRAUN
------------------------------
STANLEY BRAUN, an individual
"EMPLOYEE"
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<PAGE> 183
EXHIBIT A
CONSENT TO AMENDMENT AND AGREEMENT
I, the undersigned, am the spouse of Stanley Braun. I have read the
Employment Agreement dated April 15, 1994 and the Amendment to same dated March
27th, 1995 by and between Pac Rim Holding Corporation, a Delaware corporation,
The Pacific Rim Assurance Company, a California corporation ("Corporation") and
my spouse, Stanley Braun, and clearly understand the provisions thereof. I am
aware that by the provisions of said Amendment and Agreement my spouse has
agreed to certain provisions regarding his employment with the aforementioned
Corporation, including the expiration of certain stock options according to
their terms and the grant of new stock options and my community interest
therein, if any, in accordance with the terms and provisions of said Amendment
and Agreement. I hereby approve of and consent to the provisions of said
Amendment and Agreement, in its entirety.
DATED: March 27, 1995
/s/ NANCY W. BRAUN
---------------------------------
Drafted By:
THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92715
(714) 474-7368
September 24, 1996
2240H-22.2(C)
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<PAGE> 184
MEMORANDUM OF UNDERSTANDING
On March 27, 1995, an amendment (the "Amendment") to the employment
agreement (the "Agreement") between Pac Rim Holding Corporation (the
"Corporation"), The Pacific Rim Assurance Company (the "Company") and Stanley
Braun (the "Employee") dated April 15, 1994, and effective August 16, 1994, was
executed. The Amendment entitles the employee to certain fringe benefits
providing the Employee provides at least seventy (70) hours of service per month
to the Corporation. These benefits include those specified in section 7.3 of the
Agreement.
In the event that the Employee provides less than seventy (70) hours of
service to the Corporation, the Corporation shall reimburse the Employee for all
reasonable and necessary expenses incurred by the Employee on behalf of the
Corporation on a basis consistent with policies and guidelines approved by the
Board of Directors of the Corporation and in effect from time to time. In
addition, the Corporation shall make available to the Employee a driver from the
Administrative Department of the Company for business-related use of his
personal automobile.
Pac Rim Holding Corporation,
a Delaware corporation
by: /s/ Paul W. Craig
----------------------------------------
Paul W. Craig
Its: Executive Vice President
"Corporation"
by: /s/ Stanley Braun
----------------------------------------
Stanley Braun, an individual
"Employee"
Dated: April 4, 1995
<PAGE> 185
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT ("Second Amendment"),
executed this 30th day of March, 1996 ("Effective Date"), is entered into by and
between PAC RIM HOLDING CORPORATION, a Delaware corporation (the "Corporation"),
THE PACIFIC RIM ASSURANCE COMPANY, a California corporation ("Employer"), and
STANLEY BRAUN, an individual ("Employee"). Corporation, Employer, and Employee
are collectively referred to as "Parties."
1.0 RECITALS
1.1 Effective August 16, 1994, Employer, Corporation, and
Employee have previously entered into the Employment Agreement which was amended
by the First Amendment on March 27, 1995.
1.2 As of the date of this Second Amendment, the First Amendment, and the
Employment Agreement constitute the entire understanding concerning Employee's
employment with Employer.
1.3 Employer, Corporation, and Employee desire to enter into
this Second Amendment upon the terms and conditions set forth herein, to amend
the Agreement.
NOW THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
contained herein and for such other good and valuable consideration, the receipt
and adequacy of which is hereby admitted and acknowledged, the Parties hereto
agree as follows:
2.0 DEFINITIONS. All capitalized terms not defined herein shall have
the same meanings ascribed to them in the Employment Agreement and First
Amendment. However, the following definitions to the extent differing from the
definitions contained in the First Amendment or the Employment Agreement
supercede same and shall be controlling in interpreting the Agreement.
2.1 Agreement: "Agreement" shall collectively refer to the
Employment Agreement, the First Amendment, and this Second Amendment.
2.2 First Amendment: "First Amendment" shall mean the
Amendment to Employment Agreement dated March 27, 1995 by and among Corporation,
Employer and Employee.
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<PAGE> 186
2.3 Parties: "Parties" shall collectively refer to
Corporation, Employer, and Employee.
2.4 Second Amendment: "Second Amendment" shall mean this
Second Amendment to Employment Agreement dated March 30, 1996.
3.0 AMENDMENTS. The following section of the First Amendment is amended
to read as follows:
3.1 Section 2.2a Change in Control is replaced with the
following language:
"2.2a Change in Control: "Change in Control" shall
mean the closing of an acquisition by no later than
June 30, 1997 of more than fifty-one percent (51%) of
the outstanding common stock of Corporation through a
merger, sale, or reorganization by an entity,
individual, or group acting in concert which
satisfies all of the following:
(i) The affirmative vote by a
required majority of the
Board of Directors of
Corporation (as required by
the By-Laws of Corporation
for the proposed transaction)
approving the proposed
transaction subject to
shareholder approval;
(ii) The affirmative vote of a
required majority (as required
by the By-Laws of
Corporation for the proposed
transaction) of shares of the
stock of Corporation in favor
of the proposed transaction
causing the Change in
Control as well as approving
this Amendment;
(iii) Subject to the approval of the
SEC, Corporation shall
submit the request for
shareholder approval of
certain elements of the
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Amendment which became
effective upon shareholder
approval as a joint resolution
with the proposed transaction
effectuating a Change in
Control; and
(iv) Employee continuing to provide
services to Employer unless said
cessation of services was the result
of Termination Without Cause.
Change in Control shall not occur as a
result of stock acquisition by Mr. Richard H. Pickup
or his Affiliates through the exercise of options,
warrants, conversion of debentures, or through other
capitalization resulting from capital infusion
recommended by a State regulatory agency for which
Employer is subject or Employee on behalf of Employer
is subject."
3.2 Section 2.14b Offer is replaced with the following
language:
"2.14b Offer: "Offer" shall occur when Employee and
Investment Banker, before June 30, 1997, jointly
recommend to the Board of Directors the acceptance of
a bona fide offer to purchase more than fifty-one
percent (51%) of the outstanding common stock of
Corporation in the form of a merger, sale, or
reorganization by an entity, individual or group
acting in concert that is received by the Board of
Directors at a value equal to or greater than one (1)
times the net book value of the Corporation as of the
preceding calendar quarter by an acquirer that is
ready, willing, and able to consummate the proposed
transaction, while Employee is providing services to
Employer (unless a cessation of services by Employee
was the result of Termination Without Cause). For
purposes of this provision, being recommended by the
Investment Banker shall include the requirement that
the
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<PAGE> 188
Investment Banker has delivered a fairness opinion to
the Board of Directors with authority to submit that
fairness opinion to the shareholders as part of the
shareholder approval of the transaction proposed."
4.0 RATIFICATION. To the extent not otherwise modified by the terms and
conditions of this Second Amendment, all of the terms of the Employment
Agreement as previously modified by the First Amendment are hereby ratified and
republished.
5.0 BOARD OF DIRECTORS' APPROVAL
The execution of this Second Amendment has been authorized by
a meeting of the Board of Directors of the Corporation and Employer as duly
called with Employee absent due to the conflict of interest as ratified by a
telephonic board meeting occurring March __, 1996. However, the terms and
conditions of this Second Amendment which become effective upon a Change in
Control are subject to a shareholder approval in accordance with the provisions
of Section 2.2a of the First Amendment as revised by this Second Amendment. The
undersigned officers of the Corporation and Employer have been duly authorized
to execute this Second Amendment on behalf of the Corporation and Employer
pursuant to this resolution of the Board of Directors of each.
The Parties hereto have set their hands the day and year first above
written.
PAC RIM HOLDING CORPORATION,
a Delaware corporation
By: /s/ PAUL W. CRAIG
------------------------------
Paul W. Craig
Its: Executive Vice President
"CORPORATION"
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 189
THE PACIFIC RIM ASSURANCE COMPANY,
a California corporation
By: /s/ PAUL W. CRAIG
------------------------------
Paul W. Craig
Its: Executive Vice President
"EMPLOYER"
/s/ STANLEY BRAUN
----------------------------------
STANLEY BRAUN, an individual
"EMPLOYEE"
Drafted By:
THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92715
(714) 474-7368
September 24, 1996
2240H-22.2(C)
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<PAGE> 190
EXHIBIT A
CONSENT TO AMENDMENT AND AGREEMENT
I, the undersigned, am the spouse of Stanley Braun. I have read the
Employment Agreement dated April 15, 1994 ("Employment Agreement"), the
Amendment to Employment Agreement dated March 27, 1995 ("First Amendment"), and
this Second Amendment to Employment Agreement dated March ___, 1996 ("Second
Amendment"), by and among Pac Rim Holding Corporation, a Delaware corporation,
The Pacific Rim Assurance Company, a California corporation ("Corporation") and
my spouse, Stanley Braun, and clearly understand the provisions thereof. I am
aware that by the provisions of said Amendment and Agreement my spouse has
agreed to certain provisions regarding his employment with the aforementioned
Corporation, including the expiration of certain stock options according to
their terms and the grant of new stock options and my community interest
therein, if any, in accordance with the terms and provisions of said Second
Amendment, First Amendment and Employment Agreement. I hereby approve of and
consent to the provisions of said Second Amendment, First Amendment and
Employment Agreement, in its entirety.
DATED: March 30, 1996
/s/ NANCY W. BRAUN
------------------
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<PAGE> 1
EXHIBIT 3
SERIES A CONVERTIBLE DEBENTURES AND
SERIES 1, 2 AND 3 DETACHABLE WARRANT PURCHASE AGREEMENT
This SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2 AND 3 DETACHABLE
WARRANT PURCHASE AGREEMENT (this "Agreement") is entered into as of September
17, 1996 (the "Effective Date") by and among SUPERIOR NATIONAL INSURANCE GROUP,
INC., a California corporation ("Superior"), PRAC LIMITED PARTNERSHIP, a Nevada
limited partnership ("Prac") and ALLSTATE INSURANCE COMPANY, a Illinois
insurance company ("Allstate") (Prac and Allstate, each, a "Security Holder"
and, collectively, the "Security Holders"), with reference to the following
recitals:
R E C I T A L S
A. The Security Holders own Series 1, 2 and 3 Detachable Warrants (the
"Warrants) and own, collectively, all of the Series A Convertible Debentures
(the "Debentures") (the Debentures and Warrants, collectively, the "Securities")
issued by Pac Rim Holding Corporation, a Delaware corporation ("Pac Rim"),
pursuant to that certain Agreement to Purchase Series A Convertible Debentures
and Series 1, 2 and 3 Detachable Warrants dated as of April 15, 1994, as amended
(the "Debenture/Warrant Agreement").
B. Copies of the certificates representing each Security Holder's
Securities that are subject to this Agreement are attached hereto as Exhibits
A-1 and A-2.
C. Superior and Pac Rim have entered into an Agreement and Plan of
Merger (the "Merger Agreement") dated as of the Effective Date pursuant to the
terms of which Superior will acquire all the issued and outstanding shares of
Pac Rim's common stock. Capitalized terms used but not defined herein have the
respective meanings set forth in the Merger Agreement.
D. The sale of the Securities to Superior by the Security Holders is a
condition to Superior's obligation to consummate the transaction contemplated
pursuant to the Merger Agreement.
E. Subject to the terms and conditions stated in this Agreement,
Superior desires to purchase all of the Securities from the Security Holders and
the Security Holders desire to sell all of Securities to Superior.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
ARTICLE 1.
PURCHASE AND SALE OF SECURITIES
1.1 Purchase and Sale of Securities. Subject to the terms, conditions,
covenants, representations, warranties and other obligations set forth or
incorporated herein, on the Closing Date (as defined in Section 1.2 of the
Merger Agreement) the Security Holders shall each sell, assign, transfer and
convey to Superior and Superior shall purchase from the Security Holders all of
the Security Holders' respective right, title and interest in and to the
Securities, which Securities shall be subject to and held in accordance with the
terms of the Debenture/Warrant Agreement.
1.2 Purchase Price. The total purchase price to be paid for the
Debentures to be purchased by Superior hereunder shall be the Debenture
Consideration, as defined in the Merger Agreement (the "Debenture Purchase
Price") and the total purchase price to be paid for the Warrants to be purchased
by Superior hereunder shall be the Warrant Consideration, as defined in the
Merger Agreement (the "Warrant Purchase Price") (the Debenture Purchase Price
and the Warrant Purchase Price, collectively, the "Purchase Price"), payable by
direct wire transfer in immediately available funds to a bank account to be
designated by each Security Holder and in accordance with the percentages set
forth in Schedule 1.2 hereof. The Purchase Price is payable without duplication
notwithstanding the references to such consideration in the Merger Agreement.
1.3 Closing Date. At the Closing (as defined in Section 1.2 of the
Merger Agreement), the Security Holders shall deliver to Superior all
certificates for the Securities, duly assigned and endorsed to Superior in good
form for transfer, and Superior shall deliver to each Security Holder its
respective portion of the Purchase Price, payable by direct wire transfer in
immediately available funds to a bank account designated by each Security Holder
for its account.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF EACH SECURITY HOLDER
Each of the Security Holders represents and warrants, severally and not
jointly, to Superior as of the Effective Date and the Closing Date that:
2.1 Authority Relative to this Agreement. Such Security Holder has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Security Holder and
the consummation by the Security Holder of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors or other
governing body of such Security Holder, and no
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<PAGE> 3
other corporate or other proceedings on the part of such Security Holder are
necessary to authorize this Agreement or to consummate such transactions. This
Agreement has been duly and validly executed and delivered by such Security
Holder and constitutes a legal, valid and binding obligation of such Security
Holder, enforceable against such Security Holder in accordance with its terms
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
2.2 No Conflicts. The execution and delivery of this Agreement by such
Security Holder do not, and the performance of this Agreement by such Security
Holder will not, (i) conflict with or violate the organizational documents of
such Security Holder, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to such Security Holder or by which such
Security Holder's Securities are bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would constitute a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of such Security Holder's Securities
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which such
Security Holder is a party or by which such Security Holder or such Security
Holder's Securities are bound or affected except, in the case of clauses (i),
(ii) and (iii) of this Section 2.2(a), for any such conflicts, violations,
breaches, defaults or other occurrences which would not prevent or delay the
performance by such Security Holder of its obligations under this Agreement.
(b) Except for the Regulatory Filings (as defined and referred to in
Section 5.6 of the Merger Agreement) and the consents to transfer required under
the Debenture/Warrant Agreement, the execution and delivery of this Agreement by
such Security Holder do not, and the performance of this Agreement by such
Security Holder will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any third party or governmental entity,
except where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not (i) prevent or
delay the performance by such Security Holder of its obligations under this
Agreement or (ii) result in any costs or liabilities on the part of Superior or
the Surviving Corporation (as defined in the Merger Agreement).
2.3 Title to the Securities. Such Security Holder is the record and
beneficial owner of the Securities issued to and held by it, copies of which are
attached hereto as Exhibit A-1 and A-2, as appropriate. Such Security Holder's
Securities are the only Securities owned by such Security Holder. The Securities
of such Security Holder are owned free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on such Security Holder's voting rights,
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<PAGE> 4
charges and other encumbrances of any nature whatsoever. Such Security Holder
has not appointed or granted any proxy, which appointment or grant is still
effective, with respect to the Security Holder's Securities.
2.4 Litigation. There are no actions, suits, proceedings or
arbitrations pending, or to the knowledge of such Security Holder threatened,
against such Security Holder or with respect to the Securities held by such
Security Holder that could reasonably be expected to prevent or delay the
consummation of the transactions contemplated by this Agreement. Such Security
Holder and the Securities held by such Security Holder are not subject to any
outstanding order, writ, injunction or decree which could reasonably be expected
to prevent or delay the consummation of the transactions contemplated by this
Agreement.
2.5 No Brokers. No Security Holder has entered into any contract,
commitment, agreement or understanding with any person or firm which may result
in the obligation of any Security Holder, Pac Rim or Superior to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the transactions
contemplated hereby or by the Merger Agreement. Except as provided in Sections
5.13 and 6.6 of the Merger Agreement, no Security Holder is aware of any claim
for payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
transactions contemplated hereby or by the Merger Agreement.
2.6 No Defaults. The Debenture/Warrant Agreement and the instruments
issued thereunder are valid, binding and enforceable against such Security
Holder in accordance with their terms. There are no existing defaults, or any
condition or event which with the giving of notice or lapse of time would
constitute a default, by such Security Holder to the Debenture/Warrant Agreement
or any instrument issued thereunder. Such Security Holder has not given or
received notice of any default by Pac Rim or by any Subsidiary of Pac Rim under
the Debenture/Warrant Agreement or any instrument issued thereunder.
2.7 No Conversion or Exercise. Such Security Holder has not converted
any principal amount of outstanding Debentures into Pac Rim Common Stock (as
defined in the Merger Agreement) or exercised any Warrant, and each Security
Holder hereby covenants and agrees that no conversion or exercise shall occur on
or prior to the Closing Date.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SUPERIOR
Superior hereby represents and warrants to each of the Security Holders
as of the Effective Date and the Closing Date that:
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<PAGE> 5
3.1 Investment Representation. Superior is acquiring the Securities for
its own account, for investment purposes only and not with a view to the
distribution thereof. Superior is aware that the sale of the Securities to
Superior has not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), or registered or qualified under any state securities law, and
therefore must be held indefinitely and cannot be sold or transferred unless the
Securities are subsequently so registered (which the Security Holders are not
obligated to undertake or accomplish) or an exemption from such registration is
available. Superior understands and acknowledges that the sale of the Securities
to Superior without registration or qualification is dependent, in part, on the
accuracy of Superior's representations and warranties herein. Superior is an
"accredited investor" as that term is defined in Regulation D under the 1933
Act. Superior understands and acknowledges that federal and state securities
laws require that certain restrictions against transfer including legends and
stop transfer instructions will be imposed on the Securities, and substantially
the following legend will be placed on the certificates representing such
Securities:
"The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, the Trust Indenture Act
of 1939 or applicable state securities laws. Such securities may not be
sold, transferred, assigned, pledged or hypothecated in the absence of
such registration or an exemption therefrom under said Acts and
applicable state securities laws and, if necessary, receipt of an
opinion of counsel satisfactory to Pac Rim Holding Corporation that
registration is not required. Such securities may not be transferred
except upon the conditions specified in certain agreements, dated as of
April 15, 1994, between Pac Rim Holding Corporation and PRAC Limited
Partnership, complete and correct copies of which are available for
inspection at the office of Pac Rim Holding Corporation and a conformed
copy of which will be furnished to the holder of such securities upon
written request and without charge. No transfer of such securities
shall be valid or effective unless and until the conditions so
specified shall have been complied with.";
provided, however, the Legend on the certificates representing the Warrants
shall not contain a reference to the Trust Indenture Act.
3.2 Compliance with Law and Other Instruments. Neither the execution
and delivery by Superior of this Agreement, nor the consummation by Superior of
the transactions contemplated hereby in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any provisions of the Articles of
Incorporation or Bylaws of Superior; (ii) violate, or conflict with, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a
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<PAGE> 6
default), under or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties of Superior under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contact, agreement or other instrument, commitment or obligation
to which Superior is a party, or by which Superior or any of its properties is
bound or affected (except for any of the foregoing, the occurrence of which
would not have a material adverse effect on Superior or its Subsidiaries, taken
as a whole); or (iii) other than the Regulatory Filings (as defined in Section
5.6 of the Merger Agreement), require any consent, approval or authorization of,
or declaration, filing or registration with, any domestic governmental or
regulatory authority (except for any of the foregoing where the failure to
obtain such consent or make such filing would not have a material adverse effect
on Superior taken as a whole).
3.3 Organization. Superior is a corporation duly organized, validly
existing and in good standing under the laws of the State of California with
full corporate power and authority to carry on its business as it is now being
conducted and to own or lease the properties and assets which it now owns or
leases.
3.4 Authority. The execution, delivery and performance of this
Agreement and the transactions contemplated by this Agreement by Superior have
been duly authorized by any necessary corporate action, including, without
limitation, any necessary director or shareholder approval. Superior has full
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and thereunder.
3.5 Binding Agreement. This Agreement is a legal, valid and binding
obligation of Superior, enforceable against Superior in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
ARTICLE 4.
COVENANTS
4.1 Regulatory Filings; Consents.
(a) To the extent any Security Holders may be deemed to be, or may be
deemed to be part of a group constituting, an "Ultimate Parent Entity" of Pac
Rim, as such term is used in the Hart-Scott-Rodino Act of 1976 and the
regulations promulgated thereunder, each such Security Holder, with the
exception of Allstate, hereby covenants and agrees to comply in all respects
with Section 7.4 of the Merger Agreement as if a party thereto and bound
thereby.
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<PAGE> 7
(b) Each party to this Agreement shall use reasonable efforts and
cooperate with the other parties hereto in timely making all filings with all
federal, state and local governmental or regulatory agencies, timely seeking all
consents, approvals or authorizations of third parties or governmental or
regulatory agencies that may be required in connection with, and shall use
reasonable efforts to take, or cause to be taken, all other action and to do, or
cause to be done, all other things necessary, proper or appropriate to effect,
the consummation of the transactions contemplated by this Agreement.
4.2 Release. (a) As of the Closing Date, each of the Security Holders,
on behalf of itself and its respective affiliates, successors, assigns and heirs
(each a "Releasing Party" and collectively, the "Releasing Parties"), hereby
agrees to release, remise, discharge and hold harmless, absolutely and forever,
Superior, SNTL Acquisition Corp., a Delaware corporation, Pac Rim as the
"Surviving Corporation" after the Effective Time of the Merger, and each of
their respective direct and indirect subsidiaries, and each of such parties'
successors, directors, officers, employees, agents and all persons acting by,
through, under or in concert with them, or any of them (collectively, the
"Released Parties") of and from any and all manner of action or actions, cause
or causes of action, in law or in equity, suits, debts, liens, contracts,
agreements, promises, liabilities, claims, demands, damages, losses, costs or
expenses of any nature whatsoever, known or unknown, fixed or contingent, based
on any circumstances or state of facts existing on or prior to the Closing Date,
to the extent arising out of such Security Holder's status as an employee,
director, officer, stockholder, agent, representative or creditor of Pac Rim or
its subsidiaries, other than (i) as provided in the provisions with respect to
indemnification and elimination of liability in the Restated Certificate of
Incorporation or Bylaws of Pac Rim and all amendments thereto or the Articles of
Incorporation or Bylaws of The Pacific Rim Assurance Company, a California
corporation, and all amendments thereto, or (ii) arising from or related to this
Agreement, the Merger Agreement or the transactions contemplated thereby which
the Releasing Party has or may hereafter have against the Released Parties,
including rights to indemnification as provided in Section 7.10 of the Merger
Agreement.
(b) If a Security Holder is a resident of California, the Security
Holder is, notwithstanding that this Agreement is governed by Delaware law,
waiving, to the extent provided in Section 4.2(a) hereof, certain rights with
respect to unknown or undiscovered claims. In connection therewith, each
Security Holder expressly waives the benefit of California Civil Code section
1542, which reads:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST
HAVE
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MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
The parties acknowledge that the foregoing waiver was separately
bargained for and expressly consent that this release shall be given full force
and effect in accordance with its express terms and provisions.
4.3 Maximum Warrant Consideration. Notwithstanding anything to the
contrary in the Debenture/Warrant Agreement, each Security Holder covenants and
agrees that in the event that the exercise price of the Warrants is adjusted
pursuant to the terms of the Debenture/Warrant Agreement, and such adjustment
would result in the aggregate Warrant Consideration payable hereunder exceeding
$3.5 million, the Security Holders shall each waive their respective portions of
any such adjustment in excess of such amount.
ARTICLE 5.
CONDITIONS OF EACH PARTY'S OBLIGATION
5.1 Conditions. The respective obligations of each party hereto to
effect the purchase and sale of the Securities provided hereunder shall be
subject to the fulfillment at or prior to the Closing Date of the conditions set
forth in Article 8 of the Merger Agreement. In addition, each of the respective
representations and warranties of the Security Holders and Superior contained in
this Agreement shall be true and correct on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of such date.
5.2 Legal Opinion. If requested of Prac by Pac Rim, Superior and Pac
Rim shall have received at Closing an opinion of counsel to Prac (which counsel
shall be reasonably acceptable to Pac Rim). Such opinion shall comply in form
and substance with the provisions of the Debenture/Warrant Agreement applicable
to Prac's transfer of Securities.
ARTICLE 6.
TERMINATION
6.1 Termination. This Agreement shall be terminated in the event that
the Merger Agreement is terminated as provided in Sections 9.1, 9.2, 9.3 or 9.4
of the Merger Agreement.
6.2 Effect of Termination and Abandonment. In the event of termination
of this Agreement pursuant to this Article 6, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to this
Section 6.2 and Sections 7.1, 7.3, 7.4, 7.5, 7.7, 7.9 and 7.10 hereof.
-8-
<PAGE> 9
ARTICLE 7.
MISCELLANEOUS
7.1 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
7.2 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Closing.
7.3 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(i) if to Superior, to
Superior National Insurance
Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Attention: William L. Gentz
Telecopy No.: 818-880-8615
with a copy to
Dana M. Warren, Esq.
Riordan & McKinzie
5743 Corsa Avenue
Suite 116
Westlake Village, California 91362
Telecopy No.: 818-706-2956
(ii) if to Allstate, to
Allstate Insurance Company
2775 Sanders Road, Suite A3
Northbrook, Illinois 60062-6127
Attention: Caryn E. Hank, Strategic
Development Manager
Telecopy No.: 847-402-0588
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with a copy to
Allstate Insurance Company
Investment Law Department
3075 Sanders Road, Suite G5A
Northbrook, Illinois 60062-7127
Attention: Elizabeth J. Lapham, Esq.
Telecopy No.: 847-402-6639
(iii) if to Prac, to
Wedbush Morgan Securities
500 Newport Center Drive
Suite 550
Newport Beach, California 92660
Attention: Mr. Richard H. Pickup
Telecopy No.: 714-759-9539
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
7.4 Assignment; Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that Superior may
assign all of its rights, interests and obligations hereunder to any
wholly-owned direct or indirect subsidiary of Superior. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
7.5 Entire Agreement. This Agreement contains the entire understanding
of the parties hereto relating to the subject matter hereof and supersedes all
prior and collateral agreements, understandings, statements and negotiations of
the parties. Each party acknowledges that no representations, inducements,
promises, or agreements, oral or written, with reference to the subject matter
hereof have been made other than as expressly set forth herein.
7.6 Amendment. This Agreement may be supplemented, amended or modified
only by the mutual agreement of the parties hereto. No supplement, amendment or
modification of this Agreement shall be binding unless it is in writing signed
by all the parties hereto.
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7.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws.
7.8 Counterparts. This Agreements may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
7.9 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
7.10 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
7.11 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitations, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
7.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
7.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any California Court,
this being in addition to any other remedy to which they may be entitled at law
or in equity.
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7.14 Legal Action. In the event of any litigation between or among the
parties hereto respecting or arising out of this Agreement, the prevailing party
or parties shall be entitled to recover reasonable attorneys' fees and costs,
whether or not such litigation proceeds to final judgment or determination.
7.15 Venue. Any action concerning a dispute arising out of or
concerning this Agreement, regarding the interpretation of this Agreement, or
regarding the relationships among the parties created pursuant to this Agreement
shall be filed only in the United States District Court for the Central District
of California or in the Superior Court of the State of California for the County
of Los Angeles.
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IT WITNESS WHEREOF, the parties have caused this Agreement and caused
the same to be duly delivered on their behalf as of the day and year first
written above.
SUPERIOR: SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. Chris Seaman
-------------------------------------
Name: J. CHRIS SEAMAN
Title: Executive Vice President & CFO
ALLSTATE: ALLSTATE INSURANCE COMPANY
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
PRAC: PRAC LIMITED PARTNERSHIP,
a Nevada limited partnership
By: Somme, Inc., a Nevada corporation
Its:General Partner
By: /s/ David B. Hehn
-------------------------------------
Name: DAVID B. HEHN
Title: President
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<PAGE> 14
EXHIBIT A-1
PRAC SECURITIES
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<PAGE> 15
- -
No. 2 $18,000,000.00
PAC RIM HOLDING CORPORATION
(Formed Under the Laws of the State of Delaware)
8% SIMPLE ANNUAL INTEREST SERIES A CONVERTIBLE DEBENTURE
CERTIFICATE
Issue Date: August 16, 1994
Maturity Date: August 15, 1999
THE 8% SIMPLE INTEREST SERIES A CONVERTIBLE DEBENTURES (THE
"DEBENTURES") REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), THE TRUST INDENTURE
ACT OF 1939 OR APPLICABLE STATE SECURITIES LAWS. THE DEBENTURES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACTS AND APPLICABLE STATE
SECURITIES LAWS AND, IF NECESSARY, RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY
TO PAC RIM HOLDING CORPORATION THAT REGISTRATION IS NOT REQUIRED.
THE DEBENTURES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
EXCEPT UPON THE CONDITIONS SPECIFIED IN THAT CERTAIN "AGREEMENT TO PURCHASE
SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS" DATED
AS OF APRIL 15, 1994, BETWEEN PAC RIM HOLDING CORPORATION AND PRAC LTD.
("INVESTOR"), A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT THE OFFICE OF PAC RIM HOLDING CORPORATION AND A CONFORMED COPY OF WHICH WILL
BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT
CHARGE. NO TRANSFER OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND
UNTIL THE CONDITIONS SO SPECIFIED SHALL HAVE BEEN COMPLIED WITH.
Pac Rim Holding Corporation, a Delaware corporation ("Company"), is
indebted and, for value received, promises to pay to PRAC Ltd., a Nevada limited
partnership, or any registered assignee of this Debenture ("Holder"), the
principal amount of Eighteen Million and no/100 Dollars ($18,000,000.00) in
legal tender of the United States of America on the Maturity Date at the
principal office of the Company (unless this Debenture has been duly called for
redemption and payment of the redemption price made or provided for).
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 8% Simple Annual Interest Series A Convertible
Debentures (the "Debentures"), limited in aggregate principal amount to Eighteen
Million Dollars ($18,000,000), issued or to be issued pursuant to the terms of
that certain Agreement to Purchase Series A Convertible Debentures and Series 1,
2 and 3 Detachable Warrants dated as of April 15, 1994 between Company and
Investor (the "Agreement"). All rights, duties, and restrictions applicable to
the Debentures are governed by and subject to the terms of the Agreement.
Capitalized terms not defined herein shall have the same meaning as stated in
the Agreement. A conformed copy of the Agreement will be furnished to the Holder
upon written request and without charge. The terms of the Debentures as stated
in this Certificate shall be subject to and limited by the terms of the
Agreement. In the event any conflict exists between this Certificate and the
Agreement, the Agreement shall control.
<PAGE> 16
DEBENTURE TERMS
Maturity Date. August 15, 1999.
Interest Rate. The Debentures shall bear interest at a rate of eight
percent (8%) per annum simple interest. Interest on the amount of the Debentures
outstanding shall be computed on the basis of a 365-day or a 366-day year, as
the case may be, actual days elapsed, from the Closing Date until repayment.
Interest Payments. The first payment of interest on the outstanding
principal amount of the Debentures shall be due and payable in cash by Company
to the Holder in arrears on that date which is six (6) months following the
Closing Date and thereafter such interest shall be due and payable semiannually
in arrears, in each case payable to the Holder in cash at the address of the
Holder then on record with Company.
Mandatory Redemption. Company may not redeem any Debentures prior to the
Maturity Date. Company shall redeem the Debentures then outstanding on the
Maturity Date and all then outstanding principal and interest relating to such
Debentures shall immediately be due and payable to the Debenture Holders in cash
on that date.
Conversion Rights. At any time after the Closing Date, each Holder shall
have the right, at its option, at any time and from time to time prior to the
Maturity Date, to convert in increments of $1,000,000.00 or more, or if such
Holder owns less than $1,000,000.00 of Debentures, such lesser amount, subject
to the terms and provisions contained herein and in the Agreement, any portion
of the original principal amount of the Debentures (to the extent such
convertible portion has not been subject to mandatory conversion as set forth in
Paragraph 6 hereof and Section 3.2.5 of the Agreement) into shares of Common
Stock, at the rate of $2.75 of principal amount of Debentures per share of
Common Stock (the "Conversion Price"). Such conversion shall be effective upon
surrender of any of the Debenture Certificates, the principal of which is so to
be converted, to Company at its principal office at any time during usual
business hours, accompanied, if so required by Company, by a written instrument
or instruments of transfer in form satisfactory to Company duly executed by the
converting Holder of such Debentures or its attorney duly authorized in writing.
Mandatory Conversion. In the event that on any date subsequent to the
third anniversary of the Closing Date (the "Measurement Date") the Closing Sale
Price (as hereinafter defined) of the Common Stock on the NASDAQ National Market
or any exchange on which such shares are listed for trading shall be greater
than one hundred fifty percent (150%) of the Conversion Price for twenty (20)
out of the thirty (30) consecutive trading days immediately preceding the
Measurement Date, the then outstanding Debentures shall automatically be
converted at the Conversion Price into Common Stock and said Common Stock shall
promptly be issued and delivered to the Holder or Holders thereof in accordance
with Article 3 of the Agreement ("Automatic Conversion"). As used herein and in
the Agreement, the "Closing Sale Price" of any share of Common Stock shall be
(a) if the Common Stock is listed on an established stock exchange or exchanges,
the average of the closing bid and asked prices per share on such date on the
principal exchange on which it is traded, or if no sale was made on such date on
such principal exchange, at the closing reported bid price on such date on such
exchange, or (b) if the Common Stock is not then listed on an exchange, the last
reported sale price per share on such date reported by NASDAQ, or if sales are
not reported by NASDAQ or no sale was made on such date, the average of the
closing bid and asked prices per share for the Common Stock in the
over-the-counter market as quoted on NASDAQ on such date.
Issuance of Common Stock Upon Conversion. As promptly as practicable
after the surrender of any Debentures for conversion or Automatic Conversion,
Company shall issue and deliver or cause to be issued and delivered to or upon
the written order of the converting Holder certificates representing the number
of fully paid and nonassessable shares of Common Stock into which such
Debentures are
<PAGE> 17
converted in accordance with the provisions of Article 3 of the Agreement, and
if any principal amount of such Debenture remains unpaid after such conversion,
a new Debenture Certificate or Debenture Certificates dated the date to which
interest has been paid on the Debenture or Debentures surrendered for
conversion, in an aggregate principal amount equal to such unpaid principal
amount, and specifying the portion of such unpaid principal amount, if any,
which may be converted into Common Stock. Subject to the following provisions,
such conversion shall be deemed to have been made at the close of business on
the date that such Debentures shall have been surrendered for conversion or on
the date of Automatic Conversion, as the case may be, so that the rights of the
Holder with respect to the principal amount of the Debentures so converted shall
cease at such time and the Holder or Holders entitled to receive the shares of
Common Stock upon conversion of such Debentures shall be treated for all
purposes as having become the record holder or holders of such shares of Common
Stock at such time and such conversion shall be at the Conversion Price;
provided, however, that no such surrender or Automatic Conversion on any date
when the stock transfer books of Company shall be closed shall be effective to
constitute the person or persons entitled to receive the shares of Common Stock
upon such conversion, as the record holder or holders of such shares of Common
Stock on such date, but such surrender shall be effective to constitute the
person or persons entitled to receive such shares of Common Stock as the record
holder or holders thereof for all purposes at the close of business on the next
succeeding day on which such stock transfer books are open and such conversion
shall be at the Conversion Price in effect on the date that such Debentures
shall have been surrendered for conversion.
If the last day for the exercise of the conversion right shall be a
Sunday or shall be in California a legal holiday or a day on which banking
institutions are authorized by law to close, then such conversion right may be
exercised on the next succeeding day not in California a legal holiday or a day
on which banking institutions are authorized by law to close.
Conversion Price Adjustments.
(a) Adjustment for Stock Splits and Subdivisions. In the event
Company should at any time or from time to time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Com Stock entitled to
receive a dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the holders
thereof to receive directly or indirectly, additional shares of Common Stock
without payment of any consideration by such holder for the additional shares of
Common Stock, then, as of such record date, the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of any Debentures shall be increased in proportion to such
increase of outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Common Stock then,
following the record date of such combination, the Conversion Price for
Debentures shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion thereof shall be decreased in proportion to
such decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that Company
shall be recapitalized, consolidated with or merged into any other corporation,
or shall sell or convey to any other corporation all or substantially all of its
property as an entirety, provision shall be made as par of the terms of such
recapitalization, consolidation, merger, sale or conveyance so that any holder
of Debentures may thereafter receive in lieu of the Common Stock otherwise
issuable upon conversion of any Debentures the same kind and amount of
securities or assets as may be distributable upon such recapitalization,
consolidation, merger, sale or conveyance, with respect to the Common Stock.
(d) Adjustments for Dividends. In the event that Company shall
at any time pay to the holders of Common Stock a dividend in Common Stock, the
closing price of the Common Stock prior to the occurrence of such event utilized
in the calculation of the Conversion Price upon conversion of any
<PAGE> 18
Debentures shall be proportionately decreased in order that they may be properly
compared to post-dividend closing prices in determining the Conversion Price,
effective following the close of business on the record date for determination
of the holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any time
pay any dividend or make any other distribution on its Common Stock in property,
other than in cash or in Common Stock, then provision shall be made as part of
the terms of such dividend or distribution so that the holder of any Debentures
surrendered for conversion after the record date for determination of holders of
Common Stock entitled to such dividend or distribution shall be entitled to
receive the same kind and the same proportionate share of such property which he
would have been entitled to receive had such Debentures been converted
immediately prior to such record date.
(f) Adjustments. The adjustments referred to in this Paragraph 8
shall be made successively if more than one event listed herein shall occur.
Taxes and Expenses on Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of any Debentures shall be made
without charge to the converting Debenture Holder for any expense or tax (other
than federal or state income taxes) in respect of the issuance of such
certificates, and such certificates shall promptly be issued in the name of, or
in such names as may be directed by, the Debenture Holder.
Payment of Interest; Adjustment for Certain Dividends. Company shall
pay all interest on any Debentures or portion thereof surrendered for conversion
accrued to the date of such surrender or Automatic Conversion (the "Surrender
Date") except that, in the event that Company shall have declared prior to the
Surrender Date a cash dividend payable on its shares of Common Stock to holders
of record of such Common Stock on a date subsequent to the Surrender Date, such
payment of interest shall be adjusted downward to an amount (not less than zero)
determined by subtracting from the aggregate amount thereof an amount equal to
the aggregate dividends to be payable as of such record date on the shares of
Common Stock issuable upon conversion of such Debenture.
Mutilated or Missing Certificates. Upon receipt by Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Debenture Certificate, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Debenture Certificate, if mutilated, Company will promptly make and deliver
in lieu of such Debenture Certificate a new Debenture Certificate of like tenor,
dated the date to which interest has been paid on such lost, stolen, destroyed
or mutilated Debenture Certificate.
Events of Default and Acceleration. If any of the following events,
herein called "Events of Default," shall occur:
If Company shall default in the payment of any part of the
principal of the Debentures when the same shall have become due and payable at
maturity and such default shall not have been remedied within fifteen (15)
calendar days after written notice thereof shall have been given to Company by
the holders of not less than fifty percent (50%) of the principal amount of
outstanding Debentures;
If Company shall default in the payment of any installment of
interest on the Debentures and such default shall not have been remedied within
fifteen (15) calendar days after written notice thereof shall have been given to
Company by the holders of not less than fifty percent (50%) of the principal
amount of outstanding Debentures;
If Company shall default in the performance of or compliance
with any material term contained in Articles 12 (Post Closing Affirmative
Covenants of Company) or 13 (Negative Covenants of Company) of the Agreement,
and such default shall not have been remedied within twenty (20) calendar
<PAGE> 19
days after written notice thereof shall have been given to Company by the
holders of not less than fifty percent (50%) of the principal amount of
outstanding Debentures; provided, however, that any such default in performance
or compliance shall not constitute an Event of Default under the Agreement
unless such default or defaults (i) individually or in the aggregate represent a
Material Adverse Effect on Company and Assurance Company taken as a whole or the
Debenture Holders or (ii) is or are willful and intentional breaches of a
material matter;
If any representation or warranty of Company contained in the
Agreement shall prove to have been false or incorrect in any material respect on
the date as of which made; provided, however, that any inaccuracy of any
representation or warranty, on the Effective Date or on the Closi Date, shall
not constitute an Event of Default under the Agreement unless any such
inaccuracy or inaccuracies, either (i) individually or in the aggregate,
represent a Material Adverse Effect on Company and Assurance Company, taken as a
whole, or (ii) is or are willful and intentional misrepresentations of a
material matter that constitute fraud;
If Company or any Subsidiary shall default (as principal or
guarantor or other surety) in any payment of principal of, premium, if any, or
interest on, or any other payment of money due under, any other obligation for
borrowed money, in any single amount equal to or exceeding $25, or, with respect
to multiple obligations, in amounts which in the aggregate equal or exceed
$100,000 (including any obligation secured by purchase money mortgage), beyond
any period of grace provided with respect thereto, or in the performance of any
other agreement, term, or condition contained in any agreement under which any
such obligation is created if the effect of such default is to cause, or permit
the holder or holders of such obligation (or a trustee on behalf of such holder
or holders) to cause, such obligation to become due prior to its stated
maturity;
If Company or any Subsidiary shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
as they become due, or shall file a voluntary petition in bankruptcy, or shall
be adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future statute,
law, or regulation, or shall file any answer admitting or not contesting the
material allegations of a petition filed against Company or any of its
Subsidiaries in any such proceeding, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver, or liquidator of Company or any of its
Subsidiaries or of all or any substantial part of the property of Company or of
any Subsidiary;
If, within sixty (60) calendar days after the commencement of
an action against Company or any of its Subsidiaries seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future statute, law, or regulatio such action shall
not have been dismissed or all orders or proceedings thereunder affecting the
operations or the business of Company stayed, or if the stay of any such order
or proceeding shall thereafter be set aside, or if, within sixty (60) calendar
days after the appointment without the consent or acquiescence of Company or
such Subsidiary of any trustee, receiver, or liquidator of Company or any
Subsidiary or of all or any substantial part of the properties of Company or any
Subsidiary, such appointment shall not have been vacated; or
If a final judgment against which Company or any Subsidiary is
uninsured which, together with other like outstanding final judgments against
Company and any such Subsidiary, exceeds an aggregate of $100,000 shall be
rendered against Company or any Subsidiary and if, within sixty (60) calendar
days after entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal; or if, within sixty (60) calendar days
after the expiration of any such stay, such judgment shall not have been
discharged;
then the holders of not less than fifty percent (50%) of the principal amount of
outstanding Debentures may at any time at their option, by written notice or
notices to Company in accordance with Sections 3.1.12 and
<PAGE> 20
3.1.13 of the Agreement, declare all the principal amount of all the Debentures
to be immediately due and payable, whereupon the same shall forthwith mature and
become due and payable together with interest accrued and compounded thereon
without presentment, demand, protest or notice, all of which are hereby waived.
Remedies of Default. In case any one or more Events of Default shall
occur and be continuing, the holders of not less than fifty percent (50%) of the
principal amount of outstanding Debentures may proceed to protect and enforce
the rights of such holders by an action at law, suit in equity, or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in the Agreement, or for an injunction against a violation
of any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. In case of an Event of Default, Company
will pay to the holders thereof such further amount as shall be sufficient to
cover the reasonable cost and expenses of collection, including (without
limitation) reasonable professional and attorneys' fees, expenses, and
disbursements. If the Debenture Holders as provided hereunder shall give any
notice or take any other action in respect of a claimed Event of Default,
Company shall, in accordance with Section 3.1.14 of the Agreement, forthwith
give written notice thereof to all other Debenture Holders of record at the time
outstanding describing the notice or action and the nature of the claimed
default. No course of dealing and no delay on the part of any Debenture Holder
in exercising any right, power, or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers and remedies. No right, power,
or remedy conferred hereby or by any Debenture upon any Debenture Holder shall
be exclusive of any other right, power, or remedy referred to herein or therein
or now or hereafter available by law, in equity, by statute or otherwise.
Election of a Majority of Directors Upon Default. If an Event of
Default shall have been declared and there shall be at least $5 million of
Debentures then outstanding, at the next meeting of Company's shareholders for
the election of directors as provided in subsection (c) of this Paragraph 14
(unless at the time of that meeting all arrears shall have been paid and the
principal and interest payment next due shall have been set aside or paid and no
other Event of Default shall be existing and unremedied), the Debenture Holders,
voting as a class, shall be entitled to elect the smallest number of directors
necessary to ensure that the Debenture Holder Designees (as defined below) plus
the directors elected under this Paragraph 14 constitute a majority of the
authorized number of directors on the Company's Board (the "Post-Default
Directors") and the holders of the remaining voting rights of Company shall be
entitled, voting as a class, to elect the balance of the members of the
Company's Board. So long as the Debenture Holders have the right to elect
additional directors as provided hereunder, the directors elected by the
Debenture Holders under this Paragraph 14 shall be subject to removal only by
the required vote of the holders of the then outstanding Debentures. When all
the principal and interest payments in arrears have been paid or set apart for
payment or other Event of Default not requiring payment shall have been cured,
the rights of the Debenture Holders to vote as provided in this Paragraph 14
shall cease, subject to renewal from time to time on the same terms and
conditions as set forth in this Paragraph 14. The Post-Default Directors will
use their best efforts, and will cause Company and its officers to use their
respective best efforts, to cure any Event of Default.
Rights to vote pursuant to this Paragraph 14 shall be exercisable only
by the Debenture Holders in whose name such Debentures are registered in the
Company Register on the record date for any such meeting established pursuant to
applicable law. If the Debenture Holders are entitl to exercise voting rights
pursuant to this Paragraph 14, each Debenture Holder shall, for the purposes of
the class vote under this Paragraph 14, be entitled to the number of votes equal
to the number of shares of Common Stock into which each Debenture held by such
Debenture Holder could be converted. Each such Debenture Holder shall be
entitled to receive all notices from Company as fully as though a shareholder of
Company. At the meeting so called or at any annual meeting held while the
Debenture Holders have the voting rights provided under this Paragraph 14, the
holders of a majority of the then outstanding principal amount of Debentures
entitled to vote, present, in person or by proxy, shall be sufficient to
constitute a quorum for the election of the majority of the directors as
provided in this Paragraph 14.
<PAGE> 21
At any time after the voting power to elect a majority of the
Company's Board shall have become vested in the Debenture Holders as provided in
this Paragraph 14, the Secretary of Company shall, upon the request of the
record holders of at least fifty percent (50%) of the then outstanding principal
amount of Debentures, call a special meeting of the Company's shareholders for
the election of directors, to be held at the place and on the notice provided in
the Bylaws of Company for the holding of annual meetings. If notice of the
requested meeting is not given within twenty (20) calendar days after receipt of
the request for the meeting, then a person designated by the holders of at least
fifty percent (50%) of the amount of the principal amount of the then
outstanding Debentures may call such a special meeting at the place on the
notice above provided, and for that purpose shall have access to the stock books
of Company. At any meeting so called or at any annual meeting held while the
Debenture Holders have the voting power to elect a majority of the Company's
Board, the holders of a majority of the then outstanding principal amount of
Debentures, present in person or by proxy, shall constitute a quorum for the
election of directors as provided in this Paragraph 14. The terms of office of
all Independent Directors (as hereinafter defined) who are directors of Company
at the time of the meeting shall terminate on the election at the meeting by the
Debenture Holders of the number of the directors such Debenture Holders are
entitled to elect, and the persons so elected as directors by the Debenture
Holders, together with the persons, if any, elected as directors by the holders
of the Common Stock, shall constitute the duly elected directors of Company. In
the event the holders of the Common Stock fail to elect the number of directors
that they are entitled to elect at the meeting, the resulting vacancies may be
filled by the directors who are elected.
Whenever the voting rights of the Debenture Holders shall cease as
provided in this Paragraph 14, the term of office of all persons who are at the
time directors of Company and who were elected solely under this Paragraph 14 to
constitute a majority of the Company's Board as provided herein shall terminate
on election of their successors by the holders of the Common Stock.
Right to Transfer. Notwithstanding anything contained in the Agreement
to the contrary, the Debentures may be pledged, together with the rights of
Investor, in whole or in part, to any bank, savings and loan association or
other institutional lender unaffiliated with Investor (in each case, an
"Institutional Lender") as collateral to secure a bona fide loan from such
Institutional Lender, and may be transferred to such Institutional Lender upon
the foreclosure of the security interest created by such pledge, provided that
such pledge or transfer (in each case, an "Institutional Transfer"), as the case
may be, is in compliance with the Securities Act, the Trust Indenture Act of
1939 (the "Trust Indenture Act") and any applicable state securities and
insurance laws.
Except as otherwise set forth below, the Debentures may also be
pledged, assigned, sold or otherwise transferred in whole or in part (in each
case, a "Transfer") to any other "Person" or "Persons" (as hereinafter defined),
on the condition that such Transfer is in compliance with t Securities Act, the
Trust Indenture Act and any applicable state securities and insurance laws;
provided, however, that except as to the pledge of Securities to an
Institutional Lender, Investor may not transfer in one or more transactions more
than $1,500,000.00 of face value of Debentures to any one person other than
Investor Controlled Affiliates (as hereinafter defined) without the prior
written approval of a majority of the Independent Directors (as hereinafter
defined). Such limitation shall not, however, apply to the sale of any
Debentures registered pursuant to Sections 4.1 or 4.2 of the Agreement. With
respect to any transfer effected pursuant to this Paragraph 15, all terms and
provisions contained herein and in the Agreement shall be binding upon and inure
to the benefit of such transferees.
With respect to any offer, sale or other disposition of any Debentures
or any Common Stock acquired on conversion of any Debentures which have not been
registered pursuant to Article 4 of the Agreement, the holder thereof will give
written notice to Company prior to any such offer sale or other disposition
describing briefly the manner thereof (the "Transfer Notice"), together, if
requested by Company, with a written opinion of such holder's counsel, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification under any federal or state law in effect. Within
fifteen (15) calendar days after receiving a Transfer Notice (the "Notice
Period") and reasonably satisfactory opinion, if so requested, Company shall
notify such holder that such holder may offer, sell or
<PAGE> 22
otherwise dispose of the Debentures or any Common Stock acquired on conversion
of any Debentures, all in accordance with the terms of the Transfer Notice
delivered to Company. Such transfer must be effected within ninety (90) calendar
days following the holder's receipt of written consent from Company with respect
to such transfer. If Company determines that the opinion of counsel for the
Holder is not reasonably satisfactory to Company, Company shall so notify the
Holder within the Notice Period that such determination has been made. Each of
the Debentures and Common Stock into which such Debentures may be converted thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act and the
Trust Indenture Act, unless, in the opinion of counsel for Company, it is
determined that such legend is not required in order to ensure compliance and
Company may issue stop transfer instructions to its transfer agent in connection
with such restriction. In the event that Company fails to respond to a Transfer
Notice prior to the expiration of the Notice Period, Holder may sell or
otherwise transfer the Debentures or any Common Stock acquired on conversion of
any Debentures in the manner described in such Transfer Notice; provided,
however, that such transfer is effected within ninety (90) days following the
Notice Period.
The following terms shall be defined as follows: "Person" or "Persons"
means and includes natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, busin trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof; "Investor Controlled Affiliates" shall be any
trusts, corporations, associations, limited partnerships, general partnerships
or other business entities in which more than fifty percent (50%) of the stock
of each class having ordinary voting power or beneficial or other ownership
interest, as appropriate, shall, at the time as of which any determination is
being made, be owned or controlled, directly or indirectly by Investor or any
general or limited partner of Investor, or as to which Investor or any general
or limited partner of Investor is an "affiliate," as such term is defined under
Rule 405 promulgated under the Securities Act and the regulations, rulings and
decisions promulgated thereunder; and the "Independent Directors" are those
members of the Company's Board other than (1) the Debenture Holder Designees,
(2) any member of the Company's Board who is nominated by Investor and elected
by the Company's shareholders, (3) any affiliate (as defined pursuant to the
Securities Act) of Investor, and (4) any officer or employee of Company;
provided, however, nothing contained herein shall be construed to require that
the Company's Board be comprised of any Independent Directors. Notwithstanding
the right of Investor to transfer in one or more transactions Debentures to
Investor Controlled Affiliates, so long as Carl Strunk is an officer or director
of Company or Assurance Company, and is a director or officer of Fidelity
National Financial, Inc., or any of its subsidiaries or affiliates, then
Investor may not transfer in one or more transactions more than $1,500,000.00 of
face value Debentures to Fidelity National Financial, Inc., or any of its
subsidiaries or affiliates.
Registration. Company may deem and treat each registered holder of a
Debenture Certificate (each, a "Debenture Holder" and collectively, the
"Debenture Holders") as the absolute owner thereof (notwithstanding any notation
of ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof, any distribution to the Debenture Holder or any other
purposes. Company shall keep at its principal office a register in which,
subject to such reasonable regulations as it may prescribe, but at its expense
(other than transfer taxes, if any), Company shall provide for the prompt
registration, transfer and conversion of any Debentures (the "Company
Register").
Mechanics of Transfer. Company shall promptly register any permitted
transfer of record ownership of any outstanding Debenture Certificates on the
Company Register upon surrender thereof accompanied, if so required by Company,
by a written instrument or instruments of transfer duly executed by a Debenture
Holder or by its duly authorized attorney. Upon a proper registration of
transfer, a new Debenture Certificate shall be issued to the transferee and the
surrendered Debenture Certificate shall be cancelled by Company; provided,
however, in the event of a partial transfer, Company shall promptly issue to the
transferor a new Certificate representing the retained portion of the
transferor's Debentures and in connection with any transfer permitted under this
subsection, the transferor can require Company to reissue the Debenture
Certificates in amounts which are multiples of $10,000.00, but no fractional
amounts;
<PAGE> 23
notwithstanding anything contained in this Certificate to the contrary,
Debenture Certificates may not be issued or transferred in denominations of less
than $1,500,000.00 principal amount except to Investor or Investor Controlled
Affiliates, or after obtaining appropriate permits from the California
Department of Corporations.
Voting Rights. With respect to matters other than the
designation and election of members to the Company's Board of Directors, the
Debenture Holders shall have voting rights with respect to each Debenture equal
to the number of shares into which such Debenture is convertible. Such voting
rights shall extend only to the following matters, when submitted for approval
of the Company's shareholders or when written consent of the Company's
shareholders is sought:
(a) The amendment of the Company's Certificate of Incorporation;
(b) The sale or transfer of all or substantially all of Company's
assets;
(c) The consolidation, reorganization, reclassification,
recapitalization, transfer, consolidation, merger,
dissolution, liquidation, or winding-up of Company;
(d) Changes in the Company's authorized capital stock; and
(e) Changes in the number of individuals constituting the
Company's Board to a number other seven (7).
The matters set forth above shall require the affirmative vote of the
holders of at least seventy percent (70%) in the aggregate of (i) the issued and
outstanding shares of Common Stock and (ii) the number of shares of Common Stock
into which the then outstanding Debentures may be converted, voting together.
Each Debenture Holder shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such Debenture could be converted
and shall have voting rights and powers equal to the voting rights and powers of
Common Stock solely as to the matters set forth in items (a) through (e) above.
Designation of Directors. The Debenture Holders shall, as a class, have
the right to designate a number of individuals (the "Debenture Holder
Designees") as members of the Company's Board determined as follows:
(a) If the principal amount of the outstanding Debentures is $10
million or more, three (3) designees;
(b) If the principal amount of the outstanding Debentures is $5
million or more but less than $10 million, two (2) designees;
and
(c) If the principal amount of the outstanding Debentures is less
than $5 million, the then remaining Debenture Holders shall
not be entitled to designate any directors.
If a Debenture Holder Designee shall cease for any reason to be director
of Company prior to the expiration of his or her term of office, an individual
designated by the then remaining Debenture Holder Designees shall be appointed
or elected to fill the resulting vacancy on the Company's Board.
Effect of Reclassifications. In case of any reclassification or change
of outstanding shares of Common Stock issuable upon conversion of any Debentures
(other than a change in par value, or from par value to no par value, or from no
par value to par value), or in case of any sale or conveyance to another
corporation of all or substantially all the assets of Company (all of which
transactions are subject to the approvals specified in Section 3.2.3 of the
Agreement), the Debenture Holders shall have the right thereafter to convert the
Debentures into the kind and amount of shares of stock and other securities and
<PAGE> 24
property receivable upon such reclassification, change, sale or conveyance by a
holder of the number of shares of Common Stock of Company into which the
Debentures might have been converted immediately prior to such reclassification,
change, sale or conveyance. This Paragraph 20 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive sales or conveyances.
IN WITNESS WHEREOF, Company has caused this Debenture to be signed and
sealed by the person named below thereunto duly authorized on August 16, 1994.
COMPANY:PAC RIM HOLDING CORPORATION
By: /s/ STANLEY BRAUN
---------------------------
Its: CEO
---------------------------
[SEAL] By: /s/ HARVEY BURNS
---------------------
Its: Secretary
--------------------------
<PAGE> 25
PAC RIM HOLDING CORPORATION
(Formed Under the Laws of the State of Delaware)
COMMON STOCK SERIES 1 DETACHABLE WARRANT CERTIFICATE
Date of Issuance: August 16, 1994
Number of Warrant Shares Subject
to this Certificate on the Date
of Issuance: 1,350,000
Registered Holder: PRAC Ltd.
Void After 5:00 p.m., August 15, 1999
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS AND, IF NECESSARY, RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO PAC RIM HOLDING CORPORATION THAT
REGISTRATION IS NOT REQUIRED.
SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS
SPECIFIED IN THAT CERTAIN "AGREEMENT TO PURCHASE SERIES A CONVERTIBLE DEBENTURES
AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS" DATED AS OF APRIL 15, 1994, BETWEEN
PAC RIM HOLDING CORPORATION AND PRAC LTD. (THE "AGREEMENT"), A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE OF PAC RIM
HOLDING CORPORATION AND A CONFORMED COPY OF WHICH WILL BE FURNISHED TO THE
HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE. NO TRANSFER
OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL THE CONDITIONS
SO SPECIFIED SHALL HAVE BEEN COMPLIED WITH.
FOR VALUE RECEIVED, Pac Rim Holding Corporation, a Delaware corporation
(the "Company"), hereby certifies that PRAC Ltd., a Nevada limited partnership
("Investor"), or any registered assignee of Investor, is the registered holder
(the "Holder") of One Million Three Hundred Fifty Thousand (1,350,000) Series 1
Warrants (the "Warrants") to purchase from the Company One Million Three Hundred
Fifty Thousand (1,350,000) newly issued shares of Common Stock of the Company
(each, a "Share" and collectively, the "Shares").
The Warrants evidenced by this Certificate are part of a duly
authorized issue of Series 1 Warrants to purchase One Million Five Hundred
Thousand (1,500,000) newly issued Shares and a simultaneous issue of (i) TWENTY
MILLION AND NO/100 DOLLARS ($20,000,000.00) aggregate amount of the Company's
eight percent (8%) Series A Convertible Debentures which are convertible into
shares of Company's $0.01 par value common stock (the "Series A Debentures"),
(ii) Series 2 Warrants to purchase One Million Five Hundred Thousand (1,500,000)
newly issued shares of common stock of the Company, and (iii) Series 3 Warrants
to purchase Eight Hundred Thousand (800,000) newly issued shares of common stock
of the Company pursuant to the Agreement.
The Agreement is incorporated in this Certificate by this reference and
must be referred to for a complete description of the rights, obligations and
duties of the Company and the Holders of the Warrants
<PAGE> 26
issued pursuant to the Agreement. In the event of any conflict between the terms
of this Certificate and the terms of the Agreement, the terms of the Agreement
will control. Capitalized terms not defined in this Certificate will have the
meanings assigned to them under the Agreement.
Exercise of Warrants. (a) On or before 5:00 p.m. on August 15, 1999,
the Holder shall have the right to purchase from Company one (1) fully paid and
nonassessable Share for each Warrant at the exercise price of $2.50 per Share,
subject to the adjustment of the exercise price provided in Schedule 3.3.2(d)
attached to the Agreement (the "Exercise Price"), upon surrender to Company at
its principal office of this Certificate evidencing such Warrants, with the form
of election to purchase attached hereto completed and signed (specifying the
number of Shares for which the Warrant is exercisable), and upon payment to
Company of the Exercise Price in cash, lawful currency of the United States of
America.
(b) The Warrants represented by this Certificate shall be
exercisable, at the election of the Holder, either in their entirety or from
time to time for part only of the number of Warrants specified in this
Certificate and in the notice with respect to the exercise thereof. If less than
all of the Warrants evidenced by this Certificate are exercised at any time
prior to the Maturity Date, a new Certificate or Certificates, as the case may
be, shall promptly be issued for the balance of the Warrants not so exercised,
but no fractional numbers. All Certificates surrendered upon exercise of
Warrants shall be cancelled by Company.
(c) Upon surrender of any Certificate and payment of the
Exercise Price, Company shall promptly issue and cause to be delivered to, or
upon the written order of, the Holder, and in such name or names as the Holder
may designate, a certificate or other document representing the Share or Shares
issuable upon the exercise of the Warrants evidenced by this Certificate. The
certificate representing the Shares shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Shares as of the date of the surrender of any Certificate and
payment of the Exercise Price.
Right to Transfer. Notwithstanding anything contained in the
Agreement or this Certificate to the contrary, the Warrants represented by this
Certificate may be pledged, together with the rights of the Investor, in whole
or in part, to any bank, savings and loan association or other institutional
lender unaffiliated with Investor (in each case, an "Institutional Lender") as
collateral to secure a bona fide loan from such Institutional Lender, and may be
transferred to such Institutional Lender upon the foreclosure of the security
interest created by such pledge, provided that such pledge or transfer (in each
case, an "Institutional Transfer"), as the case may be, is in compliance with
the Securities Act and any applicable state securities and insurance laws.
Except as otherwise set forth below, the Warrants represented
by this Certificate may also be pledged, assigned, sold or otherwise transferred
in whole or in part (in each case, a "Transfer") to any other "Person" or
"Persons" (as hereinafter defined), on the condition that such Transfer is in
compliance with the Securities Act and any applicable state securities and
insurance laws. With respect to any Transfer effected pursuant to this Paragraph
2 and Section 3.1.2(b) of the Agreement, all terms and provisions of the
Agreement shall be binding upon and inure to the benefit of such transferees.
With respect to any offer, sale or other disposition of any
Warrants or any Shares acquired on exercise of any Warrants which have not been
registered pursuant to Article 4 of the Agreement, the Holder will give written
notice to Company prior to any such offer, sale or other disposition describing
briefly the manner thereof (the "Transfer Notice"), together, if requested by
Company, with a written opinion of such Holder's counsel, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification under any federal or state law then in effect. Within fifteen (15)
days after receiving a Transfer Notice (the "Notice Period") and reasonably
satisfactory opinion, if so requested, Company shall notify such Holder that
such Holder may offer, sell or otherwise dispose of the Warrants or any Shares
acquired on exercise of any Warrants, all in accordance with the terms of the
Transfer Notice delivered to Company. Such transfer must be effected within
ninety
<PAGE> 27
(90) calendar days following the Holder's receipt of written consent from
Company with respect to such transfer. If Company has determined that the
opinion of counsel for the Holder is not reasonably satisfactory to Company,
Company shall so notify the Holder within the Notice Period that such
determination has been made. Each of the Warrants and Shares with respect to
which any Warrant may be exercised thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act unless, in the opinion of counsel for Company, it is
determined that such legend is not required in order to ensure compliance and
Company may issue stop transfer instructions to its transfer agent in connection
with such restriction. In the event that Company fails to respond to a Transfer
Notice prior to the expiration of the Notice Period, the Holder may sell or
otherwise transfer the Warrants or any Common Stock acquired as a consequence of
exercising any Warrants in the manner described in such Transfer Notice;
provided, however, that such transfer is effected within ninety (90) calendar
days following the expiration of the Notice Period.
The following terms shall be defined as follows: (i) "Person"
or "Persons" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof; and (ii) "Investor Controlled
Affiliates" shall be any trusts, corporations, associations, limited
partnerships, general partnerships or other business entities in which more than
fifty percent (50%) of the stock of each class having ordinary voting power or
beneficial or other ownership interest, as appropriate, shall, at the time as of
which any determination is being made, be owned or controlled, directly or
indirectly by Investor or any general or limited partner of Investor, or as to
which Investor or any general or limited partner of Investor is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act and
the regulations, rulings and decisions promulgated thereunder.
Company may deem and treat each registered Holder of a Warrant
Certificate as the absolute owner thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof, any distribution to the Holder, or any other purposes.
(f) Company shall promptly register any transfer of record
ownership of any outstanding Certificates on the Company Register upon surrender
thereof accompanied, if so required by Company, by a written instrument or
instruments of transfer duly executed by Holder or by its duly authorized
attorney. Upon a proper registration of transfer, a new Certificate shall be
issued to the transferee and the surrendered Certificate shall be cancelled by
Company; provided, however, in the event of a partial transfer, Company shall
promptly issue to the transferor a new Certificate representing the retained
portion of the transferor's Warrants and, in connection with any transfer
permitted under Section 3.1.2 of the Agreement, the transferor can require
Company to reissue the Certificates representing the Warrants for any number of
Warrants, but no fractional numbers.
Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of any Warrants. If the
exercise of any Warrants results in a fraction, an amount of money equal to such
fraction multiplied by the fair market value of one share of Common Stock on the
date on which such conversion or exercise is deemed made shall be paid to the
Holder otherwise entitled to such fraction.
Effect of Reclassifications. In case of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of any
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value), or in case of any sale or conveyance to
another corporation of all or substantially all the assets of Company, the
Holder shall have the right thereafter to exercise such Warrants to purchase the
kind and amount of shares of stock and other securities of Company and property
receivable upon such reclassification, change, sale or conveyance by a holder of
the number of Shares as to which such Warrants might have been exercised
immediately prior to such reclassification, change, sale or conveyance. This
Paragraph 4 shall similarly apply to successive reclassifications and changes
of shares of Common Stock and to successive sales or conveyances.
<PAGE> 28
Company to Reserve Stock. Company covenants that it will at all times
after the Date of Issuance hereof reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon conversion of any
Debentures or exercise of any Warrants, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures and
exercise of all outstanding Warrants. Company covenants that all shares of
Common Stock which shall be so issuable shall, when issued pursuant to and in
accordance with the terms of the Warrants and this Agreement, be duly and
validly issued and fully paid and nonassessable.
Exercise Price Adjustments.
(a) Adjustment for Stock Splits and Subdivisions. In the event
Company should at any time or from time to time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holders thereof to receive, directly or indirectly, additional shares of Common
Stock without payment of any consideration by such holder for the additional
shares of Common Stock, then, as of such record date, the Exercise Price shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon the exercise thereof shall be increased in proportion to such increase of
outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Common Stock then,
following the record date of such combination, the Exercise Price for any
Warrants shall be appropriately increased so that the number of shares of Common
Stock issuable on exercise thereof shall be decreased in proportion to such
decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that
Company shall be recapitalized, consolidated with or merged into any other
corporation, or shall sell or convey to any other corporation all or
substantially all of its property as an entirety, provision shall be made as
part of the terms of such recapitalization, consolidation, merger, sale or
conveyance so that any holder of Warrants may thereafter receive in lieu of the
Common Stock otherwise issuable upon exercise of any Warrants, the same kind and
amount of securities or assets as may be distributable upon such
recapitalization, consolidation, merger, sale or conveyance, with respect to the
Common Stock.
(d) Adjustments for Dividends. In the event that Company shall
at any time pay to the holders of Common Stock a dividend in Common Stock, the
closing price of the Common Stock prior to the occurrence of such event utilized
in the calculation of the Exercise Price upon the exercise of any Warrants shall
be proportionately decreased in order that they may be properly compared to
post-dividend closing prices in determining such exercise prices, effective
following the close of business on the record date for determination of the
holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any
time pay any dividend or make any other distribution on its Common Stock in
property, other than in cash or in Common Stock, then provision shall be made as
part of the terms of such dividend or distribution so that the holder of any
Warrants surrendered for exercise after the record date for determination of
holders of Common Stock entitled to such dividend or distribution shall be
entitled to receive the same kind and the same proportionate share of such
property which he would have been entitled to receive had such Warrants been
converted or exercised immediately prior to such record date.
(f) Adjustments. The adjustments referred to in this Paragraph
6 shall be made successively if more than one event listed herein shall occur.
<PAGE> 29
Taxes and Expenses on Conversion. The issuance of certificates for
Shares upon the exercise of any Warrants shall be made without charge to the
exercising Holder for any expense or tax (other than federal or state income
taxes) in respect of the issuance of such certificates, and such certificates
shall promptly be issued in the name of, or in such names as may be directed by,
the Holder.
Mutilated or Missing Certificates. Upon receipt by Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Warrant Certificate, and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and upon reimbursement to Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such Warrant Certificate, if mutilated, Company will promptly
make and deliver in lieu of such Warrant Certificates a new Warrant Certificate
of like tenor and representing the same number of Warrants.
The Warrants represented by this Certificate are detachable from
those certain Series A Debentures issued by the Company pursuant to the
Agreement.
IN WITNESS WHEREOF, PAC RIM HOLDING CORPORATION has caused this
Certificate to be signed by the person named below thereunto duly authorized on
August 16, 1994.
PAC RIM HOLDING CORPORATION
By: /s/ STANLEY BRAUN
---------------------------------
Title: CEO
[SEAL] By: /s/ HARVEY BURNS
---------------------------------
Title: Secretary
<PAGE> 30
EXERCISE OF WARRANT
___________________________, hereby irrevocably elects to exercise the
purchase rights represented by this Certificate with respect to the following
number of shares of common stock of PAC RIM HOLDING CORPORATION (the "Company"),
upon the terms and subject to the conditions specified in that certain Agreement
to Purchase Series A Convertible Debentures and Series 1, 2 and 3 Detachable
Warrants dated April 15, 1994 by and between Company and PRAC Ltd.:
Number of Shares _______________
Exercise Price $2.50 per Share*
Total Cost $______________
Dated: _____________, 1994 _________________________________
[Typed Name of Holder]
By: ______________________________
Title: ___________________________
* Subject to adjustment as provided in Schedule 3.3.2 to the Agreement.
<PAGE> 31
PAC RIM HOLDING CORPORATION
(Formed Under the Laws of the State of Delaware)
COMMON STOCK SERIES 2 DETACHABLE WARRANT CERTIFICATE
Date of Issuance: August 16, 1994
Number of Warrant Shares Subject
to this Certificate on the Date
of Issuance: 1,350,000
Registered Holder: PRAC Ltd.
Void After 5:00 p.m., August 15, 1999
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS AND, IF NECESSARY, RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO PAC RIM HOLDING CORPORATION THAT
REGISTRATION IS NOT REQUIRED.
SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS
SPECIFIED IN THAT CERTAIN "AGREEMENT TO PURCHASE SERIES A CONVERTIBLE DEBENTURES
AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS" DATED AS OF APRIL 15, 1994, BETWEEN
PAC RIM HOLDING CORPORATION AND PRAC, LTD, (THE "AGREEMENT"), A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE OF PAC RIM
HOLDING CORPORATION AND A CONFORMED COPY OF WHICH WILL BE FURNISHED TO THE
HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE. NO TRANSFER
OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL THE CONDITIONS
SO SPECIFIED SHALL HAVE BEEN COMPLIED WITH.
FOR VALUE RECEIVED, Pac Rim Holding Corporation, a Delaware corporation
(the "Company"), hereby certifies that PRAC Ltd., a Nevada limited partnership
("Investor"), or any registered assignee of Investor, is the registered holder
(the "Holder") of One Million Three Hundred Fifty Thousand (1,350,000) Series 2
Warrants (the "Warrants") to purchase from the Company One Million Three Hundred
Fifty Thousand (1,350,000) newly issued shares of Common Stock of the Company
(each, a "Share" and collectively, the "Shares").
The Warrants evidenced by this Certificate are part of a duly
authorized issue of Series 2 Warrants to purchase One Million Five Hundred
Thousand (1,500,000) newly issued Shares and a simultaneous issue of (i) TWENTY
MILLION AND NO/100 DOLLARS ($20,000,000.00) aggregate amount of the Company's
eight percent (8%) Series A Convertible Debentures which are convertible into
shares of Company's $0.01 par value common stock (the "Series A Debentures"),
(ii) Series 1 Warrants to purchase One Million Five Hundred Thousand (1,500,000)
newly issued shares of common stock of the Company, and (iii) Series 3 Warrants
to purchase Eight Hundred Thousand (800,000) newly issued shares of common stock
of the Company pursuant to the Agreement.
<PAGE> 32
The Agreement is incorporated in this Certificate by this reference and
must be referred to for a complete description of the rights, obligations and
duties of the Company and the Holders of the Warrants issued pursuant to the
Agreement. In the event of any conflict between the terms of this Certificate
and the terms of the Agreement, the terms of the Agreement will control.
Capitalized terms not defined in this Certificate will have the meanings
assigned to them under the Agreement.
Exercise of Warrants. (a) On or before 5:00 p.m. on August 15, 1999,
the Holder shall have the right to purchase from Company one (1) fully paid and
nonassessable Share for each Warrant at the exercise price of $3.00 per Share,
subject to the adjustment of the exercise price provided in Schedule 3.3.2(d)
attached to the Agreement (the "Exercise Price"), upon surrender to Company at
its principal office of this Certificate evidencing such Warrants, with the form
of election to purchase attached hereto completed and signed (specifying the
number of Shares for which the Warrant is exercisable), and upon payment to
Company of the Exercise Price in cash, lawful currency of the United States of
America.
(b) The Warrants represented by this Certificate shall be
exercisable, at the election of the Holder, either in their entirety or from
time to time for part only of the number of Warrants specified in this
Certificate and in the notice with respect to the exercise thereof. If less than
all of the Warrants evidenced by this Certificate are exercised at any time
prior to the Maturity Date, a new Certificate or Certificates, as the case may
be, shall promptly be issued for the balance of the Warrants not so exercised,
but no fractional numbers. All Certificates surrendered upon exercise of
Warrants shall be cancelled by Company.
(c) Upon surrender of any Certificate and payment of the
Exercise Price, Company shall promptly issue and cause to be delivered to, or
upon the written order of, the Holder, and in such name or names as the Holder
may designate, a certificate or other document representing the Share or Shares
issuable upon the exercise of the Warrants evidenced by this Certificate. The
certificate representing the Shares shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Shares as of the date of the surrender of any Certificate and
payment of the Exercise Price.
Right to Transfer. Notwithstanding anything contained in the
Agreement or this Certificate to the contrary, the Warrants represented by this
Certificate may be pledged, together with the rights of the Investor, in whole
or in part, to any bank, savings and loan association or other institutional
lender unaffiliated with Investor (in each case, an "Institutional Lender") as
collateral to secure a bona fide loan from such Institutional Lender, and may be
transferred to such Institutional Lender upon the foreclosure of the security
interest created by such pledge, provided that such pledge or transfer (in each
case, an "Institutional Transfer"), as the case may be, is in compliance with
the Securities Act and any applicable state securities and insurance laws.
Except as otherwise set forth below, the Warrants represented
by this Certificate may also be pledged, assigned, sold or otherwise transferred
in whole or in part (in each case, a "Transfer") to any other "Person" or
"Persons" (as hereinafter defined), on the condition that such Transfer is in
compliance with the Securities Act and any applicable state securities and
insurance laws. With respect to any Transfer effected pursuant to this Paragraph
2 and Section 3.1.2(b) of the Agreement, all terms and provisions of the
Agreement shall be binding upon and inure to the benefit of such transferees.
With respect to any offer, sale or other disposition of any
Warrants or any Shares acquired on exercise of any Warrants which have not been
registered pursuant to Article 4 of the Agreement, the Holder will give written
notice to Company prior to any such offer, sale or other disposition describing
briefly the manner thereof (the "Transfer Notice"), together, if requested by
Company, with a written opinion of such Holder's counsel, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification under any federal or state law then in effect. Within fifteen (15)
days after receiving a Transfer Notice (the "Notice Period") and reasonably
satisfactory opinion, if so requested, Company shall notify such Holder that
such Holder may offer, sell or
<PAGE> 33
otherwise dispose of the Warrants or any Shares acquired on exercise of any
Warrants, all in accordance with the terms of the Transfer Notice delivered to
Company. Such transfer must be effected within ninety (90) calendar days
following the Holder's receipt of written consent from Company with respect to
such transfer. If Company has determined that the opinion of counsel for the
Holder is not reasonably satisfactory to Company, Company shall so notify the
Holder within the Notice Period that such determination has been made. Each of
the Warrants and Shares with respect to which any Warrant may be exercised thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act unless, in
the opinion of counsel for Company, it is determined that such legend is not
required in order to ensure compliance and Company may issue stop transfer
instructions to its transfer agent in connection with such restriction. In the
event that Company fails to respond to a Transfer Notice prior to the expiration
of the Notice Period, the Holder may sell or otherwise transfer the Warrants or
any Common Stock acquired as a consequence of exercising any Warrants in the
manner described in such Transfer Notice; provided, however, that such transfer
is effected within ninety (90) calendar days following the expiration of the
Notice Period.
The following terms shall be defined as follows: (i) "Person"
or "Persons" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof; and (ii) "Investor Controlled
Affiliates" shall be any trusts, corporations, associations, limited
partnerships, general partnerships or other business entities in which more than
fifty percent (50%) of the stock of each class having ordinary voting power or
beneficial or other ownership interest, as appropriate, shall, at the time as of
which any determination is being made, be owned or controlled, directly or
indirectly by Investor or any general or limited partner of Investor, or as to
which Investor or any general or limited partner of Investor is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act and
the regulations, rulings and decisions promulgated thereunder.
Company may deem and treat each registered Holder of a Warrant
Certificate as the absolute owner thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof, any distribution to the Holder, or any other purposes.
(f) Company shall promptly register any transfer of record
ownership of any outstanding Certificates on the Company Register upon surrender
thereof accompanied, if so required by Company, by a written instrument or
instruments of transfer duly executed by Holder or by its duly authorized
attorney. Upon a proper registration of transfer, a new Certificate shall be
issued to the transferee and the surrendered Certificate shall be cancelled by
Company; provided, however, in the event of a partial transfer, Company shall
promptly issue to the transferor a new Certificate representing the retained
portion of the transferor's Warrants and, in connection with any transfer
permitted under Section 3.1.2 of the Agreement, the transferor can require
Company to reissue the Certificates representing the Warrants for any number of
Warrants, but no fractional numbers.
Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of any Warrants. If the
exercise of any Warrants results in a fraction, an amount of money equal to such
fraction multiplied by the fair market value of one share of Common Stock on the
date on which such conversion or exercise is deemed made shall be paid to the
Holder otherwise entitled to such fraction.
Effect of Reclassifications. In case of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of any
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value), or in case of any sale or conveyance to
another corporation of all or substantially all the assets of Company, the
Holder shall have the right thereafter to exercise such Warrants to purchase the
kind and amount of shares of stock and other securities of Company and property
receivable upon such reclassification, change, sale or conveyance by a holder of
the number of Shares as to which such Warrants might have been exercised
immediately prior to such reclassification,
<PAGE> 34
change, sale or conveyance. This Paragraph 4 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive sales
or conveyances.
Company to Reserve Stock. Company covenants that it will at all times
after the Date of Issuance hereof reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon conversion of any
Debentures or exercise of any Warrants, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures and
exercise of all outstanding Warrants. Company covenants that all shares of
Common Stock which shall be so issuable shall, when issued pursuant to and in
accordance with the terms of the Warrants and this Agreement, be duly and
validly issued and fully paid and nonassessable.
Exercise Price Adjustments.
(a) Adjustment for Stock Splits and Subdivisions. In the event
Company should at any time or from time to time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holders thereof to receive, directly or indirectly, additional shares of Common
Stock without payment of any consideration by such holder for the additional
shares of Common Stock, then, as of such record date, the Exercise Price shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon the exercise thereof shall be increased in proportion to such increase of
outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Common Stock then,
following the record date of such combination, the Exercise Price for any
Warrants shall be appropriately increased so that the number of shares of Common
Stock issuable on exercise thereof shall be decreased in proportion to such
decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that
Company shall be recapitalized, consolidated with or merged into any other
corporation, or shall sell or convey to any other corporation all or
substantially all of its property as an entirety, provision shall be made as
part of the terms of such recapitalization, consolidation, merger, sale or
conveyance so that any holder of Warrants may thereafter receive in lieu of the
Common Stock otherwise issuable upon exercise of any Warrants, the same kind and
amount of securities or assets as may be distributable upon such
recapitalization, consolidation, merger, sale or conveyance, with respect to the
Common Stock.
(d) Adjustments for Dividends. In the event that Company shall
at any time pay to the holders of Common Stock a dividend in Common Stock, the
closing price of the Common Stock prior to the occurrence of such event utilized
in the calculation of the Exercise Price upon the exercise of any Warrants shall
be proportionately decreased in order that they may be properly compared to
post-dividend closing prices in determining such exercise prices, effective
following the close of business on the record date for determination of the
holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any
time pay any dividend or make any other distribution on its Common Stock in
property, other than in cash or in Common Stock, then provision shall be made as
part of the terms of such dividend or distribution so that the holder of any
Warrants surrendered for exercise after the record date for determination of
holders of Common Stock entitled to such dividend or distribution shall be
entitled to receive the same kind and the same proportionate share of such
property which he would have been entitled to receive had such Warrants been
converted or exercised immediately prior to such record date.
(f) Adjustments. The adjustments referred to in this Paragraph
6 shall be made successively if more than one event listed herein shall occur.
<PAGE> 35
Taxes and Expenses on Conversion. The issuance of certificates for
Shares upon the exercise of any Warrants shall be made without charge to the
exercising Holder for any expense or tax (other than federal or state income
taxes) in respect of the issuance of such certificates, and such certificates
shall promptly be issued in the name of, or in such names as may be directed by,
the Holder.
Mutilated or Missing Certificates. Upon receipt by Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Warrant Certificate, and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and upon reimbursement to Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such Warrant Certificate, if mutilated, Company will promptly
make and deliver in lieu of such Warrant Certificates a new Warrant Certificate
of like tenor and representing the same number of Warrants.
The Warrants represented by this Certificate are detachable from
those certain Series A Debentures issued by the Company pursuant to the
Agreement.
IN WITNESS WHEREOF, PAC RIM HOLDING CORPORATION has caused this
Certificate to be signed by the person named below thereunto duly authorized on
August 16, 1994.
PAC RIM HOLDING CORPORATION
By: /s/ STANLEY BRAUN
----------------------------------------
Title: CEO
[SEAL] By: /s/ HARVEY BURNS
----------------------------------------
Title: Secretary
<PAGE> 36
EXERCISE OF WARRANT
___________________________, hereby irrevocably elects to exercise the
purchase rights represented by this Certificate with respect to the following
number of shares of common stock of PAC RIM HOLDING CORPORATION (the "Company"),
upon the terms and subject to the conditions specified in that certain Agreement
to Purchase Series A Convertible Debentures and Series 1, 2 and 3 Detachable
Warrants dated April 15, 1994 by and between Company and PRAC Ltd.:
Number of Shares _______________
Exercise Price $3.00 per Share*
Total Cost $______________
Dated: _____________, 1994 _________________________________
[Typed Name of Holder]
By: ______________________________
Title: ___________________________
* Subject to adjustment as provided in Schedule 3.3.2 to the Agreement.
<PAGE> 37
EXHIBIT A-2
ALLSTATE SECURITIES
-15-
<PAGE> 38
- -
No. 3 $2,000,000.00
PAC RIM HOLDING CORPORATION
(Formed Under the Laws of the State of Delaware)
8% SIMPLE ANNUAL INTEREST SERIES A CONVERTIBLE DEBENTURE
CERTIFICATE
Issue Date: August 16, 1994
Maturity Date: August 15, 1999
THE 8% SIMPLE INTEREST SERIES A CONVERTIBLE DEBENTURES (THE
"DEBENTURES") REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), THE TRUST INDENTURE
ACT OF 1939 OR APPLICABLE STATE SECURITIES LAWS. THE DEBENTURES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACTS AND APPLICABLE STATE
SECURITIES LAWS AND, IF NECESSARY, RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY
TO PAC RIM HOLDING CORPORATION THAT REGISTRATION IS NOT REQUIRED.
THE DEBENTURES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
EXCEPT UPON THE CONDITIONS SPECIFIED IN THAT CERTAIN "AGREEMENT TO PURCHASE
SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS" DATED
AS OF APRIL 15, 1994, BETWEEN PAC RIM HOLDING CORPORATION AND PRAC LTD.
("INVESTOR"), A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT THE OFFICE OF PAC RIM HOLDING CORPORATION AND A CONFORMED COPY OF WHICH WILL
BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT
CHARGE. NO TRANSFER OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND
UNTIL THE CONDITIONS SO SPECIFIED SHALL HAVE BEEN COMPLIED WITH.
Pac Rim Holding Corporation, a Delaware corporation ("Company"), is
indebted and, for value received, promises to pay to ALLSTATE INSURANCE COMPANY,
a corporation, or any registered assignee of this Debenture ("Holder"), the
principal amount of Two Million and no/100 Dollars ($2,000,000.00) in legal
tender of the United States of America on the Maturity Date at the principal
office of the Company (unless this Debenture has been duly called for redemption
and payment of the redemption price made or provided for).
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 8% Simple Annual Interest Series A Convertible
Debentures (the "Debentures"), limited in aggregate principal amount to Twenty
Million Dollars ($20,000,000), issued or to be issued pursuant to the terms of
that certain Agreement to Purchase Series A Convertible Debentures and Series 1,
2 and 3 Detachable Warrants dated as of April 15, 1994 between Company and
Investor (the "Agreement"). All rights, duties, and restrictions applicable to
the Debentures are governed by and subject to the terms of the Agreement.
Capitalized terms not defined herein shall have the same meaning as stated in
the Agreement. A conformed copy of the Agreement will be furnished to the Holder
upon written request and without charge. The terms of the Debentures as stated
in this Certificate shall be subject to and limited by the terms of the
Agreement. In the event any conflict exists between this Certificate and the
Agreement, the Agreement shall control.
<PAGE> 39
DEBENTURE TERMS
Maturity Date. August 15, 1999.
Interest Rate. The Debentures shall bear interest at a rate of eight
percent (8%) per annum simple interest. Interest on the amount of the Debentures
outstanding shall be computed on the basis of a 365-day or a 366-day year, as
the case may be, actual days elapsed, from the Closing Date until repayment.
Interest Payments. The first payment of interest on the outstanding
principal amount of the Debentures shall be due and payable in cash by Company
to the Holder in arrears on that date which is six (6) months following the
Closing Date and thereafter such interest shall be due and payable semiannually
in arrears, in each case payable to the Holder in cash at the address of the
Holder then on record with Company.
Mandatory Redemption. Company may not redeem any Debentures prior to
the Maturity Date. Company shall redeem the Debentures then outstanding on the
Maturity Date and all then outstanding principal and interest relating to such
Debentures shall immediately be due and payable to the Debenture Holders in cash
on that date.
Conversion Rights. At any time after the Closing Date, each Holder
shall have the right, at its option, at any time and from time to time prior to
the Maturity Date, to convert in increments of $1,000,000.00 or more, or if such
Holder owns less than $1,000,000.00 of Debentures, such lesser amount, subject
to the terms and provisions contained herein and in the Agreement, any portion
of the original principal amount of the Debentures (to the extent such
convertible portion has not been subject to mandatory conversion as set forth in
Paragraph 6 hereof and Section 3.2.5 of the Agreement) into shares of Common
Stock, at the rate of $2.75 of principal amount of Debentures per share of
Common Stock (the "Conversion Price"). Such conversion shall be effective upon
surrender of any of the Debenture Certificates, the principal of which is so to
be converted, to Company at its principal office at any time during usual
business hours, accompanied, if so required by Company, by a written instrument
or instruments of transfer in form satisfactory to Company duly executed by the
converting Holder of such Debentures or its attorney duly authorized in writing.
Mandatory Conversion. In the event that on any date subsequent to the
third anniversary of the Closing Date (the "Measurement Date") the Closing Sale
Price (as hereinafter defined) of the Common Stock on the NASDAQ National Market
or any exchange on which such shares are listed for trading shall be greater
than one hundred fifty percent (150%) of the Conversion Price for twenty (20)
out of the thirty (30) consecutive trading days immediately preceding the
Measurement Date, the then outstanding Debentures shall automatically be
converted at the Conversion Price into Common Stock and said Common Stock shall
promptly be issued and delivered to the Holder or Holders thereof in accordance
with Article 3 of the Agreement ("Automatic Conversion"). As used herein and in
the Agreement, the "Closing Sale Price" of any share of Common Stock shall be
(a) if the Common Stock is listed on an established stock exchange or exchanges,
the average of the closing bid and asked prices per share on such date on the
principal exchange on which it is traded, or if no sale was made on such date on
such principal exchange, at the closing reported bid price on such date on such
exchange, or (b) if the Common Stock is not then listed on an exchange, the last
reported sale price per share on such date reported by NASDAQ, or if sales are
not reported by NASDAQ or no sale was made on such date, the average of the
closing bid and asked prices per share for the Common Stock in the
over-the-counter market as quoted on NASDAQ on such date.
Issuance of Common Stock Upon Conversion. As promptly as practicable
after the surrender of any Debentures for conversion or Automatic Conversion,
Company shall issue and deliver or cause to be issued and delivered to or upon
the written order of the converting Holder certificates representing the number
of fully paid and nonassessable shares of Common Stock into which such
Debentures are
<PAGE> 40
converted in accordance with the provisions of Article 3 of the
Agreement, and if any principal amount of such Debenture remains unpaid after
such conversion, a new Debenture Certificate or Debenture Certificates dated the
date to which interest has been paid on the Debenture or Debentures surrendered
for conversion, in an aggregate principal amount equal to such unpaid principal
amount, and specifying the portion of such unpaid principal amount, if any,
which may be converted into Common Stock. Subject to the following provisions,
such conversion shall be deemed to have been made at the close of business on
the date that such Debentures shall have been surrendered for conversion or on
the date of Automatic Conversion, as the case may be, so that the rights of the
Holder with respect to the principal amount of the Debentures so converted shall
cease at such time and the Holder or Holders entitled to receive the shares of
Common Stock upon conversion of such Debentures shall be treated for all
purposes as having become the record holder or holders of such shares of Common
Stock at such time and such conversion shall be at the Conversion Price;
provided, however, that no such surrender or Automatic Conversion on any date
when the stock transfer books of Company shall be closed shall be effective to
constitute the person or persons entitled to receive the shares of Common Stock
upon such conversion, as the record holder or holders of such shares of Common
Stock on such date, but such surrender shall be effective to constitute the
person or persons entitled to receive such shares of Common Stock as the record
holder or holders thereof for all purposes at the close of business on the next
succeeding day on which such stock transfer books are open and such conversion
shall be at the Conversion Price in effect on the date that such Debentures
shall have been surrendered for conversion.
If the last day for the exercise of the conversion right shall be a
Sunday or shall be in California a legal holiday or a day on which banking
institutions are authorized by law to close, then such conversion right may be
exercised on the next succeeding day not in California a legal holiday or a day
on which banking institutions are authorized by law to close.
Conversion Price Adjustments.
(a) Adjustment for Stock Splits and Subdivisions. In the event
Company should at any time or from time to time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Com Stock entitled to
receive a dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the holders
thereof to receive directly or indirectly, additional shares of Common Stock
without payment of any consideration by such holder for the additional shares of
Common Stock, then, as of such record date, the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of any Debentures shall be increased in proportion to such
increase of outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Common Stock then,
following the record date of such combination, the Conversion Price for
Debentures shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion thereof shall be decreased in proportion to
such decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that Company
shall be recapitalized, consolidated with or merged into any other corporation,
or shall sell or convey to any other corporation all or substantially all of its
property as an entirety, provision shall be made as par of the terms of such
recapitalization, consolidation, merger, sale or conveyance so that any holder
of Debentures may thereafter receive in lieu of the Common Stock otherwise
issuable upon conversion of any Debentures the same kind and amount of
securities or assets as may be distributable upon such recapitalization,
consolidation, merger, sale or conveyance, with respect to the Common Stock.
(d) Adjustments for Dividends. In the event that Company shall
at any time pay to the holders of Common Stock a dividend in Common Stock, the
closing price of the Common Stock prior to the occurrence of such event utilized
in the calculation of the Conversion Price upon conversion of any
<PAGE> 41
Debentures shall be proportionately decreased in order that they may be properly
compared to post-dividend closing prices in determining the Conversion Price,
effective following the close of business on the record date for determination
of the holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any time
pay any dividend or make any other distribution on its Common Stock in property,
other than in cash or in Common Stock, then provision shall be made as part of
the terms of such dividend or distribution so that the holder of any Debentures
surrendered for conversion after the record date for determination of holders of
Common Stock entitled to such dividend or distribution shall be entitled to
receive the same kind and the same proportionate share of such property which he
would have been entitled to receive had such Debentures been converted
immediately prior to such record date.
(f) Adjustments. The adjustments referred to in this Paragraph 8
shall be made successively if more than one event listed herein shall occur.
Taxes and Expenses on Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of any Debentures shall be made
without charge to the converting Debenture Holder for any expense or tax (other
than federal or state income taxes) in respect of the issuance of such
certificates, and such certificates shall promptly be issued in the name of, or
in such names as may be directed by, the Debenture Holder.
Payment of Interest; Adjustment for Certain Dividends. Company shall
pay all interest on any Debentures or portion thereof surrendered for conversion
accrued to the date of such surrender or Automatic Conversion (the "Surrender
Date") except that, in the event that Company shall have declared prior to the
Surrender Date a cash dividend payable on its shares of Common Stock to holders
of record of such Common Stock on a date subsequent to the Surrender Date, such
payment of interest shall be adjusted downward to an amount (not less than zero)
determined by subtracting from the aggregate amount thereof an amount equal to
the aggregate dividends to be payable as of such record date on the shares of
Common Stock issuable upon conversion of such Debenture.
Mutilated or Missing Certificates. Upon receipt by Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Debenture Certificate, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Debenture Certificate, if mutilated, Company will promptly make and deliver
in lieu of such Debenture Certificate a new Debenture Certificate of like tenor,
dated the date to which interest has been paid on such lost, stolen, destroyed
or mutilated Debenture Certificate.
Events of Default and Acceleration. If any of the following events,
herein called "Events of Default," shall occur:
If Company shall default in the payment of any part of the
principal of the Debentures when the same shall have become due and payable at
maturity and such default shall not have been remedied within fifteen (15)
calendar days after written notice thereof shall have been given to Company by
the holders of not less than fifty percent (50%) of the principal amount of
outstanding Debentures;
If Company shall default in the payment of any installment of interest
on the Debentures and such default shall not have been remedied within fifteen
(15) calendar days after written notice thereof shall have been given to Company
by the holders of not less than fifty percent (50%) of the principal amount of
outstanding Debentures;
If Company shall default in the performance of or compliance with any
material term contained in Articles 12 (Post Closing Affirmative Covenants of
Company) or 13 (Negative Covenants of Company) of the Agreement, and such
default shall not have been remedied within twenty (20) calendar
<PAGE> 42
days after written notice thereof shall have been given to Company by the
holders of not less than fifty percent (50%) of the principal amount of
outstanding Debentures; provided, however, that any such default in performance
or compliance shall not constitute an Event of Default under the Agreement
unless such default or defaults (i) individually or in the aggregate represent a
Material Adverse Effect on Company and Assurance Company taken as a whole or the
Debenture Holders or (ii) is or are willful and intentional breaches of a
material matter;
If any representation or warranty of Company contained in the
Agreement shall prove to have been false or incorrect in any material respect on
the date as of which made; provided, however, that any inaccuracy of any
representation or warranty, on the Effective Date or on the Closi Date, shall
not constitute an Event of Default under the Agreement unless any such
inaccuracy or inaccuracies, either (i) individually or in the aggregate,
represent a Material Adverse Effect on Company and Assurance Company, taken as a
whole, or (ii) is or are willful and intentional misrepresentations of a
material matter that constitute fraud;
If Company or any Subsidiary shall default (as principal or
guarantor or other surety) in any payment of principal of, premium, if any, or
interest on, or any other payment of money due under, any other obligation for
borrowed money, in any single amount equal to or exceeding $25,000 or, with
respect to multiple obligations, in amounts which in the aggregate equal or
exceed $100,000 (including any obligation secured by purchase money mortgage),
beyond any period of grace provided with respect thereto, or in the performance
of any other agreement, term, or condition contained in any agreement under
which any such obligation is created if the effect of such default is to cause,
or permit the holder or holders of such obligation (or a trustee on behalf of
such holder or holders) to cause, such obligation to become due prior to its
stated maturity;
If Company or any Subsidiary shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
as they become due, or shall file a voluntary petition in bankruptcy, or shall
be adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future statute,
law, or regulation, or shall file any answer admitting or not contesting the
material allegations of a petition filed against Company or any of its
Subsidiaries in any such proceeding, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver, or liquidator of Company or any of its
Subsidiaries or of all or any substantial part of the property of Company or of
any Subsidiary;
If, within sixty (60) calendar days after the commencement of
an action against Company or any of its Subsidiaries seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future statute, law, or regulatio such action shall
not have been dismissed or all orders or proceedings thereunder affecting the
operations or the business of Company stayed, or if the stay of any such order
or proceeding shall thereafter be set aside, or if, within sixty (60) calendar
days after the appointment without the consent or acquiescence of Company or
such Subsidiary of any trustee, receiver, or liquidator of Company or any
Subsidiary or of all or any substantial part of the properties of Company or any
Subsidiary, such appointment shall not have been vacated; or
If a final judgment against which Company or any Subsidiary is
uninsured which, together with other like outstanding final judgments against
Company and any such Subsidiary, exceeds an aggregate of $100,000 shall be
rendered against Company or any Subsidiary and if, within sixty ( calendar days
after entry thereof, such judgment shall not have been discharged or execution
thereof stayed pending appeal; or if, within sixty (60) calendar days after the
expiration of any such stay, such judgment shall not have been discharged;
then the holders of not less than fifty percent (50%) of the principal amount of
outstanding Debentures may at any time at their option, by written notice or
notices to Company in accordance with Sections 3.1.12 and
<PAGE> 43
3.1.13 of the Agreement, declare all the principal amount of all the Debentures
to be immediately due and payable, whereupon the same shall forthwith mature and
become due and payable together with interest accrued and compounded thereon
without presentment, demand, protest or notice, all of which are hereby waived.
Remedies of Default. In case any one or more Events of Default shall
occur and be continuing, the holders of not less than fifty percent (50%) of the
principal amount of outstanding Debentures may proceed to protect and enforce
the rights of such holders by an action at law, suit in equity, or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in the Agreement, or for an injunction against a violation
of any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. In case of an Event of Default, Company
will pay to the holders thereof such further amount as shall be sufficient to
cover the reasonable cost and expenses of collection, including (without
limitation) reasonable professional and attorneys' fees, expenses, and
disbursements. If the Debenture Holders as provided hereunder shall give any
notice or take any other action in respect of a claimed Event of Default,
Company shall, in accordance with Section 3.1.14 of the Agreement, forthwith
give written notice thereof to all other Debenture Holders of record at the time
outstanding describing the notice or action and the nature of the claimed
default. No course of dealing and no delay on the part of any Debenture Holder
in exercising any right, power, or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers and remedies. No right, power,
or remedy conferred hereby or by any Debenture upon any Debenture Holder shall
be exclusive of any other right, power, or remedy referred to herein or therein
or now or hereafter available by law, in equity, by statute or otherwise.
Election of a Majority of Directors Upon Default. If an Event of
Default shall have been declared and there shall be at least $5 million of
Debentures then outstanding, at the next meeting of Company's shareholders for
the election of directors as provided in subsection (c) of this Paragraph 14
(unless at the time of that meeting all arrears shall have been paid and the
principal and interest payment next due shall have been set aside or paid and no
other Event of Default shall be existing and unremedied), the Debenture Holders,
voting as a class, shall be entitled to elect the smallest number of directors
necessary to ensure that the Debenture Holder Designees (as defined below) plus
the directors elected under this Paragraph 14 constitute a majority of the
authorized number of directors on the Company's Board (the "Post-Default
Directors") and the holders of the remaining voting rights of Company shall be
entitled, voting as a class, to elect the balance of the members of the
Company's Board. So long as the Debenture Holders have the right to elect
additional directors as provided hereunder, the directors elected by the
Debenture Holders under this Paragraph 14 shall be subject to removal only by
the required vote of the holders of the then outstanding Debentures. When all
the principal and interest payments in arrears have been paid or set apart for
payment or other Event of Default not requiring payment shall have been cured,
the rights of the Debenture Holders to vote as provided in this Paragraph 14
shall cease, subject to renewal from time to time on the same terms and
conditions as set forth in this Paragraph 14. The Post-Default Directors will
use their best efforts, and will cause Company and its officers to use their
respective best efforts, to cure any Event of Default.
Rights to vote pursuant to this Paragraph 14 shall be exercisable only
by the Debenture Holders in whose name such Debentures are registered in the
Company Register on the record date for any such meeting established pursuant to
applicable law. If the Debenture Holders are entitl to exercise voting rights
pursuant to this Paragraph 14, each Debenture Holder shall, for the purposes of
the class vote under this Paragraph 14, be entitled to the number of votes equal
to the number of shares of Common Stock into which each Debenture held by such
Debenture Holder could be converted. Each such Debenture Holder shall be
entitled to receive all notices from Company as fully as though a shareholder of
Company. At the meeting so called or at any annual meeting held while the
Debenture Holders have the voting rights provided under this Paragraph 14, the
holders of a majority of the then outstanding principal amount of Debentures
entitled to vote, present, in person or by proxy, shall be sufficient to
constitute a quorum for the election of the majority of the directors as
provided in this Paragraph 14.
<PAGE> 44
At any time after the voting power to elect a majority of the
Company's Board shall have become vested in the Debenture Holders as provided in
this Paragraph 14, the Secretary of Company shall, upon the request of the
record holders of at least fifty percent (50%) of the then outstanding principal
amount of Debentures, call a special meeting of the Company's shareholders for
the election of directors, to be held at the place and on the notice provided in
the Bylaws of Company for the holding of annual meetings. If notice of the
requested meeting is not given within twenty (20) calendar days after receipt of
the request for the meeting, then a person designated by the holders of at least
fifty percent (50%) of the amount of the principal amount of the then
outstanding Debentures may call such a special meeting at the place on the
notice above provided, and for that purpose shall have access to the stock books
of Company. At any meeting so called or at any annual meeting held while the
Debenture Holders have the voting power to elect a majority of the Company's
Board, the holders of a majority of the then outstanding principal amount of
Debentures, present in person or by proxy, shall constitute a quorum for the
election of directors as provided in this Paragraph 14. The terms of office of
all Independent Directors (as hereinafter defined) who are directors of Company
at the time of the meeting shall terminate on the election at the meeting by the
Debenture Holders of the number of the directors such Debenture Holders are
entitled to elect, and the persons so elected as directors by the Debenture
Holders, together with the persons, if any, elected as directors by the holders
of the Common Stock, shall constitute the duly elected directors of Company. In
the event the holders of the Common Stock fail to elect the number of directors
that they are entitled to elect at the meeting, the resulting vacancies may be
filled by the directors who are elected.
Whenever the voting rights of the Debenture Holders shall cease as
provided in this Paragraph 14, the term of office of all persons who are at the
time directors of Company and who were elected solely under this Paragraph 14 to
constitute a majority of the Company's Board as provided herein shall terminate
on election of their successors by the holders of the Common Stock.
Right to Transfer. Notwithstanding anything contained in the Agreement
to the contrary, the Debentures may be pledged, together with the rights of
Investor, in whole or in part, to any bank, savings and loan association or
other institutional lender unaffiliated with Investor (in each case, an
"Institutional Lender") as collateral to secure a bona fide loan from such
Institutional Lender, and may be transferred to such Institutional Lender upon
the foreclosure of the security interest created by such pledge, provided that
such pledge or transfer (in each case, an "Institutional Transfer"), as the case
may be, is in compliance with the Securities Act, the Trust Indenture Act of
1939 (the "Trust Indenture Act") and any applicable state securities and
insurance laws.
Except as otherwise set forth below, the Debentures may also be
pledged, assigned, sold or otherwise transferred in whole or in part (in each
case, a "Transfer") to any other "Person" or "Persons" (as hereinafter defined),
on the condition that such Transfer is in compliance with t Securities Act, the
Trust Indenture Act and any applicable state securities and insurance laws;
provided, however, that except as to the pledge of Securities to an
Institutional Lender, Investor may not transfer in one or more transactions more
than $1,500,000.00 of face value of Debentures to any one person other than
Investor Controlled Affiliates (as hereinafter defined) without the prior
written approval of a majority of the Independent Directors (as hereinafter
defined). Such limitation shall not, however, apply to the sale of any
Debentures registered pursuant to Sections 4.1 or 4.2 of the Agreement. With
respect to any transfer effected pursuant to this Paragraph 15, all terms and
provisions contained herein and in the Agreement shall be binding upon and inure
to the benefit of such transferees.
With respect to any offer, sale or other disposition of any Debentures
or any Common Stock acquired on conversion of any Debentures which have not been
registered pursuant to Article 4 of the Agreement, the holder thereof will give
written notice to Company prior to any such offer sale or other disposition
describing briefly the manner thereof (the "Transfer Notice"), together, if
requested by Company, with a written opinion of such holder's counsel, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification under any federal or state law in effect. Within
fifteen (15) calendar days after receiving a Transfer Notice (the "Notice
Period") and reasonably satisfactory opinion, if so requested, Company shall
notify such holder that such holder may offer, sell or
<PAGE> 45
otherwise dispose of the Debentures or any Common Stock acquired on conversion
of any Debentures, all in accordance with the terms of the Transfer Notice
delivered to Company. Such transfer must be effected within ninety (90) calendar
days following the holder's receipt of written consent from Company with respect
to such transfer. If Company determines that the opinion of counsel for the
Holder is not reasonably satisfactory to Company, Company shall so notify the
Holder within the Notice Period that such determination has been made. Each of
the Debentures and Common Stock into which such Debentures may be converted thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act and the
Trust Indenture Act, unless, in the opinion of counsel for Company, it is
determined that such legend is not required in order to ensure compliance and
Company may issue stop transfer instructions to its transfer agent in connection
with such restriction. In the event that Company fails to respond to a Transfer
Notice prior to the expiration of the Notice Period, Holder may sell or
otherwise transfer the Debentures or any Common Stock acquired on conversion of
any Debentures in the manner described in such Transfer Notice; provided,
however, that such transfer is effected within ninety (90) days following the
Notice Period.
The following terms shall be defined as follows: "Person" or
"Persons" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, busin
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof; "Investor Controlled
Affiliates" shall be any trusts, corporations, associations, limited
partnerships, general partnerships or other business entities in which more than
fifty percent (50%) of the stock of each class having ordinary voting power or
beneficial or other ownership interest, as appropriate, shall, at the time as of
which any determination is being made, be owned or controlled, directly or
indirectly by Investor or any general or limited partner of Investor, or as to
which Investor or any general or limited partner of Investor is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act and
the regulations, rulings and decisions promulgated thereunder; and the
"Independent Directors" are those members of the Company's Board other than (1)
the Debenture Holder Designees, (2) any member of the Company's Board who is
nominated by Investor and elected by the Company's shareholders, (3) any
affiliate (as defined pursuant to the Securities Act) of Investor, and (4) any
officer or employee of Company; provided, however, nothing contained herein
shall be construed to require that the Company's Board be comprised of any
Independent Directors. Notwithstanding the right of Investor to transfer in one
or more transactions Debentures to Investor Controlled Affiliates, so long as
Carl Strunk is an officer or director of Company or Assurance Company, and is a
director or officer of Fidelity National Financial, Inc., or any of its
subsidiaries or affiliates, then Investor may not transfer in one or more
transactions more than $1,500,000.00 of face value Debentures to Fidelity
National Financial, Inc., or any of its subsidiaries or affiliates.
Registration. Company may deem and treat each registered
holder of a Debenture Certificate (each, a "Debenture Holder" and collectively,
the "Debenture Holders") as the absolute owner thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone) for the purpose
of any exercise thereof, any distribution to the Debenture Holder or any other
purposes. Company shall keep at its principal office a register in which,
subject to such reasonable regulations as it may prescribe, but at its expense
(other than transfer taxes, if any), Company shall provide for the prompt
registration, transfer and conversion of any Debentures (the "Company
Register").
Mechanics of Transfer. Company shall promptly register any
permitted transfer of record ownership of any outstanding Debenture Certificates
on the Company Register upon surrender thereof accompanied, if so required by
Company, by a written instrument or instruments of transfer duly executed by a
Debenture Holder or by its duly authorized attorney. Upon a proper registration
of transfer, a new Debenture Certificate shall be issued to the transferee and
the surrendered Debenture Certificate shall be cancelled by Company; provided,
however, in the event of a partial transfer, Company shall promptly issue to the
transferor a new Certificate representing the retained portion of the
transferor's Debentures and in connection with any transfer permitted under this
subsection, the transferor can require Company to reissue the Debenture
Certificates in amounts which are multiples of $10,000.00, but no fractional
amounts;
<PAGE> 46
notwithstanding anything contained in this Certificate to the contrary,
Debenture Certificates may not be issued or transferred in denominations of less
than $1,500,000.00 principal amount except to Investor or Investor Controlled
Affiliates, or after obtaining appropriate permits from the California
Department of Corporations.
Voting Rights. With respect to matters other than the designation
and election of members to the Company's Board of Directors, the Debenture
Holders shall have voting rights with respect to each Debenture equal to the
number of shares into which such Debenture is convertible. Such voting rights
shall extend only to the following matters, when submitted for approval of the
Company's shareholders or when written consent of the Company's shareholders is
sought:
(a) The amendment of the Company's Certificate of Incorporation;
(b) The sale or transfer of all or substantially all of Company's
assets;
(c) The consolidation, reorganization, reclassification,
recapitalization, transfer, consolidation, merger,
dissolution, liquidation, or winding-up of Company;
(d) Changes in the Company's authorized capital stock; and
(e) Changes in the number of individuals constituting the
Company's Board to a number other seven (7).
The matters set forth above shall require the affirmative vote of the
holders of at least seventy percent (70%) in the aggregate of (i) the issued and
outstanding shares of Common Stock and (ii) the number of shares of Common Stock
into which the then outstanding Debentures may be converted, voting together.
Each Debenture Holder shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such Debenture could be converted
and shall have voting rights and powers equal to the voting rights and powers of
Common Stock solely as to the matters set forth in items (a) through (e) above.
Designation of Directors. The Debenture Holders shall, as a class, have
the right to designate a number of individuals (the "Debenture Holder
Designees") as members of the Company's Board determined as follows:
(a) If the principal amount of the outstanding Debentures is $10
million or more, three (3) designees;
(b) If the principal amount of the outstanding Debentures is $5
million or more but less than $10 million, two (2) designees;
and
(c) If the principal amount of the outstanding Debentures is less
than $5 million, the then remaining Debenture Holders shall
not be entitled to designate any directors.
If a Debenture Holder Designee shall cease for any reason to be director
of Company prior to the expiration of his or her term of office, an individual
designated by the then remaining Debenture Holder Designees shall be appointed
or elected to fill the resulting vacancy on the Company's Board.
Effect of Reclassifications. In case of any reclassification or change
of outstanding shares of Common Stock issuable upon conversion of any Debentures
(other than a change in par value, or from par value to no par value, or from no
par value to par value), or in case of any sale or conveyance to another
corporation of all or substantially all the assets of Company (all of which
transactions are subject to the approvals specified in Section 3.2.3 of the
Agreement), the Debenture Holders shall have the right thereafter to convert the
Debentures into the kind and amount of shares of stock and other securities and
<PAGE> 47
property receivable upon such reclassification, change, sale or conveyance by a
holder of the number of shares of Common Stock of Company into which the
Debentures might have been converted immediately prior to such reclassification,
change, sale or conveyance. This Paragraph 20 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive sales or conveyances.
IN WITNESS WHEREOF, Company has caused this Debenture to be signed and
sealed by the person named below thereunto duly authorized on August 16, 1994.
COMPANY:PAC RIM HOLDING CORPORATION
By: /s/ STANLEY BRAUN
_____________________________
Its: CEO
_____________________________
[SEAL]By: /s/ HARVEY BURNS
_______________________
Its: Secretary
____________________________
<PAGE> 48
PAC RIM HOLDING CORPORATION
(Formed Under the Laws of the State of Delaware)
COMMON STOCK SERIES 1 DETACHABLE WARRANT CERTIFICATE
Date of Issuance: August 16, 1994
Number of Warrant Shares Subject
to this Certificate on the Date
of Issuance: 150,000
Registered Holder: Allstate Insurance Company
Void After 5:00 p.m., August 15, 1999
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS AND, IF NECESSARY, RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO PAC RIM HOLDING CORPORATION THAT
REGISTRATION IS NOT REQUIRED.
SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS
SPECIFIED IN THAT CERTAIN "AGREEMENT TO PURCHASE SERIES A CONVERTIBLE DEBENTURES
AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS" DATED AS OF APRIL 15, 1994, BETWEEN
PAC RIM HOLDING CORPORATION AND PRAC, LTD. (THE "AGREEMENT"), A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE OF PAC RIM
HOLDING CORPORATION AND A CONFORMED COPY OF WHICH WILL BE FURNISHED TO THE
HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE. NO TRANSFER
OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL THE CONDITIONS
SO SPECIFIED SHALL HAVE BEEN COMPLIED WITH.
FOR VALUE RECEIVED, Pac Rim Holding Corporation, a Delaware corporation
(the "Company"), hereby certifies that Allstate Insurance Company, a
corporation, ("Investor"), or any registered assignee of Investor, is the
registered holder (the "Holder") of One Hundred Fifty Thousand (150,000) Series
1 Warrants (the "Warrants") to purchase from the Company One Hundred Fifty
Thousand (150,000) newly issued shares of Common Stock of the Company (each, a
"Share" and collectively, the "Shares").
The Warrants evidenced by this Certificate are part of a duly
authorized issue of Series 1 Warrants to purchase One Million Five Hundred
Thousand (1,500,000) newly issued Shares and a simultaneous issue of (i) TWENTY
MILLION AND NO/100 DOLLARS ($20,000,000.00) aggregate amount of the Company's
eight percent (8%) Series A Convertible Debentures which are convertible into
shares of Company's $0.01 par value common stock (the "Series A Debentures"),
(ii) Series 2 Warrants to purchase One Million Five Hundred Thousand (1,500,000)
newly issued shares of common stock of the Company, and (iii) Series 3 Warrants
to purchase Eight Hundred Thousand (800,000) newly issued shares of common stock
of the Company pursuant to the Agreement.
<PAGE> 49
The Agreement is incorporated in this Certificate by this reference and
must be referred to for a complete description of the rights, obligations and
duties of the Company and the Holders of the Warrants issued pursuant to the
Agreement. In the event of any conflict between the terms of this Certificate
and the terms of the Agreement, the terms of the Agreement will control.
Capitalized terms not defined in this Certificate will have the meanings
assigned to them under the Agreement.
Exercise of Warrants. (a) On or before 5:00 p.m. on August 15, 1999,
the Holder shall have the right to purchase from Company one (1) fully paid and
nonassessable Share for each Warrant at the exercise price of $2.50 per Share,
subject to the adjustment of the exercise price provided in Schedule 3.3.2(d)
attached to the Agreement (the "Exercise Price"), upon surrender to Company at
its principal office of this Certificate evidencing such Warrants, with the form
of election to purchase attached hereto completed and signed (specifying the
number of Shares for which the Warrant is exercisable), and upon payment to
Company of the Exercise Price in cash, lawful currency of the United States of
America.
(b) The Warrants represented by this Certificate shall be
exercisable, at the election of the Holder, either in their entirety or from
time to time for part only of the number of Warrants specified in this
Certificate and in the notice with respect to the exercise thereof. If less than
all of the Warrants evidenced by this Certificate are exercised at any time
prior to the Maturity Date, a new Certificate or Certificates, as the case may
be, shall promptly be issued for the balance of the Warrants not so exercised,
but no fractional numbers. All Certificates surrendered upon exercise of
Warrants shall be cancelled by Company.
(c) Upon surrender of any Certificate and payment of the
Exercise Price, Company shall promptly issue and cause to be delivered to, or
upon the written order of, the Holder, and in such name or names as the Holder
may designate, a certificate or other document representing the Share or Shares
issuable upon the exercise of the Warrants evidenced by this Certificate. The
certificate representing the Shares shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Shares as of the date of the surrender of any Certificate and
payment of the Exercise Price.
Right to Transfer. Notwithstanding anything contained in the
Agreement or this Certificate to the contrary, the Warrants represented by this
Certificate may be pledged, together with the rights of the Investor, in whole
or in part, to any bank, savings and loan association or other institutional
lender unaffiliated with Investor (in each case, an "Institutional Lender") as
collateral to secure a bona fide loan from such Institutional Lender, and may be
transferred to such Institutional Lender upon the foreclosure of the security
interest created by such pledge, provided that such pledge or transfer (in each
case, an "Institutional Transfer"), as the case may be, is in compliance with
the Securities Act and any applicable state securities and insurance laws.
Except as otherwise set forth below, the Warrants
represented by this Certificate may also be pledged, assigned, sold or otherwise
transferred in whole or in part (in each case, a "Transfer") to any other
"Person" or "Persons" (as hereinafter defined), on the condition that such
Transfer is in compliance with the Securities Act and any applicable state
securities and insurance laws. With respect to any Transfer effected pursuant to
this Paragraph 2 and Section 3.1.2(b) of the Agreement, all terms and provisions
of the Agreement shall be binding upon and inure to the benefit of such
transferees.
With respect to any offer, sale or other disposition of any
Warrants or any Shares acquired on exercise of any Warrants which have not been
registered pursuant to Article 4 of the Agreement, the Holder will give written
notice to Company prior to any such offer, sale or other disposition describing
briefly the manner thereof (the "Transfer Notice"), together, if requested by
Company, with a written opinion of such Holder's counsel, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification under any federal or state law then in effect. Within fifteen (15)
days after receiving a Transfer Notice (the "Notice Period") and reasonably
satisfactory opinion, if so requested, Company shall notify such Holder that
such Holder may offer, sell or
<PAGE> 50
otherwise dispose of the Warrants or any Shares acquired on exercise of any
Warrants, all in accordance with the terms of the Transfer Notice delivered to
Company. Such transfer must be effected within ninety (90) calendar days
following the Holder's receipt of written consent from Company with respect to
such transfer. If Company has determined that the opinion of counsel for the
Holder is not reasonably satisfactory to Company, Company shall so notify the
Holder within the Notice Period that such determination has been made. Each of
the Warrants and Shares with respect to which any Warrant may be exercised thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act unless, in
the opinion of counsel for Company, it is determined that such legend is not
required in order to ensure compliance and Company may issue stop transfer
instructions to its transfer agent in connection with such restriction. In the
event that Company fails to respond to a Transfer Notice prior to the expiration
of the Notice Period, the Holder may sell or otherwise transfer the Warrants or
any Common Stock acquired as a consequence of exercising any Warrants in the
manner described in such Transfer Notice; provided, however, that such transfer
is effected within ninety (90) calendar days following the expiration of the
Notice Period.
The following terms shall be defined as follows: (i) "Person"
or "Persons" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof; and (ii) "Investor Controlled
Affiliates" shall be any trusts, corporations, associations, limited
partnerships, general partnerships or other business entities in which more than
fifty percent (50%) of the stock of each class having ordinary voting power or
beneficial or other ownership interest, as appropriate, shall, at the time as of
which any determination is being made, be owned or controlled, directly or
indirectly by Investor or any general or limited partner of Investor, or as to
which Investor or any general or limited partner of Investor is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act and
the regulations, rulings and decisions promulgated thereunder.
Company may deem and treat each registered Holder of a
Warrant Certificate as the absolute owner thereof (notwithstanding any notation
of ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof, any distribution to the Holder, or any other purposes.
(f) Company shall promptly register any transfer of record
ownership of any outstanding Certificates on the Company Register upon surrender
thereof accompanied, if so required by Company, by a written instrument or
instruments of transfer duly executed by Holder or by its duly authorized
attorney. Upon a proper registration of transfer, a new Certificate shall be
issued to the transferee and the surrendered Certificate shall be cancelled by
Company; provided, however, in the event of a partial transfer, Company shall
promptly issue to the transferor a new Certificate representing the retained
portion of the transferor's Warrants and, in connection with any transfer
permitted under Section 3.1.2 of the Agreement, the transferor can require
Company to reissue the Certificates representing the Warrants for any number of
Warrants, but no fractional numbers.
Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of any Warrants. If the
exercise of any Warrants results in a fraction, an amount of money equal to such
fraction multiplied by the fair market value of one share of Common Stock on the
date on which such conversion or exercise is deemed made shall be paid to the
Holder otherwise entitled to such fraction.
Effect of Reclassifications. In case of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of any
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value), or in case of any sale or conveyance to
another corporation of all or substantially all the assets of Company, the
Holder shall have the right thereafter to exercise such Warrants to purchase the
kind and amount of shares of stock and other securities of Company and property
receivable upon such reclassification, change, sale or conveyance by a holder of
the number of Shares as to which such Warrants might have been exercised
immediately prior to such reclassification,
<PAGE> 51
change, sale or conveyance. This Paragraph 4 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive sales
or conveyances.
Company to Reserve Stock. Company covenants that it will at all times
after the Date of Issuance hereof reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon conversion of any
Debentures or exercise of any Warrants, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures and
exercise of all outstanding Warrants. Company covenants that all shares of
Common Stock which shall be so issuable shall, when issued pursuant to and in
accordance with the terms of the Warrants and this Agreement, be duly and
validly issued and fully paid and nonassessable.
Exercise Price Adjustments.
(a) Adjustment for Stock Splits and Subdivisions. In the event
Company should at any time or from time to time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holders thereof to receive, directly or indirectly, additional shares of Common
Stock without payment of any consideration by such holder for the additional
shares of Common Stock, then, as of such record date, the Exercise Price shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon the exercise thereof shall be increased in proportion to such increase of
outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Common Stock then,
following the record date of such combination, the Exercise Price for any
Warrants shall be appropriately increased so that the number of shares of Common
Stock issuable on exercise thereof shall be decreased in proportion to such
decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that
Company shall be recapitalized, consolidated with or merged into any other
corporation, or shall sell or convey to any other corporation all or
substantially all of its property as an entirety, provision shall be made as
part of the terms of such recapitalization, consolidation, merger, sale or
conveyance so that any holder of Warrants may thereafter receive in lieu of the
Common Stock otherwise issuable upon exercise of any Warrants, the same kind and
amount of securities or assets as may be distributable upon such
recapitalization, consolidation, merger, sale or conveyance, with respect to the
Common Stock.
(d) Adjustments for Dividends. In the event that Company shall
at any time pay to the holders of Common Stock a dividend in Common Stock, the
closing price of the Common Stock prior to the occurrence of such event utilized
in the calculation of the Exercise Price upon the exercise of any Warrants shall
be proportionately decreased in order that they may be properly compared to
post-dividend closing prices in determining such exercise prices, effective
following the close of business on the record date for determination of the
holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any
time pay any dividend or make any other distribution on its Common Stock in
property, other than in cash or in Common Stock, then provision shall be made as
part of the terms of such dividend or distribution so that the holder of any
Warrants surrendered for exercise after the record date for determination of
holders of Common Stock entitled to such dividend or distribution shall be
entitled to receive the same kind and the same proportionate share of such
property which he would have been entitled to receive had such Warrants been
converted or exercised immediately prior to such record date.
(f) Adjustments. The adjustments referred to in this Paragraph
6 shall be made successively if more than one event listed herein shall occur.
<PAGE> 52
Taxes and Expenses on Conversion. The issuance of certificates for
Shares upon the exercise of any Warrants shall be made without charge to the
exercising Holder for any expense or tax (other than federal or state income
taxes) in respect of the issuance of such certificates, and such certificates
shall promptly be issued in the name of, or in such names as may be directed by,
the Holder.
Mutilated or Missing Certificates. Upon receipt by Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Warrant Certificate, and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and upon reimbursement to Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such Warrant Certificate, if mutilated, Company will promptly
make and deliver in lieu of such Warrant Certificates a new Warrant Certificate
of like tenor and representing the same number of Warrants.
The Warrants represented by this Certificate are detachable from
those certain Series A Debentures issued by the Company pursuant to the
Agreement.
IN WITNESS WHEREOF, PAC RIM HOLDING CORPORATION has caused this
Certificate to be signed by the person named below thereunto duly authorized on
August 16, 1994.
PAC RIM HOLDING CORPORATION
By: /s/ STANLEY BRAUN
-------------------------------
Title: CEO
[SEAL] By: /s/ HARVEY BURNS
-------------------------------
Title: Secretary
<PAGE> 53
EXERCISE OF WARRANT
___________________________, hereby irrevocably elects to exercise the
purchase rights represented by this Certificate with respect to the following
number of shares of common stock of PAC RIM HOLDING CORPORATION (the "Company"),
upon the terms and subject to the conditions specified in that certain Agreement
to Purchase Series A Convertible Debentures and Series 1, 2 and 3 Detachable
Warrants dated April 15, 1994 by and between Company and Allstate:
Number of Shares __________________
Exercise Price $2.50 per Share*
Total Cost $_________________
Dated: _____________, 1994 _________________________________
[Typed Name of Holder]
By: ______________________________
Title: ___________________________
* Subject to adjustment as provided in Schedule 3.3.2 to the Agreement.
<PAGE> 54
PAC RIM HOLDING CORPORATION
(Formed Under the Laws of the State of Delaware)
COMMON STOCK SERIES 2 DETACHABLE WARRANT CERTIFICATE
Date of Issuance: August 16, 1994
Number of Warrant Shares Subject
to this Certificate on the Date
of Issuance: 150,000
Registered Holder: Allstate Insurance Company
Void After 5:00 p.m., August 15, 1999
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS AND, IF NECESSARY, RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO PAC RIM HOLDING CORPORATION THAT
REGISTRATION IS NOT REQUIRED.
SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS
SPECIFIED IN THAT CERTAIN "AGREEMENT TO PURCHASE SERIES A CONVERTIBLE DEBENTURES
AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS" DATED AS OF APRIL 15, 1994, BETWEEN
PAC RIM HOLDING CORPORATION AND PRAC, LTD. (THE "AGREEMENT"), A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE OF PAC RIM
HOLDING CORPORATION AND A CONFORMED COPY OF WHICH WILL BE FURNISHED TO THE
HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE. NO TRANSFER
OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL THE CONDITIONS
SO SPECIFIED SHALL HAVE BEEN COMPLIED WITH.
FOR VALUE RECEIVED, Pac Rim Holding Corporation, a Delaware corporation
(the "Company"), hereby certifies that Allstate Insurance Company, a corporation
("Investor"), or any registered assignee of Investor, is the registered holder
(the "Holder") of One Hundred Fifty Thousand (150,000) Series 2 Warrants (the
"Warrants") to purchase from the Company One Hundred Fifty Thousand (150,000)
newly issued shares of Common Stock of the Company (each, a "Share" and
collectively, the "Shares").
The Warrants evidenced by this Certificate are part of a duly
authorized issue of Series 2 Warrants to purchase One Million Five Hundred
Thousand (1,500,000) newly issued Shares and a simultaneous issue of (i) TWENTY
MILLION AND NO/100 DOLLARS ($20,000,000.00) aggregate amount of the Company's
eight percent (8%) Series A Convertible Debentures which are convertible into
shares of Company's $0.01 par value common stock (the "Series A Debentures"),
(ii) Series 1 Warrants to purchase One Million Five Hundred Thousand (1,500,000)
newly issued shares of common stock of the Company, and (iii) Series 3 Warrants
to purchase Eight Hundred Thousand (800,000) newly issued shares of common stock
of the Company pursuant to the Agreement.
<PAGE> 55
The Agreement is incorporated in this Certificate by this reference and
must be referred to for a complete description of the rights, obligations and
duties of the Company and the Holders of the Warrants issued pursuant to the
Agreement. In the event of any conflict between the terms of this Certificate
and the terms of the Agreement, the terms of the Agreement will control.
Capitalized terms not defined in this Certificate will have the meanings
assigned to them under the Agreement.
Exercise of Warrants. (a) On or before 5:00 p.m. on August 15, 1999,
the Holder shall have the right to purchase from Company one (1) fully paid and
nonassessable Share for each Warrant at the exercise price of $3.00 per Share,
subject to the adjustment of the exercise price provided in Schedule 3.3.2(d)
attached to the Agreement (the "Exercise Price"), upon surrender to Company at
its principal office of this Certificate evidencing such Warrants, with the form
of election to purchase attached hereto completed and signed (specifying the
number of Shares for which the Warrant is exercisable), and upon payment to
Company of the Exercise Price in cash, lawful currency of the United States of
America.
(b) The Warrants represented by this Certificate shall be
exercisable, at the election of the Holder, either in their entirety or from
time to time for part only of the number of Warrants specified in this
Certificate and in the notice with respect to the exercise thereof. If less than
all of the Warrants evidenced by this Certificate are exercised at any time
prior to the Maturity Date, a new Certificate or Certificates, as the case may
be, shall promptly be issued for the balance of the Warrants not so exercised,
but no fractional numbers. All Certificates surrendered upon exercise of
Warrants shall be cancelled by Company.
(c) Upon surrender of any Certificate and payment of the
Exercise Price, Company shall promptly issue and cause to be delivered to, or
upon the written order of, the Holder, and in such name or names as the Holder
may designate, a certificate or other document representing the Share or Shares
issuable upon the exercise of the Warrants evidenced by this Certificate. The
certificate representing the Shares shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Shares as of the date of the surrender of any Certificate and
payment of the Exercise Price.
Right to Transfer. Notwithstanding anything contained in the
Agreement or this Certificate to the contrary, the Warrants represented by this
Certificate may be pledged, together with the rights of the Investor, in whole
or in part, to any bank, savings and loan association or other institutional
lender unaffiliated with Investor (in each case, an "Institutional Lender") as
collateral to secure a bona fide loan from such Institutional Lender, and may be
transferred to such Institutional Lender upon the foreclosure of the security
interest created by such pledge, provided that such pledge or transfer (in each
case, an "Institutional Transfer"), as the case may be, is in compliance with
the Securities Act and any applicable state securities and insurance laws.
Except as otherwise set forth below, the Warrants represented
by this Certificate may also be pledged, assigned, sold or otherwise transferred
in whole or in part (in each case, a "Transfer") to any other "Person" or
"Persons" (as hereinafter defined), on the condition that such Transfer is in
compliance with the Securities Act and any applicable state securities and
insurance laws. With respect to any Transfer effected pursuant to this Paragraph
2 and Section 3.1.2(b) of the Agreement, all terms and provisions of the
Agreement shall be binding upon and inure to the benefit of such transferees.
With respect to any offer, sale or other disposition of any
Warrants or any Shares acquired on exercise of any Warrants which have not been
registered pursuant to Article 4 of the Agreement, the Holder will give written
notice to Company prior to any such offer, sale or other disposition describing
briefly the manner thereof (the "Transfer Notice"), together, if requested by
Company, with a written opinion of such Holder's counsel, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification under any federal or state law then in effect. Within fifteen (15)
days after receiving a Transfer Notice (the "Notice Period") and reasonably
satisfactory opinion, if so requested, Company shall notify such Holder that
such Holder may offer, sell or
<PAGE> 56
otherwise dispose of the Warrants or any Shares acquired on exercise of any
Warrants, all in accordance with the terms of the Transfer Notice delivered to
Company. Such transfer must be effected within ninety (90) calendar days
following the Holder's receipt of written consent from Company with respect to
such transfer. If Company has determined that the opinion of counsel for the
Holder is not reasonably satisfactory to Company, Company shall so notify the
Holder within the Notice Period that such determination has been made. Each of
the Warrants and Shares with respect to which any Warrant may be exercised thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act unless, in
the opinion of counsel for Company, it is determined that such legend is not
required in order to ensure compliance and Company may issue stop transfer
instructions to its transfer agent in connection with such restriction. In the
event that Company fails to respond to a Transfer Notice prior to the expiration
of the Notice Period, the Holder may sell or otherwise transfer the Warrants or
any Common Stock acquired as a consequence of exercising any Warrants in the
manner described in such Transfer Notice; provided, however, that such transfer
is effected within ninety (90) calendar days following the expiration of the
Notice Period.
The following terms shall be defined as follows: (i) "Person"
or "Persons" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof; and (ii) "Investor Controlled
Affiliates" shall be any trusts, corporations, associations, limited
partnerships, general partnerships or other business entities in which more than
fifty percent (50%) of the stock of each class having ordinary voting power or
beneficial or other ownership interest, as appropriate, shall, at the time as of
which any determination is being made, be owned or controlled, directly or
indirectly by Investor or any general or limited partner of Investor, or as to
which Investor or any general or limited partner of Investor is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act and
the regulations, rulings and decisions promulgated thereunder.
Company may deem and treat each registered Holder of a Warrant
Certificate as the absolute owner thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof, any distribution to the Holder, or any other purposes.
(f) Company shall promptly register any transfer of record
ownership of any outstanding Certificates on the Company Register upon surrender
thereof accompanied, if so required by Company, by a written instrument or
instruments of transfer duly executed by Holder or by its duly authorized
attorney. Upon a proper registration of transfer, a new Certificate shall be
issued to the transferee and the surrendered Certificate shall be cancelled by
Company; provided, however, in the event of a partial transfer, Company shall
promptly issue to the transferor a new Certificate representing the retained
portion of the transferor's Warrants and, in connection with any transfer
permitted under Section 3.1.2 of the Agreement, the transferor can require
Company to reissue the Certificates representing the Warrants for any number of
Warrants, but no fractional numbers.
Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of any Warrants. If the
exercise of any Warrants results in a fraction, an amount of money equal to such
fraction multiplied by the fair market value of one share of Common Stock on the
date on which such conversion or exercise is deemed made shall be paid to the
Holder otherwise entitled to such fraction.
Effect of Reclassifications. In case of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of any
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value), or in case of any sale or conveyance to
another corporation of all or substantially all the assets of Company, the
Holder shall have the right thereafter to exercise such Warrants to purchase the
kind and amount of shares of stock and other securities of Company and property
receivable upon such reclassification, change, sale or conveyance by a holder of
the number of Shares as to which such Warrants might have been exercised
immediately prior to such reclassification,
<PAGE> 57
change, sale or conveyance. This Paragraph 4 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive sales
or conveyances.
Company to Reserve Stock. Company covenants that it will at all times
after the Date of Issuance hereof reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon conversion of any
Debentures or exercise of any Warrants, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures and
exercise of all outstanding Warrants. Company covenants that all shares of
Common Stock which shall be so issuable shall, when issued pursuant to and in
accordance with the terms of the Warrants and this Agreement, be duly and
validly issued and fully paid and nonassessable.
Exercise Price Adjustments.
(a) Adjustment for Stock Splits and Subdivisions. In the event
Company should at any time or from time to time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holders thereof to receive, directly or indirectly, additional shares of Common
Stock without payment of any consideration by such holder for the additional
shares of Common Stock, then, as of such record date, the Exercise Price shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon the exercise thereof shall be increased in proportion to such increase of
outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Common Stock then,
following the record date of such combination, the Exercise Price for any
Warrants shall be appropriately increased so that the number of shares of Common
Stock issuable on exercise thereof shall be decreased in proportion to such
decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that
Company shall be recapitalized, consolidated with or merged into any other
corporation, or shall sell or convey to any other corporation all or
substantially all of its property as an entirety, provision shall be made as
part of the terms of such recapitalization, consolidation, merger, sale or
conveyance so that any holder of Warrants may thereafter receive in lieu of the
Common Stock otherwise issuable upon exercise of any Warrants, the same kind and
amount of securities or assets as may be distributable upon such
recapitalization, consolidation, merger, sale or conveyance, with respect to the
Common Stock.
(d) Adjustments for Dividends. In the event that Company shall
at any time pay to the holders of Common Stock a dividend in Common Stock, the
closing price of the Common Stock prior to the occurrence of such event utilized
in the calculation of the Exercise Price upon the exercise of any Warrants shall
be proportionately decreased in order that they may be properly compared to
post-dividend closing prices in determining such exercise prices, effective
following the close of business on the record date for determination of the
holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any
time pay any dividend or make any other distribution on its Common Stock in
property, other than in cash or in Common Stock, then provision shall be made as
part of the terms of such dividend or distribution so that the holder of any
Warrants surrendered for exercise after the record date for determination of
holders of Common Stock entitled to such dividend or distribution shall be
entitled to receive the same kind and the same proportionate share of such
property which he would have been entitled to receive had such Warrants been
converted or exercised immediately prior to such record date.
(f) Adjustments. The adjustments referred to in this Paragraph
6 shall be made successively if more than one event listed herein shall occur.
<PAGE> 58
Taxes and Expenses on Conversion. The issuance of certificates for
Shares upon the exercise of any Warrants shall be made without charge to the
exercising Holder for any expense or tax (other than federal or state income
taxes) in respect of the issuance of such certificates, and such certificates
shall promptly be issued in the name of, or in such names as may be directed by,
the Holder.
Mutilated or Missing Certificates. Upon receipt by Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Warrant Certificate, and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and upon reimbursement to Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such Warrant Certificate, if mutilated, Company will promptly
make and deliver in lieu of such Warrant Certificates a new Warrant Certificate
of like tenor and representing the same number of Warrants.
The Warrants represented by this Certificate are detachable from
those certain Series A Debentures issued by the Company pursuant to the
Agreement.
IN WITNESS WHEREOF, PAC RIM HOLDING CORPORATION has caused this
Certificate to be signed by the person named below thereunto duly authorized on
August 16, 1994.
PAC RIM HOLDING CORPORATION
By: /s/ STANLEY BRAUN
------------------------------------
Title: CEO
[SEAL] By: /s/ HARVEY BURNS
------------------------------------
Title: Secretary
<PAGE> 59
EXERCISE OF WARRANT
___________________________, hereby irrevocably elects to exercise the
purchase rights represented by this Certificate with respect to the following
number of shares of common stock of PAC RIM HOLDING CORPORATION (the "Company"),
upon the terms and subject to the conditions specified in that certain Agreement
to Purchase Series A Convertible Debentures and Series 1, 2 and 3 Detachable
Warrants dated April 15, 1994 by and between Company and Allstate:
Number of Shares _______________
Exercise Price $3.00 per Share*
Total Cost $______________
Dated: _____________, 1994 _________________________________
[Typed Name of Holder]
By: ______________________________
Title: ___________________________
* Subject to adjustment as provided in Schedule 3.3.2 to the Agreement.
<PAGE> 60
PAC RIM HOLDING CORPORATION
(Formed Under the Laws of the State of Delaware)
COMMON STOCK SERIES 3 DETACHABLE WARRANT CERTIFICATE
Date of Issuance: August 16, 1994
Number of Warrant Shares Subject
to this Certificate on the Date
of Issuance: 80,000
Registered Holder: Allstate Insurance Company
Void After 5:00 p.m., August 15, 1999
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS AND, IF NECESSARY, RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO PAC RIM HOLDING CORPORATION THAT
REGISTRATION IS NOT REQUIRED.
SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS
SPECIFIED IN THAT CERTAIN "AGREEMENT TO PURCHASE SERIES A CONVERTIBLE DEBENTURES
AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS" DATED AS OF APRIL 15, 1994, BETWEEN
PAC RIM HOLDING CORPORATION AND PRAC, LTD. (THE "AGREEMENT"), A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE OF PAC RIM
HOLDING CORPORATION AND A CONFORMED COPY OF WHICH WILL BE FURNISHED TO THE
HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE. NO TRANSFER
OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL THE CONDITIONS
SO SPECIFIED SHALL HAVE BEEN COMPLIED WITH.
FOR VALUE RECEIVED, Pac Rim Holding Corporation, a Delaware corporation
(the "Company"), hereby certifies that Allstate Insurance Company, a corporation
("Investor"), or any registered assignee of Investor, is the registered holder
(the "Holder") of Eighty Thousand (80,000) Series 3 Warrants (the "Warrants") to
purchase from the Company Eighty Thousand (80,000) newly issued shares of Common
Stock of the Company (each, a "Share" and collectively, the "Shares").
The Warrants evidenced by this Certificate are part of a duly
authorized issue of Series 3 Warrants to purchase Eight Hundred Thousand
(800,000) newly issued Shares and a simultaneous issue of (i) TWENTY MILLION AND
NO/100 DOLLARS ($20,000,000.00) aggregate amount of the Company's eight percent
(8%) Series A Convertible Debentures which are convertible into shares of
Company's $0.01 par value common stock (the "Series A Debentures"), (ii) Series
1 Warrants to purchase One Million Five Hundred Thousand (1,500,000) newly
issued shares of common stock of the Company, and (iii) Series 2 Warrants to
purchase One Million Five Hundred Thousand (1,500,000) newly issued shares of
common stock of the Company pursuant to the Agreement.
The Agreement is incorporated in this Certificate by this reference and
must be referred to for a complete description of the rights, obligations and
duties of the Company and the Holders of the Warrants
<PAGE> 61
issued pursuant to the Agreement. In the event of any conflict between the terms
of this Certificate and the terms of the Agreement, the terms of the Agreement
will control. Capitalized terms not defined in this Certificate will have the
meanings assigned to them under the Agreement.
Exercise of Warrants. (a) On or before 5:00 p.m. on August 15, 1999,
the Holder shall have the right to purchase from Company one (1) fully paid and
nonassessable Share for each Warrant at the exercise price of $3.50 per Share,
subject to adjustment of the exercise price as provided in Schedule 3.3.2(d)
attached to the Agreement (the "Exercise Price"), upon surrender to Company at
its principal office of this Certificate evidencing such Warrants, with the form
of election to purchase attached hereto completed and signed (specifying the
number of Shares for which the Warrant is exercisable), and upon payment to
Company of the Exercise Price in cash, lawful currency of the United States of
America.
(b) The Warrants represented by this Certificate shall be
exercisable, at the election of the Holder, either in their entirety or from
time to time for part only of the number of Warrants specified in this
Certificate and in the notice with respect to the exercise thereof. If less than
all of the Warrants evidenced by this Certificate are exercised at any time
prior to the Maturity Date, a new Certificate or Certificates, as the case may
be, shall promptly be issued for the balance of the Warrants not so exercised,
but no fractional numbers. All Certificates surrendered upon exercise of
Warrants shall be cancelled by Company.
(c) Upon surrender of any Certificate and payment of the
Exercise Price, Company shall promptly issue and cause to be delivered to, or
upon the written order of, the Holder, and in such name or names as the Holder
may designate, a certificate or other document representing the Share or Shares
issuable upon the exercise of the Warrants evidenced by this Certificate. The
certificate representing the Shares shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Shares as of the date of the surrender of any Certificate and
payment of the Exercise Price.
Right to Transfer. Notwithstanding anything contained in the
Agreement or this Certificate to the contrary, the Warrants represented by this
Certificate may be pledged, together with the rights of the Investor, in whole
or in part, to any bank, savings and loan association or other institutional
lender unaffiliated with Investor (in each case, an "Institutional Lender") as
collateral to secure a bona fide loan from such Institutional Lender, and may be
transferred to such Institutional Lender upon the foreclosure of the security
interest created by such pledge, provided that such pledge or transfer (in each
case, an "Institutional Transfer"), as the case may be, is in compliance with
the Securities Act and any applicable state securities and insurance laws.
Except as otherwise set forth below, the Warrants represented
by this Certificate may also be pledged, assigned, sold or otherwise transferred
in whole or in part (in each case, a "Transfer") to any other "Person" or
"Persons" (as hereinafter defined), on the condition that such Transfer is in
compliance with the Securities Act and any applicable state securities and
insurance laws. With respect to any Transfer effected pursuant to this Paragraph
2 and Section 3.1.2(b) of the Agreement, all terms and provisions of the
Agreement shall be binding upon and inure to the benefit of such transferees.
With respect to any offer, sale or other disposition of any
Warrants or any Shares acquired on exercise of any Warrants which have not been
registered pursuant to Article 4 of the Agreement, the Holder will give written
notice to Company prior to any such offer, sale or other disposition describing
briefly the manner thereof (the "Transfer Notice"), together, if requested by
Company, with a written opinion of such Holder's counsel, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification under any federal or state law then in effect. Within fifteen (15)
days after receiving a Transfer Notice (the "Notice Period") and reasonably
satisfactory opinion, if so requested, Company shall notify such Holder that
such Holder may offer, sell or otherwise dispose of the Warrants or any Shares
acquired on exercise of any Warrants, all in accordance with the terms of the
Transfer Notice delivered to Company. Such transfer must be effected within
ninety
<PAGE> 62
(90) calendar days following the Holder's receipt of written consent from
Company with respect to such transfer. If Company has determined that the
opinion of counsel for the Holder is not reasonably satisfactory to Company,
Company shall so notify the Holder within the Notice Period that such
determination has been made. Each of the Warrants and Shares with respect to
which any Warrant may be exercised thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act unless, in the opinion of counsel for Company, it is
determined that such legend is not required in order to ensure compliance and
Company may issue stop transfer instructions to its transfer agent in connection
with such restriction. In the event that Company fails to respond to a Transfer
Notice prior to the expiration of the Notice Period, the Holder may sell or
otherwise transfer the Warrants or any Common Stock acquired as a consequence of
exercising any Warrants in the manner described in such Transfer Notice;
provided, however, that such transfer is effected within ninety (90) calendar
days following the expiration of the Notice Period.
The following terms shall be defined as follows: (i) "Person"
or "Persons" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof; and (ii) "Investor Controlled
Affiliates" shall be any trusts, corporations, associations, limited
partnerships, general partnerships or other business entities in which more than
fifty percent (50%) of the stock of each class having ordinary voting power or
beneficial or other ownership interest, as appropriate, shall, at the time as of
which any determination is being made, be owned or controlled, directly or
indirectly by Investor or any general or limited partner of Investor, or as to
which Investor or any general or limited partner of Investor is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act and
the regulations, rulings and decisions promulgated thereunder.
(e) Company may deem and treat each registered Holder of a
Warrant Certificate as the absolute owner thereof (notwithstanding any notation
of ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof, any distribution to the Holder, or any other purposes.
(f) Company shall promptly register any transfer of record
ownership of any outstanding Certificates on the Company Register upon surrender
thereof accompanied, if so required by Company, by a written instrument or
instruments of transfer duly executed by Holder or by its duly authorized
attorney. Upon a proper registration of transfer, a new Certificate shall be
issued to the transferee and the surrendered Certificate shall be cancelled by
Company; provided, however, in the event of a partial transfer, Company shall
promptly issue to the transferor a new Certificate representing the retained
portion of the transferor's Warrants and, in connection with any transfer
permitted under Section 3.1.2 of the Agreement, the transferor can require
Company to reissue the Certificates representing the Warrants for any number of
Warrants, but no fractional numbers.
Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of any Warrants. If the
exercise of any Warrants results in a fraction, an amount of money equal to such
fraction multiplied by the fair market value of one share of Common Stock on the
date on which such conversion or exercise is deemed made shall be paid to the
Holder otherwise entitled to such fraction.
Effect of Reclassifications. In case of any reclassification or
change of outstanding shares of Common Stock issuable upon exercise of any
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value), or in case of any sale or conveyance to
another corporation of all or substantially all the assets of Company, the
Holder shall have the right thereafter to exercise such Warrants to purchase the
kind and amount of shares of stock and other securities of Company and property
receivable upon such reclassification, change, sale or conveyance by a holder of
the number of Shares as to which such Warrants might have been exercised
immediately prior to such reclassification, change, sale or conveyance. This
Paragraph 4 shall similarly apply to successive reclassifications and changes of
shares of Common Stock and to successive sales or conveyances.
<PAGE> 63
Company to Reserve Stock. Company covenants that it will at all times
after the Date of Issuance hereof reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon conversion of any
Debentures or exercise of any Warrants, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures and
exercise of all outstanding Warrants. Company covenants that all shares of
Common Stock which shall be so issuable shall, when issued pursuant to and in
accordance with the terms of the Warrants and this Agreement, be duly and
validly issued and fully paid and nonassessable.
Exercise Price Adjustments.
(a) Adjustment for Stock Splits and Subdivisions. In the event
Company should at any time or from time to time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holders thereof to receive, directly or indirectly, additional shares of Common
Stock without payment of any consideration by such holder for the additional
shares of Common Stock, then, as of such record date, the Exercise Price shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon the exercise thereof shall be increased in proportion to such increase of
outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Common Stock outstanding at any time after the Effective Date is
decreased by a combination of the outstanding shares of Common Stock then,
following the record date of such combination, the Exercise Price for any
Warrants shall be appropriately increased so that the number of shares of Common
Stock issuable on exercise thereof shall be decreased in proportion to such
decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that
Company shall be recapitalized, consolidated with or merged into any other
corporation, or shall sell or convey to any other corporation all or
substantially all of its property as an entirety, provision shall be made as
part of the terms of such recapitalization, consolidation, merger, sale or
conveyance so that any holder of Warrants may thereafter receive in lieu of the
Common Stock otherwise issuable upon exercise of any Warrants, the same kind and
amount of securities or assets as may be distributable upon such
recapitalization, consolidation, merger, sale or conveyance, with respect to the
Common Stock.
(d) Adjustments for Dividends. In the event that Company shall
at any time pay to the holders of Common Stock a dividend in Common Stock, the
closing price of the Common Stock prior to the occurrence of such event utilized
in the calculation of the Exercise Price upon the exercise of any Warrants shall
be proportionately decreased in order that they may be properly compared to
post-dividend closing prices in determining such exercise prices, effective
following the close of business on the record date for determination of the
holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any
time pay any dividend or make any other distribution on its Common Stock in
property, other than in cash or in Common Stock, then provision shall be made as
part of the terms of such dividend or distribution so that the holder of any
Warrants surrendered for exercise after the record date for determination of
holders of Common Stock entitled to such dividend or distribution shall be
entitled to receive the same kind and the same proportionate share of such
property which he would have been entitled to receive had such Warrants been
converted or exercised immediately prior to such record date.
(f) Adjustments. The adjustments referred to in this Paragraph
6 shall be made successively if more than one event listed herein shall occur.
<PAGE> 64
Taxes and Expenses on Conversion. The issuance of certificates for
Shares upon the exercise of any Warrants shall be made without charge to the
exercising Holder for any expense or tax (other than federal or state income
taxes) in respect of the issuance of such certificates, and such certificates
shall promptly be issued in the name of, or in such names as may be directed by,
the Holder.
Mutilated or Missing Certificates. Upon receipt by Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Warrant Certificate, and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and upon reimbursement to Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such Warrant Certificate, if mutilated, Company will promptly
make and deliver in lieu of such Warrant Certificates a new Warrant Certificate
of like tenor and representing the same number of Warrants.
The Warrants represented by this Certificate are detachable from
those certain Series A Debentures issued by the Company pursuant to the
Agreement.
IN WITNESS WHEREOF, PAC RIM HOLDING CORPORATION has caused this
Certificate to be signed by the person named below thereunto duly authorized on
August 16, 1994.
PAC RIM HOLDING CORPORATION
By: /s/ STANLEY BRAUN
-------------------------
Title: CEO
[SEAL] By: /s/ HARVEY BURNS
-------------------------
Title: Secretary
<PAGE> 65
EXERCISE OF WARRANT
___________________________, hereby irrevocably elects to exercise the
purchase rights represented by this Certificate with respect to the following
number of shares of common stock of PAC RIM HOLDING CORPORATION (the "Company"),
upon the terms and subject to the conditions specified in that certain Agreement
to Purchase Series A Convertible Debentures and Series 1, 2 and 3 Detachable
Warrants dated April 15, 1994 by and between Company and ALLSTATE:
Number of Shares _______________
Exercise Price $3.50 per Share*
Total Cost $______________
Dated: _____________, 1994 _________________________________
[Typed Name of Holder]
By: ______________________________
Title: ___________________________
* Subject to adjustment as provided in Schedule 3.3.2 to the Agreement.
<PAGE> 66
SCHEDULE 1.2
Security Holder Amount
--------------- ------
Prac 90%
Allstate 10%
-16-
