SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)*
Superior National Insurance Group, Inc.
(Name of Issuer)
Common Stock (par value $.01 per share)
(Title of Class of Securities)
868224106
(CUSIP Number)
Capital Z Management, Inc.
One Chase Manhattan Plaza, 44th Floor
New York, New York 10005
Attention: Mr. David A. Spuria
Tel. No. (212) 898-8700
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
December 10, 1998
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this statement because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 (the "Exchange Act") or otherwise subject to the liabilities of that
section of the Exchange Act but shall be subject to all other provisions of the
Exchange Act (however, see the Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 868224106
---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Capital Z Financial Services Fund II, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
00 - Contributions from Partners
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Bermuda
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
5,276,960
BY EACH REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
-0-
WITH
10 SHARED DISPOSITIVE POWER
5,276,960
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,276,960
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
Not applicable [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.46%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
SCHEDULE 13D
CUSIP No. 868224106
---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Capital Z Partners, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Bermuda
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
5,276,960 (1)
BY EACH REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
-0-
WITH
10 SHARED DISPOSITIVE POWER
5,276,960 (1)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,276,960 (1)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.46%
14 TYPE OF REPORTING PERSON
PN
(1) Solely in its capacity as the sole general partner of Capital Z Financial
Services Fund II, L.P.
<PAGE>
SCHEDULE 13D
CUSIP No. 868224106
---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Capital Z Partners, Ltd.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Bermuda
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
5,276,960 (1)
BY EACH REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
-0-
WITH
10 SHARED DISPOSITIVE POWER
5,276,960 (1)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,276,960 (1)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.46%
14 TYPE OF REPORTING PERSON
PN
(1) Solely in its capacity as the sole general partner of Capital Z Partners,
L.P., which is the sole general partner of Capital Z Financial Services Fund
II, L.P.
<PAGE>
5
ITEM 1. SECURITY AND ISSUER
The title of the class of equity securities of Superior National
Insurance Group, Inc., a Delaware corporation (the "Company"), to which this
Statement on Schedule 13D (the "Statement") relates is the common stock, par
value $.01 per share (the "Common Stock"), of the Company. The address of the
principal executive offices of the Company is 26601 Agoura Road, Calabasas,
California 91302.
ITEM 2. IDENTITY AND BACKGROUND
(a) This Statement is hereby filed by Capital Z Financial Services Fund
II, L.P., a Bermuda limited partnership ("Cap Z Fund II"), Capital Z Partners,
L.P., a Bermuda limited partnership ("Cap Z L.P."), and Capital Z Partners,
Ltd., a Bermuda corporation ("Cap Z Ltd."). Cap Z Fund II, Cap Z L.P. and Cap Z
Ltd. are sometimes hereinafter collectively referred to as the "Reporting
Persons."
(b) - (c)
CAP Z FUND II
Cap Z Fund II is a Bermuda limited partnership formed to invest in
securities of financial services entities. The principal business address of Cap
Z Fund II, which also serves as its principal office, is One Chase Manhattan
Plaza, 44th Floor, New York, New York 10005. Pursuant to Instruction C to
Schedule 13D of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), information with respect to Cap Z L.P., the sole general partner of Cap Z
Fund II, is set forth below.
CAP Z L.P.
Cap Z L.P. is a Bermuda limited partnership, the principal business of
which is serving as the sole general partner of Cap Z Fund II. The principal
address of Cap Z Ltd., which also serves as its principal office, is One Chase
Manhattan Plaza, 44th Floor, New York, New York 10005. Pursuant to Instruction C
to Schedule 13D of the Exchange Act, information with respect to Cap Z Ltd., the
sole general partner of Cap Z L.P., is set forth below.
CAP Z LTD.
Cap Z Ltd. is a Bermuda corporation, the principal business of which is
serving as the sole general partner of Cap Z L.P. The principal address of Cap Z
Ltd., which also serves as its principal office, is One Chase Manhattan Plaza,
44th Floor, New York, New York 10005. Pursuant to Instruction C to Schedule 13D
of the Exchange Act, the name, residence or business address, and present
principal occupation or employment of each director and executive officer of Cap
Z Ltd. are as follows:
CUSIP NO. 868224106
<PAGE>
6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME BUSINESS ADDRESS EMPLOYMENT
- ----------------------------- ----------------------------------------- ------------------------------------------
<S> <C> <C>
Steven M. Gluckstern One Chase Manhattan Plaza, 44th Floor Chairman of the Board of Directors of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
Robert A. Spass One Chase Manhattan Plaza, 44th Floor Deputy Chairman of the Board of
New York, New York 10005 Directors of Capital Z Management,
Inc. and Capital Z Partners, Ltd.
Laurence W. Cheng One Chase Manhattan Plaza, 44th Floor President and a Director of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
Bradley E. Cooper One Chase Manhattan Plaza, 44th Floor Senior Vice President and a Director of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
Mark K. Gormley One Chase Manhattan Plaza, 44th Floor Senior Vice President and a Director of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
Adam M. Mizel One Chase Manhattan Plaza, 44th Floor Senior Vice President and a Director of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
Paul H. Warren One Chase Manhattan Plaza, 44th Floor Senior Vice President and a Director of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
Scott M. Delman One Chase Manhattan Plaza, 44th Floor Senior Vice President and a Director of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
David A. Spuria One Chase Manhattan Plaza, 44th Floor General Counsel and Secretary of
New York, New York 10005 Capital Z Management, Inc. and
Capital Z Partners, Ltd.
Roland V. Bernardon One Chase Manhattan Plaza, 44th Floor Chief Financial Officer and Treasurer
New York, New York 10005 of Capital Z Management, Inc. and
Capital Z Partners, Ltd.
</TABLE>
Capital Z Management, Inc. is a Bermuda corporation, the principal
business of which is performing investment management services for Cap Z Fund II
and its portfolio companies. The principal business address of Capital Z
Management, Inc. is One Chase Manhattan Plaza, 44th Floor, New York, New York
10005.
(d) None of the entities or persons identified in this Item 2 has,
during the last five years, been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
(e) None of the entities or persons identified in this Item 2 has,
during the last five years, been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgement, decree or final order enjoining future
CUSIP NO. 868224106
<PAGE>
7
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
(f) All of the natural persons identified in this Item 2 are citizens
of the United States of America, except for Laurence W. Cheng who is a citizen
of Canada.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
As more fully described in Item 6 below, on December 10, 1998 Cap Z
Fund II purchased an aggregate of 5,276,960 shares of Common Stock for an
aggregate purchase price of $88,389,080. Cap Z Fund II used contributions from
its partners to fund such purchase.
ITEM 4. PURPOSE OF TRANSACTION
The Reporting Persons consummated the transactions described herein in
order to acquire a significant interest in the Company and for investment
purposes. The Reporting Persons do not intent to obtain control (as defined in
Rule 12b-2 of the Exchange Act) of the Company.
The Reporting Persons intend to review continuously their position in
the Company. Depending upon future evaluations of the business prospects of the
Company and upon other developments, including, but not limited to, general
economic and business conditions and stock market conditions, the Reporting
Persons may retain or from time to time dispose of all or a portion of their
holdings, subject to any applicable legal and contractual restrictions on their
ability to do so.
In addition, the matters set forth in Item 6 below are incorporated in
this Item 4 by reference as if fully set forth herein.
Except as set forth in this Item 4, the Reporting Persons have no
present plans or proposals that relate to or that would result in any of the
actions specified in clauses (a) through (j) of Item 4 of Schedule 13D of the
Exchange Act.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a)
CAP Z FUND II
Cap Z Fund II may, pursuant to Rule 13d-3 of the Exchange Act, be
deemed to be the beneficial owner of 5,276,960 shares of Common Stock, which,
based on calculations made in accordance with Rule 13d-3(d) of the Exchange Act
and there being 17,906,882 shares of Common Stock outstanding (as represented by
the Company to the Reporting Persons), represents approximately 29.46% of the
outstanding shares of Common Stock.
CAP Z L.P.
In its capacity as the sole general partner of Cap Z Fund II, Cap Z
L.P. may, pursuant to Rule 13d-3 of the Exchange Act, be deemed to be the
beneficial owner of 5,276,960 shares of
CUSIP NO. 868224106
<PAGE>
8
Common Stock, which, based on calculations made in accordance with Rule 13d-3(d)
of the Exchange Act and there being 17,906,882 shares of Common Stock
outstanding (as represented by the Company to the Reporting Persons), represents
approximately 29.46% of the outstanding shares of Common Stock.
CAP Z LTD.
In its capacity as the sole general partner of Cap Z L.P., the sole
general partner of Cap Z Fund II, Cap Z Ltd. may, pursuant to Rule 13d-3 of the
Exchange Act, be deemed to be the beneficial owner of 5,276,960 shares of Common
Stock, which, based on calculations made in accordance with Rule 13d-3(d) of the
Exchange Act and there being 17,906,882 shares of Common Stock outstanding (as
represented by the Company to the Reporting Persons), represents approximately
29.46% of the outstanding shares of Common Stock.
Schedule 1 hereto, which is hereby incorporated by reference, contains
the information required by Item 5(a) of Schedule 13D of the Exchange Act for
each person named in Item 2 for whom such information is not set forth above.
(b)
CAP Z FUND II
1. Sole power to vote or to direct
the vote -0-
2. Shared power to vote or to direct
the vote 5,276,960
3. Sole power to dispose or to direct
the disposition -0-
4. Shared power to dispose of or to
direct the disposition 5,276,960
CAP Z L.P.
1. Sole power to vote or to direct
the vote -0-
2. Shared power to vote or to direct
the vote 5,276,960
3. Sole power to dispose or to direct
the disposition -0-
4. Shared power to dispose of or to
direct the disposition 5,276,960
CUSIP NO. 868224106
<PAGE>
9
CAP Z LTD.
1. Sole power to vote or to direct
the vote -0-
2. Shared power to vote or to direct
the vote 5,276,960
3. Sole power to dispose or to direct
the disposition -0-
4. Shared power to dispose of or to
direct the disposition 5,276,960
Schedule 1 hereto, which is hereby incorporated by reference, contains
the information required by Item 5(b) of Schedule 13D of the Exchange Act for
each person named in Item 2 for whom such information is not set forth above.
(c) Except as set forth herein, in Schedule 1 hereto or in the Exhibits
filed herewith, to the knowledge of the Reporting Persons with respect to the
other persons named in response to paragraph (a), none of the persons named in
response to paragraph (a) has effected any transactions in shares of Common
Stock during the past 60 days.
(d) Each of the Reporting Persons affirms that no person other than
such Reporting Person has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the shares of
Common Stock owned by such Reporting Person. To the knowledge of the Reporting
Persons with respect to the other persons named in response to paragraph (a),
only such persons have the right to receive or the power to direct the receipt
of dividends from, or the proceeds from the sale of, the shares of Common Stock
owned by such person.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER
Pursuant to the Stock Purchase Agreement, dated as of May 5, 1998 (the
"1998 Stock Purchase Agreement"), among the Company, Cap Z Ltd., Insurance
Partners, L.P., a Delaware limited partnership ("IP Delaware"), and Insurance
Partners Offshore (Bermuda), L.P., a Bermuda limited partnership ("IP Bermuda"),
on December 10, 1998, Cap Z Fund II purchased an aggregate of 5,276,960 shares
of Common Stock for an aggregate purchase price of $88,389,080. Cap Z Ltd. had
previously assigned its rights and obligations under the 1998 Stock Purchase
Agreement to Cap Z Fund II. The description of the 1998 Stock Purchase Agreement
that follows is not, and does not purport to be, complete and is qualified in
its entirety by reference to the 1998 Stock Purchase Agreement, which is
incorporated by reference to Annex C of the Company's Proxy Statement, dated
October 16, 1998, filed with the Securities and Exchange Commission.
As more fully described in Section 4.2 of the 1998 Stock Purchase
Agreement, so long as the shares of Common Stock owned by Cap Z Fund II, IP
Delaware and IP Bermuda (collectively, the "Purchasers") and their respective
Associates (as hereinafter defined), directly or indirectly, represent
CUSIP NO. 868224106
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10
15% (the "15% Threshold") of the outstanding shares of the Company on a fully
diluted basis (including, without limitation, the Company's 14.5% Senior
Subordinated Voting Notes due April 1, 2002 (the "Voting Notes")), the Company
and the Purchasers agree as follows:
(a) Pursuant to Section 4.2(a) of the 1998 Stock Purchase Agreement,
the Purchasers agreed with respect to themselves and any person or entity that
controls, is under common control with, or is controlled by any of the
Purchasers or such persons or entities, and all individuals who are officers,
directors or control persons of any such entities, including any of the
Purchasers, that are not signatories to the 1998 Stock Purchase Agreement
(collectively, "Associates") that the Purchasers and the Purchaser's Associates
will not, subject to certain exceptions set forth in Section 4.2 of the 1998
Stock Purchase Agreement, (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
Securities and Exchange 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 in Section 4.2 of the 1998 Stock Purchase Agreement
with respect to any of the foregoing; provided, however, that nothing in Section
4.2(a) of the 1998 Stock Purchase Agreement restricts 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 Common Stock Purchase Warrants issued pursuant to
the 1998 Stock Purchase Agreement, the warrant issued to International Insurance
Advisors, Inc. pursuant to the Note Purchase Agreement, dated as of March 31,
1992, among the Company and each of the several purchasers listed on Schedule I
thereto, the warrant issued to CentreLine Reinsurance Limited pursuant to the
Preferred Securities Purchase Agreement, dated as of June 30, 1994, among the
Company, Superior National Capital Holding Corporation, Superior National
Capital, L.P. and Centre Reinsurance Services (Bermuda) III Limited, and any
other warrants with respect to any capital stock of the Company issued prior to
the date of the 1998 Stock Purchase Agreement (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 the 1998 Stock Purchase
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 Section
4.2(a) of the 1998 Stock Purchase Agreement affects or impairs 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 the 1998 Stock Purchase Agreement, nothing in Section
4.2(a) (I) prohibits or restricts 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) prohibits or restricts
CUSIP NO. 868224106
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11
ordinary trading transactions on behalf of third party clients by an Associate
engaged in the investment management business.
(b) The limitations set forth in Section 4.2(a) of the 1998 Stock
Purchase Agreement and described in paragraph (a) above 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. In addition, any material business
relationship between the Company and any Purchaser or any Associate of any
Purchaser must be approved in the manner described in the preceding sentence.
(c) Other than with respect to the election of directors of the
Company, 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 are greater than 35% of
the total number of shares voted, then those votes that exceed such 35%
threshold will be voted in the same proportion as the other stockholders voted
their shares with respect to such matter.
In addition, subject to the 15% Threshold, as more fully described in
Section 4.2(e) of the 1998 Stock Purchase Agreement, each Purchaser agreed that
the Purchasers and its Associates may not elect a total of more than five
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 Stock Purchase Agreement, dated as of September 17, 1996, as
amended and restated effective as of February 17, 1997 (the "1996 Stock Purchase
Agreement"), among the Company, IP Delaware and IP Bermuda, who are Associates
of any Purchaser or its Associates to be directors of the Company.
Furthermore, subject to the 15% Threshold, the Purchasers agreed not to
transfer, assign, sell or otherwise dispose of (each, a "Transfer") any of its
shares of Common Stock, except for Transfers made in accordance with Section 4.3
of the 1998 Stock Purchase Agreement. Pursuant to Section 4.3 of the 1998 Stock
Purchase Agreement, the Purchasers may at any time Transfer any or all of their
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 Section
4.3 of the 1998 Stock Purchase Agreement, (ii) pursuant to Rule 144 under the
Securities Act of 1933, as amended (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
CUSIP NO. 868224106
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12
Company pursuant to which such purchaser or purchasers agree to be bound by the
provisions of Section 4.2 and Section 4.3 of the 1998 Stock Purchase Agreement
(treating such purchaser or purchasers as an "Associate" for purposes of such
Sections 4.2 and 4.3), (vii) pursuant to a registration statement filed under
the Securities Act pursuant to the Amended and Restated Registration Rights
Agreement (as hereinafter defined), or otherwise or (viii) pursuant to a pro
rata distribution to its partners.
In connection with the 1998 Stock Purchase Agreement, the Company, Cap
Z Fund II, IP Delaware and IP Bermuda entered into the Amended and Restated
Registration Rights Agreement, dated as of December 10, 1998 (the "Registration
Rights Agreement"). The description of the Registration Rights Agreement that
follows is not, and does not purport to be, complete and is qualified in its
entirety by reference to the Registration Rights Agreement, a copy of which is
attached hereto as Exhibit 1. Pursuant to the Registration Rights Agreement, the
Purchasers and their affiliates (as defined in Rule 12b-2 of the Exchange Act)
to which shares of Common Stock are transferred have the right, subject to
certain limitations set forth in the Registration Rights Agreement, to request
the Company at any time to register under the Securities Act, at the Company's
expense, all or part of the shares of Common Stock owned by the Purchasers and
their affiliates (a "Demand Registration"). The Company agreed to pay such
expenses in connection with (i) two Demand Registrations initiated by IP
Delaware or IP Bermuda and (ii) two Demand Registration initiated by Cap Z Fund
II, provided, that such number of Demand Registrations may be reduced if the
certain conditions set forth in Section 3(d) of the Registration Rights
Agreement are satisfied. The Purchasers also have certain piggyback registration
rights in connection with registrations by the Company under the Securities Act.
In connection with the 1998 Stock Purchase Agreement, the Company, Cap
Z Ltd., IP Delaware, IP Bermuda, International Insurance Advisors, Inc. ("IIA"),
International Insurance Investors, L.P. ("III") (including its general partner
and those limited partners that are signatories to the Letter Agreement),
certain individuals listed on Schedule 2 thereto (the "Management
Warrantholders") and Centreline Reinsurance Limited ("Centreline"), entered into
a letter agreement (the "Letter Agreement"), dated as of October 16, 1998. The
description of the Letter Agreement that follows is not, and does not purport to
be, complete and is qualified in its entirety by reference to the Letter
Agreement, a copy of which is attached hereto as Exhibit 2.
Insofar as the Letter Agreement specifically relates to the Purchasers,
the Letter Agreement clarifies the relationship between the registration rights
of the Purchasers under the Registration Rights Agreement and the registration
rights of IIA, III, the Management Warrantholders and Centreline (collectively,
the "Warrantholders") under their respective warrants. Specifically, the Letter
Agreement provides that in the event of a demand registration by either the
Warrantholders or the Purchasers, the other party may participate in such
registration, pro rata based on the number of shares proposed to be registered.
The letter agreement also provides that in the event the Company proposes to
register in an underwritten offering any shares of its Common Stock, then the
number of shares of Common Stock that are entitled to be included in such
offering shall be allocated (i) first, to the Company for shares of Common Stock
being sold for its own account, (ii) second, among requesting Warrantholders and
the Purchasers, pro rata based on the number of shares requested to be included
in such offering and (iii) third, to any other requesting shareholder.
CUSIP NO. 868224106
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ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Incorporated by reference to Annex C of the Stock Purchase Agreement, dated as
of Company's Proxy Statement, dated October May 5, 1998, by and among Superior
16, 1998, filed with the Commission National Insurance Group, Inc.,
Insurance Partners, L.P.,
Insurance Partners Offshore
(Bermuda), L.P. and Capital Z
Partners, Ltd.
Exhibit 1: Amended and Restated Registration
Rights Agreement, dated as of
December 10, 1998, among the
Superior National Insurance Group,
Inc., Insurance Partners, L.P.,
Insurance Partners Offshore
(Bermuda), L.P. and Capital Z
Financial Services Fund II, L.P.
Exhibit 2: Letter Agreement, dated as of
October 16, 1998, among Superior
National Insurance Group, Inc.,
Insurance Partners, L.P.,
Insurance Partners Offshore
(Bermuda), L.P., Capital Z
Partners, Ltd. and each of the
several holders of warrants of the
Company signatory thereto.
CUSIP NO. 868224106
<PAGE>
14
Signature
After reasonable inquiry and to the best of the knowledge and belief of
the undersigned, the undersigned hereby certifies that the information set forth
in this statement is true, complete and correct.
Dated: December 21, 1998
CAPITAL Z FINANCIAL SERVICES
FUND II, L.P., a Bermuda limited partnership
By: Capital Z Partners, L.P., a Bermuda limited
partnership, its General Partner
By: Capital Z Partners, Ltd., a Bermuda corporation,
its General Partner
By: /s/ Robert A. Spass
-------------------
Name: Robert A. Spass
Title: Deputy Chairman of the Board
CAPITAL Z PARTNERS, L.P.,
a Bermuda limited partnership
By: Capital Z Partners, Ltd., a Bermuda corporation,
its General Partner
By: /s/ Robert A. Spass
-------------------
Name: Robert A. Spass
Title: Deputy Chairman of the Board
CAPITAL Z PARTNERS, LTD.,
a Bermuda corporation
By: /s/ Robert A. Spass
-------------------
Name: Robert A. Spass
Title: Deputy Chairman of the Board
CUSIP NO. 868224106
<PAGE>
15
Schedule 1
Shares of Common Percentage of Outstanding
Name Stock Beneficially Owned(1) Shares of Common Stock(2)
- ---- --------------------------- -------------------------
Steven M. Gluckstern 32,825+(=) *
Robert A. Spass 48,041(3)(=) *
Laurence W. Cheng 32,825+(=) *
Bradley E. Cooper 21,343(4)(=) *
Mark K. Gormley 16,413+(=) *
Adam M. Mizel 16,413+(=) *
Paul H. Warren 19,203(5)(=) *
Scott M. Delman 10,504+(=) *
David A. Spuria 1,395+(=) *
Roland V. Bernardon 523+(=) *
- ---------------------------
* Less than 1%.
+ Represents warrants to purchase Common Stock that, for the purposes of
Rule 13d-3 of the Exchange Act, are exercisable within 60 days of the
date hereof. All such warrants were issued on December 10, 1998 and
each such person has the sole power to vote or to direct the vote and
to dispose or to direct the disposition of such warrants and the
underlying shares of Common Stock.
(=) All of the warrants to purchase Common Stock issued on December 10,
1998 were issuable to Cap Z Fund II (as the assignee of Cap Z Ltd.) as
a commitment fee in connection with the 1998 Stock Purchase Agreement
and were issued by the Company to each such person directly in a
private transaction at the instruction of Cap Z Fund II.
(1) In each case calculated in accordance with Rule 13d-3 of the Exchange
Act.
(2) Based on there being 17,906,882 shares of Common Stock outstanding on
the date hereof (as represented by the Company to the Reporting
Persons) and calculated in accordance with Rule 13d-3 of the Exchange
Act.
(3) The aggregate number of shares of Common Stock that Robert A. Spass
owns beneficially is 48,041 consisting of (a) 40,041 shares of Common
Stock issuable upon exercise of warrants that, for purposes of Rule
13d-3 of the Exchange Act, are exercisable within 60 days of the date
hereof and (b) 8,000 shares of Common Stock held directly. Mr. Spass
acquired warrants to purchase 32,825 shares of Common Stock on December
10, 1998 and has the sole power to vote or to direct the vote and to
dispose or to direct the disposition of such warrants, and such
underlying shares of Common Stock. Mr. Spass shares the power to vote
or to direct the vote of warrants to purchase 5,580 shares of Common
Stock, and such underlying shares of Common Stock, with International
Insurance Advisors, Inc. ("IIA"), pursuant to the Agency and Proxy
Agreement, dated March 16, 1992 (the "Agency Agreement"), among IIA and
the other parties signatory thereto. Mr. Spass also shares the power to
vote or to direct the vote of warrants to purchase 1,636 shares of
Common Stock, and such underlying shares of Common Stock, with (a)
Beach Haven Investors, Inc., ("Beach Haven") a corporation of which Mr.
Spass is the sole stockholder, and (b) IIA pursuant to the Agency
Agreement. Mr. Spass shares the power to dispose or to direct the
disposition of warrants to purchase
CUSIP NO. 868224106
<PAGE>
16
1,636 shares of Common Stock, and such underlying shares of Common
Stock, with Beach Haven Investors, Inc. and has the sole power to
dispose or to direct the disposition of 8,000 shares of Common Stock
and warrants to purchase 5,580 shares of Common Stock, and such
underlying shares of Common Stock. IIA and Beach Haven are each party
to a Statement on Schedule 13G filed with the Securities and Exchange
Commission with respect to the Common Stock.
(4) The 21,343 shares of Common Stock that Bradley E. Cooper owns
beneficially consist of (a) 4,000 shares of Common Stock held directly,
and (b) 17,343 shares of Common Stock issuable upon exercise of
warrants that, for purposes of Rule 13d-3 of the Exchange Act, are
exercisable within 60 days of the date hereof. Mr. Cooper acquired
warrants to purchase 16,413 shares of Common Stock on December 10, 1998
and has the sole power to vote or to direct the vote and to dispose or
to direct the disposition of such warrants, and such underlying shares
of Common Stock. Mr. Cooper shares the power to vote or to direct the
vote of warrants to purchase 930 shares of Common Stock and the 930
shares of Common Stock issuable upon their exercise, with (a) IIA
pursuant to the Agency Agreement and (b) the International Insurance
Advisors, Inc. 401(K) and Pension Plans (the "IIA Pension Plans")
(which hold the warrants for the benefit of Mr. Cooper, subject to
IIA's revocable agency relationship). Mr. Cooper has the sole power to
dispose or to direct the disposition of the 4,000 shares of Common
Stock he holds directly and warrants to purchase 930 shares of Common
Stock, and such underlying shares of Common Stock. IIA Pension Plans is
party to a Statement on Schedule 13G filed with the Securities and
Exchange Commission with respect to the Common Stock.
(5) The 19,203 shares of Common Stock that Paul H. Warren owns beneficially
consist of warrants that, for purposes of Rule 13d-3 of the Exchange
Act, are exercisable within 60 days of the date hereof. Mr. Warren
acquired 16,413 warrants to purchase Common Stock on December 10, 1998
and has the sole power to vote or to direct the vote and to dispose or
to direct the disposition of such warrants, and such underlying shares
of Common Stock. Mr. Warren shares the power to vote or to direct the
vote of warrants to purchase 1,860 shares of Common Stock, and such
underlying shares of Common Stock, with IIA, pursuant to the Agency
Agreement. Mr. Warren also shares the power to vote or to direct the
vote of warrants to purchase 930 shares of Common Stock, and such
underlying shares of Common Stock, with (a) IIA pursuant to the Agency
Agreement and (b) IIA Pension Plans (which hold the warrants for the
benefit of Mr. Warren, subject to IIA's revocable agency relationship).
Mr. Warren has the sole power to dispose or to direct the disposition
of warrants to purchase 2,790 shares of Common Stock, and such
underlying shares of Common Stock.
CUSIP NO. 868224106
<PAGE>
17
EXHIBIT INDEX
Document Exhibit Number
- ------------------------------------------- -------------------------------
Stock Purchase Agreement, dated as of
May 5, 1998, by and among Superior
National Insurance Group, Inc., Insurance
Partners, L.P., Insurance Partners Offshore
(Bermuda), L.P. and Capital Z Partners,
Ltd. (Incorporated by reference to
Annex C of the Company's Proxy
Statement, dated October 16, 1998, filed
with the Commission)
Amended and Restated Registration Rights 1
Agreement, dated as of December 10, 1998,
among the Superior National Insurance
Group, Inc., Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda),
L.P. and Capital Z Financial Services
Fund II, L.P.
Letter Agreement, dated as of October 16, 2
1998, among Superior National Insurance
Group, Inc., Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda),
L.P., Capital Z Partners, Ltd. and each of
the several holders of warrants of the
Company signatory thereto.
CUSIP NO. 868224106
================================================================================
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 FINANCIAL SERVICES FUND II, L.P.,
Dated: December 10, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
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.................................6
3. Demand Registration........................................................6
(a) Request for Demand Registration...................................6
(b) Limitation on Demand Registrations................................7
(c) Effective Demand Registration.....................................7
(d) Expenses..........................................................7
(e) Underwriting Procedures...........................................8
(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.......................11
6. Registration Procedures...................................................11
(a) Obligations of the Company.......................................11
(b) Seller Information...............................................13
(c) Preparation; Reasonable Investigation............................14
(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
i
<PAGE>
Page
----
9. Miscellaneous.............................................................18
(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.................................................22
(l) Further Assurances...............................................22
ii
<PAGE>
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated December 10,
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 Financial Services
Fund II, L.P., a Bermuda limited partnership ("Cap Z Fund II" 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 Capital Z Partners, Ltd., a Bermuda corporation ("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;
WHEREAS, pursuant to the certain letter, dated December 7, 1998, among
Cap Z, Cap Z Fund II and the Company, Cap Z assigned all of its rights and
obligations under the Stock Purchase Agreement to Cap Z Fund II;
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
<PAGE>
2
WHEREAS, in order to induce each of IP, IP Bermuda and Cap Z Fund II
(as the assignee of 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 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.
"Cap Z Fund II" 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.
<PAGE>
3
"Company" has the meaning assigned to such term in the recital to this
Agreement.
"Company indemnified party" has the meaning set forth in Section 7(b).
"Demand Registration" has the meaning set forth in Section 3(a).
"Designated Holder" means each of the Insurance Partners Stockholders
and any transferee thereof to whom Registrable Securities have been transferred
in accordance with Section 9(f).
"Designated indemnified party" has the meaning set forth in Section
7(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"IIA" means International Insurance Advisors, Inc., a Delaware
corporation.
"III" means International Insurance Investors, L.P., a Bermuda limited
partnership.
"Incidental Registration" has the meaning set forth in Section 4(a).
"indemnified party" has the meaning set forth in Section 7(c).
"Initiating Holder" has the meaning set forth in Section 3(a).
"Insurance Partners" has the meaning assigned to such term in the
recitals to this Agreement.
"Insurance Partners Stockholders" means each of IP, IP Bermuda, Cap Z
Fund II, ZCI, any Affiliate thereof 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>
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 December 10, 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 Securities); all printing, messenger and delivery expenses; the
fees and disbursements of counsel for the Company and its independent public
accountants; the
<PAGE>
5
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 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
<PAGE>
6
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 Persons in clauses (i),
(ii) and (iii) being referred to collectively as the "Other Rightholders"), and
thereupon will, as provided in Section 6, use its best efforts to effect the
registration under the Securities Act of (i) the Registrable Securities which
the Company has been so requested by the Initiating Holders to register and (ii)
all other shares of Common Stock which the Company has been requested in writing
to register by such Insurance Partners Stockholders and Other Rightholders
(which requests shall specify the number of shares of Common Stock proposed to
be sold and the intended method of disposition thereof and shall be given to the
Company within 30 days after the giving of such written notice of the Demand
Registration by the Company).
<PAGE>
7
(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 Fund II 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 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
<PAGE>
8
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.
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,
<PAGE>
9
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.
Notwithstanding anything to the contrary set forth in Section 4(a), if a
proposed Incidental Registration is for a registered public offering involving
an underwriting and the representative of the underwriters advises the Company
in writing that the registration of all or part of the shares of Common Stock to
be underwritten in such Incidental Registration would materially adversely
effect such offering, then the Company shall so advise the Designated Holders
and any other holders of shares of Common Stock requesting registration in such
Incidental Registration, and the number of shares of Common Stock that are
entitled to be included in the Incidental Registration shall be allocated (i)
first, to the Company for shares of Common Stock being sold for its own account,
(ii) second, among the Designated Holders and any other holders of shares of
Common Stock entitled to "incidental" registration rights and requesting
inclusion of shares of Common Stock in such Incidental Registration, pro rata on
the basis of the number of shares of Common Stock requested to be
<PAGE>
10
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).
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
<PAGE>
11
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 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
<PAGE>
12
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 jurisdic tions of the Registrable Securities
owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to consent to
general service of process in any such jurisdiction;
(v) cause the Registrable Securities covered by such
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company to enable the seller or
sellers of Registrable Securities to consummate the disposition of such
Registrable Securities;
(vi) notify each seller of any Registrable Securities
covered by such Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make statements therein not misleading in the light of the
circumstances then existing, and prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing;
(vii) advise each seller of Registrable Securities as
to the time when such Registration Statement becomes effective and as
to the threat of or the issuance by the Commission of any stop order
suspending the effectiveness of such Registration Statement or the
institution of any
<PAGE>
13
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 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.
<PAGE>
14
(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 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
<PAGE>
15
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 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,
<PAGE>
16
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 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
<PAGE>
17
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 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
<PAGE>
18
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 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 suc cessor 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
<PAGE>
19
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 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, all of the Designated
Holders and all other Persons party hereto.
(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
<PAGE>
20
with a copy to:
Riordan & McKinzie
5743 Corsa Avenue, Suite 116
Westlake Village, California 91362
Telecopy: (818) 706-2956
Attention: Dana M. Warren, Esq.
(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 Fund II:
c/o 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.
<PAGE>
21
(iv) if to any other Designated Holder or
any other Person party hereto, at
its address as it appears on the
record books of the Company.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by courier
or overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
(f) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto. The Demand Registration rights of the
Insurance Partners Stockholders contained in Section 3 and the other rights of
each of the Insurance Partners Stockholders with respect thereto and the
incidental or "piggyback" 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
<PAGE>
22
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Designated Holders shall be enforceable to
the fullest extent permitted by law.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings 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>
23
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: /s/ Robert E. Nagle
-------------------
Name: Robert E. Nagle
Title: Secretary
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: /s/ Daniel L. Doctoroff
-----------------------
Name: Daniel L. Doctoroff
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: /s/ Daniel L. Doctoroff
-----------------------
Name: Daniel L. Doctoroff
Title: Vice President
<PAGE>
24
CAPITAL Z FINANCIAL SERVICES
FUND II, L.P., a Bermuda limited
partnership
By: Capital Z Partners, L.P., its
General Partner
By: Capital Z Partners, Ltd., its
General Partner
By: /s/ Bradley E. Cooper
---------------------
Name: Bradley E. Cooper
Title: Senior Vice President
SUPERIOR NATIONAL INSURANCE GROUP, INC.
26601 Agoura Road
Calabasas, California 91320
October 16, 1998
Insurance Partners, L.P.
201 Main Street, Suite 2600
Fort Worth, Texas 76102
Insurance Partners Offshore (Bermuda), L.P.
Cedar House
41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM EX, Bermuda
Capital Z Partners, Ltd.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
International Insurance Advisors, Inc.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
International Insurance Investors, L.P.
c/o International Insurance Investors (Bermuda) Limited
Cumberland House
One Victoria Street
Hamilton HM HX, Bermuda
CentreLine Reinsurance Limited
Cumberland House
One Victoria Street
Hamilton HM HX, Bermuda
The persons listed on Schedule 1 hereto
at the addresses set forth opposite
the names of such persons
The persons listed on Schedule 2 hereto
c/o Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, California 91320
<PAGE>
2
Ladies and Gentlemen:
Reference is made to (i) the Stock Purchase Agreement, dated as of May
5, 1998 (the "1998 Stock Purchase Agreement"), among Superior National Insurance
Group, Inc. (the "Company"), Insurance Partners, L.P. ("IP Delaware"), Insurance
Partners Offshore (Bermuda), L.P. ("IP Bermuda") and Capital Z Partners, Ltd.
("Cap Z", and together with IP Delaware and IP Bermuda, the "Purchasers"), (ii)
the Note Purchase Agreement, dated as of March 31, 1992 (the "Note Purchase
Agreement"), among the Company and each of the several purchasers listed on
Schedule I thereto, (iii) the Preferred Securities Purchase Agreement, dated as
of June 30, 1994 (the "Preferred Securities Purchase Agreement"), among the
Company, Superior National Capital Holding Corporation, Superior National
Capital, L.P. and Centre Reinsurance Services (Bermuda) III Limited and (iv) the
Letter, dated November 25, 1996 (the "1996 Letter"), from the Company to IP
Delaware, IP Bermuda, International Insurance Advisors, Inc. ("IIA"),
International Insurance Investors, L.P. ("III") and the other parties listed on
the signature page thereto.
Pursuant to (a) Section 1.2 of the Note Purchase Agreement, the Company
issued to (i) IIA, as agent for the general partner and the limited partners of
III, warrants (the "IIA Warrants") to purchase (subject to adjustment) 1,474,306
shares of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company and (ii) the individuals listed on Schedule 2 hereto (the "Management
Warrantholders") warrants (the "Management Warrants") to purchase (subject to
adjustment) 92,159 shares of Common Stock and (b) Section 5.8 of the Preferred
Securities Purchase Agreement, the Company issued to CentreLine Reinsurance
Limited ("CentreLine") a warrant (the "CentreLine Warrant") to purchase (subject
to adjustment) 579,356 shares of Common Stock. Each of the IIA Warrants, the
Management Warrants and the CentreLine Warrant may hereinafter be referred to
collectively as the "Warrants" or individually as a "Warrant," and the holders
of the Warrants may hereinafter be referred to collectively as the
"Warrantholders" or individually as a "Warrantholder".
The Company will, prior to the closing under the 1998 Stock Purchase
Agreement, issue subscription rights for the purchase of up to an aggregate
amount of $109,690,122 of Common Stock at a price per share of $16.75 (the
"Rights Offering") to (i) the holders of its Common Stock (other than IP
Delaware and IP Bermuda), (ii) the Warrantholders pursuant to preemptive rights
and (iii) the Company's employees and consultants holding options to purchase
Common Stock and authorized but unissued shares of restricted Common Stock. In
addition, pursuant to the 1998 Stock Purchase Agreement, a copy of which is
enclosed herewith, the Company has agreed to issue to the Purchasers (the "Stock
Issuance"), and the Purchasers have agreed to purchase from the Company, (x)
shares of Common Stock in an aggregate amount of $94,000,000 at a price per
share of $16.75 and (y) the number of shares of Common Stock not subscribed for
in the Rights Offering or
<PAGE>
3
purchased by Warrantholders pursuant to their preemptive rights described in
paragraph 6(a) below at a price per share of $16.75 up to an aggregate amount of
$106,000,000 of Common Stock.
Pursuant to the 1998 Stock Purchase Agreement, the Company, IP
Delaware, IP Bermuda and Cap Z will enter into an Amended and Restated
Registration Rights Agreement (as it may be amended, modified or otherwise
supplemented from time to time in accordance with its terms, the "Amended and
Restated Registration Rights Agreement"), the form of which is attached as
Exhibit C to the copy of the 1998 Stock Purchase Agreement enclosed herewith,
prior to the Closing under the 1998 Stock Purchase Agreement.
Pursuant to the 1998 Stock Purchase Agreement, as payment of a
commitment fee the Company has agreed to issue to the Purchasers warrants (the
"1998 Warrants") to purchase (subject to adjustment) 734,000 shares of Common
Stock (the "Warrants Issuance", and, together with the Rights Offering and the
Stock Issuance, the "1998 Issuance").
Please find enclosed herewith the Company's proxy statement (the
"Proxy") related to its Annual Meeting of Stockholders to be held November 3,
1998, which Proxy describes the transactions identified above in detail. Please
review the Proxy in connection with your consideration of the items set forth in
this letter.
1. Registration Rights Agreement. The parties hereto acknowledge that
prior to the Closing under the 1998 Stock Purchase Agreement, the Company, IP
Delaware, IP Bermuda and Cap Z will enter into the Amended and Restated
Registration Rights Agreement.
2. Demand Registrations. If at any time pursuant to Section 8.3 of the
IIA Warrants, the Management Warrants or the CentreLine Warrant any holder (the
"Initiating Holder") thereof requests in writing that the Company effect the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and under the securities or "blue sky" laws of any jurisdiction
designated by such holder (a "Demand Registration"), of all or part of such
holder's shares of Common Stock issued or issuable upon exercise of its Warrant,
then the Company shall, in addition to its obligations under Section 8.3 of each
of the Warrants, promptly give written notice of such Demand Registration to the
Insurance Partners Stockholders (as defined in the Amended and Restated
Registration Rights Agreement) and use its best efforts to effect the
registration under the Securities Act of the Registrable Securities (as defined
in the Amended and Restated Registration Rights Agreement) which the Company has
been requested by the Insurance Partners Stockholders to register. In connection
with any Demand Registration involving an underwriting, if the managing
underwriter of the offering advises the Company in writing that in its opinion
the aggregate amount of shares 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
<PAGE>
4
amount of shares of Common Stock that in the opinion of such managing
underwriter may be sold without such material adverse effect and shall reduce,
as to each Initiating Holder, each holder of Warrants (other than the Initiating
Holder) requesting registration of shares of Common Stock in such Demand
Registration pursuant to Section 8.3 of such Warrants (the "Other Rightholders")
and the Insurance Partners Stockholders as a group, the amount of Common Stock
to be included in such registration, pro rata within such group based on the
number of shares of Common Stock included in the request for registration by
such Initiating Holder, Other Rightholders and Insurance Partners Stockholders.
The Insurance Partners Stockholders covenant and agree that in the event that
any of the Insurance Partners Stockholders requests a Demand Registration
pursuant to the Amended and Restated Registration Rights Agreement (an "IP
Demand Registration"), each of the holders of the IIA Warrants, the Management
Warrants and the CentreLine Warrant shall be entitled to participate in such IP
Demand Registration to the same extent that the Insurance Partners Stockholders
are entitled to participate in a Demand Registration pursuant to this paragraph
2. This paragraph 2 will supersede in its entirety paragraph 4 of the 1996
Letter upon the execution of the Amended and Restated Registration Rights
Agreement, which will occur on the date the transactions under the 1998 Stock
Purchase Agreement are consummated (the "Closing Date").
3. Incidental Registrations. If (a) the Company, at any time or from
time to time, proposes to register in an underwriting any of its shares of
Common Stock for its own account under the Securities Act (subject to the
limitations set forth in Section 4(a) of the Amended and Restated Registration
Rights Agreement) (an "Incidental Registration") and (b) the representative of
the underwriters advises the Company in writing that marketing factors require a
limitation of the number of shares of Common Stock to be underwritten, then 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 each holder
of Warrants requesting registration of shares of Common Stock in such Incidental
Registration pursuant to Section 8.4(a) of such Warrants, each of the Insurance
Partners Stockholders requesting registration of its Registrable Securities in
such Incidental Registration pursuant to Section 4(a) of the Amended and
Restated Registration Rights Agreement and any other holders 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. The Insurance Partners Stockholders
covenant and agree that pursuant to the Amended and Restated Registration Rights
Agreement, in the event of an Incidental Registration in which marketing factors
require a limitation of the number of shares of Common Stock to be underwritten,
the allocation of the shares of Common Stock that are entitled to be included in
such Incidental Registration shall be identical to the allocation described in
the preceding sentence. This paragraph 3 will supersede in its entirety
paragraph 5 of the 1996
<PAGE>
5
Letter upon the execution of the Amended and Restated Registration Rights
Agreement, which will occur on the Closing Date.
4. Waiver of Adjustments of Warrant Price and Certain Preemptive Rights
and Consent. The parties hereto acknowledge that the Company has agreed to the
1998 Issuance. In addition,
(a) Each of the holders of the IIA Warrants listed on Schedule
1 hereto (the "IIA Warrantholders") hereby (i) waives (x) its or his rights to
any adjustments under Section 2 of the IIA Warrants with respect to the 1998
Issuance, including without limitation, Section 2.2.1 thereof, and (y) its or
his preemptive rights under Section 9 of the IIA Warrants with respect to the
Warrants Issuance, and (ii) consents to the honoring of its or his preemptive
rights under Section 9 of the IIA Warrants with respect to the Stock Issuance
and the Rights Offering in the manner described herein;
(b) each of the Management Warrantholders hereby (i) waives
(x) his rights to any adjustments under Section 2 of the Management Warrants
with respect to the 1998 Issuance, including without limitation, Section 2.2.1
thereof, and (y) his preemptive rights under Section 9 of the Management
Warrants with respect to the Warrants Issuance, and (ii) consents to the
honoring of his preemptive rights under Section 9 of the Management Warrants
with respect to the Stock Issuance and the Rights Offering in the manner
described herein; and
(c) CentreLine hereby (i) waives (x) its rights under Section
2 of the CentreLine Warrant with respect to the 1998 Issuance, including,
without limitation, Section 2.3.1 thereof, and (y) its preemptive rights under
Section 9 of the CentreLine Warrant with respect to the Warrants Issuance, and
(ii) consents to the honoring of its preemptive rights under Section 9 of the
CentreLine Warrant with respect to the Stock Issuance and the Rights Offering in
the manner described herein.
5. Termination of Paragraph 1 of the 1996 Letter. At the Closing Date,
paragraph 1 of the 1996 Letter will be deemed to be terminated and of no further
force and effect.
6. Grant of Preemptive Rights with Respect to Stock Issuance and Rights
Offering. The Company hereby agrees to honor the preemptive rights available to
the Warrantholders pursuant to the terms of the Warrants in connection with the
Stock Offering and the Rights Offering in one of two ways:
(a) Purchase of Common Stock. A Warrantholder may exercise its
or his preemptive rights by purchasing, at a price per share of Common Stock of
$16.75 in cash, up to that number of shares of Common Stock equal to the number
of Warrants held by such Warrantholder. The price per share at which a
Warrantholder may purchase Common Stock pursuant to the preemptive rights set
forth in this paragraph 6(a) is the same as the price per share of Common Stock
under the 1998
<PAGE>
6
Stock Purchase Agreement. Any Warrantholder interested in exercising its or his
preemptive rights by purchasing Common Stock must deliver (i) an election form
and (ii) a stock subscription agreement, which election form and stock
subscription agreement shall be in the form attached to this letter. Any
Warrantholder making such election hereby agrees that the Company will thereupon
exclude such Warrantholder from participating in the Rights Offering (as
described below). No Warrantholder may elect to exercise preemptive rights by
purchasing Common Stock and also receive Rights in the Rights Offering. The
shares of Common Stock purchased by a Warrantholder in connection with the
exercise of its or his preemptive rights will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
transferred in the absence of such registration or an exemption therefrom under
the Securities Act.
The election form and stock subscription agreement must be returned to
the Company, by overnight delivery or by fax, no later than NOVEMBER 2, 1998
(the "Delivery Due Date") to the address set forth in paragraph 7.
If a Warrantholder fails to deliver an election form and a stock
subscription agreement on or prior to the Delivery Due Date, such Warrantholder
will be issued Rights in connection with the Rights Offering, and will not have
any further opportunity to exercise preemptive rights by purchasing Common
Stock. Although the Company is requesting an election be made in a relatively
short period of time, for planning purposes, the election will be revocable by a
Warrantholder until the Payment Due Date described below, and after payment is
made will be irrevocable.
In order to allow the Company to timely complete its acquisition of
Business Insurance Group, Inc., payment with respect to a Warrantholder's
purchase of Common Stock referred to in paragraph 6(a) will be due to the
Company no later than the expiration date of the Rights Offering, November 20,
1998 (the "Payment Due Date"). Payment must be made in immediately available
funds in the manner set forth in paragraph 7. If payment is not received on or
before the Payment Due Date, a Warrantholder will be deemed to have revoked its
election to exercise preemptive rights by purchasing Common Stock.
(b) Participation in the Rights Offering. The Company will
issue to each Warrantholder who does not elect to exercise its or his preemptive
rights by purchasing Common Stock in the manner described in paragraph 6(a)
above (or who does not timely return an election form and stock subscription
agreement) that number of Rights to purchase a share of Common Stock at $16.75
per share equal to the number of Warrants held by such Warrantholder. Such
Rights will be identical to the Rights granted to the Stockholders of the
Company, are intended to be freely transferrable and listed on the Nasdaq
National Market under the symbol "SNTLR," and the shares purchased upon exercise
of such Rights are intended to be registered under the Securities Act and
designated for trading on Nasdaq. As these Rights are identical to the Rights
issued to the stockholders of the Company, matters related to issuance,
transferability, expiration date, and manner of payment will be the same for
<PAGE>
7
participating Warrantholders and stockholders of the Company. This letter does
not constitute an offering by the Company with respect to the Rights. Such
offering will only be made pursuant to a registration statement declared
effective under the Securities Act and the prospectus contained within such
registration statement will be sent to each Warrantholder who is to receive
Rights in connection with the Rights Offering.
The Company believes that certain tax advantages will be available to
those Warrantholders wishing to purchase additional Common Stock if such
Warrantholders elect to purchase Common Stock in the manner described in
paragraph 6(a). These matters are more fully described on Exhibit A to this
letter.
Warrantholders are requested to review the Warrants, as the consent
given in this letter to the procedures established in paragraphs 6(a) and 6(b)
will allow the Company to honor the preemptive rights in a manner not expressly
permitted by the Warrants, but in a manner the Company believes will allow it to
comply with its obligations under the purchase agreement pursuant to which
Business Insurance Group, Inc. will be acquired, and applicable laws, including
federal and state securities laws.
7. Delivery and Payment Instructions.
Delivery of the election form and the stock subscription agreement
shall be made to:
Riordan & McKinzie
300 S. Grand Ave., 29th Floor
Los Angeles, CA 90071
Attention: Douglas C. Carleton
Reference: Superior National Insurance Group, Inc.
Facsimile: (213) 229-8550
Telephone: (213) 229-8408
Delivery by facsimile is acceptable if original documents are provided
within three (3) business days.
Payments may be made by wire transfer to:
Bank Name: Imperial Bank
Account Name: Superior National Insurance Group
Reference Name: Preemptive Rights Holding Account
Account #: 017-108-832
ABA#: 122201444
NOTE: Payments by personal or bank check should be remitted to the
address above AT LEAST (10) DAYS prior to the Payment Due Date. A subscription
for shares will
<PAGE>
8
not be effective if immediately available funds are not held in the Company's
account at 5:00 p.m. on the Payment Due Date.
If closing of the transactions contemplated by the 1998 Stock Purchase
Agreement is not completed within 60 days of the Payment Due Date, the Company
will cancel the certificates issued and return the funds paid for the shares,
with interest accrued at the three-month U.S. treasury rate published on the
Payment Due Date from (and including) the Payment Due Date to (but excluding)
the date the funds are sent by the Company to the Warrantholder.
8. Agency and Proxy Agreement. Each Warrantholder hereby agrees that
the Common Stock and Rights (and the Common Stock issued upon the exercise of
the Rights) received by them pursuant to the exercise of preemptive rights in
connection with the Stock Issuance and the Rights Offering will not be subject
to the Agency and Proxy Agreement, dated as of March 2, 1992, among IIA, III and
the other parties signatory thereto.
9. Counterparts. This letter 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 letter agreement.
10. Governing Law. This letter 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.
11. Binding Effect. This letter agreement shall be binding upon and
inure to the benefit of the parties hereto and their permitted successors and
assigns.
12. Ratification of Warrants. Except as otherwise expressly provided
herein, all of the terms and conditions of each of the IIA Warrants, the
Management Warrants and the CentreLine Warrant are ratified and shall remain in
full force and effect.
13. Termination. If the transactions contemplated by the 1998 Stock
Purchase Agreement are not consummated and such agreement thereby terminates,
then upon such termination, this letter agreement shall immediately terminate
without further action by the parties hereto, and all terms, rights,
restrictions and conditions created hereunder shall terminate and have no
further force and effect.
<PAGE>
9
14. 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 letter agreement.
Very truly yours,
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. Chris Seaman
-------------------
Name: J. Chris Seaman
Title: Chief Financial Officer
Agreed and accepted on this
16th day of October, 1998
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: /s/ Steven B. Gruber
--------------------
Name: Steven B. Gruber
Title: Vice President
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P., its General Partner
By: Insurance GenPar (Bermuda) MGP, L.P., its General Partner
By: Insurance GenPar (Bermuda) MGP, Ltd., its General Partner
By: /s/ Steven B. Gruber
--------------------
Name: Steven B. Gruber
Title: Vice President
<PAGE>
10
CAPITAL Z PARTNERS, LTD.
By: /s/ Bradley E. Cooper
---------------------
Name: Bradley E. Cooper
Title: Senior Vice President
INTERNATIONAL INSURANCE ADVISORS, INC.
By: /s/ Robert Spass
----------------
Name: Robert Spass
Title: President
INTERNATIONAL INSURANCE ADVISORS, L.P.
By: International Insurance Investors (Bermuda) Limited,
its General Partner
By: /s/ Bradley E. Cooper
---------------------
Name: Bradley E. Cooper
Title: Director
<PAGE>
11
INTERNATIONAL INSURANCE INVESTORS
(BERMUDA) LIMITED
By: /s/ Bradley E. Cooper
---------------------
Name: Bradley E. Cooper
Title: Director
CENTRE SOLUTIONS (BERMUDA) LIMITED
By: /s/ Tara Leonard
----------------
Name: Tara Leonard
Title: Senior Vice President and
Chief Accounting Officer
TRUSTEES OF THE ESTATE OF BERNICE P. BISHOP
By: /s/ Henry Haalio Peters
-----------------------
Name: Henry Haalio Peters
Title: Trustee
CARLISLE VENTURES, INC.
By: /s/ Gary A. Poliner
-------------------
Name: Gary A. Poliner
Title: Vice President
BEACH HAVEN INVESTORS, INC.
By: /s/ Robert Spass
----------------
Name: Robert Spass
Title: President
FLUOR REINSURANCE INVESTMENTS, INC.
By: /s/ T. H. Morrow
----------------
Name: T. H. Morrow
Title: Assistant Treasurer
<PAGE>
12
TJS PARTNERS, L.P.
By: /s/ Thomas J. Salvatore
-----------------------
Name: Thomas J. Salvatore
Title: Managing General Partner
THE RAVENSWOOD INVESTMENT COMPANY, L.P.
By: /s/ Robert E. Robutti
- -------------------------
Name: Robert E. Robutti
Title: General Partner
INTERNATIONAL INSURANCE ADVISORS, INC. 401(K)
AND PENSION PLANS
By: /s/ Steven Germain
- ----------------------
Name: Steven Germain
Title: Trustee
/s/ Robert A. Spass
- -------------------
Robert A. Spass
/s/ Paul H. Warren
- ------------------
Paul H. Warren
/s/ Bradley E. Cooper
- ---------------------
Bradley E. Cooper
<PAGE>
13
- ---------------------
Craig Schwarberg
CENTRELINE REINSURANCE LIMITED
By: /s/ Tara Leonard
- --------------------
Name: Tara Leonard
Title: Senior Vice President and
Chief Accounting Officer
/s/ Karl O. Johnson
- -------------------
Karl O. Johnson
/s/ Joseph P. Wolonsky
- ----------------------
Joseph P. Wolonsky
/s/ J. Chris Seaman
- -------------------
J. Chris Seaman
- ----------------------
Richard D. Hotchkiss
- ----------------------
Edwin J. Wilson
<PAGE>
Schedule 1
----------
IIA Warrantholders
------------------
IIA Warrantholder Address
----------------- -------
International Insurance Investors (Bermuda) Cumberland House
Limited One Victoria Street,
Seventh Floor
Hamilton HM HX, Bermuda
Centre Reinsurance Limited Cumberland House
One Victoria Street,
Seventh Floor
Hamilton HM HX, Bermuda
Trustees of the Estate of Bernice P. Bishop 567 South King Street
Suite 200
Honolulu, Hawaii 96813
Carlisle Ventures, Inc. 720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Beach Haven Investors, Inc. 10 Floral Court
Westfield, New Jersey 07090
Fluor Reinsurance Investments, Inc. 3333 Michaelson Drive
Irvine, California 92730
TJS Partners, L.P. 115 East Putnam
Greenwich, Connecticut 06830
Robert A. Spass One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Paul H. Warren One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Bradley E. Cooper One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Craig Schwarberg 5407 Mission Hills
Kansas City, Missouri 66208
International Insurance Advisors, Inc. One Chase Manhattan Plaza
401(k) and Pension Plans 44th Floor
New York, New York 10005
The Ravenswood Investment Company, 52 Vanderbilt Avenue
L.P. 5th Floor
New York, New York 10017
<PAGE>
Schedule 2
----------
Management Warrantholders
-------------------------
Karl O. Johnson
Joseph P. Wolonsky
J. Chris Seaman
Richard D. Hotchkiss
Edwin J. Wilson
<PAGE>
EXHIBIT A
TAX DISCUSSION
The following is a general discussion of certain U.S. Federal income
tax considerations applicable to Warrantholders upon the exercise of their
preemptive rights or, if applicable, upon the issuance, exercise, disposition
and lapse of Rights issued pursuant to the Rights Offering. This summary is
based upon current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), regulations of the Treasury Department, administrative rulings and
pronouncements of the Internal Revenue Service (the "Service"), and judicial
decisions currently in effect, all of which are subject to change, possibly with
retroactive effect. This discussion does not deal with all aspects of federal
income taxation that may be relevant to particular Warrantholders in light of
their personal investment circumstances (for example, to persons holding their
warrants as part of a conversion transaction or as part of a hedge or hedging
transaction, or as a position in a straddle for tax purposes), nor does it
discuss federal income tax considerations applicable to Warrantholders subject
to special treatment under the federal income tax laws (for example, insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
taxpayers subject to the alternative minimum tax or non-United States persons).
This discussion assumes that the Warrantholders hold their warrants as
capital assets and will hold any shares of common stock of the Company received
upon the exercise of their preemptive rights or, if applicable, the exercise of
the Rights as capital assets (persons who may not be holding their warrants as
capital assets might include, for example, securities dealers or traders who do
not hold their warrants primarily for investment or who treat their warrants as
inventory for federal income tax purposes). In addition, this discussion does
not consider the effect of any foreign, state, local, gift or estate or other
tax laws that may be applicable to a particular warrant holder. No ruling has
been or will be sought from the Service concerning the tax issues addressed
herein, and such issues may be subject to substantial uncertainty resulting from
the lack of definitive judicial or administrative authority and interpretations
applicable thereto. THEREFORE, ALL WARRANTHOLDERS ARE URGED TO CONSULT WITH
THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE EXERCISE OF
THEIR PREEMPTIVE RIGHTS OR, IF APPLICABLE, RECEIVING RIGHTS PURSUANT TO THE
RIGHTS OFFERING TO THEM, INCLUDING THE EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
EXERCISE OF PREEMPTIVE RIGHTS. As discussed more fully in the letter
agreement to which this Exhibit A is attached, all Warrantholders have
preemptive rights pursuant to the terms of their warrants. The Company has the
obligation to offer the warrant holders the opportunity to exercise their
preemptive rights under the terms of the 1998 Stock Purchase Agreement. Pursuant
to such preemptive rights, the Warrantholders will have the right to subscribe
for common stock of the Company at the price of $16.75 per share or the right to
be issued Rights in the Rights Offering. Although not free from doubt due to the
lack of directly applicable authority, the Company believes that the exercise of
preemptive rights of Warrantholders who do not elect to receive Rights most
likely will be treated as a nontaxable purchase of common stock pursuant to a
previously
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bargained for contractual right. If the exercise of preemptive rights is not
treated as a nontaxable purchase of common stock, the transaction could be
treated a taxable distribution of the right to acquire common stock. Therefore,
all warrant holders who exercise their preemptive rights should consult and rely
upon their own tax advisors as to the specific tax consequences to them relating
to the exercise of their preemptive rights.
The tax basis of the common stock acquired through the exercise of
preemptive rights will be equal to the purchase price paid therefor. The holding
period for the common stock acquired through the exercise of preemptive rights
will begin on the day following the receipt of such stock.
ISSUANCE, EXERCISE, DISPOSITION AND LAPSE OF RIGHTS. The Company
believes that the distribution of Rights to warrant holders pursuant to the
Rights Offering most likely would be characterized as a taxable distribution of
the right to acquire common stock and not as a nontaxable distribution under
Section 305(a) of the Code nor as a distribution under Sections 301 and 305(b)
of the Code. Therefore, the holders of warrants would recognize taxable income
for federal income tax purposes in connection with the receipt of Rights in an
amount equal to the then-fair market value of the Rights received on the date of
their distribution.
The tax basis of Rights received by a Warrantholder as a distribution
with respect to the holder's warrants will equal the Rights fair market value
and his or her holding period will commence on the day following the date of
distribution of the Rights.
A Warrantholder who sells Rights received in the Rights Offering rather
than exercising them will recognize capital gain or loss in an amount equal to
the difference between the sale proceeds and the holder's basis in the Rights
sold.
Warrantholders who allow Rights received by them pursuant to the Rights
Offering to lapse will recognize capital loss in an amount equal to the holder's
tax basis.
Warrantholders will not recognize any gain or loss upon the exercise of
Rights. The tax basis of the common stock acquired through exercise of the
Rights will be equal to the sum of the amount paid therefor and the holder's tax
basis in the Rights. The holding period for the common stock acquired through
exercise of the Rights will begin on the day following the date the Rights are
considered exercised.
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ELECTION CERTIFICATE
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STOCK SUBSCRIPTION AGREEMENT
