<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-25984
----------------
SUPERIOR NATIONAL INSURANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4610936
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
26601 AGOURA ROAD
CALABASAS, CA 91302
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(818) 880-1600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, $0.01 par value per share, outstanding as
of close of business on May 11, 1998: 5,874,548 shares.
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SUPERIOR NATIONAL INSURANCE GROUP, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Item 1. Financial Statements............................................................. 3
Condensed consolidated balance sheets as of
March 31, 1998 (unaudited) and December 31, 1997........................... 3
Condensed consolidated statements of income for the three months ended
March 31, 1998 (unaudited) and March 31, 1997 (unaudited).................. 4
Condensed consolidated statement of changes in stockholders' equity
for the three months ended March 31, 1998 (unaudited) and
for the twelve months ended December 31, 1997.............................. 5
Condensed consolidated statements of cash flows for the three months ended
March 31, 1998 (unaudited) and March 31, 1997 (unaudited).................. 6
Notes to condensed consolidated financial statements (unaudited)................. 7
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations........................................................ 10
PART II. OTHER INFORMATION
Item 5. Other Information................................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................................. 17
SIGNATURE.................................................................................. 18
EXHIBIT INDEX.............................................................................. 19
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
SUPERIOR NATIONAL INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- -----------
(UNAUDITED) (*)
<S> <C> <C>
ASSETS
INVESTMENTS
Bonds and notes:
Available-for-sale, at market (cost: 1998, $208,077; 1997,
$203,373)......................................................... $ 210,065 $ 205,214
Equity securities, at market (cost: 1998, $1,837; 1997, $1,356)...... 1,980 1,526
Cash and short-term instruments
(Restricted cash: 1998, $159; 1997, $651)......................... 16,490 35,376
---------- ----------
TOTAL INVESTMENTS.............................................. 228,535 242,116
Reinsurance recoverable:
Paid claims and claim adjustment expense.......................... 2,295 3,927
Unpaid claims and claim adjustment expense........................ 53,303 49,155
Premiums receivable (less allowance for doubtful accounts:
1998 & 1997, $800)................................................ 21,655 24,364
Earned but unbilled premiums receivable.............................. 12,791 12,524
Accrued investment income............................................ 2,331 2,661
Deferred policy acquisition costs.................................... 5,987 5,879
Deferred income taxes (less valuation allowance of $8,129, 1998 &
1997)............................................................. 12,428 12,200
Funds held by reinsurer.............................................. 4,186 5,152
Prepaid reinsurance premiums......................................... 5,381 1,598
Goodwill............................................................. 35,583 35,887
Prepaid and other.................................................... 17,033 21,106
========== ==========
TOTAL ASSETS................................................... $ 401,508 $ 416,569
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Claims and claim adjustment expenses................................. $ 180,333 $ 201,255
Unearned premiums.................................................... 14,610 12,913
Reinsurance payable.................................................. 7,383 3,412
Long-term debt....................................................... 30 30
Policyholder dividends............................................... 1,370 1,370
Capital lease........................................................ 7,191 7,626
Accounts payable and other liabilities............................... 27,492 28,868
---------- ----------
TOTAL LIABILITIES.............................................. 238,409 255,474
COMPANY-OBLIGATED TRUST PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY SENIOR SUBORDINATED NOTES OF SNIG;
$1,000 face per share; issued and outstanding 105,000 shares
in 1997 and 1998.............................................. 101,291 101,277
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; authorized 25,000,000 shares:
issued and outstanding 5,874,379 shares in 1998;
5,871,279 shares in 1997.......................................... 59 59
Paid-in capital excess of par..................................... 34,257 34,242
Paid in capital - warrants........................................... 2,206 2,206
Accumulated other comprehensive income;
Unrealized gain on investments, net of taxes...................... 1,407 1,327
Retained earnings.................................................... 23,879 21,984
---------- ----------
TOTAL STOCKHOLDERS' EQUITY..................................... 61,808 59,818
========== ==========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................... $ 401,508 $ 416,569
========== ==========
</TABLE>
*Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
3
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SUPERIOR NATIONAL INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1997
--------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Premiums written, net of reinsurance ceded of $12,552
and $2,777 in 1998 and 1997, respectively.............. $ 28,501 $ 20,003
Net change in unearned premiums........................... 2,086 (1,025)
--------- --------
Net premiums earned....................................... 30,587 18,978
Net investment income..................................... 4,253 2,086
--------- --------
TOTAL REVENUES.......................................... 34,840 21,064
EXPENSES:
Claims and claim adjustment expenses, net of
reinsurance recoveries of $7,694 and $2,768 in 1998
and 1997, respectively................................. 18,288 10,271
Commissions, net of reinsurance ceding commissions of
$3,252 and $549 in 1998 and 1997, respectively......... 2,964 2,201
Interest expense.......................................... - 1,727
General and administrative expenses
Underwriting........................................... 7,027 4,803
Other.................................................. 179 181
Goodwill............................................... 304 -
--------- --------
TOTAL EXPENSES.......................................... 28,762 19,183
--------- --------
INCOME BEFORE INCOME TAXES, PREFERRED SECURITIES DIVIDENDS
AND ACCRETION.......................................... 6,078 1,881
Income tax expense........................................ 2,311 671
--------- --------
INCOME BEFORE PREFERRED SECURITIES DIVIDENDS AND ACCRETION 3,767 1,210
Preferred Securities dividends and accretion, net of
income tax benefit of $234 in 1997..................... - (454)
Trust Preferred Securities dividends and accretion, net of
income tax benefit of $964 in 1998..................... (1,872) -
--------- --------
NET INCOME................................................ $ 1,895 $ 756
========= ========
BASIC EARNINGS PER SHARE:
INCOME BEFORE PREFERRED SECURITIES DIVIDENDS AND ACCRETION $ 0.64 $ 0.35
Preferred securities dividends and accretion.............. (0.32) (0.13)
========= ========
NET INCOME................................................ $ 0.32 $ 0.22
========= ========
DILUTED EARNINGS PER SHARE:
INCOME BEFORE PREFERRED SECURITIES DIVIDENDS AND ACCRETION $ 0.48 $ 0.23
Preferred securities dividends and accretion.............. (0.24) (0.09)
========= ========
NET INCOME................................................ $ 0.24 $ 0.14
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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SUPERIOR NATIONAL INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
Income
-------------------
Unrealized
Number of Gain (Loss) Paid in Total
Shares Common on Capital- Comprehensive Retained Stockholders'
Outstanding Stock Investments Warrants Income Earnings Equity
----------- -------- ------------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 3,446,492 $16,022 $ (162) $ 2,206 $ 27,125 $ 45,191
Comprehensive income
Net income....................... - - - - (5,141) (5,141) (5,141)
---------
Other comprehensive income, net
of tax Change in unrealized
gain (loss) on investments..... - - 1,489 - 1,489 - 1,489
---------
Other comprehensive income....... 1,489
---------
Comprehensive income................ $ (3,652)
=========
Common stock issued................. 2,390,438 18,000 - - - 18,000
Stock issued under stock option plan 22,127 105 - - - 105
Common stock issued under stock
incentive plan................... 12,222 174 - - - 174
----------- ------- ------------- ---------- --------- ----------
Balance at December 31, 1997........ 5,871,279 34,301 1,327 2,206 21,984 59,818
----------- ------- ------------- ---------- --------- ----------
Comprehensive income
Net income....................... - - - - 1,895 1,895 1,895
---------
Other comprehensive income, net
of tax Change in unrealized
gain (loss) on investments..... - - 80 - 80 - 80
---------
Other comprehensive income....... 80
---------
Comprehensive income................ $ 1,975
=========
Common stock issued................. - - - - - -
Stock issued under stock option plan 3,100 15 - - - 15
Common stock issued under stock
incentive plan................... - - - - - -
=========== ======= ============ ========== ======== =========
Balance at March 31, 1998........... 5,874,379 $34,316 $ 1,407 $ 2,206 $ 23,879 $ 61,808
=========== ======= ============ ========== ======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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SUPERIOR NATIONAL INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................. $ 1,895 $ 756
----------- ----------
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Discount (amortization) of bonds and preferred stock.................... 2 (161)
Amortization of capital lease obligation................................ (435) -
Gain on sale of investments............................................. (400) (9)
Amortization of Goodwill................................................ 304 -
Preferred securities dividends and accretion............................ 1,872 687
Increase in reinsurance balances receivable............................. (2,516) (700)
Decrease in premiums receivable......................................... 2,709 72
(Increase) decrease in earned but unbilled premiums receivable.......... (267) 801
Decrease (increase) in accrued investment income........................ 330 (106)
Increase in deferred policy acquisition costs........................... (108) (1,206)
Decrease in deferred income taxes....................................... 2,180 433
Decrease (increase) in funds held by reinsurer.......................... 966 (372)
(Increase) decrease in prepaid reinsurance premiums..................... (3,783) 281
Increase in other assets................................................ (3,927) (658)
Decrease in claims and claim adjustment expense reserves................ (20,922) (8,771)
Increase in unearned premium reserves................................... 1,697 744
Increase (decrease) in reinsurance payable.............................. 3,971 (258)
(Decrease) increase in accounts payable and other liabilities........... (4,197) 494
----------- ----------
Total adjustments..................................................... (22,524) (8,729)
----------- ----------
Net cash used in operating activities................................. (20,629) (7,973)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Paid-in-capital - restricted stock...................................... 15 -
Retirement of long-term debt - Imperial Bank............................ - (350)
Funding of Discontinued Operations...................................... (1,492) -
Retirement of long-term debt - Chase Financing.......................... - (1,664)
----------- ----------
Net cash used in financing activities................................. (1,477) (2,014)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of bonds and notes:
Investments available-for-sale........................................ (58,436) (21,297)
Purchase of equity security............................................. (477) (145)
Increase in receivable from reinsurer................................. - 1,627
Sale of property, plant and equipment................................... 8,000 -
Sales of bonds and notes: Investments available-for-sale................ 51,344 9,919
Maturities of bonds and notes:
Investments available-for-sale........................................ 2,709 2,683
Net decrease in invested cash........................................... 80 243
----------- ----------
Net cash provided by (used in) investing activities................... 3,220 (6,970)
----------- ----------
Net decrease in cash.................................................. (18,886) (16,957)
Cash and invested cash at Beginning of Period.............................. 35,376 101,937
----------- ----------
Cash and invested cash at End of Period.................................... $ 16,490 $ 84,980
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes................................. $ 131 $ 4
=========== ==========
Cash paid during the year for interest..................................... $ - $ 141
=========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE> 7
SUPERIOR NATIONAL INSURANCE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.1 Basis of Presentation
Superior National Insurance Group, Inc. ("SNIG") is a holding company that
through its wholly-owned subsidiaries, Superior National Insurance Company
("SNIC") and Superior Pacific Casualty Company ("SPCC"), is engaged in writing
workers' compensation insurance principally in the States of California and
Arizona, and until September 30, 1993, was engaged in writing commercial
property and casualty insurance. The "Company" refers to SNIG and its
subsidiaries.
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, including normally occurring accruals, considered necessary for a
fair presentation have been included. Certain reclassifications of prior year
amounts have been made to conform with the 1998 presentation. Operating results
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the year ending December 31, 1998. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
A.2 Acquisition of Pac Rim Holding Corporation
On April 11, 1997, the Company completed its acquisition of Pac Rim Holding
Corporation ("Pac Rim") and its wholly-owned subsidiary, The Pacific Rim
Assurance Company, for total consideration of approximately $42.0 million in
cash. This consideration resulted in payments of approximately $20.0 million to
Pac Rim stockholders; $20.0 million to Pac Rim's convertible debenture holders;
and $2.0 million to Pac Rim's warrant and option holders. In addition, the
Company incurred $2.0 million in transaction fees and related expenses. The
Pacific Rim Assurance Company was renamed Superior Pacific Casualty Company upon
its acquisition by the Company. The Company financed the acquisition of Pac Rim
through a $44.0 million term loan and the sale of $18.0 million in newly issued
shares of common stock in a private transaction. Approximately $6.6 million of
the loan proceeds was used to prepay SNIG's previously outstanding long-term
debt, and approximately $10.0 million was contributed by SNIG to the capital of
SPCC. The $44.0 million term loan was subsequently retired from funds raised
from the sale of $105.0 million of 10.75% Trust Preferred Securities.
The purchase of Pac Rim resulted in $36.9 million of goodwill that is being
amortized on a straight line basis over 27.5 years. The transaction was
accounted for using the purchase method and the results of operations since the
date of acquisition have been included in operations. The designated accounting
date of the purchase of Pac Rim is April 1, 1997.
The balance sheet of Pac Rim at the acquisition date included the following
assets: investments of $105.9 million, cash of $2.6 million, receivables of
$17.3 million, and other assets of $22.3 million. Liabilities assumed in the
acquisition included unearned premiums of $6.9 million, claim and claim
adjustment expense reserves of $107.7 million and other liabilities of $32.3
million.
7
<PAGE> 8
A.3 Earnings Per Share ("EPS"); Comprehensive Income
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 ("FAS No. 128"), "Earnings Per Share",
which requires presentation of basic and diluted earnings per share for all
publicly traded companies effective for fiscal years after December 15, 1997.
The following is an illustration of the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS) computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------- ------------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
-------------- ------------- --------- ------------- ------------- ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income before items
below $ 3,767 5,874,054 $ 0.64 $ 1,210 3,446,735 $ 0.35
Preferred Securities (1,872) (0.32) (454) (0.13)
---------- ------ ------- ------
Net Income $ 1,895 $ 0.32 $ 756 $ 0.22
========== ====== ======= ======
EFFECT OF DILUTIVE
SECURITIES
Options 336,473 344,175
Warrants 1,571,087 1,455,609
DILUTED EPS
Income before items
below $ 3,767 7,781,614 $ 0.48 $ 1,210 5,246,519 $ 0.23
Preferred Securities (1,872) (0.24) (454) (0.09)
---------- ------ ------- ------
Net Income $ 1,895 $ 0.24 $ 756 $ 0.14
========== ====== ======= ======
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS 130 is effective for periods ending after December 15, 1997,
including interim periods. SFAS No. 130 requires companies to report
comprehensive income and its components in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital. Comprehensive income includes all
changes in equity during a period except those resulting from investments by
stockholders and distributions to stockholders. The Company has included the
required disclosure of SFAS No. 130 in this filing.
A.4 Claim and Claim Adjustment Expense Reserves
The liability for unpaid claim and claim adjustment expenses is based on an
evaluation of reported losses and on estimates of incurred but unreported
losses. The reserve liabilities are determined using adjusters' individual case
estimates and statistical projections, which can be affected by many external
factors that are difficult to predict, including changes in the economy, trends
in medical treatments and litigation, changes in regulatory environment, medical
services, and employment rights. The liability is reported net of estimated
salvage and subrogation recoverables. Adjustments to the liability resulting
from subsequent developments or revisions to the estimate are reflected in
results of operations in the period in which such adjustments become known.
While there can be no assurance that reserves at any given date are adequate to
meet the Company's obligations, the amounts reported on the balance sheet are
management's best estimate of that amount.
A.5 Trust Preferred Securities
In December 1997, SNIG formed a trust, whose sole purpose was to issue 10
3/4% Trust Preferred Securities (the "Trust Preferred Securities"), having an
aggregate liquidation amount of $105 million, and to invest the proceeds thereof
in an equivalent amount of 10 3/4% Senior Subordinated Notes due 2017 of the
Company (the "Senior Subordinated Notes"). The Company owns directly all of the
common securities issued by the Trust, which it
8
<PAGE> 9
purchased for an aggregate consideration of $3.25 million. The proceeds from the
sale of the Trust Preferred Securities were used solely to purchase SNIG's
Senior Subordinated Notes in the aggregate principal amount of $108.25 million,
which are the sole assets of the trust. In addition, the Company entered into
several contractual undertakings, that when taken together, guarantee to the
holders of the Trust Preferred Securities an unconditional right to enforce the
payment of the distributions with respect to such securities.
NOTE B. DISCONTINUED OPERATIONS
Outstanding discontinued operations claims and claim adjustment expense
reserves were $12.1 million at March 31, 1998, which was consistent with
management's expectations. Offsetting these liabilities are $11.4 million of
deferred tax assets and $0.7 million of reinsurance recoverable on paid claim
and claim adjustment expenses.
9
<PAGE> 10
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
References to "SNIG" and "the Company" in this quarterly report include the
results of operations of the newly acquired subsidiary Superior Pacific Casualty
Company ("SPCC"), formerly known as The Pacific Rim Assurance Company, for the
period beginning April 1, 1997.
This discussion and analysis contains statements that constitute
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements relate to future
events or the future financial performance of the Company and involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things,
inherent uncertainties related to the effect of the acquisitions, the Company's
leverage, and general conditions in the economy and in the workers' compensation
insurance market in particular, and such factors could cause actual results to
differ materially from those indicated by such forward-looking statements.
OVERVIEW
The Company recorded an underwriting profit from continuing operations of
$2.3 million or $0.30 per share on a diluted basis in the three month period
ended March 31, 1998, versus an underwriting profit of $1.7 million or $0.32 per
share on a diluted basis in the corresponding period in the prior year. The
increase in underwriting profit from continuing operations was primarily the
result of an increase in premiums as a result of the SPCC acquisition. During
the three months ended March 31, 1998, the Company realized net income of $1.9
million or $0.24 per share on a diluted basis as compared to $0.8 million or
$0.14 per share on a diluted basis for the three months ended March 31, 1997. In
addition to improved underwriting profit, net income increased due to a $2.2
million increase in investment income, which resulted from the increase in
invested assets. Invested assets increased due to the SPCC acquisition and the
net proceeds of the issuance of the Trust Preferred Securities discussed below.
The increase in underwriting profit and investment income was offset in part by
dividends and accretion on the Trust Preferred Securities and amortization of
goodwill.
GENERAL FINANCIAL CONDITION
Total assets increased by $103.5 million or 34.7% to $401.5 million at March
31, 1998, as compared to the same period in 1997. The increase was due to
approximately $189.3 million in assets recorded related to the acquisition of
SPCC. As a result of the issuance of $105.0 million in Trust Preferred
Securities, assets increased an additional $30.0 million, net of repayment of
existing debt and cost of issuance. Partially offsetting the increase is an
approximately $91.6 million reduction in receivables due from reinsurers, that
were transferred to The Chase Manhattan Bank ("Chase") in exchange for
cancellation of debt.
Total liabilities increased by $87.4 million or 34.7% to $339.7 million at
March 31, 1998, as compared to the same period in 1997. The increase was due to
approximately $171.2 million in liabilities recorded related to the acquisition
of SPCC, which was partially offset by the early extinguishment of the $90
million Chase loan and other debt.
Total equity increased by $16.1 million or 35.2% to $61.8 million at March
31, 1998, as compared to the same period in 1997. Approximately $18 million in
additional capital was related to the April 11, 1997 issuance and sale of common
stock to finance, in part, the SPCC acquisition. This increase was partially
offset by expenditures and increases in claims reserves associated with the
acquisition of SPCC and the $12.9 million extraordinary loss recognized in
conjunction with the early extinguishment of long-term debt in the periods
following March 31, 1997.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following selected financial data and analysis provide an assessment of
SNIG's financial results for the three months ended March 31, 1998, as compared
to the three months ended March 31, 1997. Certain prior period amounts have been
reclassified to conform to the current period presentation.
Selected financial data as reported for the three months ended March 31,
1998 and 1997 are presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
1998 1997
---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gross premiums written..................................... $ 41,053 $ 22,780
Net premiums written....................................... $ 28,501 $ 20,003
Net premiums earned........................................ $ 30,587 $ 18,978
Claims and claim adjustment expenses....................... (18,288) (10,271)
Underwriting expenses...................................... (9,991) (7,004)
Policyholder dividends..................................... - -
---------------- -------------
Underwriting profit (loss)................................. $ 2,308 $ 1,703
Net investment income...................................... 4,253 2,086
Underwriting ratios (GAAP Basis)
Claims and claim adjustment expense ratio.................. 59.8% 54.1%
Underwriting expense ratio................................. 32.7% 36.9%
Policyholder dividends ratio............................... 0.0% 0.0%
================ =============
Combined ratio............................................ 92.5% 91.0%
================ =============
</TABLE>
Gross premiums written increased $18.3 million or 80.2% to $41.1 million in
the first quarter of 1998 as compared to the same period in 1997. Substantially
all of this increase can be attributed to the addition of business written by
SPCC. Net premiums written increased $8.5 million or 42.5% to $28.5 million in
the first quarter of 1998 as compared to the same period in 1997, reflecting the
increase in gross premiums written. Net premiums earned increased $11.6 million
or 61.2% to $30.6 million in the first quarter of 1998 as compared to the same
period in 1997, reflecting the increase in net premiums written.
Net claim and claim adjustment expenses increased $8.0 million or 78.1% to
$18.3 million in the first quarter of 1998 as compared to the same period in
1997. This increase is attributable to the addition of premiums renewed by SNIC
for policies expiring from SPCC. The net claim and claim adjustment expense
ratio increased to 59.8% in the first quarter of 1998 from 54.1% in the same
period of 1997. Although the Company has been experiencing a reduction in the
frequency of claims, at the same time there has been an increase in claims
severity for injuries sustained in 1995 and thereafter. To address the
increasing severity trend, management has put into place a Claims Severity
Management Program that is intended to reduce the Company's average ultimate per
claim and claim adjustment expense for 1995 and subsequent dates of injury.
Underwriting and general and administrative expenses increased $3.0 million
or 42.6% to $10.0 million in the first quarter of 1998, as compared to the same
period in 1997. This increase was due primarily to the acquisition of SPCC. Net
commission expense increased $0.8 million or 34.6% to $3.0 million in the first
quarter of 1998, as compared to the same period in 1997. The increase in net
commission expense is due to an increase in premiums. Net underwriting and
general and administrative expenses increased 45.7% to $10.5 million in the
first quarter of 1998 from $7.2 million in the same period of 1997. The
Company's underwriting expense ratio decreased 4.2% to 32.7% for the first
quarter of 1998 from 36.9% for the same period in 1997, due primarily to a
reduction in net commission expense relative to the related net premium level.
This reduction in net commission expense relative to the related net premium
level is due to an increase in reinsurance ceding commissions received. The
direct commission expense relative to the related direct premium level remained
unchanged from the prior year.
11
<PAGE> 12
The Company recorded an underwriting profit from continuing operations of
$2.3 million in the first quarter of 1998, versus $1.7 million for the same
period in 1997. The increase in underwriting profit from continuing operations
was primarily the result of the increase in premiums discussed above, coupled
with a decrease in underwriting and general and administrative expenses relative
to the premium level.
Net investment income, excluding realized investment gains/losses, increased
$1.8 million or 85.5% to $3.9 million in the first quarter of 1998 compared to
the same period in 1997. The improvement was due to the increase in assets
available for investment resulting from the SPCC acquisition and the
availability of $30.0 million in invested assets as a result of the issuance of
the Trust Preferred Securities. Excluding SPCC and the increase in invested
assets due to the issuance of the Trust Preferred Securities, net investment
income decreased $0.3 million or 18.4% to $1.8 million in the first quarter of
1998 as compared to the same period in 1997. This 18.4% decrease was due to a
change in portfolio mix as compared to the same period in 1997.
No interest expense was incurred in the first quarter of 1998 as compared to
$1.7 million for the same period in 1997, due to the repayment of all long term
debt with funds obtained through the sale of the Trust Preferred Securities.
Distributions and accretion on preferred securities increased by $2.1
million as compared to $0.7 million in the first quarter of 1998, as a result of
the issuance of the Trust Preferred Securities and the redemption of preferred
securities issued by an affiliate in December 1997.
A summary of net investment income, excluding capital gains (losses), for
the three months ended March 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Interest on bonds and notes $ 3,643 $ 858
Interest on invested cash.. 318 1,346
Other...................... 76 -
------------ ------------
Total investment income.... 4,037 2,204
Capital gains.............. 400 9
Investment expense......... 184 127
============ ============
Net investment income...... $ 4,253 $ 2,086
============ ============
</TABLE>
The distribution of SNIG's consolidated investment portfolio is as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
------------------- -------------------
CARRYING MARKET CARRYING MARKET
AVAILABLE FOR SALE: VALUE VALUE VALUE VALUE
- ------------------- -------- ------ -------- ------
<S> <C> <C> <C> <C>
U.S. Government Agencies and
Authorities........................ $ 77,836 $ 77,836 $90,097 $90,097
Collateralized Mortgage Obligations.. 36,721 36,721 73,481 73,481
Corporate Instruments................ 45,101 45,101 41,636 41,636
Special Revenue and Special
Assessment......................... 50,407 50,407 - -
State and Political Subdivisions..... - - - -
--------- --------- ------- -------
Total Available for Sale............. $ 210,065 $ 210,065 $205,214 $205,214
========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
--------------- -----------------
MARKET MARKET
EQUITY SECURITIES COST VALUE COST VALUE
- ----------------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
Corporate................... $1,837 $1,980 $ 1,356 $ 1,526
------ ------ ------- -------
Total....................... $1,837 $1,980 $ 1,356 $ 1,526
====== ====== ======= =======
</TABLE>
12
<PAGE> 13
The Company's management monitors the matching of assets and liabilities and
attempts to maintain the Company's portfolio's investment duration at the
mid-point of the length of its net claim and claim adjustment expenses payout
pattern. Investment duration is the weighted average measurement of the current
maturity of a fixed income security, in terms of time, of the present value of
the future payments to be received from that security. However, in selecting
assets to purchase for its investment portfolio, the Company considers each
security's modified duration and the effect of that security's modified duration
on the portfolio's overall modified duration. Modified duration is a measurement
that estimates the percentage change in market value of an investment for a
small change in interest rates. The modified duration of fixed maturities at
March 31, 1998 was 3.05 years compared to 2.90 years at December 31, 1997. At
March 31, 1998, 97.1% of the carrying values of investments in the fixed
maturities portfolio were rated as investment grade by the Securities Valuation
Office of the National Association of Insurance Commissioners.
DISCONTINUED OPERATIONS
Discontinued operations had claim and claim adjustment expense reserves of
$12.1 million as of March 31, 1998, which was consistent with management's
expectations. The Company has significant exposure to construction defect
liabilities on property and casualty insurance policies underwritten from 1986
to 1993. Management continues to closely monitor the Company's potential
exposure to construction defect claims and has not changed its estimates of
ultimate claim and claim adjustment expenses on discontinued operations since
1995. Management believes its current reserves are adequate to cover the
Company's claims activity. There can be no assurance, however, that further
upward development of ultimate loss costs associated with construction defect
claims will not occur, the Company will continue to closely monitor the adequacy
of its loss reserves in the discontinued operations. Offsetting these
liabilities are $11.4 million of deferred tax assets and $0.7 million in
reinsurance recoverable on paid claims and claim adjustment expenses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of an entity's ability to secure sufficient cash to
meet its contractual obligations and operating needs. The Company's cash inflows
are generated from cash collected for policies sold, investment income on the
existing portfolio and sales and maturities of investments. The Company's cash
outflows consist primarily of payments for policyholders' claims, operating
expenses, and debt service. For their insurance operations, the Company's
subsidiaries must have available cash and liquid assets to meet their
obligations to policyholders and claimants in accordance with contractual
obligations in addition to meeting their ordinary operating costs. Absent
adverse material changes in the workers' compensation insurance market,
management believes that the Company's present cash resources are sufficient to
meet the needs of the Company for the foreseeable future.
During the first three months of 1998, the Company used $20.6 million of
cash in its operations versus $8.0 million during the same period in 1997. The
$12.6 million increase in cash used in operations during the first three months
of 1998 is primarily due to the addition of SPCC operations beginning April 1,
1997. The Company's continued negative cash flow is the result of the Company's
historical inforce premium base being significantly higher than its current
level and higher than expected payments of claims and claim adjustment expenses
in the 1995 and 1996 accident years. The Company anticipates it will continue to
experience negative cash flow from operations until the claims related to the
historically higher premium base have been paid out. The Company believes its
Claims Severity Management Program will control cash outflows related to the
1995 and 1996 accident years at acceptable levels, but there can be no assurance
that it will be successful. In any event, the Company believes that it has
adequate short-term investments and readily marketable investment grade
securities to cover both claim payments and expenses. As of March 31, 1998, the
Company had total cash, cash equivalents and investments of $228.5 million and
had 99.1% of its investment portfolio invested in cash, cash equivalents, and
fixed maturities. In addition, 92.0% of the Company's fixed-income portfolio had
ratings of "AA" or equivalent or better and 98.1% had ratings of "BBB" or
equivalent or better.
On December 3, 1997, the Superior National Capital Trust I (the "Trust"), a
wholly owned subsidiary of SNIG, issued its 10 3/4% Trust Preferred Securities,
having an aggregate liquidation amount of $105 million, in a private
13
<PAGE> 14
placement and also issued to SNIG, for an aggregate consideration of
approximately $3.25 million, all of the Trust's common securities. The proceeds
from the sale of these securities were used to purchase SNIG's 10 3/4% Senior
Subordinated Notes due 2017 (the "Senior Subordinated Notes"), all of which were
issued in connection with such transaction. In addition, the Company entered
into several contractual undertakings which, the Company believes, when taken
together, guarantee (the "Company Guarantee") to the holders of such securities
a full and unconditional right to enforce the payment of the distributions with
respect to such securities. On January 16, 1998, SNIG and the Trust completed
the registration with the Securities and Exchange Commission of an exchange
offer for the outstanding Trust Preferred Securities, Senior Subordinated Notes
and Company Guarantee, pursuant to which substantially all of such securities
were exchanged for substantially similar securities. SNIG used the proceeds it
received from the issuance of the Senior Subordinated Notes to repay the $40.3
million outstanding balance on the term loan used to acquire SPCC, to redeem
approximately $27.7 million in preferred stock issued by a SNIG affiliate to an
affiliate of Zurich, to pay approximately $4.0 million in related transaction
costs, and for general corporate purposes, including a $15.0 million
contribution to the surplus of SNIC.
Distributions on the Trust Preferred Securities (and interest on the related
Senior Subordinated Notes) are payable semi-annually, in arrears, on June 1 and
December 1 of each year, commencing June 1, 1998. Subject to certain conditions,
on or after December 1, 2005, SNIG has the right to redeem the Senior
Subordinated Notes, in whole or in part at any time, at call prices ranging from
105.375% at December 1, 2005 to 101.792% at December 1, 2007, and 100%
thereafter. The proceeds from any such redemption will be immediately applied by
the Trust to redeem Trust Preferred Securities and the Trust's common securities
at such redemption prices. In addition, SNIG has the right, at any time, subject
to certain conditions, to defer payments of interest on the Senior Subordinated
Notes for Extension Periods (as defined in the related Indenture), each not
exceeding 10 consecutive semi-annual periods; provided that no Extension Period
may extend beyond the maturity date of the Senior Subordinated Notes. As a
consequence of any such extension by SNIG of the interest payment period,
distributions on the Trust Preferred Securities would be deferred (though such
distributions would continue to accrue interest at a rate of 10.75% per annum
compounded semi-annually). Upon the termination of any Extension Period and the
payment of all amounts then due, SNIG may commence a new Extension Period,
subject to certain requirements.
In November 1996, the Company entered into a financing transaction involving
Centre Reinsurance Limited and Chase pursuant to which Chase extended a $93.1
million term loan, net of transaction costs. The Company used the proceeds from
the transaction to purchase from SNIC reinsurance receivables due from Centre
Re. On June 30, 1997, the Company and Chase reached an agreement under which the
Company agreed to transfer such reinsurance receivables to Chase in exchange for
the cancellation of the Company's debt to Chase. As a result of these actions,
the Company's investable assets increased $93.1 million. The additional
investments contributed to the increase in investment income in 1997.
The Company has a reverse repurchase facility with a national securities
brokerage firm that allows it to engage in up to $20 million in reverse
repurchase transactions secured either by U.S. Treasury instruments, U.S. Agency
debt, or corporate debt. This arrangement provides the Company with additional
short-term liquidity. Reverse repurchase transactions may be rolled over from
one period to the next, at which time the transaction is repriced. This type of
financing allows the Company a great deal of flexibility to manage short-term
investments, avoiding the unnecessary realization of losses to satisfy
short-term cash needs. Further, this method of financing is less expensive than
bank debt. As of March 31, 1998, the Company had no obligation outstanding under
this facility.
Because SNIG is a holding company, it depends on dividends and tax
allocation payments from its insurance subsidiaries, SNIC and SPCC, for its net
cash flow requirements, which consist primarily of periodic payments on its
outstanding debt obligations, principally the Trust Preferred Securities. Absent
other sources of cash flow, SNIG cannot expend funds materially in excess of the
amount of dividends or tax allocation payments that could be paid to it by SNIC
and SPCC. Further, insurance companies are subject to restrictions affecting the
amount of shareholder dividends and advances that may be paid within any one
year without the prior approval of the DOI. The California Insurance Code
provides that amounts may be paid as dividends on an annual noncumulative basis
(generally based on the greater of (i) net income for the preceding year or (ii)
10% of statutory surplus as regards policyholders as of the preceding December
31) without prior notice to, or approval by, the DOI. No dividends were paid
during the three months ended March 31, 1998.
14
<PAGE> 15
The Company is a party to various leases principally associated with the
Company's home and branch office space. Such leases contain provisions for
scheduled lease charges and escalations in base rent over the lease term. The
Company's minimum commitment with respect to these leases in 1998, is
approximately $7.6 million. These leases expire from 2000 to 2003.
With the exception of the approximately $280 million necessary to complete
the announced acquisition of Business Insurance Group, Inc., the Company does
not foresee any expenditures during the next twelve months other than those
arising in the normal course of business.
TAXES
As of March 31, 1998, the Company had available approximately $126.4 million
in net operating loss carryforwards ("NOLs") to offset taxable income recognized
by the Company in periods after March 31, 1998. For federal income tax purposes,
these NOLs will expire in material amounts beginning in the year 2006. Any 5%
shift in the current ownership of the Company may result in a "change of
ownership" under Section 382 of the Internal Revenue Code of 1986, as amended,
and severely limit the Company's ability to utilize NOLs. In an effort to
protect these NOLs, the Company's charter documents prohibit 5% owners of the
Company's common stock (including holders of options and warrants) from
acquiring additional stock and prohibit any additional person or entity from
becoming a 5% holder of common stock. The prohibition against changes in
ownership by the 5% holders of common stock expires in April 2000.
YEAR 2000 STRATEGY
A significant percentage of the software that runs most of the computers in
the United States and the rest of the world relies on two-digit date codes to
perform computations and decision making functions. Commencing January 1, 2000,
these computer programs may fail from an inability to interpret date codes
properly, misinterpreting "00" as the year 1900 rather than 2000. The Company is
in the process of identifying all necessary software changes to ensure that it
does not experience any loss of critical business functionality due to the year
2000 issue. The Company has appointed an internal Year 2000 project manager and
adopted a three phase approach of assessment, correction and testing. The scope
of the project includes all internal software, hardware, and operating systems,
and assessment of risk to the business from producers, vendors and other
partners in Year 2000 issues. The Company believes that this formal assessment
of risk (including the prioritization of business risk), correction (including
conversions to new software), and testing of necessary changes will minimize the
business risk of Year 2000 from internal systems. The Company plans to complete
its Year 2000 conversion not later than December 31, 1998. Although the Company
has not completed its Year 2000 project, the Company does not believe the Year
2000 issue will cause any system problems that could have a material adverse
effect on the operations of the Company. The Company does not expect the cost
associated with its year 2000 project to be material.
The effect of inflation on the revenues and net income during the three
months ended March 31, 1998 was not significant.
PART II -- OTHER INFORMATION
ITEM 5 -- OTHER INFORMATION
On May 5, 1998, the Company and Foundation Health Corporation ("FHC"), a
wholly owned subsidiary of Foundation Health Systems, Inc., entered into a
Purchase Agreement under which the Company agreed to purchase for approximately
$280 million in cash (the "Acquisition") all outstanding shares of the capital
stock of Business Insurance Group, Inc. ("BIG"), an insurance holding company
that, through its wholly owned insurance subsidiaries, California Compensation
Insurance Company, a California stock insurance company, Business Insurance
Company, a Delaware stock insurance company, Combined Benefits Insurance
Company, a California stock insurance company, and Commercial Compensation
Insurance Company, a New York stock insurance company, writes workers'
compensation and group health insurance, principally in California, with branch
operations throughout the continental United States.
15
<PAGE> 16
In connection with the Acquisition, FHC will provide, through the purchase
of reinsurance, $175 million of adverse development protection on BIG's loss and
loss adjustment expense reserves. The Company will also enter into a three-year
quota share reinsurance agreement with a reinsurer rated "A+" by A.M. Best, an
independent insurance rating agency, under which the Company and BIG will
reinsure accounts with premiums in excess of $25,000. The Company has also
agreed to enter into long-term contracts with affiliates of FHC under which such
affiliates will continue to provide bill review and other claims control
services to the Company and BIG.
The Company will finance the Acquisition through the issuance of $200
million of Common Stock and approximately $110 million in aggregate principal
amount of senior notes. The amount raised in excess of $280 million will be used
to pay related transaction costs and for general corporate purposes. The Company
will offer $106 million of Common Stock through a rights offering (the "Rights
Offering") to the Company's existing Common Stock, warrant, and option holders
on a pro-rata basis, excluding IP (as defined below) and other securities
holders related to the Zurich Insurance Company. The Company will offer the
remaining $94 million of Common Stock to Insurance Partners, L.P. ("IP
Delaware"), Insurance Partners Offshore (Bermuda), L.P. ("IP Bermuda") and
Capital Z Partners, Ltd. (the general partner of a successor fund of IP Delaware
and IP Bermuda, which shall be formed prior to the consummation of the
Acquisition, collectively referred to herein with IP Delaware and IP Bermuda as
"IP") in a private transaction pursuant to a Stock Purchase Agreement between IP
and the Company dated as of May 5, 1998 (the "Stock Purchase Agreement") under
which IP has also committed to purchase, in addition to the $94 million of
Common Stock, up to $106 million of Common Stock. This latter commitment is to
purchase the number of shares of Common Stock for which subscription rights are
not exercised in the Rights Offering. By providing this "backstop," the Company
was able to provide FHC with satisfactory assurances that all of the anticipated
proceeds of the Rights Offering would be available to complete the Acquisition.
All of the Common Stock will be issued at a price of $16.75 per share. In
connection with its investment, IP has agreed to certain restrictions protecting
minority stockholders.
The $16.75 price and other terms of the Rights Offering were set by the
Company's board of directors, in consultation with its financial advisors, and
will be materially the same as the terms of the IP transaction, subject to
adjustments determined by the Company's board of directors to be reasonable and
appropriate. This description does not constitute an offer of any securities.
Any offering of securities in the transactions described above, other than the
issuance and sale of Common Stock to IP under the Stock Purchase Agreement, will
be made only by means of prospectus. Stockholders are cautioned, however, that
the mere decision to undertake a transaction does not change the contingencies
that apply to these prospective transactions, or the likelihood that an offering
will, in fact, occur. Registration statements will be filed with the Securities
and Exchange Commission relating to the Rights Offering and the senior notes
offering, and none of these securities may be sold before the registration
statements are declared effective.
The Acquisition is subject to the expiration of the waiting period under the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended, and approval
by several state insurance regulatory authorities. In addition, the Rights
Offering and the issuance and sale of Common Stock to IP under the Stock
Purchase Agreement are each subject to stockholder approval, which the Company
intends to solicit at its 1998 Annual Meeting of Stockholders, presently
scheduled to occur in late September 1998. Assuming the preceding approvals are
obtained and that no unforeseen impediments arise, the Company anticipates that
the Acquisition will be consummated in late October to early November of 1998.
16
<PAGE> 17
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2 Purchase Agreement dated as of May 5, 1998 by and between FHC and the Company.
10.56 Stock Purchase Agreement dated as of May 5, 1998 among the Company, IP
Delaware, IP Bermuda and Capital Z Partners Ltd., with forms of a Registration Rights Agreement
and Common Stock Purchase Warrant exercisable to purchase an aggregate of 734,000 shares
of Common Stock attached as exhibits thereto.
10.57 Voting Agreement dated as of May 5, 1998 between FHC and Insurance Partners, L.P.
10.58 Voting Agreement dated as of May 5, 1998 between FHC and Insurance Partners Offshore
(Bermuda), L.P.
10.59 Voting Agreement dated as of May 5, 1998 between FHC and Thomas J. Jamieson.
10.60 Voting Agreement dated as of May 5, 1998 between FHC and Jaco Oil Company.
10.61 Form of Voting Agreement dated as of May 5, 1998 between FHC and the other parties set
forth on the schedule attached thereto.
11 Summary of the calculation of EPS.
27 Financial Data Schedule.
99.1 Press Release dated May 5, 1998 announcing the Acquisition.
</TABLE>
(b) REPORTS ON FORM 8-K: No reports were filed on Form 8-K during the first
quarter of 1998.
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 1998 SUPERIOR NATIONAL INSURANCE
GROUP, INC.
By /s/ J. CHRIS SEAMAN
-------------------------------
Name: J. Chris Seaman
Title: Executive Vice President and
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C> <C>
2 Purchase Agreement dated as of May 5, 1998 by and between FHC and the Company.
10.56 Stock Purchase Agreement dated as of May 5, 1998 among the Company, IP Delaware,
IP Bermuda and Capital Z Partners Ltd., with forms of a Registration Rights Agreement
and Common Stock Purchase Warrant exercisable to purchase an aggregate of 734,000 shares
of Common Stock attached as exhibits thereto.
10.57 Voting Agreement dated as of May 5, 1998 between FHC and Insurance Partners, L.P.
10.58 Voting Agreement dated as of May 5, 1998 between FHC and Insurance Partners Offshore
(Bermuda), L.P.
10.59 Voting Agreement dated as of May 5, 1998 between FHC and Thomas J. Jamieson.
10.60 Voting Agreement dated as of May 5, 1998 between FHC and Jaco Oil Company.
10.61 Form of Voting Agreement dated as of May 5, 1998 between FHC and the other parties set
forth on the schedule attached thereto.
11 Summary of the calculation of EPS.
27 Financial Data Schedule.
99.1 Press Release dated May 5, 1998 announcing the Acquisition.
</TABLE>
19
<PAGE> 1
EXHIBIT 2
PURCHASE AGREEMENT
by and between
FOUNDATION HEALTH CORPORATION
and
SUPERIOR NATIONAL INSURANCE GROUP, INC.
May 5, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
PURCHASE AND SALE
<S> <C> <C> <C>
SECTION 1.1 Purchase and Sale................................................. 3
SECTION 1.2 Purchase Price.................................................... 3
SECTION 1.3 Closing........................................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 2.1 Organization...................................................... 4
SECTION 2.2 Capitalization.................................................... 5
SECTION 2.3 Ownership of Stock................................................ 5
SECTION 2.4 Authorization; Validity of Agreement.............................. 5
SECTION 2.5 Consents and Approvals; No Violations............................. 6
SECTION 2.6 Financial Statements.............................................. 7
SECTION 2.7 No Undisclosed Liabilities........................................ 8
SECTION 2.8 Absence of Certain Changes........................................ 8
SECTION 2.9 Employee Benefit Plans; ERISA..................................... 9
SECTION 2.10 Litigation........................................................ 10
SECTION 2.11 No Default; Compliance with Applicable Laws....................... 11
SECTION 2.12 Taxes............................................................. 11
SECTION 2.13 Property.......................................................... 13
SECTION 2.14 Intellectual Property............................................. 13
SECTION 2.15 Contracts......................................................... 14
SECTION 2.16 Labor Matters..................................................... 15
SECTION 2.17 Brokers or Finders................................................ 16
SECTION 2.18 Transactions with Related Parties................................. 16
SECTION 2.19 Environmental Matters............................................. 16
SECTION 2.20 Year 2000 Compliance.............................................. 18
SECTION 2.21 Insurance......................................................... 18
SECTION 2.22 Bank Accounts..................................................... 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
SECTION 3.1 Organization...................................................... 19
SECTION 3.2 Authorization; Validity of Agreement; Necessary Action............ 19
SECTION 3.3 Consents and Approvals; No Violations............................. 20
SECTION 3.4 Acquisition for Investment........................................ 21
SECTION 3.5 Financing......................................................... 21
SECTION 3.6 Investigation by Purchaser........................................ 21
SECTION 3.7 Capital Adequacy; Solvency........................................ 22
ARTICLE IV
COVENANTS
SECTION 4.1 Interim Operations of Seller...................................... 22
SECTION 4.2 Access to Information............................................. 25
SECTION 4.3 Tax Matters....................................................... 26
SECTION 4.4 Employee Matters.................................................. 32
SECTION 4.5 Publicity......................................................... 34
SECTION 4.6 Approvals and Consents; Cooperation; Notification................. 34
SECTION 4.7 No Solicitation................................................... 36
SECTION 4.8 Excluded Assets, Real Property.................................... 36
SECTION 4.9 Intercompany Accounts............................................. 36
SECTION 4.10 Reserve Cover..................................................... 37
SECTION 4.11 Audited Financial Statements; Quarterly Statements................ 38
SECTION 4.12 Related Party Service Agreements.................................. 38
SECTION 4.13 Lease Renewals.................................................... 38
SECTION 4.14 Further Assurances................................................ 39
SECTION 4.15 State Insurance Regulatory Approval for CCIC...................... 39
SECTION 4.16 Stockholder Approval and Financing................................ 40
ARTICLE V
INDEMNIFICATION
SECTION 5.1 Indemnification by Seller......................................... 40
SECTION 5.2 Indemnification by Purchaser...................................... 41
SECTION 5.3 Survival of Representations and Warranties........................ 41
SECTION 5.4 Notice and Opportunity to Defend.................................. 42
SECTION 5.5 Adjustment for Insurance and Taxes................................ 43
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
SECTION 5.6 Mitigation of Loss................................................ 43
SECTION 5.7 Subrogation....................................................... 44
SECTION 5.8 Tax Indemnification............................................... 44
SECTION 5.9 Set-Off........................................................... 44
SECTION 5.10 Exclusive Remedy.................................................. 44
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Closing....... 45
SECTION 6.2 Conditions to the Obligations of Purchaser........................ 45
SECTION 6.3 Conditions to the Obligations of Seller........................... 47
ARTICLE VII
TERMINATION
SECTION 7.1 Termination....................................................... 48
SECTION 7.2 Procedure and Effect of Termination............................... 49
SECTION 7.3 Breakup Fee....................................................... 50
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Governing Laws and Consent to Jurisdiction........................ 50
SECTION 8.2 Amendment and Modification........................................ 51
SECTION 8.3 Notices........................................................... 51
SECTION 8.4 Interpretation.................................................... 52
SECTION 8.5 Counterparts...................................................... 53
SECTION 8.6 Entire Agreement; Third Party Beneficiaries....................... 53
SECTION 8.7 Severability...................................................... 54
SECTION 8.8 Service of Process................................................ 54
SECTION 8.9 Specific Performance.............................................. 54
SECTION 8.10 Assignment........................................................ 54
SECTION 8.11 Expenses.......................................................... 54
SECTION 8.12 Waivers........................................................... 55
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ANNEXES
Index to Defined Terms ....................................... Annex A
EXHIBITS
Description of Reinsurance Agreement ......................... Exhibit A
Service Agreements ........................................... Exhibits B-1-B-4
Form of Voting Agreement ..................................... Exhibit C-1-C-2
</TABLE>
iv
<PAGE> 6
Index to Disclosure Schedule
<TABLE>
<CAPTION>
Title Section
- ----- -------
<S> <C>
Capitalization 2.2
Consents and Approvals; No Violations 2.5
Financial Statements 2.6
No Undisclosed Liabilities 2.7
Absence of Certain Changes 2.8
Employee Benefit Plans; ERISA 2.9(a)
Employee Benefit Plans; ERISA 2.9(d)
Employee Benefit Plans; ERISA 2.9(e)
Employee Benefit Plans; ERISA 2.9(h)
Employee Benefit Plans; ERISA 2.9(k)
Litigation 2.10
No Default; Compliance With Applicable Laws 2.11(a)
No Default; Compliance With Applicable Laws 2.11(b)
Taxes 2.12
Property 2.13
Intellectual Property 2.14
Contracts 2.15
Labor Matters 2.16
Transactions with Related Parties 2.18
Environmental Matters 2.19(b)
Year 2000 Matters 2.20
Insurance 2.21
Bank Accounts 2.22
Interim Operations of Seller 4.1
Employee Benefits 4.4(b)
Intercompany Accounts 4.9
</TABLE>
Index to Purchaser Disclosure Schedule
<TABLE>
<S> <C>
Title Section
- ----- -------
<S> <C>
Consent and Approvals; No Violations 3.3
</TABLE>
v
<PAGE> 7
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of May 5, 1998 (this "Agreement"), by
and between Foundation Health Corporation, a Delaware corporation ("Seller"),
and Superior National Insurance Group, Inc., a Delaware corporation
("Purchaser").
WHEREAS, Seller is the owner of all of the outstanding shares (the
"Shares") of capital stock of Business Insurance Group, Inc., a Delaware
insurance holding company (the "Company"), whose principal assets are all of the
capital stock of each of California Compensation Insurance Company, a California
stock insurance company ("CalComp"), Business Insurance Company, a Delaware
stock insurance company ("BIC"), Combined Benefits Insurance Company, a
California stock insurance company ("CBIC") and Commercial Compensation
Insurance Company, a New York stock insurance company ("CCIC", and together with
CalComp, BIC and CBIC, taken as a whole, the "Insurance Subsidiaries", and
together with the Company, the "Seller Subsidiaries");
WHEREAS, the Seller Subsidiaries have the right to acquire the
reinsurance policy described on Exhibit A (the "Reinsurance Agreement") and a
condition to the obligations of the Purchaser to consummate the transactions
contemplated hereby is that the Seller Subsidiaries shall have entered into the
Reinsurance Agreement;
WHEREAS, Purchaser desires to purchase from Seller, and Seller
desires to sell to Purchaser, all of the Shares of the Company, and by that
means, the ownership of the Seller Subsidiaries, subject to the terms and
conditions of this Agreement;
WHEREAS, Seller intends, prior to the Closing (as hereinafter
defined), to cause the Company to dividend or otherwise distribute all of the
capital stock of each of Foundation Health Medical Resource Management, d/b/a
Reviewco ("Reviewco"), Foundation Integrated Risk Management Solutions,
Incorporated, d/b/a FIRM Solutions ("FIRMS") and Axis Integrated Resources, Inc.
("Axis"), each a wholly owned subsidiary of the Company (collectively, the
"Excluded Assets") to one or more other Affiliates of Seller;
WHEREAS, contemporaneous with the Closing (i) Purchaser, the Company
and Reviewco will enter into a long-term service agreement consistent
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with the terms of Exhibit B-1 (e.g., medical bill review, PPO utilization and
certain managed care services), (ii) Purchaser, the Company and FIRMS will enter
into a long-term service agreement consistent with the terms of Exhibit B-2
(e.g., claim negotiation and review services), (iii) Purchaser, the Company and
Axis will enter into a long-term service agreement consistent with the terms of
Exhibit B-3 (e.g., recruitment of employees and placement of temporary workers
services) and (iv) Purchaser, the Company and Foundation Health Systems, Inc.
("FHS"), will enter into a term sheet setting forth the terms of a transitional
service agreement in the form of Exhibit B-4 (e.g., transitional corporate
administrative services) (collectively, the "Service Agreements");
WHEREAS, Seller holds certain promissory notes, dated May 30, 1996
and August 9, 1996 issued by the Company in the current combined principal
amount of $121,250,000 plus all accrued and unpaid interest thereon (the
"Intercompany Note"), which will be satisfied in connection with the sale of the
Shares;
WHEREAS, certain stockholders of Purchaser, including certain of the
executive officers and directors of the Purchaser and Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P. and certain of their affiliates
have entered into Voting Agreements, dated the date hereof in the forms of
Exhibit C-1-C-2 (the "Voting Agreements"), whereby such stockholders have agreed
under the terms thereof to vote all of their shares of common stock of Purchaser
in favor of all matters that require stockholder approval in order to consummate
the transactions contemplated hereby; and
WHEREAS, Purchaser and Seller desire to treat the sale of the Shares
as a sale of the Seller Subsidiaries' assets for purposes of Federal income
taxation and to make an election under Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to the Company and
each of the Insurance Subsidiaries.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound hereby, agree
as follows:
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ARTICLE I
PURCHASE AND SALE
SECTION 1.1 Purchase and Sale. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller shall sell,
assign, transfer and deliver to Purchaser, and Purchaser shall purchase from
Seller, the Shares, free and clear of all options, pledges, security interests,
liens or other encumbrances or restrictions on voting or transfer
("Encumbrances"), other than restrictions imposed by Federal or state securities
laws.
SECTION 1.2 Purchase Price. On the Closing Date (as hereinafter
defined) and subject to the terms and conditions set forth in this Agreement,
Seller shall deliver a certificate or certificates representing the Shares duly
endorsed in blank or accompanied by stock powers duly executed in blank and, in
consideration of the sale, assignment, transfer and delivery of the Shares,
Purchaser shall pay to Seller an amount equal to $280,000,000 less the cost of
the Reinsurance Agreement (the "Purchase Price") by wire transfer of immediately
available funds to an account or accounts designated by Seller. The Intercompany
Note will be settled prior to Closing. Interest accrued prior to Closing on the
Intercompany Note may continue to be paid to Seller consistent with past
practices. All accrued but unpaid interest on the Intercompany Note as of the
Closing Date will be settled pursuant to Section 4.9.
SECTION 1.3 Closing.
(a) The sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at the
offices of Riordan & McKinzie in Los Angeles at 8:00 a.m. local time on a date
as soon as practical following the satisfaction or waiver of all conditions to
the obligations of the parties set forth in Article VI, but in no event later
than September 15, 1998 (or October 15, 1998, in the event Purchaser has
commenced its common stock rights offering contemplated by the Financing
Agreements), or at such other place or at such other time or on such other date
as Seller and Purchaser mutually agree on in writing (the day on which the
Closing takes place being the "Closing Date").
(b) At the Closing, Seller shall deliver or cause to be delivered to
Purchaser (i) stock certificates evidencing the Shares duly endorsed in blank or
accompanied by stock powers duly executed in blank, (ii) duly executed Service
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Agreements, (iii) a duly executed Reinsurance Agreement and (iv) all other
previously undelivered certificates and other documents required to be
delivered by Seller to Purchaser at or prior to the Closing Date in connection
with the transactions contemplated hereby.
(c) At the Closing, Purchaser shall deliver to Seller (i) the
Purchase Price by wire transfer in immediately available funds to an account or
accounts designated by Seller, (ii) duly executed Service Agreements and (iii)
all other previously undelivered certificates and other documents required to be
delivered by Purchaser to Seller at or prior to the Closing Date in connection
with the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
SECTION 2.1 Organization. Seller and each Seller Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. Seller and each Seller Subsidiary is duly
qualified or licensed to do business as a foreign corporation or other entity
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary. Seller has
made available to Purchaser a complete and correct copy of each of the articles
or certificate of incorporation, bylaws, certificate of formation, operating
agreement or similar organizational documents of Seller and each Seller
Subsidiary, as currently in effect. As used in this Agreement, "Seller Material
Adverse Effect" means any material adverse change in, or material adverse effect
on, the business, financial condition or operations of the Seller Subsidiaries,
taken as a whole; provided, however, that, the effects of changes that are
generally applicable to (i) changes resulting from market fluctuations in the
value of the Seller Subsidiaries' investment portfolio and (ii) the commutation
of the Agreement of Reinsurance No. 8382 and the Agreement of Reinsurance No.
8429, each between the Seller Subsidiaries and General Reinsurance Corporation,
if completed prior to Closing, shall be excluded from the determination of
Seller Material Adverse Effect; and provided, further, that any adverse effect
on the Seller Subsidiaries resulting from
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the execution of this Agreement and the announcement of this Agreement and the
transactions contemplated hereby shall also be excluded from the determination
of Seller Material Adverse Effect.
SECTION 2.2 Capitalization. Section 2.2 of the written statement
delivered by Seller to Purchaser at or prior to the execution of this Agreement
(the "Disclosure Schedule") sets forth the authorized, issued and outstanding
capital stock of each Seller Subsidiary. All the outstanding shares of capital
stock of the Seller Subsidiaries are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. There are no existing (i)
options, warrants, calls, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating Seller or any
Seller Subsidiary to issue, transfer or sell any shares of capital stock or
other equity interest in any Seller Subsidiary or securities convertible into
or exchangeable for such shares or equity interests, (ii) contractual or other
obligations of any Seller Subsidiary to repurchase, redeem or otherwise acquire
any capital stock of Seller or any Seller Subsidiary or (iii) voting trusts or
similar agreements or understandings to which Seller or any Seller Subsidiary
is a party with respect to the voting of the capital stock of any Seller
Subsidiary.
SECTION 2.3 Ownership of Stock. The Shares are owned by Seller free
and clear of all Encumbrances, other than restrictions imposed by Federal and
state securities laws. All of the issued and outstanding shares of the stock of
each of the Insurance Subsidiaries is owned by the Company free and clear of all
Encumbrances other than restrictions imposed by Federal and state securities
laws. Upon the consummation of the transactions contemplated hereby, Purchaser
will acquire title to the Shares, free and clear of all Encumbrances, other than
restrictions imposed by Federal and state securities laws.
SECTION 2.4 Authorization; Validity of Agreement. Seller and each
Seller Subsidiary, as appropriate, has the power and authority to execute and
deliver this Agreement and all the agreements and documents contemplated hereby,
to carry out its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller and each Seller Subsidiary, as appropriate, of this
Agreement, and all the agreements and documents contemplated hereby and thereby,
and the consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate action, and no other
corporate action on the part of Seller or such Seller Subsidiary is necessary to
authorize the execution and delivery by Seller and such Seller Subsidiary as,
appropriate, of this Agreement and all the
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agreements and documents contemplated hereby and thereby and the consummation by
it of the transactions contemplated hereby and thereby. This Agreement and each
of the agreements and documents contemplated hereby has been duly executed and
delivered by Seller and the Seller Subsidiaries, as appropriate, and (assuming
due and valid authorization, execution and delivery hereof by Purchaser) is a
valid and binding obligation of Seller and the Seller Subsidiaries, as
appropriate, enforceable against Seller and the Seller Subsidiaries, as
appropriate, in accordance with its terms, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
SECTION 2.5 Consents and Approvals; No Violations. Except as
disclosed in Section 2.5 of the Disclosure Schedule and except for (a) filings
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (b) approvals or consents of any court, legislative, executive
or regulatory authority or agency (a "Governmental Entity") under insurance
holding company laws of the states in which the Seller Subsidiaries are
domiciled or as may be otherwise required by law, (c) applicable requirements
under corporation or "blue sky" laws of various states and (d) matters
specifically described in this Agreement, neither the execution, delivery or
performance of this Agreement or any agreement or document contemplated hereby
by Seller or any Seller Subsidiary, as the case may be, nor the consummation by
Seller or any Seller Subsidiary, as the case may be, of the transactions
contemplated hereby or thereby will (i) violate any provision of the articles or
certificate of incorporation, bylaws or other organizational documents of Seller
or any Seller Subsidiary, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrances upon any of the
properties or assets of Seller or any Seller Subsidiary 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, lease,
license, contract, agreement or other instrument, commitment or obligation to
which Seller or any Seller Subsidiary is a party or by which any of them or any
of their properties or assets may be bound, (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to
Seller, any Seller Subsidiary or any of their properties or assets, (iv) require
on the part of Seller or any Seller Subsidiary any filing or registration with,
notification to, or authorization, consent or approval of, any Governmental
Entity or (v) result in a termination,
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loss or adverse modification of any license, permit, certificate or franchise
granted to, or otherwise held by, Seller or any Seller Subsidiary; except in the
case of clauses (ii) through (v) for such violations, breaches, defaults or
other events specified therein, which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would (A)
not have a Seller Material Adverse Effect and would not materially adversely
affect the ability of Seller to consummate the transactions contemplated by
this Agreement or (B) become applicable as a result of the business or
activities in which Purchaser is or proposes to be engaged or as a result of any
acts or omissions by, or the status of any facts pertaining to, Purchaser.
SECTION 2.6 Financial Statements.
(a) Seller has delivered to Purchaser the unaudited consolidated
balance sheets of the Seller Subsidiaries as of December 31, 1997, and the
related unaudited consolidated statements of income for each of the two years in
the period ended December 31, 1997 (collectively, the "Financial Statements").
Except as set forth in Section 2.6 of the Disclosure Schedule, (i) the Financial
Statements have been derived from the books and records of the Seller
Subsidiaries and (ii) (A) the unaudited consolidated balance sheets included in
the Financial Statements present fairly in all material respects, the financial
position of the Seller Subsidiaries as of the respective dates thereof, and (B)
the other related unaudited statements of income present fairly, in all material
respects, the results of their operations for the periods therein specified, in
each case prepared in accordance with United States Generally Accepted
Accounting Principles ("GAAP"), except for the absence of footnote disclosures,
Statements of Cash Flows and Statements of Changes in Stockholders' Equity, all
of which are required under GAAP.
(b) Seller has delivered to Purchaser copies of audited statutory
financial statements for each Insurance Subsidiary as of the year ended December
31, 1997, prepared in conformity with accounting practices prescribed or
permitted by the respective state of domicile for each Insurance Subsidiary
(collectively, the "STAT Financial Statements"). Each of the balance sheets
included in the STAT Financial Statements fairly presents in all material
respects the financial position of the applicable Seller Subsidiary as of
December 31, 1997 and each statement of operations included in the STAT
Financial Statements fairly presents in all material respects the results of
operations of the applicable Insurance Subsidiary for the period therein set
forth, in each case in accordance with statutory accounting practices prescribed
or permitted by the respective state of domicile.
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(c) Notwithstanding any other provision of this Agreement (including
Sections 2.6 and 2.7), Seller makes no representation or warranty with respect
to (i) the items set forth in Section 2.6 of the Disclosure Schedule (the
"Listed Items") or (ii) the reserves of the Seller Subsidiaries for losses or
loss adjustment expenses (including, without limitation, whether such reserves
or liabilities are adequate or sufficient). Purchaser acknowledges that nothing
in this Agreement (including Sections 2.6 and 2.7) is intended to, or shall be
construed to, provide a guaranty of the adequacy of (i) the Listed Items or (ii)
the loss and loss adjustment expense reserves of Seller as shown in the
Financial Statements or the STAT Financial Statements.
SECTION 2.7 No Undisclosed Liabilities. Except as disclosed in
Section 2.7 of the Disclosure Schedule and as set forth in Section 2.6(c) above
and except (a) for liabilities and obligations incurred in the ordinary course
of business, consistent with past practices, after December 31, 1997, (b) for
liabilities and obligations disclosed in the Financial Statements or the STAT
Financial Statements and (c) for liabilities and obligations incurred in
connection with the transactions contemplated hereby or otherwise as
contemplated by this Agreement, since December 31, 1997, the Seller Subsidiaries
have not incurred any liabilities or obligations that would constitute a Seller
Material Adverse Effect.
SECTION 2.8 Absence of Certain Changes. Except as (a) disclosed in
Sections 2.6 or 2.8 of the Disclosure Schedule or (b) contemplated by this
Agreement, since December 31, 1997, the Seller Subsidiaries have not (i)
suffered any change constituting a Seller Material Adverse Effect, (ii) amended
their articles or certificate of incorporation, bylaws or other organizational
documents, (iii) materially changed their accounting principles, practices or
methods, except as required by GAAP or applicable law, (iv) suffered any event
or change or taken any action that would have violated Section 4.1(b) through
(m) below if it had occurred or been taken after the date hereof and (iv) the
Company has not (x) split, combined or reclassified the Shares or (y) declared
or set aside or paid any dividend or other distribution with respect to the
Shares other than regular cash dividends which have been declared consistent
with past practice and set forth in Section 2.8 of the Disclosure Schedule
(excluding dividends or distributions payments made to Seller Subsidiaries).
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SECTION 2.9 Employee Benefit Plans; ERISA.
(a) Section 2.9(a) of the Disclosure Schedule sets forth a list of
all material employee benefit plans, programs and agreements, (including but not
limited to plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all multiemployer plans (as
defined in Section 4001(a)(3) of ERISA maintained or contributed to by the
Seller Subsidiaries, or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), which together with the Seller Subsidiaries, would be
deemed a "single employer" within the meaning of Section 414 of the Code for the
benefit of employees, former employees and directors of, and consultants of, and
consultants to, the Seller Subsidiaries ("Benefit Plans").
(b) With respect to each Benefit Plan, Seller has made available to
Purchaser complete copies of the plan documents (including all amendments
thereto) and, where applicable, the most recent summary plan description, all
other material employee communications and the most recent Internal Revenue
Service determination letter relating to such Benefit Plan.
(c) Each Benefit Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including,
without limitation, ERISA and the Code, except where the failure to so
administer such plan would not reasonably be expected to have a Seller Material
Adverse Effect.
(d) Except as disclosed in Section 2.9(d) of the Disclosure Schedule,
no Benefit Plan provides medical or death benefits with respect to current
or former employees of the Seller Subsidiaries beyond their termination of
employment other than (i) to the extent required by applicable law , (ii) death
benefits under any "pension plan" (as defined in Section 3(2) of ERISA) or (iii)
benefits the full cost of which is borne by the current or former employee (or
his beneficiary).
(e) Except as set forth in Section 2.9(e) of the Disclosure
Schedule, all costs of administering and contributions required to be made to
each Benefit Plan under the terms of that Benefit Plan, ERISA, the Code or any
other applicable law have been timely made.
(f) No Benefit Plan is subject to Code Section 412.
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(g) The Internal Revenue Service has issued a favorable
determination letter with respect to each Benefit Plan that is intended to
qualify under Section 401(a) of the Code and to the knowledge of Seller, no
event has occurred (either before or after the date of the letter) that would
disqualify the plan.
(h) Except as set forth in Section 2.9(h) of the Disclosure
Schedule, to the knowledge of Seller, there are no investigations, proceedings,
or lawsuits, either currently in progress or expected to be instituted in the
future, relating to any Benefit Plan, by any administrative agency, whether
local, state, or federal.
(i) There are no pending or, to the knowledge of Seller, threatened
lawsuits or other claims (other than routine claims for benefits under the plan
and qualified domestic relations orders) against or involving (i) any Benefit
Plan or (ii) any Fiduciary of such plan (within the meaning of Section 3(21)(A)
of ERISA) brought on behalf of any participant, beneficiary, or Fiduciary
thereunder relating to any Benefit Plan.
(j) None of the Seller Subsidiaries have any intention or legally
binding commitment to create any additional Benefit Plan, or to modify or change
any existing Benefit Plan so as to increase benefits to participants or the cost
of maintaining the plan.
(k) Except as disclosed in Section 2.9(k) of the Disclosure
Schedule, none of the Benefit Plans or employment contracts with any of the
Seller Subsidiaries provide any benefits that become payable solely as a result
of the consummation of this transaction.
SECTION 2.10 Litigation. Except as disclosed in Section 2.10 of the
Disclosure Schedule, there is no action, suit, proceeding or, to the knowledge
of Seller or any Seller Subsidiary, investigation pending or, to the knowledge
of Seller or any Seller Subsidiary, action, suit, proceeding or investigation
threatened, involving the Seller Subsidiaries or any of their assets or their
officers or directors as such, or challenging the validity or propriety of the
transactions contemplated by this Agreement by or before any Governmental Entity
or by any third party that is reasonably likely to have a Seller Material
Adverse Effect. Except as disclosed in Section 2.10 of the Disclosure Schedule,
no material orders, decrees, awards, sanctions or judgments exist against
Seller or the Seller Subsidiaries, any of their assets or their officers or
directors as such, other than those applicable to the industry as a whole in the
jurisdiction where issued.
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SECTION 2.11 No Default; Compliance with Applicable Laws.
(a) Except as disclosed in Section 2.11(a) of the Disclosure
Schedule, none of the Seller Subsidiaries is in default or violation of any
term, condition or provision of (i) its articles or certificates of
incorporation, bylaws or similar organizational documents, (ii) any of the
Material Agreements (as hereinafter defined) or (iii) any statute, law, rule,
regulation, judgment, decree, order, arbitration award, or licenses, permits,
consents, approvals and authorizations of any Governmental Entity ("Permits")
applicable to any Seller Subsidiary including, without limitation, laws, rules
and regulations relating to the environment, occupational health and safety,
employee benefits, wages, workplace safety, equal employment opportunity and
any unlawful discrimination, excluding from the foregoing clauses (ii) and
(iii), defaults or violations which would not have a Seller Material Adverse
Effect or which become applicable as a result of the business or activities in
which Purchaser is or proposes to be engaged or as a result of any acts or
omissions by, or the status of any facts pertaining to, Purchaser. Except as set
forth on Disclosure Schedule 2.11(a) hereto, neither Seller nor any Seller
Subsidiary has received any written notice since January 1, 1996 from any
Governmental Entity alleging any violation described in clause (iii) or
directing Seller or any Seller Subsidiary to take any remedial action with
respect to such law, ordinance or regulation which in each case would have a
Seller Material Adverse Effect.
(b) Each Insurance Subsidiary has been duly authorized by the
relevant state insurance regulatory authorities to issue the insurance contracts
that it is currently writing in the respective states in which it conducts its
business, with such authority listed state by state for each Insurance
Subsidiary in Section 2.11(b) of the Disclosure Schedule. Each Insurance
Subsidiary has all other material Permits necessary to conduct its business in
the manner and in the areas in which it is presently being conducted by such
Insurance Subsidiary, and all such material Permits are valid and in full force
and effect.
SECTION 2.12 Taxes. Except as disclosed in Section 2.12 of the
Disclosure Schedule:
(a) the Seller Subsidiaries have (i) timely filed or caused to be
filed all Tax Returns (as hereinafter defined) required to be filed by them
other than those Tax Returns the failure of which to file would not have a
Seller Material Adverse Effect, and all such returns were true, correct and
complete in all material respects
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when filed and (ii) paid or accrued (in accordance with GAAP) all material Taxes
(as hereinafter defined) shown to be due on such Tax Returns other than such
Taxes that are being contested in good faith by the Seller Subsidiaries;
(b) neither Seller nor the Seller Subsidiaries have received written
notice of any ongoing or pending nor to the knowledge of Seller or the Seller
Subsidiaries, there are no threatened federal, state, local or foreign audits
or examinations of any Tax Return of the Seller Subsidiaries except a federal
income tax examination which is currently in process for the tax year ended June
30, 1996;
(c) there are no outstanding written requests, agreements, consents
or waivers to extend the statutory period of limitations applicable to the
assessment of any material Taxes or deficiencies against the Seller Subsidiaries
other than the six-month statute extension which results from filing of federal
tax returns by the extended due date;
(d) none of the Seller Subsidiaries is a party to an agreement
providing for the allocation or sharing of Taxes, except with its common parent,
FHS, which agreement will be terminated effective as of December 31, 1997; and
(e) there are no material statutory liens for Taxes upon the assets
of any Seller Subsidiary which are not provided for in the Financial Statements,
except liens for Taxes not yet due and payable and liens for Taxes that are
being contested in good faith.
(f) No assessment, audit or other proceeding by any taxing authority
is proposed, pending, or, to the knowledge of the Seller or the Seller
Subsidiaries, threatened with respect to any Taxes or Tax returns of any of the
Seller Subsidiaries.
(g) No consent to the application of Section 341(f)(2) of the Code
has been made or filed by or with respect to any of the Seller Subsidiaries or
any of their assets and properties.
(h) The Seller Subsidiaries have not taken any action that would
require an adjustment pursuant to Section 481 of the Code by reason of a change
in accounting method or otherwise.
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(i) There have not been, nor will there be from the date hereof
through and including the Closing Date, any payments, or any agreements to make
payments, which are contingent upon, or related to, the transactions
contemplated hereunder and which would be "excess parachute payments" under
Section 280G of the Code.
(j) The Seller Subsidiaries have not executed or entered into any
closing agreement pursuant to Section 7121 of the Code, or any predecessor pro-
visions thereof or any similar provision of state or other law with respect to
any period for which the statute of limitations has not expired.
"Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, occupation, use,
service, service use, value added, license, net worth, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States
Internal Revenue Service or any taxing authority (whether domestic or foreign
including, without limitation, any state, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "Tax Return" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes.
SECTION 2.13 Property. Except as set forth in Section 2.13 of the
Disclosure Schedule, each Seller Subsidiary has sufficient leaseholds or rights
to real property to conduct its respective businesses as currently conducted in
all material respects. Section 2.13 of the Disclosure Schedule lists all
facility leases and agreements or rights to use facilities to which any of the
Seller Subsidiaries is a party in any capacity. No notice of default has been
given to Seller or any Seller Subsidiary, there is no existing default, and no
conditions that, with notice or lapse of time, would constitute a default by any
party to any such agreements.
SECTION 2.14 Intellectual Property. Section 2.14 of the Disclosure
Schedule lists all material trademarks, copyrights and patents owned or used by
the Seller Subsidiaries in the conduct of their business, and states all
royalties or license fees the Seller Subsidiaries pay for material proprietary
rights used in any of their businesses. Except as disclosed in Section 2.14 of
the Disclosure Schedule, there are
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no pending or, to the knowledge of Seller or the Seller Subsidiaries, threatened
claims of which Seller or the Seller Subsidiaries have been given written
notice, by any person and neither Seller nor any Seller Subsidiary has asserted
a claim against any person with respect to any patents, patent rights,
trademarks, trademark rights, service marks, service mark rights, trade names,
trade name rights, copyrights, logos, assumed names and applications therefor
and any know-how, technology, trade secrets or other proprietary information
owned or used by the Seller Subsidiaries in their respective operations as
currently conducted (collectively, the "Seller Intellectual Property"). The
Seller Subsidiaries have such ownership of or such rights by license, lease or
other agreement to Seller Intellectual Property as are necessary to permit them
to conduct their respective operations as currently conducted, except where the
failure to have such rights would not have a Seller Material Adverse Effect.
Except as set forth in Section 2.14 of the Disclosure Schedule, to the knowledge
of the Seller and the Seller Subsidiaries, the Seller Subsidiaries have taken
all appropriate actions and made all appropriate applications and filings
pursuant to applicable laws to perfect or protect their interest in the Seller
Intellectual Property.
SECTION 2.15 Contracts. Seller has delivered or listed in Section
2.15 of the Disclosure Schedule and made available to Purchaser copies of all
written Material Agreements (as hereinafter defined). Except as set forth in
Section 2.15 of the Disclosure Schedule, each Material Agreement is in full
force and effect and, to the knowledge of Seller and the Seller Subsidiaries, is
valid and enforceable by the applicable Seller Subsidiary in accordance with its
terms. Except as set forth in Section 2.15 of the Disclosure Schedule, none of
Seller Subsidiaries is in default in the observance or the performance of any
term or obligation to be performed by it under any Material Agreement; to the
knowledge of Seller there does not exist any event that, with the giving of
notice or the lapse of time or both, would constitute a breach of or a default
under any Material Agreement; and to the knowledge of Seller, there have been no
intentional waivers or releases of any rights or remedies of any Seller
Subsidiaries under any Material Agreement except for such breaches, defaults or
waivers the effect of which, individually or in the aggregate, would not have a
Seller Material Adverse Effect. To the knowledge of Seller and the Seller
Subsidiaries, no other person is in default in the observance or the
performance of any term or obligation to be performed by it under any Material
Agreement. As used in this Agreement, "Material Agreement(s)" shall mean each
agreement, arrangement, instrument, bond, commitment, franchise, indemnity,
indenture, lease, license or understanding to which any Seller Subsidiary is a
party or to which any Seller Subsidiary or any of its respective properties is
subject that (i) obligates any Seller Subsidiary to pay an amount in excess of
$150,000 in any twelve-month period
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beginning after December 31, 1997, (ii) provides for the extension of credit,
(iii) provides for a guaranty by any Seller Subsidiary of obligations of others
in excess of $150,000, (iv) constitutes an employment agreement or personal
service contract not terminable on less than sixty (60) days' notice without
penalty, (v) expressly limits, in any material respect, the ability of any
Seller Subsidiary to engage in any line of business, compete with any person or
expand the nature or geographic scope of its business, (vi) creates a joint
venture, (vii) since January 1, 1996, involved the acquisition or disposition of
a portion of the business or assets of any Seller Subsidiary that provided for
an aggregate purchase price in excess of $5,000,000 (other than the sale of
obsolete equipment or materials, in each case, in the ordinary course of
business) (the "Disposed Businesses"), (viii) producer agreements that the
Insurance Subsidiaries have entered into with the ten largest producers overall
for the Insurance Subsidiaries taken as a whole and (ix) all excess of loss,
quota share and aggregate stop reinsurance agreements and reinsurance assumed or
fronting arrangements. Notwithstanding the foregoing, the term "Material
Agreement(s)" does not include insurance contracts (including runoff contracts,
reinsurance (other than as provided in clause (ix) above), retrocession
agreements, surety agreements and financial guaranties, structured annuities
for settlement of claims, agreements entered into with parties identified on
Schedule M of the STAT Financial Statements, incentive commission agreements and
agent and broker agreements (other than as provided in clause (viii) above))
entered into by the Seller Subsidiaries in the ordinary course of the insurance
business except as specifically described above.
SECTION 2.16 Labor Matters. Except as set forth in Section 2.16 of
the Disclosure Schedule, (a) neither Seller nor any Seller Subsidiary is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, (b) there
is no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of Seller, threatened against Seller or the Seller Subsidiaries,
except for any such proceeding which would not have, individually or in the
aggregate, a Seller Material Adverse Effect and (c) the Seller Subsidiaries are
in material compliance with all applicable regulations respecting employment
practices, terms and conditions of employment, wages and hours, equal employment
opportunity, and the payment of social security and similar taxes. Set forth in
Section 2.16 of the Disclosure Schedule is a list of all (i) employment
contracts, (ii) severance policies, (iii) compensation and bonus plans
applicable to employees of the Seller Subsidiaries and (iv) historic bonus and
compensation practices applicable to employees of the Seller Subsidiaries.
Except as set forth in Section 2.16 of the Disclosure Schedule, there is no
material controversy pending or, to the knowledge of Seller or the Seller
Subsidiaries threatened between
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the Seller Subsidiaries and any of their employees, and to the knowledge of
Seller or the Sellers Subsidiaries there are not facts that could reasonably
result in any such material controversy. The Seller Subsidiaries are not liable
for any claims for past due wages, bonuses or compensation or any penalties for
failure to pay such past due wages, bonuses or compensation.
SECTION 2.17 Brokers or Finders. Except for the fees payable to
Salomon Smith Barney and Shattuck Hammond Partners, Inc., which will be paid by
Seller, Seller represents, as to itself and the Seller Subsidiaries, that no
agent, broker, investment banker, financial advisor or other firm or person is
or will be entitled to any brokers' or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement.
SECTION 2.18 Transactions with Related Parties. Except as set forth
in Section 2.18 of the Disclosure Schedule or with respect to inconsequential
matters, no Affiliate of the Seller Subsidiaries has any contract for services,
borrowed or loaned money or other property with, or made any material
contractual or other claims on or against, any Seller Subsidiary or has any
interest in any property used by any Seller Subsidiary. Seller has made
available to Purchaser copies of all Forms B required to be filed by the Seller
Subsidiaries with insurance regulatory authorities in calender year 1997.
SECTION 2.19 Environmental Matters.
(a) Definitions. The following terms, when used in this Section 2.19,
shall have the following meanings:
(i) "Seller Subsidiaries" for purposes of this Section 2.19
includes (A) Seller, (B) the Seller Subsidiaries, (C) all affiliates of
the Seller Subsidiaries, and (D) all partnerships, joint ventures and
other entities or organizations in which any Seller Subsidiary was at any
time after January 1, 1993, or is a partner, joint venturer, member or
participant.
(ii) "Release" means and includes any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment of any Hazardous
Substance, and otherwise as defined in any Environmental Law.
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(iii) "Hazardous Substance" means any pollutants, contaminants
and any toxic, hazardous, infectious, carcinogenic, corrosive, ignitable
or flammable chemical, chemical compound, material or waste, whether
solid, liquid or gas, including asbestos, urea formaldehyde, PCB's, radon
gas, crude oil or any fraction thereof, all forms of natural gas,
petroleum products or by-products or derivatives, radioactive substance
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Law as hazardous or toxic.
(iv) "Environmental Laws" mean all laws, rules, regulations,
ordinances, orders or decrees as now in effect which regulate or relate to
the protection or clean-up of the environment, the use, treatment,
storage, transportation, generation, manufacture, processing distribution,
handling or release or threatened release of Hazardous Substances, the
preservation or protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resources, or the health of persons,
including protection of the health of employees. Environmental Laws
include, without limitation, the Federal Water Pollution Control Act,
Resource Conservation & Recovery Act, Clean Water Act, Safe Drinking Water
Act, Atomic Energy Act, Occupational Safety and Health Act, Toxic
Substances Control Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and Liability Act, Hazardous Materials
Transportation Act and all analogous or related federal, state or local
statutes, laws, rules and regulations.
(v) "Environmental Conditions" mean the release into the
environment of any Hazardous Substance as a result of which any Seller
Subsidiary has or may become liable to any person or entity or by reason
of which any of the assets of any Seller Subsidiary may suffer or be
subjected to any encumbrance or lien.
(b) Environmental Representations. Except as set forth in Section
2.19(b) of the Disclosure Schedule and except for claims which individually or
in the aggregate are not reasonably likely to have a Seller Material Adverse
Effect, each Seller Subsidiary is in compliance in all material respects, with
all Environmental Laws.
(c) Notice of Violation. Neither Seller nor any Seller Subsidiary has
received any written notice of alleged, actual or potential responsibility for,
or any written inquiry or written notice of investigation regarding (i) any
Release or threat-
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ened Release by any Seller Subsidiary or any Hazardous Substance at any
location, or (ii) an alleged violation of or non-compliance by any Seller
Subsidiary with the conditions of any permit required under any Environmental
Law or the provisions of any Environmental Law. Neither Seller nor any Seller
Subsidiary has received any written notice of any other claim, demand or action
by any person or entity alleging any actual or threatened injury or damage to
any person, entity, property, natural resource or the environment arising from
or relating to any Release or threatened Release by any Seller Subsidiary of any
Hazardous Substances.
(d) Environmental Conditions. There are no present or past
Environmental Conditions in any way relating to any Seller Subsidiary, the
business or the assets of any Seller Subsidiary, except for any Environmental
Conditions which individually or in the aggregate are not reasonably likely to
have a Seller Material Adverse Effect.
SECTION 2.20 Year 2000 Compliance. To the knowledge of Seller and the
Seller Subsidiaries, no Seller Subsidiary owns or uses any application programs,
databases, software or hardware (including distributed systems and imbedded
chips), the performance of which will be adversely affected by dates after the
commencement of the year 2000 ("Year 2000 Matters") except to the extent such
adverse effects would not have a Seller Material Adverse Effect. Set forth in
Section 2.20 of the Disclosure Schedule is a description of the Seller
Subsidiaries' compliance program with respect to Year 2000 Matters and a
statement as to their progress in meeting such program's compliance schedule and
goals as of the date hereof.
SECTION 2.21 Insurance. Section 2.21 of the Disclosure Schedule sets
forth the insurance carriers and areas of coverage with respect to the insurance
policies of the Seller Subsidiaries.
SECTION 2.22 Bank Accounts. Section 2.22 of the Disclosure Schedule
sets forth a list of the Seller Subsidiaries' bank accounts, safe deposit boxes,
and related powers of attorney, and identifies all persons authorized to draw
thereon or have access thereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
SECTION 3.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not have a Purchaser Material
Adverse Effect (as hereinafter defined). Purchaser is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would not
have a Purchaser Material Adverse Effect. As used in this Agreement, "Purchaser
Material Adverse Effect" means any material adverse change in, or material
adverse effect on, the business, financial condition or operations of Purchaser
and its Subsidiaries, taken as a whole; provided, however, that any adverse
effect on Purchaser and its Subsidiaries resulting from the execution of this
Agreement and the announcement of this Agreement and the transactions
contemplated hereby shall also be excluded from the determination of Purchaser
Material Adverse Effect.
SECTION 3.2 Authorization; Validity of Agreement; Necessary Action.
Subject to the approval of its stockholders, Purchaser has the corporate power
and authority to execute and deliver this Agreement and all the agreements and
documents contemplated hereby, and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Purchaser of this Agreement
and all the agreements and documents contemplated hereby, and the consummation
of the transactions contemplated hereby, have been duly authorized by all
necessary corporate proceedings, subject to stockholder approval by a majority
of all stockholders entitled to vote, and no other corporate action on the part
of Purchaser is necessary to authorize the execution and delivery by Purchaser
of this Agreement and all the agreements and documents contemplated hereby, and
the consummation by it of the transactions contemplated hereby. Stockholders
holding or otherwise controlling the right to vote not less than 41.8% of the
outstanding voting shares of the Purchaser have executed and delivered Voting
Agreements to the Seller. This Agreement and
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all the agreements and documents contemplated hereby, have been duly executed
and delivered by Purchaser and by certain of its stockholders as appropriate
(and assuming due and valid authorization, execution and delivery hereof by
Seller) is a valid and binding obligation of Purchaser and such stockholders, as
appropriate, enforceable against them in accordance with its terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 3.3 Consents and Approvals; No Violations. Except as set
forth in Section 3.3 of the written statement delivered by Purchaser to Seller
at or prior to the execution of the Agreement (the "Purchaser Disclosure
Schedule") and except for (a) filings pursuant to the HSR Act, (b) approvals or
consents of Governmental Entities under insurance holding company laws of the
states in which the Seller Subsidiaries are domiciled, (c) filings required
pursuant to the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, (d) approval by Purchasers' stockholders and (e)
matters specifically described in this Agreement, neither the execution,
delivery or performance of this Agreement by Purchaser nor the consummation by
Purchaser of the transactions contemplated hereby will (i) violate any provision
of the certificate of incorporation, bylaws or other organizational documents of
Purchaser, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Purchaser or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, (iii) violate any order, writ, judgment,
injunction, decree, law, statute, rule or regulation applicable to Purchaser,
any of its Subsidiaries or any of their properties or assets or (iv) require on
the part of Purchaser any filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity except in the
case of clauses (ii), (iii) or (iv) for such violations, breaches or defaults
which, or filings, registrations, notifications, authorizations, consents or
approvals the failure of which to obtain would not have a Purchaser Material
Adverse Effect and would not materially adversely affect the ability of
Purchaser to consummate the transactions contemplated by this Agreement.
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SECTION 3.4 Acquisition for Investment. Purchaser is acquiring the
Shares solely for its own account and not with a view to any distribution or
other disposition of such Shares, and the Shares will not be transferred except
in a transaction registered or exempt from registration under the Securities
Act of 1933, as amended.
SECTION 3.5 Financing. Purchaser has (i) entered into a valid,
binding and enforceable stock purchase agreement and backup letter agreement
with the Zurich Centre Investments Ltd. (collectively, the "IP Stock Purchase
Agreement") with Insurance Partners, L.P. ("IP"), Insurance Partners Offshore
(Bermuda), L.P. ("IPB") and Capital Z Partners, Ltd. ("Capital Z"), and (ii)
received a written "highly confident letter" from Donaldson, Lufkin & Jenrette
(together, the "Financing Agreements") for financing the consummation of the
transactions contemplated hereby. IP, IPB and Capital Z have sufficient
unencumbered funds unconditionally committed to fulfill their respective
obligations under the IP Stock Purchase Agreement. The proceeds for such
financing set forth in the Financing Agreements, together with Purchaser's cash
on hand as of the date hereof and as of the Closing Date, will be sufficient to
enable Purchaser to pay the full amount of the Purchase Price at the Closing.
True and complete copies of each of the Financing Agreements have been provided
to Seller by Purchaser.
SECTION 3.6 Investigation by Purchaser. In entering into this
Agreement, Purchaser:
(a) acknowledges that, except for the specific representations and
warranties of Seller contained in Article II, none of Seller, any Seller
Subsidiary, or any of their respective directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives, makes or
shall be deemed to have made any representation or warranty, either express or
implied, as to the accuracy or completeness of any of the information
(including, without limitation, any reserve estimates, projections, forecasts or
other forward-looking information) provided or otherwise made available to
Purchaser or any of its directors, officers, employees, Affiliates, controlling
persons, agents, advisors or representatives (including, without limitation, in
any management presentations, information or offering memorandum, the actuarial
report entitled "An Actuarial Analysis of the Loss and Loss Adjustment Expense
Reserves of Business Insurance Group as of December 31, 1997," prepared by
Milliman & Robertson, Inc. (the "M&R Report"), supplemental information or other
materials or information with respect to any of the above); and
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(b) agrees, to the fullest extent permitted by law, that Seller and
its directors, officers, employees, Affiliates, controlling persons, agents,
advisors or representatives shall not have any liability or responsibility
whatsoever to Purchaser or any of its directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives on any
basis in respect of the specific representations and warranties of Seller set
forth in Article II, except as and only to the extent expressly set forth herein
with respect to such representations and warranties and subject to the
limitations and restrictions contained herein.
SECTION 3.7 Capital Adequacy; Solvency. Purchaser represents that
immediately after the sale of the Shares and the other transactions contemplated
herein, Purchaser (and any successor corporation) will have a positive net worth
(calculated in accordance with GAAP) and will not be insolvent (as defined under
the federal Bankruptcy Code (the "Bankruptcy Code") and in equity) and that the
sale of the Shares and other transactions contemplated hereby and any borrowing
by Purchaser in connection with such transactions will not have the effect of
hindering, delaying or defrauding any creditors of Purchaser (or any successor
corporation). Purchaser further represents that (A) upon consummation of the
sale of the Shares and within the meaning of Section 548 of the Bankruptcy Code,
the Seller Subsidiaries (and any successor corporations) will (i) have adequate
capitalization, (ii) not have an unreasonably small capital with respect to the
business or transactions engaged in or to be engaged in and (iii) not have
incurred debts that would be beyond the ability of Purchaser (or any successor
corporation) to pay as such debts mature and (B) the Purchase Price is a
reasonably equivalent value in exchange for the Shares.
ARTICLE IV
COVENANTS
SECTION 4.1 Interim Operations of Seller. Promptly upon the execution
of this Agreement, Seller agrees that Purchaser may place certain senior
executives, including Arnold Senter (the "Interim Consulting Team"), in interim
consulting positions at the Company and the Insurance Subsidiaries pursuant to
consulting arrangements which are reasonably acceptable to the parties and
consistent with the terms of this Agreement. The Seller agrees to cause the
Company and the Insurance Subsidiaries to take, or not take, such actions as the
Interim Consulting Team may reasonably direct with respect to (i) the strategy
and execution of the Seller Subsidiaries' underwriting, reinsurance, claims
handling and other operational
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functions, and (ii) the restructuring of certain asset positions, both in the
Seller Subsidiaries' investment portfolios and otherwise, each subject to
Seller's approval, which will not be unreasonably withheld. The Interim
Consulting Team will coordinate all of its activities under this Agreement
through Jay M. Gellert, B. Curtis Westen and Maurice A. Costa or their
designees. Notwithstanding any other provision of the Agreement, neither the
Seller, nor any of the Seller Subsidiaries, shall be obligated to commute any
insurance or reinsurance policy or otherwise take any action that may be
reasonably expected to cause any Governmental Entity to require Seller or any of
its Affiliates to make a capital contribution to the Seller Subsidiaries. Absent
the written approval of one of the Interim Consulting Team, Seller covenants and
agrees that, except (i) as contemplated by this Agreement (including the
distribution of the Excluded Assets) or (ii) as disclosed in Section 4.1 of the
Disclosure Schedule after the date hereof and prior to the Closing Date:
(a) the business of the Seller Subsidiaries shall be conducted only
in the ordinary and usual course of business and shall not include any actions
inconsistent with the transactions contemplated hereby or by the agreements
contemplated hereunder;
(b) none of the Seller Subsidiaries will amend its articles or
certificate of incorporation, bylaws or similar organizational documents;
(c) the Company will not (i) split, combine or reclassify the Shares,
(ii) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to the Shares, provided, that the Company
may dividend or otherwise distribute or take any other necessary action to allow
Seller to retain the Excluded Assets, (iii) issue or sell any additional shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, the Shares or any capital
stock of the Company, or (iv) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(d) none of the Seller Subsidiaries shall (i) 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 material respect, except for
changes which are less favorable to participants in such plans or as may be
required by applicable law or (ii) 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 promotions in the
ordinary course of business consistent with past practices, normal merit
increases of five percent (5%) or less per
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annum in the ordinary and usual course of business and the payment of cash
bonuses to employees pursuant to and consistent with existing plans or programs,
with respect to which any necessary accruals have been made;
(e) none of the Seller Subsidiaries shall, except as may be required
or contemplated by this Agreement or in the ordinary and usual course of
business, consistent with prior practice, acquire, sell, lease or dispose of any
assets which, individually or in the aggregate, are material to the financial
position or results of operations of the affected Seller Subsidiary;
(f) none of the Seller Subsidiaries shall (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 consistent
with past practice, (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, indirectly, contingently or otherwise) for the
material obligations of any other person except in the ordinary and usual course
of business consistent with past practice in an amount not material to the
affected Seller Subsidiary, (iii) make any loans, advances or capital
contributions to, or investments in, any other person other than in the ordinary
and usual course of business consistent with past practice, (iv) pledge or
otherwise encumber the Shares or any shares of any Insurance Subsidiary or (v)
mortgage or pledge any of its material assets, tangible or intangible, or create
or suffer to exist any material Encumbrance of any kind with respect to any such
asset;
(g) none of the Seller Subsidiaries shall (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
(other than purchases of marketable securities in the ordinary course of
business), (ii) other than capital expenditures provided for in the 1998 capital
expenditures budgets of the Seller Subsidiaries, which budgets have been
delivered or made available to Purchaser, authorize any new capital expenditure
or expenditures which, individually, is in excess of $150,000 or, in the
aggregate, are in excess of $500,000 or (iii) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any action
which would be prohibited hereunder;
(h) none of the Seller Subsidiaries shall adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such liquidation
or a dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization;
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(i) none of the Seller Subsidiaries shall materially change any of
the accounting methods or practices used by it unless required by GAAP,
statutory accounting practices or applicable law;
(j) none of the Seller Subsidiaries shall settle or compromise any
claim (including arbitration) or litigation, which after insurance reimbursement
involves an amount in excess of $500,000 or otherwise is material to the Seller
Subsidiaries taken as a whole, without the prior written consent of Purchaser,
which consent will not be unreasonably withheld;
(k) none of the Seller Subsidiaries shall make any payment, loan or
advance of any amount to or in respect of, or engage in the sale, transfer or
lease of any of its property or assets to, or enter into any contract with, any
Affiliate, except (i) in accordance with the terms of the agreements set forth
in Section 2.18 of the Disclosure Schedule, and (ii) in connection with Seller's
retention of the Excluded Assets and the owned real property, as contemplated by
this Agreement;
(l) none of the Seller Subsidiaries shall amend the terms of the (i)
Material Agreements, as disclosed in Section 2.15 of the Disclosure Schedule and
(ii) contracts, agreements or arrangements with any related party, as disclosed
in Section 2.18 of the Disclosure Schedule, to cause any change in the cost,
services being provided, or term of any such agreements, other than as
specifically contemplated by this Agreement;
(m) none of the Seller Subsidiaries shall cancel any indebtedness or
intentionally waive, release, grant or transfer any rights of substantial value
to the affected Seller Subsidiary, except in the ordinary course of business and
consistent with past practice, or forgive or waive any rights in connection with
any loans to its officers, directors or other related individuals; and
(n) neither Seller nor any Seller Subsidiary will authorize or enter
into an agreement to do any of the foregoing.
SECTION 4.2 Access to Information. Seller shall cause each Seller
Subsidiary to afford Purchaser's officers, employees, accountants, counsel and
other authorized representatives full and complete access during normal business
hours throughout the period prior to the Closing Date or the date of termination
of this Agreement, to its and its offices, properties, contracts, commitments,
books and records (including but not limited to Tax Returns related solely to
the Seller Subsid-
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iaries) and any report, schedule or other document filed or received by it
during such period pursuant to the requirements of Federal or state securities
laws and to use all reasonable efforts to cause its representatives to furnish
promptly to Purchaser such additional financial and operating data and other
information as to its businesses and properties as Purchaser or its duly
authorized representatives may from time to time reasonably request and to make
reasonably available the officers and employees of each Seller Subsidiary to
answer fully and promptly reasonable questions put to them; provided, however,
that nothing herein shall require Seller or the Seller Subsidiaries to disclose
any information to Purchaser if such disclosure would violate applicable laws or
regulations of any Governmental Entity. Unless otherwise required by law and
until the Closing Date, Purchaser will hold any such information which is
nonpublic in confidence in accordance with the provisions of the Confidentiality
Agreement between Seller and Purchaser, dated as of January 6, 1998 (the
"Confidentiality Agreement").
SECTION 4.3 Tax Matters.
(a) Section 338(h)(10) Election; Allocation of "Adjusted Grossed-Up
Basis." Seller and Purchaser agree to elect under section 338(h)(10) of the Code
to treat the sale of the Shares as a sale by the Company of all of its assets
and a sale by the Insurance Subsidiaries of all their assets (the "Section
338(h)(10) Election") and shall make any such available election under any
substantially similar state or local law, if requested by Seller. As reasonably
requested by Seller, Purchaser shall take such actions as Seller deems necessary
to effect the Section 338(h)(10) Election (including, without limitation, the
timely filing of Internal Revenue Service Form 8023 (Corporate Qualified Stock
Purchase Elections).
(b) Allocation. On or before the date that is 30 days after the
Closing Date, Purchaser shall provide to Seller a proposed allocation of the
Purchase Price for the deemed sale of assets resulting from the making of the
Section 338(h)(10) Election, setting forth the estimated fair market values of
the assets of each of the Company and the Insurance Subsidiaries. On or before
the date that is 60 days after the Closing Date, Seller and Purchaser shall
agree upon a final allocation of such purchase price (the "Final Allocation").
Seller and Purchaser shall cooperate in developing the Final Allocation,
provided, however, that Purchaser's allocation shall be presumed to be an
allocation based upon the fair market values of the Seller Subsidiaries and that
Seller shall have the burden of proof to demonstrate that such allocation is not
an appropriate allocation.
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(c) Forms. On or before the date that is ten days before the Closing
Date, Seller shall provide to Purchaser drafts of all forms, together with all
drafts of required attachments thereto, other than allocation of the Purchase
Price, required for making the Section 338(h)(10) Election and any such
available election under any substantially similar state or local law if
requested by Seller (the "Election Forms"). On the Closing Date, Seller shall
deliver to Purchaser the Election Forms, properly executed by Seller or any
proper Affiliate of Seller. Seller and Purchaser shall cooperate in drafting and
making final the Election Forms, and any dispute with respect thereto shall be
resolved pursuant to Section 4.3(n). Seller shall be responsible for filing the
Election Forms with the proper taxing authorities, provided that Purchaser shall
be responsible for filing any Election Form that must be filed with its Tax
Returns.
(d) Modification; Revocation. Purchaser and Seller each agrees that
it shall not, and shall not permit any of its respective Affiliates to, take any
action to modify the Election Forms following the execution thereof, or to
modify or revoke the Section 338(h)(10) Election, or any such available election
under any substantially similar state or local law if requested by Seller,
following the filing of the Election Forms, without the written consent of
Purchaser or Seller, as the case may be.
(e) Consistent Treatment. Purchaser and Seller shall, and shall cause
their respective Affiliates to, file all Tax Returns in a manner consistent with
the information contained in the Election Forms as filed and the Final
Allocation, unless otherwise required because of a change in applicable tax law.
(f) Expenses Resulting from Section 338(h)(10) Elections. Purchaser
and its Affiliates (including the Company and the Insurance Subsidiaries
following the Closing), on the one hand, and Seller and its Affiliates, on the
other hand, shall bear their respective administrative, legal and similar
expenses resulting from the making of the Section 338(h)(10) Election and any
such available elections under any substantially similar state or local law if
requested by Seller.
(g) Tax Sharing Agreement. The tax sharing agreement between, among
others, each of the Seller Subsidiaries and its common parent, FHS, referenced
in Section 2.12(d) shall be terminated effective as of April 30, 1998. After the
Closing Date none of the Seller Subsidiaries, Seller, or any Affiliate of Seller
shall have any further rights or liabilities thereunder, except to the extent
stated on the balance sheet of the Seller Subsidiaries as of April 30, 1998
(using the Seller Subsidiaries' actual financial statements at and as of March
31, 1998, together with projected
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April 30, 1998 results as provided by Salomon Smith Barney to the Purchaser),
with all amounts then due being paid as soon as such amounts are determined but
in no event later the Closing Date. This Agreement shall be the sole Tax sharing
agreement relating to any Seller Subsidiary for all Pre-Closing Tax Periods.
(h) Actions out of the Ordinary Course. If Purchaser causes or
permits the Seller Subsidiaries or any Affiliate of Purchaser to take any action
on the Closing Date other than actions contemplated by this Agreement or actions
in the ordinary course of business, including but not limited to the
distribution of any dividend or the effectuation of any redemption, Purchaser
shall indemnify Seller for any resulting tax liability from such action.
(i) Tax Indemnity. (i) Notwithstanding any other provisions of this
Agreement, from and after the Closing Date, Seller shall be liable to, and shall
indemnify and hold harmless, Purchaser and the Seller Subsidiaries against the
following Taxes, but only for Taxes in excess of the sum of Taxes paid prior to
December 31, 1997, Taxes accrued as current Taxes payable or reserves on the
December 31, 1997 financial balance sheet, and Taxes accrued or paid after
December 31, 1997 in the ordinary course of business, in accordance with past
practice, with respect to business operations for the period of January 1, 1998
through the Closing Date: (A) Taxes imposed on the Seller Subsidiaries with
respect to taxable years or periods ending on or before the Closing Date; (B)
with respect to taxable years or periods beginning before the Closing Date and
ending after the Closing Date, Taxes imposed on the Seller Subsidiaries which
are allocable, pursuant to such clause (ii) hereof, to the portion of such
taxable year or period ending on the Closing Date (an "Interim Period") (Interim
Periods and any taxable years or periods that end on or prior to the Closing
Date being referred to collectively hereinafter as "Pre-Closing Periods"); (C)
Taxes imposed on any member of any affiliated group with which the Seller and
the Seller Subsidiaries or any Seller Subsidiary files or has filed a Tax Return
on a consolidated, combined or unitary basis for a taxable year or period
beginning before the Closing Date; (D) Taxes required to be paid or reimbursed
by the Seller under subsection (i)(iii) hereof (to the extent such Taxes have
not been paid by Seller); (E) Taxes or additional Taxes imposed on the Purchaser
or the Seller Subsidiaries as a result of a breach of the representations and
warranties set forth in Section 2.12 of this Agreement or of the covenants
contained in this subsection (i) without duplication; or (F) Taxes or other
payments required to be made after the date hereof by the Seller Subsidiaries to
any party under any Tax sharing, indemnity or allocation agreement (whether or
not written).
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(ii) In order to apportion appropriately any Taxes relating to
any taxable year or period that includes an Interim Period, the parties
hereto shall, to the extent permitted under applicable law, elect with the
relevant Tax authority to treat, for all purposes, the Closing Date as the
last day of the taxable year or period of the Seller Subsidiaries, and
such Interim Period shall be treated as a short taxable year and a
Pre-Closing Period for purposes of this subsection (i). In any case where
applicable law does not permit the Seller Subsidiaries to treat the
Closing Date as the last day of the taxable year or period of the Seller
Subsidiaries with respect to Taxes that are payable with respect to an
Interim Period, the portion of any such Tax that is allocable to the
portion of the Interim Period ending on the Closing Date shall be:
(x) in the case of Taxes that are either (1) based upon or
related to income or receipts, or (2) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible), deemed equal to the amount which would be
payable if the taxable year or period ended on the Closing Date
(except that, solely for purposes of determining the marginal tax
rate applicable to income or receipts during such period in a
jurisdiction in which such tax rate depends upon the level of income
or re ceipts, annualized income or receipts may be taken into
account, if appropriate, for an equitable sharing of such Taxes); and
(y) in the case of Taxes not described in subparagraph (x)
above that are imposed on a period basis and measured by the level of
any item, deemed to be the amount of such Taxes for the entire period
(or, in the case of such Taxes determined on an arrears basis, the
amount of such Taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of
calendar days in the Interim Period ending on the Closing Date and
the denominator of which is the number of calendar days in the entire
relevant period.
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(iii) The Seller shall be liable for and shall pay all
applicable sales, transfer, recording, deed, stamp and other similar
taxes, including, without limitation, any real property transfer or gains
taxes (if any), resulting from the consummation of the transactions
contemplated by this Agreement.
(j) Purchaser and Seller Subsidiaries Indemnification. Except as
otherwise provided in Section 4.3(i), Purchaser and the Seller Subsidiaries
shall be liable for, and shall indemnify and hold Seller and any of its
Affiliates harmless against, (i) any and all Taxes imposed on the Seller
Subsidiaries relating or apportioned to any taxable year or portion thereof
ending after the Closing Date and (ii) the loss of any tax benefit solely as a
result of Purchaser's failure to take any action required under Section 4.3
necessary to effectuate the filing of the Section 338(h)(10) Election.
(k) Refunds or Credits. At the reasonable request of Seller,
Purchaser shall cooperate, or cause the Seller Subsidiaries to cooperate, with
Seller in obtaining any refunds or credits (including interest thereon), other
than any refunds or credits on the December 31, 1997 financial statements of the
Seller Subsidiaries, relating to Taxes for which Seller may be liable under
Section 4.3(i); provided, however, that Purchaser shall not be required to file
such claims for refund to the extent such claims for refund would have a
material adverse effect in future periods or to the extent the claims for refund
relate to a carryback of an item. Purchaser shall be entitled to all other
refunds and credits of Taxes; provided, however, it will not allow the amendment
of any Tax Return relating to any Taxes for a period ending on or prior to the
Closing Date or the carryback of an item to a period ending prior to Closing
without Seller's consent. For purposes of this Section 4.3(k), the terms
"refund" and "credit" shall include a reduction in Taxes and the use of an
overpayment of Taxes as an audit or other Tax offset. Receipt of a refund shall
occur upon the filing of a return or an adjustment thereto using such reduction,
overpayment or offset, or upon the receipt of cash.
(l) Mutual Cooperation. As soon as practicable, but in any event
within 30 days after either Seller's or Purchaser's request, Purchaser shall, or
shall cause the Seller Subsidiaries to, deliver to Seller or Seller shall
deliver to Purchaser, as the case may be, such information and other data
relating to the Tax Returns and Taxes of the Seller Subsidiaries and shall
provide such other assistance as may reasonably be requested, to cause the
completion and filing of all Tax Returns or to respond to audits by any taxing
authorities with respect to any Tax Returns or taxable periods or to otherwise
enable Seller, Purchaser or the Seller Subsidiaries to satisfy
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their accounting or Tax requirements. For a period of five years from and after
the Closing, Purchaser and Seller shall, and shall cause their Affiliates to,
maintain and make available to the other party, on such other party's reasonable
request, copies of any and all information, books and records referred to in
this Section 4.3(l). After such five-year period, Purchaser or Seller may
dispose of such information, books and records, provided that prior to such
disposition, Purchaser or Seller shall give the other party the opportunity to
take possession of such information, books and records.
(m) Contests. Whenever any taxing authority asserts a claim, makes an
assessment or otherwise disputes the amount of Taxes for which Seller is or may
be liable under this Agreement, Purchaser shall, if informed of such an
assertion, inform Seller within ten business days, and Seller shall have the
right to control any resulting proceedings and to determine whether and when to
settle any such claim, assessment or dispute to the extent such proceedings or
determinations affect the amount of Taxes for which Seller may be liable under
the Agreement except the Purchaser shall have the right to consent, which
consent will not be unreasonably withheld, to any settlement to the extent such
proceedings or settlement materially affect the amount of Taxes imposed on the
Seller Subsidiaries for periods beginning after the Pre-Closing Periods. If
Purchaser fails to provide such notice and such failure shall materially
prejudice Seller's ability to defend such assessment, then Seller's obligation
under Section 4.3(i) shall be null and void with regard to such assessment.
Whenever any taxing authority asserts a claim, makes an assessment or otherwise
disputes the amount of Taxes for which Purchaser is liable under this Agreement,
Purchaser shall have the right to control any resulting proceedings and to
determine whether and when to settle any such claim, assessment or dispute,
except that Seller shall have the right to consent, which consent shall not be
unreasonably withheld, to any settlement to the extent such proceedings
materially affect the amount of Taxes for which Seller is or may be liable under
this Agreement.
(n) Resolution of Disagreements Between Seller and Purchaser. If
either Seller or Purchaser disagrees as to the amount of Taxes for which it may
be liable under this Agreement or Seller and Purchaser are unable to agree as to
the Final Allocation, the parties shall promptly consult each other to resolve
such dispute following the receipt of written notice from either party to begin
such consultation (the "Consultation Notice"). If any such point of disagreement
cannot be resolved within 60 days of the date of the Consultation Notice, or in
the case of the Final Allocation, within the 60-day period required by Section
4.3(b), as appropriate, Seller and Purchaser shall within ten days after such
period jointly select a nationally recognized independent public accounting or
law firm which has not, except pursuant
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to this Section 4.3(n), performed any services since January 1, 1993, for Seller
or Purchaser or their respective Affiliates, to act as an arbitrator to resolve,
within 60 days after its selection, all points of disagreement concerning tax
matters with respect to this Agreement and presented to such accounting firm at
the time of its selection. If the parties cannot agree on the selection of an
accounting or law firm within such ten-day period, they shall cause their
respective accounting firms to select such firm within five business days of the
end of such ten-day period. Any such resolution shall be conclusive and binding
on Purchaser and Seller. The fees of such independent public accountants or law
firm shall be divided equally between Seller and Purchaser. Seller and Purchaser
shall (and shall cause the Seller Subsidiaries to) provide to such firm full
cooperation. Such firm shall be instructed to reach its conclusion regarding the
dispute within 60 days of its selection.
(o) Survival of Obligations. The obligations of the parties set forth
in Section 4.3 shall be unconditional and absolute, and shall remain in effect
until the expiration of the applicable statutes of limitations.
SECTION 4.4 Employee Matters.
(a) As of the Closing Date, Purchaser shall cause the Seller
Subsidiaries to continue to employ all persons who, immediately prior to the
Closing Date, were employees ("Company Employees") of the Seller Subsidiaries on
terms consistent with Purchaser's employment policies and benefit plans in
general effect at that time. Such employment may be with Purchaser, its
affiliates or with third party employee leasing companies, as determined by
Purchaser and shall be on terms mutually satisfactory to each Company Employee
and Purchaser. With respect to any employee benefits that are provided to
Company Employees under any of Purchaser's employee benefit plans, programs,
policies and arrangements, including vacation policies ("Purchaser Plans"),
service accrued by Company Employees during employment with Seller and the
Seller Subsidiaries prior to the Closing Date shall be recognized for all
purposes, except to the extent necessary to prevent duplication of benefits.
Nothing in this Section 4.4 shall require that the Purchaser (i) maintain any
particular benefit plan or benefit in effect for any period of duration
following the Closing Date, or (ii) continue to employ any individual for any
period of duration following the Closing Date, except as required by any
employment contract or laws.
(b) Purchaser agrees to assume and honor, and cause the Seller
Subsidiaries to assume and honor, without modification, all employment,
severance, retention, other incentive agreements and arrangements,
postretirement medical,
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dental and life insurance arrangements and all supplemental pension plans, as
amended through the date hereof (each, an "Employee Arrangement"), for the
benefit of any employees and former employees of the Company or any Company
Subsidiary. The Employee Arrangements set forth in Section 4.4(b) of the
Disclosure Schedule represent all the employment-related obligations of the
Seller Subsidiaries that will remain in effect following the Closing Date.
(c) Purchaser shall cause each Purchaser Plan to waive (i) any
pre-existing condition restriction which was waived under the terms of any
analogous Benefit Plan immediately prior to the Closing and (ii) waiting period
limitation which would otherwise be applicable to a Company Employee on or after
the Closing to the extent such Company Employee had satisfied any similar
waiting period limitation under an analogous Benefit Plan prior to the Closing.
Company Employees shall also be given credit for any deductible or co-payment
amounts paid in respect of the Benefit Plan year in which the Closing occurs, to
the extent that, following the Closing, they participate in any Purchaser Plan
for which deductibles or co-payments are required. For purposes of this
Agreement, "Company Employees" shall include those Company Employees who, as of
immediately prior to the Closing Date, are on lay-off, disability or leave of
absence, paid or unpaid.
(d) Purchaser shall have no liability or obligation whatsoever in
connection with options to purchase FHS common stock that were granted by FHS to
any Company employee; provided, however, that Company employees shall be
eligible for Purchaser equity incentives, subject to the discretion of the
compensation committee of the Board of Directors of the Purchaser.
(e) As soon as practicable following the Closing Date, all Company
Employees who are participants in the FHS 401(k) Associate Savings Plan, as
amended and restated as of September 1, 1997, shall be given the opportunity to
receive a distribution of their respective account balances and shall be given
the opportunity to elect to "roll over" such account balance to the Superior
National Insurance Company 401(k) Plan, as amended and restated (the "Superior
401(k) Plan"), in both cases subject to, and in accordance with, the provisions
of such Plans and applicable law. Prior to such distributions, (i) Purchaser
will provide FHS with such documents and other information as FHS shall
reasonably request to assure itself that the Superior 401(k) Plan and the trust
established pursuant thereto are qualified and tax-exempt under Sections 401(a)
and 501(a) of the Code and will accept eligible rollover distributions from
Company Employees and (ii) FHS shall provide Purchaser with such documents and
other information as Purchaser may reasonably request to assure itself that the
FHS 401(k) Associate Savings Plan and the trust established
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pursuant thereto are qualified and tax-exempt under Sections 401(a) and 501(a)
of the Code and can make eligible rollover distributions. If as of the date
hereof, the Superior 401(k) Plan will not accept eligible rollover distributions
from Company Employees, Purchaser shall cause such plan to be so amended as soon
as practicable following the Closing Date.
SECTION 4.5 Publicity. Purchaser and Seller 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 it or
otherwise making public statements with respect to the transactions contemplated
by this Agreement.
SECTION 4.6 Approvals and Consents; Cooperation; Notification.
(a) The parties shall use all reasonable efforts, and cooperate with
each other, to obtain as promptly as practicable all Permits and third-party
consents necessary or advisable to consummate the transactions contemplated by
this Agreement, and each party shall keep the other apprised of the status of
matters relating to completion of the transactions contemplated hereby.
Purchaser and Seller shall have the right to review in advance, to the extent
reasonably practicable, and shall consult with the other on, in each case
subject to applicable laws relating to the exchange of information, all the
information relating to Seller, the Seller Subsidiaries or Purchaser, as the
case may be, and any of their respective Affiliates, which appears in any filing
made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement, provided, however, that nothing contained herein shall be deemed to
provide either party with a right to review any information provided to any
Governmental Entity on a confidential basis in connection with the transactions
contemplated hereby. The party responsible for any such filing shall promptly
deliver to the other party evidence of the filing of all applications, filings,
registrations and notifications relating thereto (except for any confidential
portions thereof), and any supplement, amendment or item of additional
information in connection therewith (except for any confidential portions
thereof). The party responsible for a filing shall, to the extent reasonably
requested, also promptly deliver to the other party a copy of each material
notice, order, opinion and other item or correspondence received by such filing
party from any Governmental Entity in respect of any such application (except
for any confidential portions thereof).
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(b) Seller and Purchaser shall use all reasonable efforts to file as
soon as practicable all notifications, filings and other documents required to
obtain all governmental authorizations, approvals, consents or waivers,
including, without limitation, under the HSR Act, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice and any other Governmental
Entity for additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection therewith.
(c) Without limiting the generality of the foregoing, within 20
business days after the date hereof, Purchaser shall, if applicable as required
by law, make Form A filings with the insurance departments of the states listed
in Section 2.11(b) of the Disclosure Schedule with respect to the transactions
contemplated hereby. Purchaser shall promptly make any and all other filings and
submissions of information with such insurance departments which are required or
requested by such insurance departments to obtain the approvals required by such
insurance departments to consummate the transactions contemplated hereby. Seller
agrees to furnish Purchaser with such information and reasonable assistance as
Purchaser may reasonably request in connection with its preparation of such
Form A filings and other filings or submissions. Purchaser shall keep Seller
fully apprised of its actions with respect to all such filings and submissions
and shall provide Seller with copies of such Form A filings and other filings or
submissions in connection with the transactions contemplated by this Agreement
(except for any confidential portions thereof).
(d) Purchaser and Seller shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
(e) Seller shall give prompt notice to Purchaser of the occurrence of
any Seller Material Adverse Effect, and Purchaser shall give prompt notice to
Seller of the occurrence of any Purchaser Material Adverse Effect. Each of
Seller and Purchaser shall give prompt notice to the other of the occurrence or
failure to occur of an event that would, or, with the lapse of time would, cause
any condition to the consummation of the transactions contemplated hereby not to
be satisfied.
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SECTION 4.7 No Solicitation. Seller shall not, directly or
indirectly, through any Affiliate, officer, director, employee, investment
banker, attorney, representative or agent of Seller or any of the Seller
Subsidiaries, solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, an Acquisition Proposal
(as hereinafter defined). Seller 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. For purposes of this
Agreement, "Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving the
Seller Subsidiaries or the acquisition of any equity interest in, or a
substantial portion of the assets of, the Seller Subsidiaries, other than the
transactions contemplated by this Agreement.
SECTION 4.8 Excluded Assets, Real Property.
(a) Seller and the Seller Subsidiaries shall take all actions
necessary to cause the Excluded Assets to be transferred (by dividend or
otherwise) to one or more other Affiliates of Seller so that such other
Affiliates acquire valid title to the Excluded Assets prior to the Closing.
(b) Seller and the Seller Subsidiaries shall take all actions
necessary to cause all right, title or interest in any real property owned by
any Seller Subsidiary prior to the Closing Date, whether held for use or for
investment, to be transferred (by dividend or otherwise) to one or more other
Affiliates of the Seller so that such other Affiliates prior to the Closing
acquire all ownership rights and title to such real property assets previously
held by a Seller Subsidiary. Seller, or another Affiliate of the Seller, shall
replace the book value of all the owned real estate assets so transferred with
cash (or cash equivalents reasonably acceptable to Purchaser) equal in value to
such book value at the date of transfer.
SECTION 4.9 Intercompany Accounts.
All intercompany accounts and Item 5 on Section 2.18 of the
Disclosure Schedule (an administrative service agreement between the Company and
FHS, effective 10/1/97), including, without limitation, the August 23, 1994
promissory note from Seller to CalComp in the principal amount of $10,000,000,
as set forth in Section 4.9 of the Disclosure Schedule, between the Seller
Subsidiaries, on the one hand, and Seller or its Affiliates on the other hand
("Intercompany Accounts") will be terminated at or before the Closing, and, if
practicable, settled at or before the Closing, and if not, then as soon as
practicable after the Closing Date and, in any event, within 60 days thereafter,
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provided, that all principal and accrued interest under the promissory notes set
forth in Section 4.9 of the Disclosure Schedule will be paid in full at the
Closing.
SECTION 4.10 Reserve Cover.
(a) Prior to the Closing, Seller shall cause the Seller Subsidiaries
to purchase $150,000,000 of adverse development protection on loss and allocated
loss adjustment expense reserves for claims occurring on or before December 31,
1997, pursuant to the Reinsurance Agreement. If Purchaser should determine while
the Reinsurance Agreement is in effect to commute it, Purchaser shall pay to
Seller, as soon as is practicable, one-half of (a) the then fair market value of
the returned assets less (b) the sum of (i) the then net present value (using a
discount rate reasonably acceptable to the parties) of the commuted reserves,
plus (ii) the tax cost of the commutation. Should Seller and Purchaser not agree
upon the fair market value of such assets, the net present value of such
commutation reserves or the tax costs of such commutation, they shall mutually
retain Ernst & Young LLP ("E&Y") to act as an independent actuary (the
"Independent Actuary") to determine the correct value and shall be bound by its
determination. If E&Y shall decline to serve in such capacity or has a conflict
with either of the parties, the parties shall agree on the appointment of the
Independent Actuary within a 10 day period. If the parties cannot agree upon the
selection of the Independent Actuary within a ten-day period, they shall cause
their respective accounting firms to select such firm within five business days
of the end of such ten-day period. Any such resolution shall be conclusive and
binding on Purchaser and Seller. Seller and Purchaser shall (and shall cause the
Seller Subsidiaries to) provide to such firm full cooperation. Such firm shall
be instructed to reach its conclusion regarding the dispute within 60 days of
its selection. The cost of the Independent Actuary's services shall be evenly
borne by Seller and Purchaser and shall be paid by Purchaser out of the
commutation savings proceeds, evenly reducing the proceeds available to each
party, prior to paying to Seller its portion of the commutation savings.
(b) Within 60 days of the date hereof (but in any event at least five
days prior to the Closing Date), Purchaser may request, in writing, and, if
requested, Seller agrees it shall cause the Seller Subsidiaries to increase the
amount of reinsurance cover by $25,000,000, consistent with the terms of the
Reinsurance Agreement, for aggregate ultimate net losses incurred by Seller
Subsidiaries on or prior to June 30, 1998 for losses occurring on or prior to
that portion of the 1998 accident year commencing on January 1, 1998 to and
including June 30, 1998, in exchange for a
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$5,000,000 increase in the purchase price payable at the Closing by Purchaser
pursuant to Section 1.2.
SECTION 4.11 Audited Financial Statements; Quarterly Statements.
(a) As soon as practical after the date hereof but in no event after
45 days following the date hereof, Seller shall deliver to Purchaser audited
GAAP financial statements for the Seller Subsidiaries, on a consolidated basis,
for each of the years ended on December 31, 1995, December 31, 1996 and December
31, 1997, including a balance sheet as of the latter two dates, and the
statements of operations, shareholders' equity and cash flows, and the related
management letters for the periods ending on each of such dates (collectively
the "Audited Financial Statements").
(b) Within 30 days after the end of each fiscal quarter after the
date hereof prior to the Closing, Seller shall deliver to Purchaser quarterly
GAAP financial statements (the "Quarterly Financial Statements") for the Seller
Subsidiaries, on a consolidated basis, including a balance sheet as of the end
of each quarter and statements of operations for each 1998 quarterly period then
ended, in a form sufficient for filing as part of Purchaser's proxy statement.
(c) Upon the reasonable request of Purchaser, Seller shall promptly
provide, or cause to be provided, to Purchaser such information as may be
reasonably required by Purchaser in connection with its Proxy Statement (as
defined below) and all other documents required to be filed by Purchaser in
order to consummate the transactions contemplated hereby.
SECTION 4.12 Related Party Service Agreements. Purchaser shall enter
into the Service Agreements with certain related parties of Seller on terms
consistent with the terms of Exhibits B-1 through B-4.
SECTION 4.13 Lease Renewals. Purchaser and Seller shall use all
reasonable efforts in good faith to negotiate leases of three years in duration
(or such shorter period of time as may be remaining on the applicable underlying
lease) for all properties and facilities of the Seller Subsidiaries where the
use of such property or facility by a Seller Subsidiary is not the subject of a
lease, or the use by an Affiliate of a Seller Subsidiary is not the subject of a
lease. The monthly rents payable on such new leases will be equal to the total
monthly rental cost of the Seller's Affiliate for such facility times the
percentage of the space (based on square footage) to be used by
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the Seller Subsidiary. All lease agreements in effect on the date of this
Agreement shall be honored for their remaining term by both Purchaser and
Seller.
SECTION 4.14 Further Assurances. (a) Each party 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 to consummate and make effective the transactions
contemplated by this Agreement.
(b) Purchaser will use all reasonable efforts to cause a stockholder
or stockholders of Purchaser holding at least 5% of the outstanding common stock
of Purchaser who have not entered into Voting Agreements on or prior to the date
hereof to enter into a Voting Agreement as soon as practicable after the date
hereof.
SECTION 4.15 State Insurance Regulatory Approval for CCIC.
Notwithstanding the provision of Section 6.1(c), in the event that Purchaser is
unable to obtain state insurance regulatory approval to acquire CCIC within five
(5) business days after the receipt of state insurance regulatory approval for
all of the other Insurance Subsidiaries, Seller shall have the right to treat
CCIC as an "Excluded Asset" by providing written notice (the "CCIC Notice") to
Purchaser of its election to distribute the stock of CCIC out of the Company.
Following delivery of the CCIC Notice:
(i) CCIC will be deemed to be an "Excluded Asset" and will no
longer be treated as an "Insurance Subsidiary" for all purposes under the
Agreement;
(ii) the Purchase Price will be reduced by 80% of the net book
value of CCIC included in the most recent Quarterly Financial Statement
delivered to Purchaser (the "CCIC Value");
(iii) Purchaser and Seller agree to negotiate in good faith to
enter into an interim management agreement prior to Closing pursuant to
which Seller will agree to continue to operate CCIC, at Purchaser's full
cost and risk, consistent with the terms of Section 4.1 of this Agreement
until Seller is able to secure the necessary state insurance regulatory
approval to acquire all of the capital stock of CCIC;
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(iv) Seller agrees that it will take all steps reasonably
necessary to secure such state insurance regulatory approval as soon as
possible after the delivery of the CCIC Notice;
(v) Purchaser agrees that it will purchase the capital stock of
CCIC from Seller or its Affiliates, subject only to receipt of the
necessary state insurance regulatory approvals and the Closing, for a
price equal to the CCIC Value plus interest on such amount from the date
of Closing until the date of purchase of the capital stock of CCIC
accruing at a rate of 10% per annum (the "CCIC Purchase");
(vi) upon consummation of the CCIC Purchase, CCIC will be deemed
to be an "Insurance Subsidiary" as of the Closing Date; and
(vii) notwithstanding the foregoing, Seller will be free to sell
the capital stock or assets of CCIC to a third party at any time after
twelve (12) months after the Closing Date after which time Purchaser will
no longer have the obligation to purchase CCIC pursuant to this Section
4.15.
SECTION 4.16 Stockholder Approval and Financing. Purchaser shall, as
promptly as practicable, after the date hereof prepare and file with the
Securities Exchange Commission a proxy statement (the "Proxy Statement") and
take such other actions necessary in accordance with applicable law and its
Certificate of Incorporation and bylaws to convene a meeting of its stockholders
to consider and vote upon the approval of the transaction contemplated by the
Financing Agreements in connection with the consummation of the transactions
contemplated by this Agreement. The Proxy Statement shall include the
recommendation of the Board of Directors of Purchaser that its stockholders vote
in favor of those matters requiring their approval in order to consummate the
transactions contemplated by this Agreement and the Financing Agreements. The
Board of Directors of Purchaser shall take all reasonable steps to solicit and
obtain such approval. The Purchaser agrees to use its best efforts to arrange
and complete financing of the transactions as contemplated by the Financing
Agreements, including taking all steps necessary to enforce its rights under the
Financing Agreements. Purchaser further agrees that prior to the Closing it will
not amend the terms of the IP Stock Purchase Agreement without the prior written
consent of Seller if such amendments would adversely effect the completion of
the Financing Agreements.
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ARTICLE V
INDEMNIFICATION
SECTION 5.1 Indemnification by Seller. Subject to the limits set
forth in this Article V, Seller agrees to indemnify, defend and hold Purchaser,
its officers, directors, agents and Affiliates (the "Purchaser Indemnified
Parties"), harmless from and in respect of any and all losses, damages, costs
and reasonable expenses (including, without limitation, reasonable expenses of
investigation and defense fees and disbursements of counsel and other
professionals and losses in connection with any clean-up or remedial action
pursuant to Environmental Laws), (collectively, "Losses"), that they may incur
arising out of or due to any inaccuracy of any representation or the breach of
any warranty, covenant, undertaking or other agreement of Seller contained in
this Agreement or the Disclosure Schedule; provided, however, that Seller shall
have no liability to Purchaser under this Section 5.1 unless Purchaser
Indemnified Parties shall have met the aggregate deductible requirements of
Section 5.3. Notwithstanding any other provision of this Agreement, including
this Section 5.1, the Seller shall have no obligation to indemnify, or otherwise
have any liability to, the Purchaser Indemnified Parties for any Loss arising
out of, or relating to the business or operations of the Seller Subsidiaries
following the date hereof (the "Excluded Losses"), including without limitations
any Excluded Breach (as defined below) unless written notice of a Loss occurring
during the first 20 business days after the date hereof is provided as
contemplated by Section 7.1(e) within 35 days following the date hereof.
SECTION 5.2 Indemnification by Purchaser. Subject to the limits set
forth in this Article V, Purchaser agrees to indemnify, defend and hold Seller,
its officers, directors, agents and Affiliates, harmless from and in respect of
any and all Losses that they may incur (i) arising out of or due to any
inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of Purchaser contained in this Agreement and (ii)
arising out of any and all actions, suits, claims and administrative or other
proceedings of every kind and nature instituted or pending against Seller or any
of its Affiliates at any time after the Closing Date to the extent that such
Losses (x) relate to or arise out of or in connection with the assets,
businesses, operations, conduct, products, environmental conditions or
violations of Environmental Laws and/or employees (including former employees)
of the Seller Subsidiaries relating to or arising out of or in connection with
occurrences after the Closing Date and (y) do not arise out of a breach of
Seller's
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representations and warranties in, or a default in the performance of any of
Seller's covenants under, this Agreement;
SECTION 5.3 Survival of Representations and Warranties. The several
representations and warranties of the parties contained in this Agreement or in
any instrument delivered pursuant to this Agreement will survive the Closing
Date and will remain in full force and effect thereafter for a period of one
year from the Closing Date; provided, however, that the representations and
warranties contained in Section 2.12 shall be governed by Section 4.3 and the
representations and warranties contained in Section 2.19 will survive the
Closing Date for a period of two years from the Closing Date; provided, further,
that such representations or warranties shall survive (if at all) beyond such
period with respect to any inaccuracy therein or breach thereof, notice of which
shall have been duly given within such one year or two years time period, as
applicable, in accordance with Section 5.4. Other than as stated in the tax
indemnity in Section 4.3, anything to the contrary contained herein
notwithstanding, neither party shall be entitled to recover from the other
unless and until the total of all claims for indemnity or damages with respect
to any inaccuracy or breach of any such representations or warranties or breach
of any covenants, undertakings or other agreements, whether such claims are
brought under this Article V or otherwise (other than, in each case, the
Excluded Losses), exceeds $5,000,000 and then only for the amount by which such
claims for indemnity or damages exceed $5,000,000; provided, however, that no
party shall be entitled to recover from the other more than $50,000,000 in the
aggregate pursuant to this Article V.
SECTION 5.4 Notice and Opportunity to Defend. If an event occurs
which a party asserts is an indemnifiable event pursuant to Section 5.1 or 5.2,
the party seeking indemnification shall promptly notify the other party
obligated to provide indemnification (the "Indemnifying Party"). If such event
involves (i) any claim or (ii) the commencement of any action or proceeding by a
third person, the party seeking indemnification will give such Indemnifying
Party prompt written notice of such claim or the commencement of such action or
proceeding, provided, however, that the failure to provide prompt notice as
provided herein will relieve the Indemnifying Party of its obligations hereunder
only to the extent that such failure prejudices the Indemnifying Party
hereunder. If any such action is brought against any party seeking
indemnification and it notifies the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall be entitled to participate therein and, to
the extent that it wishes, at its cost, risk and expense to assume the defense
thereof, with counsel reasonably satisfactory to the party seeking
indemnification, unless the named party to such action or proceeding includes
both an Indemnifying
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Party and a party seeking indemnification and the party seeking indemnification
has been advised in writing by counsel that there may be one or more legal
defenses available to such party that are different from or additional to those
available to the Indemnifying Party, in which event the party seeking
indemnification shall be entitled, at the Indemnifying Party's reasonable cost
and expense to separate counsel of its own choosing reasonably acceptable to the
Indemnifying Party. After notice from the Indemnifying Party to the party
seeking indemnification of such election to so assume the defense thereof, the
Indemnifying Party shall not be liable to the party seeking indemnification for
any legal expenses of other counsel or any other expenses subsequently incurred
by such party in connection with the defense thereof. The party seeking
indemnification agrees to cooperate in all reasonable respects with the
Indemnifying Party and its counsel in the defense against any such asserted
liability. The party seeking indemnification shall have the right to participate
at its own expense in the defense of such asserted liability. The Indemnifying
Party shall be entitled to compromise or settle any claim as to which it is
providing indemnification, which compromise or settlement shall be made only
with the written consent of the party being indemnified, such consent not to be
unreasonably withheld. If an Indemnifying Party fails to assume the defense of a
claim within 30 calendar days after receipt of the notice of claim by the
Indemnifying Party, the party seeking indemnification, against which such claim
has been asserted, will, upon delivering notice to such effect to the
Indemnifying Party, have the right to undertake, at the Indemnifying Party's
reasonable cost and expense subject to the limitations set forth in this Article
V, the defense, compromise or settlement of such claim on behalf of and for the
account of the Indemnifying Party subject to the limitations set forth in this
Article V; provided, however, that such claim shall not be compromised or
settled without the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld. If the party seeking indemnity assumes the
defense of the claim, it shall keep the Indemnifying Party reasonably informed
of the progress of any such defense, compromise or settlement. In no event shall
an Indemnifying Party be liable for any settlement effected without its consent,
which will not be unreasonably withheld.
SECTION 5.5 Adjustment for Insurance and Taxes. The amount which an
Indemnifying Party is required to pay to, for or on behalf of the other party
(hereinafter referred to as an "Indemnitee") pursuant to this Article V and
Section 4.3 shall be adjusted (including, without limitation, retroactively) (i)
by any insurance proceeds actually recovered by or on behalf of such Indemnitee
in reduction of the related indemnifiable loss (the "Indemnifiable Loss") and
(ii) to take account of any tax benefit actually realized as a result of any
Indemnifiable Loss, less the cost of
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procuring such insurance proceeds or tax benefit. Amounts required to be paid,
as so reduced, are hereinafter sometimes called an "Indemnity Payment." If an
Indemnitee has received or has had paid on its behalf an Indemnity Payment for
an Indemnifiable Loss and subsequently receives insurance proceeds for such
Indemnifiable Loss, or realizes any tax benefit as a result of such
Indemnifiable Loss, then the Indemnitee shall (i) promptly notify the
Indemnifying Party of the amount and nature of such proceeds and benefits,
together with the cost of procuring them, and (ii) pay to the Indemnifying Party
the amount of such insurance proceeds or tax benefit (reduced by such
procurement cost), or, if lesser, the amount of the Indemnity Payment.
SECTION 5.6 Mitigation of Loss. Each Indemnitee is obligated to use
its reasonable efforts to mitigate the amount of any Loss for which it is
entitled to seek indemnification hereunder, and the Indemnifying Party shall not
be required to make any payment to an Indemnitee in respect of such Loss to the
extent such Indemnitee failed to comply with the foregoing obligation.
SECTION 5.7 Subrogation. Upon making any Indemnity Payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the Loss to which
the payment relates; provided, however, that until the Indemnitee recovers full
payment of its Loss, any and all claims of the Indemnifying Party against any
such third party on account of such payment are hereby made expressly
subordinated and subjected in right of payment of the Indemnitee's rights
against such third party. Without limiting the generality of any other provision
hereof, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the above
described subrogation and subordination rights.
SECTION 5.8 Tax Indemnification. None of the provisions of this
Article V, with the exception of Section 5.5, shall apply to the claims,
obligations, liabilities, covenants and representations under Section 4.3, which
shall be governed solely by the terms thereof.
SECTION 5.9 Set-Off. Neither Seller nor Purchaser shall have any
right to set-off any Losses against any payments to be made by such party or
parties pursuant to this Agreement or the Service Agreements, except as
otherwise expressly provided herein or therein.
SECTION 5.10 Exclusive Remedy. Following the Closing, the indemnities
provided for in this Article V shall be the sole and exclusive remedies of
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the parties and their respective officers, directors, employees, Affiliates,
agents, representatives, successors and assigns for any breach of or inaccuracy
in any representation or warranty or any breach, nonfulfillment or default in
the performance of any of the covenants or agreements contained in this
Agreement (but not any such covenants or agreements to the extent they are by
their terms to be performed after the Closing Date). The parties shall not be
entitled to a recission of this Agreement or to any further indemnification
rights or claims of any nature whatsoever in respect thereof (whether by
contract, common law, statute, law, regulation or otherwise, including, without
limitation, under the Racketeer Influence and Corrupt Organizations Act of
1970, as amended), all of which the parties hereby waive, provided, however,
that nothing herein is intended to waive any claims for intentional fraud.
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Closing. The obligations of Seller, on the one hand, and Purchaser, on the other
hand, to consummate the Closing are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of the
following conditions:
(a) no arbitrator or Governmental Entity shall have issued any order,
decree or ruling, and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of the material
transactions contemplated by this Agreement; provided that the parties shall
have used all reasonable efforts to cause any such order, decree, ruling,
statute, rule or regulation to be vacated or lifted;
(b) any waiting period applicable to the transactions contemplated
hereby under the HSR Act shall have expired or been terminated;
(c) the required state insurance regulatory approvals of the
consummation of the transactions contemplated hereunder (the "State Insurance
Regulatory Approval"), including the approval of the California Department of
Insurance pursuant to California Insurance Code Section 1215 et seq., shall have
been obtained, provided, that if Purchaser is unable to obtain Insurance
Regulatory Approval for CCIC and Seller has exercised its right under Section
4.15 to treat CCIC
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as an Excluded Asset, this Section 6.1(c) shall be deemed satisfied with respect
to CCIC; and
(d) all authorizations, approvals or consents required to permit the
consummation of the transactions contemplated hereby shall have been obtained
and be in full force and effect, except where the failure to have obtained any
such authorizations, approvals or consents would not have a Seller Material
Adverse Effect or a Purchaser Material Adverse Effect, as the case may be.
SECTION 6.2 Conditions to the Obligations of Purchaser. The
obligations of Purchaser to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Purchaser) of the following further
conditions:
(a) the representations and warranties of Seller shall be true and
accurate as of the Closing Date as if made at and as of such time (other than
(i) Section 2.8 and (ii) those representations and warranties that address
matters only as of a particular date or only with respect to a specific period
of time which need to be true and accurate only as of such date or with respect
to such period), except (x) where the failure of such representations and
warranties to be so true and accurate (without giving effect to any limitation
as to "materiality" or "material adverse effect" set forth therein), would not
have, a Seller Material Adverse Effect or (y) where the failure of such
representations to be true and accurate arises out of, or relates to, the
business or operations of the Seller Subsidiaries following the date hereof (an
"Excluded Breach"), unless written notice of such failure or inaccuracy
occurring within the first 20 business days after the date hereof is provided as
contemplated by Section 7.1(e) within 35 days following the date hereof;
(b) Seller shall have performed in all material respects the
obligations hereunder required to be performed by it at or prior to the
Closing Date;
(c) Purchaser shall have received an incumbency certificate and a
certificate signed by two executive officers of Seller, dated as of the Closing
Date, to the effect that the conditions set forth in Section 6.2(a) and Section
6.2(b) have been satisfied;
(d) the Seller Subsidiaries shall have entered into the Reinsurance
Agreement;
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(e) all Intercompany Accounts have been terminated as of the Closing
Date;
(f) Seller shall have entered into the Transitional Services
Agreement contemplated by Exhibit B-4 hereto;
(g) Purchaser shall have received letters of resignation from each of
the members of the Board of Directors of each Seller Subsidiary, which resigna-
tions shall be effective as of the Closing Date;
(h) the Company shall have no subsidiaries other than the Insurance
Subsidiaries; and
(i) Seller shall have delivered copies to Purchaser of all
certificates of good standing, certificates of qualification and certificates
of authority for each Seller Subsidiary consistent with the disclosure provided
in Section 2.11(b) of the Disclosure Schedules.
SECTION 6.3 Conditions to the Obligations of Seller. The obligations
of Seller to consummate the transactions contemplated hereby are subject to the
satisfaction (or waiver by Seller) of the following conditions:
(a) the representations and warranties of Purchaser shall be true and
accurate as of the Closing Date as if made at and as of such time (other than
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need to
be true and accurate only as of such date or with respect to such period),
except where the failure of such representations and warranties to be so true
and accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) would not have a Purchaser Material
Adverse Effect;
(b) Purchaser shall have performed in all material respects all of
the obligations hereunder required to be performed by Purchaser, at or prior to
the Closing Date;
(c) Seller shall have received an incumbency certificate and a
certificate signed by two executive officers of Purchaser, dated as of the
Closing Date, to the effect that the conditions set forth in Section 6.3(a) and
Section 6.3(b) have been satisfied;
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(d) Purchaser shall have delivered executed copies of each of the
Service Agreements; and
(e) at the Closing, Purchaser shall have delivered to Seller a
certificate (which certificate shall survive the Closing) to the effect that (i)
Purchaser has conducted and is satisfied with the results of its business,
accounting and legal due diligence review of the Shares and the business and
affairs of Seller and the Seller Subsidiaries and (ii) in completing the
transactions contemplated in accordance with this Agreement, Purchaser has not
and is not relying on any representation or warranty of Seller or the Seller
Subsidiaries which is not expressly stated in this Agreement.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing Date:
(a) by the mutual consent of Seller and Purchaser;
(b) by Seller or Purchaser:
(i) if the Closing shall not have occurred on or prior to
November 30, 1998 (or December 31, 1998 if the only condition remaining
unfulfilled at November 30, 1998 is approval by any required Governmental
Entity and Seller and Purchaser are continuing to seek to obtain such
approval); provided, however, that the right to terminate this Agreement
under this Section 7.1(b)(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or prior to
such date; or
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use all reasonable efforts to lift),
in each case permanently restraining, enjoining or otherwise prohibiting
the material
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transactions contemplated by this Agreement, and such order, decree,
ruling or other action shall have become final and non-appealable;
(c) by Seller if Purchaser (x) breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect and such breach would have a Purchaser Material Adverse Effect,
in each case such that the conditions set forth in Section 6.1 or Section 6.3
would not be satisfied; provided, however, that if any such breach is curable
within a reasonable period of time by Purchaser through the exercise of
Purchaser's best efforts and for so long as Purchaser shall be so using its best
efforts to cure such breach, Seller may not terminate this Agreement pursuant to
this Section 7.1(c);
(d) by Purchaser if Seller (x) breaches or fails in any material
respect to perform or comply with any of their material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect (other than Excluded Breaches) and such breach would have a
Seller Material Adverse Effect, in each case such that the conditions set forth
in Section 6.1 or Section 6.2 would not be satisfied; provided, however, that if
any such breach is curable within a reasonable period of time by Seller through
the exercise of Seller's best efforts and for so long as Seller shall be so
using its best efforts to cure such breach, Purchaser may not terminate this
Agreement pursuant to this Section 7.1(d);
(e) by Purchaser if, from the date of this Agreement through to the
Closing Date, there shall have occurred a "Material Adverse Change," as
hereinafter defined, in the financial condition, business or operations of the
Seller Subsidiaries, taken as a whole. A "Material Adverse Change", for purposes
of this Section 7.1(e), means (i) during the twenty (20) business days following
the date of this Agreement, any change in the business or operations of the
Seller Subsidiaries that meets the definition of a Seller Material Adverse
Effect and with respect to which Purchaser provides Seller, within thirty-five
(35) days following the date hereof, written notice of its desire to terminate
this Agreement pursuant to this Section 7.1(e) and (ii) after such twenty (20)
business day period, subject to the right to provide written notice as provided
by the immediately preceding clause (i), until the Closing Date, a change in the
business or operations of the Seller Subsidiaries that meets the definition of a
Seller Material Adverse Effect, other than a Seller Material Adverse Effect
arising out of, or relating to, the business or operations of the Seller
Subsidiaries after the date hereof or the matters disclosed in the Disclosure
Schedules; or
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(f) by Seller if (x) Purchaser, its board of directors or officers
fails to recommend to Purchaser's stockholders, or withdraws, revokes or
otherwise adversely modifies its approval or recommendation of the transactions
contemplated hereby or (y) the stockholders of Purchaser fail to approve those
matters requiring their approval in order to consummate the transactions
contemplated hereby.
SECTION 7.2 Procedure and Effect of Termination. In the event of the
termination and abandonment of this Agreement by Seller or Purchaser pursuant to
Section 7.1, written notice thereof shall forthwith be given to the other party.
If the transactions contemplated by this Agreement are terminated as provided
herein:
(a) each party will return all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) all confidential information received by either party with
respect to the business of any other party or its subsidiaries or Affiliates
shall be treated in accordance with the provisions of the Confidentiality
Agreement, which shall survive the termination of this Agreement; and
(c) neither party will have any liability under this Agreement to the
other except (i) as stated in subparagraphs (a) and (b) of this Section 7.2,
(ii) for any willful breach of any provision of this Agreement and (iii) as
provided in the Confidentiality Agreement.
SECTION 7.3 Breakup Fee. In the event that the conditions to closing
set forth in Article VI with respect to a party have been met and there is no
basis for such party to terminate this Agreement pursuant to Section 7.1, yet,
upon written request, such party does not agree upon and does not meet a
reasonable schedule to set the Closing Date and complete the Closing, then such
party shall be deemed to have wrongfully failed to close and the other party
shall be entitled to: (a) obtain injunctive relief to require the Closing to
occur; or (b) receive a $15,000,000 payment from the other party and seek
additional monetary damages from the other party, if any, provided, however,
that the occurrence of the Closing shall preclude in full the availability of
alternative (b). In addition, in the event Seller terminates the Agreement
pursuant to Section 7.1(f), Seller shall be entitled to receive a $15,000,000
payment from Purchaser and seek additional monetary damages, if any. Any payment
required above shall be paid in immediately available funds within three (3)
business
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days of the demand for such payment and shall accrue interest at LIBOR plus 2%
per annum. For the purposes of this Agreement, "LIBOR" shall mean "LIBOR" as
defined in FHS's senior credit facility.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Governing Laws and Consent to Jurisdiction. The laws of
the State of Delaware (irrespective of its choice of law principles) shall
govern all issues concerning the validity of this Agreement, the construction of
its terms and the interpretation and enforcement of the rights and duties of the
parties. Each party irrevocably submits to the exclusive jurisdiction of the
federal courts of the United States of America located in Los Angeles County,
California (and federal courts having jurisdiction over appeals therefrom) in
respect of the transactions contemplated by this Agreement, the other agreements
and documents referred to herein and the transactions contemplated by this
Agreement and such other documents and agreements.
SECTION 8.2 Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all respects
by written agreement of the parties at any time prior to the Closing Date with
respect to any of the terms contained herein.
SECTION 8.3 Notices. All notices, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon actual receipt or when delivered by hand or by FedEx or a similar overnight
courier, (ii) five days after being deposited in any United States Post Office
enclosed in a postage prepaid, registered or certified envelope addressed or
(iii) when successfully transmitted by telecopier (with a confirming copy of
such communication to be sent as provided in clause (i) or (ii) above), to the
receiving party during regular business hours at the address or telecopier
number set forth below (or at such other address or telecopier number for a
party as shall be specified by like notice), provided, however, that any notice
of change of address or telecopier number shall be effective only upon receipt:
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(a) if to Purchaser, to:
Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Telephone No.: (818) 880-1600
Telecopy No.: (818) 880-8615
Attention: J. Chris Seaman
with a copy to:
Riordan & McKinzie
5473 Corsa Avenue, Suite #116
Westlake Village, California 91362
Telephone No.: (818) 706-1800
Telecopy No.: (818) 706-2956
Attention: Dana M. Warren, Esq.
(b) if Seller, to:
Foundation Health Systems, Inc.
225 North Main
Pueblo, CO 81003
Telephone : (719) 585-8077
Telecopy No: (719) 585-8175
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312 407-0700
Telecopy No.: (312 407-0411
Attention: Peter C. Krupp, Esq.
SECTION 8.4 Interpretation.
52
<PAGE> 59
(a) The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified. The 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. As used in this Agreement, the term "Affiliate(s)" shall have the
meaning set forth in Rule l2b-2 of the Securities Exchange Act of 1934, as
amended. The phrases "to the knowledge of," "to a party's best knowledge," or
any similar phrase shall mean such facts and other information which as of the
date of determination are actually known to any vice president or chief
financial officer and any officer superior to any of the foregoing, of the
referenced party. The phrase "made available" in this Agreement shall mean that
the information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement," "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to May 5, 1998. As used in this
Agreement, the term "business day" means a day, other than a Saturday or a
Sunday, on which banking institutions in the city of Los Angeles are open. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties,
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement.
(b) The Disclosure Schedule shall be construed with and as an
integral part of this Agreement as if the same had been set forth verbatim
herein. Any matter disclosed pursuant to the Disclosure Schedule shall be deemed
to be disclosed for all purposes under this Agreement, but such disclosure shall
not be deemed to be an admission or representation as to the materiality of the
item so disclosed.
(c) Headings are for convenience of the parties only and shall be
given no substantive or interpretative effect whatsoever.
(d) Notwithstanding the provisions of Section 1.2, the Purchase Price
shall be increased by the amount of any capital contributions made to the
Company after December 31, 1997 in order to fund any capital contributions or
any other payment (a "Governmental Payment"), in an amount not to exceed
$25,000,000,
53
<PAGE> 60
which are required by any Governmental Entity (as defined below) and such
increase shall be payable by wire transfer of immediately available funds to an
account designated by Seller; provided that an increase in the Purchase Price
attributable to Governmental Payments in excess of $10,000,000 shall be paid in
the form of a senior note from Purchaser (the "Purchaser Note") with the
principal amount thereon due three years from the Closing Date and bearing a
rate of interest, payable quarterly, equal to the interest on the senior notes
to be issued by Purchaser pursuant to the Financing Agreements. The Purchaser
Note, if any, shall be in a form reasonably acceptable to Seller and Purchaser.
SECTION 8.5 Counterparts. This Agreement may be executed in multiple
counterparts, all of which shall together be considered one and the same
agreement.
SECTION 8.6 Entire Agreement; Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement and the Disclosure Schedule (i) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and (ii)
except as provided herein, are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
SECTION 8.7 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 8.8 Service of Process. Each party irrevocably consents to
the service of process outside the territorial jurisdiction of the courts
referred to in Section 8.1 hereof in any such action or proceeding by mailing
copies thereof by registered United States mail, postage prepaid, return receipt
requested, to its address as specified in or pursuant to Section 8.3 hereof.
However, the foregoing shall not limit the right of a party to effect service of
process on the other party by any other legally available method.
SECTION 8.9 Specific Performance. Each party acknowledges and agrees
that in the event of any breach of this Agreement, each non-breaching
54
<PAGE> 61
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that, subject to the terms of Section
7.3, the parties will (a) waive, in any action for specific performance, the
defense of adequacy of a remedy at law and (b) be entitled, in addition to any
other remedy to which they may be entitled at law or in equity, to compel
specific performance of this Agreement in any action instituted in accordance
with Section 8.1.
SECTION 8.10 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
(whether by operation of law or otherwise) without the prior written consent of
the other party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and assigns.
SECTION 8.11 Expenses. Except as otherwise provided herein, all costs
and expenses incurred in connection with the transactions contemplated hereby,
this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such costs and expenses, whether or not the
transactions contemplated hereby is consummated, provided that Purchaser shall
pay all fees associated with any filings made under the HSR Act in connection
with the transactions contemplated by this Agreement.
SECTION 8.12 Waivers. Except as otherwise provided in this Agreement,
any failure of either party to comply with any obligation, covenant, agreement
or condition herein may be waived by the party or parties entitled to the
benefits thereof only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
55
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
FOUNDATION HEALTH CORPORATION
By: /s/ B. CURTIS WESTON
---------------------------------
Name: B. CURTIS WESTON
Title: SR. VP, GEN. COUNSEL & SECRETARY
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By:
---------------------------------
Name:
Title:
By: /s/ J. CHRIS SEAMAN
---------------------------------
Name: J. CHRIS SEAMAN
Title: Chief Financial Officer
56
<PAGE> 63
ANNEX A
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined in
Terms Section
- ----- ----------
<S> <C>
Acquisition Proposal...................................... 4.7
Adjusted Grossed-Up Basis................................. 4.3(a)
Affiliate(s).............................................. 8.4(a)
Agreement................................................. Preamble
Audited Financial Statements.............................. 4.11(a)
Axis...................................................... Preamble
Bankruptcy Code .......................................... 3.7
Benefit Plans............................................. 2.9(a)
BIC....................................................... Preamble
business day.............................................. 8.4(a)
CalComp................................................... Preamble
Capital Z................................................. 3.5
CBIC...................................................... Preamble
CCIC...................................................... Preamble
CCIC Notice............................................... 4.15
CCIC Purchase............................................. 4.15(v)
CCIC Value................................................ 4.15(ii)
Closing................................................... 1.3(a)
Closing Date.............................................. 1.3(a)
Code...................................................... Preamble and 2.12(g)
Company Employees......................................... 4.4(a), 4.4(c)
Company................................................... Preamble
Confidentiality Agreement................................. 4.2
Consultation Notice....................................... 4.3(n)
Disposed Businesses....................................... 2.15
Disclosure Schedule....................................... 2.2
E&Y....................................................... 4.10(a)
Election Forms............................................ 4.3(c)
Employee Arrangement...................................... 4.4(b)
Encumbrances.............................................. 1.1
Environmental Conditions.................................. 2.19(a)(v)
</TABLE>
A-1
<PAGE> 64
<TABLE>
<CAPTION>
Defined in
Terms Section
- ----- ----------
<S> <C>
Environmental Laws........................................ 2.19(a)(iv)
ERISA..................................................... 2.9(a)
ERISA Affiliate........................................... 2.9(a)
Excluded Assets........................................... Preamble
Excluded Breach........................................... 6.2(a)
Excluded Losses........................................... 5.1
FHS....................................................... Preamble
Final Allocation.......................................... 4.3(b)
Financial Statements...................................... 2.6(a)
Financing Agreements...................................... 3.5
FIRMS..................................................... Preamble
GAAP...................................................... 2.6(a)
Governmental Entity....................................... 2.5
Governmental Payment...................................... 1.2
Hazardous Substance....................................... 2.19(a)(iii)
HSR Act................................................... 2.5
Indemnifiable Loss........................................ 5.5
Indemnifying Party........................................ 5.4
Indemnitee................................................ 5.5
Indemnity Payment......................................... 5.5
Independent Actuary....................................... 4.10(a)
Insurance Subsidiaries.................................... Preamble
Intercompany Accounts..................................... 4.9
Intercompany Note......................................... Preamble
Interim Consulting Team................................... 4.1
Interim Period ........................................... 4.3(i)
IP........................................................ 3.5
IPB....................................................... 3.5
IP Stock Purchase Agreement............................... 3.5
Listed Items.............................................. 2.6(c)
LIBOR..................................................... 7.3
Losses.................................................... 5.1
M&R Report................................................ 3.6(a)
Material Adverse Change................................... 7.1(e)
Material Agreement(s)..................................... 2.15
Permits................................................... 2.11(a)
</TABLE>
A-2
<PAGE> 65
<TABLE>
<CAPTION>
Defined in
Terms Section
- ----- ----------
<S> <C>
Pre-Closing Periods....................................... 4.3(i)
Proxy Statement........................................... 4.16
Purchase Price............................................ 1.2
Purchaser................................................. Preamble
Purchaser Indemnified Parties............................. 5.1
Purchaser Disclosure Schedule............................. 3.3
Purchaser Note............................................ 1.2
Purchaser Plans........................................... 4.4(a)
Purchaser Material Adverse Effect......................... 3.1
Quarterly Financial Statements............................ 4.11(b)
Reinsurance Agreement..................................... Preamble
Release................................................... 2.19(a)(ii)
Reviewco.................................................. Preamble
Section 338(h)(10) Election............................... 4.3(a)
Seller.................................................... Preamble
Seller Intellectual Property.............................. 2.14
Seller Subsidiaries....................................... Preamble and 2.19(a)(i)
Seller Material Adverse Effect............................ 2.1
Service Agreements........................................ Preamble
Shares.................................................... Preamble
State Insurance Regulatory Approval....................... 6.1(c)
STAT Financial Statements................................. 2.6(b)
Superior 401(k) Plan...................................... 4.4(e)
Taxes..................................................... 2.12
Tax Return................................................ 2.12
Voting Agreements......................................... Preamble
Year 2000 Matters......................................... 2.20
</TABLE>
A-3
<PAGE> 66
List of Omitted Disclosure Schedules
<TABLE>
<CAPTION>
Title Section
- ----- -------
<S> <C>
Capitalization 2.2
Consents and Approvals; No Violations 2.5
Financial Statements 2.6
No Undisclosed Liabilities 2.7
Absence of Certain Changes 2.8
Employee Benefit Plans; ERISA 2.9(a)
Employee Benefit Plans; ERISA 2.9(d)
Employee Benefit Plans; ERISA 2.9(e)
Employee Benefit Plans; ERISA 2.9(h)
Employee Benefit Plans; ERISA 2.9(k)
Litigation 2.10
No Default; Compliance With Applicable Laws 2.11(a)
No Default; Compliance With Applicable Laws 2.11(b)
Taxes 2.12
Property 2.13
Intellectual Property 2.14
Contracts 2.15
Labor Matters 2.16
Transactions with Related Parties 2.18
Environmental Matters 2.19(b)
Year 2000 Matters 2.20
Insurance 2.21
Bank Accounts 2.22
Consent and Approvals; No Violations 3.3
Interim Operations of Seller 4.1
Employee Benefits 4.4(b)
Intercompany Accounts 4.9
</TABLE>
The Registrant shall furnish supplementally a copy of any omitted
schedule to the Securities and Exchange Commission upon request.
v
<PAGE> 1
EXHIBIT 10.56
EXECUTION COPY
------------------------------------------------
STOCK PURCHASE AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
INSURANCE PARTNERS, L.P.,
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
AND
CAPITAL Z PARTNERS, LTD.
------------------------------------------
Dated as of May 5, 1998
------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
Page
----
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I THE TRANSACTIONS................................................. 2
1.1 Purchase and Sale................................................ 2
1.2 Closing Matters.................................................. 2
1.3 The Closing...................................................... 2
1.4 Commitment Fee................................................... 3
1.5 Transaction Fee.................................................. 3
1.6 Additional Fee................................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS................................................ 4
2.1 Organization..................................................... 4
2.2 Authority........................................................ 4
2.3 No Violation..................................................... 5
2.4 Brokers.......................................................... 5
2.5 Funds Available.................................................. 6
2.6 Securities Act Representation.................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE COMPANY................................................... 6
3.1 Corporate Organization........................................... 6
3.2 Capital Stock.................................................... 6
3.3 Newly Issued Shares.............................................. 7
3.4 Authority........................................................ 7
3.5 No Violation..................................................... 8
3.6 SEC Filings...................................................... 9
3.7 Litigation....................................................... 10
3.8 Compliance with Laws............................................. 10
3.9 No Material Adverse Change; Ordinary Course of Business.......... 11
3.10 Private Offering................................................. 11
3.11 Taxes............................................................ 11
3.12 Brokers.......................................................... 12
3.13 Fairness Opinion................................................. 12
ARTICLE IV COVENANTS AND AGREEMENTS......................................... 12
4.1 Proxy Statement and Meeting of Company's Stockholders............ 12
4.2 Standstill....................................................... 13
4.3 Transfer of Shares............................................... 15
4.4 Rights Offering; Debt Offering................................... 16
4.5 Best Efforts..................................................... 17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.6 Indemnification by the Company................................... 17
4.7 Indemnification by the Purchasers................................ 18
4.8 Consents......................................................... 19
4.9 Use of Proceeds.................................................. 19
4.10 HSR Reports...................................................... 19
4.11 Exclusivity...................................................... 19
4.12 SEC Filings...................................................... 19
4.13 Amendment of Purchase Agreement.................................. 20
4.14 Rights Offering Notice........................................... 20
ARTICLE V CONDITIONS PRECEDENT............................................. 20
5.1 Conditions to Each Party's Obligations........................... 20
5.2 Conditions to the Obligations of the Company..................... 20
5.3 Conditions to the Obligations of Purchasers...................... 21
ARTICLE VI MISCELLANEOUS.................................................... 23
6.1 Termination...................................................... 23
6.2 Amendment........................................................ 23
6.3 Waiver........................................................... 23
6.4 Survival......................................................... 23
6.5 Notices.......................................................... 23
6.6 Headings; Agreement.............................................. 24
6.7 Publicity........................................................ 25
6.8 Entire Agreement................................................. 25
6.9 Conveyance Taxes................................................. 25
6.10 Assignment....................................................... 25
6.11 Counterparts..................................................... 26
6.12 Governing Law.................................................... 26
6.13 Third Party Beneficiaries........................................ 26
6.14 Costs and Expenses............................................... 26
EXHIBITS
Exhibit A-1 Purchasers of the Shares of Common Stock
Exhibit A-2 Warrants
Exhibit A-3 Transaction Fee
Exhibit B Form of Warrant
Exhibit C Form of Amended and Restated Registration Rights Agreement
</TABLE>
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement") dated as of May 5, 1998 by
and among Superior National Insurance Group, Inc., a Delaware corporation (the
"Company"), Insurance Partners, L.P., a Delaware limited partnership ("IP
Delaware"), Insurance Partners Offshore (Bermuda), L.P., a Bermuda limited
partnership ("IP Bermuda"), and Capital Z Partners, Ltd., a Bermuda corporation
("Cap Z", and together with IP Delaware and IP Bermuda, the "Purchasers").
R E C I T A L S:
WHEREAS, the Purchasers wish to purchase from the Company, and
the Company wishes to issue and sell to the Purchasers, the number of shares of
common stock, par value $.01 per share (the "Common Stock"), of the Company as
is set forth in Section 1.1 below, on the terms and subject to the conditions
set forth herein;
WHEREAS, concurrently with the execution of this Agreement, the
Company and Foundation Health Corporation, a Delaware corporation ("FHC"), are
entering into a Purchase Agreement (the "Purchase Agreement") pursuant to which
the Company will acquire certain subsidiaries of FHC;
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") has approved this Agreement and the transactions contemplated
hereby, upon the terms and subject to the conditions set forth herein;
WHEREAS, in accordance with Section 4.2(b) and (c) of the Amended
and Restated Stock Purchase Agreement, dated as of September 17, 1996 as amended
and restated effective as of February 17, 1997 (the "September 1996 Stock
Purchase Agreement"), among the Company, IP Delaware, IP Bermuda and the other
persons or entities who executed the subscription agreements attached thereto,
the limitations set forth in Section 4.2(a) and (c) of the September 1996 Stock
Purchase Agreement have been waived with respect to the transactions
contemplated hereby with the approval of the Board of Directors of the Company
in accordance with Section 4.2(b) of the September 1996 Stock Purchase
Agreement; and
<PAGE> 5
2
WHEREAS, the Board of Directors of the Company has approved the
transfer or assignment by Cap Z of (i) this Agreement and all of its rights,
interests and obligations hereunder and (ii) the Shares and the Warrants (each
as defined herein) to be issued to Cap Z hereunder (x) to a partnership of which
Cap Z will be, directly or indirectly, the general partner, (y) to or from
Zurich Centre Investments Ltd. ("ZCIL") or its affiliates in accordance with the
terms of the letter agreement, dated May 5, 1998 (the "Zurich Letter"), among
the Company, Cap Z and ZCIL or (z) in the case of the Warrants, as otherwise
provided in Section 1.4 hereof.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
contained herein, the sufficiency of which is hereby acknowledged, and in order
to set forth the terms and conditions of the transactions described herein and
the mode of carrying the same into effect, the parties hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale. Subject to the terms and conditions of
this Agreement, each of the Purchasers agrees to purchase from the Company and
the Company agrees to issue and sell to each of the Purchasers (the "Purchase")
at the Closing (as defined below) the aggregate number of shares of Common Stock
(the "Shares") equal to the sum of (a) the number of shares of Common Stock set
forth opposite such Purchaser's name on Exhibit A-1 hereto under the heading
"Shares to be Purchased" at a purchase price for each share of Common Stock of
Sixteen Dollars and Seventy-Five Cents ($16.75) (the "Share Price"), plus (b) if
all the shares of Common Stock offered in the Rights Offering (as defined
herein) are not subscribed for, the aggregate number of shares of Common Stock
that is equal to the product of the total number of shares of Common Stock which
are not subscribed for in the Rights Offering (which number shall be set forth
in the notice to be delivered by the Company to the Purchasers pursuant to
Section 4.14 hereof) and the percentage set forth opposite such Purchaser's name
on Exhibit A-1 hereto under the heading "Percentage of Unsubscribed Shares" at a
purchase price for each share of Common Stock equal to the Share Price;
provided, that in no event shall any Purchaser be obligated to purchase in
excess of the number of shares of Common Stock set forth opposite such
Purchaser's name on Exhibit A-1 hereto under the heading "Maximum Number of
Shares" (the aggregate amount to be paid by a Purchaser under this Section being
the "Purchase Price" with respect to such Purchaser).
<PAGE> 6
3
1.2 Closing Matters. At the Closing each of the Purchasers shall
wire transfer or otherwise make available in same day funds to the Company the
Purchase Price to be paid by such Purchaser and the Company shall deliver to
such Purchaser certificates representing the Shares purchased by such Purchaser.
1.3 The Closing. Subject to the fulfillment of the conditions
precedent specified in Article V (any or all of which may be waived in writing
by the respective parties whose performance is conditioned upon satisfaction of
such conditions precedent), the purchase and sale of the Shares shall be
consummated at a closing (the "Closing") to be held at the offices of Riordan &
McKinzie in Los Angeles, California, subject to the satisfaction or waiver of
all conditions precedent specified in Article V hereof, simultaneous with the
Closing (as defined in the Purchase Agreement) under the Purchase Agreement, or
at such other place and time as the Company and the Purchasers shall mutually
agree in writing after the satisfaction or waiver of all conditions precedent
specified in Article V; provided, that the Closing Date shall not be less than
10 business days after the date on which the Rights Offering Notice is delivered
by the Company to the Purchasers pursuant to Section 4.14 hereof; and provided,
further, that in no circumstance shall the Closing occur on or after November
30, 1998 or such later date as may be required by Section 7.1(b)(i) of the
Purchase Agreement, but in no event later than December 31, 1998 (such date and
time being herein referred to as the "Closing Date").
1.4 Commitment Fee. Whether or not the transactions contemplated
hereby are consummated, the Company shall pay a commitment fee to each Purchaser
or its designee (or, in the case of Cap Z, assignee) and ZCIL or its designee
(the "Commitment Fee") as compensation, in the case of each Purchaser, for
agreeing to purchase the Shares referred to in Section 1.1(b) hereof, and, in
the case of ZCIL, for providing the Zurich Letter in respect of the Shares
referred to in Section 1.1(b) hereof. The Commitment Fee due hereunder shall be
earned and payable as of the date of execution of this Agreement and shall be
paid by issuing to each Purchaser or its designee (or, in the case of Cap Z,
assignee) and ZCIL or its designee, except to the extent set forth in the Zurich
Letter, the number of Common Stock Purchase Warrants (the "Warrants") set forth
opposite such Purchaser's or ZCIL's name on Exhibit A-2 hereto registered in the
name of such Purchaser or ZCIL. The Warrants shall be in the form of Exhibit B
hereto and shall be issued to each Purchaser or its designee (or, in the case of
Cap Z, assignee) and ZCIL or its designee in definitive form on the earlier of
the Closing Date and the date this Agreement is terminated in accordance with
its terms. Notwithstanding the provisions of Section 6.4 hereof, this Section
1.4 shall survive the termination of this Agreement.
1.5 Transaction Fee. If the transactions contemplated hereby are
consummated, at the Closing, the Company shall pay to each Purchaser or its
designee (or,
<PAGE> 7
4
in the case of Cap Z, assignee), in immediately available funds, a transaction
fee in the amount set forth opposite such Purchaser's name on Exhibit A-3
hereto.
1.6 Additional Fee. If FHC shall pay to the Company the breakup
fee (the "Breakup Fee") as described in Section 7.3 of the Purchase Agreement in
accordance with Section 7.3 of the Purchase Agreement, then the Company shall
pay to each Purchaser or its designee promptly following the Company's receipt
of the Breakup Fee, an amount equal to the product of (x) the Breakup Fee and
(y) a fraction, the numerator of which is equal to the sum of (i) the number of
shares of Common Stock set forth opposite such Purchaser's name on Exhibit A-1
hereto under the heading "Maximum Number of Shares" plus (ii) the number of
shares of Common Stock issuable, as of the date the Breakup Fee is paid to the
Company, to such Purchaser upon the exercise of the number of Warrants set forth
opposite such Purchaser's name on Exhibit A-2 hereto (which, in the case of Cap
Z, shall also include the Warrants set forth opposite ZCIL's name on such
Exhibit), and the denominator of which is the number of outstanding shares of
Common Stock on a fully-diluted basis on the date the Breakup Fee is paid to the
Company, assuming the issuance to the Purchasers of the maximum number of shares
of Common Stock issuable hereunder as if the purchase by the Purchasers
contemplated hereunder shall have occurred (notwithstanding that no such
purchases shall have taken place) and the exercise, as of the date of such
payment, of all of the Warrants issuable hereunder into the aggregate number of
Shares of Common Stock issuable thereunder as of the date the Breakup Fee is
paid to the Company. Notwithstanding the provisions of Section 6.4 hereof, this
Section 1.6 shall survive the termination of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each of the Purchasers, severally but not jointly, represents and
warrants to the Company, solely as to such Purchaser, as to all matters relevant
thereto, as follows:
2.1 Organization. Each such Purchaser is a corporation or limited
partnership, as the case may be, duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or
formation, as the case may be.
2.2 Authority. (i) Each such Purchaser has full corporate or
partnership, as the case may be, power and authority to execute and deliver this
Agreement and each other agreement contemplated hereby to which it is a party,
to carry out its obligations
<PAGE> 8
5
hereunder and thereunder and to consummate the transactions contemplated on its
part hereby and thereby, (ii) the execution, delivery and performance by such
Purchaser of this Agreement and each other agreement contemplated hereby to
which it is a party have been duly authorized by all necessary corporate or
partnership, as the case may be, action on the part of such Purchaser, (iii) no
other action on the part of such Purchaser (or, in the case of a Purchaser that
is a limited partnership, its respective partners) is necessary to authorize the
execution and delivery of this Agreement and each other agreement contemplated
hereby by such Purchaser or the performance by such Purchaser of its obligations
hereunder and (iv) this Agreement has been duly executed and delivered by such
Purchaser and (assuming due execution and delivery by the other parties hereto)
constitutes a legal, valid and binding agreement of such Purchaser, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting creditors'
rights generally and subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Each other agreement to be executed by such Purchaser in connection with this
Agreement on or prior to the Closing Date will be duly executed and delivered by
such Purchaser, and (assuming due execution and delivery by the other party or
parties thereto) will constitute a legal, valid and binding obligation of such
Purchaser, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
2.3 No Violation. The execution and delivery by such Purchaser of
this Agreement and each other agreement contemplated hereby to which it is a
party, the performance by such Purchaser of its obligations hereunder and
thereunder and the consummation by it of the transactions contemplated hereby
and thereby will not (a) violate any provision of law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to such
Purchaser (b) require such Purchaser to obtain the consent, waiver, approval,
license or authorization of or make any filing with any person or governmental
authority except for, (i) filings to be made in connection with or in compliance
with the provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), Regulation D as promulgated under the Securities Act of 1933,
as amended (the Securities Act"), and applicable state securities laws, (ii) if
required, the filing of a pre-merger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (an "HSR
Report"), and (iii) the filing of a Form A Information Statement ("Form A") by
the Purchaser with the insurance departments of such states as may be required
in connection with the transactions contemplated by this Agreement or the
Purchase Agreement or (c) violate, result (with or without notice or the passage
of time, or both) in a breach of or give rise to the right to accelerate,
terminate or cancel any obligation under or constitute (with or without notice
or the passage of time,
<PAGE> 9
6
or both) a default under, any of the terms or provisions of any charter or
bylaw, partnership agreement, indenture, mortgage, agreement, contract, order,
judgment, ordinance, regulation or decree to which such Purchaser is subject or
by which such Purchaser is bound, except for any of the foregoing matters which
would not have, individually or in the aggregate, a material and adverse effect
upon the operations, condition, prospects or results of operations of such party
(a "Material Adverse Effect").
2.4 Brokers. Such Purchaser has not paid or become obligated to
pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
2.5 Funds Available. Such Purchaser has funds available, or
commitments from third parties to provide funds, sufficient to pay the Purchase
Price to be paid by such Purchaser, it being agreed by the Company that the
Zurich Letter constitutes such a commitment to provide funds to pay the Purchase
Price to be paid by Cap Z.
2.6 Securities Act Representation. As of the Closing hereunder,
such Purchaser will be an "accredited investor" as defined in Rule 501
promulgated as part of Regulation D under the Securities Act. Such Purchaser is
not purchasing its respective portion of the Shares with a view to a
distribution or resale of any of such securities in violation of any applicable
securities laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Organization. Each of the Company and its
Subsidiaries (as defined below) is a corporation or statutory business trust
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, with all requisite corporate or
trust, as the case may be, power and authority to lease the properties it
operates as lessee and to carry on its business as it is now being conducted as
described in the SEC Filings (as defined herein), and is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which it
currently carries on business, except where the failure to be so qualified or
licensed or be in good standing would not reasonably be expected, individually
or in the aggregate, to have a
<PAGE> 10
7
Material Adverse Effect on the Company. With respect to the Company, a "Material
Adverse Effect" shall refer to the Company and its Subsidiaries on a
consolidated basis. True and complete copies of the Certificate of Incorporation
and the Bylaws of the Company and respective charter documents of the
Subsidiaries, each as amended to date, have been delivered to the Purchasers.
"Subsidiaries" means, with respect to the Company, a corporation or other entity
of which 50% or more of the voting power of the outstanding voting securities or
50% or more of the outstanding equity interests is held, directly or indirectly,
by the Company.
3.2 Capital Stock. The authorized capital stock of the Company
consists in its entirety of 25,000,000 shares of Common Stock, of which, as of
the date hereof, 5,874,584 shares are issued and outstanding. All of the
outstanding shares of Common Stock have been duly and validly authorized and
issued, are fully paid and nonassessable and were issued in compliance with all
applicable federal and state securities laws. Except for warrants described in
the SEC Filings (and the preemptive rights that are contained in such warrants)
and except for options and other stock rights authorized for issuance pursuant
to the Company's stock plans and employee stock purchase plans described in the
SEC Filings and except for the Warrants to be issued hereunder and the rights to
purchase shares of Common Stock to be offered in connection with the Rights
Offering, there are no preemptive rights, options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of capital stock or other securities
of the Company or any of the Subsidiaries.
3.3 Newly Issued Shares. The Shares to be issued and sold by the
Company to the Purchasers in accordance with the terms of this Agreement have
been duly authorized and, when issued as contemplated hereby at the Closing,
will be validly issued, fully paid and non-assessable. At the Closing, the
Purchasers will acquire good and marketable title to the Shares free and clear
of any and all liens, encumbrances, security interests, preemptive rights,
adverse claims or equities or rights in favor of another ("Encumbrances"),
except such Encumbrances as may be created pursuant to this Agreement or imposed
by applicable federal and state securities laws. Upon receipt of the Warrants
pursuant to the terms hereof, the Purchasers or their designees will acquire
good and marketable title to the Warrants and the Common Stock to be issued upon
exercise thereof, in each case free and clear of any and all Encumbrances,
except such Encumbrances as may be created pursuant to this Agreement, imposed
by applicable federal and state securities laws or, prior to the Closing, the
Certificate of Incorporation. The Common Stock to be issued upon the exercise of
the Warrants is duly authorized, has been reserved for issuance, and, when so
issued, will be fully paid and non-assessable. No other person or entity has any
preemptive right, option, warrant, subscription agreement or other right with
respect to such Shares, Warrants or Common Stock to be issued upon exercise of
the Warrants, other than the preemptive rights held by the holders
<PAGE> 11
8
of the Common Stock Purchase Warrants issued under each of the Note Purchase
Agreement, dated as of March 31, 1992 (the "Note Purchase Agreement") and the
Preferred Securities Purchase Agreement, dated as of June 30, 1994 (the
"Preferred Securities Purchase Agreement"), which preemptive rights will, as of
the Closing Date, have been duly exercised or waived by such holders.
3.4 Authority. The Company has full corporate power and authority
to execute and deliver this Agreement and each other agreement contemplated
hereby to which it is a party, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated on its part hereby
and thereby. The execution, delivery and performance by the Company of this
Agreement and each other agreement contemplated hereby to which it is a party
and the consummation of the transactions contemplated on its part hereby have
been duly authorized by the Board of Directors, and no other corporate
proceedings on the part of the Company, except for the stockholder approval as
specified in Article V hereof, are necessary to authorize the execution and
delivery of this Agreement and each other agreement contemplated hereby by the
Company or the performance by the Company of its obligations hereunder or
thereunder. This Agreement has been duly executed and delivered by the Company
and (assuming due execution and delivery by the other parties hereto)
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). Each other agreement to be executed by the Company in
connection with this Agreement on or prior to the Closing Date will be duly
executed and delivered by the Company, and (assuming due execution and delivery
by the other party or parties thereto) will constitute a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization, or similar laws affecting creditors' rights
generally and subject to general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3.5 No Violation. The execution, delivery and performance of this
Agreement and each other agreement contemplated hereby by the Company and the
consummation by it of the transactions contemplated hereby and thereby do not
(a) violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award (collectively, "Requirements of Law")
applicable to the Company or any of the Subsidiaries, (b) require the consent,
waiver, approval, license or authorization of or any notice or filing by the
Company or any of the Subsidiaries with any person or governmental authority
except for, (i) filings to be made in connection with or in compliance with the
provisions of the Securities Act, the Exchange Act and applicable
<PAGE> 12
9
state securities laws, (ii) the filing of (A) HSR Reports by FHC and the Company
in connection with the transactions contemplated by the Purchase Agreement (the
"Acquisition"), (B) HSR Reports by the Purchasers, if required, in connection
with this Agreement, (C) Forms A by the Company with the insurance departments
of such states as may be required in connection with the Acquisition and (D)
Forms A by the Purchasers with the insurance departments of such states as may
be required in connection with this Agreement or (iii) any waiver required from
the holders of the 10 3/4% Trust Preferred Securities of the Company's
Subsidiary, Superior National Capital Trust I, in connection with the
transactions contemplated by this Agreement and the Purchase Agreement or (c)
violate, result (with or without notice or the passage of time, or both) in a
breach of or give rise to the right to accelerate, terminate or cancel any
obligation under, constitute (with or without notice or the passage of time, or
both) a default under, any of the terms or provisions of any charter or bylaw,
indenture, mortgage, agreement, contract, order, judgment, ordinance, regulation
or decree to which the Company or any of its Subsidiaries is subject or by which
the Company or any of its Subsidiaries is bound, except for any of the foregoing
matters which would not have, individually or in the aggregate, a Material
Adverse Effect on the Company. Neither the Company nor any of the Subsidiaries
previously entered into any agreement which is currently in effect, or by which
the Company or any of the Subsidiaries is currently bound, granting any rights
to any person which are inconsistent with the rights to be granted by the
Company in this Agreement and each other agreement contemplated hereby, other
than the rights granted to the holders of the Common Stock Purchase Warrants
issued pursuant to the Note Purchase Agreement and the Preferred Securities
Purchase Agreement. The execution, delivery and performance of this Agreement
and each other agreement contemplated hereby by the Company and the consummation
by it of the transactions contemplated hereby and thereby will not result in a
"change of control" or similar event occurring under any agreement, indenture,
mortgage or contract to which the Company or any of its Subsidiaries is subject
or by which the Company or any of its Subsidiaries is bound or give rise to a
payment by the Company or any of its Subsidiaries under a change of control or
similar provision in any agreement, indenture, mortgage or contract to which the
Company or any of its Subsidiaries is subject or by which the Company or any of
its Subsidiaries is bound.
3.6 SEC Filings. The Company has filed all SEC Filings required
to be filed by it since September 17, 1996 under the Securities Act or the
Exchange Act, and all amendments thereto. The Company heretofore has delivered
to each Purchaser true and complete copies of (a) its audited consolidated
financial statements of the Company and the Subsidiaries (balance sheet and
statements of operations, cash flows and stockholders' equity, together with the
notes thereto) for the fiscal years ended and as at December 31, 1996 and
December 31, 1997 (as such financial statements appear in the Company's Form
10-K for each of the fiscal years ended December 31, 1996 and December 31, 1997,
which were filed with the Commission on March 10, 1997 and March 31, 1998,
<PAGE> 13
10
respectively (collectively, the "Financial Statements")), (b) its Quarterly
Reports on Form 10-Q for the quarters ended September 30, 1996, March 31, 1997,
June 30, 1997, and September 30, 1997, (c) its Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, (d) each of its Proxy Statements on
Schedule 14A under the Exchange Act, dated November 11, 1996 and March 10, 1997,
respectively, and (e) all other reports, statements, registration statements and
other documents (including Current Reports on Form 8-K) filed by it with the
Securities and Exchange Commission (the "Commission") under the Securities Act
or the Exchange Act, and all amendments and supplements thereto, since September
17, 1996 (the foregoing subsections (a) through (e), including all exhibits and
Schedules thereto and documents incorporated by reference therein, are referred
to in this Agreement as the "SEC Filings"). As of the respective date that it
was filed with the Commission, each of the SEC Filings complied as to form and
content, in all material respects, with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements included in the
SEC Filings were prepared in accordance with generally accepted accounting
principles, consistently applied, and (except as may be indicated therein or in
the notes thereto) present fairly the consolidated financial position, results
of operations and cash flows of Company as of the dates and for the respective
periods indicated (subject, in the case of unaudited financial statements, to
normal recurring year-end adjustments and any other adjustments described
therein). The Company has (i) delivered to the Purchasers true and complete
copies of (x) all correspondence relating to the Company between the Commission
and the Company or its legal counsel and, to the Company's knowledge,
accountants since September 17, 1996 (other than routine filing package cover
letters) and (y) all correspondence between the Company or its counsel and the
Company's auditors since September 17, 1996, relating to any audit, financial
review or preparation of financial statements of the Company (other than
correspondence which the Company reasonably believes is subject to a privilege),
and (ii) disclosed to the Purchasers the content of all material discussions
between the Commission and the Company or its legal counsel and, to the
Company's knowledge, accountants concerning the adequacy or form of any SEC
Filings filed with the Commission since September 17, 1996. The Company is not
aware of any issues raised by the Commission with respect to any of the SEC
Filings, other than those disclosed to the Purchasers pursuant to this
paragraph.
3.7 Litigation. Except as set forth in the SEC Filings, there are
no actions, suits, proceedings, claims, complaints, disputes or investigations
pending or, to the knowledge of the Company, threatened, at law, in equity, in
arbitration or before any governmental authority against the Company or any of
its Subsidiaries and with respect
<PAGE> 14
11
to which the Company or any of its Subsidiaries is responsible by way of
indemnity or otherwise, that would, if adversely determined, (a) have a Material
Adverse Effect on the Company or (b) have a material adverse effect on the
ability of the Company to perform its obligations under this Agreement and each
other agreement contemplated hereby to which it is a party. No injunction, writ,
temporary restraining order, decree or order of any nature has been issued by
any court or other governmental authority against the Company or any of its
Subsidiaries purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any other agreement contemplated hereby.
3.8 Compliance with Laws.
(a) Each of the Company and the Subsidiaries is in
compliance with all Requirements of Law in all respects, except to the extent
that the failure to comply with such Requirements of Law would not have a
Material Adverse Effect on the Company.
(b) (i) Each of the Company and the Subsidiaries has all
licenses, permits, orders or approvals of any governmental authority
(collectively, "Permits") that are material to or necessary for the conduct of
the business of the Company in the manner described in the SEC Filings filed
with the SEC prior to the date hereof, except to the extent that the failure to
have such Permits would not have a Material Adverse Effect on the Company; (ii)
such Permits are in full force and effect; and (iii) no material violations are
recorded in respect to any Permit.
3.9 No Material Adverse Change; Ordinary Course of Business.
Except as set forth in the SEC Filings and except as previously disclosed to the
Purchasers in writing, since December 31, 1997, (i) there has not been any
material adverse change in operations, financial condition, prospects or results
of operations of the Company and the Subsidiaries, taken as a whole and (ii)
neither the Company nor any of the Subsidiaries has participated in any
transaction or acted outside the ordinary course of business.
3.10 Private Offering. No form of general solicitation or general
advertising was used by the Company or any of the Subsidiaries or their
respective representatives in connection with the offer or sale of the Shares or
Warrants. No registration of the Shares or Warrants, pursuant to the provisions
of the Securities Act or any state securities or "blue sky" laws, will be
required by the offer, sale or issuance of the Shares or Warrants.
3.11 Taxes. The Company and its Subsidiaries have filed or caused
to be filed, or have properly filed extensions for, all income tax returns that
are required to be filed and have paid or caused to be paid all amounts as shown
on said returns and on
<PAGE> 15
12
all assessments received by it to the extent that such taxes have become due,
except taxes the validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves, in
accordance with generally accepted accounting principles, have been set aside.
The Company and its Subsidiaries have paid or caused to be paid, or have
established reserves in accordance with generally accepted accounting principles
that the Company or such Subsidiaries reasonably believes to be adequate in all
material respects, for all income tax liabilities applicable to the Company and
its Subsidiaries for all fiscal years that have not been examined and reported
on by the taxing authorities (or closed by applicable statutes). United States
federal income returns of the Company and its Subsidiaries have been examined
and closed through the fiscal year ended December 31, 1993. The Company has
delivered to the Purchasers (a) true and complete copies of any tax sharing
agreements to which it or any of the Subsidiaries is party and such agreements
have not been amended in any manner and (b) an analysis of the ownership of
capital stock of the Company by "5 percent shareholders" as such term is defined
in Section 382 of the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder (collectively, "Section 382").
3.12 Brokers. Except with respect to any investment banking fee
due to Donaldson, Lufkin & Jenrette Securities Corporation and any other
financial advisor of the Company with respect to the transactions contemplated
hereunder, the Company has not paid or become obligated to pay any fee or
commission to any broker, funder, investment banker or other intermediary in
connection with this Agreement.
3.13 Fairness Opinion. The Company has received the favorable
opinion of a financial advisor to the Company as to the fairness on a financial
basis of the terms of the transactions contemplated under this Agreement and the
Purchase Agreement, taken as a whole.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Proxy Statement and Meeting of Company's Stockholders.
(a) The Company shall call a meeting of its stockholders
(the "Stockholders' Meeting") as soon as reasonably practicable after the date
of this Agreement, for the purpose of voting upon approval of the sale of Shares
pursuant to this Agreement and, to the extent required, the transactions
contemplated by the Financing Agreements (as defined in the Purchase Agreement)
and such other related matters as it deems appropriate. In connection with the
Stockholders' Meeting, (i) the Company shall
<PAGE> 16
13
prepare and file with the Commission a Proxy Statement and mail such Proxy
Statement to its stockholders, (ii) the Board of Directors of the Company shall
recommend to its stockholders the approval of the sale of Shares pursuant to
this Agreement and (iii) the Board of Directors and officers of the Company
shall use their reasonable efforts to obtain such stockholders' approval. Each
Purchaser agrees to assist and co-operate with the Company in the preparation of
the Proxy Statement with respect to information therein concerning any such
Purchaser.
(b) The Company, on the one hand, and each Purchaser, on
the other hand, hereby represents, warrants and agrees with the other that the
Proxy Statement will not, at the time the Proxy Statement is mailed, and at the
date of the Stockholders' Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, or to correct any statement made in any
earlier communication with respect to the solicitation of any proxy or approval
of the transactions contemplated by this Agreement in connection with which the
Proxy Statement shall be mailed, except that no representation or warranty is
being made by any party hereto with respect to information supplied in writing
by any other party hereto for inclusion in the Proxy Statement. The Company
further represents, warrants and agrees that the Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act. The
letter to stockholders, notice of meeting, proxy statement and form of proxy, or
any information statement filed under the Exchange Act, as the case may be, that
may be provided to stockholders of the Company in connection with the
transactions contemplated by this Agreement (including any supplements), and any
schedules required to be filed with the Commission in connection therewith, as
from time to time amended or supplemented, are collectively referred to as the
"Proxy Statement."
(c) The Company shall take all actions necessary in
accordance with the Delaware General Corporation Law and the bylaws of the
Company to duly call, give notice of, convene and hold the Stockholders' Meeting
within forty-five (45) calendar days after the mailing of the Proxy Statement to
approve the matters set forth therein.
4.2 Standstill.
(a) Each Purchaser's "Associates" (which term shall be
defined for this purpose to include CentreLine Reinsurance Limited, Centre
Reinsurance Limited, International Insurance Investors, L.P. ("III") and
International Insurance Advisors, Inc. ("IIA") and any person or entity that
controls, is under common control with, or is controlled by any of the
Purchasers or such persons or entities, and all individuals who are officers,
directors or control persons of any such entities, including any of the
Purchasers)
<PAGE> 17
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that is a signatory hereto covenants and agrees with respect to itself, and each
Purchaser covenants and agrees with respect to itself and its Associates that
are not signatories hereto, that it or they will not (i) acquire or offer or
agree to acquire, directly or indirectly, by purchase or otherwise, any shares
of Common Stock or voting securities of the Company (or direct or indirect
rights or options to acquire any such securities); (ii) enter, agree to enter
into or propose to enter into, directly or indirectly, any merger or business
combination involving the Company; (iii) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" (as such terms are
used in the rules of the Commission) or consent to vote, or seek to advise or
influence any person or entity with respect to the voting of, any voting
securities of the Company; or (iv) form, join or in any way participate in a
"group" (within the meaning of Section 13d-3 of the Exchange Act) with any
persons not referenced to herein with respect to any of the foregoing; provided,
however, that nothing in this Section 4.2(a) shall restrict any Purchaser or any
of its Associates from (A) acquiring shares of Common Stock or voting securities
as a result of a stock split, stock dividend or similar recapitalization of the
Company, (B) exercising the Warrants, the warrant issued to IIA pursuant to the
Note Purchase Agreement, the warrant issued to CentreLine pursuant to the
Preferred Securities Purchase Agreement and any other warrants with respect to
any capital stock of the Company issued prior to the date hereof (or any
preemptive rights granted pursuant to any of them), (C) making, or in any way
participating, directly or indirectly, in any "solicitation" of "proxies" (as
such terms are defined in Rule 14a-1 under the Exchange Act) in connection with
the election to the Board of Directors of directors nominated by any Purchaser
or any of its Associates (to the extent not otherwise inconsistent with this
Agreement) or (D) with respect to a tender or exchange offer or a merger or
other business combination involving the Company (a "Business Combination"),
which was initiated without the encouragement by or the participation of any
Purchaser or any of its Associates, making a tender or exchange offer or a
proposal with respect to a Business Combination, or forming, joining or
participating as a "group" to make such offer or proposal, in either case upon
more favorable terms than those of the unsolicited tender or exchange offer or
Business Combination; and provided further, that nothing contained in this
Section 4.2(a) (I) shall affect or impair the right of any director of the
Company to (x) act as a member of the Board of Directors or any committee
thereof or (y) take any action necessary or advisable to carry out his
obligations and duties as a director of the Company. Notwithstanding anything to
the contrary contained in this Agreement, nothing in this Section 4.2(a) shall
prohibit or restrict any Associate who is a director of the Company from
acquiring, in one or more transactions, in his individual capacity, an aggregate
of 25,000 shares of Common Stock so long as such acquisition does not violate
any provision of the Company's charter as in effect from time to time or (II)
prohibit or restrict ordinary trading transactions on behalf of third party
clients by an Associate engaged in the investment management business.
<PAGE> 18
15
(b) The limitations set forth in Section 4.2(a) above and
Section 4.3 below may be waived by the affirmative vote of the nearest whole
number representing 66 2/3% or more of (i) the directors of the Company,
excluding from the total number of directors voting those who are Associates of
any Purchaser or (ii) the shares of the Company, not including in such total
number of shares voting those beneficially owned by any Purchaser and its
Associates.
(c) In furtherance of the standstill covenants set forth
in this Section 4.2, each of the Company and each of the Purchasers covenants
and agrees that any material business relationship between the Company and any
Purchaser or any Associate of any Purchaser must be approved in the manner
provided in Section 4.2(b) above.
(d) Other than with respect to the election of directors
of the Company, each Purchaser covenants and agrees that, with respect to any
vote of the stockholders of the Company on a particular matter, if the aggregate
number of all shares that are voted in like manner by the Purchasers and their
respective Associates shall be greater of 35% of the total number of shares
voted, then those votes that exceed such 35% threshold shall be voted in the
same proportion as the other stockholders voted their shares with respect to
such matter.
(e) Each Purchaser covenants and agrees that such
Purchaser and its Associates will not vote their shares of Common Stock, the
Voting Notes issued pursuant to the Note Purchase Agreement (the "Voting Notes")
or shares of Common Stock issued upon exercise of the Warrants or the Common
Stock Purchase Warrants issued to them under the Note Purchase Agreement or the
Preferred Securities Purchase Agreement, to elect a total of more than five (5)
persons (or the highest number that is less than a majority of the Board of
Directors, as the case may be), including the person nominated pursuant to
Section 4.4 of the September 1996 Stock Purchase Agreement, who are Associates
of any Purchaser or its Associates to be directors of the Company.
(f) The agreements set forth in this Section 4.2 shall
continue so long as the shares of Common Stock owned by the Purchasers and their
respective Associates, directly or indirectly, represent 15% of the outstanding
shares of the Company on a fully diluted basis (including, without limitation,
the Voting Notes).
(g) Upon consummation of the Closing hereunder, this
Section 4.2 shall supersede in its entirety Section 4.2 of the September 1996
Stock Purchase Agreement, which as of such consummation shall be of no further
force and effect.
<PAGE> 19
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(h) It is hereby understood and agreed by the parties
hereto that CentreLine Reinsurance Limited, Centre Reinsurance Limited, III and
IIA are executing the Acknowledgment and Agreement attached hereto only with
respect to this Section 4.2 and each such person will have no liability or
obligation under this Agreement other than with respect to this Section 4.2.
4.3 Transfer of Shares. So long as the shares of Common Stock
owned by the Purchasers and their Associates, directly or indirectly, represent
15% of the shares of Common Stock outstanding on a fully diluted basis
(including, without limitation, the Voting Notes), the Purchasers shall not
transfer, assign, sell or otherwise dispose of (each, a "Transfer") any of its
shares of Common Stock, except for Transfers made in accordance with this
Section 4.3. The Purchasers may at any time Transfer any or all of its shares of
Common Stock (i) to any Associate of the Purchasers, if such Associate executes
and delivers to the Company, prior to any such Transfer, an instrument in form
and substance reasonably satisfactory to the Company pursuant to which such
Associate agrees to be bound by the provisions of Section 4.2 and this Section
4.3, (ii) pursuant to Rule 144 under the Securities Act or any successor to such
rule, (iii) pursuant to a tender offer or exchange offer made by the Company or
any "Affiliate" (as such term is defined in Rule 12b-2 of the Exchange Act) of
the Company, (iv) pursuant to a tender offer or exchange offer initiated by any
person or "group" (within the meaning of Section 13d-3 of the Exchange Act)
other than the Purchasers or any Associate thereof or a Business Combination,
which is approved or recommended by the Board of Directors of the Company or
with respect to which the Board of Directors of the Company has announced its
intention to remain neutral, (v) so long as the shares of Common Stock to be
Transferred represent, in the aggregate, not greater than 10% of the outstanding
Common Stock, in a transaction or series of transactions exempt from the
registration and prospectus delivery requirements of the Securities Act, (vi) by
the Transfer of greater than 10% of the outstanding shares of Common Stock in a
transaction or series of transactions exempt from the registration and
prospectus delivery requirements of the Securities Act to (x) one purchaser, (y)
one purchaser and its Affiliates or (z) a "group" of purchasers, if such
purchaser or purchasers of Common Stock in any such transaction or series of
transactions execute and deliver to the Company prior to any such purchase or
purchases an instrument in form satisfactory to the Company pursuant to which
such purchaser or purchasers agree to be bound by the provisions of Section 4.2
hereof and this Section 4.3 (treating such purchaser or purchasers as an
"Associate" for purposes of such sections), (vii) pursuant to a registration
statement filed under the Securities Act pursuant to the Amended and Restated
Registration Rights Agreement, in the form attached hereto as Exhibit C (the
"Registration Rights Agreement"), or otherwise or (viii) pursuant to a pro rata
distribution to its partners. Upon the consummation of the Closing hereunder,
this Section 4.3 shall supersede in its entirety Section 4.3 of the September
1996 Stock Purchase Agreement, which as of such consummation shall be of no
further force and effect.
<PAGE> 20
17
4.4 Rights Offering; Debt Offering.
(a) As soon as practicable after the date of this
Agreement, the Company shall effect (i) a "rights offering" of Common Stock to
its stockholders at a price per share of Common Stock of Sixteen Dollars and
Seventy-Five Cents ($16.75) and in an aggregate amount of not less than One
Hundred Six Million Dollars ($106,000,000) (the "Rights Offering") and (ii) an
offering of debt securities of the Company in an aggregate amount of not less
than One Hundred Ten Million Dollars ($110,000,000) (or such lesser amount as
may be agreed upon between the Company and the Purchasers) (the "Debt
Offering"). The Rights Offering and the Debt Offering will each be on terms
reasonably acceptable to the Purchasers.
(b) The Company will prepare and file with Commission
registration statements with respect to the Rights Offering and the Debt
Offering. The Company hereby represents, warrants and agrees with the Purchasers
that the Registration Statements will not, at the time any preliminary
prospectus, prospectus or prospectus supplement included in such Registration
Statements are mailed, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Company further represents, warrants and agrees that the
Registration Statements will comply as to form in all material respects with the
provisions of the Securities Act. Any registration statement, including, without
limitation, any preliminary prospectus, prospectus or prospectus supplement
included therein, filed under the Securities Act, as the case may be, in
connection with the Rights Offering or the Debt Offering, and any schedules
required to be filed with the Commission in connection therewith, as from time
to time amended or supplemented, are collectively referred to as the
"Registration Statements."
(c) The Company acknowledges that it has been advised that
IP Delaware and IP Bermuda will not be offered any rights to subscribe for, and
will not purchase any, shares of Common Stock in the Rights Offering.
4.5 Best Efforts. Upon the terms and subject to the conditions
herein provided, each of the Purchasers and the Company agrees to use its
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement and each other agreement
contemplated hereby including (a) to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby and (b) to fulfill all
conditions on its part to be fulfilled under this Agreement and each other
agreement contemplated hereby. In case at any time after the Closing Date any
further action is reasonably
<PAGE> 21
18
necessary or desirable to carry out the purposes of this Agreement and each
other agreement contemplated hereby, the proper partners, officers or directors
of all parties to this Agreement shall take all such reasonably necessary
action. No party hereto will take any action for the purpose of delaying,
impairing or impeding the receipt of any required consent, authorization, order
or approval or the making of any required filing. Each party hereto shall give
prompt notice to all other parties of (i) the occurrence, or failure to occur,
of any event which occurrence or failure would be likely to cause any
representation or warranty of such party contained in this Agreement, as the
case may be, to be untrue or inaccurate in any material respect any time from
the date hereof to the Closing Date and (ii) any material failure of such party,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, and such party shall
use all reasonable efforts to remedy such failure.
4.6 Indemnification by the Company.
(a) The Company agrees to indemnify each of the
Purchasers, and each of the Purchaser's respective partners, members, employees,
agents and representatives, against and hold the Purchasers, and each of the
Purchaser's respective partners, members, employees, agents and representatives,
harmless from all claims, obligations, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses incurred by the Purchasers
in any action between the Purchasers and the Company or between the Purchasers
and any third party or otherwise) and liabilities of and damages to the
Purchasers arising out of the material breach of any representation, warranty,
covenant or agreement of the Company in this Agreement.
(b) The Purchasers agree to give the Company prompt
written notice of any claim, assertion, event or proceeding by or in respect of
a third party of which they have knowledge concerning any liability or damage as
to which they may request indemnification hereunder. The Company shall have the
right to direct, through counsel of its own choosing, the defense or settlement
of any such claim, assertion, event or proceeding (provided that the Company
shall have acknowledged its indemnification obligations hereunder specifically
in respect of such claim, assertion, event or proceeding) at its own expense,
which counsel shall be reasonably satisfactory to the Purchasers. If the Company
elects to assume the defense of any such claim, assertion, event or proceeding,
the Purchasers may participate in such defense, but in such case the expenses of
the Purchasers incurred in connection with such participation shall be paid by
the Purchasers. The Purchasers shall cooperate with the Company in the defense
or settlement of any such claim, assertion, event or proceeding. If the Company
elects to direct the defense of any such claim or proceeding, the Purchasers
shall not pay, or permit to be paid, any part of any claim or demand arising
from such asserted liability, unless the Company consents in writing to such
payment or unless the Company withdraws from the
<PAGE> 22
19
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.
4.7 Indemnification by the Purchasers.
(a) Each of the Purchasers, severally and not jointly,
agrees to indemnify the Company, and each of the Company's officers, directors,
employees, agents and representatives, against and hold the Company, and each of
the Company's officers, directors, employees, agents and representatives,
harmless from all claims, obligations, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses incurred by the Company in
any action between the Company and such Purchaser or between the Company and any
third party or otherwise) and liabilities of and damages to the Company arising
out of the material breach of any representation, warranty, covenant or
agreement of such Purchaser in this Agreement.
(b) The Company agrees to give the Purchasers prompt
written notice of any claim, assertion, event or proceeding by or in respect of
a third party of which it has knowledge concerning any liability or damage as to
which it may request indemnification hereunder. The indemnifying Purchasers
shall have the right to direct, through counsel of their own choosing, the
defense or settlement of any such claim, assertion, event or proceeding
(provided that such Purchasers shall have first acknowledged their
indemnification obligations hereunder specifically in respect of such claim,
assertion, event or proceeding) at their own expense, which counsel shall be
reasonably satisfactory to the Company. If the indemnifying Purchasers elect to
assume the defense of any such claim, assertion, event or proceeding, the
Company may participate in such defense, but in such case the expenses of the
Company incurred in connection with such participation shall be paid by the
Company. The Company shall cooperate with the indemnifying Purchasers in the
defense or settlement of any such claim, assertion, event or proceeding. If the
indemnifying Purchasers elect to direct the defense of any such claim,
assertion, event or proceeding, the Company shall not pay, or permit to be paid,
any part of any claim or demand arising from such asserted liability, unless
such Purchasers consent in writing to such payment or unless such Purchasers
withdraw from the defense of such asserted liability, or unless a final judgment
from which no appeal may be taken by or on behalf of such Purchasers is entered
against the Company for such liability. If the indemnifying Purchasers shall
fail to defend, or if, after commencing or undertaking any such defense, such
Purchasers fail to prosecute or
<PAGE> 23
20
withdraw from such defense, the Company shall have the right to undertake the
defense or settlement thereof at such Purchaser's expense.
4.8 Consents. The Company and each of the Purchasers will use its
reasonable best efforts to obtain all necessary waivers, consents and approvals
of all third parties and governmental authorities necessary to the consummation
of the transactions contemplated by this Agreement and each agreement
contemplated hereby, including, but not limited to, those required in connection
with the filing of any required HSR Reports and Forms A and any filings to be
made in connection with or in compliance with the provisions of each of the
Securities Act, the Exchange Act and any applicable state securities laws.
4.9 Use of Proceeds. The Company covenants and agrees that it
will use the proceeds from the sale of the Shares hereunder to consummate the
transactions contemplated by the Purchase Agreement.
4.10 HSR Reports. If the Purchasers are required to file an HSR
Report in connection with the Purchase by the Purchasers pursuant to the terms
of this Agreement, then the Purchasers shall so notify the Company in writing
and, within fifteen (15) business days from the receipt by the Company of such
notice, each of the Purchasers and the Company shall file with the Federal Trade
Commission and the Antitrust Division of the Department of Justice, an HSR
Report and any supplemental information which may be requested in connection
with such HSR Reports. The Purchasers and the Company shall cooperate fully in
the preparation of such filings.
4.11 Exclusivity. The Company hereby agrees that prior to the
Closing Date, the Company shall not, directly or indirectly, solicit, entertain
or accept offers from persons (other than the Purchasers) for the investment
contemplated by this Agreement. The Company further agrees that, other than the
Rights Offering and the Debt Offering, it will not utilize any funds or sources
of financing to finance the transactions contemplated by the Purchase Agreement
without first consummating the Purchase.
4.12 SEC Filings. From and after the date hereof to the Closing
the Company shall make all SEC Filings required to be filed under the Securities
Act or the Exchange Act, and all amendments thereto, and the Company shall
deliver to the Purchasers a copy of each such SEC Filing.
4.13 Amendment of Purchase Agreement. The Company shall not amend
the Purchase Agreement without the prior written consent of the Purchasers
(which shall not be unreasonably withheld).
<PAGE> 24
21
4.14 Rights Offering Notice. On the next business day following
the expiration of the subscription period of the Rights Offering, the Company
shall deliver to the Purchasers a notice (the "Rights Offering Notice") which
sets forth the number of shares of Common Stock which have been subscribed for
in the Rights Offering.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver by the Purchasers and
the Company on or prior to the Closing Date of the following conditions:
(a) No United States or state authority or other agency or
commission or United States or state court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary, or permanent) which
is in effect and has the effect of prohibiting consummation of the transactions
contemplated by this Agreement or restricting the operation of the business of
the Company and the Subsidiaries as conducted on the date hereof in a manner
that would have a Material Adverse Effect on the Company.
(b) Any waiting period applicable to the transactions
contemplated by this Agreement and each agreement contemplated hereby,
including, without limitation, those applicable to any HSR Report or Form A or
any filing in connection with or in compliance with the provisions of each of
the Securities Act, the Exchange Act and any applicable state securities laws
shall have expired or been terminated.
(c) The Closing provided for in Section 1.3 hereof shall
occur simultaneously with the closing of the transactions contemplated by the
Purchase Agreement.
5.2 Conditions to the Obligations of the Company. The obligation
of the Company to effect the transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver by the Company on or prior to the
Closing Date of the following additional conditions:
<PAGE> 25
22
(a) Purchasers shall have performed in all material
respects their obligations under this Agreement required to be performed by them
on or prior to the Closing Date pursuant to the terms hereof.
(b) The representations and warranties of the Purchasers
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as if made at and as of such date, except to the
extent that any such representation or warranty is made as of a specified date
in which case such representation or warranty shall have been true and correct
as of such date. The Purchasers shall have delivered a certificate to the effect
set forth in Sections 5.2(a) and (b).
(c) The Company shall have received fully executed copies
of the Purchase Agreement, the Registration Rights Agreement and any and all
other agreements, documents, certificates or instruments contemplated by this
Agreement and any of the foregoing.
(d) All of the conditions to Closing set forth in Article
6 of the Purchase Agreement shall have been satisfied or waived.
(e) The stockholders of the Company (including, without
limitation, the holders of the Voting Notes) shall have duly approved at the
Stockholders' Meeting the issuance of the Shares pursuant to this Agreement and,
to the extent required, the transactions contemplated by the Financing
Agreements.
(f) The Company shall have received, in a form reasonably
satisfactory to the Company, the favorable opinion of its financial advisor in
connection with the transactions contemplated hereunder and under the Purchase
Agreement, as of the date of the mailing of the Proxy Statement, as to the
fairness on a financial basis of the terms of the Purchase and the transactions
contemplated by this Agreement.
(g) All necessary waivers or consents to, approvals of and
notices or filings with respect to the transactions contemplated by this
Agreement and each agreement contemplated hereby shall have been obtained or
made.
5.3 Conditions to the Obligations of Purchasers. The obligations
of the Purchasers to effect the transactions contemplated by this Agreement
shall be subject to the fulfillment or waiver by the Purchasers on or prior to
the Closing Date of the following additional conditions:
<PAGE> 26
23
(a) The Company shall have performed in all material
respects its obligations under this Agreement required to be performed by it on
or prior to the Closing Date pursuant to the terms hereof.
(b) The representations and warranties of the Company set
forth in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.10, 3.12 and 3.13 of this Agreement
shall be true and correct in all material respects at and as of the Closing Date
as if made at and as of such date, except to the extent that any such
representation or warranty is made as of a specified date in which case such
representation or warranty shall have been true and correct as of such date. The
Company shall have delivered to the Purchasers a certificate to the effect set
forth in Sections 5.3(a) and (b).
(c) The Company shall have delivered (i) to each of the
Purchasers stock certificates in definitive form representing the number of
Shares to be purchased by such Purchaser pursuant to Section 1.1, registered in
the name of such Purchaser and (ii) to each of the Purchasers or its designee
(or, in the case of Cap Z, assignee) and ZCIL or its designee, except to the
extent set forth in the Zurich Letter, Warrants in definitive form representing
the number of Warrants set forth opposite such Purchaser's or ZCIL's name on
Exhibit A-2 hereto, registered in the name of each such Purchaser or its
designee (or, in the Case of Cap Z, assignee) or ZCIL or its designee.
(d) The stockholders of the Company (including, without
limitation, the holders of the Voting Notes) shall have duly approved at the
Stockholders' Meeting the issuance of the Shares pursuant to this Agreement and,
to the extent required, the transactions contemplated by the Financing
Agreements.
(e) The Purchasers shall have received fully executed
copies of the Purchase Agreement, the Registration Rights Agreement and any and
all other agreements, documents, certificates or instruments contemplated by
this Agreement and any of the foregoing.
(f) All necessary waivers or consents to, approvals of and
notices or filings with respect to the transactions contemplated by this
Agreement and each other agreement contemplated hereby and thereby shall have
been obtained.
(g) The Debt Offering and Rights Offering shall have been
consummated simultaneously with the Closing of this Agreement and the Purchase
Agreement on terms and conditions reasonably satisfactory to the Purchasers, and
in no event shall the notes issued in connection with the Debt Offering have an
interest rate in excess of 12% per annum.
<PAGE> 27
24
(h) The Purchase Agreement shall not have been materially
amended or modified, nor any material provision thereof waived by the Company,
except upon the consent of the Purchasers in their sole discretion (such consent
not to be unreasonably withheld).
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement (including, without limitation,
Sections 4.2 and 4.3 hereof) shall terminate and the transactions contemplated
hereby may be abandoned (i) at any time simultaneous with or following the
termination of the Purchase Agreement, (ii) by the Company, on the one hand, or
the Purchasers, on the other hand, upon notice to the other, two (2) days after
the failure by the stockholders of the Company to approve at the Stockholders'
Meeting the issuance of the Shares pursuant to this Agreement and, to the extent
required, the transactions contemplated by the Financing Agreements in
accordance with Section 5.2(e) and 5.3(d) hereof or (iii) on the next date
following the date which is the last date on which, pursuant to Section 1.3
hereof, the Closing hereunder can occur by written notice of the Company to the
other parties or any Purchaser to the other parties. This Agreement shall
terminate at such time as, by their terms, all of the obligations under Sections
4.2 and 4.3 hereof are no longer in effect.
6.2 Amendment. This Agreement may be amended by the parties
hereto. This Agreement may be amended by an instrument in writing without each
party's written agreement, but no such amendment shall be enforceable against
any party which has not signed such amendment.
6.3 Waiver. At any time prior to the Closing Date, the Company or
the Purchasers may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions herein, provided that any such waiver of or failure to insist on
strict compliance with any such representation, warranty, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Any agreement on the part of the Company or the Purchasers to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
<PAGE> 28
25
6.4 Survival. The representations, warranties, covenants and
agreements set forth in Sections 1.4, 1.5 and 1.6 and Articles II, III and IV
shall survive the Closing.
6.5 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally, sent by commercial carrier or
registered or certified mail (postage prepaid, return receipt requested) or
transmuted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
If to the Company, to:
Superior National Insurance Group, Inc.
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.
<PAGE> 29
26
If to the Purchasers, to:
Insurance Partners, L.P.
201 Main Street, Suite 2600
Fort Worth, TX 76102
Fax: (817) 338-2047
Attention: Mr. Charles Irwin
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.
and
Capital Z Partners, Ltd.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Fax: (212) 898-8720
Attention: Bradley E. Cooper
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Fax: (212) 757-3990
Attention: Marilyn Sobel, Esq.
and
<PAGE> 30
27
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Fax: (212) 898-8720
Attention: Steven B. Gruber
6.6 Headings; Agreement. The headings contained in this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement. The term "Agreement" for purposes of representations and warranties
hereunder shall be deemed to include the Exhibits hereto to be executed and
delivered by parties relevant thereto.
6.7 Publicity. So long as this Agreement is in effect, except as
required by law, regulation or stock exchange requirements, the parties hereto
shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
transactions contemplated by this Agreement or the other agreements contemplated
hereby without the consent of the other parties, which consent shall not be
unreasonably withheld or delayed or without consulting with the other parties as
to the content of such press release or other announcement.
6.8 Entire Agreement. This Agreement (including all Exhibits
hereto) constitutes the entire agreement among the parties and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof.
6.9 Conveyance Taxes. The Company agrees to assume liability for
and to hold the Purchasers harmless against any sales, use, transfer, stamp,
stock transfer, real property transfer or gains, and value added taxes, any
transfer, registration, recording or other fees, and any similar taxes incurred
as a result of the issuance and sale of the Shares or Warrants as contemplated
hereby.
6.10 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Cap Z may transfer or assign this
Agreement and all of its rights, interests and obligations hereunder (i) to ZCIL
or its affiliates pursuant to the Zurich Letter or (ii) to one or more of the
following entities: any partnership of which Cap Z is, directly or indirectly,
the general partner, any limited liability company of which Cap Z is, directly
or indirectly, the managing member or any Associate of Cap Z, and upon any such
transfer or assignment Cap Z shall have no further obligations hereunder except
under Section 4.2(a) hereof, in which event such assignee shall be a "Purchaser"
<PAGE> 31
28
for all purposes under this Agreement. If Cap Z shall assign its rights,
interests and obligations hereunder to ZCIL, ZCIL may assign its rights,
interests and obligations hereunder to Cap Z or a partnership of which Cap Z is,
directly or indirectly, the general partner, any limited liability company of
which Cap Z is, directly or indirectly, the managing member or any Associate of
Cap Z, all in accordance with the terms of the Zurich Letter, and upon any such
transfer or assignment ZCIL shall have no further rights or obligations
hereunder to the extent its rights, interests and obligations have been so
transferred or assigned. Except as otherwise provided in the Exhibits to this
Agreement or the other agreements contemplated hereby, neither this Agreement
nor any of the rights, interests or obligations shall be assigned by any of the
parties hereto without the prior written consent of the other parties.
6.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
6.12 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Delaware, without
reference to the conflict of laws principles thereof.
6.13 Third Party Beneficiaries. This Agreement is not intended to
confer upon any other person any rights or remedies hereunder.
6.14 Costs and Expenses. The Company will pay all costs and
expenses incurred by any of the Purchasers in connection with the transactions
contemplated hereby, including without limitation, the reasonable legal fees and
expenses of Paul, Weiss, Rifkind, Wharton & Garrison and any filing fees paid in
connection with the filing of HSR Reports by the Purchasers, whether or not the
transactions contemplated hereby are consummated.
<PAGE> 32
IN WITNESS WHEREOF, each of the Purchasers and the Company has
caused this Agreement to be duly signed as of the date first written above.
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a Delaware corporation
By: /S/
--------------------------------------------
Name:
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/
---------------------------------------
Name:
Title:
INSURANCE PARTNERS OFFSHORE (BERMUDA),
L.P., a Bermuda limited partnership
By: Insurance GenPar (Bermuda) L.P., its
General Partner
By: Insurance GenPar (Bermuda) MGP, L.P., its
General Partner
By: Insurance GenPar (Bermuda), Ltd., its
General Partner
By: /S/
---------------------------------------
Name:
Title:
<PAGE> 33
CAPITAL Z PARTNERS, LTD.
By: /S/
--------------------------------------------
Name:
Title:
[Acknowledgment and Agreement on Following Page]
<PAGE> 34
Acknowledgment and Agreement:
Each of the undersigned acknowledges that this Agreement affects
its rights and by its signature below, the undersigned covenants and agrees that
it and its officers, directors and managing partners (and the officers,
directors and control persons of such managing partners) shall be bound by the
terms of this Agreement to the extent such terms apply to them.
CENTRELINE REINSURANCE LIMITED,
a Bermuda corporation
By: /S/
--------------------------------------------
Name:
Title:
CENTRE REINSURANCE LIMITED,
a Bermuda corporation
By: /S/
--------------------------------------------
Name:
Title:
INTERNATIONAL INSURANCE INVESTORS,
L.P., a Bermuda limited partnership
By: International Insurance Investors
(Bermuda) Limited, a Bermuda
corporation
Its: General Partner
By: /S/
---------------------------------------
Name:
Title:
<PAGE> 35
INTERNATIONAL INSURANCE ADVISORS, INC.,
a Delaware corporation
By: /S/
--------------------------------------------
Name:
Title:
<PAGE> 36
EXHIBIT A-1
PURCHASERS OF THE SHARES OF COMMON STOCK
<TABLE>
<CAPTION>
Percentage of Maximum
Shares to be Unsubscribed Number of
Purchaser Purchased Shares Shares
- --------- ------------ ------------ ---------
<S> <C> <C> <C>
IP Delaware 1,756,627 31.3016% 3,737,504
IP Bermuda 712,627 12.6984% 1,516,227
Cap Z 3,142,686 56% 6,686,567
</TABLE>
<PAGE> 37
EXHIBIT A-2
WARRANTS
<TABLE>
<CAPTION>
Purchaser Number of Warrants
- --------- ------------------
<S> <C>
IP Delaware 229,754
IP Bermuda 93,206
Cap Z 205,520
ZCIL 205,520
</TABLE>
<PAGE> 38
EXHIBIT A-3
TRANSACTION FEE
<TABLE>
<CAPTION>
Purchaser Fee Amount
- --------- ----------
<S> <C>
IP Delaware $1,220,762
IP Bermuda $495,238
Cap Z $2,184,000
</TABLE>
<PAGE> 39
EXHIBIT B
FORM OF WARRANT
<PAGE> 40
EXHIBIT B
COMMON STOCK PURCHASE WARRANT
Issued By
SUPERIOR NATIONAL INSURANCE GROUP, INC.
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT,
EXCEPT UNDER CIRCUMSTANCES WHERE NEITHER SUCH REGISTRATION NOR SUCH AN EXEMPTION
IS REQUIRED BY LAW. THIS WARRANT AND SUCH SECURITIES MAY BE TRANSFERRED ONLY
UPON THE FULFILLMENT OF THE CONDITIONS SPECIFIED IN THIS WARRANT.
THE EXERCISE AND TRANSFER OF THIS WARRANT AND THE EXERCISE OF THE REGISTRATION
RIGHTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN RESTRICTIONS PURSUANT TO SUPERIOR
NATIONAL INSURANCE GROUP, INC.'S (THE "COMPANY") CHARTER AND THAT CERTAIN LETTER
AGREEMENT, RELATING TO THIS WARRANT, AMONG THE COMPANY, THE RECORD HOLDER OF
THIS WARRANT AND CERTAIN OTHER PARTIES (THE "LETTER AGREEMENT"). ANY EXERCISE OR
TRANSFER OF THIS WARRANT OR EXERCISE OF REGISTRATION RIGHTS IN VIOLATION OF THE
CHARTER OF THE COMPANY OR THE LETTER AGREEMENT SHALL BE VOID AB INITIO. A COPY
OF THE LETTER AGREEMENT AND THE CHARTER OF THE COMPANY MAY BE OBTAINED FROM THE
COMPANY WITHOUT CHARGE UPON WRITTEN REQUEST.
- --------------------------------------------------------------------------------
No. 1998 W-[ ] Dated as of_____________, 1998
- --------------------------------------------------------------------------------
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. EXERCISE OF WARRANT................................................. 1
Section 1.1 Manner of Exercise........................................ 1
Section 1.2 When Exercise Effective................................... 2
Section 1.3 Delivery of Stock Certificate, etc........................ 2
Section 1.4 Company to Reaffirm Obligations........................... 3
Section 1.5 Compliance with Law, etc.................................. 3
SECTION 2. ADJUSTMENT OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANT............................................ 3
Section 2.1 General; Warrant Price.................................... 3
Section 2.2 Adjustment of Warrant Price............................... 4
Section 2.3 Options and Convertible Securities........................ 5
Section 2.4 Stock Dividends, Stock Splits. etc........................ 7
Section 2.5 Computation of Consideration.............................. 7
Section 2.6 Dilution in Case of Other Securities...................... 8
Section 2.7 Adjustments for Combinations, etc......................... 8
Section 2.8 Other Adjustments......................................... 9
Section 2.9 Determinations by Board of Directors...................... 9
SECTION 3. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE
OF ASSETS, REORGANIZATION, ETC...................................... 9
SECTION 4. OTHER DILUTIVE EVENTS............................................... 10
SECTION 5. NO DILUTION OR IMPAIRMENT........................................... 10
SECTION 6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS............................... 11
SECTION 7. NOTICES OF CORPORATE ACTION......................................... 11
SECTION 8. RESTRICTIONS ON TRANSFER; REGISTRATION.............................. 12
Section 8.1 Restrictive Legends....................................... 12
Section 8.2 Notice of Proposed Transfer; Opinions of Counsel.......... 13
Section 8.3 Termination of Restrictions............................... 14
SECTION 9. AVAILABILITY OF INFORMATION......................................... 15
SECTION 10. RESERVATION OF STOCK, ETC........................................... 15
</TABLE>
i
<PAGE> 42
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 11. LISTING ON SECURITIES EXCHANGES..................................... 16
SECTION 12. MAINTENANCE OF OFFICE OR AGENCY..................................... 16
SECTION 13. OWNERSHIP, REGISTRATION OF TRANSFER, EXCHANGE
AND SUBSTITUTION OF WARRANTS...................................... 17
Section 13.1 Ownership of Warrants..................................... 17
Section 13.2 Transfer and Exchange of Warrants......................... 17
Section 13.3 Replacement of Warrants................................... 17
Section 13.4 Expenses.................................................. 17
SECTION 14. DEFINITIONS......................................................... 17
SECTION 15. REMEDIES............................................................ 21
SECTION 16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER............................. 21
SECTION 17. NOTICES............................................................. 21
SECTION 18. MISCELLANEOUS....................................................... 22
SECTION 19. EXPIRATION.......................................................... 22
SUBSCRIPTION NOTICE............................................................. 23
ASSIGNMENT...................................................................... 24
</TABLE>
ii
<PAGE> 43
COMMON STOCK PURCHASE WARRANT
No. 1998 W-[ ] Dated as of ______________, 1998
Superior National Insurance Group, Inc., a Delaware corporation
(the "Company"), for value received, hereby certifies that [ ] ("[ ]"), is
entitled to purchase from the Company [ ] duly authorized, validly issued, fully
paid and non-assessable shares of Common Stock (as defined in Section 14 herein)
at the purchase price per share of $16.75, at any time or from time to time
prior to 5:00 p.m. Pacific time, on __________, 2003 (or such later date as may
be determined pursuant to Section 19), all subject to the terms, conditions and
adjustments set forth below in this Warrant, and is entitled to exercise the
other rights, powers and privileges hereinafter specified.
This Warrant constitutes (or has been issued in exchange or
substitution for, or upon registration of transfer of one of) one of the Common
Stock Purchase Warrants issued and delivered pursuant to the Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated as of May 5, 1998, among the
Company, Insurance Partners, L.P., Insurance Partners Offshore (Bermuda), L.P.
and Capital Z Partners, Ltd. The Stock Purchase Agreement is available for
inspection by the holder of this Warrant during normal business hours at the
office or agency maintained by the Company pursuant to Section 12 and at the
principal office of the Company referred to in, or notice of which is given by
the Company pursuant to, Section 17, and, upon request therefor, the Company
will furnish to the holder of this Warrant a true and complete copy of the Stock
Purchase Agreement as in effect at the time. All the Warrants, as originally so
issued, evidenced the right to purchase an aggregate of 734,000 shares of Common
Stock, subject to adjustment as provided herein. The term "Warrants," when used
herein, means this Warrant and all Warrants issued in exchange or substitution
therefor or upon registration of transfer hereof. The Warrants, although issued
in connection with the issuance and sale of shares of Common Stock pursuant to
the Stock Purchase Agreement (the "Purchase Shares") and although containing
provisions that refer to the Stock Purchase Agreement, are detachable warrants
and, accordingly, are exercisable and transferable (subject to compliance with
Section 8, if applicable) without presentation of any of the Purchase Shares.
Certain terms used in this Warrant are defined in Section 14.
SECTION 1. EXERCISE OF WARRANT
Section 1.1 Manner of Exercise. This Warrant may be exercised by
the holder hereof, in whole or in part, during normal business hours on any
Business Day
<PAGE> 44
2
by surrender of this Warrant, with the form of subscription at the end hereof or
a reasonable facsimile thereto duly executed by such holder, to the Company at
the office or agency maintained by the Company pursuant to Section 12,
(a) accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount (the
"Exercise Price") obtained by multiplying (i) the number of shares of Common
Stock (without giving effect to any adjustment therein) designated in such form
of subscription (or such reasonable facsimile) by (ii) $16.75, and such holder
shall thereupon be entitled to receive the number of duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided in Section 2; or
(b) accompanied by a notice to exercise its Cashless
Exercise Right (as defined herein). The holder hereof shall have the right to
require the Company to reduce the number of shares of Common Stock to be
received by such holder in lieu of paying the Exercise Price (the "Cashless
Exercise Right"). If the Cashless Exercise Right is exercised, the holder shall
not be obligated to pay the Exercise Price and the Company shall deliver to such
holder (without payment by such holder of any of the Exercise Price) the number
of duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock (or Other Securities) determined by Section 2 reduced by that
number of shares of Common Stock (or Other Securities) equal to the quotient
obtained by dividing (i) the Exercise Price by (ii) the Market Price of one
share of Common Stock (or Other Securities) on the Business Day next preceding
the date of exercise of the Cashless Exercise Right; or
(c) accompanied by a notice to exercise its In-Kind
Exercise Right (as defined herein). The holder shall have the right to pay the
Exercise Price with shares of Common Stock (the "In-Kind Exercise Right") that
either accompany the notice or are acquired concurrently therewith pursuant to
paragraph (a), (b) or this paragraph (c). For purposes of this paragraph, any
share of Common Stock used to pay the Exercise Price shall be deemed to have a
value equal to the Market Price of one share of Common Stock on the Business Day
next preceding the date of exercise of the In-Kind Exercise Right.
Section 1.2 When Exercise Effective. Each exercise of this
Warrant shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been surrendered
as provided in Section 1.1, and immediately prior to the close of business on
such Business Day the Person or Persons in whose name or names any certificate
or certificates for shares of Common Stock (or Other Securities) shall be
issuable upon such exercise as provided in Section 1.3 shall be deemed to have
become the holder or holders of record thereof.
<PAGE> 45
3
Section 1.3 Delivery of Stock Certificate, etc. As soon as
practicable after the exercise of this Warrant in whole or in part, and in any
event within five Business Days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof or, subject to Section
8, as such holder (upon payment by such holder of any applicable transfer taxes)
may direct,
(a) a certificate or certificates for the number of fully
paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled upon such exercise plus, in lieu of
any fractional share to which such holder would otherwise be entitled,
cash in an amount equal to the same fraction (calculated to the nearest
1/100th of a share) of the Market Price of one full share on the
Business Day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant
or Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment therein) to the number of such shares called
for on the face of this Warrant minus the number of such shares
designated by the holder upon such exercise as provided in Section 1.1.
Section 1.4 Company to Reaffirm Obligations. The Company will, at
the time of each exercise of this Warrant, acknowledge in writing its continuing
obligation to afford to such holder all rights to which such holder shall
continue to be entitled after such exercise in accordance with the terms of this
Warrant; provided, however, that if the Company shall fail to make any such
written acknowledgment, such failure shall not affect the continuing obligation
of the Company to afford such rights to such holder.
Section 1.5 Compliance with Law, etc. Each exercise of this
Warrant shall at all times be subject to the provisions of any applicable law
relating to the rights of non-citizens of the United States of America or other
classes of Persons to own shares of the Company.
SECTION 2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANT
Section 2.1 General; Warrant Price. The number of shares of
Common Stock which the holder of this Warrant shall be entitled to receive upon
the exercise
<PAGE> 46
4
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Section 2) be issuable
upon such exercise, as designated by the holder hereof pursuant to Section 1.1,
by the fraction of which (a) the numerator is $16.75 and (b) the denominator is
the Warrant Price (as defined below in this Section 2.1) in effect on the date
of such exercise. If a holder exercises a Cashless Exercise Right, the number of
shares of Common Stock such holder shall be entitled to receive upon exercise of
the warrant shall be reduced in accordance with Section 1.1(b). The "Warrant
Price" per share of Common Stock shall initially be $16.75, shall be adjusted
and readjusted from time to time as provided in this Section 2 and, as so
adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by this Section 2.
Section 2.2 Adjustment of Warrant Price.
Section 2.2.1 In case the Company, at any time or from time to
time after the Closing Date shall issue or sell Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to SectionSection 2.3 or 2.4) without consideration or for a consideration per
share less than the Current Market Price in effect immediately prior to such
issue or sale, then, and in each such case, such Warrant Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
cent) determined by multiplying such Warrant Price by a fraction:
(a) the numerator of which shall be the number of shares of
Common Stock outstanding, which number shall for purposes of this
Section 2.2.l(a) include the Common Stock Deemed to be Outstanding,
immediately prior to such issue or sale, plus the number of shares of
Common Stock which the aggregate consideration received by the Company
for the total number of such Additional Shares of Common Stock so issued
or sold would purchase at the greater of such Current Market Price and
such Warrant Price; and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding, which number shall for purposes of this
Section 2.2. l(b) include the Common Stock Deemed to be Outstanding,
immediately after such issue or scale;
provided, however, that for the purposes of this Section 2.2.1, treasury shares
shall not be deemed to be outstanding; and provided, further, that if any such
Additional Shares of Common Stock are issued pursuant to a binding agreement
entered into prior to the date of issuance of such shares and the per share
consideration to be paid by the purchaser for each such Additional Share of
Common Stock under such agreement is
<PAGE> 47
5
at least eighty-five percent (85%) of the Market Price per share of Common Stock
on the Business Day next preceding the date such agreement is entered into by
the parties thereto, then no adjustment shall be made to the Warrant Price
pursuant to this Section 2.2.1.
Section 2.2.2 In case the Company, at any time or from time to
time after the Closing Date, shall declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of other or
additional stock or other securities or property or Options by way of dividend
or spin-off, reclassification, recapitalization, merger or consolidation in
which the Company is the continuing or resulting corporation, or similar
corporate rearrangement) on the Common Stock, other than (a) a dividend payable
in Additional Shares of Common Stock for which an adjustment has been made
pursuant to Section 2.2.1 hereof and (b) regular periodic cash dividends
declared out of earned surplus of the Company in an aggregate amount not greater
than fifty cents ($.50) per share of Common Stock per annum (as adjusted for any
stock split, combination, reclassification or similar events with respect to the
Common Stock), then, and in each such case, the Warrant Price in effect
immediately prior to the close of business on the record date fixed for the
determination of the Persons entitled to receive such dividend or distribution
shall be adjusted, effective as of the close of business on such record date, to
a price (calculated to the nearest cent) determined by multiplying such Warrant
Price by a fraction:
(i) the numerator of which shall be the Current Market
Price in effect on such record date less the amount of such
dividend or distribution (as determined in good faith by the
Board of Directors of the Company) applicable to one share of
Common Stock; and
(ii) the denominator of which shall be such Current Market
Price.
Section 2.3 Options and Convertible Securities. In case the
Company, at any time or from time to time after the Closing Date, shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options (other than
those provided for and reserved pursuant to the Stock Option Plan as of the date
of the original issuance of this Warrant) or Convertible Securities, then, and
in each such case, the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the
<PAGE> 48
6
time of such issue, sale, grant or assumption or, in case such a record date
shall have been fixed, as of the close of business on such record date;
provided, however, that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined in accordance
with Section 2.5) of such shares would be less than the Current Market Price in
effect on the date of and immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record date, as
the case may be, and provided, further, that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(a) no further adjustment of the Warrant Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the conversion or
exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or any increase or
decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof (by change of rate or
otherwise), the Warrant Price computed upon the original issue, sale,
grant or assumption thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation) of any such Options or any rights of conversion or
exchange under such Convertible Securities which shall not have been
exercised, the Warrant Price computed upon the original issue, sale,
grant or assumption thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration (or such cancellation, as the case may be),
be recomputed as if:
(i) in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common Stock issued
or sold were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised,
<PAGE> 49
7
plus the consideration actually received by the Company upon such
exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the
Company upon such conversion or exchange; and
(ii) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued or sold
upon the exercise thereof were issued at the time of the issue,
sale, grant or assumption of such Options, and the consideration
received by the Company for the Additional Shares of Common Stock
deemed to have then been issued was the consideration actually
received by the Company for the issue, sale, grant or assumption
of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (in
accordance with Section 2.5) upon the issue or sale of the
Convertible Securities in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities; and
(d) no readjustment pursuant to clause (b) or (c) above shall
have the effect of increasing the Warrant Price by an amount in excess of the
amount of the adjustment thereof originally made in respect of the issue, sale,
grant or assumption of such Options or Convertible Securities.
Section 2.4 Stock Dividends, Stock Splits. etc. In case the
Company, at any time or from time to time after the Closing Date, shall declare
or pay any dividend on the Common Stock or any other security, payable in Common
Stock, or shall effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then, and in each such
case, the Warrant Price in effect immediately prior to the payment of such
dividend or effectiveness of such subdivision shall be proportionately reduced
(a) in the case of any such dividend, immediately after the close of business on
the record date for the determination of holders of any class of securities
entitled to receive such dividend, or (b) in the case of any such subdivision,
at the close of business on the day immediately prior to the day upon which such
corporate action becomes effective.
<PAGE> 50
8
Section 2.5 Computation of Consideration. For the purposes of
this Section 2:
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment
of such consideration:
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, before deducting any
expenses paid or incurred by the Company and all commissions and
compensation paid and concessions and discounts allowed to
underwriters, dealers or others performing similar services in
connection with such issue or sale;
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in good
faith by the Board of Directors of the Company; and
(iii) in case Additional Shares of Common Stock are issued
or sold together with other stock or securities or other assets
of the Company for a consideration which covers both, by the
applicable proportion of such consideration so received, computed
as provided in clauses (i) and (ii) above, as determined in good
faith by the Board of Directors of the Company.
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing:
(i) the total amount, if any, received and receivable by
the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in question,
plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of
such consideration) payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible
<PAGE> 51
9
Securities, in each case computing such consideration as provided
in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.4, relating to stock dividends and stock splits,
shall be deemed to have been issued for no consideration.
Section 2.6 Dilution in Case of Other Securities. In case any
Other Securities shall be issued or sold or shall become subject to issue or
sale upon the conversion or exchange of any stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person referred to in
Section 3) or to subscription, purchase or other acquisition pursuant to any
Options issued or granted by the Company (or any other issuer or Person), the
computations, adjustments and readjustments provided for in this Section 2 with
respect to the Warrant Price shall be made as nearly as possible in the manner
so provided and applied to determine the amount of Other Securities from time to
time receivable upon the exercise of the Warrants, so as to protect the holders
of the Warrants against the effect of the dilution of the purchase rights
granted by the Warrants.
Section 2.7 Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then, and in each such case, the Warrant Price in effect immediately prior to
such combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
Section 2.8 Other Adjustments. Adjustments shall also be made at
the times and under the circumstances specified in Sections 3 and 4.
Section 2.9 Determinations by Board of Directors. All
determinations by the Board of Directors of the Company under the provisions of
this Warrant shall be
<PAGE> 52
10
made in good faith with due regard to the interests of the holder of this
Warrant, and in accordance with good financial practice.
SECTION 3. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC.
In case the Company, after the Closing Date, (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation in such consolidation or merger, (b) shall permit any
other Person to consolidate with or merge into the Company and the Company shall
be the continuing or surviving Person but, in connection with such consolidation
or merger, the Common Stock or Other Securities shall be changed into or
exchanged for stock of other securities of any other Person or cash or any other
property, (c) shall transfer all or substantially all of its properties or
assets to any other Person, or (d) shall effect a capital reorganization or
reclassification of the Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Warrant Price is provided in Section
2.2), then, and in each such case, proper provision shall be made so that, upon
the basis and the terms and in the manner provided in this Section 3, the holder
of this Warrant, upon the exercise hereof at any time after the consummation of
such consolidation, merger, transfer, reorganization or reclassification, shall
be entitled to receive (at the aggregate Warrant Price in effect at the time of
such consummation for all Common Stock or Other Securities issuable upon such
exercise immediately prior to such consummation), in lieu of the Common Stock or
Other Securities issuable upon such exercise prior to such consummation, the
stock and other securities, cash and property to which such holder would have
been entitled upon such consummation if such holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such corporate
action) as nearly equivalent as possible to the adjustments provided for in
Section 2 and this Section 3; provided, however (and the Company covenants),
that (1) the Company shall not effect any of the transactions described in
clauses (a) through (c) above with any Person other than a corporation, and that
(2) the Company shall not effect any of the transactions described in clauses
(a) through (d) above unless, immediately after the date of the consummation of
such transaction, the Acquiring Corporation or its Parent is required to file,
and in each of its three fiscal years immediately preceding the date of the
consummation of such transaction has filed, reports with the Commission pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act. In the event that
the Acquiring Corporation fulfills the requirements contained in the immediately
preceding proviso, then, if the holder of this Warrant shall elect (or shall be
deemed to elect) to receive common stock pursuant to clause (b) above, such
holder shall be
<PAGE> 53
11
entitled to receive, upon the basis stated in such clause (b), the common stock
of the Acquiring Corporation and not of its Parent. Notwithstanding anything
contained herein to the contrary, the Company will not effect any of the
transactions described in clauses (a) through (d) above unless, prior to the
consummation thereof, each Person (other than the Company) which may be required
to deliver any stock, securities, cash or property upon the exercise hereof
shall assume, by written instrument delivered and satisfactory to the holder of
this Warrant, the obligation to deliver to such holder such shares of stock,
securities, cash or property as in accordance with the foregoing provisions,
such holder may be entitled to purchase, and such Person shall have furnished to
the holder hereof an opinion of counsel for such Person, which counsel shall be
satisfactory to such holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of Section 2 and this Section 3) shall be applicable to
the stock, securities, cash or property which such Person may be required to
deliver upon the exercise hereof.
SECTION 4. OTHER DILUTIVE EVENTS
In case any event shall occur as to which the provisions of
Section 2 or Section 3 are not strictly applicable but the failure to make any
adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles of such Sections,
then, in each such case, the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular independent auditors of the Company), which shall give their opinion
upon the adjustment, if any, on a basis consistent with the essential intent and
principles established in Sections 2 and 3, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein.
SECTION 5. NO DILUTION OR IMPAIRMENT
The Company will not, by amendment of its charter or through any
consolidation, merger, reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith carry out all such terms and take all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will
<PAGE> 54
12
not permit the par value of any shares of stock receivable upon the exercise of
the Warrants to exceed the amount payable therefor upon such exercise, (b) will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue, free from preemptive rights, fully paid
and non-assessable shares of stock upon the exercise of all Warrants from time
to time outstanding, (c) will not take any action which results in any
adjustment of the Warrant Price if the total number of shares of Common Stock
(or Other Securities) issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock (or Other
Securities) then authorized by the Company's charter and available for the
purpose of issue upon such exercise, and (d) will not issue any capital stock of
any class which is preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary dissolution, liquidation or winding-up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par value in respect of participation in dividends and in any such distribution
of assets.
SECTION 6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS
In the case of any adjustment or readjustment in the shares of
Common Stock (or Other Securities) issuable upon the exercise of the Warrants,
the Company at its expense will promptly compute such adjustment or readjustment
in accordance with the terms of the Warrants and cause independent public
accountants of recognized national standing selected by the Company to verify
such computation and prepare a report setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or to be received by the Company for any Additional Shares of Common Stock
issued or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Warrant Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 2) on account thereof. The Company will forthwith mail a
copy of each such report to each holder of a Warrant, and will, upon the written
request at any time of any holder of a Warrant, furnish to such holder a like
report setting forth the Warrant Price at the time in effect and showing how it
was calculated. The Company will also keep copies of all such reports at its
principal office and at the office or agency maintained by the Company pursuant
to Section 12, and will cause the same to be available for inspection at such
offices during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by the holder thereof.
<PAGE> 55
13
SECTION 7. NOTICES OF CORPORATE ACTION
In the event of a proposal by the Company (or of which the
Company shall have knowledge) for:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend
payable out of earned surplus at the rate most recently established by
the Board of Directors of the Company) or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any consolidation, merger or exchange of shares involving the Company
and any other Person or any transfer of all or substantially all the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, and (ii) the date or expected date on
which any such reorganization, reclassification, recapitalization,
consolidation, merger, exchange of shares, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, exchange of shares,
transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 30 days prior to the date therein specified.
SECTION 8. RESTRICTIONS ON TRANSFER; REGISTRATION
Section 8.1 Restrictive Legends. Except as otherwise permitted by
this Section 8, the Warrant originally issued pursuant to the Stock Purchase
Agreement, each Warrant issued in exchange or substitution for any Warrant
pursuant to Section
<PAGE> 56
14
13, and each Warrant issued upon the registration of transfer of any Warrant,
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and any securities acquired upon the exercise of
this Warrant have not been registered under the Securities Act of
1933 and may not be transferred in the absence of such
registration or an exemption therefrom under such Act, except
under circumstances where neither such registration nor such an
exemption is required by law. This Warrant and such securities
may be transferred only upon the fulfillment of the conditions
specified in this Warrant."
Except as otherwise permitted by this Section 8, each certificate representing
shares of Common Stock (or Other Securities) issued upon the exercise of any
Warrant, and each certificate issued upon the registration of transfer of any
shares of such Common Stock (or Other Securities), shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred in the absence of such registration or an exemption
therefrom under such Act, except under circumstances where
neither such registration nor such an exemption is required by
law. Such securities may be transferred only upon the fulfillment
of the conditions specified in certain Common Stock Purchase
Warrants issued pursuant to the Stock Purchase Agreement, dated
as of May 5, 1998, between Superior National Insurance Group,
Inc. (the "Company"), Insurance Partners, L.P., Insurance
Partners Offshore (Bermuda), L.P., and Capital Z Partners, Ltd.
and in the Stock Purchase Agreement. A complete and correct copy
of the form of such warrants and the Stock Purchase Agreement are
available for inspection at the principal office of the Company
and will be furnished to the holder of such securities upon
written request and without charge."
Section 8.2 Notice of Proposed Transfer; Opinions of Counsel.
Prior to any transfer of any Restricted Securities, the holder thereof will give
written notice to
<PAGE> 57
15
the Company of such holder's intention to effect such transfer and to comply in
all other respects with this Section 8.2. Each such notice (a) shall describe
the manner and circumstances of the proposed transfer in sufficient detail to
enable counsel to render the opinions referred to below, and (b) shall designate
counsel for the holder giving such notice (who may be in-house counsel for such
holder). The holder giving such notice will submit a copy thereof to the counsel
designated in such notice and the Company will promptly submit a copy thereof to
its counsel. The following provisions shall then apply:
(i) If in the opinion of each such counsel the proposed
transfer may be effected without registration of such Restricted
Securities under the Securities Act, the Company will promptly
notify the holder thereof and such holder shall thereupon be
entitled to transfer such Restricted Securities in accordance
with the terms of the notice delivered by such holder to the
Company. Each Warrant or certificate, if any, issued upon or in
connection with such transfer shall bear the applicable
restrictive legend set forth in Section 8.1, unless in the
opinion of each such counsel such legend is no longer required to
ensure compliance with the Securities Act. If for any reason
counsel for the Company (after having been furnished with the
information required to be furnished by clause (a) of this
Section 8.2) shall fail to deliver an opinion to the Company, or
the Company shall fail to notify such holder thereof as
aforesaid, within 15 days after counsel for such holder shall
have delivered its opinion to such holder (with a copy to the
Company), then for all purposes of this Warrant the opinion of
counsel for such holder shall be sufficient to authorize the
proposed transfer and the opinion of counsel for the Company
shall not be required in connection with such proposed transfer;
and
(ii) If in the opinion of either or both of such counsel
the proposed transfer may not be effected without registration of
such Restricted Securities under the Securities Act, the Company
will promptly so notify the holder thereof and such holder shall
not be entitled to transfer such Restricted Securities until
receipt of a further notice from the Company under clause (i)
above or until registration of such Restricted Securities under
the Securities Act has become effective.
Notwithstanding the foregoing provisions of this Section 8.2 but subject to the
provisions of the Stock Purchase Agreement, [ ] shall be permitted at any time
or from time to time to transfer any Restricted Securities to a limited number
of institutional
<PAGE> 58
16
investors; provided, however, that (w) each such investor represents in writing
that it is acquiring such Restricted Securities for investment and not with a
view to the distribution thereof (subject, however, to any requirement of law to
the effect that the disposition thereof shall at all times be within the control
of such transferee), (x) each such investor agrees in writing to be bound by all
the restrictions on transfer of such Restricted Securities contained in this
Section 8.2, (y) [ ] delivers to the Company an opinion of [Paul, Weiss,
Rifkind, Wharton & Garrison] or in-house counsel for [ ], or other counsel
satisfactory to the Company, stating that such transfer may be effected without
registration under the Securities Act, and (z) [ ] delivers to the Company, at
least 10 days prior to such transfer, the name of the counsel who will deliver
the opinion referred to in clause (y) above. The Company will pay the reasonable
fees and disbursements of counsel (other than in-house counsel) for any holder
of Restricted Securities and of counsel for the Company in connection with all
opinions rendered by them pursuant to this Section 8.2 and pursuant to Section
8.3.
Section 8.3 Termination of Restrictions. The restrictions imposed
by this Section 8 upon the transferability of Warrants and Common Stock (or
Other Securities) shall cease and terminate as to any particular Warrants or
Common Stock (or Other Securities) (a) when such securities shall have been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering such securities, or (b) when, in the
opinions of both counsel for the holder thereof and counsel for the Company, or
when, on the basis of a pertinent Commission rule or regulation promulgated
under the Securities Act, or a pertinent "no-action" position taken by the staff
of the Commission, such restrictions are no longer required in order to ensure
compliance with the Securities Act. Whenever such restrictions shall terminate
as to any Warrants or Common Stock (or Other Securities), the holder thereof
shall be entitled to receive from the Company, without expense (other than
transfer taxes, if any), new securities of like tenor not bearing the applicable
legend set forth in Section 8.1.
SECTION 9. AVAILABILITY OF INFORMATION
If and so long as the Company is a Public Company, the Company
will comply with the reporting requirements of Sections 13 and 15(d) of the
Securities Exchange Act and will comply with all other public information
reporting requirements of the Commission (including the requirements of Rule 144
promulgated by the Commission under the Securities Act) from time to time in
effect and relating to the availability of an exemption from the Securities Act
for the sale of any Restricted Securities or the sale of securities by
affiliates. The Company will also cooperate with each holder to complete and
file any information reporting forms
<PAGE> 59
17
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities or the sale of securities by affiliates. The Company will
deliver to each holder of a Warrant, promptly upon their becoming available,
copies of all financial statements, reports, notices and proxy statements sent
or made available generally by the Company to its stockholders, and copies of
all regular and periodic reports and all registration statements and
prospectuses filed by the Company with any securities exchange, or with the
Commission.
SECTION 10. RESERVATION OF STOCK, ETC.
The Company will at all times reserve and keep available, solely
for issuance and delivery upon the exercise of the Warrants and free from
preemptive rights, all shares of Common Stock (or Other Securities) from time to
time issuable upon the exercise of the Warrants at the time outstanding. All
such shares (and any such Other Securities consisting of shares of capital
stock) shall be duly authorized and, when issued upon such exercise, shall be
validly issued, fully paid and nonassessable with no liability on the part of
the holders thereof. Any such Other Securities (other than shares of capital
stock) shall be duly authorized and, when issued upon such exercise, shall be
validly issued and legally binding obligations, enforceable in accordance with
their terms, with no liability on the part of the holders thereof. Without
limiting the generality of the foregoing, if any shares of Common Stock (or
Other Securities) required to be reserved for the purposes of exercise of this
Warrant require registration with or approval of any governmental authority
under any federal law (other than the Securities Act) or under any state law
before such shares (or Other Securities) may be issued upon exercise of this
Warrant, the Company will at its expense, as expeditiously as possible, cause
such shares (or Other Securities) to be duly registered or approved, as the case
may be. The Company, in addition, will review its stock ledgers, stock transfer
books and other corporate records periodically (and not less often than once in
each calendar quarter) in order to determine whether, as a result of any action
taken by the Company or any officer of the Company, any holder of a Warrant is
or shall have become, directly or indirectly, the beneficial owner of more than
such percentage of any class of its equity securities (as defined in the
Securities Exchange Act) as shall cause such holder to be required to make any
filings or declarations to the Company, the Commission or any national
securities exchange pursuant to the provisions of the Securities Exchange Act or
any comparable federal statute, and the Company will give prompt written notice
to such holder whenever it shall have determined, upon the basis of the
information disclosed by any such review, that such holder is or has become such
a holder because of such action, which notice shall also specify the information
upon which the Company bases
<PAGE> 60
18
such determination; provided, however, that the Company need give such notice
only once in each fiscal year to any holder whose percentage of beneficial
ownership of any class of the Company's equity securities has not changed since
the date of the giving of the immediately preceding notice.
SECTION 11. LISTING ON SECURITIES EXCHANGES
The Company will list on each national securities exchange (or
the Nasdaq National Market System) on which any Common Stock may at any time be
listed, subject to official notice of issuance upon the exercise of the
Warrants, and will maintain such listing of, all shares of Common Stock from
time to time issuable upon the exercise of the Warrants; and the Company will so
list on each national securities exchange (or the Nasdaq National Market
System), and will maintain such listing of, any Other Securities if at the time
any securities of the same class shall be listed on such national securities
exchange (or the Nasdaq National Market System) by the Company.
SECTION 12. MAINTENANCE OF OFFICE OR AGENCY
The Company will maintain an office or agency in Los Angeles
County, California where books for the registration and registration of transfer
of the Warrants will be kept and where the Warrants may be presented for
exercise, registration of transfer, exchange and replacement pursuant to the
provisions hereof. The principal office of the Company shall be such office or
agency unless the Company, by at least 10 days' prior written notice to each
holder of any Warrants, shall designate the principal office of a law firm or a
bank or trust company in such city or area as such office or agency, in which
case the principal office of such other law firm or bank or trust company shall
thereafter be such office or agency.
SECTION 13. OWNERSHIP, REGISTRATION OF TRANSFER, EXCHANGE AND SUBSTITUTION OF
WARRANTS
Section 13.1 Ownership of Warrants. Until due presentment for
registration of transfer as permitted by Section 8, the Company may treat the
Person in whose name any Warrant is registered on the register kept at the
office or agency of the Company maintained pursuant to Section 12 as the owner
and holder thereof for all purposes, notwithstanding any notice to the contrary.
Subject to the foregoing
<PAGE> 61
19
provisions and to Section 8, a Warrant, if properly assigned, may be exercised
by the assignee without first having a new Warrant issued.
Section 13.2 Transfer and Exchange of Warrants. Upon the
surrender of any Warrant, properly endorsed, for registration of transfer or for
exchange (for the purpose of combination of Warrants, split-up of Warrants or
any other purpose) at the office or agency maintained by the Company pursuant to
Section 12, the Company at its expense will (subject to compliance with Section
8, if applicable) promptly execute and deliver to or upon the order of the
holder thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered, and thereupon the old Warrant shall be canceled.
Section 13.3 Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant held by a Person other than [ ] or any institutional
investor, upon delivery of indemnity reasonably satisfactory to the Company in
form and amount, or, in the case of any such mutilation, surrender of such
Warrant for cancellation at the office or agency maintained by the Company
pursuant to Section 12, the Company at its expense will promptly execute and
deliver, in lieu thereof, a new Warrant of like tenor.
Section 13.4 Expenses. The Company will pay all expenses, taxes
(other than transfer taxes) and other charges payable in connection with the
preparation, issuance and delivery from time to time of Warrants.
SECTION 14. DEFINITIONS
For all purposes of this Warrant, the following definitions shall
apply (the definitions to be applicable to both the singular and the plural
forms of the terms defined where either such form is used in this Warrant):
"Acquiring Corporation" means the continuing or surviving
corporation in a consolidation or merger with the Company (if other than the
Company), the transferee of all or substantially all the properties or assets of
the Company, the corporation consolidating with or merging into the Company in a
consolidation or merger in connection with which the Common Stock (or Other
Securities) is (or are) changed into or exchanged for stock or other Securities
of any
<PAGE> 62
20
other Person or cash or any other property, or, in the case of a capital
reorganization or reclassification, the Company.
"Additional Shares of Common Stock" means all shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to SectionSection
2.3 or 2.4, deemed to be issued) by the Company after the Closing Date, whether
subsequently reacquired or retired) by the Company, other than shares issued,
upon the exercise of the Warrants.
"Business Day" means any day other than a Saturday, Sunday or day
upon which banking institutions are authorized or required by law or executive
order to be closed in Los Angeles, California or in the Borough of Manhattan in
The City of New York, New York.
"Cashless Exercise Right" has the meaning set forth in Section
1.1 of this Warrant.
"Closing Date" means the date of original issuance and delivery
of the Warrants being ________, 1998.
"Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $0.01 par value, of the
Company as constituted on the Closing Date, any stock into which such Common
Stock shall have been changed or any stock resulting from any reclassification
of such Common Stock, and all other stock of any class or classes (however
designated) of the Company, the holders of which have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Common Stock Deemed to be Outstanding" means all shares of
Common Stock that (a) can be acquired upon the conversion of any then
outstanding shares of Convertible Securities, (b) can be purchased upon the
exercise of any then outstanding rights, Options or warrants including, but not
limited to, these Warrants and all Options issued or available for issuance
under the Stock Option Plan or (c) can be acquired upon the conversion of any
Convertible Securities that can be purchased upon the exercise of any then
outstanding rights, Options or warrants.
<PAGE> 63
21
"Company" has the meaning set forth in the opening paragraph of
this Warrant, and any corporation which shall succeed to or assume the
obligations of the Company hereunder in compliance with Section 3.
"Convertible Securities" means any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
"Current Market Price" on any date of determination means the
average of the daily Market Price per share of Common Stock during the period of
the 20 consecutive days on which national securities exchanges were open for
trading, ending on the day immediately preceding such date of determination;
provided, however, that if and so long as there shall be no exchange or
over-the-counter market for the Common Stock, the Current Market Price shall be
deemed to be the greater of the Warrant Price on the date of determination or
such price, if any, at which the most recent issue and sale by the Company of
Common Stock in a good faith arm's-length transaction has been effected.
"Exercise Price" has the meaning set forth in Section 1.1 of this
Warrant.
"Expiration Date" has the meaning set forth in Section 19 of this
Warrant.
"Market Price" per share of Common Stock on any date of
determination means (a) the last sale price, regular way, on such date or, if no
such sale takes place on such date, the average of the closing bid and asked
prices on such date, in each case as officially reported on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading, or (b) if the Common Stock is not then listed or admitted
to trading on any national securities exchange, the average of the reported
closing bid and asked prices on such date as shown by the Nasdaq National Market
System, or, if such notices are not at the time so shown, as determined in good
faith by any member of the National Association of Securities Dealers, Inc.
selected by the Company and satisfactory to the holder of this Warrant;
provided, however, that if and so long as there shall be no exchange or
over-the-counter market for the Common Stock, the Market Price shall be deemed
to be the greater of the Warrant Price on the date of determination or such
price, if any, at which the most recent issue and sale by the Company of Common
Stock in a good faith arm's-length transaction has been effected.
<PAGE> 64
22
"Options" means rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible Securities.
"Other Securities" means any stock (other than Common Stock) and
other securities of the Company or any other Person which the holders of the
Warrants at any time shall be entitled to receive, or shall have received, upon
the exercise of the Warrants in lieu of or in addition to Common Stock, or which
at any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 3 or
otherwise.
"Parent" means as to any Acquiring Corporation, any corporation
which (a) controls the Acquiring Corporation directly or indirectly through one
or more intermediaries, (b) is (or, if not required to file such reports, would,
if so required, be) required to include the Acquiring Corporation in the
consolidated financial statements contained in such Parent's Annual Report on
Form 10-K under the Securities Exchange Act and (c) is not itself included in
the consolidated financial statements of any other Person (other than its
consolidated subsidiaries).
"Persons" means individuals, corporations, partnerships
(including "joint ventures"), trusts, estates, unincorporated organizations and
governments (including political subdivisions), authorities and agencies.
"Public Company" means the Company, if and so long as the Common
Stock is "held of record" (within the meaning of Rule 12g5-1, as promulgated by
the Commission under the Securities Exchange Act and in effect on ____________,
1998) by 500 or more Persons, and a registration statement with respect thereto
is effective under Section 12 of the Securities Exchange Act.
"Purchase Shares" has the meaning set forth in the second opening
paragraph of this Warrant.
"Restricted Securities" means (a) any Warrants bearing the
applicable legend set forth in Section 8.1, (b) any shares of Common Stock (or
Other Securities) which have bean issued upon the exercise of Warrants and which
are evidenced by a certificate or certificates bearing the applicable legend set
forth in Section 8.1, and (c) unless the context otherwise requires, any shares
of Common Stock (or Other Securities) which are at the time issuable upon the
exercise of Warrants and which, when so issued, will be evidenced by a
certificate or certificates bearing the applicable legend set forth in Section
8.1.
<PAGE> 65
23
"Securities Act" means the Securities Act of 1933, or any similar
federal statute replacing said statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Exchange Act" means the Securities Exchange Act of
1934, or any similar federal statute replacing said statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Stock Option Plan" means, collectively, all equity incentive
plans or arrangements for employees, directors or consultants of the Company
which, in each case, are approved by the Board of Directors of the Company.
"Stock Purchase Agreement" has the meaning set forth in the
second opening paragraph of this Warrant.
"Transfer" means, with respect to any Restricted Securities, any
sale, assignment, pledge or other disposition thereof, or of any interest
therein, which could constitute a "sale" thereof, as that term is defined in
Section 2(3) of the Securities Act.
"Warrant Price" shall have the meaning specified in Section 2.1.
"Warrants" has the meaning set forth in the second opening
paragraph of this Warrant.
SECTION 15. REMEDIES
The Company hereby expressly acknowledges and stipulates to the
understanding of the holder of this Warrant that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and agrees that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
SECTION 16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER
Nothing contained in this Warrant shall be construed as
conferring upon the holder hereof any rights as a stockholder of the Company,
and nothing shall
<PAGE> 66
24
be construed as imposing any liabilities on such holder to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company.
SECTION 17. NOTICES
All notices and other communications provided for herein shall be
mailed by first class mail, postage prepaid, addressed (a) if to any holder of
any Warrant, at the registered address of holder as set forth in the register
kept at the office or agency maintained by the Company pursuant to Section 12,
or (b) if to the Company, at its principal office, being an that date of
original issuance of this Warrant 26601 Agoura Road, Calabasas, California
91302, or at such other address of the principal office of the Company of which
the Company shall have given notice to each holder of any Warrants in writing;
provided, however, that the exercise of any Warrant shall be effective if
effected in the manner provided in Section 1.
SECTION 18. MISCELLANEOUS
This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge, or termination is
sought. THIS WARRANT AND THE STOCK PURCHASE AGREEMENT ARE TO BE GOVERNED BY AND
TO BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF DELAWARE.
The headings in this Warrant are inserted for convenience only and shall not be
deemed to constitute a part hereof.
SECTION 19. EXPIRATION
The right to exercise this Warrant shall expire at 5:00 p.m.
Pacific Time, on __________, 2003 (or, if such date shall not be a Business Day,
on the next day that is a Business Day) (the "Expiration Date").
On the 30th day prior to the Expiration Date, the Company shall
give written notice of the expiration of this Warrant to the holder hereof. In
the event the Company fails to give such written notice, the right to exercise
this Warrant shall be extended to 5:00 p.m. Pacific time on the 30th day
following the date on which such
<PAGE> 67
25
written notice is given (or, if such date shall not be a Business Day, on the
next day that is a Business Day).
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By:
--------------------------------------
Name:
Title:
<PAGE> 68
26
SUBSCRIPTION NOTICE
SUPERIOR NATIONAL INSURANCE GROUP, INC.
The undersigned, the registered holder of the foregoing Warrant,
hereby elects to exercise purchase rights represented by said Warrant for, and
to purchase thereunder, ___________________ shares of the Common Stock covered
by said Warrant and [herewith makes payment in full therefor of $_______________
by certified or official bank check payable to the order of the Company] [hereby
exercises its Cashless Exercise Right] and requests that (a) certificates for
such shares (and any Other Securities issuable upon such exercise) be issued in
the name of and delivered to ___________________________
________________________, whose address is _________________, and (b) if such
shares (or Other Securities) shall not include all of the shares (or Other
Securities) issuable as provided in said Warrant, then a new Warrant of like
tenor and date for the balance of the shares (or Other Securities) issuable
thereunder be delivered to the undersigned.
-----------------------------------------
Signature guaranteed:
Dated:
-----------------------------------------
<PAGE> 69
27
ASSIGNMENT
For Value Received, the undersigned registered owner hereby
sells, assigns and transfers unto ________________________, the rights
represented by the foregoing Warrant of Superior National Insurance Group, Inc.,
and appoints ___________________ attorney to transfer said rights on the books
of said corporation, with full power of substitution in the premises.
-----------------------------------------
Signature guaranteed:
Dated:
-----------------------------------------
<PAGE> 70
EXHIBIT C
FORM OF AMENDED AND RESTATED REGISTRATION
RIGHTS AGREEMENT
<PAGE> 71
EXHIBIT C
================================================================================
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
INSURANCE PARTNERS, L.P.,
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.,
and
CAPITAL Z PARTNERS, LTD.
Dated: _______, 1998
================================================================================
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions.................................................................. 2
2. General; Securities Subject to this Agreement................................ 5
(a) Grant of Rights..................................................... 5
(b) Registrable Securities.............................................. 5
(c) Holders of Registrable Securities................................... 5
3. Demand Registration.......................................................... 6
(a) Request for Demand Registration..................................... 6
(b) Limitation on Demand Registrations.................................. 6
(c) Effective Demand Registration....................................... 7
(d) Expenses............................................................ 7
(e) Underwriting Procedures............................................. 7
(f) Selection of Underwriters........................................... 8
4. Incidental or "Piggy-Back" Registration...................................... 8
(a) Request for Incidental Registration................................. 8
(b) Reduction in Registrable Securities to be Registered................ 9
(c) Expenses............................................................ 10
5. Holdback Agreements.......................................................... 10
(a) Restrictions on Public Sale by Designated Holders................... 10
(b) Restrictions on Public Sale by the Company.......................... 10
6. Registration Procedures...................................................... 11
(a) Obligations of the Company.......................................... 11
(b) Seller Information.................................................. 13
(c) Preparation; Reasonable Investigation............................... 13
(d) Notice to Discontinue............................................... 14
7. Indemnification; Contribution................................................ 14
(a) Indemnification by the Company...................................... 14
(b) Indemnification by Designated Holders............................... 15
(c) Conduct of Indemnification Proceedings.............................. 16
(d) Other Indemnification............................................... 17
(e) Contribution........................................................ 17
(f) Insurance........................................................... 17
8. Rule 144..................................................................... 18
9. Miscellaneous................................................................ 18
</TABLE>
i
<PAGE> 73
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(a) Recapitalizations, Exchanges, etc................................... 18
(b) No Inconsistent Agreements.......................................... 18
(c) Remedies............................................................ 19
(d) Amendments and Waivers.............................................. 19
(e) Notices............................................................. 19
(f) Successors and Assigns; Third Party Beneficiaries................... 21
(g) Counterparts........................................................ 21
(h) Headings............................................................ 21
(i) GOVERNING LAW....................................................... 21
(j) Severability........................................................ 21
(k) Entire Agreement.................................................... 21
(l) Further Assurances.................................................. 22
</TABLE>
ii
<PAGE> 74
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated ________,
1998 (this "Agreement"), among Superior National Insurance Group, Inc., a
Delaware corporation (the "Company"), Insurance Partners, L.P., a Delaware
limited partnership ("IP"), Insurance Partners Offshore (Bermuda), L.P., a
Bermuda limited partnership ("IP Bermuda") and Capital Z Partners, Ltd., a
Bermuda corporation ("Cap Z" and, together with IP and IP Bermuda, "Insurance
Partners").
WHEREAS, pursuant to the Amended and Restated Stock Purchase
Agreement, dated as of September 17, 1996, as amended and restated effective as
of February 17, 1997 (the "Stock Purchase Agreement"), by and among the Company,
IP, IP Bermuda and such other persons or entities that executed the form of
subscription agreement attached thereto as Exhibit A, pursuant to which the
Company agreed to, among other things, issue and sell to (a) IP, and IP agreed
to purchase from the Company, an aggregate of 1,369,856 shares of Common Stock
and (b) IP Bermuda, and IP Bermuda agreed to purchase from the Company, an
aggregate of 754,978 shares of Common Stock;
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of May 5,
1998 (the "New Stock Purchase Agreement"), by and among the Company, IP, IP
Bermuda and Cap Z, 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, up to an aggregate of 3,737,504 shares of Common Stock; (b) IP Bermuda,
and IP Bermuda has agreed to purchase from the Company, up to an aggregate of
1,516,227 shares of Common Stock; and (c) Cap Z, and Cap Z has agreed to
purchase from the Company, up to an aggregate of 6,686,567 shares of Common
Stock; and
WHEREAS, in order to induce each of IP and IP Bermuda to purchase
shares of Common Stock pursuant to the Stock Purchase Agreement (in the
aggregate, the "Original Shares"), the Company granted certain registration
rights as set forth in the Registration Rights Agreement, dated April 11, 1997
(the "Original Agreement"), among the Company, IP and IP Bermuda; and
WHEREAS, in order to induce each of IP, IP Bermuda and Cap Z to
purchase shares of Common Stock pursuant to the New Stock Purchase Agreement (in
the aggregate, the "New Shares" and, together with the Original Shares, the
"Shares"), the Company has agreed to grant registration rights with respect to
the Registrable
<PAGE> 75
2
Securities (as hereinafter defined) and to modify the Original Agreement, in
each case 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, and notwithstanding
anything to the contrary contained in the Original Agreement, the Original
Agreement is hereby amended and restated in its entirety 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).
"Cap Z" has the meaning assigned to such term in the recitals to
this Agreement.
"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
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, par value $.01 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).
<PAGE> 76
3
"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 recitals to this Agreement.
"Insurance Partners Stockholders" means each of IP, IP Bermuda,
Cap Z, ZCI, any Affiliate thereof to whom or which Registrable Securities are
transferred and, in the case of Cap Z, any partnership of which Cap Z is,
directly or indirectly, the general partner and any limited liability company of
which Cap Z is, directly or indirectly, the managing member, in each case, to
whom or which Registrable Securities are transferred.
"IP" has the meaning assigned to such term in the recitals to
this Agreement.
"IP Bermuda" has the meaning assigned to such term in the
recitals to this Agreement.
<PAGE> 77
4
"New Shares" has the meaning assigned to such term in the
recitals to this Agreement.
"New Stock Purchase Agreement" has the meaning assigned to such
term in the recitals 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.
"1998 Common Stock Purchase Warrants" means each of the Common
Stock Purchase Warrants, dated as of _______, 1998, issued by the Company
pursuant to the New Stock Purchase Agreement.
"Original Agreement" has the meaning assigned to such term in
the recitals to this Agreement.
"Original Shares" has the meaning assigned to such term in the
recitals to this Agreement.
"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 (i) upon conversion,
exercise or exchange of the 1998 Common Stock Purchase Warrants or (ii) 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
<PAGE> 78
5
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 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 recitals
to this Agreement.
"Stock Purchase Agreement" has the meaning assigned to such term
in the recitals to this Agreement.
"Subsidiary" has the meaning set forth in Section 6(c).
"ZCI" means Zurich Centre Investments Ltd.
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
<PAGE> 79
6
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 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 (i) all of the Insurance
Partners Stockholders (other than the Initiating Holders), (ii) all holders of
(x) the 1992 Common Stock Purchase Warrants, (y) the CentreLine Warrant and (z)
the 1998 Common Stock Purchase Warrants, and (iii) in the event that any
Insurance Partners Stockholder distributed Registrable Securities to its
partners or members, all such partners and members (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
<PAGE> 80
7
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, or (iii) Registrable Securities having
an anticipated aggregate net offering price of less than $7,500,000 are to be
registered in such Demand Registration.
(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 (i) two Demand Registrations of which IP or IP Bermuda were
Initiating Holders and (ii) two Demand Registrations of which Cap Z was an
Initiating Holder, under this Section 3 that either become effective under the
Securities Act or are withdrawn prior to the effective date thereof; provided
however, that any withdrawal prior to the effective date of a Demand
Registration 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
<PAGE> 81
8
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
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.
<PAGE> 82
9
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 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. Not
withstanding 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
<PAGE> 83
10
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 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).
(c) 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).
<PAGE> 84
11
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), 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
<PAGE> 85
12
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;
(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
<PAGE> 86
13
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 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
<PAGE> 87
14
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 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(a). A "Subsidiary" means, with respect to the Company, a corporation
or other entity of which 50% or more of the voting power of the outstanding
voting securities or 50% or more of the outstanding equity interests is held,
directly or indirectly, by the Company.
(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
<PAGE> 88
15
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, members, 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 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
<PAGE> 89
16
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
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
<PAGE> 90
17
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.
(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
<PAGE> 91
18
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 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
<PAGE> 92
19
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.
(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
<PAGE> 93
20
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> 94
21
(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: 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: Marilyn Sobel, Esq.
(iii) If to Cap Z:
Capital Z Partners, Ltd.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Fax: (212) 898-8720
Attention: Bradley E. Cooper
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: Marilyn Sobel, Esq.
(iv) 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)
<PAGE> 95
22
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.
(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 DELAWARE, 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
<PAGE> 96
23
of the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings in respect of the subject matter contained herein,
other than those set forth or referred to herein, in the Stock Purchase
Agreement and in the New Stock Purchase Agreement. This Agreement supersedes the
Original Agreement and all other 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> 97
24
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:
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) MGP,
Ltd., its General Partner
By:
-------------------------------------
Name:
Title: Vice President
<PAGE> 98
25
CAPITAL Z PARTNERS, LTD.
By:
-------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.57
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 5, 1998 (this "Agreement"),
between Foundation Health Corporation, a Delaware corporation ("Seller"), and
Insurance Partners, L.P. (the "Stockholder").
WHEREAS, Seller and Superior National Insurance Group, Inc., a
Delaware corporation (the "Company") have, contemporaneously with the execution
of this Agreement, entered into a Purchase Agreement, dated as of the date
hereof (as the same may be amended or supplemented, the "Purchase Agreement"),
which provides, among other things, that the Company desires to purchase from
Seller, and Seller desires to sell to the Company, all of the shares of the
Business Insurance Group, Inc., a Delaware insurance holding company ("BIG"),
subject to the terms and conditions of the Purchase Agreement (the "Purchase");
and
WHEREAS, as of the date hereof, the Stockholder is the Beneficial
Owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of 1,375,547 shares of Common Stock entitled to vote, par value $.01
per share, of the Company ("Company Common Stock"); and
WHEREAS, as a condition to the willingness of Seller to enter
into the Purchase Agreement, Seller has required that the Stockholder agree, and
in order to induce Seller to enter into the Purchase Agreement, the Stockholder
has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees,
during the time this Agreement is in effect, at any meeting of the stockholders
of the Company relating to the Purchase, to: (a) appear, or cause the holder of
record on the applicable record date (the "Record Holder") to appear, at any
annual or special meeting of stockholders of the Company for the purpose of
obtaining a quorum; (b) vote, or cause the Record Holder to vote, in person or
by proxy, all of the shares of the Company Common Stock owned or with respect to
which the Stockholder has or shares voting power and shares of the Company
Common Stock which shall, or with respect to which voting power shall, hereafter
be acquired by the Stockholder (collectively, the "Shares") in favor of (i) the
issuance of shares of common stock, par value $.01 per share, of the Company
pursuant to the purchase agreement (and related letter agreement with the Zurich
Centre Investments Ltd. ("ZCI")) with Insurance Partners, L.P. ("IP"), Insurance
Partners Offshore (Bermuda), L.P. ("IPB"), and Capital Z Partners, Ltd.
("Capital Z") (collectively, the "1998 Stock Purchase Agreement"), dated the
date hereof, (ii) the transactions contemplated by (x) the 1998 Stock Purchase
Agreement and (y) the Debt Offering (as defined in the 1998 Stock Purchase
Agreement) (together, the "Financing Agreements") for the financing of the
transactions contemplated by the Purchase Agreement and (iii) any amendment to
the certificate of incorporation of the Company necessary to complete the
transactions contemplated by the 1998 Stock Purchase Agreement; and (c) vote, or
cause the Record Holder to vote, such Shares against: (i) any extraordinary
corporate transaction (other than the Purchase), such as a merger,
consolidation, business combination, reorganization, recapitalization or
liquidation involving the Company or any of its subsidiaries, and (ii) any sale
or transfer of a material amount of the assets of the Company or any of its
subsidiaries if the transactions described in clauses (i) or (ii) would
adversely effect the Company's ability to complete the Purchase. The Stockholder
acknowledges receipt and review of a copy of the Purchase Agreement.
Notwithstanding anything to the contrary contained herein, the parties hereto
understand and agree that (i) the Shares are subject to Section 4.2 of the Stock
Purchase Agreement, dated as of September 17, 1996, as amended and restated as
of February 17, 1997 (the "1996 Stock Purchase Agreement"), among the Company,
IP and IPB and (ii) the Stockholder shall have no obligation under Section 1.1
of this Agreement so long as the Proxy referred to below is in effect.
C(2)-2
<PAGE> 3
Section 1.2 Irrevocable Proxy. (a) In furtherance of the
transactions contemplated hereby, concurrently with the execution of this
Agreement, the Stockholder shall execute and deliver to Seller a proxy in the
form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE AND
COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and
powers of attorney with respect to the Shares which the Stockholder may have
heretofore appointed or granted only to the extent it relates to the matters
referred to in Section 1.1 hereof, and no subsequent proxy or power of attorney
shall be given or written consent executed only to the extent it relates to the
matters referred to in Section 1.1 hereof (and if given or executed, such proxy
or power of attorney shall not be effective) by such Stockholder with respect
thereto. All authority conferred by this Section 1.2 or agreed to be conferred
shall survive the death or incapacity of the Stockholder and any obligation of
the Stockholder under this Agreement shall be binding upon the heirs, personal
representatives, assigns and successors of the Stockholder.
(c) The Seller hereby agrees, during the time this
Agreement is in effect, to take any and all actions necessary to cause the
Proxies to be voted at any meeting of the Company's stockholders in favor of all
the transactions contemplated by the Financing Agreements.
(d) The Seller hereby agrees not to consent to any
amendment or modification to the Purchase Agreement, including, but not limited
to, Article VII or the definition of "Closing Date" as contained therein, which
would adversely effect the Stockholder pursuant to the terms of this Agreement
without the prior written consent of the Stockholder.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Purchase Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Shares only to the extent it
relates to the matters referred to in Section 1.1 hereof, (ii) grant a proxy or
power of attorney or other authorization with respect to the Shares only to the
extent it relates to the matters referred to in Section 1.1 hereof or (iii) take
any other action, in each case, that
C(2)-3
<PAGE> 4
would in anyway restrict, limit or interfere with the performance of the
Stockholder's obligations hereunder or the transactions contemplated hereby.
ARTICLE II
RESTRICTIONS ON TRANSFER
Section 2.1 Transfer of Title or Beneficial Ownership. The
Stockholder hereby covenants and agrees that the Stockholder will not, prior to
the termination of this Agreement, either directly or indirectly, offer, agree
or otherwise sell, assign, pledge, hypothecate, transfer, exchange, or dispose
of any Shares or any interest therein, owned either directly or indirectly by
the Stockholder or with respect to which the Stockholder has the power of
disposition, whether now or hereafter acquired, other than pursuant to an
agreement which specifically provides that the purchaser of such Shares will
assume the Stockholder's obligations hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Seller as
follows:
Section 3.1 Authority Relative to This Agreement. The Stockholder
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Stockholder and, assuming the due authorization,
execution and delivery by Seller, constitutes a legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in accordance
with its terms, except that the enforcement hereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
Section 3.2 No Conflict. The execution and delivery of this
Agreement by the Stockholder does not, and the performance of this Agreement by
the Stockholder shall not result in any breach of or constitute a default (or an
event
C(2)-4
<PAGE> 5
that with notice or lapse of time or both would become 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 the Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Stockholder is
a party or by which the Stockholder or the Shares are bound or affected, except,
in the case of each of the foregoing, for any such conflicts, violations,
breaches, defaults or other occurrences which would not prevent or delay the
performance by the Stockholder of its obligations under this Agreement.
Section 3.3 Title to the Shares. As of the date hereof, the
Stockholder is the record or Beneficial Owner of 1,375,547 shares of Company
Common Stock, which are all of the securities of the Company with voting rights
owned, either of record or beneficially, by the Stockholder. The Shares are
owned free and clear of any limitations on the Stockholder's voting rights,
except as set forth in Section 4.2 of the 1996 Stock Purchase Agreement. Except
as provided in this Agreement, the Stockholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to the
Shares.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Purchase Agreement in accordance
with its terms pursuant to Article VII of the Purchase Agreement, as in effect
on the date hereof, and (b) the Closing Date (as defined in the Purchase
Agreement, as in effect on the date hereof). In the event of termination of this
Agreement pursuant to (a) above, written notice thereof shall forthwith be given
to the Stockholder.
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Seller would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that Seller shall be entitled to an injunction or
injunctions to prevent breaches by the Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in the federal
courts of the United States of America located in Los Angeles County, California
(and federal courts
C(2)-5
<PAGE> 6
having jurisdiction over appeals therefrom), this being in addition to any other
remedy to which Seller is entitled at law or in equity. In addition, each of the
parties hereto (i) irrevocably submits to the exclusive jurisdiction of the
federal courts of the United States of America located in Los Angeles County,
California (and federal courts having jurisdiction over appeals therefrom) in
respect of this Agreement, (ii) agrees that such party will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court and (iii) agrees that such party will not bring any action
relating to this Agreement in any court other than the federal courts of the
United States of America located in Los Angeles County, California.
Section 4.3 Successors and Affiliates. This Agreement shall inure
to the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by the
Stockholder or the Seller without the prior written consent of the other party,
except by laws of descent. If the Stockholder shall acquire ownership of, or
voting power with respect to, any additional Shares in any manner, whether by
the exercise of any options or any securities or rights convertible into or
exchangeable for Company Common Stock, operation of law or otherwise, such
Shares shall be held subject to all of the terms of this Agreement, and by
taking and holding such Shares, the Stockholder shall be conclusively deemed to
have agreed to be bound by and to comply with all of the terms and provisions of
this Agreement. Without limiting the foregoing, the Stockholder specifically
agrees that the obligations of the Stockholder hereunder shall not be terminated
by operation of law, whether by the death or incapacity of the Stockholder or
otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the
entire agreement between Seller and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Seller and the Stockholder with respect to the subject
matter hereof.
Section 4.5 Amendment. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
C(2)-6
<PAGE> 7
Section 4.6 Waivers. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, 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.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. 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 to 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.
Section 4.8 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made and shall be effective upon receipt, if delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission (provided that a confirmation copy is sent by another
approved means):
(i) if to Seller,
Foundation Health Systems, Inc.
225 North Main
Pueblo, CO 81003
Telephone No.: (719) 585-8077
Telecopy No.: (719) 585-8175
Attn: General Counsel
C(2)-7
<PAGE> 8
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
(ii) if to Stockholder,
Insurance Partners, L.P.
201 Main Street, Suite 2600
Fort Worth, TX 76102
Telecopy Co.: (817) 338-2047
Attn: Mr. Charles Irwin
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy No.: 212 757-3990
Attn: Marilyn Sobel, Esq.
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Telecopy No.: (212) 898-8720
Bradley Cooper
Section 4.9 Governing Law. The laws of the State of Delaware
(irrespective of its choice of law principles) shall govern all issues
concerning the validity of this Agreement, the construction of its terms, and
the interpretation and enforcement of the rights and duties of the parties.
C(2)-8
<PAGE> 9
Section 4.10 Counterparts. For the convenience of the parties
hereto, this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
C(2)-9
<PAGE> 10
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
Insurance Partners, L.P.
INSURANCE PARTNERS, L.P.
a Delaware limited partnership
By: Insurance GenPar, L.P., its
General Partner
By: Insurance Gen Par MGP, L.P., its
General Partner
By: Insurance GenPar MGP, Inc., its
General Partner
By: /s/ BRADLEY COOPER
-----------------------------------
Name: Bradley Cooper
Title: FIRST VP
Foundation Health Corporation
FOUNDATION HEALTH CORPORATION
a Delaware Corporation
By: /s/ B. CURTIS WESTEN
-----------------------------------
Name: B. Curtis Westen
Title: Sr VP, Gen Csl & Sec'y
C(2)-10
<PAGE> 11
EXHIBIT A
IRREVOCABLE PROXY
to Vote
Superior National Insurance Group, Inc.
COMMON STOCK
The undersigned stockholder of Superior National Insurance Group,
Inc., a Delaware corporation (the "Company"), hereby irrevocably (to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL")), appoints B. Curtis Westen and Michael E. Jansen, and each of them, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned or owned of record by the undersigned, and
any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Shares") in
accordance with the terms of this Proxy. The Shares beneficially owned or owned
of record by the undersigned stockholder of the Company as of the date of this
Proxy are listed on the final page of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares only to the extent it relates to the matters referred to
in the third paragraph of this proxy are hereby revoked and the undersigned
agrees not to grant any subsequent proxies only to the extent it relates to the
matters referred to in the third paragraph of this proxy with respect to the
Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL),
is granted pursuant to that certain Voting Agreement, dated as of May 5, 1998,
between Seller and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Seller and the Company entering
into that certain Purchase Agreement, dated as of May 5, 1998 (the "Purchase
Agreement"). The Purchase Agreement provides for the Purchase of all of the
shares of the Business Insurance Group, Inc., a Delaware insurance holding
company ("BIG") upon the terms of the Purchase Agreement. As used herein, the
A-1
<PAGE> 12
term "Expiration Date" shall mean the earlier to occur of (i) the termination of
the Voting Agreement in accordance with its terms, and (ii) such date and time
as the Purchase shall have become effective in accordance with the terms and
provisions of the Purchase Agreement as in effect on the date hereof.
The attorneys and proxies named above, and each of them, are
hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the DGCL) at every annual, special or adjourned meeting of
the stockholders of the Company and in every written consent in lieu of such
meeting: (a) in favor of (i) the issuance of shares of common stock, par value
$.01 per share, of the Company pursuant to the purchase agreement (and related
letter agreement with the Zurich Centre Investments Ltd. ("ZCI")) with Insurance
Partners L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P. ("IPB"), and
Capital Z Partners, Ltd. ("Capital Z") (collectively, the "1998 Stock Purchase
Agreement"), dated the date hereof, (ii) the transactions contemplated by (x)
the 1998 Stock Purchase Agreement and (y) the Debt Offering (as defined in the
1998 Stock Purchase Agreement) (together, the "Financing Agreements") for the
financing of the transactions contemplated by the Purchase Agreement and (iii)
any amendment to the certificate of incorporation of the Company necessary to
complete the transactions contemplated by the 1998 Stock Purchase Agreement; and
(b) against (i) any extraordinary corporate transaction (other than the
Purchase) such as a merger, consolidation, business combination, reorganization,
recapitalization or liquidation involving the Company or any of its
subsidiaries, and (ii) any sale or transfer of a material amount of the assets
of the Company or any of its subsidiaries if the transactions described in
clauses (i) or (ii) would adversely effect the Company's ability to complete the
Purchase. The attorneys and proxies named above may not exercise this Proxy on
any other matter except as provided in clauses (a) and (b) above. The
undersigned stockholder may vote the Shares on all other matters.
A-2
<PAGE> 13
Any obligation of the undersigned hereunder shall be binding upon
the successors and assigns of the undersigned.
Dated: May 5, 1998
Insurance Partners, L.P.
INSURANCE PARTNERS, L.P.
a Delaware limited partnership
By: Insurance GenPar, L.P., its
General Partner
By: Insurance Gen Par MGP, L.P., its
General Partner
By: Insurance GenPar MGP,Inc., its
General Partner
By: /s/ BRADLEY COOPER
------------------------------
Name: Bradley Cooper
Title: FIRST VP
Shares beneficially owned:
1,375,547 shares of Common Stock of the Company
A-3
<PAGE> 1
EXHIBIT 10.58
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 5, 1998 (this "Agreement"),
between Foundation Health Corporation, a Delaware corporation ("Seller"), and
Insurance Partners Offshore (Bermuda), L.P. (the "Stockholder").
WHEREAS, Seller and Superior National Insurance Group, Inc., a
Delaware corporation (the "Company") have, contemporaneously with the execution
of this Agreement, entered into a Purchase Agreement, dated as of the date
hereof (as the same may be amended or supplemented, the "Purchase Agreement"),
which provides, among other things, that the Company desires to purchase from
Seller, and Seller desires to sell to the Company, all of the shares of the
Business Insurance Group, Inc., a Delaware insurance holding company ("BIG"),
subject to the terms and conditions of the Purchase Agreement (the "Purchase");
and
WHEREAS, as of the date hereof, the Stockholder is the Beneficial
Owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of 765,304 shares of Common Stock entitled to vote, par value $.01 per
share of the Company ("Company Common Stock"); and
WHEREAS, as a condition to the willingness of Seller to enter
into the Purchase Agreement, Seller has required that the Stockholder agree, and
in order to induce Seller to enter into the Purchase Agreement, the Stockholder
has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees,
during the time this Agreement is in effect, at any meeting of the stockholders
of the Company relating to the Purchase, to: (a) appear, or cause the holder of
record on the applicable record date (the "Record Holder") to appear, at any
annual or special meeting of stockholders of the Company for the purpose of
obtaining a quorum; (b) vote, or cause the Record Holder to vote, in person or
by proxy, all of the shares of the Company Common Stock owned or with respect to
which the Stockholder has or shares voting power and shares of the Company
Common Stock which shall, or with respect to which voting power shall, hereafter
be acquired by the Stockholder (collectively, the "Shares") in favor of (i) the
issuance of shares of common stock, par value $.01 per share, of the Company
pursuant to the purchase agreement (and related letter agreement with the Zurich
Centre Investments Ltd. ("ZCI")) with Insurance Partners L.P. ("IP"), Insurance
Partners Offshore (Bermuda), L.P. ("IPB"), and Capital Z Partners, Ltd.
("Capital Z") (collectively, the "1998 Stock Purchase Agreement"), dated the
date hereof, (ii) the transactions contemplated by (x) the 1998 Stock Purchase
Agreement and (y) the Debt Offering (as defined in the 1998 Stock Purchase
Agreement) (together, the "Financing Agreements") for the financing of the
transactions contemplated by the Purchase Agreement and (iii) any amendment to
the certificate of incorporation of the Company necessary to complete the
transactions contemplated by the 1998 Stock Purchase Agreement; and (c) vote, or
cause the Record Holder to vote, such Shares against: (i) any extraordinary
corporate transaction (other than the Purchase), such as a merger,
consolidation, business combination, reorganization, recapitalization or
liquidation involving the Company or any of its subsidiaries, and (ii) any sale
or transfer of a material amount of the assets of the Company or any of its
subsidiaries if the transactions described in clauses (i) or (ii) would
adversely effect the Company's ability to complete the Purchase. The Stockholder
acknowledges receipt and review of a copy of the Purchase Agreement.
Notwithstanding anything to the contrary contained herein, the parties hereto
understand and agree that (i) the Shares are subject to Section 4.2 of the Stock
Purchase Agreement, dated as of September 17, 1996, as amended and restated as
of February 17, 1997 (the "1996 Stock Purchase Agreement"), among the Company,
IP and IPB and (ii) the Stockholder shall have no obligation under Section 1.1
of this Agreement so long as the Proxy referred to below is in effect.
C(2)-2
<PAGE> 3
Section 1.2 Irrevocable Proxy. (a) In furtherance of the
transactions contemplated hereby, concurrently with the execution of this
Agreement, the Stockholder shall execute and deliver to Seller a proxy in the
form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE AND
COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and
powers of attorney with respect to the Shares which the Stockholder may have
heretofore appointed or granted only to the extent it relates to the matters
referred to in Section 1.1 hereof, and no subsequent proxy or power of attorney
shall be given or written consent executed only to the extent it relates to
matters referred to in Section 1.1 hereof (and if given or executed, such proxy
or power of attorney shall not be effective) by such Stockholder with respect
thereto. All authority conferred by this Section 1.2 or agreed to be conferred
shall survive the death or incapacity of the Stockholder and any obligation of
the Stockholder under this Agreement shall be binding upon the heirs, personal
representatives, assigns and successors of the Stockholder.
(c) The Seller hereby agrees, during the time this
Agreement is in effect, to take any and all actions necessary to cause the
Proxies to be voted at any meeting of the Company's stockholders in favor of all
the transactions contemplated by the Financing Agreements.
(d) The Seller hereby agrees not to consent to any
amendment or modification to the Purchase Agreement, including, but not limited
to, Article VII or the definition of "Closing Date" as contained therein, which
would adversely effect the Stockholder pursuant to the terms of this Agreement
without the prior written consent of the Stockholder.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Purchase Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Shares only to the extent it
relates to the matters referred to in Section 1.1 hereof, (ii) grant a proxy or
power of attorney or other authorization with respect to the Shares only to the
extent it relates to the matters referred to in Section 1.1 hereof or (iii) take
any other action, in each case, that
C(2)-3
<PAGE> 4
would in anyway restrict, limit or interfere with the performance of the
Stockholder's obligations hereunder or the transactions contemplated hereby.
ARTICLE II
RESTRICTIONS ON TRANSFER
Section 2.1 Transfer of Title or Beneficial Ownership. The
Stockholder hereby covenants and agrees that the Stockholder will not, prior to
the termination of this Agreement, either directly or indirectly, offer, agree
or otherwise sell, assign, pledge, hypothecate, transfer, exchange, or dispose
of any Shares or any interest therein, owned either directly or indirectly by
the Stockholder or with respect to which the Stockholder has the power of
disposition, whether now or hereafter acquired, other than pursuant to an
agreement which specifically provides that the purchaser of such Shares will
assume the Stockholder's obligations hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Seller as
follows:
Section 3.1 Authority Relative to This Agreement. The Stockholder
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Stockholder and, assuming the due authorization,
execution and delivery by Seller, constitutes a legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in accordance
with its terms, except that the enforcement hereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
Section 3.2 No Conflict. The execution and delivery of this
Agreement by the Stockholder does not, and the performance of this Agreement by
the Stockholder shall not result in any breach of or constitute a default (or an
event
C(2)-4
<PAGE> 5
that with notice or lapse of time or both would become 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 the Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Stockholder is
a party or by which the Stockholder or the Shares are bound or affected, except,
in the case of each of the foregoing, for any such conflicts, violations,
breaches, defaults or other occurrences which would not prevent or delay the
performance by the Stockholder of its obligations under this Agreement.
Section 3.3 Title to the Shares. As of the date hereof, the
Stockholder is the record or Beneficial Owner of 765,304 shares of Company
Common Stock, which are all of the securities of the Company with voting rights
owned, either of record or beneficially, by the Stockholder. The Shares are
owned free and clear of any limitations on the Stockholder's voting rights,
except as set forth in Section 4.2 of the 1996 Stock Purchase Agreement. Except
as provided in this Agreement, the Stockholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to the
Shares.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Purchase Agreement in accordance
with its terms pursuant to Article VII of the Purchase Agreement, as in effect
on the date hereof, and (b) the Closing Date (as defined in the Purchase
Agreement, as in effect on the date hereof). In the event of termination of this
Agreement pursuant to (a) above, written notice thereof shall forthwith be given
to the Stockholder.
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Seller would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that Seller shall be entitled to an injunction or
injunctions to prevent breaches by the Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in the federal
courts of the United States of America located in Los Angeles County, California
(and federal courts
C(2)-5
<PAGE> 6
having jurisdiction over appeals therefrom), this being in addition to any other
remedy to which Seller is entitled at law or in equity. In addition, each of the
parties hereto (i) irrevocably submits to the exclusive jurisdiction of the
federal courts of the United States of America located in Los Angeles County,
California (and federal courts having jurisdiction over appeals therefrom) in
respect of this Agreement, (ii) agrees that such party will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court and (iii) agrees that such party will not bring any action
relating to this Agreement in any court other than the federal courts of the
United States of America located in Los Angeles County, California.
Section 4.3 Successors and Affiliates. This Agreement shall inure
to the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by the
Stockholder or the Seller without the prior written consent of the other party,
except by laws of descent. If the Stockholder shall acquire ownership of, or
voting power with respect to, any additional Shares in any manner, whether by
the exercise of any options or any securities or rights convertible into or
exchangeable for Company Common Stock, operation of law or otherwise, such
Shares shall be held subject to all of the terms of this Agreement, and by
taking and holding such Shares, the Stockholder shall be conclusively deemed to
have agreed to be bound by and to comply with all of the terms and provisions of
this Agreement. Without limiting the foregoing, the Stockholder specifically
agrees that the obligations of the Stockholder hereunder shall not be terminated
by operation of law, whether by the death or incapacity of the Stockholder or
otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the
entire agreement between Seller and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Seller and the Stockholder with respect to the subject
matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
C(2)-6
<PAGE> 7
Section 4.6 Waivers. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, 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.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. 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 to 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.
Section 4.8 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made and shall be effective upon receipt, if delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission (provided that a confirmation copy is sent by another
approved means):
(i) if to Seller,
Foundation Health Systems, Inc.
225 North Main
Pueblo, CO 81003
Telephone No.: (719) 585-8077
Telecopy No.: (719) 585-8175
Attn: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher &
C(2)-7
<PAGE> 8
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
(ii) if to Stockholder,
Insurance Partners Offshore (Bermuda), L.P.
Cedar House
41 Cedar Avenue
P.O. Box HM 1179
Hamilton, HM-EX Bermuda
Telecopy No.: (809) 292-7768
Attention: Kenneth E.T. Robinson, Esq.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy No.: 212 757-3990
Attn: Marilyn Sobel, Esq.
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Telecopy No.: (212) 898-8720
Attn: Bradley Cooper
Section 4.9 Governing Law. The laws of the State of Delaware
(irrespective of its choice of law principles) shall govern all issues
concerning the validity of this Agreement, the construction of its terms, and
the interpretation and enforcement of the rights and duties of the parties.
Section 4.10 Counterparts. For the convenience of the parties
hereto, this Agreement may be executed in any number of counterparts, each such
C(2)-8
<PAGE> 9
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
C(2)-9
<PAGE> 10
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
Insurance Partners Offshore (Bermuda), L.P.
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/ BRADLEY COOPER
------------------------------------
Name: BRADLEY COOPER
Title: FIRST VP
Foundation Health Corporation
FOUNDATION HEALTH CORPORATION
a Delaware Corporation
By: /s/ B. CURTIS WESTEN
-------------------------------------------
Name: B. Curtis Westen
Title: Sr VP, General Counsel & Secretary
C(2)-10
<PAGE> 11
EXHIBIT A
IRREVOCABLE PROXY
to Vote
Superior National Insurance Group, Inc.
COMMON STOCK
The undersigned stockholder of Superior National Insurance Group,
Inc., a Delaware corporation (the "Company"), hereby irrevocably (to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL")), appoints B. Curtis Westen and Michael E. Jansen, and each of them, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned or owned of record by the undersigned, and
any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Shares") in
accordance with the terms of this Proxy. The Shares beneficially owned or owned
of record by the undersigned stockholder of the Company as of the date of this
Proxy are listed on the final page of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares only to the extent it relates to the matters referred to
in the third paragraph of this proxy are hereby revoked and the undersigned
agrees not to grant any subsequent proxies only to the extent it relates to the
matters referred to in the third paragraph of this proxy with respect to the
Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL),
is granted pursuant to that certain Voting Agreement, dated as of May 5, 1998,
between Seller and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Seller and the Company entering
into that certain Purchase Agreement, dated as of May 5, 1998 (the "Purchase
Agreement"). The Purchase Agreement provides for the Purchase of all of the
shares of the Business Insurance Group, Inc., a Delaware insurance holding
company ("BIG") upon the terms of the Purchase Agreement. As used herein, the
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<PAGE> 12
term "Expiration Date" shall mean the earlier to occur of (i) the termination of
the Voting Agreement in accordance with its terms, and (ii) such date and time
as the Purchase shall have become effective in accordance with the terms and
provisions of the Purchase Agreement as in effect on the date hereof.
The attorneys and proxies named above, and each of them, are
hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the DGCL) at every annual, special or adjourned meeting of
the stockholders of the Company and in every written consent in lieu of such
meeting: (a) in favor of (i) the issuance of shares of common stock, par value
$.01 per share, of the Company pursuant to the purchase agreement (and related
letter agreement with the Zurich Centre Investments Ltd. ("ZCI")) with Insurance
Partners L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P. ("IPB"), and
Capital Z Partners, Ltd. ("Capital Z") (collectively, the "1998 Stock Purchase
Agreement"), dated the date hereof, (ii) the transactions contemplated by (x)
the 1998 Stock Purchase Agreement and (y) the Debt Offering (as defined in the
1998 Stock Purchase Agreement) (together, the "Financing Agreements") for the
financing of the transactions contemplated by the Purchase Agreement and (iii)
any amendment to the certificate of incorporation of the Company necessary to
complete the transactions contemplated by the 1998 Stock Purchase Agreement; and
(b) against (i) any extraordinary corporate transaction (other than the
Purchase) such as a merger, consolidation, business combination, reorganization,
recapitalization or liquidation involving the Company or any of its
subsidiaries, and (ii) any sale or transfer of a material amount of the assets
of the Company or any of its subsidiaries if the transactions described in
clauses (i) or (ii) would adversely effect the Company's ability to complete the
Purchase. The attorneys and proxies named above may not exercise this Proxy on
any other matter except as provided in clauses (a) and (b) above. The
undersigned stockholder may vote the Shares on all other matters.
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<PAGE> 13
Any obligation of the undersigned hereunder shall be binding upon
the successors and assigns of the undersigned.
Dated: May 5, 1998
Insurance Partners Offshore (Bermuda), L.P.
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/ BRADLEY COOPER
-------------------------------------
Name: BRADLEY COOPER
Title: FIRST VP
Shares beneficially owned:
765,851 shares of Common Stock of the Company
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<PAGE> 1
EXHIBIT 10.59
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 5, 1998 (this "Agreement"),
between Foundation Health Corporation, a Delaware corporation ("Seller"), and
Thomas J. Jamieson (the "Stockholder").
WHEREAS, Seller and Superior National Insurance Group, Inc., a
Delaware corporation (the "Company") have, contemporaneously with the execution
of this Agreement, entered into a Purchase Agreement, dated as of the date
hereof (as the same may be amended or supplemented, the "Purchase Agreement"),
which provides, among other things, that the Company desires to purchase from
Seller, and Seller desires to sell to the Company, all of the shares of the
Business Insurance Group, Inc., a Delaware insurance holding company ("BIG"),
subject to the terms and conditions of the Purchase Agreement (the "Purchase");
and
WHEREAS, as of the date hereof, the Stockholder is the Beneficial
Owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of 147,250 shares of Common Stock entitled to vote, par value $.01 per
share of the Company ("Company Common Stock"); and
WHEREAS, as a condition to the willingness of Seller to enter
into the Purchase Agreement, Seller has required that the Stockholder agree, and
in order to induce Seller to enter into the Purchase Agreement, the Stockholder
has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees,
during the time this Agreement is in effect, at any meeting of the stockholders
of the Company relating to the Purchase, to: (a) appear, or cause the holder of
record on the applicable record date (the "Record Holder") to appear, at any
annual or special meeting of stockholders of the Company for the purpose of
obtaining a quorum; (b) vote, or cause the Record Holder to vote, in person or
by proxy, all of the shares of the Company Common Stock owned or with respect to
which the Stockholder has or shares voting power and shares of the Company
Common Stock which shall, or with respect to which voting power shall, hereafter
be acquired by the Stockholder (collectively, the "Shares") in favor of (i) the
issuance of shares of common stock, par value $.01 per share, of the Company
pursuant to the purchase agreement (and related letter agreement with the Zurich
Centre Investments Ltd. ("ZCI")) with Insurance Partners, L.P. ("IP"), Insurance
Partners Offshore (Bermuda), L.P. ("IPB"), and Capital Z Partners, Ltd.
("Capital Z") (collectively, the "1998 Stock Purchase Agreement"), dated the
date hereof, (ii) the transactions contemplated by (x) the 1998 Stock Purchase
Agreement and (y) the Debt Offering (as defined in the 1998 Stock Purchase
Agreement) (together, the "Financing Agreements") for the financing of the
transactions contemplated by the Purchase Agreements and (iii) any amendment to
the certificate of incorporation of the Company necessary to complete the
transactions contemplated by the 1998 Stock Purchase Agreements; and (c) vote,
or cause the Record Holder to vote, such Shares against: (i) any extraordinary
corporate transaction (other than the Purchase), such as a merger,
consolidation, business combination, reorganization, recapitalization or
liquidation involving the Company or any of its subsidiaries, and (ii) any sale
or transfer of a material amount of the assets of the Company or any of its
subsidiaries if the transactions described in clauses (i) or (ii) would
adversely effect the Company's ability to complete the Purchase. The Stockholder
acknowledges receipt and review of a copy of the Purchase Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the
transactions contemplated hereby, concurrently with the execution of this
Agreement, the Stockholder shall execute and deliver to Seller a proxy in the
form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE AND
COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to be
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<PAGE> 3
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and
powers of attorney with respect to the Shares which the Stockholder may have
heretofore appointed or granted only to the extent it relates to the matters
referred to in Section 1.1 hereof, and no subsequent proxy or power of attorney
shall be given or written consent executed only to the extent it relates to the
matters referred to in Section 1.1 hereof (and if given or executed, such proxy
or power of attorney shall not be effective) by such Stockholder with respect
thereto. All authority conferred by this Section 1.2 or agreed to be conferred
shall survive the death or incapacity of the Stockholder and any obligation of
the Stockholder under this Agreement shall be binding upon the heirs, personal
representatives, assigns and successors of the Stockholder.
(c) The Seller hereby agrees, during the time this
Agreement is in effect, to take any and all actions necessary to cause the
Proxies to be voted at any meeting of the Company's stockholders in favor of all
the transactions contemplated by the Financing Agreements.
(d) The Seller hereby agrees not to consent to any
amendment or modification to the Purchase Agreement, including, but not limited
to, Article VII or the definition of "Closing Date" contained therein, which
would adversely effect the Stockholder pursuant to the terms of this Agreement
without the prior written consent of the Stockholder.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Purchase Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Shares only to the extent it
relates to the matters referred to in Section 1.1 hereof, (ii) grant a proxy or
power of attorney or other authorization with respect to the Shares only to the
extent it relates to the matters referred to in Section 1.1 hereof or (iii) take
any other action, in each case, that would in anyway restrict, limit or
interfere with the performance of the Stockholder's obligations hereunder or the
transactions contemplated hereby.
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<PAGE> 4
ARTICLE II
TRANSFERS OF SHARES
Section 2.1 Transfers of Shares. This Agreement shall be
effective only with respect to those Shares Beneficially Owned by the
Stockholder as of the date any Stockholder vote is taken in accordance with
Section 1.1 and shall not govern the voting of any shares of Company Common
Stock sold, transferred or otherwise disposed of by Stockholder after the date
hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Seller as
follows:
Section 3.1 Authority Relative to This Agreement. The Stockholder
is competent to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Stockholder and,
assuming the due authorization, execution and delivery by Seller, constitutes a
legal, valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except that the enforcement hereof may
be limited by (i) bankruptcy, insolvency, or other similar laws now or
hereinafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
Section 3.2 No Conflict. The execution and delivery of this
Agreement by the Stockholder does not, and the performance of this Agreement by
the Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become 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
the Shares pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Stockholder is a party or by which the Stockholder or the Shares
are bound or affected, except, in the case of each of the foregoing, for any
such conflicts, violations, breaches, defaults or
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<PAGE> 5
other occurrences which would not prevent or delay the performance by the
Stockholder of its obligations under this Agreement.
Section 3.3 Title to the Shares. As of the date hereof, the
Stockholder is the record or Beneficial Owner of 147,250 shares of Company
Common Stock, which are all of the securities of the Company with voting rights
owned, either of record or beneficially, by the Stockholder. The Shares are
owned free and clear of any limitations on the Stockholder's voting rights.
Except as provided in this Agreement, the Stockholder has not appointed or
granted any proxy, which appointment or grant is still effective, with respect
to the Shares.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Purchase Agreement in accordance
with its terms pursuant to Article VII of the Purchase Agreement, as in effect
on the date hereof, and (b) the Closing Date (as defined in the Purchase
Agreement, as in effect on the date hereof). In the event of termination of this
Agreement pursuant to (a) above, written notice thereof shall forthwith be given
to the Stockholder.
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Seller would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that Seller shall be entitled to an injunction or
injunctions to prevent breaches by the Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in the federal
courts of the United States of America located in Los Angeles County, California
(and federal courts having jurisdiction over appeals therefrom), this being in
addition to any other remedy to which Seller is entitled at law or in equity. In
addition, each of the parties hereto (i) irrevocably submits to the exclusive
jurisdiction of the federal courts of the United States of America located in
Los Angeles County, California (and federal courts having jurisdiction over
appeals therefrom) in respect of this Agreement, (ii) agrees that such party
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (iii) agrees that such party will not
bring any action relating to this Agreement in any court other
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<PAGE> 6
than the federal courts of the United States of America located in Los Angeles
County, California.
Section 4.3 Successors and Affiliates. This Agreement shall inure
to the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by the
Stockholder or the Seller without the prior written consent of the other party,
except by laws of descent. If the Stockholder shall acquire ownership of, or
voting power with respect to, any additional Shares in any manner, whether by
the exercise of any options or any securities or rights convertible into or
exchangeable for Company Common Stock, operation of law or otherwise, such
Shares shall be held subject to all of the terms of this Agreement, and by
taking and holding such Shares, the Stockholder shall be conclusively deemed to
have agreed to be bound by and to comply with all of the terms and provisions of
this Agreement. Without limiting the foregoing, the Stockholder specifically
agrees that the obligations of the Stockholder hereunder shall not be terminated
by operation of law, whether by the death or incapacity of the Stockholder or
otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the
entire agreement between Seller and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Seller and the Stockholder with respect to the subject
matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, 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.
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<PAGE> 7
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. 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 to 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.
Section 4.8 Stockholder Capacity. If the Stockholder is or
becomes during the term hereof a director or officer of the Company, the
Stockholder makes no agreement or understanding herein in his or her capacity as
such director or officer. The Stockholder enters into this Agreement solely in
his or her capacity as the record holder and beneficial owner of the Shares and
nothing herein shall limit or affect any actions taken by the Stockholder in his
or her capacity as an officer or director of the Company to the extent
specifically permitted by the Purchase Agreement.
Section 4.9 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made and shall be effective upon receipt, if delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission (provided that a confirmation copy is sent by another
approved means):
(i) if to Seller,
Foundation Health Systems, Inc.
225 North Main
Pueblo, CO 81003
Telephone No.: (719) 585-8077
Telecopy No.: (719) 585-8175
Attn: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
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<PAGE> 8
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
(ii) if to Stockholder, to the address set forth on
Schedule A hereto.
Section 4.10 Governing Law. The laws of the State of Delaware
(irrespective of its choice of law principles) shall govern all issues
concerning the validity of this Agreement, the construction of its terms, and
the interpretation and enforcement of the rights and duties of the parties.
Section 4.11 Counterparts. For the convenience of the parties
hereto, this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
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<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
Thomas J. Jamieson
By: /s/ THOMAS J. JAMIESON
--------------------------------------
Name: Thomas J. Jamieson
Foundation Health Corporation
FOUNDATION HEALTH CORPORATION
a Delaware Corporation
By: /s/ B. CURTIS WESTEN
--------------------------------------
Name: B. Curtis Westen
Title: Sr. VP,
C(1)-9
<PAGE> 10
EXHIBIT A
IRREVOCABLE PROXY
to Vote
Superior National Insurance Group, Inc.
COMMON STOCK
The undersigned stockholder of Superior National Insurance Group,
Inc., a Delaware corporation (the "Company"), hereby irrevocably (to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL")), appoints B. Curtis Westen and Michael E. Jansen, and each of them, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned or owned of record by the undersigned, and
any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Shares") in
accordance with the terms of this Proxy. This appointment as proxies is subject
to partial or complete termination upon the transfer of the Shares (as to that
portion of the Shares transferred) in accordance with Section 2.1 of the Voting
Agreement (as defined below). The Shares beneficially owned or owned of record
by the undersigned stockholder of the Company as of the date of this Proxy are
listed on the final page of this Proxy. Upon the undersigned's execution of this
Proxy, any and all prior proxies given by the undersigned with respect to any
Shares only to the extent it relates to the matters referred to in the third
paragraph of this proxy are hereby revoked and the undersigned agrees not to
grant any subsequent proxies only to the extent it relates to the matters
referred to in the third paragraph of this proxy with respect to the Shares
until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL),
is granted pursuant to that certain Voting Agreement, dated as of May 5, 1998,
between Seller and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Seller and the Company entering
into that certain Purchase Agreement, dated as of May 5, 1998 (the "Purchase
Agreement"). The Purchase Agreement provides for the Purchase of all of the
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<PAGE> 11
shares of the Business Insurance Group, Inc., a Delaware insurance holding
company ("BIG") upon the terms of the Purchase Agreement. As used herein, the
term "Expiration Date" shall mean the earlier to occur of (i) the termination of
the Voting Agreement in accordance with its terms, and (ii) such date and time
as the Purchase shall have become effective in accordance with the terms and
provisions of the Purchase Agreement as in effect on the date hereof.
The attorneys and proxies named above, and each of them, are
hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the DGCL) at every annual, special or adjourned meeting of
the stockholders of the Company and in every written consent in lieu of such
meeting: in favor of (i) the issuance of shares of common stock, par value $.01
per share, of the Company pursuant to the purchase agreement )and related letter
agreement with Zurich Centre Investments Ltd. ("ZCI")) with Insurance Partners,
L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P. ("IPB"), and Capital Z
Partners, Ltd. ("Capital Z") (collectively, the "1998 Stock Purchase
Agreement"), dated the date hereof, (ii) the transactions contemplated by (x)
the 1998 Stock Purchase Agreement and (y) the Debt Offering (as defined in the
1998 Stock Purchase Agreement) (together, the "Financing Agreements") for the
financing of the transactions contemplated by the Purchase Agreements and (iii)
any amendment to the certificate of incorporation of the Company necessary to
complete the transactions contemplated by the 1998 Stock Purchase Agreements;
and (b) against (i) any extraordinary corporate transaction (other than the
Purchase) such as a merger, consolidation, business combination, reorganization,
recapitalization or liquidation involving the Company or any of its
subsidiaries, and (ii) any sale or transfer of a material amount of the assets
of the Company or any of its subsidiaries if the transactions described in
clauses (i) or (ii) would adversely effect the Company's ability to complete the
Purchase. The attorneys and proxies named above may not exercise this Proxy on
any other matter except as provided in clauses (a) and (b) above. The
undersigned stockholder may vote the Shares on all other matters.
Notwithstanding any other provision of this Proxy, if the
Stockholder is or, prior to the Expiration Date, becomes a director or officer
of the Company, the provisions of this Proxy shall not limit or affect any
actions taken by the Stockholder in his or her capacity as an officer or
director of the Company to the extent specifically permitted by the Purchase
Agreement.
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<PAGE> 12
Any obligation of the undersigned hereunder shall be binding upon
the successors and assigns of the undersigned.
Dated: May 5, 1998
Thomas J. Jamieson
By: /s/ THOMAS J. JAMIESON
---------------------------------
Name: Thomas J. Jamieson
Shares beneficially owned:
147,250 shares of Common Stock of the Company
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<PAGE> 1
EXHIBIT 10.60
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 5, 1998 (this "Agreement"),
between Foundation Health Corporation, a Delaware corporation ("Seller"), and
Jaco Oil Company (the "Stockholder").
WHEREAS, Seller and Superior National Insurance Group, Inc., a
Delaware corporation (the "Company") have, contemporaneously with the execution
of this Agreement, entered into a Purchase Agreement, dated as of the date
hereof (as the same may be amended or supplemented, the "Purchase Agreement"),
which provides, among other things, that the Company desires to purchase from
Seller, and Seller desires to sell to the Company, all of the shares of the
Business Insurance Group, Inc., a Delaware insurance holding company ("BIG"),
subject to the terms and conditions of the Purchase Agreement (the "Purchase");
and
WHEREAS, as of the date hereof, the Stockholder is the Beneficial
Owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of 98,050 shares of Common Stock, par value $.01 per share of the
Company ("Company Common Stock"); and
WHEREAS, as a condition to the willingness of Seller to enter
into the Purchase Agreement, Seller has required that the Stockholder agree, and
in order to induce Seller to enter into the Purchase Agreement, the Stockholder
has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees,
during the time this Agreement is in effect, at any meeting of the stockholders
of the Company relating to the Purchase, to: (a) appear, or cause the holder of
record on the applicable record date (the "Record Holder") to appear, at any
annual or special meeting of stockholders of the Company for the purpose of
obtaining a quorum; (b) vote, or cause the Record Holder to vote, in person or
by proxy, all of the shares of the Company Common Stock owned or with respect to
which the Stockholder has or shares voting power and shares of the Company
Common Stock which shall, or with respect to which voting power shall, hereafter
be acquired by the Stockholder (collectively, the "Shares") in favor of (i) the
issuance of shares of common stock, par value $.01 per share, of the Company
pursuant to the purchase agreement and related letter agreement with the Zurich
Centre Investments Ltd. ("ZCI") with Insurance Partners, L.P. ("IP"), Insurance
Partners Offshore (Bermuda), L.P. ("IPB"), and Capital Z Partners, Ltd.
("Capital Z") (collectively, the "1998 Stock Purchase Agreement"), dated the
date hereof, (ii) the transactions contemplated by (x) the 1998 Stock Purchase
Agreement and (y) Debt Offering (as defined in the 1998 Stock Purchase
Agreement) (together, the "Financing Agreements") for the financing of the
transactions contemplated by the Purchase Agreements and (iii) any amendment to
the certificate of incorporation of the Company necessary to complete the
transactions contemplated by the 1998 Stock Purchase Agreements; and (c) vote,
or cause the Record Holder to vote, such Shares against: (i) any extraordinary
corporate transaction (other than the Purchase), such as a merger,
consolidation, business combination, reorganization, recapitalization or
liquidation involving the Company or any of its subsidiaries, and (ii) any sale
or transfer of a material amount of the assets of the Company or any of its
subsidiaries if the transactions described in clauses (i) or (ii) would
adversely effect the Company's ability to complete the Purchase. The Stockholder
acknowledges receipt and review of a copy of the Purchase Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the
transactions contemplated hereby, concurrently with the execution of this
Agreement, the Stockholder shall execute and deliver to Seller a proxy in the
form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE AND
COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to be
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<PAGE> 3
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and
powers of attorney with respect to the Shares which the Stockholder may have
heretofore appointed or granted only to the extent it relates to the matters
referred to in Section 1.1 hereof, and no subsequent proxy or power of attorney
shall be given or written consent executed only to the extent it relates to the
matters referred to in Section 1.1 hereof (and if given or executed, such proxy
or power of attorney shall not be effective) by such Stockholder with respect
thereto. All authority conferred by this Section 1.2 or agreed to be conferred
shall survive the death or incapacity of the Stockholder and any obligation of
the Stockholder under this Agreement shall be binding upon the heirs, personal
representatives, assigns and successors of the Stockholder. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Seller hereby agrees, during the time this
Agreement is in effect, to take any and all actions necessary to cause the
Proxies to be voted at any meeting of the Company's stockholders in favor of all
the transactions contemplated by the Financing Agreements.
(d) The Seller hereby agrees not to consent any amendment
or modification to the Purchase Agreement, including, but not limited to,
Article VII or the definition of "Closing Date" contained therein, which would
adversely effect the Stockholder pursuant to the terms of this Agreement without
the written consent of the Stockholder.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Purchase Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Shares only to the extent it
relates to the matters referred to in Section 1.1 hereof, (ii) grant a proxy or
power of attorney or other authorization with respect to the Shares only to the
extent it relates to the matters referred to in Section 1.1 hereof or (iii) take
any other action, in each case, that would in anyway restrict, limit or
interfere with the performance of the Stockholder's obligations hereunder or the
transactions contemplated hereby.
C(2)-3
<PAGE> 4
ARTICLE II
TRANSFERS OF SHARES
Section 2.1 Transfers of Shares. This Agreement shall be
effective only with respect to those Shares Beneficially Owned by the
Stockholder as of the date any Stockholder vote is taken in accordance with
Section 1.1 and shall not govern the voting of any shares of Company Common
Stock sold, transferred or otherwise disposed of by Stockholder after the date
hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Seller as
follows:
Section 3.1 Authority Relative to This Agreement. The Stockholder
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Stockholder and, assuming the due authorization,
execution and delivery by Seller, constitutes a legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in accordance
with its terms, except that the enforcement hereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
Section 3.2 No Conflict. The execution and delivery of this
Agreement by the Stockholder does not, and the performance of this Agreement by
the Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become 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
the Shares pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Stockholder is a party or by which the Stockholder or the Shares
are bound or affected, except, in the case of each of the foregoing, for any
such conflicts, violations, breaches, defaults or
C(2)-4
<PAGE> 5
other occurrences which would not prevent or delay the performance by the
Stockholder of its obligations under this Agreement.
Section 3.3 Title to the Shares. As of the date hereof, the
Stockholder is the record or Beneficial Owner of 98,050 shares of Company Common
Stock, which are all of the securities of the Company with voting rights owned,
either of record or beneficially, by the Stockholder. The Shares are owned free
and clear of any limitations on the Stockholder's voting rights. Except as
provided in this Agreement, the Stockholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to the
Shares.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Purchase Agreement in accordance
with its terms pursuant to Article VII of the Purchase Agreement, as in effect
on the date hereof, and (b) the Closing Date (as defined in the Purchase
Agreement, as in effect on the date hereof). In the event of termination of this
Agreement pursuant to (a) above, written notice thereof shall forthwith be given
to the Stockholder.
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Seller would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that Seller shall be entitled to an injunction or
injunctions to prevent breaches by the Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in the federal
courts of the United States of America located in Los Angeles County, California
(and federal courts having jurisdiction over appeals therefrom), this being in
addition to any other remedy to which Seller is entitled at law or in equity. In
addition, each of the parties hereto (i) irrevocably submits to the exclusive
jurisdiction of the federal courts of the United States of America located in
Los Angeles County, California (and federal courts having jurisdiction over
appeals therefrom) in respect of this Agreement, (ii) agrees that such party
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (iii) agrees that such party will not
bring any action relating to this Agreement in any
C(2)-5
<PAGE> 6
court other than the federal courts of the United States of America located in
Los Angeles County, California.
Section 4.3 Successors and Affiliates. This Agreement shall inure
to the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by the
Stockholder or the Seller without the prior written consent of the other party,
except by laws of descent. If the Stockholder shall acquire ownership of, or
voting power with respect to, any additional Shares in any manner, whether by
the exercise of any options or any securities or rights convertible into or
exchangeable for Company Common Stock, operation of law or otherwise, such
Shares shall be held subject to all of the terms of this Agreement, and by
taking and holding such Shares, the Stockholder shall be conclusively deemed to
have agreed to be bound by and to comply with all of the terms and provisions of
this Agreement. Without limiting the foregoing, the Stockholder specifically
agrees that the obligations of the Stockholder hereunder shall not be terminated
by operation of law, whether by the death or incapacity of the Stockholder or
otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the
entire agreement between Seller and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Seller and the Stockholder with respect to the subject
matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, 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.
C(2)-6
<PAGE> 7
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. 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 to 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.
Section 4.8 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made and shall be effective upon receipt, if delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission (provided that a confirmation copy is sent by another
approved means):
(i) if to Seller,
Foundation Health Systems, Inc.
225 North Main
Pueblo, CO 81003
Telephone No.: (719) 585-8077
Telecopy No.: (719) 585-8175
Attn: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
(ii) if to Stockholder, to the address set forth on
Schedule A hereto.
C(2)-7
<PAGE> 8
Section 4.9 Governing Law. The laws of the State of Delaware
(irrespective of its choice of law principles) shall govern all issues
concerning the validity of this Agreement, the construction of its terms, and
the interpretation and enforcement of the rights and duties of the parties.
Section 4.10 Counterparts. For the convenience of the parties
hereto, this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
C(2)-8
<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
Jaco Oil Company
JACO OIL COMPANY
By: /s/ THOMAS J. JAMIESON
----------------------------------
Name: Thomas J. Jamieson
Title: President
Foundation Health Corporation
FOUNDATION HEALTH CORPORATION
a Delaware Corporation
By: /s/ B. CURTIS WESTEN
----------------------------------
Name: B. Curtis Westen
Title: Sr. Vice President,
Gen. Counsel & Secretary
C(2)-9
<PAGE> 10
EXHIBIT A
IRREVOCABLE PROXY
to Vote
Superior National Insurance Group, Inc.
COMMON STOCK
The undersigned stockholder of Superior National Insurance Group,
Inc., a Delaware corporation (the "Company"), hereby irrevocably (to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL")), appoints B. Curtis Westen and Michael E. Jansen, and each of them, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned or owned of record by the undersigned, and
any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Shares") in
accordance with the terms of this Proxy. This appointment as proxies is subject
to partial or complete termination upon the transfer of the Shares (as to that
portion of the Shares transferred) in accordance with Section 2.1 of the Voting
Agreement (as defined below). The Shares beneficially owned or owned of record
by the undersigned stockholder of the Company as of the date of this Proxy are
listed on the final page of this Proxy. Upon the undersigned's execution of this
Proxy, any and all prior proxies given by the undersigned with respect to any
Shares only to the extent it relates to the matters referred to in the third
paragraph of this proxy are hereby revoked and the undersigned agrees not to
grant any subsequent proxies only to the extent it relates to the matters
referred to in the third paragraph of this proxy with respect to the Shares
until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL),
is granted pursuant to that certain Voting Agreement, dated as of May 5, 1998,
between Seller and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Seller and the Company entering
into that certain Purchase Agreement, dated as of May 5, 1998 (the "Purchase
A-1
<PAGE> 11
Agreement"). The Purchase Agreement provides for the Purchase of all of the
shares of the Business Insurance Group, Inc., a Delaware insurance holding
company ("BIG") upon the terms of the Purchase Agreement. As used herein, the
term "Expiration Date" shall mean the earlier to occur of (i) the termination of
the Voting Agreement in accordance with its terms, and (ii) such date and time
as the Purchase shall have become effective in accordance with the terms and
provisions of the Purchase Agreement as in effect on the date hereof.
The attorneys and proxies named above, and each of them, are
hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the DGCL) at every annual, special or adjourned meeting of
the stockholders of the Company and in every written consent in lieu of such
meeting: in favor of (i) the issuance of shares of common stock, par value $.01
per share, of the Company pursuant to the purchase agreement and related letter
agreement with the Zurich Centre Investments Ltd. ("ZCI") with Insurance
Partners, L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P. ("IPB"), and
Capital Z Partners, Ltd. ("Capital Z") (collectively, the "1998 Stock Purchase
Agreement"), dated the date hereof, (ii) the transactions contemplated by (x)
the 1998 Stock Purchase Agreement and (y) Debt Offering (as defined in the 1998
Stock Purchase Agreement) (together, the "Financing Agreements") for the
financing of the transactions contemplated by the Purchase Agreements and (iii)
any amendment to the certificate of incorporation of the Company necessary to
complete the transactions contemplated by the 1998 Stock Purchase Agreements;
and (b) against (i) any extraordinary corporate transaction (other than the
Purchase) such as a merger, consolidation, business combination, reorganization,
recapitalization or liquidation involving the Company or any of its
subsidiaries, and (ii) any sale or transfer of a material amount of the assets
of the Company or any of its subsidiaries if the transactions described in
clauses (i) or (ii) would adversely effect the Company's ability to complete the
Purchase. The attorneys and proxies named above may not exercise this Proxy on
any other matter except as provided in clauses (a) and (b) above. The
undersigned stockholder may vote the Shares on all other matters.
A-2
<PAGE> 12
Any obligation of the undersigned hereunder shall be binding upon
the successors and assigns of the undersigned.
Dated: May 5, 1998
Jaco Oil Company
/s/ THOMAS J. JAMIESON
----------------------------------------------
By Thomas J. Jamieson
Title: PRESIDENT
Shares beneficially owned:
98,050 shares of Common Stock of the Company
A-3
<PAGE> 1
EXHIBIT 10.61
The following persons are party to the form of Voting Agreement attached hereto
as Exhibit 10.61.
<TABLE>
<CAPTION>
Stockholder Number of Shares
- ----------- ----------------
<S> <C>
J. Chris Seaman.................. 47,872
William L. Gentz................. 44,682
Gordon E. Noble.................. 6,000
C. Len Pecchenino................ 14,250
</TABLE>
<PAGE> 2
EXHIBIT 10.61
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 5, 1998 (this "Agreement"),
between Foundation Health Corporation, a Delaware corporation ("Seller"), and
[__________________] (the "Stockholder").
WHEREAS, Seller and Superior National Insurance Group, Inc., a
Delaware corporation (the "Company") have, contemporaneously with the execution
of this Agreement, entered into a Purchase Agreement, dated as of the date
hereof (as the same may be amended or supplemented, the "Purchase Agreement"),
which provides, among other things, that the Company desires to purchase from
Seller, and Seller desires to sell to the Company, all of the shares of the
Business Insurance Group, Inc., a Delaware insurance holding company ("BIG"),
subject to the terms and conditions of the Purchase Agreement (the "Purchase");
and
WHEREAS, as of the date hereof, the Stockholder is the Beneficial
Owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of [_________] shares of Common Stock entitled to vote, par value $.01
per share of the Company ("Company Common Stock"); and
WHEREAS, as a condition to the willingness of Seller to enter
into the Purchase Agreement, Seller has required that the Stockholder agree, and
in order to induce Seller to enter into the Purchase Agreement, the Stockholder
has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE> 3
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees,
during the time this Agreement is in effect, at any meeting of the stockholders
of the Company relating to the Purchase, to: (a) appear, or cause the holder of
record on the applicable record date (the "Record Holder") to appear, at any
annual or special meeting of stockholders of the Company for the purpose of
obtaining a quorum; (b) vote, or cause the Record Holder to vote, in person or
by proxy, all of the shares of the Company Common Stock owned or with respect to
which the Stockholder has or shares voting power and shares of the Company
Common Stock which shall, or with respect to which voting power shall, hereafter
be acquired by the Stockholder (collectively, the "Shares") in favor of (i) the
issuance of shares of common stock, par value $.01 per share, of the Company
pursuant to the purchase agreement (and related letter agreement with Zurich
Centre Investments Ltd. ("ZCI")) with Insurance Partners, L.P. ("IP"), Insurance
Partners Offshore (Bermuda), L.P. ("IPB"), and Capital Z Partners, Ltd.
("Capital Z") (collectively, the "1998 Stock Purchase Agreement"), dated the
date hereof, (ii) the transactions contemplated by (x) the 1998 Stock Purchase
Agreement and (y) the Debt Offering (as defined in the 1998 Stock Purchase
Agreement) (together, the "Financing Agreements") for the financing of the
transactions contemplated by the Purchase Agreement and (iii) any amendment to
the certificate of incorporation of the Company necessary to complete the
transactions contemplated by the 1998 Stock Purchase Agreement; and (c) vote, or
cause the Record Holder to vote, such Shares against: (i) any extraordinary
corporate transaction (other than the Purchase), such as a merger,
consolidation, business combination, reorganization, recapitalization or
liquidation involving the Company or any of its subsidiaries, and (ii) any sale
or transfer of a material amount of the assets of the Company or any of its
subsidiaries if the transactions described in clauses (i) or (ii) would
adversely effect the Company's ability to complete the Purchase. The Stockholder
acknowledges receipt and review of a copy of the Purchase Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the
transactions contemplated hereby, concurrently with the execution of this
Agreement, the Stockholder shall execute and deliver to Seller a proxy in the
form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE AND
COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to be
C(1)-2
<PAGE> 4
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and
powers of attorney with respect to the Shares which the Stockholder may have
heretofore appointed or granted only to the extent it relates to the matters
referred to in Section 1.1 hereof, and no subsequent proxy or power of attorney
shall be given or written consent executed only to the extent it relates to the
matters referred to in Section 1.1 hereof (and if given or executed, such proxy
or power of attorney shall not be effective) by such Stockholder with respect
thereto. All authority conferred by this Section 1.2 or agreed to be conferred
shall survive the death or incapacity of the Stockholder and any obligation of
the Stockholder under this Agreement shall be binding upon the heirs, personal
representatives, assigns and successors of the Stockholder.
(c) The Seller hereby agrees, during the time this
Agreement is in effect, to take any and all actions necessary to cause the
Proxies to be voted at any meeting of the Company's stockholders in favor of all
the transactions contemplated by the Financing Agreements.
(d) The Seller hereby agrees not to consent to any
amendment or modification to the Purchase Agreement which would adversely effect
the Stockholder, including, but not limited to, Article VII or the definition of
"Closing Date" as contained therein, pursuant to the terms of this Agreement
without the prior written consent of the Stockholder.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Purchase Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Shares only to the extent it
relates to the matters referred to in Section 1.1 hereof, (ii) grant a proxy or
power of attorney or other authorization with respect to the Shares only to the
extent it relates to the matters referred to in Section 1.1 hereof or (iii) take
any other action, in each case, that would in anyway restrict, limit or
interfere with the performance of the Stockholder's obligations hereunder or the
transactions contemplated hereby.
C(1)-3
<PAGE> 5
ARTICLE II
RESTRICTIONS ON TRANSFER
Section 2.1 Transfer of Title or Beneficial Ownership. The
Stockholder hereby covenants and agrees that the Stockholder will not, prior to
the termination of this Agreement, either directly or indirectly, offer, agree
or otherwise sell, assign, pledge, hypothecate, transfer, exchange, or dispose
of any Shares or any interest therein, owned either directly or indirectly by
the Stockholder or with respect to which the Stockholder has the power of
disposition, whether now or hereafter acquired, other than pursuant to an
agreement which specifically provides that the purchaser of such Shares will
assume the Stockholder's obligations hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Seller as
follows:
Section 3.1 Authority Relative to This Agreement. The Stockholder
is competent to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Stockholder and,
assuming the due authorization, execution and delivery by Seller, constitutes a
legal, valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except that the enforcement hereof may
be limited by (i) bankruptcy, insolvency, or other similar laws now or
hereinafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
Section 3.2 No Conflict. The execution and delivery of this
Agreement by the Stockholder does not, and the performance of this Agreement by
the Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become 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
the Shares pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit,
C(1)-4
<PAGE> 6
franchise or other instrument or obligation to which the Stockholder is a party
or by which the Stockholder or the Shares are bound or affected, except, in the
case of each of the foregoing, for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay the performance
by the Stockholder of its obligations under this Agreement.
Section 3.3 Title to the Shares. As of the date hereof, the
Stockholder is the record or Beneficial Owner of [________] shares of Company
Common Stock, which are all of the securities of the Company with voting rights
owned, either of record or beneficially, by the Stockholder. The Shares are
owned free and clear of any limitations on the Stockholder's voting rights.
Except as provided in this Agreement, the Stockholder has not appointed or
granted any proxy, which appointment or grant is still effective, with respect
to the Shares.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Purchase Agreement in accordance
with its terms pursuant to Article VII of the Purchase Agreement, as in effect
on the date hereof, and (b) the Closing Date (as defined in the Purchase
Agreement, as in effect on the date hereof). In the event of termination of this
Agreement pursuant to (a) above, written notice thereof shall forthwith be given
to the Stockholder.
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Seller would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that Seller shall be entitled to an injunction or
injunctions to prevent breaches by the Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in the federal
courts of the United States of America located in Los Angeles County, California
(and federal courts having jurisdiction over appeals therefrom), this being in
addition to any other remedy to which Seller is entitled at law or in equity. In
addition, each of the parties hereto (i) irrevocably submits to the exclusive
jurisdiction of the federal courts of the United States of America located in
Los Angeles County, California (and federal courts having jurisdiction over
appeals therefrom) in respect of this Agreement, (ii)
C(1)-5
<PAGE> 7
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (iii)
agrees that such party will not bring any action relating to this Agreement in
any court other than the federal courts of the United States of America located
in Los Angeles County, California.
Section 4.3 Successors and Affiliates. This Agreement shall inure
to the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by the
Stockholder or the Seller without the prior written consent of the other party,
except by laws of descent. If the Stockholder shall acquire ownership of, or
voting power with respect to, any additional Shares in any manner, whether by
the exercise of any options or any securities or rights convertible into or
exchangeable for Company Common Stock, operation of law or otherwise, such
Shares shall be held subject to all of the terms of this Agreement, and by
taking and holding such Shares, the Stockholder shall be conclusively deemed to
have agreed to be bound by and to comply with all of the terms and provisions of
this Agreement. Without limiting the foregoing, the Stockholder specifically
agrees that the obligations of the Stockholder hereunder shall not be terminated
by operation of law, whether by the death or incapacity of the Stockholder or
otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the
entire agreement between Seller and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Seller and the Stockholder with respect to the subject
matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, 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
C(1)-6
<PAGE> 8
waiver of any prior or subsequent breach of the same or any other provision
hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. 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 to 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.
Section 4.8 Stockholder Capacity. If the Stockholder is or
becomes during the term hereof a director or officer of the Company, the
Stockholder makes no agreement or understanding herein in his or her capacity as
such director or officer. The Stockholder enters into this Agreement solely in
his or her capacity as the record holder and beneficial owner of the Shares and
nothing herein shall limit or affect any actions taken by the Stockholder in his
or her capacity as an officer or director of the Company to the extent
specifically permitted by the Purchase Agreement.
Section 4.9 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made and shall be effective upon receipt, if delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission (provided that a confirmation copy is sent by another
approved means):
(i) if to Seller,
Foundation Health Systems, Inc.
225 North Main
Pueblo, CO 81003
Telephone No.: (719) 585-8077
Telecopy No.: (719) 585-8175
Attn: General Counsel
C(1)-7
<PAGE> 9
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
(ii) if to Stockholder, to the address set forth on
Schedule A hereto.
Section 4.10 Governing Law. The laws of the State of Delaware
(irrespective of its choice of law principles) shall govern all issues
concerning the validity of this Agreement, the construction of its terms, and
the interpretation and enforcement of the rights and duties of the parties.
Section 4.11 Counterparts. For the convenience of the parties
hereto, this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
C(1)-8
<PAGE> 10
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
[ ]
- --------------------------
By: /s/
---------------------------------
Name:
Foundation Health Corporation
FOUNDATION HEALTH CORPORATION
a Delaware Corporation
By: /s/ B. CURTIS WESTEN
------------------------------
Name: B. Curtis Westen
Title: Sr. Vice President,
Gen. Counsel & Secretary
C(1)-9
<PAGE> 11
EXHIBIT A
IRREVOCABLE PROXY
to Vote
Superior National Insurance Group, Inc.
COMMON STOCK
The undersigned stockholder of Superior National Insurance Group,
Inc., a Delaware corporation (the "Company"), hereby irrevocably (to the full
extent permitted by the General Corporation Law of the State of Delaware (the
"DGCL")), appoints B. Curtis Westen and Michael E. Jansen, and each of them, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned or owned of record by the undersigned, and
any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Shares") in
accordance with the terms of this Proxy. The Shares beneficially owned or owned
of record by the undersigned stockholder of the Company as of the date of this
Proxy are listed on the final page of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares only to the extent it relates to the matters referred to
in the third paragraph of this proxy are hereby revoked and the undersigned
agrees not to grant any subsequent proxies only to the extent it relates to the
matters referred to in the third paragraph of this proxy only with respect to
the Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL),
is granted pursuant to that certain Voting Agreement, dated as of May 5, 1998,
between Seller and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Seller and the Company entering
into that certain Purchase Agreement, dated as of May 5, 1998 (the "Purchase
Agreement"). The Purchase Agreement provides for the Purchase of all of the
shares of the Business Insurance Group, Inc., a Delaware insurance holding
company ("BIG") upon the terms of the Purchase Agreement. As used herein, the
term "Expiration Date" shall mean the earlier to occur of (i) the termination of
the
A-1
<PAGE> 12
Voting Agreement in accordance with its terms, and (ii) such date and time as
the Purchase shall have become effective in accordance with the terms and
provisions of the Purchase Agreement as in effect on the date hereof.
The attorneys and proxies named above, and each of them, are
hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the DGCL) at every annual, special or adjourned meeting of
the stockholders of the Company and in every written consent in lieu of such
meeting: in favor of (i) the issuance of shares of common stock, par value $.01
per share, of the Company pursuant to the purchase agreement (and related letter
agreement with Zurich Centre Investments Ltd. ("ZCI")) with Insurance Partners,
L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P. ("IPB"), and Capital Z
Partners, Ltd. ("Capital Z") (collectively, the "1998 Stock Purchase
Agreement"), dated the date hereof, (ii) the transactions contemplated by (x)
the 1998 Stock Purchase Agreement and (y) the Debt Offering (as defined in the
1998 Stock Purchase Agreement) (together, the "Financing Agreements") for the
financing of the transactions contemplated by the Purchase Agreement and (iii)
any amendment to the certificate of incorporation of the Company necessary to
complete the transactions contemplated by the 1998 Stock Purchase Agreement; and
(b) against (i) any extraordinary corporate transaction (other than the
Purchase) such as a merger, consolidation, business combination, reorganization,
recapitalization or liquidation involving the Company or any of its
subsidiaries, and (ii) any sale or transfer of a material amount of the assets
of the Company or any of its subsidiaries if the transactions described in
clauses (i) or (ii) would adversely effect the Company's ability to complete the
Purchase. The attorneys and proxies named above may not exercise this Proxy on
any other matter except as provided in clauses (a) and (b) above. The
undersigned stockholder may vote the Shares on all other matters.
Notwithstanding any other provision of this Proxy, if the
Stockholder is or, prior to the Expiration Date, becomes a director or officer
of the Company, the provisions of this Proxy shall not limit or affect any
actions taken by the Stockholder in his or her capacity as an officer or
director of the Company to the extent specifically permitted by the Purchase
Agreement.
A-2
<PAGE> 13
Any obligation of the undersigned hereunder shall be binding upon
the successors and assigns of the undersigned.
Dated: May 4, 1998
[ ]
- --------------------------
By: /s/
---------------------------------
Name:
Shares beneficially owned:
[ ] shares of Common Stock of the Company
A-3
<PAGE> 1
EXHIBIT 11
The following is an illustration of the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS) computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------- ------------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
-------------- ------------- --------- ------------- ------------- ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income before items
below $ 3,767 5,874,054 $ 0.64 $ 1,210 3,446,735 $ 0.35
Preferred Securities (1,872) (0.32) (454) (0.13)
---------- ------ ------- ------
Net Income $ 1,895 $ 0.32 $ 756 $ 0.22
========== ====== ======= ======
EFFECT OF DILUTIVE
SECURITIES
Options 336,473 344,175
Warrants 1,571,087 1,455,609
DILUTED EPS
Income before items
below $ 3,767 7,781,614 $ 0.48 $ 1,210 5,246,519 $ 0.23
Preferred Securities (1,872) (0.24) (454) (0.09)
---------- ------ ------- ------
Net Income $ 1,895 $ 0.24 $ 756 $ 0.14
========== ====== ======= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 210,065
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,980
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 228,535
<CASH> 16,490
<RECOVER-REINSURE> 2,295
<DEFERRED-ACQUISITION> 5,987
<TOTAL-ASSETS> 401,508
<POLICY-LOSSES> 180,333
<UNEARNED-PREMIUMS> 14,610
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 30
34,316
101,291
<COMMON> 0
<OTHER-SE> 27,492
<TOTAL-LIABILITY-AND-EQUITY> 401,508
30,587
<INVESTMENT-INCOME> 4,253
<INVESTMENT-GAINS> 400
<OTHER-INCOME> 0
<BENEFITS> 18,288
<UNDERWRITING-AMORTIZATION> 5,123
<UNDERWRITING-OTHER> 4,868
<INCOME-PRETAX> 6,078
<INCOME-TAX> 2,311
<INCOME-CONTINUING> 3,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,895
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.24
<RESERVE-OPEN> 152,100<F1>
<PROVISION-CURRENT> 18,280
<PROVISION-PRIOR> 7
<PAYMENTS-CURRENT> 1,165
<PAYMENTS-PRIOR> 42,194
<RESERVE-CLOSE> 127,028
<CUMULATIVE-DEFICIENCY> 7
<FN>
<F1>RESERVES FOR UNPAID CLAIMS, PROVISION FOR INSURED EVENTS, AND PAYMENTS OF
CLAIMS ARE STATED NET OF REINSURANCE.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Calabasas, California
May 5, 1998
Superior National Signs Definitive Agreement
to Acquire Business Insurance Group, Inc.
from Foundation Health Systems, Inc.
Superior National Insurance Group, Inc. (Nasdaq: SNTL) ("SNTL" or "Superior
National") announced today that it has executed a definitive agreement with
Foundation Health Systems, Inc. (NYSE:FHS) ("FHS") of Woodland Hills,
California, to acquire FHS' wholly-owned subsidiary, Business Insurance Group,
Inc. ("BIG") and BIG's insurance subsidiaries, for total consideration of
approximately $285 million in cash. The transaction is subject to SNTL
shareholder and regulatory approval, which is expected to occur before November
30, 1998.
In connection with the acquisition, FHS will provide, through the purchase of
reinsurance, $175 million of adverse development protection on BIG's loss and
loss adjustment expense reserves. SNTL will also enter into a three-year quota
share reinsurance agreement with an A+ rated (A.M. Best) reinsurer under which
SNTL and BIG will reinsure accounts with premiums in excess of $25,000. The
effect of this agreement will be to significantly improve SNTL's and BIG's
operating leverage, and to stabilize the consolidated organization's operating
results. Superior National has also agreed to enter into long-term contracts
with FHS affiliates under which FHS will continue to provide bill review and
other claims control services to Superior National and BIG.
The acquisition of BIG by Superior National will create California's largest
private-sector workers' compensation insurance company, and one of the nation's
largest workers' compensation specialists. BIG is an insurance holding company
that, through its four insurance subsidiaries, Business Insurance Company,
California Compensation Insurance Company, Combined Benefits Insurance Company,
and Commercial Compensation Insurance Company, writes workers' compensation and
group health insurance, principally in California, with branch operations
throughout the continental United States. For the year ending December 31, 1997,
BIG reported direct premiums written of $660 million, and net income of $19.8
million (excluding $79 million, pretax, of prior years' reserve strengthening
and restructuring charges). At 12/31/97, BIG's total assets and capitalization
were approximately $1.2 billion and $380.8 million, respectively.
SNTL will finance the acquisition of BIG through the issuance of $200 million of
common stock and $110 million of senior notes. The amount raised in excess of
$285 million will be used to pay transaction costs and for general corporate
purposes. Insurance Partners, L.P. and its successor fund (together "IP") have
committed to purchase at least $94 million of SNTL common stock, and SNTL will
offer $106 million of common stock on a pro-rata basis through
1
<PAGE> 2
a rights offering to SNTL's existing common stock, warrant, and option holders,
excluding IP and other securities holders related to the Zurich Insurance
Company. To the extent that the offering of common stock to the existing common
stock, warrant, and option holders is not fully-subscribed, IP has committed to
purchase the remaining shares. All of the common stock will be issued at a price
of $16.75 per share. In connection with its investment, IP has agreed to certain
restrictions protecting minority stock holders.
The $16.75 price and other terms of the prospective rights offering to SNTL's
common stock, warrant, and option holders (other than IP and holders related to
the Zurich Insurance Company) were set by SNTL's board of directors, in
consultation with its financial advisors, and will be materially the same as the
terms of the IP transaction, subject to adjustments determined by SNTL's board
of directors to be reasonable and appropriate. This announcement does not
constitute an offer of any securities. Any offering of securities will be made
only by means of a prospectus. Shareholders are cautioned, however, that the
mere decision to undertake a transaction does not change the contingencies that
apply to these prospective transactions, or the likelihood that an offering
will, in fact, occur. Registration statements will be filed with the Securities
and Exchange Commission relating to the rights offering and the senior notes,
and none of these securities may be sold before the registration statements are
declared effective.
William L. Gentz, SNTL President and Chief Executive Officer, stated, "The
acquisition of Business Insurance Group's workers' compensation and group health
insurance operations provides the opportunity for Superior National to realize
immediate strategic and financial benefits. The consolidation of the first and
ninth largest companies in the California workers' compensation market
establishes Superior National as a major force in the California workers'
compensation system, and provides Superior National with nationwide distribution
channels. We look forward to working with BIG's employees, producers, and
policyholders towards the goal of providing unsurpassed service to our
customers."
Robert A. Spass, Managing Partner of Insurance Partners stated, "Insurance
Partners is pleased to increase its investment in Superior National's leading
franchise in the California workers' compensation market. We have great
confidence in Superior's management team and business plan, which will transform
Superior's profitable niche in the workers' compensation market into a market
leader with a national presence. The combination of Superior National and BIG is
a timely and logical consolidation in the California's workers' compensation
insurance market."
Superior National Insurance Group, Inc. is the parent company of Superior
National Insurance Company, and Superior Pacific Casualty Company, speciality
workers' compensation insurers operating in California through branch offices
located in Sacramento, Pleasanton, Fresno, Calabasas, Irvine, and San Diego, and
in Phoenix, Arizona. Superior National reported net (loss) income of
($5,141,000) and $1,963,000, and basic (loss) earnings per share of ($0.98) and
$0.57, for the years ended December 31, 1997 and 1996,
respectively. Net income before
2
<PAGE> 3
preferred securities dividends and accretion, and extraordinary items, was
$10,824,000 and $3,630,000, and basic earnings per share was $2.06 and $1.05,
for the years ended December 31, 1997 and 1996 respectively.
Insurance Partners, L.P. is an investment partnership formed in 1994 to make
equity investments in the insurance, healthcare, and insurance services
industries, and has total committed capital of $540 million. Major partners
include Centre Reinsurance, Keystone, Inc. (formerly the Robert M. Bass Group,
Inc.), and Chase Manhattan Bank. Since its formation, Insurance Partners has
invested, or committed to invest, in excess of $500 million in insurance,
healthcare, and insurance services transactions.
This announcement contains certain forward-looking statements regarding
marketing, distribution, efficiencies, and economies of scale that SNTL
management believes may be achieved through the acquisition of BIG. Realization
of management's beliefs and projections will depend on a number of factors,
including management's successful execution of its business plan for integrating
the operations of the two companies, insurance market reception to the
combination of the two companies, and other factors that may be beyond Superior
National's control.
3
