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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PAC RIM HOLDING CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PAC RIM HOLDING CORPORATION
6200 Canoga Avenue
Woodland Hills, California 91367-2402
November 20, 1996
To the Stockholders of PAC RIM HOLDING CORPORATION:
You are cordially invited to attend a Special Meeting of Stockholders
of PAC RIM HOLDING CORPORATION (the "Company") to be held at 10:00 a.m. on
December 11, 1996, at the Company's Headquarters, 6200 Canoga Avenue, Woodland
Hills, California 91367-2402.
As described in the accompanying Proxy Statement, at the Special
Meeting you will be asked to consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger dated September 17, 1996 (the "Merger
Agreement"), among the Company, Superior National Insurance Group, Inc., a
California corporation ("Superior"), and SNTL Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Superior ("Merger Sub"), pursuant
to which Merger Sub will be merged with and into the Company (the "Merger") and
each outstanding share of common stock of the Company ("Common Stock") will be
converted into the right to receive between $3.00 and $3.10 in cash (the "Merger
Price Per Share"). The precise amount of the Merger Price Per Share to be paid
for each share of Common Stock will be determined immediately prior to the
effective time of the Merger, with the ultimate Merger Price Per Share being
fixed after an adjustment to the exercise prices of the Company's Series 1 and 2
Detachable Warrants (collectively, the "Warrants").
In addition, a vote "For" the approval and adoption of the Agreement
will serve to ratify (1) the payment to certain of the Company's officers,
amounts due under the Company's Compensation Plan for Senior Management Team and
(2) the extension of time within which a change of control of the Company must
occur in order for Stanley Braun, the Company's President and Chief Executive
Officer, to be eligible to be paid certain amounts pursuant to his Employment
Agreement, as amended, with the Company.
Your Board of Directors has determined that the Merger is in the best
interests of the Company and has approved the Merger Agreement and the Merger by
unanimous vote of those directors voting. THE BOARD RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Consummation of the Merger is subject to certain conditions, including
approval and adoption of the Merger Agreement by the affirmative vote of at
least 70%, in the aggregate, of both the issued and outstanding shares of Common
Stock and the Company's Series A Convertible Debentures (the "Debentures"),
voting together, with such Debentures having a number of votes equal to the
number of shares of Common Stock into which such Debentures may be converted,
and the receipt of certain approvals from regulatory authorities. Only holders
of Common Stock and Debentures of record at the close of business on November
19, 1996, are entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof.
As of November 19, 1996, the directors and executive officers of the
Company beneficially owned, in the aggregate, 2,797,521 shares of Common Stock,
representing approximately 29.4% of such shares outstanding. To the knowledge
of the Company, all directors and executive officers of the Company intend to
vote their beneficially owned shares of Common Stock eligible to be voted for
the approval and adoption of the Merger Agreement. In addition, Mr. Richard H.
Pickup, a director of the Company and the ultimate controlling person of both an
entity that owns 90% of the Debentures and Warrants and entities that own
approximately 25.91% of the Common Stock, has caused those entities to enter
into a Voting Agreement with Superior pursuant to the
<PAGE>
terms of which such securities will be voted for the approval and adoption of
the Merger Agreement.
If the Merger is consummated, holders of Common Stock who properly
demand appraisal prior to the Stockholder vote on the Merger Agreement, do not
vote in favor of approval of the Merger Agreement and otherwise comply with the
requirements of Section 262 of the Delaware General Corporation Law will be
entitled to statutory appraisal rights.
You are urged to read the accompanying Proxy Statement, which provides
you with a description of the terms of the proposed Merger. A copy of the
Merger Agreement is included as Appendix A to the accompanying Proxy Statement.
In addition, the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, accompany the Proxy Statement.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR VOTE
AT THE SPECIAL MEETING WOULD HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER
AGREEMENT. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE
VOTED "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Consummation of the Merger will not occur earlier than December 11,
1996.
Please do not send in your stock certificates at this time. In the
event the Merger is consummated, you will be sent a letter of transmittal for
that purpose promptly thereafter.
Sincerely,
/s/ Myrtle L. Solomon /s/ Stanley Braun
MYRTLE L. SOLOMON STANLEY BRAUN
Corporate Secretary President and Chief
Executive Officer
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PAC RIM HOLDING CORPORATION
6200 Canoga Avenue
Woodland Hills, California 91367-2402
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 11, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Pac
Rim Holding Corporation (the "Special Meeting") will be held on December 11,
1996, at 10:00 a.m., at the Company's headquarters, 6200 Canoga Avenue, Woodland
Hills, California 91367-2402 for the following purposes:
(i) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated September 17, 1996 (the "Merger
Agreement"), among Pac Rim Holding Corporation, a Delaware corporation (the
"Company"), Superior National Insurance Group, Inc., a California
corporation ("Superior"), and SNTL Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Superior ("Merger Sub"). A
copy of the Merger Agreement (excluding the exhibits and schedules thereto)
is attached to the accompanying Proxy Statement as Appendix A. As more
fully described in the Proxy Statement, the Merger Agreement provides that:
(A) Merger Sub would be merged with and into the Company (the "Merger"),
with the Company continuing as the surviving corporation; (B) the Company
would thereupon become a direct subsidiary of Superior; and (C) each
outstanding share of common stock, par value $0.01 per share (the "Common
Stock"), of the Company (other than certain shares owned by the Company
which would be cancelled and shares held by stockholders who may elect to
exercise their appraisal rights under Delaware law) would be converted into
the right to receive between $3.00 and $3.10 in cash (the "Merger Price Per
Share"). The precise amount of the Merger Price Per Share to be paid for
each share of Common Stock will be determined immediately prior to the
effective time of the Merger, with the ultimate Merger Price Per Share
being fixed after an adjustment to the exercise prices of the Company's
Series 1 and 2 Detachable Warrants.
In addition, a vote "For" the approval and adoption of the Agreement
will serve to ratify (1) the payment to certain of the Company's officers,
amounts due under the Company's Compensation Plan for Senior Management
Team and (2) the extension of time within which a change of control of the
Company must occur in order for Stanley Braun, the Company's President and
Chief Executive Officer, to be eligible to be paid certain amounts pursuant
to his Employment Agreement, as amended, with the Company.
(ii) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on November 19,
1996, as the record date for the determination of stockholders entitled to
notice of and to vote at the Special Meeting. Only holders of record of Common
Stock and the Company's Series A Convertible Debentures ("Debentures") at the
close of business on that date will be entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and the actions to be taken in connection with the Merger. To
ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend the Special Meeting. You may revoke
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your proxy in the manner described in the accompanying Proxy Statement at any
time before it is voted at the Special Meeting.
In the event that there are not sufficient votes to approve and adopt
the Merger Agreement, it is expected that the Special Meeting will be postponed
or adjourned in order to permit further solicitation of proxies by the Company.
If the Merger is consummated, holders of Common Stock who properly
demand appraisal prior to the Stockholder vote on the Merger Agreement, do not
vote in favor of approval of the Merger Agreement and otherwise comply with the
requirements of Section 262 of the Delaware General Corporation Law will be
entitled to statutory appraisal rights.
By Order of the Board of Directors,
/s/ Myrtle L. Solomon
MYRTLE L. SOLOMON
Secretary
Woodland Hills, California
November 20, 1996
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
THE AFFIRMATIVE VOTE OF HOLDERS OF AT LEAST 70%, IN THE AGGREGATE, OF
BOTH THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AND THE COMPANY'S SERIES
A CONVERTIBLE DEBENTURES, VOTING TOGETHER, WITH SUCH DEBENTURES HAVING A NUMBER
OF VOTES EQUAL TO THE NUMBER OF SHARES OF COMMON STOCK INTO WHICH SUCH
DEBENTURES MAY BE CONVERTED, IS REQUIRED TO APPROVE AND ADOPT THE MERGER
AGREEMENT. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY
AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOU MAY
REVOKE THE PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN
THE ATTACHED PROXY STATEMENT. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING,
INCLUDING ANY ADJOURNMENT OR POSTPONEMENT THEREOF, MAY REVOKE SUCH HOLDER'S
PROXY AND VOTE PERSONALLY ON THE MERGER AGREEMENT AT THE SPECIAL MEETING.
EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE VOTED "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
A VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT IS A VOTE
IN FAVOR OF THE COMPANY PROCEEDING WITH THE TRANSACTION CONTEMPLATED THEREUNDER.
IF THE REQUIRED VOTE IS OBTAINED, AS DESCRIBED ABOVE, AND THE MERGER IS
CONSUMMATED, EACH OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK WILL BE
EXCHANGED FOR THE MERGER PRICE PER SHARE, WHICH CONSIDERATION WILL BE PAID AFTER
THE CLOSING DATE OF THE MERGER (SUBJECT TO THE RIGHTS OF DISSENTING
SHAREHOLDERS, IF ANY).
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME.
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PAC RIM HOLDING CORPORATION
6200 Canoga Avenue
Woodland Hills, California 91367-2402
---------------------------------
PROXY STATEMENT
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SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 11, 1996
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This Proxy Statement, the accompanying Notice of Special Meeting and
the accompanying proxy are first being furnished to the holders of Common Stock,
par value $0.01 per share (the "Common Stock"), of Pac Rim Holding Corporation,
a Delaware corporation (the "Company"), on or about November 20, 1996, in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board") for use at the Special Meeting of Stockholders to be held
on December 11, 1996, at 10:00 a.m. at the Company's headquarters, 6200 Canoga
Avenue, Woodland Hills, California 91367-2402, and at any adjournments or
postponements thereof (the "Special Meeting"). The Board has fixed the close of
business on November 19, 1996, as the record date (the "Record Date") for the
determination of stockholders entitled to notice of, and to vote at, the Special
Meeting.
At the Special Meeting, the holders of Common Stock (the
"Stockholders") and the holders (the "Debenture Holders") of the Company's 8%
Series A Convertible Debentures (the "Debentures") will consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger dated September
17, 1996 (the "Merger Agreement"), among the Company, Superior National
Insurance Group, Inc., a California corporation ("Superior"), and SNTL
Acquisition Corp., a Delaware corporation and a direct subsidiary of Superior
("Merger Sub"). A copy of the Merger Agreement (excluding the exhibits and the
schedules thereto) is attached to this Proxy Statement as Appendix A. Pursuant
to the Merger Agreement and subject to satisfaction of the conditions set forth
therein, (i) Merger Sub would be merged with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation (the
"Surviving Corporation"), (ii) the Company would thereupon become a direct
subsidiary of Superior and (iii) each outstanding share of Common Stock (other
than certain shares owned by the Company which would be cancelled and shares
("Dissenting Shares") held by Stockholders who properly exercise their appraisal
rights pursuant to Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL")) would be converted into the right to receive between
$3.00 and $3.10 in cash (the "Merger Price Per Share"). The precise amount of
the Merger Price Per Share to be paid for each share of Common Stock will be
determined immediately prior to the effective time of the Merger, with the
ultimate Merger Price Per Share being fixed after an adjustment to the exercise
prices of the Company's 1,500,000 Series 1 Detachable Warrants (the "Series 1
Warrants") and 1,500,000 Series 2 Detachable Warrants (the "Series 2 Warrants")
(the Series 1 Warrants and Series 2 Warrants, collectively, the "Warrants").
In addition, a vote "For" the approval and adoption of the Agreement
will serve to ratify (1) the payment to certain of the Company's officers,
amounts due under the Company's Compensation Plan for Senior Management Team and
(2) the extension of time within which a change of control of the Company must
occur in order for Stanley Braun, the Company's President and Chief Executive
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Officer, to be eligible to be paid certain amounts pursuant to his Employment
Agreement, as amended, with the Company. See "SUMMARY -- Interests of Certain
Persons in the Transaction."
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement. In addition, the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and its Quarterly Report on Form
10-Q for the Quarter ended September 30, 1996, accompany this Proxy Statement.
------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
------------------------
The date of this Proxy Statement is November 20, 1996.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION............................................ 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................. 9
SUMMARY.......................................................... 9
The Parties................................................. 9
The Special Meeting......................................... 10
Appraisal Rights............................................ 11
Solicitation of Proxies..................................... 12
Recommendation of the Board................................. 12
Opinion of Financial Advisor................................ 12
Interests of Certain Persons in the Transaction............. 12
Certain Federal Income Tax Consequences..................... 12
Regulatory Approvals........................................ 13
The Merger Agreement........................................ 13
No Solicitation; Fiduciary Out.............................. 14
Termination................................................. 14
Agreement to Purchase Series A Convertible Debentures
and Series 1, 2 and 3 Detachable Warrants................. 14
Adjustment to the Warrant Exercise Prices................... 15
Series A Convertible Debentures and Series 1, 2 and 3
Detachable Warrant Purchase Agreement..................... 16
Voting Agreement............................................ 16
Series 3 Detachable Warrant Surrender Agreement............. 17
Source and Amount of Funds.................................. 17
Security Ownership of Management and Certain
Beneficial Owners......................................... 17
Market Price and Dividend Information....................... 17
Selected Consolidated Financial Data........................ 17
THE SPECIAL MEETING.............................................. 17
Matters To Be Considered at the Special Meeting............. 17
Record Date and Voting...................................... 18
Vote Required; Revocability of Proxies...................... 19
Appraisal Rights............................................ 20
Solicitation of Proxies..................................... 22
THE COMPANY...................................................... 22
SUPERIOR......................................................... 22
SPECIAL FACTORS.................................................. 23
Background of the Transaction............................... 23
Purpose of the Transaction.................................. 26
Reasons for the Transaction................................. 26
Certain Considerations...................................... 27
Opinion of Financial Advisor................................ 28
Interests of Certain Persons in the Transaction............. 32
Executive Compensation...................................... 36
Certain Federal Income Tax Consequences..................... 37
Regulatory Approvals........................................ 38
Source and Amount of Funds.................................. 38
THE MERGER AGREEMENT............................................. 39
Effective Time.............................................. 39
The Merger.................................................. 39
Representations and Warranties.............................. 40
Conduct of the Business Pending the Merger.................. 41
No Solicitation; Fiduciary Out.............................. 42
</TABLE>
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<S> <C>
Other Agreements of the Company, Superior and Merger Sub.... 43
Employee Benefit Plans...................................... 43
Stock Options............................................... 44
Indemnification and Insurance............................... 44
Conditions to the Merger.................................... 44
Termination................................................. 45
Liquidated Damages and Breakup Fee.......................... 46
Expenses.................................................... 46
Amendment; Waiver........................................... 46
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS... 46
MARKET PRICE AND DIVIDEND INFORMATION............................ 48
CERTAIN TRANSACTIONS IN THE COMMON STOCK......................... 49
SELECTED CONSOLIDATED FINANCIAL DATA............................. 49
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF THE COMPANY
AFTER THE MERGER............................................... 51
INDEPENDENT PUBLIC ACCOUNTANTS................................... 51
STOCKHOLDER PROPOSALS............................................ 51
APPENDIX A -- THE MERGER AGREEMENT
APPENDIX B -- SECTION 262 OF THE DGCL
APPENDIX C -- FAIRNESS OPINION OF SALOMON BROTHERS INC
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and the rules and regulations thereunder, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the SEC's New York Regional Office located at Suite
1300, 7 World Trade Center, New York, New York 10048 and at the SEC's Chicago
Regional Office, Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Common Stock is listed on The NASDAQ National
Market, which is operated by The NASDAQ Stock Market, Inc. ("NASDAQ") and
certain reports, proxy statements and other information concerning the Company
also can be inspected at the offices of NASDAQ, at 1735 K Street, N.W.,
Washington, D.C. 20006. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
This Proxy Statement incorporates by reference documents that are not
presented herein or delivered herewith. Copies of such documents (other than
exhibits thereto which are not specifically incorporated by reference herein)
are available, without charge, to any person, including any beneficial owner of
Common Stock, to whom this Proxy Statement is delivered, upon oral or written
request to Myrtle L. Solomon, Corporate Secretary, 6200 Canoga Avenue, Woodland
Hills, California 91367-2402, telephone (818) 226-6200. Copies of such
documents will be delivered by first class mail or other equally prompt means
within five business days of receipt of such request. In order to ensure
delivery of documents prior to the Special Meeting, requests therefor should be
made no later than December 5, 1996.
All information contained in this Proxy Statement concerning Superior and
its subsidiaries, including Merger Sub, has been supplied by Superior and has
not been independently verified by the Company. Except as otherwise indicated,
all other information contained in this Proxy Statement has been supplied by the
Company.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY STATEMENT
OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT
SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
SUPERIOR SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY STATEMENT
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CURRENT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this proxy Statement the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, its
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996, and September 30, 1996, and its Report on Form 8-K dated October 2, 1996,
which reports have been filed by the Company with the SEC.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the Special Meeting shall be deemed to be incorporated by reference and to be a
part hereof from the date of the filing of such documents. Any statement
contained in a document incorporated herein by reference shall be deemed to be
modified or superseded for purposes of this Proxy Statement to the extent that a
statement contained herein (or in any other subsequently filed document which is
also incorporated herein by reference) modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed to constitute a part
of this Proxy Statement except as so modified or superseded. This Proxy
Statement incorporates documents by reference which are not presented or
delivered herewith. The Company will provide without charge to each person to
whom this Proxy Statement is delivered, upon written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference in this Proxy Statement (excluding exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Proxy
Statement incorporates). Requests for such copies should be directed to Myrtle
L. Solomon, Corporate Secretary, 6200 Canoga Avenue, Woodland Hills, California
91367-2402, telephone (818) 226-6200.
SUMMARY
The following is a summary of material information contained elsewhere in
this Proxy Statement. This summary is not intended to be a complete description
and is qualified in its entirety by reference to the more detailed information
contained in this Proxy Statement or incorporated by reference in this Proxy
Statement or in the documents attached as Appendices hereto.
THE PARTIES
The Company. The Company was organized as a Delaware corporation on May
12, 1987. On May 27, 1987, the Company became the immediate parent of The
Pacific Rim Assurance
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Company ("Assurance Company"), its principal subsidiary, which, in turn, in
1995, became the immediate parent of Regional Benefits Insurance Services, Inc.
("RBIS").
The Company is primarily, and almost exclusively, engaged in the writing of
workers' compensation insurance. In connection therewith, the Company markets
its policies through approximately 180 independent insurance agencies and
brokerage firms. Historically, the Company concentrated primarily on the
Southern California market. In connection with efforts to expand its business
into additional geographic areas and increase future revenues, Assurance Company
received Certificates of Authority to write workers' compensation insurance in
Alabama, Arizona, Georgia and Texas. Assurance Company is rated B by A.M. Best
Company, Inc. ("Best"), a nationally recognized insurance rating service.
According to Best, Best's ratings are intended to measure an insurance company's
financial strength, operating performance, competitive market position and
ability to meet obligations to policyholders currently and in the near future.
Best's rating of Assurance Company is not a rating of the investment merits of
the Common Stock. Unless the context indicates otherwise, the "Company" refers
to the Company, Assurance Company and RBIS. See "THE COMPANY."
The address and telephone number of the Company's principal executive
offices is 6200 Canoga Avenue, Woodland Hills, California 91367-2402;
(818) 226-6200.
Superior. Superior was organized as a California corporation on March 29,
1985, under the name Coastal Holdings, Ltd. Superior is a holding company that,
through its wholly-owned subsidiary Superior National Insurance Company
("SNIC"), is engaged in writing workers' compensation insurance principally in
the State of California and, until September 30, 1993, was engaged in writing
commercial property and casualty insurance. SNIC is currently licensed to write
business in Arizona, Arkansas, California, Colorado, District of Columbia,
Indiana, Iowa, Kentucky, Maryland, Mississippi, Missouri, Montana, Nevada, New
Mexico, Oregon, South Dakota, Utah and Wyoming, but virtually all of SNIC's
current premium is generated in California, with immaterial exceptions in
Arizona and Oregon. For a more detailed description of Superior, see
"SUPERIOR."
The address and telephone number of Superior's principal executive offices
is 26601 Agoura Road, Calabasas, California 91302; (818) 880-1600.
THE SPECIAL MEETING
Matters To Be Considered at the Special Meeting. The Special Meeting is
scheduled to be held at 10:00 a.m. on December 11, 1996, at the Company's
headquarters, 6200 Canoga Avenue, Woodland Hills, California 91367-2402. At the
Special Meeting, Stockholders and Debenture Holders will consider and vote upon
(i) a proposal to approve and adopt the Merger Agreement and (ii) such other
matters as may properly be brought before the Special Meeting. See "THE SPECIAL
MEETING -- Matters To Be Considered at the Special Meeting."
In addition, a vote "For" the approval and adoption of the Agreement will
serve to ratify (1) the payment to certain of the Company's officers, amounts
due under the Company's Compensation Plan for Senior Management Team and (2) the
extension of time within which a change of control of the Company must occur in
order for Stanley Braun, the Company's President and Chief Executive Officer, to
be eligible to be paid certain amounts pursuant to his Employment Agreement, as
amended, with the Company. See "SUMMARY -- Interests of Certain Persons in the
Transaction."
Record Date and Voting. The Record Date for the Special Meeting is the
close of business on November 19, 1996. At the close of business on the Record
Date, there were 9,528,200 shares of Common Stock outstanding and entitled to
vote, held by approximately 910 Stockholders of
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record and $20 million in principal amount of Debentures outstanding and
entitled to vote, held by two Debenture Holders of record, PRAC Limited
Partnership, a Nevada limited partnership ("Prac") and Allstate Insurance
Company, an Illinois insurance company ("Allstate"). Each holder of Common Stock
on the Record Date will be entitled to one vote for each share held of record
and the Debenture Holders shall be entitled to one vote for each share of Common
Stock into which the Debentures may be converted. The presence, either in person
or by proxy, of a majority of the outstanding shares of Common Stock entitled to
be voted is necessary to constitute a quorum at the Special Meeting. The
Debentures' voting rights are exercisable only when the following matters are
submitted to a vote of Stockholders or for written consent: (a) the amendment of
the Company's Certificate of Incorporation; (b) the sale or transfer of all or
substantially all of the Company's assets; (c) the consolidation,
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation, or winding-up of the Company; (d) changes in the
Company's authorized capital stock or any rights with respect thereto; and (e)
changes in the number of individuals constituting the Board to a number other
than seven. Approval of any of the foregoing matters requires the affirmative
vote of the holders of at least 70%, in the aggregate, of both the issued and
outstanding shares of Common Stock and Debentures, voting together, with such
Debentures having a number of votes equal to the number of shares of Common
Stock into which such Debentures may be converted. See "THE SPECIAL MEETING --
Record Date and Voting." As the Merger falls within certain of the events
described in items (a) through (e), above, including items (b) and (c), it must
be approved by the aforementioned 70% vote of the Common Stock and Debentures.
Vote Required; Revocability of Proxies. Approval and adoption of the
Merger Agreement will require the affirmative vote of the holders of at least
70%, in the aggregate, of both the issued and outstanding shares of Common Stock
and Debentures, voting together, with such Debentures having a number of votes
equal to the number of shares of Common Stock into which such Debentures may be
converted.
The required vote of the Stockholders and Debenture Holders on the Merger
Agreement is based upon the total number of outstanding shares of Common Stock
and principal amount of Debentures. The failure to submit a proxy card (or vote
in person at the Special Meeting) or the abstention from voting by a Stockholder
or Debenture Holder (including broker non-votes) will have the same effect as a
vote against the Merger Agreement. Brokers who hold shares of Common Stock as
nominees will not have discretionary authority to vote such shares in the
absence of instructions from the beneficial owners thereof. See "THE SPECIAL
MEETING -- Vote Required; Revocability of Proxies."
A Stockholder may revoke a proxy at any time prior to its exercise by (i)
delivering to Myrtle L. Solomon, Corporate Secretary, Pac Rim Holding
Corporation, 6200 Canoga Avenue, Woodland Hills, California 91367-2402, a
written notice of revocation prior to the Special Meeting, (ii) delivering prior
to the Special Meeting a duly executed proxy bearing a later date or (iii)
attending the Special Meeting and voting in person. The presence of a
Stockholder at the Special Meeting will not in and of itself automatically
revoke such Stockholder's proxy.
APPRAISAL RIGHTS
Under the DGCL, Stockholders who properly demand appraisal prior to the
Stockholder vote on the Merger Agreement, do not vote in favor of approval of
the Merger Agreement and otherwise comply with the requirements of DGCL Section
262 will be entitled to statutory appraisal rights. See "THE SPECIAL MEETING --
Appraisal Rights" and DGCL Section 262, which is attached hereto as Appendix B.
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SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from Stockholders.
In addition to soliciting proxies by mail, directors, officers and employees of
the Company, without receiving additional compensation therefor, may solicit
proxies by telephone, by mail or in person. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares held of record by such
persons, and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith. The Company may retain an outside service to aid in
the solicitation of proxies, if necessary. See "THE SPECIAL MEETING --
Solicitation of Proxies."
RECOMMENDATION OF THE BOARD
The Board has determined that the Merger Agreement and the Merger are
advisable and fair to and in the best interests of the Company and has approved
the Merger Agreement and the Merger by unanimous vote of those directors voting.
Accordingly, the Board recommends that Stockholders vote "FOR" approval and
adoption of the Merger Agreement.
In determining to approve the Merger Agreement and the Merger and to
recommend that the Stockholders approve the Merger Agreement, the Board
considered a number of factors, as more fully described under "SPECIAL FACTORS -
- - Background of the Transaction" and " -- Reasons for the Transaction."
OPINION OF FINANCIAL ADVISOR
On September 16, 1996, Salomon Brothers Inc ("Salomon"), financial advisor
to the Company, delivered its oral opinion to the Board, which was subsequently
confirmed in writing in an opinion dated November 19, 1996, that, as of the date
of such opinion, the consideration to be received by the Stockholders in the
Merger is fair to such holders from a financial point of view. The full text of
the written opinion of Salomon dated November 19, 1996, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken in connection with the opinion, is attached hereto as
Appendix C. Stockholders should read such opinion carefully and in its
entirety. See "SPECIAL FACTORS -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain directors and executive officers of the Company have interests in
the Merger that may be different from, or in addition to, those of Stockholders
generally, including employee stock options ("Company Options") (all of which
will become exercisable in full if the Merger Agreement is approved at the
Special Meeting), interests in the Compensation Plan for Senior Management
(which will become nonforfeitable and payable in full if the Merger is
consummated) and the interests of Mr. Stanley Braun, the Company's President and
Chief Executive Officer, under his Employment Agreement with the Company, and
all amendments thereto, pursuant to the terms of which certain amounts are
payable to Mr. Braun in the event of a change in control of the Company. See
"SPECIAL FACTORS -- Interests of Certain Persons in the Transaction."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger will be a taxable transaction to Stockholders. Stockholders
will recognize gain or loss in the Merger in an amount determined by the
difference between the consideration received in the Merger and their tax basis
in the Common Stock exchanged therefor. For further information, see "SPECIAL
FACTORS -- Certain Federal Income Tax Consequences."
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REGULATORY APPROVALS
The obligation of Superior to consummate the Merger is conditioned upon the
approval of the Merger by the California Department of Insurance. As of the
date of this Proxy Statement, Superior has filed all required applications with
the California Department of Insurance, but the Department has not completed its
review of the filing. In addition, the acquisition by Superior of the Common
Stock requires Superior and the Company to comply with the notification and
waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act"). In accordance with the requirements of the HSR Act,
the Company and Superior each made the required filings thereunder, and the
applicable waiting period has expired. See "SPECIAL FACTORS -- Regulatory
Approvals."
THE MERGER AGREEMENT
In general, Superior desires to acquire the Company for total cash
consideration of $54,021,032 (the "Purchase Price"). Pursuant to the terms of
the Merger Agreement, Superior would acquire all of the issued and outstanding
Common Stock and pursuant to the terms of a Series A Convertible Debentures and
Series 1, 2 and 3 Detachable Warrant Purchase Agreement (the "Purchase
Agreement"), Superior would acquire all the Company's issued and outstanding
Debentures, Warrants and Series 3 Detachable Warrants (the "Series 3 Warrants")
(with the exception of certain Series 3 Warrants which will be surrendered to
the Company on the effective time of the Merger pursuant to the terms of a
Series 3 Detachable Warrant Surrender Agreement (the "Surrender Agreement")).
Pursuant to the terms of the Merger Agreement and the Purchase Agreement, the
Purchase Price will be allocated among such securities by dividing the sum of
the Purchase Price and the aggregate exercise price of all the in-the-money
Warrants by the total number of shares of Common Stock deemed outstanding as of
the effective date of the Merger, assuming the conversion of the Debentures and
the exercise of all in-the-money Warrants, with the result that the
Stockholders, the Debenture Holders and the holders of the in-the-money Warrants
will receive the same price per Common Stock share equivalent of their
respective securities (i.e., with the holders of the Debentures and Warrants
receiving the consideration they would have received if their securities had
been converted into or exercised for Common Stock in accordance with their terms
immediately prior to the effective time of the Merger). The precise amount of
the Merger Price Per Share to be paid for the Common Stock, Debentures, Warrants
and Company Options will be determined immediately prior to the effective time
of the Merger, with the ultimate Merger Price Per Share being fixed after an
adjustment to the exercise prices of the Warrants.
Subject to the provisions of the Merger Agreement, at the effective time of
the Merger: (i) each issued and outstanding share of Common Stock (other than
shares of Common Stock to be cancelled or to remain outstanding in accordance
with clause (ii) below and other than Dissenting Shares) will be converted into
the right to receive the Merger Price Per Share. As noted above, the precise
amount of the Merger Price Per Share to be paid for each share of Common Stock
will be determined immediately prior to the effective time of the Merger after
an adjustment to the exercise price of Warrants; and (ii) each share of Common
Stock that is owned by the Company will be automatically cancelled and retired
and will cease to exist, and no consideration will be delivered or deliverable
in exchange therefor. See "THE MERGER AGREEMENT -- Effective Time" and " -- The
Merger."
Consummation of the Merger is subject to various conditions, including,
among others: (i) the approval and adoption of the Merger Agreement by the
affirmative vote of holders of at least 70%, in the aggregate, of both the
issued and outstanding shares of Common Stock and Debentures, voting together,
with such Debentures having a number of votes equal to the number of shares of
Common Stock into which such Debentures may be converted; (ii) the absence of
any injunction preventing consummation of the Merger; (iii) the approval of the
Merger by the California Department of Insurance; and (iv) expiration of the
applicable waiting periods under the
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HSR Act. Consummation of the Merger will not occur earlier than December 11,
1996. See "THE MERGER AGREEMENT -- Conditions to the Merger" and "SPECIAL
FACTORS -- Regulatory Approvals."
NO SOLICITATION; FIDUCIARY OUT
Pursuant to the Merger Agreement, the Company has agreed that it will not
authorize or permit any of its officers, directors, employees, agents or
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its subsidiaries) to (i) solicit,
initiate or encourage or make or implement any proposal or offer which
constitutes an Acquisition Proposal (as defined below) or (ii) participate in
any discussions or negotiations regarding any Acquisition Proposal, except under
certain circumstances to the extent required so that the Board may, in its good
faith judgment, comply with its fiduciary duties to Stockholders. The term
"Acquisition Proposal" is defined in the Merger Agreement to mean any inquiry,
proposal or offer from any person (other than Superior or any of its
subsidiaries) relating to any merger, acquisition, consolidation, tender offer,
exchange offer, business combination or similar transaction involving, or any
purchase of more than 40% of the assets or any equity securities of, the Company
or any of its subsidiaries, other than the Merger. See "THE MERGER AGREEMENT --
No Solicitation; Fiduciary Out."
TERMINATION
The Merger Agreement may be terminated at any time prior to the effective
time of the Merger, whether before or after the approval by the Stockholders, as
follows: (i) by the mutual written consent of the Company and Superior; (ii) by
either the Company or Superior in the event of (A) the failure of the Company's
Stockholders to approve the Merger Agreement or the failure of Superior's
stockholders to approve the issuance of shares of its common stock in order to
finance the Merger or (B) a material breach by the other party thereto of any
representation, warranty, covenant or agreement contained in the Merger
Agreement which, in the case of a covenant or agreement, is not cured within
thirty business days following receipt by the breaching party of notice of such
breach; (iii) by either the Company or Superior if any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the Merger has become final and nonappealable; (iv) by either the Company or
Superior in the event the Merger is not consummated by March 1, 1997; (v) by the
Company under certain circumstances with respect to an Acquisition Proposal; or
(vi) by Superior if more than 1,000,000 shares of Common Stock demand appraisal
rights in connection with the Merger. See "THE MERGER AGREEMENT --
Termination."
AGREEMENT TO PURCHASE SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2 AND 3
DETACHABLE WARRANTS
Pursuant to the terms of an Agreement to Purchase Series A Convertible
Debentures and Series 1, 2 and 3 Detachable Warrants dated as of April 15, 1994,
and all amendments thereto (collectively, the "Debenture/Warrant Agreement"),
Prac acquired from the Company $20 million principal amount of Debentures,
1,500,000 Series 1 Warrants each exercisable at the price of $2.50 for one share
of Common Stock, 1,500,000 Series 2 Warrants each exercisable at the price of
$3.00 for one share of Common Stock and 800,000 Series 3 Warrants each
exercisable at the price of $3.50 for one share of Common Stock. Mr. Richard H.
Pickup is the ultimate controlling person of Prac.
The current ownership of the securities issued pursuant to the
Debenture/Warrant Agreement is as follows: (1) Prac owns $18 million of
principal amount of Debentures, 1,350,000 Series 1 Warrants and 1,350,000 Series
2 Warrants; (2) Allstate owns $2 million of principal amount of Debentures,
150,000 Series 1 Warrants, 150,000 Series 2 Warrants and 80,000 Series 3
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Warrants; (3) Dennis W. Harwood, a member of the Board, owns 103,500 Series 3
Warrants; (4) Carl A. Strunk, a member of the Board, owns 205,500 Series 3
Warrants; (5) Robert M. Anderson, a former member and Chairman of the Board,
owns 205,500 Series 3 Warrants; and (6) the Lenawee Trust dated December 30,
1992, (the "Lenawee Trust"), which is controlled by Timothy A. Busch, the
Chairman of the Board, owns 205,500 Series 3 Warrants. In addition, Mr. Pickup
is the ultimate controlling person of certain entities (the "Pickup
Affiliates"), which in the aggregate, own approximately 25.91% of the Common
Stock.
As discussed below, the Debenture/Warrant Agreement provides that the
exercise prices of the Warrants (excluding the Series 3 Warrants) shall be
adjusted based upon Assurance Company's ultimate losses and allocated loss
adjustment expenses attributable to the 1992 and 1993 accident years. Such
adjustment will occur immediately prior to the effective time of the Merger. As
of September 30, 1996 and as noted in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, the Company increased by
approximately $4,500,000 its loss and allocated loss adjustment expense reserves
for the 1990-1993 accident years.
In addition, the holders of the Debentures, 90% of which are owned by Prac
and with respect to which Mr. Pickup is the ultimate controlling person,
designated Messrs. Timothy R. Busch, Dennis W. Harwood and Richard H. Pickup as
nominees at the 1996 election of members to the Company's five person Board.
Each of those individuals is currently a member of the Company's Board.
ADJUSTMENT TO THE WARRANT EXERCISE PRICES
Pursuant to the terms of the Debenture/Warrant Agreement, the exercise
prices of the Warrants are subject to a downward adjustment if Assurance Company
experiences a certain level of adverse development in December 31, 1993 loss and
allocated loss adjustment reserves with respect to the 1992 and 1993 accident
years. That agreement also provides that the analysis of those reserves and the
adjustment to the exercise prices was to be determined as of June 30, 1996.
Pursuant to an amendment to the Debenture/Warrant Agreement (the "Warrant
Repricing Amendment"), however, the measurement date to ascertain the loss and
allocated loss adjustment reserve was extended until the earlier to occur of
June 30, 1997 or a "change in control" of the Company. The extension of that
date allows for a more accurate determination to be made with respect to adverse
development, if any, in Assurance Company's reserves for the years in question.
If the ultimate loss and allocated loss adjustment reserve fixed by
Assurance Company for the 1992 and 1993 accident years is determined by the
Actuary (as specified under the terms of the Warrant Repricing Amendment) to
exceed a December 31, 1993, base loss of $132 million, plus the additional
amount of $2 million, such excess amount shall be "Adverse Development" as
defined under the Warrant Repricing Amendment and an amount equal to the
percentage of such excess amount, after-tax, allocable to the Warrants will be
utilized to adjust downward the exercise prices of the Warrants (such adjustment
being first attributable to Series 1 Warrants and then to the Series 2
Warrants).
As the Merger would represent a "change in control" giving rise to an event
requiring a possible adjustment to the exercise prices of the Warrants under the
Warrant Repricing Amendment, it is contemplated that immediately preceding the
anticipated closing date of the Merger, the ultimate loss and allocated loss
adjustment reserve recommended by Arthur Andersen L.L.P. (the Company and
Assurance Company's independent auditors and actuaries), which recommendation
shall be considered to fairly and accurately reflect the ultimate losses
incurred by Assurance Company for the 1992 and 1993 accident years, shall,
subject to the requirement that the loss reserve analysis be fixed as provided
under the Merger Agreement, be accepted as an Adverse Development under the
Warrant Repricing Amendment. If an Adverse Development
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occurs under the Warrant Repricing Amendment, the net effect thereof will be
utilized to adjust the exercise prices of the Warrants.
Such adjustment shall have the effect of reducing the exercise prices of
the Warrants. That, in turn, would result in a reduction in the Merger Price
Per Share, and a larger aggregate amount paid to the holders of the Warrants
versus the holders of the Common Stock, the Debentures and the Company Options.
It is impossible to determine the exact amount of loss reserve that will
ultimately be determined to be attributable to 1992 and 1993 accident years
prior to the measurement date, which will be a time immediately preceding the
closing date of the Merger. As of September 30, 1996, the Company increased by
approximately $4,500,000 its loss and allocated loss adjustment expense reserves
for the 1990-1993 accident years. The Company anticipates that as a result of
such adjustment, there should occur an adjustment to the exercise price of the
Warrants that will result in a Merger Price Per Share of not less than $3.00 nor
greater than $3.10.
SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2 and 3 DETACHABLE WARRANT
PURCHASE AGREEMENT
In connection with the Merger, Prac, Allstate and Superior entered into the
Purchase Agreement dated as of September 17, 1996. Pursuant to the terms of the
Purchase Agreement, Prac and Allstate, contingent upon the consummation of the
Merger, have agreed to sell their respective Debentures and Warrants to
Superior. The consideration to be received by Prac and Allstate under the
Purchase Agreement is equivalent to the Merger Price Per Share to be paid for
each share of Common Stock. The precise amount of the Merger Price Per Share
will be determined immediately prior to the effective time of the Merger, with
the ultimate Merger Price Per Share being fixed after an adjustment to the
exercise prices of the Warrants pursuant to the terms of the Debenture/Warrant
Agreement. Pursuant to the Purchase Agreement, Prac and Allstate have agreed to
forego any rights with respect to the adjustment of the exercise prices of the
Warrants that would result in the portion of the Purchase Price allocable to the
Warrants exceeding $3.5 million.
VOTING AGREEMENT
Prac, Allstate, the Pickup Affiliates and Superior entered into a Voting
Agreement dated as of September 17, 1996 (the "Voting Agreement"). Pursuant to
the terms of the Voting Agreement, Prac, Allstate and the Pickup Affiliates have
agreed to vote for the approval and adoption of the Merger Agreement. This
results in approximately 60% of the outstanding shares of Common Stock being
committed to vote in favor of the subject transaction. In connection therewith,
all the issued and outstanding Debentures are convertible into 7,272,727 shares
of Common Stock for voting purposes.
Prac, Allstate and the Pickup Affiliates' obligation under the Voting
Agreement terminates if the Company's Board of Directors, in exercising its
fiduciary obligations to the Stockholders, approves an Acquisition Proposal;
provided, however, that if a breakup fee becomes payable under the Merger
Agreement as a consequence of an Acquisition Proposal, the Debenture Holders
(with the exception of Allstate), will pay to Superior upon consummation of the
competing transaction an amount equal to the difference between the price
received for such persons' Debentures and Warrants under the Acquisition
Proposal and the price that would have been paid for such securities under the
Purchase Agreement. The Voting Agreement terminates upon the earliest to occur
of the termination of the Merger Agreement, the effective time of the Merger or
December 31, 1997.
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SERIES 3 DETACHABLE WARRANT SURRENDER AGREEMENT
Messrs. Harwood, Anderson and Strunk and the Lenawee Trust entered into the
Surrender Agreement with the Company dated as of September 17, 1996. Pursuant
to the terms of the Surrender Agreement, Messrs. Harwood, Anderson and Strunk
and the Lenawee Trust, contingent upon the consummation of the Merger, have
agreed to surrender their respective Series 3 Warrants to the Company without
cash consideration therefor as such warrants are out-of-the-money.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Superior to effect the Merger and to
pay the fees of its legal counsel and advisors is approximately $59,000,000.
These amounts are the only expenses related to the Merger that are expected to
be paid by Superior. See "SPECIAL FACTORS -- Source and Amount of Funds."
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
As of November 19, 1996, the directors and executive officers of the
Company beneficially owned, in the aggregate, 2,797,521 shares of Common Stock,
representing approximately 29.4% of such shares outstanding. To the knowledge
of the Company, all directors and executive officers of the Company intend to
vote their beneficially owned shares of Common Stock eligible to be voted for
the approval and adoption of the Merger Agreement. In addition, pursuant to the
Voting Agreement, the Common Stock owned by the Pickup Affiliates and the
Debentures owned by Prac and Allstate will be voted for the approval and
adoption of the Merger Agreement. See "SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS."
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock is listed on NASDAQ under the symbol "PRIM." On September
16, 1996, the last trading day before the public announcement of the execution
of the Merger Agreement, the reported closing sale price per share of the Common
Stock was $2 5/8. On November 19, 1996, the last full trading day prior to the
date of this Proxy Statement, the reported closing sale price per share of the
Common Stock was $2 29/32. For additional information concerning historical
market prices of the Common Stock and the dividends paid thereon, see "MARKET
PRICE AND DIVIDEND INFORMATION."
SELECTED CONSOLIDATED FINANCIAL DATA
Certain selected historical financial data of the Company are set forth
under "SELECTED CONSOLIDATED FINANCIAL DATA." That data should be read in
conjunction with the consolidated financial statements and related notes
incorporated by reference in this Proxy Statement. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
Each copy of this Proxy Statement mailed to Stockholders is accompanied by
a proxy card furnished in connection with the solicitation of proxies by the
Board for use at the Special Meeting. The Special Meeting is scheduled to be
held at 10:00 a.m., on December 11, 1996, at the Company's headquarters, 6200
Canoga Avenue, Woodland Hills, California 91367-2402. At the Special Meeting,
Stockholders will consider and vote upon (i) a proposal to approve and adopt the
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Merger Agreement and (ii) such other matters as may properly be brought before
the Special Meeting.
The Board has determined that the Merger and the Merger Agreement are
advisable and in the best interests of the Company and its Stockholders and has
approved the Merger and the Merger Agreement by unanimous vote of those
directors voting. ACCORDINGLY, THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "SPECIAL FACTORS --
Background of the Transaction" and " -- Reasons for the Transaction."
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
RECORD DATE AND VOTING
The Board has fixed the close of business on November 19, 1996, as the
Record Date for the determination of the holders of Common Stock entitled to
notice of and to vote at the Special Meeting. Only Stockholders of record at
the close of business on that date will be entitled to receive notice of or to
vote at the Special Meeting. At the close of business on the Record Date, there
were 9,528,200 shares of Common Stock outstanding and entitled to vote at the
Special Meeting, held by approximately 910 Stockholders of record. In addition,
the Debentures have voting rights equal to the number of shares of Common Stock
into which such Debentures are convertible. The Debentures' voting rights are
exercisable only when the following matters are submitted to a vote of
Stockholders or for written consent: (a) the amendment of the Company's
Certificate of Incorporation; (b) the sale or transfer of all or substantially
all of the Company's assets; (c) the consolidation, reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation,
or winding-up of the Company; (d) changes in the Company's authorized capital
stock or any rights with respect thereto; and (e) changes in the number of
individuals constituting the Board to a number other than seven. Approval of
any of the foregoing matters requires the affirmative vote of the holders of at
least 70%, in the aggregate, of both the issued and outstanding shares of Common
Stock and Debentures, voting together, with such Debentures having a number of
votes equal to the number of shares of Common Stock into which such Debentures
may be converted.
Each holder of Common Stock on the Record Date will be entitled to one vote
for each share held of record and the Debenture Holders shall be entitled to one
vote for each share of Common Stock into which such Debentures are convertible.
Mr. Pickup, the ultimate controlling person of the Pickup Affiliates and Prac,
is expected to attend the Special Meeting to vote the Common Stock and
Debentures owned by the Pickup Affiliates and Prac, as the case may be, and,
accordingly, a quorum for the transaction of business at the Special Meeting is
assured. The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock entitled to be voted at the Special Meeting is necessary
to constitute a quorum for the transaction of business. Abstentions (including
broker non-votes) will be included in the calculation of the number of votes
represented at the Special Meeting for purposes of determining whether a quorum
has been achieved.
If the enclosed proxy card is properly executed and received by the Company
in time to be voted at the Special Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. Executed proxies
with no instructions indicated thereon will be voted "FOR" approval and adoption
of the Merger Agreement.
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The Board is not aware of any matters other than the matter set forth in
the Notice of Special Meeting of Stockholders that may be brought before the
Special Meeting. If any other matters properly come before the Special Meeting,
including a motion to adjourn the meeting for the purpose of soliciting
additional proxies, the persons named in the accompanying proxy will vote the
shares represented by all properly executed proxies on such matters in their
discretion, except that shares represented by proxies which have been voted
"against" the Merger Agreement will not be used to vote "for" adjournment of the
Special Meeting for the purpose of allowing additional time for soliciting
additional votes "for" the Merger Agreement. See "THE SPECIAL MEETING -- Vote
Required; Revocability of Proxies."
STOCKHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD
BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF
TRANSMITTAL, WHICH WILL BE SENT TO STOCKHOLDERS BY U.S. STOCK TRANSFER
CORPORATION, IN ITS CAPACITY AS THE EXCHANGE AGENT, PROMPTLY AFTER THE EFFECTIVE
TIME OF THE MERGER.
VOTE REQUIRED; REVOCABILITY OF PROXIES
The affirmative vote of holders of at least 70%, in the aggregate, of both
the issued and outstanding shares of Common Stock and Debentures, voting
together, with such Debentures having a number of votes equal to the number of
shares of Common Stock into which such Debentures may be converted, is required
to approve and adopt the Merger Agreement. Pursuant to the Voting Agreement,
the Common Stock owned by the Pickup Affiliates and the Debentures owned by Prac
and Allstate will be voted for the approval and adoption of the Merger
Agreement. Provided, however, if the Merger Agreement is terminated or if the
Board, in exercising its fiduciary obligations to the Stockholders approves an
Acquisition Proposal, Prac, the Pickup Affiliates and Allstate are relieved of
their obligation to vote for the approval and adoption of the Merger Agreement.
Because the required vote of the Stockholders and Debenture Holders on the
Merger Agreement is based upon the total number of outstanding shares of Common
Stock and Debentures, the failure to submit a proxy card (or to vote in person
at the Special Meeting) or the abstention from voting by a Stockholder will have
the same effect as a vote against approval and adoption of the Merger Agreement.
Brokers who hold shares of Common Stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners thereof.
A Stockholder may revoke a proxy at any time prior to its exercise by
(i) delivering to Myrtle L. Solomon, Corporate Secretary, Pac Rim Holding
Corporation, 6200 Canoga Avenue, Woodland Hills, California 91367-2402, a
written notice of revocation prior to the Special Meeting, (ii) delivering prior
to the Special Meeting a duly executed proxy bearing a later date or (iii)
attending the Special Meeting and voting in person. The presence of a
Stockholder at the Special Meeting will not in and of itself automatically
revoke such Stockholder's proxy.
If fewer shares of Common Stock are voted in favor of approval and adoption
of the Merger Agreement than the number required for approval, it is expected
that the Special Meeting will be adjourned for the purpose of allowing
additional time for soliciting and obtaining additional proxies or votes, and,
at any subsequent reconvening of the Special Meeting, all proxies will be voted
in the same manner as such proxies would have been voted at the original
convening of the Special Meeting, except for any proxies which have theretofore
effectively been revoked or withdrawn.
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Although no vote of the stockholders of Superior is required in connection
with the Merger Agreement or the Merger, such vote is required with respect to
Superior's issuance of shares of its common stock in order to finance the
Merger. The obligations of the Company and Superior to consummate the Merger
are subject, among other things, to the condition that the Stockholders approve
and adopt the Merger Agreement. See "THE MERGER AGREEMENT -- Conditions to the
Merger."
APPRAISAL RIGHTS
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger Agreement will be entitled to have their shares of Common Stock appraised
by the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, as
determined by such court. The following is a summary of certain of the
provisions of Section 262 of the DGCL and is qualified in its entirety by
reference to the full text of such Section, a copy of which is attached hereto
as Appendix B.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the Special
Meeting, not less than 20 calendar days prior to the meeting, the Company must
notify each of the holders of Common Stock at the close of business on the
Record Date that such appraisal rights are available and include in each such
notice a copy of Section 262. This Proxy Statement constitutes such notice.
Any Stockholder who wishes to exercise appraisal rights should review the
following discussion and Appendix B carefully because failure to timely and
properly comply with the procedures specified in Section 262 will result in the
loss of appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights
must deliver to the Company, before the vote on the approval and adoption of the
Merger Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock. Such demand will be sufficient if it
reasonably informs the Company of the identity of the Stockholder and that the
Stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the Merger Agreement will not constitute such a demand. In
addition, a holder of shares of Common Stock wishing to exercise appraisal
rights must hold of record such shares on the date the written demand for
appraisal is made and must continue to hold such shares through the effective
time of the Merger.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record fully and correctly, as the holder's name appears on the stock
certificates. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such nominee. All written demands for
appraisal of Common Stock should be sent or delivered to Myrtle L. Solomon,
Corporate Secretary, Pac Rim Holding Corporation, 6200 Canoga Avenue, Woodland
Hills, California 91367-2402, so as to be received before the vote on the
approval and adoption of the Merger Agreement at the Special Meeting.
If the shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and
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expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Common
Stock as nominee for several beneficial owners may exercise appraisal rights
with respect to the Common Stock held for one or more beneficial owners while
not exercising such rights with respect to the Common Stock held for other
beneficial owners; in such case, the written demand should set forth the number
of shares as to which appraisal is sought and where no number of shares is
expressly mentioned the demand will be presumed to cover all Common Stock held
in the name of the record owner.
Within 10 calendar days after the effective time of the Merger, the
Company, as the surviving corporation in the Merger, must send a notice as to
the effectiveness of the Merger to each person who has satisfied the appropriate
provisions of Section 262 and who has not voted in favor of the Merger
Agreement. Within 120 calendar days after the effective time of the Merger, the
Company, or any Stockholder entitled to appraisal rights under Section 262 and
who has complied with the foregoing procedures, may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares of all such Stockholders. The Company is not under any obligation, and
has no present intention, to file a petition with respect to the appraisal of
the fair value of the shares of Common Stock. Accordingly, it is the obligation
of the Stockholders to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 calendar days after the effective time of the Merger, any
Stockholder of record who has complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from the
Company a statement setting forth the aggregate number of shares of Common Stock
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statements must be mailed within 10
calendar days after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the Stockholders
entitled to appraisal rights and will appraise the "fair value" of the shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Stockholders
considering seeking appraisal should be aware that the fair value of their
shares of Common Stock as determined under Section 262 could be more than, the
same as or less than the amount that they would otherwise receive if they did
not seek appraisal of their shares of Common Stock. The Delaware Supreme Court
has stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. In addition, Delaware
courts have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court will
also determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares of Common Stock have been appraised. The costs
of the action may be determined by the Court and taxed upon the parties as the
Court deems equitable. The Court may also order that all or a portion of the
expenses incurred by any holder of shares of Common Stock in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the shares of Common Stock entitled to
appraisal.
The Court may require Stockholders who have demanded an appraisal and who
hold Common Stock represented by certificates to submit their certificates of
Common Stock to the Court for notation thereon of the pendency of the appraisal
proceedings. If any Stockholder fails to comply with such direction, the Court
may dismiss the proceedings as to such Stockholder.
Any Stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the Merger, be entitled to
vote the shares of Common Stock subject
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to such demand for any purpose or be entitled to the payment of dividends or
other distributions on those shares (except dividends or other distributions
payable to holders of record of shares of Common Stock as of a date prior to the
effective time of the Merger).
If any Stockholder who demands appraisal of shares under Section 262 fails
to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the DGCL, the shares of Common Stock of such holder will be
converted into the right to receive the Merger Price Per Share in accordance
with the Merger Agreement, without interest. A Stockholder will fail to
perfect, or effectively lose, the right to appraisal if no petition for
appraisal is filed within 120 calendar days after the effective time of the
Merger. A Stockholder may withdraw a demand for appraisal by delivering to the
Company a written withdrawal of the demand for appraisal and acceptance of the
Merger, except that any such attempt to withdraw made more than 60 calendar days
after the effective time of the Merger will require the written approval of the
Company. Once a petition for appraisal has been filed, such appraisal
proceeding may not be dismissed as to any Stockholder without the approval of
the Court.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from Stockholders.
In addition to soliciting proxies by mail, directors, officers and employees of
the Company, without receiving additional compensation therefor, may solicit
proxies by telephone, by mail or in person. Arrangements also will be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares held of record by such
persons, and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith.
THE COMPANY
The Company was organized as a Delaware corporation on May 12, 1987. On
May 27, 1987, the Company became the immediate Parent of Assurance Company, its
principal subsidiary, which, in turn, in 1995 became the parent of RBIS. The
Company is engaged primarily, and almost exclusively, in writing workers'
compensation insurance. In connection therewith, the Company markets its
policies through approximately 180 insurance agencies and brokerage firms.
Historically, the Company concentrated primarily on the Southern California
market. In connection with its efforts to expand into additional geographic
areas and increase future revenues, Assurance Company received Certificates of
Authority to write workers' compensation insurance in Alabama, Arizona, Georgia
and Texas. Assurance Company is rated B by Best. According to Best, its ratings
are intended to measure an insurance company's financial strength, operating
performance, competitive market position and ability to meet obligations to
policyholders currently and in the near future. Best's rating of Assurance
Company is not a rating of the investment merits of the Common Stock.
RBIS is a California corporation that is licensed as an insurance agent
and/or broker in a number of jurisdictions. RBIS places coverage with insurers
that are licensed in states where Assurance Company is not currently licensed.
RBIS sells both workers' compensation and accident and health insurance
coverage.
The address and telephone number of the Company's principal executive
offices is 6200 Canoga Avenue, Woodland Hills, California 91367-2402; (818) 226-
6200.
SUPERIOR
Superior was incorporated in California on March 29, 1985, under the name
Coastal Holdings, Ltd. Superior is a holding company that, through its wholly-
owned subsidiary, SNIC, is
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engaged in writing workers' compensation insurance principally in the State of
California and, until September 30, 1993, was engaged in writing commercial
property and casualty insurance. SNIC is currently licensed to write business in
Arizona, Arkansas, California, Colorado, District of Columbia, Indiana, Iowa,
Kentucky, Maryland, Mississippi, Missouri, Montana, Nevada, New Mexico, Oregon,
South Dakota, Utah and Wyoming, but virtually all of SNIC's current premium is
generated in California, with immaterial exceptions in Arizona and Oregon.
Superior has five wholly-owned subsidiaries in addition to SNIC: InfoNet
Management Systems, Inc. ("InfoNet"), SN Insurance Services, Inc. ("SNIS"),
Pacific Insurance Brokerage, Inc. ("Pacific"), Superior National Capital Holding
Corporation ("SNCHC") and Superior (Bermuda) Ltd. ("SBL"). InfoNet provides
data processing purchasing services to Superior and its subsidiaries. SNIS and
Pacific are inactive. SNCHC's sole function is to act as a general partner of
Superior National Capital, L.P., a Bermuda limited partnership that issued $20
million face amount of preferred securities to Centre Reinsurance Services
(Bermuda) III Limited effective June 30, 1994. The proceeds of that transaction
were loans to Superior and partially contributed by Superior to the capital of
SNIC. Centre Reinsurance Services (Bermuda) III Limited is an affiliate of
Superior.
SNIC's only subsidiary is wholly-owned Western Select Service Corp.
("WSSC"), which was established in 1987 under the name Superior Western
Insurance Company. WSSC was formed and capitalized to underwrite property,
casualty and workers' compensation insurance, but never received a charter to
commence insurance operations from the California Department of Insurance. WSSC
currently provides vocational, rehabilitation, legal, paralegal and other
services to SNIC.
The address and telephone number of Superior's principal executive offices
is 26601 Agoura Road, Calabasas, California 91302; (818) 880-1600.
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
In early 1993, the Company engaged the services of financial advisors to
explore methods by which the Company could obtain additional operating capital
for Assurance Company. At that time, the Company believed that to maintain a
competitive position in California's workers' compensation market, the only
jurisdiction in which Assurance Company was then operating, additional capital
was required.
On August 16, 1994, the Company completed its capital raising effort under
the Debenture/Warrant Agreement. Pursuant to the terms of that agreement, the
Company sold the Debentures, Warrants and Series 3 Warrants to Prac in exchange
for $20 million. Following the close of that transaction, the Company continued
to analyze its need for additional investment capital, its position in
California's workers' compensation market and the possibility of expanding its
operations beyond California.
In July of 1993, the California state legislature passed certain workers'
compensation law reforms. Those laws have significantly impacted the benefits
available under California's workers' compensation system and the premium rates
that insurers may charge for coverage. In that regard, the California
legislature repealed the minimum rating law effective January 1, 1995, thus,
making California an "open or competitive rating" state with respect to workers'
compensation coverage. Beginning January 1, 1995, the Workers' Compensation
Insurance Rating Bureau began publishing advisory pure premium rates which
provide for losses and loss adjustment costs as indicated by prior history and
an actuarial projection of future losses and loss expenses. California workers'
compensation insurers can adopt those rates and apply their own expense factor
or file their own actuarially sound rates.
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Prior to its repeal, the minimum rating law existed as a means of
preserving the financial integrity of California's workers' compensation system
by prohibiting insurers from charging premiums below certain minimum levels
established by the California Insurance Commissioner. California's open rating
laws have created an intense level of price competition among workers'
compensation insurers. That, in turn, resulted in an overall erosion of premium
levels beginning in late 1994 and continuing through the present. The Company,
therefore, adopted a strategy of continuing to explore opportunities for
securing additional investment capital and/or possibly merging with a compatible
entity.
Although the Company reduced expenses and was profitable in 1995, it began
to explore all alternatives. On February 17, 1995, the Company announced that
it had retained Salomon to evaluate strategic alternatives. During 1995 and
1996, Salomon contacted a number of companies, including managed care, health
insurance and workers' compensation entities operating in and outside of
California, to ascertain if those entities were interested in acquiring the
Company. Certain of the entities contacted expressed varying levels of interest
in the Company, but agreement with respect to pricing and terms of a transaction
could not be reached.
On July 3, 1996, Superior informed Salomon that it was interested in
reviewing the Company's operations. Shortly thereafter, Superior entered into a
Confidentiality Agreement with the Company and began its due diligence review of
the Company's operations. After completing that review, Superior expressed an
interest in entering into discussions with and submitting a proposal to the
Company concerning the possibility of acquiring all the Company's issued and
outstanding shares of Common Stock, Debentures and Warrants. Between August 28,
1996 and September 17, 1996, discussions were held between counsel and
representatives of both the Company and Superior concerning an acquisition
transaction. During that period of time, members of the Board discussed with
representatives of Superior certain of the terms under which the Company might
be willing to enter into a merger transaction with Superior.
On September 13, 1996, each member of the Board was informed that Superior
would be submitting a formal offer to acquire the Company by means of a merger
transaction and that a Board meeting to discuss the anticipated offer was
scheduled for September 16, 1996.
Immediately prior to the September 16, 1996 meeting, Superior submitted to
the Board a formal merger proposal pursuant to the terms of which Superior would
acquire all the issued and outstanding shares of Common Stock, Debentures and
Warrants. On the morning of September 16, 1996, all members of the Board
reviewed and considered the merger proposal and discussed the factors described
below under "Reasons for the Transaction."
The Board also discussed the Company's general financial condition and its
position in the workers' compensation industry. Although the Company believed
it was positioned as a viable and competitive entity, the Board believed that if
an acquisition offer was made for the Company at a fair and reasonable price, it
might be in the best interest of the Stockholders to seriously consider such an
offer.
Superior's original offer provided for the allocation of the Purchase Price
differently for the holders of Common Stock, Debentures and Company Options, on
the one hand, and the Warrants, on the other hand. That allocation may have
resulted in the holders of the Warrants receiving an equivalent per share
consideration in an amount different from (and greater than) the consideration
to be received by the holders of the Common Stock, Debentures and Company
Options.
At that meeting, the Board determined that to achieve fairness among the
holders of such securities, the Purchase Price should be allocated equally to
the Company's Common Stock, Debentures, Warrants and Company Options such that
the Debentures, Warrants and Company Options would be paid an amount equal to
the Merger Price Per Share of the Common Stock less
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any amounts payable to convert the Debentures or exercise the Warrants or
Company Options, with no consideration being paid for the Warrants and Company
Options that were out-of-the-money.
The Board further discussed with Salomon the fact that Salomon's fairness
opinion (as discussed below) would contemplate that the Purchase Price was to be
distributed equally among the holders of the Common Stock, Debentures, Warrants
and Company Options on a per share basis. The Board secured the agreement of
the holders of the Debentures and Warrants that they would vote in favor of the
Merger if the transaction provided for the allocation of the Purchase Price
equally among all Common Stock equivalents and the Company agreed to honor its
obligation under the terms of the Debenture/Warrant Agreement and the addenda
thereto to adjust the exercise prices of the Warrants at or immediately
preceding the close of the subject transaction.
Salomon then presented to the Board at the Board meeting its analysis of
the offer. See "Opinion of Financial Advisor." Salomon also provided the Board
with its oral opinion that, assuming the aggregate cash consideration is equally
allocated among all Common Stock equivalents, the cash consideration to be
received by the Stockholders with respect thereto was fair from a financial
point of view. As the exercise prices of the Warrants may be subject to
adjustment pursuant to the terms of the Debenture/Warrant Agreement, the exact
price per share of the Common Stock could not be determined at that time.
Salomon did, however, perform an analysis to reflect the allocation of the
aggregate Purchase Price equally among the holders of the Common Stock, the
Debentures, the Warrants and the Company Options, giving effect to a potential
repricing of the exercise price of the Warrants. Salomon performed this
analysis using two different scenarios regarding the potential repricing, based
on the Company's June 30, 1996 recorded loss and loss adjustment expense
reserves, and a reasonable range of potential reserve estimates at June 30,
1996. These analyses indicated the derived per share value allocated to each
share of Common Stock and in-the-money equivalents of $3.11 and $3.07,
respectively.
The Board determined it would be neither necessary nor effective to create
a special independent committee of the Board to make recommendations for any
separate interests of the Stockholders in connection with the Merger, retain an
unaffiliated representative to advise the Board or to form a committee solely on
behalf of the Stockholders because (1) the Purchase Price, by action of the
Board, was to be allocated in such a way that the holders of the Debentures,
Warrants and Company Options would receive consideration based on the same
methodology used to determine the consideration to be paid for the Common Stock
and (2) the Merger Agreement and Merger requires approval of the affirmative
vote of at least 70%, in the aggregate, of both the issued and outstanding
shares of Common Stock and Debentures, voting together, with such Debentures
having a number of votes equal to the number of shares of Common Stock into
which such Debentures may be converted, and, therefore, the Merger must be
considered by the Stockholders and Debenture Holders as a unified "class" voting
together.
On September 16, 1996, the Company issued a press release to the effect
that it was in discussions with Superior with respect to a potential merger
transaction.
Following the Board's discussion of the Merger Agreement and negotiations
via telephonic conference call with representatives of Superior with respect to
certain remaining unresolved terms concerning the transaction, the Board voted
unanimously to approve the Merger Agreement and to accept Superior's proposal.
On September 17, 1996, following such unanimous approval of the Merger proposal
by the Board, the Merger Agreement and related documents were signed and press
releases were issued by the Company and Superior with respect thereto.
To date, the Company has received no inquiries or expressions of interest
whatsoever regarding competing bids by any other entity or person.
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PURPOSE OF THE TRANSACTION
The purpose of the Merger is to effect the acquisition by Superior of all
the outstanding shares of Common Stock. Superior and the Company did not
consider any alternative means to accomplish this purpose because the Merger is
the most direct means for effecting the acquisition of the shares of Common
Stock held by the Stockholders.
REASONS FOR THE TRANSACTION
The Company. The Board has determined that the Merger Agreement and the
Merger are fair to and in the best interests of the Company and the
Stockholders, has approved the Merger Agreement and the Merger and has
unanimously recommended to the Stockholders that they vote for the approval and
adoption of the Merger Agreement. In taking these actions, the Board considered
many factors, including among others the following:
(i) Management's Recommendation. The Board reviewed presentations
from, and discussed the terms and conditions of the Merger Agreement and
the Merger with, the Company's President, speaking for the Company's Senior
Management, collectively, representatives of its legal counsel and
representatives of its financial advisor. The Board considered the view of
management that the Company's businesses might realize certain operational
advantages if the Company were no longer an independent public company
(which advantages the Board took into account in assessing the fairness of
the Merger Price Per Share to be received in the Merger). The Board also
considered favorably management's stated belief that the Merger would not
have an adverse effect on the Company's policyholders.
(ii) The Company's Business, Condition and Prospects. In evaluating
the terms of the Merger, the Board considered, among other things,
information with respect to the financial condition, results of operations,
investment results and businesses of the Company, on both a historical and
a prospective basis, and current industry, economic and market conditions.
The members of the Board were generally familiar with and knowledgeable
about the Company's affairs, including the present and possible future
economic, regulatory and competitive environment in which the Company
operates its workers' compensation insurance business, and further reviewed
these matters in the course of their deliberations. In evaluating the
Company's prospects, the Board considered, among other things, the
opportunities available to the Company to improve its results and capacity
to manage its future growth. The Board also considered the risks facing
the Company, including the repeal of California's minimum rate law
pertaining to premium chargeable for workers' compensation insurance
policies, the subsequent entry of financially stronger and much larger
insurers into the Company's business, and increasing rate competition.
(iii) Historical and Recent Market Prices Compared to the
Consideration to be Received in the Merger. The Board reviewed the
historical market prices and recent trading activity of the Common Stock.
The Board considered as favorable to its determination that the Merger
Price Per Share to be paid in the Merger is greater than the range of
recent trading prices of the Common Stock.
(iv) Alternative Transactions. The Board determined that it was
unlikely that a combination or other transaction with any other entity
could be structured in a manner that would offer comparable value to the
Stockholders. In making its determination, the Board considered its prior
"exploration" of the market and its evaluation of possible arrangements
with other entities. The Board also considered the fact that the Company
could not reach an agreement with respect to pricing with the entities,
other than Superior, which had been
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contacted by Salomon and examined the Company's operations. Thus, the Board
did not believe that any other feasible or viable transaction was available
to be considered.
(v) Liquidation of the Company. The Board considered the possible
return to the Stockholders if the Company were to cease operations and
liquidate and distribute its assets to the Stockholders. That analysis
indicated that a return of less than $2.76 per share may be realized from
such liquidation, which amount is less than the anticipated Merger Price
Per Share.
(vi) Opinion of Salomon. The Board considered the opinion of Salomon
(including the assumptions and financial and other information relied upon
by Salomon) that the consideration to be received by the Stockholders in
the Merger is fair to such holders from a financial point of view, as well
as the presentation made by Salomon to the Board, to support the Board's
determination that the Merger is fair to the Stockholders. Salomon's
opinion and presentation are described below under "Opinion of Financial
Advisor." As described below, Salomon performed certain valuation analyses
on the Company in order to reach its opinion.
(vii) Stockholder Approval Requirement. The Board considered the fact
that the Merger is conditioned on the approval and adoption of the Merger
Agreement by the affirmative vote of the holders of at least 70%, in the
aggregate, of both the issued and outstanding shares of Common Stock and
Debentures, voting together, with such Debentures having a number of votes
equal to the number of shares of Common Stock into which such Debentures
may be converted.
(viii) Termination Provision; Breakup Fee. The Board considered as
favorable to its determination that the Merger Agreement (a) permits the
Board to approve an Acquisition Proposal that it believes is in the
interests of the Stockholders and (b) is terminable by the Board if an
Acquisition Proposal is so approved. In such case, however, the Company
would be required to pay Superior a $5 million breakup fee.
(ix) No Longer a Public Company. The Board viewed as a negative
factor that, following the consummation of the Merger, the Company would no
longer be a public company.
(x) Taxable Transaction. The Board viewed as a negative factor to its
determination that, like all cash mergers, the Merger would be a taxable
transaction. In addition, for the reasons described under " -- Background
of the Transaction," the Board did not believe that it would be able to
effect a tax-free transaction offering comparable value to the
Stockholders.
The foregoing description of the factors considered by the Board is not all
inclusive but covers the principal matters discussed in detail by the Board. In
view of the wide variety of factors considered, the Board did not consider it
practical to, nor did it attempt to, quantify or attach any particular weight to
any of the factors it reviewed in reaching its conclusion to recommend the
Merger to the Stockholders as being in their best interests.
CERTAIN CONSIDERATIONS
While the Board is of the opinion that the Merger is in the best interest
of the Company and the Stockholders, approval of the Merger Agreement involves
certain factors that the Stockholders should consider carefully. These
considerations include the fact that acceptance of the Merger will result in
each Stockholder liquidating and selling his, her or its shares of Common Stock
and, in effect, result in each Stockholder selling his, her, or its interest in
the Company at the Merger
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Price Per Share. If this transaction were not completed, it is likely that the
Company would, at least in the immediate future, remain viable. It is
conceivable that if the value of the Company were to increase in the future,
such increased value would not be available if the Merger Agreement is accepted.
Further, although the Board and management, independently and through the
efforts of its financial advisor, have investigated alternative transactions,
there can be no assurance that if the Merger Agreement and Merger were not
accepted, at some time in the future another offer or proposal would be made by
a third party to acquire or merge with the Company, which future possible offer
could conceivably result in a greater sum being paid to the Stockholders. It
should, however, be noted that the Merger Agreement provides that under certain
circumstances, the Company would be required to pay a breakup fee if any other
form of offer or proposal were considered or accepted by the Company within a
specified time period. Further, since the Company has announced the Merger, no
other offer or inquiry has been received regarding any form of competitive bid
or offer.
In reaching its decision to approve and adopt the Merger Agreement and make
the recommendation to the Stockholders set forth herein, the Board has
considered a number of factors, including (i) the financial information made
available to the Board, including historical trading prices of the Common Stock,
the Common Stock's current per share value, and the per share value based upon
the liquidation of the Company, (ii) the Board's belief that the financial
interests of the Stockholders would be better served by effecting a merger
resulting in a sale of the Company for the Merger Price Per Share, as compared
to continuing operations as an independent company, (iii) the financial
condition of the Company as compared with its competitors, (iv) market
conditions within the workers' compensation industry, particularly in the State
of California and those other states and jurisdictions in which Assurance
Company currently operates, (v) the terms and conditions of the Merger
Agreement, and (vi) the opinion of Salomon described herein to the effect that
the Merger Price Per Share to be received by the Stockholders in the Merger is
fair, from a financial point of view, to such Stockholders.
OPINION OF FINANCIAL ADVISOR
The Company retained Salomon to assist it in evaluating various strategic
or financial transactions that could be of interest to the Company and to render
a fairness opinion in connection with a sale of the Company. See "Background of
the Transaction." On September 16, 1996, Salomon rendered its oral opinion to
the Board, which was subsequently confirmed in writing in an opinion dated
November 19, 1996, that the consideration to be received by the Stockholders in
the Merger is fair to such holders from a financial point of view.
The full text of Salomon's fairness opinion, dated November 19, 1996, which
sets forth the assumptions made, general procedures followed, matters considered
and limits on the review undertaken, is attached as Appendix C to this Proxy
Statement. Salomon's opinion is directed only to the fairness, from a financial
point of view, to the Stockholders, of the consideration to be received by such
holders in the Merger and does not address the Company's underlying business
decision to effect the Merger or constitute a recommendation to any Stockholder
as to how such Stockholder should vote with respect to the Merger. Salomon's
opinion does not address the fairness of the consideration to be received by the
holders of the Debentures and Warrants from the purchase of such securities by
Superior pursuant to the Merger Agreement. The summary of Salomon's opinion set
forth below is qualified in its entirety by reference to the full text of such
opinion attached as Appendix C. STOCKHOLDERS ARE URGED TO READ THE OPINION IN
ITS ENTIRETY.
In connection with rendering this opinion, Salomon reviewed and analyzed,
among other things, the following: (i) the Merger Agreement, including the
Exhibits thereto; (ii) the Purchase Agreement; (iii) the terms and conditions of
the Debentures and Warrants; (iv) certain publicly
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available information concerning the Company, including the Annual Reports on
Form 10-K of the Company for each of the years in the five-year period ended
December 31, 1995 and the Quarterly Reports on Form 10-Q of the Company for the
quarters ended March 31, June 30 and September 30, 1996, respectively; (v)
statutory financial information regarding Assurance Company for each of the
years in the five-year period ended December 31, 1995; (vi) a report dated
August 29, 1996 prepared by Arthur Andersen L.L.P. on the Company's loss
reserves as of June 30, 1996; (vii) certain other internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Company furnished to Salomon by the Company for purposes
of its analysis; (viii) certain publicly available information concerning the
trading of, and the trading market for, the Common Stock; (ix) certain publicly
available information with respect to certain other companies that Salomon
believed to be comparable to the Company and the trading markets for certain of
such other companies' securities; and (x) certain publicly available information
concerning the nature and terms of certain other transactions that Salomon
considered relevant to its inquiry. Salomon also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria which it deemed relevant. Salomon also met with certain
officers and employees of the Company to discuss the foregoing as well as other
matters Salomon believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to it or publicly available and neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. With respect to the Company's projections, Salomon assumed that
they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as to the
financial performance of the Company for the period covered. Salomon did not
make or obtain any independent evaluations or appraisals of any of the Company's
assets, properties or facilities nor was Salomon furnished with any such
evaluations or appraisals. Salomon's services did not include any actuarial
determinations or evaluations or an attempt to evaluate actuarial assumptions.
Salomon relied, directly and indirectly, on reports and opinions provided to it
by the Company and its independent accountants and actuaries regarding the
reserves of Assurance Company.
In conducting its analysis and arriving at its opinion, Salomon considered
such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of the Company; (ii) the
business prospects of the Company; (iii) the historical and current market for
the Common Stock and for the equity securities of certain other companies that
Salomon believes to be comparable to the Company; and (iv) the nature and terms
of certain other acquisition transactions that Salomon believes to be relevant.
Salomon also took into account its assessment of general economic, market and
financial conditions and its knowledge of the insurance industry as well as its
experience in connection with similar transactions and securities valuation
generally. Salomon also considered the process that resulted in negotiation of
the Merger, including Salomon's solicitation of offers to acquire the Company
and the responses received to such solicitations. Salomon's opinion was based
on conditions as they existed and could be evaluated on the date of the opinion.
In connection with a presentation to the Company's Board on September 16,
1996, Salomon advised the Company's Board that, in evaluating the consideration
to be received in the Merger by the holders of Common Stock, Salomon had
performed a variety of financial analyses with respect to the Company, all as
summarized below.
Analysis of Selected Publicly-Traded Comparable Companies. Salomon
compared the Company to five public California workers' compensation insurance
companies determined by Salomon to be engaged in businesses comparable to those
of the Company. In that regard, Salomon noted that although such companies were
considered similar to the Company, none of the
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<PAGE>
companies has the same management, size and business makeup as the Company. The
publicly traded workers' compensation insurance companies selected by Salomon
for purposes of this analysis were: Argonaut Group, Citation Insurance Group,
Fremont General Corporation, Zenith National Insurance Group and SNIC (the
"Comparable Companies"). Using publicly available information (including
earnings per share estimates for 1996 and 1997 obtained from the Institutional
Brokers Estimate System as of August 15, 1996) and earnings per share estimates
for 1996 and 1997 obtained from each of the managements of the Company and SNIC,
Salomon analyzed, among other things, the market values and certain financial
data at September 13, 1996 for each of the Comparable Companies, including (i)
the 52-week trading range, (ii) the dividend yield, (ii) the implied return on
equity, (iv) the price to latest twelve month earnings per share multiple, (v)
the price to 1996 and 1997 estimated earnings per share multiples (vi) the
projected change in estimated earnings per share between 1996 and 1997 and (vii)
the price to book value multiple (based on period end primary shares
outstanding). Salomon derived high, low and median multiples from the foregoing
analysis of the Comparable Companies and applied them to comparable financial
data relating to the Company. This analysis resulted in reference ranges of per
share values for the shares of the Common Stock of (i) $1.51 to $1.89 using
estimated 1996 earnings per share, (ii) $1.46 to $1.95 using estimated 1997
earnings per share, (iii) $3.79 to $5.05 using reported book value per share,
and (iv) $2.97 to $3.96 using fully diluted book value per share (determined
assuming conversion of the Debentures, in-the-money Warrants and Company
Options).
Discounted Cash Flow Analysis. Salomon performed a discounted cash flow
analysis pursuant to which the value of the Company was estimated by adding (i)
the estimated net present value of the Company's future dividends (of which none
were assumed) plus (ii) the estimated net present value of the terminal value of
the Company (utilizing price to earnings multiples and book value multiples),
based upon certain operating and financial assumptions, forecasts and other
information provided to Salmon by the management of the Company. Salomon based
its analysis upon actual and projected income statements for the Company for the
five-year period ended December 31, 1999, as prepared by the management of the
Company. For purposes of such analysis, Salomon utilized discount rates of 16%-
22% and terminal values based on price to earnings multiples of 8.0x-11.0x and
price to book value multiples of 0.8x-1.1x. The discounted cash flow analysis
was conducted using two different sets of projections prepared by the management
of the Company, based upon two scenarios. The "low growth scenario" showed 15%
compound annual growth in premium volume during 1997, 1998 and 1999. The "no
growth scenario" showed no growth in premium volume during 1997, 1998 and 1999.
These analyses resulted in an implied value reference range for the Common Stock
of: (i) $1.65 to $1.85 using price to earnings terminal value multiples and of
$2.22 to $2.49 using price to book value terminal value multiples under the "low
growth scenario" and (ii) $1.00 to $1.12 using price to earnings terminal value
multiples and $2.11 to $2.36 using price to book value terminal multiples under
the "no growth scenario."
Analysis of Selected Mergers/Acquisition Transactions. Salomon analyzed
six other merger and acquisition transactions announced since 1992 involving
workers' compensation insurance companies. The acquisition or merger
transactions analyzed were Citation Insurance Group/Physicians Insurance Company
of Ohio; CII Financial, Inc./Sierra Health Services, Inc.; C.E. Heath
plc/CareAmerica HealthPlans; Unicare Financial Corporation/WellPoint Health
Networks; Business Insurance Corporation, a subsidiary of California
Compensation Insurance Company/Foundation Health Corporation; and Great States
Financial Corporation/FHP International Corporation. Using publicly available
information, Salomon (i) calculated the relationship between the consideration
paid in these transactions and each of the acquired companies' (a) GAAP net
operating income, (b) GAAP book value, (c) statutory net operating income and
(d) statutory capital and surplus, and (ii) determined the percentage premium
that such consideration represented when compared to the share trading price of
each acquired public company one month prior to the announcement of such
transaction. Salomon noted that the data provided by such transactions was
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<PAGE>
unique to the relevant facts and circumstances of each transaction and was of
limited comparability to the Merger. Salomon arrived at appropriate valuation
multiples and applied or compared such multiples to the Company's (i) 1996
estimated earnings as provided by the Company's management (assuming that the
Debentures had been converted at the beginning of 1996), (ii) fully diluted book
value per share, (iii) statutory capital and (iv) share trading price at
September 13, 1996. This analysis resulted in an implied value reference range
(based on the high and low values resulting from the application of each
methodology) for the Common Stock from $1.53 to $3.78 per share.
Liquidation Analysis. Salomon performed a valuation analysis, using a
discounted cash flow methodology, based on a voluntary liquidation scenario
prepared by the management of the Company. The Company's management projections
assumed, among other things, that there would be no new or renewal business
after December 31, 1996 and the Debentures would be redeemed for cash in August
1999. For purposes of this voluntary liquidation analysis, Salomon applied
discount rates of 16%-22% to shareholders' equity at the end of the projection
period in 1999. This analysis resulted in an implied value reference range for
the shares of the Common Stock of $1.97 to $2.76.
The foregoing summary does not purport to be a complete description of the
analyses performed by Salomon or of its presentations to the Company's Board.
The preparation of financial analyses and fairness opinions is a complex process
and is not necessarily susceptible to partial analysis or summary description.
Salomon believes that its analyses (and the summary set forth above) must be
considered as a whole, and that selecting portions of such analyses and factors
could create an incomplete view of the processes underlying the analyses
conducted by Salomon and its opinion. Salomon made no attempt to assign
specific weights to particular analyses. Any estimates contained in Salomon's
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, Salomon does not assume responsibility for
their accuracy.
Salomon is an internationally recognized investment banking firm engaged,
among other things, in the valuation of businesses and their securities in
connection with mergers and acquisitions, restructurings, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Salomon has previously rendered certain investment
banking and financial advisory services to the Company for which Salomon
received customary compensation. In addition, in the ordinary course of its
business, Salomon may trade the equity securities of the Company and Superior
from time to time for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Pursuant to the engagement letter with Salomon, the Company has previously
paid Salomon $50,000 and will pay Salomon further cash fees payable as follows:
(a) $125,000 payable following the delivery of Salomon's fairness opinion and
(b) an additional fee of $810,315, contingent upon the consummation of the
Merger. Accordingly, the payment of a substantial majority of Salomon's fees is
subject to the consummation of the Merger. The Company has also agreed to
reimburse Salomon for certain expenses incurred in connection with its
engagement and to indemnify Salomon and certain related persons against certain
liabilities and expenses relating to or arising out of its engagement, including
certain liabilities under the Federal securities laws. Because a substantial
portion of Salomon's fee is payable upon the consummation of the Merger, Salomon
may be deemed to have a financial interest in the consummation of the Merger.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the Board with respect to the Merger
Agreement and the transactions contemplated thereby, the Stockholders should be
aware that certain members of the management of the Company and of the Board
have interests in the Merger that are different from, or in addition to, the
interests of the Stockholders generally.
Officers of the Company. Following the Merger, all the officers and
directors of the Company will cease to serve as such at the effective time of
the Merger.
Employee Stock Options. The Merger Agreement provides that, at the
effective time of the Merger, each holder of a then outstanding Company Option
will, in settlement thereof, receive from the Company for each share of Common
Stock subject to such option an amount in cash equal to the excess of the Merger
Price Per Share over the per share exercise price of such Company Option (the
"Cash Settlement").
Pursuant to the terms of the Company's 1987 Stock Option Plan (the "1987
Plan") and 1988 Stock Option Plan (the "1988 Plan"), the approval of the Merger
Agreement by the Stockholders will result in all Company Options under the 1987
Plan and the 1988 Plan becoming exercisable in full. At November 19, 1996,
executive officers of the Company listed below held outstanding Company Options
to purchase 40,000 shares of Common Stock under the 1987 Plan at an exercise
price of $1.00 per share. In addition, at November 19, 1996, executive officers
of the Company listed below held outstanding Company Options to purchase 695,000
shares of Common Stock under the 1988 Plan at exercise prices ranging from $2.50
to $7.50 per share. All but 250,000 of the Company Options outstanding under
the 1987 Plan and the 1988 Plan were fully exercisable prior to the execution of
the Merger Agreement. The following table sets forth information with respect
to the number of vested and unvested Company Options held by the persons named
below:
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<PAGE>
PACIFIC RIM HOLDING CORPORATION
EXECUTIVE STOCK OPTIONS
As of November 19, 1996
<TABLE>
<CAPTION>
1987 PLAN 1988 PLAN
# OF OPTIONS # OF OPTIONS
------------ ------------
EXERCISABLE UNEXERCISABLE PRICE EXERCISABLE UNEXERCISABLE PRICE
<S> <C> <C> <C> <C> <C> <C>
STANLEY BRAUN --- --- $ --- 50,000 $2.500
--- --- $ --- 50,000 $7.500
--- --- $ --- 250,000 $2.750
250,000 $5.500
------------------------ ------------------------
Total --- --- 350,000 250,000
PAUL CRAIG --- --- $ ---
25,000 --- $4.000
25,000 --- $7.500
------------------------
Total 50,000 ---
SANDRA RICHARDS 10,000 --- $1.00 15,000 --- $2.500
10,000 --- $3.875
10,000 --- $4.000
------------------------
Total 35,000 ---
RONALD TONANI 30,000 --- $1.00 10,000 --- $2.500
------------------------ ------------------------
GRAND TOTAL 40,000 445,000 250,000
======================== ========================
TOTAL 1987 40,000
TOTAL 1988 695,000
-------------
735,000
=============
</TABLE>
Compensation Plan for Senior Management. The Company maintains a
Compensation Plan for Senior Management Team (the "SMT Plan"), which team
currently consists of the following officers of the Company: Ronald J. Tonani,
Sandra L. Richards and Paul W. Craig. If a change of control of the Company
occurs on or before June 30, 1997, ninety days after such change in control,
those persons then eligible under the SMT Plan will be entitled to receive a
single life annuity retirement benefit vested at age 60 equal to the following
present cash values, or cash in the same amount, which, in the aggregate, shall
not exceed $350,000 (the "Aggregate SMT Benefit Amount"): (a) Ronald J. Tonani
- - $172,222; (b) Sandra L. Richards - $122,222; and (c) Paul W. Craig - $55,556.
The Aggregate SMT Benefit Amount available under the SMT Plan may be reallocated
if additional participants, at the Company's vice president level or higher, are
added to the SMT Plan.
The SMT Plan defines a "change of control" as the closing of a
transaction pursuant to the terms of which more than 51% of the Common Stock is
acquired by means of a merger, sale or reorganization of the Company. In
addition, the following conditions must be satisfied in
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<PAGE>
connection therewith: (1) the transaction must be approved by the required vote
of the Board and the Stockholders; (2) the SMT Plan and all amendments thereto
must be approved by the Stockholders; (3) subject to the SEC's approval, the
Company must submit for Stockholder approval the SMT Plan as a joint resolution
with the proposed transaction effecting a change of control; and (4) each person
eligible for benefits under the SMT Plan must continue to provide services to
the Company unless a cessation of services occurs as a result of such person's
resignation or the termination of such person's employment without cause.
Accordingly, a vote "For" approval and adoption of the Merger Agreement serves
to ratify the payment of amounts due under the SMT Plan.
1996 Annual Incentive Plan. Under the 1996 Annual Incentive Plan (the
"1996 Plan"), certain of Assurance Company's key employees will be paid a cash
bonus if Assurance Company meets specified annual objectives measured by its
revenue and combined ratio. The Merger Agreement provides that all awards under
the Company's 1996 Plan will remain in effect in accordance with their terms,
and payout will not be accelerated, except that purchase accounting related
adjustments made by Assurance Company and any adjustments in Assurance Company's
reserves, to the extent that such adjustment does not result in a Pac Rim
Material Adverse Effect (See "THE MERGER AGREEMENT -- Representations and
Warranties"), shall not be included as incurred losses of Assurance Company in
calculating the combined ratio exhibit of the matrix utilized to determine
amounts payable under the 1996 Plan. The reserve adjustment may, however, be
taken into consideration by Assurance Company in calculating the combined ratio
exhibit if, upon year-end review, it is determined that such adjustment was
required under generally accepted accounting principles.
Employee Severance. The Merger Agreement provides that Superior or
the Surviving Corporation will satisfy all obligations and pay all amounts due
under the Company's severance program in effect as of the date of the Merger
Agreement with respect to any employees whose employment is terminated as
provided in the Merger Agreement within nine (9) months following the closing
date of the Merger. If an employee of the Company or any of its subsidiaries is
terminated in accordance with the Merger Agreement within nine (9) months
following the closing date of the Merger, and such termination is other than for
cause, then the Company or the Surviving Corporation, as appropriate, will be
obligated to pay to such employee certain termination payments and make
available benefits as follows:
(a) Calculation of Termination Payments for Officers of the Company.
Officers of the Company terminated within the nine (9) months following the
closing date of the Merger will receive payment equal to (i) such
employee's annual base salary divided by twelve (12), multiplied by (ii)
such employee's years of service with the Company, rounded to the nearest
full year, multiplied by two. Six months of employment would round to the
next highest year. Such employees will also receive COBRA continuation
benefits equal to two months of benefits for each year of service rounded
to the nearest whole year.
(b) Calculation of Termination Payments for Other Employees of the
Company. Other Employees of the Company terminated within the nine (9)
months following the closing date of the Merger will receive payment equal
to (i) such employee's annual base salary divided by twelve (12),
multiplied by (ii) such employee's years of service with the Company
rounded to the nearest full year. Six months of employment would round to
the next highest year. Such employees shall also receive COBRA
continuation benefits equal to one month of benefits for each year of
service rounded to the nearest whole year.
Employment Agreement - Stanley Braun. In March of 1995, an amendment (the
"First Amendment") to Stanley Braun's Employment Agreement (the "Employment
Agreement") with the Company was negotiated between Mr. Braun and the Board (in
which Mr. Braun did not participate as a member of the Board). The Amendment
changed certain terms and provisions of the Employment Agreement, including the
consequences of an event representing a "change in
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<PAGE>
control" occurring as to the Company prior to June 30, 1996. Pursuant to an
amendment to Mr. Braun's Employment Agreement dated as of March 30, 1996 (the
"Second Amendment"), the time within which a "change of control" of the Company
must occur was extended to June 30, 1997.
The Second Amendment defines a "change in control" as the closing of an
acquisition of more than 51% of the Common Stock through a merger, sale, or
reorganization by an entity, individual or group acting in concert which
satisfies the following conditions: (1) the transaction resulting in a change of
control must be approved by the required vote of the Board and the Stockholders;
(2) the Second Amendment must be approved by the Stockholders; (3) subject to
the SEC's approval, the Company must submit for Stockholder approval certain
elements of the Second Amendment which become effective upon approval as a joint
resolution with the proposed transaction effecting a change of control; and (4)
Mr. Braun must continue to provide services to the Company, unless a cessation
of services occurs as a result of Mr. Braun's termination without cause, as that
term is defined in the Second Amendment. Accordingly, a vote "For" approval and
adoption of the Merger Agreement serves to ratify the extension until June 30,
1997, the date within which a change in control of the Company must occur in
order for Mr. Braun to be eligible for the payment of certain benefits under the
Employment Agreement, as amended.
In the event of a change of control the Employment Agreement will be
extended for a term of four years following the event of a "change in control"
and Mr. Braun will continue to receive an annual salary of $400,000 per year for
each of those four years. He need only, however, render services to the Company
for two years following such change in control. In addition, during that four-
year period Mr. Braun is bound by all the terms of the confidentiality provision
of the Employment Agreement and may not compete with the Company.
In addition, in the event of a "change of control," Mr. Braun's rights to
all of his Company Options shall vest; however, any options that are not "in the
money" as of the date of a "change of control" shall be valued at the sum of
$100 and may, at the Company's discretion, be purchased by the Company for that
amount.
The First Amendment also provides that in the event of a "change of
control," Mr. Braun will be paid a $475,000 bonus at the closing of the
transaction. The First Amendment also provides for the payment of a $525,000
bonus to Mr. Braun on the 10th day of January of the calendar year following the
closing of a "change of control," which amount will be offset by the outstanding
balance on the loan that Mr. Braun received from the Company. As of November
19, 1996, the outstanding balance on that loan was $450,000.
In addition, Mr. Braun is eligible for a bonus under the 1996 Plan if
Assurance Company meets certain specified annual objectives. See INTERESTS OF
CERTAIN PERSONS IN THE TRANSACTION -- 1996 Annual Incentive Plan.
Employee Benefit Plans. The Merger Agreement provides that from and after
the effective time of the Merger, subject to applicable law, and except as
contemplated with respect to the Company Stock Plans, Superior will honor in
accordance with their terms, all the Company's employee benefit plans; provided,
however, the Merger Agreement does not preclude any change effected on a
prospective basis following the effective time of the Merger in any such plans
in accordance with applicable law. The Merger Agreement also provides that
Superior will employ at the effective time of the Merger all employees of the
Company who are employed on the closing date of the Merger at-will, with all
material terms of their employment at the Company, under Superior's then-current
employment practices and policies. Such employment shall be at-will and
Superior shall be under no obligation to continue to employ any such
individuals.
Indemnification. The Merger Agreement provides that for a period of three
years from and after the effective time of the Merger, Superior and the
surviving corporation of the Merger will
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<PAGE>
indemnify, defend and hold harmless to the fullest extent permitted under the
Certificate of Incorporation or Bylaws of the Company and any indemnification
agreement among the Company, its subsidiaries and their respective officers and
directors (whether current or former) (collectively, the "Indemnification
Documents"), each person who is now, or has been at any time prior to the date
hereof, an officer or director of the Company (or any subsidiary or division
thereof), including, without limitation, each person controlling any of the
foregoing persons (individually, an "Indemnified Party"), against all loss as to
which they are indemnified under the Indemnification Documents, whether
commenced or asserted or claimed before or after the effective time of the
Merger and including, without limitation, liabilities arising under the
Securities Act of 1933, the Exchange Act of 1934 and state corporation laws in
connection with the Merger.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation (1)
------------------------------------------------------- ----------------
Name and Other Annual
Principal ------------------------- Stock Option
Position Year Salary Bonus Compensation(2) Grants
- --------------------- ------------ ------------ -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Stanley Braun 1995 $400,000 $100,000 $152,901 -0-
President and 1994 400,000 -0- 164,905 500,000
CEO 1993 400,000 -0- 182,252 -0-
Paul W. Craig 1995 172,308 $ 10,000 $ 6,000 -0-
Executive Vice 1994 160,000 -0- 6,250 -0-
President and 1993 160,000 -0- 6,000 -0-
CFO
Sandra L. 1995 $129,231 $ 10,000 $ 6,000 -0-
Richards 1994 120,000 -0- 6,250 -0-
Senior Vice 1993 120,000 -0- 6,000 -0-
President
David B. 1995 $128,125 -0- $ 6,000 15,000
Chatfield (3) 1994 31,250 -0- 1,500 -0-
General Counsel
Ronald J. 1995 $111,539 $ 10,000 $ 6,000 -0-
Tonani 1994 100,000 -0- 6,250 -0-
Senior Vice 1993 100,000 -0- 6,000 -0-
President
</TABLE>
(1) Other long-term compensation data is not presented in the summary
compensation table because the Company has no such existing plans, although
the Executive Compensation Committee of the Company and its subsidiary
previously undertook studies, which concerned the implementation of
incentive bonus and long-term compensation plans. See SPECIAL FACTORS --
Interests Of Certain Persons In The Transaction: Compensation Plan For
Senior Management; 1996 Annual Incentive Plan; and Employee Severance."
(2) Except with respect to Mr. Braun, the amounts set forth in the summary
compensation table as other annual compensation represent automobile
allowances paid by the Company as compensation for business use of personal
vehicles. The amounts set forth in the summary compensation table as other
annual compensation for Mr. Braun in 1995 include payments to Mr. Braun of
140% of the interest payable by Mr. Braun to the Company on a loan made by
the Company to Mr. Braun, the amount of which was $63,000 or 41% of all
other annual compensation to Mr. Braun for 1995; an automobile and the
services of a driver, the amount of which was $49,666, or 32% of all other
annual compensation to Mr. Braun for 1995; premiums for disability insurance
for Mr. Braun, the amount of which was $11,700,
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<PAGE>
or 8% of all other annual compensation payable to Mr. Braun for 1995; and
certain other executive benefits, including an income tax preparation
allowance, country club memberships and executive health, life and
disability insurance benefits.
(3) Mr. Chatfield joined Assurance Company on October 7, 1994.
Option Grants During 1995
Stock options were granted to David B. Chatfield, General Counsel, during
1995 to purchase 15,000 Shares of Common Stock at an exercise price of $3.19 per
share.
No stock options were granted to the Chief Executive Officer or to the other
executives of the Company during 1995.
Option Exercised in 1995 and Year-End Option Values
The following table sets forth information concerning stock options that
were exercised during, or held at the end of, 1995 by the Company's chief
executive officer and the four most highly compensated other executives:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
At Fiscal Year End at Fiscal Year End (1)
--------------------------- ---------------------------
Shares Acquired
Name On Value Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley Braun -0- $-0- 225,000 375,000 $-0- $-0-
Paul W. Craig -0- -0- 50,000 -0- -0- -0-
Sandra L. Richards -0- -0- 42,500 2,500 15,000 -0-
Ronald J. Tonani -0- -0- 40,000 -0- 45,000 -0-
David B. Chatfield -0- -0- -0- 15,000 -0- -0-
</TABLE>
(1) Valued at $2.50 per share.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash in exchange for Common Stock pursuant to the Merger will
be a taxable transaction for Federal income tax purposes and may also be a
taxable transaction under applicable state, local and foreign tax laws. A
Stockholder will generally recognize gain or loss for Federal income tax
purposes in an amount equal to the difference between such Stockholder's
adjusted tax basis in such Stockholder's Common Stock and the consideration
received by such Stockholder in the Merger. Such gain or loss will be
calculated separately for each block of Common Stock exchanged by a Stockholder.
Such gain or loss will be a capital gain or loss if a block of Common Stock is
held as a capital asset and will be long-term capital gain or loss if, at the
effective time of the Merger, such block of Common Stock has been held for more
than one year.
The foregoing discussion may not apply to Stockholders who acquired their
Common Stock pursuant to the exercise of employee stock options or other
compensation arrangements with the Company, who are not citizens or residents of
the United States or who are otherwise subject to
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special tax treatment. EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
REGULATORY APPROVALS
State Insurance Regulatory Approvals. State insurance company holding
company laws and regulations applicable to the Company generally provide that no
person may acquire control of the Company unless such person has provided
certain required information to, and such acquisition has been approved (or not
disapproved) by, the appropriate insurance regulatory authorities. In accordance
with the insurance holding company laws of California, Superior, on behalf of
itself and certain of its subsidiaries, has filed an application on Form A for
the approval of the Merger with the California Department of Insurance. As of
the date of this Proxy Statement, Superior has filed all required applications
with the California Department of Insurance, but the Department has not
completed its review of the filing.
Hart-Scott-Rodino Antitrust Improvements Act. The acquisition by Superior of
the voting securities of the Company pursuant to the Merger Agreement requires
Superior and the Company to comply with the notification and waiting period
requirements of the HSR Act. In accordance with the requirements of the HSR Act,
the Company and Superior each made the required filings thereunder, and the
applicable waiting period under the HSR Act has expired.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds necessary for payment of the consideration to be
received by the Stockholders in the Merger and Prac and Allstate under the
Purchase Agreement is $54,021,032. The total amount of funds required by
Superior to pay the fees of its legal counsel and advisors is approximately
$5,000,000. These are the only expenses related to the Merger that are expected
to be paid by Superior. Superior anticipates paying such amount from (1) the
sale to certain purchasers in a private transaction of an aggregate of 2,390,438
shares of Superior's common stock at $7.53 per share, for an aggregate purchase
price of $18 million; and (2) a $44 million Term Loan Facility from Chase
Manhattan Bank, N.A.
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the Merger will be paid by the party
incurring the expense. Estimated costs and fees to be incurred by the Company
in connection with the Merger, assuming completion of the Merger, are as
follows:
<TABLE>
<S> <C>
Investment Banking Fees................................... $1,035,000
Legal Fees................................................ $ 350,000
SEC Filing Fees........................................... $ 10,804
Printing Costs............................................ $ 15,000
Miscellaneous............................................. $ 125,000
----------
Total................................................... $1,535,804
==========
</TABLE>
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached hereto as Appendix A and incorporated by reference
herein. All references to and summaries of the Merger Agreement in this Proxy
Statement are qualified in their entirety by reference to the Merger Agreement.
Stockholders are urged to read the Merger Agreement carefully and in its
entirety.
EFFECTIVE TIME
Subject to the provisions of the Merger Agreement on the day the Merger
closes, which will be the first business day after the satisfaction or waiver of
all the conditions set forth in the Merger Agreement (the "Closing Date"),
unless another time or date is agreed to in writing by the Company and Superior,
a certificate of merger (the "Certificate of Merger") will be filed with the
Secretary of State of the State of Delaware. The "Effective Time" of the Merger
will be upon the filing of the Certificate of Merger or at such time thereafter
as is provided in the Certificate of Merger.
THE MERGER
The Merger Agreement provides that, subject to the approval and adoption of
the Merger Agreement by the Stockholders and Debenture Holders, approval by
certain regulatory authorities and compliance with certain other covenants and
conditions, Merger Sub will be merged with and into the Company, at which time
the separate corporate existence of Merger Sub will cease and the Company will
continue as the Surviving Corporation. Following consummation of the Merger,
the Company, as the surviving corporation of such Merger, will be an indirect
subsidiary of Superior. As a result of the Merger, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub will vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Merger Sub will become the debts, liabilities and duties of the Surviving
Corporation.
Conversion of Securities. At the Effective Time, (i) each share of Common
Stock that is owned by the Company will be automatically cancelled and retired
and will cease to exist, and no consideration will be delivered or deliverable
in exchange therefor, (ii) each issued and outstanding share of Common Stock
(other than shares to be cancelled or to remain outstanding in accordance with
the immediately preceding clause (i) and other than Dissenting Shares) will be
converted into the right to receive the Merger Price Per Share in cash, without
interest thereon, upon surrender of the certificates representing shares of
Common Stock, and (iii) each share of common stock of Merger Sub will be
converted into and become one share of common stock of the Surviving
Corporation.
Directors and Officers; Governing Documents. At the Effective Time, the
directors and officers of Merger Sub will become the directors and officers of
the Surviving Corporation until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be. At the Effective Time, the Certificate of Incorporation and the Bylaws
of Merger Sub, as in effect immediately prior to the Effective Time, will be the
Certificate of Incorporation and the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
Exchange Procedures. Superior has designated U.S. Stock Transfer Corporation
to act as the Exchange Agent for the payment of the consideration to be received
by Stockholders in the Merger upon surrender of certificates representing shares
of Common Stock. Promptly after the Effective Time, the Exchange Agent will mail
to each holder of record (other than holders of Dissenting Shares) (i) a letter
of transmittal and (ii) instructions for the surrender of certificates
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representing ownership of shares of Common Stock ("Certificates") in exchange
for the Merger Price Per Share in cash. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate will be entitled to receive in
exchange therefor the amount of cash into which the shares theretofore
represented by such Certificate have been converted pursuant to the Merger
Agreement, and the Certificate so surrendered will forthwith be cancelled. No
interest will be paid or accrued on the cash payable upon the surrender of any
Certificate. If payment is to be made to a person other than the person in
whose name a surrendered Certificate is registered, it will be a condition to
such payment that the Certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer, and that the person requesting such
payment pay any transfer or other taxes which may be required by reason of such
payment to a person other than the registered holder of the surrendered
Certificate, or establishes to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable. After the Effective Time,
each Certificate (other than Dissenting Shares) will represent only the right to
receive upon surrender to the Exchange Agent the amount of cash, without
interest, into which the shares theretofore represented by such Certificate have
been converted pursuant to the Merger Agreement, determined as of the Effective
Time. The right of any Stockholder to receive the Merger Price Per Share in
cash will be subject to and reduced by the amount of any required tax
withholding obligation.
Cancellation and Retirement of Common Stock. All cash paid upon the
surrender of Certificates in accordance with the Merger Agreement will be deemed
to have been paid in full satisfaction of all rights pertaining to the shares of
Common Stock theretofore represented by such Certificates. At the Effective
Time, the stock transfer books of the Company will be closed, and there will be
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares that were outstanding immediately prior to
the Effective Time.
All interest earned on funds made available to the Exchange Agent pursuant
to the Merger Agreement will be turned over to Superior or the subsidiary
providing such funds, as applicable.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of the
Company, including representations and warranties regarding: the Company and
its subsidiaries' due organization, valid existence and good standing and
authority to own, operate and lease properties and carry on their respective
businesses; the authority to enter into the Merger Agreement, subject to the
approval of its Stockholders and the Debenture Holders; the capitalization of
the Company; the ownership of the Company's subsidiaries; the absence of
conflict between the transactions contemplated under the Merger Agreement and
other agreements and documents; the adequacy of filings with the SEC; tax
filings, payments, audit history and elections; certain matters relating to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"); certain
labor matters; the opinion of Salomon as to the fairness, from a financial point
of view, of the consideration to be received by the Stockholders in the Merger;
liens; leases on real property; environmental matters; intellectual property
matters; powers of attorney and guarantees; related party transactions;
information provided for Superior's Proxy Statement; and the absence of (i) any
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against the Company that would prevent or delay the consummation of
the transaction contemplated by the Merger Agreement; (ii) except as otherwise
disclosed in any reports filed with the SEC, any outstanding order, writ,
injunction or decree which would prevent or delay consummation of the
transactions contemplated by the Merger Agreement; or (iii) certain changes
since June 30, 1996.
Each of the foregoing representations and warranties are qualified to the
extent of a "Pac Rim Material Adverse Effect." A "Pac Rim Material Adverse
Effect" is defined in the Merger Agreement as an adverse effect on the business,
results of operations, prospects or
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financial condition of the Company and its subsidiaries, taken as a whole,
having an economic value of $1,000,000 or more; provided, however, based upon
the reserves booked by Assurance Company, no adverse development in Assurance
Company's reserves, to the extent that such adverse development does not exceed
the sum of (i) the $4,500,000 and (ii) $1,000,000, shall be included in
determining whether a Pac Rim Material Adverse Effect exists; provided, further,
any change in the book value of the Company or any of its subsidiaries based on
an adjustment of the market value of securities valued at book value on such
companies' books and records shall not be included in determining if a Pac Rim
Material Adverse Effect exists; provided, further, any amounts that may be
payable under the SMT Plan, the 1996 Plan, the Employment Agreement and all
amendments thereto to date, and the Company's employee severance program that
are not reflected in the Company's financial statements shall not be included in
determining if a Pac Rim Material Adverse Effect exists.
The Merger Agreement also includes certain representations and warranties by
Superior and Merger Sub, including representations and warranties regarding:
authority to enter into the Merger Agreement; the valid and legally binding
obligations created by execution of the Merger Agreement; the absence of
conflict with other agreements and documents; the operation of Merger Sub prior
to the Effective Date; the availability of financing in order to effect the
transaction contemplated pursuant to the Merger Agreement; the opinion of
Donaldson, Lufkin, Jenrette Securities Corporation to the effect that the
financing arrangements obtained in order to effect the transaction contemplated
under the Merger Agreement are fair to Superior's stockholders from a financial
point of view; the solvency of the Surviving Corporation following the Effective
Time; Superior and Merger Sub's ownership of common stock; and information
provided for the Company's Proxy Statement. Each of the foregoing
representations and warranties are qualified to the extent of a "Parent Material
Adverse Effect," which means an adverse effect on the business, results of
operations, prospects or financial condition of Superior having an economic
value of up to $1 million.
CONDUCT OF THE BUSINESS PENDING THE MERGER
During the period from September 17, 1996, until the Effective Time, the
Company has agreed as to itself and its subsidiaries that, except as expressly
contemplated or permitted by the Merger Agreement or as consented to in writing
by Superior, the Company and its subsidiaries will carry on their respective
businesses in the usual regular and ordinary course in substantially the same
manner as conducted prior to September 17, 1996, and will use all reasonable
efforts to preserve intact their present business organizations and good will,
keep available the services of their present officers and employees and preserve
their relationships with those persons having business relationships with them.
The Company has also agreed that it: (i) will confer on a regular basis with
Superior to report operational matters of materiality and any proposals to
engage in material transactions; (ii) will not amend its Certificate of
Incorporation or Bylaws; (iii) will promptly notify Superior of any material
change or event with respect to the Company or any of its subsidiaries; and (iv)
will timely file all reports required by applicable securities laws, rules or
regulations to be filed with the SEC.
The Company also has agreed that it will not (i) except pursuant to the
exercise of options, warrants, conversion rights and other contractual rights
existing as of September 17, 1996, issue any shares of its capital stock, effect
any stock split or other change in capitalization; (ii) grant, confer or award
any option, warrant, conversion right or other right not existing as of
September 17, 1996 to acquire any shares of its capital stock from Company;
(iii) except for normal increases in compensation for employees not earning more
than $85,000 in annual base compensation and not to exceed 5% of such employee's
current base salary, increase any compensation or enter into or amend any
employment severance, termination or similar arrangement with any of its present
or future officers or directors; or (iv) adopt any new employee benefit plan or
amend any existing employee benefit plan.
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In addition, the Company will not: (i) declare or pay any dividends or make
any other distribution with respect to its capital stock, other than paying, on
the closing date of the Merger all interest accrued but unpaid under the
Debenture/Warrant Agreement; (ii) except in connection with the use of shares of
capital stock to pay the exercise price or tax withholding with respect to
stock-based employee benefit plans of the Company, directly or indirectly
redeem, purchase or otherwise acquire any shares of its capital stock or that of
any of its subsidiaries; or (iii) split, combine or reclassify any of its
capital stock.
The Company has also agreed that it will not: (i) enter into any transaction
outside the ordinary course of business consistent with past practices or any
material contract or transaction outside the ordinary course of business
consistent with past practice; (ii) change any of the accounting principles or
practices; (iii) acquire any corporation, partnership or other business
organization or division thereof or any equity interest therein; (iv) enter into
any contract or agreement other than in the ordinary course of business
consistent with past practice; (v) authorize any new capital expenditure or
expenditures which, individually, is in the excess of $25,000 or, in the
aggregate, are in excess of $750,000, without the prior consent of Superior
(which consent shall not be unreasonably withheld); (vi) make any tax election
or settle or compromise any income tax liability material to the Company and its
subsidiaries taken as a whole; (vii) pay, discharge or satisfy any claims,
liabilities or obligations other than the payment, discharge or satisfaction of
liabilities reflected or reserved against in, and contemplated by, the
consolidated financial statements of the Company and its subsidiaries incurred
in the ordinary course of business consistent with past practice; (viii) settle
or compromise any pending or threatened suit, action or claim relating to the
Merger Agreement; or (ix) take any action that would make any of the
representations and warranties of the Company contained in the Merger Agreement
untrue and incorrect as of the date when made.
NO SOLICITATION; FIDUCIARY OUT
The Company has agreed that neither it nor any of its subsidiaries nor any
of its or their officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) will (except to the extent
necessary to comply with fiduciary duties to stockholders) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including any proposal or offer to its stockholders)
with respect to an Acquisition Proposal or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
The Company has also agreed that as of September 17, 1996, it will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted prior to that date with respect to the
matters described in the preceding sentence and will inform any individuals or
entities with whom an Acquisition Proposal is being discussed on or after
September 17, 1996, of the obligations undertaken with respect to an Acquisition
Proposal pursuant to the Merger Agreement.
The Company also agreed that it will notify Superior immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any negotiations or discussions are sought to be initiated or continued with
the Company or any of its subsidiaries.
Notwithstanding the foregoing, prior to approval of the Merger Agreement by
the Stockholders, the Board will not be prohibited from (i) furnishing
information to or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide written Acquisition Proposal, if, and
only to the extent that (a) such Acquisition Proposal is on terms which the
Board determines, with the assistance of its financial advisors, represents a
financially superior transaction to the Company's Stockholders compared with the
Merger, (b) such
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Acquisition Proposal is not conditioned upon the acquiror obtaining financing,
(c) the Board determines in good faith, based as to legal matters on the written
opinion of outside legal counsel, that such action is required for it to comply
with its fiduciary duties to the Stockholders imposed by law, (d) two business
days prior to furnishing such information to or entering into discussions or
negotiations with such person or entity, the Company provides written notice to
Superior to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity and furnishes Superior
with the terms of and a copy of such Acquisition Proposal and (e) thereafter,
the Company keeps Superior informed of the status (and terms) of any such
discussions or negotiations; and (ii) to the extent applicable, complying with
Rule 14e-2(a) promulgated under the Exchange Act of 1934 with regard to an
Acquisition Proposal provided, however, that except as otherwise provided in the
Merger Agreement, the Company may not terminate the Merger Agreement or effect
any other obligation of any party thereunder.
OTHER AGREEMENTS OF THE COMPANY, SUPERIOR AND MERGER SUB
In the Merger Agreement, the Company, Superior and Merger Sub have agreed to
use their best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by the Merger Agreement, including cooperating fully with the other
party, providing information and making all necessary filings under state
insurance laws. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of the Merger Agreement or
to vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities and franchises of either the Company or Merger
Sub, the proper officers and directors of the Company, Superior and Merger Sub
will take all such necessary action.
EMPLOYEE BENEFIT PLANS
The Merger Agreement provides that from and after the Effective Time,
subject to applicable law, and except as contemplated with respect to the
Company Stock Plans, Superior will honor in accordance with their terms, all the
Company's employee benefit plans; provided, however, the Merger Agreement does
not preclude any change effected on a prospective basis following the Effective
Time in any such plans in accordance with applicable law. With respect to the
employee benefit or compensation plan or arrangement, including each "employee
benefit plan" as defined in Section 3(3) of ERISA maintained by Superior (the
"Superior Benefit Plans"), Superior and the Surviving Corporation shall grant
all the Company's employees from and after the Effective Time credit for all
service with the Company and its affiliates and predecessors prior to the
Effective Time for all purposes for which such service was recognized by the
Company. To the extent the Superior Benefit Plans provide medical or dental
welfare benefits after the Effective Time to the Company's employees, Superior
or the Surviving Corporation, as the case may be, shall use reasonable and best
efforts to ensure that such plan shall waive any preexisting conditions and
actively-at-work exclusions and shall provide that any expenses incurred on or
before the Effective Time shall be taken into account under Superior Benefit
Plans for purposes of satisfying applicable deductible, coinsurance and maximum
out-of-pocket provisions.
The Merger Agreement also provides that Superior will employ at the
Effective Time all employees of the Company who are employed on the Closing Date
at-will, with all material terms of their employment at the Company, under
Superior's then-current employment practices and policies. Such employment shall
be at-will and Superior shall be under no obligation to continue to employ any
such individuals.
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STOCK OPTIONS
At the Effective Time, each holder of a then outstanding option to purchase
shares of Common Stock under the 1987 and 1988 Plans, will, in settlement
thereof, receive from the Company for each share of Common Stock subject to such
option an amount in cash equal to the excess of Merger Price Per Share over the
per share exercise price of such option. Upon such holder's receipt of such
amount, such option will be cancelled. Such surrender of an option to the
Company will be deemed a release of any and all rights the holder thereof had or
may have had in respect thereof.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that for a period of three years from and
after the Effective Time, Superior and the Surviving Corporation will indemnify,
defend and hold harmless to the fullest extent permitted under the
Indemnification Documents, each Indemnified Party, against all loss as to which
they are indemnified under the Indemnification Documents, whether commenced or
asserted or claimed before or after the Effective Time and including without
limitation, liabilities arising under the Securities Act of 1933, the Exchange
Act of 1934 and state corporation laws in connection with the Merger.
In addition, for a period of three (3) years after the Effective Time,
Superior shall cause to be maintained officers' and directors' liability
insurance covering the Indemnified Parties who are currently covered, in their
capacities as officers and directors, by the Company's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance; provided,
however, through February 16, 1997, the policy limits of such coverage shall not
be less than $20 million and from February 17, 1997 until three (3) years after
the Effective Time, the policy limits of such coverage shall not be less than
the higher of $15 million or such policy limits then provided by Superior for
its officers and directors.
CONDITIONS TO THE MERGER
All Parties. Pursuant to the Merger Agreement, the respective obligations of
each party to effect the Merger are subject to the satisfaction of the following
conditions prior to the Closing Date: (i) approval and adoption of the Merger
Agreement by the holders of at least 70%, in the aggregate, of both the issued
and outstanding shares of Common Stock and Debentures, voting together, with
such Debentures having a number of votes equal to the number of shares of Common
Stock into which such Debentures may be converted; (ii) the issuance of
Superior's common stock in order to finance the Merger shall have been approved
by the required vote of Superior's shareholders; (iii) all authorizations,
consents, orders or approvals of, or filings with, or expirations of waiting
periods proposed by, any governmental entity having been filed, occurred or been
obtained; and (iv) no order or injunction issued by any court of competent
jurisdiction preventing the consummation of the Merger being in effect.
Superior and Merger Sub. Pursuant to the Merger Agreement, the obligations
of Superior and Merger Sub to effect the Merger are subject to the satisfaction
or waiver of the following conditions: (i) the representations and warranties of
the Company set forth in the Merger Agreement being true and correct in all
material respects as of the closing date of the Merger and the Company having
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to such closing date; (ii) Superior
and Merger Sub having received, on and as of the closing date of the Merger, an
opinion of Barger & Wolen LLP, counsel to the Company, in usual and customary
form reasonably acceptable to Superior and Merger Sub; (iii) the parties to the
Purchase Agreement shall have sold and transferred to Superior all such parties'
right, title and interest in and to the Debentures and Warrants and the parties
to the
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Surrender Agreement shall have surrendered and transferred to the Company all of
their right, title and interest in and to the Series 3 Warrants; and (iv) from
September 17, 1996 through the Effective Time, there shall not have occurred any
change in the financial condition, business, operations or prospects of Pac Rim
and its subsidiaries, taken as a whole, which changes taken together would have
or would be reasonably likely to have a Pac Rim Material Adverse Effect.
The Company. Pursuant to the Merger Agreement, the obligation of the Company
to effect the Merger is subject to the satisfaction or waiver of the following
conditions: (i) the representations and warranties of Superior and Merger Sub
set forth in the Merger Agreement being true and correct in all material
respects as of the closing date of the Merger and Superior having performed all
obligations required to be performed by it under the Merger Agreement at or
prior to the closing date of the Merger; (ii) the Company having received the
opinion of Salomon to the effect that as of the date of this Proxy Statement,
the consideration to be received in the Merger by the Stockholders is fair to
such Stockholders from a financial point of view; and (iii) the Company having
received, on and as of the closing date of the Merger, an opinion of Riordan &
McKinzie, counsel to Superior and Merger Sub, in usual and customary form
reasonably acceptable to the Company.
TERMINATION
All Parties. The Merger Agreement may be terminated at any time prior to the
Effective Time by action of the Board of either the Company or Superior if (a)
the Merger has not been consummated on or before March 1, 1997; (b) the required
approval of the Company and Superior's respective stockholders required pursuant
to the Merger Agreement shall not have been obtained at meetings duly convened
therefore or at any adjournments thereof; or (c) a United States or state court
of competent jurisdiction or United States federal or state governmental
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable.
The Company. Pursuant to the Merger Agreement the Company may terminate the
Merger Agreement and the Merger may be abandoned at any time prior to the
Effective Time, before the approval by the Stockholders of the Company, by
action of the Board if (i) the Board determines, in exercising its good faith
judgment as to the fiduciary duties to its Stockholders imposed by law, such
termination is required by reason of an Acquisition Proposal; or (ii) there have
been breaches by Superior or Merger Sub of representations or warranties
contained in the Merger Agreement which, in the aggregate, would have or would
be reasonably likely to have a Parent Material Adverse Effect or (iii) there has
been material breach of any of the covenants or agreements in the Merger
Agreement on the part of Superior or Merger Sub, which breach is not curable or,
if curable, is not cured within 30 days after written notice of such breach is
given by the Company to Superior.
Superior. Pursuant to the Merger Agreement, Superior may terminate the
Merger Agreement and the Merger may be abandoned at any time prior to the
Effective Time by action of the Board of Directors of Superior if (i) there have
been breaches by the Company of the representations or warranties contained in
this Agreement which, in the aggregate would have or would be reasonably likely
to have a Pac Rim Material Adverse Effect; (ii) there has been a material breach
of any of the covenants or agreements set forth in the Merger Agreement on the
part of the Company, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by Superior to the
Company; or (iii) the holders of more than one million shares of the Company's
Common Stock have demanded appraisal rights in accordance with the DGCL.
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LIQUIDATED DAMAGES AND BREAKUP FEE
Payment of Liquidated Damages. The Merger Agreement provides that if the
Company or Superior fail to satisfy certain conditions set forth in the Merger
Agreement or after satisfying such conditions and requirements of the Agreement
either party refuses to consummate the transactions contemplated under the
Merger Agreement liquidated damages are payable. In the event of such a breach
by Superior, Superior must pay to the Company $5 million and in the event of
such breach by the Company, the Company must pay to Superior the sum of $2.5
million.
Breakup Fee. If (a) the Board terminates the Merger Agreement by reason of
an Acquisition Proposal or (b) following public announcement of an Acquisition
Proposal, the Board terminates the Merger Agreement due to the failure to obtain
the required vote in favor of the Merger Agreement from the Stockholders and
Debenture Holders at a meeting duly called therefore, and in either event, the
definitive transaction documents with respect to such Acquisition Proposal are
executed by the Company within six months following any such termination, the
Company shall pay Superior a breakup fee of $5 million. Such breakup fee is not
separately payable in the event that liquidated damages are due and paid under
the Merger Agreement.
EXPENSES
The Merger Agreement provides that whether or not the Merger is consummated
all costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses.
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended by written instrument
signed on behalf of each of the Company, Superior and Merger Sub pursuant to
action taken or authorized by their respective boards of directors at any time
before or after Stockholder approval of the Merger Agreement, but after any such
approval, no amendment will be made which by law requires further approval by
the Stockholders without obtaining such further approval in accordance with the
Merger Agreement. The Merger Agreement further provides that, at any time prior
to the Effective Time, the parties to the Merger Agreement, by action taken or
authorized by their respective boards of directors, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties thereto, (ii) waive any inaccuracies in the
representations and warranties of any other party contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement or (iii)
waive compliance with any of the conditions or agreements contained in the
Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of November 19, 1996 (unless otherwise
indicated), information concerning beneficial ownership of the Common Stock by
any person known to the Company to be the beneficial owner of more than 5% of
such stock, by each director, by the Chief Executive Officer of the Company, by
each of the four other most highly compensated executive officers of the
Company, individually, and by directors and executive officers of the Company as
a group. Individuals have sole voting and investment power over such stock
unless otherwise indicated in the footnotes.
-46-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned (1) Class (2)
- ---- --------------------------- -----------
<S> <C> <C> <C>
Stanley Braun 595,071 (3) 6.02%
Timothy R. Busch 258,750 (8) (13) 2.66
Dennis W. Harwood 116,750 (9) 1.21
Richard H. Pickup 11,714,005 (10) (11) (14) 62.40
Carl A. Strunk 211,500 (8) 2.17
Paul W. Craig 51,000 (4) *
Sandra L. Richards 45,400 (5) *
Ronald J. Tonani 50,000 (6) *
All officers and
directors as a group
(8 persons) 13,042,476 (7) (12) (10) 65.96
</TABLE>
(1) Number of shares of Common Stock beneficially owned includes
shares subject to Company Options held by the individual or group, as
applicable, which are exercisable within 60 days of November 19, 1996.
(2) Percent of class for each person and all executive officers and
directors as a group is based on shares of Common Stock outstanding on November
19, 1996, plus shares subject to Company Options held by the individual or the
group, as applicable, which are exercisable within 60 days of such date.
Ownership of less than one percent is indicated by an asterisk.
(3) Includes 350,000 shares of Common Stock covered by Company
Options that are currently exercisable. Does not include 250,000 shares of
Common Stock covered by Company Options that are not currently, and will not
within the next 60 days be, exercisable.
(4) Includes Company Options to purchase 50,000 shares of Common
Stock granted under the 1988 Plan.
(5) Includes Company Options to purchase 35,000 shares of Common
Stock granted under the 1988 Plan and 10,000 shares of Common Stock granted
under the 1987 Plan.
(6) Includes Company Options to purchase 10,000 shares of Common
Stock granted under the 1988 Plan and 30,000 shares of Common Stock granted
under the 1987 Plan.
(7) Includes Company Options to purchase 360,000 shares of Common
Stock.
(8) Includes Series 3 Warrants to purchase 205,500 shares of Common
Stock at $3.50 per share.
(9) Includes Series 3 Warrants to purchase 103,500 shares of Common
Stock at $3.50 per share.
-47-
<PAGE>
(10) Includes 6,545,455 shares of Common Stock issuable upon
conversion of Debentures.
(11) Includes Series 1 Warrants to purchase 1,350,000 shares of
Common Stock at $2.50 per share and Series 2 Warrants to purchase 1,350,000
shares of Common Stock at $3.00 per share, provided by the Debenture/Warrant
Agreement.
(12) Includes Series 1, 2 and 3 Warrants to purchase 3,420,000 shares
of Common Stock.
(13) All shares attributable to Mr. Busch are held in the Lenawee
Trust.
(14) 1,421,550 shares of Common Stock attributable to Mr. Pickup are
owned by Dito-Devcar Corporation, which is controlled 100% by Mr. Pickup;
896,000 shares of Common Stock attributable to Mr. Pickup are owned by Dito
Caree L.P. Holding which is controlled 100% by Mr. Pickup; 92,000 shares of
Common Stock attributable to Mr. Pickup are owned by The Pickup Family Trust;
29,000 shares attributable to Mr. Pickup are owned by the TMP Charitable
Unitrust; and 30,000 shares attributable to Mr. Pickup are owned by the DRP
Charitable Unitrust.
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock is listed on NASDAQ under the symbol PRIM. The
following table sets forth, for the fiscal quarters indicated, the high and low
sales price per share of the Common Stock on NASDAQ and the quarterly cash
dividends paid by the Company on such shares.
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDEND
------ ----- --------
<S> <C> <C> <C>
1992
First Quarter.............................. $8 3/4 4 3/4 None
Second Quarter............................. $5 1/4 3 5/8 None
Third Quarter.............................. $3 7/8 3 None
Fourth Quarter............................. $3 1/2 3 None
1993
First Quarter.............................. $5 3/4 3 1/2 None
Second Quarter............................. $5 1/4 3 1/2 None
Third Quarter.............................. $4 1/2 3 1/4 None
Fourth Quarter............................. $ 4 2 1/2 None
1994
First Quarter.............................. $2 3/4 1 7/8 None
Second Quarter............................. $ 3 2 None
Third Quarter.............................. $ 3 2 1/8 None
Fourth Quarter............................. $3 1/8 2 1/4 None
1995
First Quarter.............................. $3 1/4 2 1/4 None
Second Quarter............................. $2 7/8 2 3/8 None
Third Quarter.............................. $3 3/8 2 5/8 None
Fourth Quarter............................. $3 5/16 2 1/8 None
</TABLE>
-48-
<PAGE>
<TABLE>
<S> <C> <C> <C>
1996
First Quarter.............................. $2 5/8 2 3/16 None
Second Quarter............................. $2 7/16 2 None
Third Quarter.............................. $ 3 1 3/4 None
Fourth Quarter through November 19, 1996... $2 15/16 2 13/16 None
</TABLE>
On September 16, 1996, the last trading day before the public announcement
of the execution of the Merger Agreement, the reported closing sale price per
share of the Common Stock on NASDAQ was $2 5/8. On November 19, 1996, the last
full trading day prior to the date of this Proxy Statement, the reported closing
sale price per share of the Common Stock on NASDAQ was $2 29/32. Stockholders
are urged to obtain a current price quotation for the Common Stock.
The Company's ability to pay dividends depends in part upon the ability of
the Company's insurance company subsidiaries to pay dividends to the Company.
Dividend payments by an insurance company are subject to statutory limitations
and in certain cases to the approval of insurance regulatory authorities.
Generally, annual dividends in excess of maximum amounts prescribed by the state
statutes may not be paid without the approval of the insurance commissioner of
the insurance company's state of domicile.
CERTAIN TRANSACTIONS IN THE COMMON STOCK
The Company has not effected any repurchases of Common Stock during the 60
days preceding the initial filing of this Proxy Statement with the SEC.
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is certain historical consolidated financial information of
the Company. The selected financial information for, and as of the end of, each
of the years in the five year period ended December 31, 1995 is derived from,
and should be read in conjunction with, the historical consolidated financial
statements of the Company and its subsidiaries, which consolidated financial
statements have been audited by Arthur Andersen L.L.P., independent auditors,
for the years ended December 31, 1994 and 1995; and by Ernst & Young L.L.P.,
independent auditors for the years ended December 31, 1991, 1992 and 1993. The
selected financial information for, and as of the end of, the nine month periods
ended September 30, 1996 and 1995 is derived from, and should be read in
conjunction with, the Company's unaudited financial statements contained in the
Company's Quarterly Reports on Form 10-Q for the quarters ended September 30,
1996 and 1995. More comprehensive financial information is included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 and
Quarterly Reports on Form 10-Q for the quarters ended September 30, 1996 and
1995 and the financial information that follows is qualified by reference to
such reports and the financial statements and related notes incorporated by
reference herein.
-49-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31 September 30
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- --------- --------- --------- --------- --------- ---------
In Thousands, Except Per Share Data
Restated Restated
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net premiums earned $100,952 $117,829 $ 99,917 $ 92,894 $ 76,016 $ 58,148 $ 63,415
Net investment income 4,976 6,416 5,989 6,514 8,089 6,181 5,351
Realized investment gains (losses) (14) 3,905 453 192 246
-------- -------- -------- -------- -------- -------- --------
Total revenue 105,928 124,231 109,811 99,408 84,558 64,521 69,012
Costs and Expenses:
Losses and loss adjustment
expenses 75,311 100,595 87,689 63,788 50,957 37,437 51,886
Amortization of policy
acquisition costs - net 13,970 12,864 11,646 19,565 18,647 15,534 11,146
Administrative, general; and other 8,994 12,647 13,257 11,927 11,662 8,201 9,405
Policyholder dividends 3,847 1,722 1,258 1,301 132 428 (127)
Interest expense 857 2,306 1,727 1,752
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses 102,122 127,828 113,850 97,438 83,704 63,327 74,062
Income (loss) before income taxes
and cumulative effect of a change
in accounting principle 3,806 (3,597) (4,039) 1,970 854 1,194 (5,050)
Income tax expense (benefit) 595 (3,027) (2,658) 812 279 382 606
-------- -------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of a change in
accounting principle 3,211 (570) (1,381) 1,158 575 812 (5,656)
Cumulative effect of a change in
accounting for income taxes 278
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 3,211 $ (292) $ (1,381) $ 1,158 $ 575 $ 812 $ (5,656)
======== ======== ======== ======== ======== ======== ========
Per Share Data:
Income (loss) before cumulative
effect of a change in
accounting principle $ 0.35 $ (0.06) $ (0.14) $ 0.12 $ 0.06 $ 0.09 $ (0.59)
Cumulative effect of a change in
accounting for income taxes 0.03
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 0.35 $ (0.03) $ (0.14) $ 0.12 $ 0.06 $ 0.09 $ (0.59)
======== ======== ======== ======== ======== ======== ========
Weighted average number of shares
outstanding 9,059 9,624 9,528 9,528 9,528 9,528 9,528
GAAP Combined Ratio Data:
Loss ratio 74.6% 85.4% 87.8% 68.7% 67.0% 64.4% 81.8 %
Underwriting expense ratio 22.8% 21.6% 24.9% 33.9% 39.9% 40.8% 32.4 %
Policyholder dividend ratio 3.8% 1.5% 1.2% 1.4% 0.2% 0.7% (0.2)%
-------- -------- -------- -------- -------- -------- --------
Combined ratio 101.2% 108.5% 113.9% 104.0% 107.1% 105.9% 114.0 %
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data-at end of period:
Cash and total investments $104,080 $121,441 $117,173 $143,075 $129,804 $131,816 $113,273
Premiums receivable 19,244 20,037 15,197 11,855 11,616 12,574 15,223
Earned but unbilled premiums 8,274 7,923 6,974 5,046 4,880 4,907 5,981
Total assets 144,711 198,501 189,241 186,570 169,051 173,818 162,463
Reserve for losses and loss
adjustment expenses 86,702 135,460 135,965 116,629 96,525 101,671 92,517
Unearned premiums 9,451 7,233 8,262 9,917 5,715 6,711 7,088
Reserve for policyholder dividends 3,506 3,069 2,529 990 381 849 247
Total liabilities 104,058 158,120 150,241 149,393 124,896 130,638 125,792
Total stockholders' equity 40,653 40,381 39,000 37,177 44,155 43,180 36,671
Book value per share $ 4.49 $ 4.20 $ 4.09 $ 3.14* $ 3.51* $ 3.46* $ 3.18*
</TABLE>
/*/Fully diluted calculation reflecting impact of convertible debentures and
warrants.
-50-
<PAGE>
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF
THE COMPANY AFTER THE MERGER
If the proposed Merger is consummated, the Stockholders will no longer have
an equity interest in the Company and, therefore, will not share in its future
earnings and growth. Instead, each Stockholder will have the right to receive
the Merger Price Per Share in cash.
As a result of the Merger, the Company will become a direct wholly-owned
subsidiary of Superior. The Common Stock will be delisted from NASDAQ, the
registration of Common Stock under the Exchange Act will terminate and the
Company will be relieved of the obligation to comply with the proxy rules of
Regulation 14A under Section 14 of the Exchange Act, and its officers, directors
and beneficial owners of more than 10% of the Common Stock will be relieved of
the reporting requirements and restrictions on insider trading under Section 16
of the Exchange Act. Accordingly, less information will be required to be made
publicly available than presently is the case. Certain information about the
Company will continue to be available through the public reports of Superior.
Immediately after the Merger, all of the then outstanding Common Stock will
be beneficially owned by Superior and Superior will have a 100% interest in the
assets and liabilities of the Company. The officers and directors of Merger Sub
immediately prior to the Effective Time (who will be designees of Superior) will
be the directors of the Company from and after the Effective Time (until their
successors are duly elected or appointed and qualified).
Except as otherwise described in this Proxy Statement, Superior expects
that the Company will be operated after the Merger in a manner substantially the
same as its current operations.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen L.L.P. serves as the Company's independent certified public
accountants. A representative of Arthur Andersen L.L.P. will be at the Special
Meeting to answer questions by Stockholders and will have the opportunity to
make a statement, if so desired.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 1997 annual
meeting (which will only be held if the Merger has not been consummated prior
thereto), pursuant to Rule 14a-8(a)(3)(i) promulgated by the SEC, must be
received by the Company at its principal office, 6200 Canoga Avenue, Woodland
Hills, California 91367-2402, attention Myrtle L. Solomon, Corporate Secretary,
on or before March 28, 1997.
By Order of the Board of Directors
/s/ Stanley Braun
STANLEY BRAUN
President and Chief Executive Officer
Woodland Hills, California
November 20,1996
-51-
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
September 17, 1996, by and among SUPERIOR NATIONAL INSURANCE GROUP, INC., a
California corporation ("Parent"), SNTL ACQUISITION CORP., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and PAC RIM
HOLDING CORPORATION, a Delaware corporation ("Pac Rim"), with reference to the
following recitals:
R E C I T A L S
A. The Boards of Directors of Parent and Pac Rim each have determined that
a business combination between Parent and Pac Rim is in the best interests of
their respective companies and stockholders and presents an opportunity for
their respective companies to achieve long-term strategic and financial benefits
and, accordingly, have agreed to effect the merger provided for herein upon the
terms and subject to the condition set forth herein.
B. Parent, Merger Sub and Pac Rim desire to make certain representations,
warranties, covenants and agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with
and into Pac Rim in accordance with this Agreement and the separate corporate
existence of Merger Sub shall thereupon cease (the "Merger"). Pac Rim shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"). The Merger shall have the effects specified in
Section 259 of the Delaware General Corporation Law (the "DGCL").
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger ("the "Closing") shall take place at the offices of
Barger & Wolen LLP, 515 South Flower Street, 34th Floor, Los Angeles, California
90071 at 9:00 a.m., local time, on the first business day immediately following
the day on which the last to be fulfilled or waived of the conditions set forth
in Article 8 shall be fulfilled or waived in accordance herewith, or at such
other time, date or place as Parent and Pac Rim may agree. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
A-1
<PAGE>
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Merger Sub (a copy of which is attached hereto as Exhibit A) in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
applicable law.
2.2 BYLAWS. The Bylaws of Merger Sub (a copy of which is attached hereto
as Exhibit B) in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation, until duly amended in accordance with
applicable law.
ARTICLE 3
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 DIRECTORS. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
3.2 OFFICERS. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
ARTICLE 4
CONVERSION OF PAC RIM COMMON STOCK AND
OPTIONS; DEBENTURES AND WARRANTS
4.1 CONVERSION OF PAC RIM COMMON STOCK. (a) At the Effective Time, each
share of the common stock, $0.01 par value, of Merger Sub outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock, $0.01 par value, of the Surviving Corporation.
(b) At the Effective Time, each share of the common stock, $0.01 par
value, of Pac Rim (the "Pac Rim Common Stock") issued and outstanding
immediately prior to the Effective Time, other than the Dissenting Shares (as
defined below), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive cash in the
amount of "Merger Price Per Share" (as defined in Section 4.5(c) hereof),
without interest except for that certain interest payable under Section 9.2
hereof, which interest shall be distributed pro rata on a per share basis.
(c) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Pac Rim Common Stock shall cease to be
outstanding and shall be
A-2
<PAGE>
cancelled and retired and shall cease to exist, and each holder of a certificate
(a "Certificate") representing any shares of Pac Rim Common Stock shall
thereafter cease to have any rights with respect to such shares of Pac Rim
Common Stock, except the right to receive the Merger Price Per Share upon the
surrender of such Certificate.
(d) Each share of Pac Rim Common Stock issued and held in Pac Rim's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be cancelled and retired without payment of any
consideration therefor.
4.2 CONVERTIBLE DEBENTURES. At the Effective Time and in accordance with
the terms of the certain Series A Convertible Debentures and Series 1, 2 and 3
Detachable Warrant Purchase Agreement of even date herewith, a copy of which is
attached hereto as Exhibit C (the "Purchase Agreement"), the holders of the
Convertible Debentures (as defined in Section 5.3 hereof) shall be entitled to
receive consideration in an amount equal to the number of shares of Pac Rim
Common Stock issuable upon conversion of the Convertible Debentures pursuant to
the "Debenture/Purchase Agreement" (as defined in Section 5.3 hereof) multiplied
by the Merger Price Per Share. All amounts payable under this Section 4.2 shall
hereinafter be referred to as the "Debenture Consideration."
4.3 OPTIONS. At the Effective Time, each holder of a then outstanding "In
The Money Option" (as defined in Section 4.5(a) hereof) to purchase shares of
Pac Rim Common Stock under the Pac Rim Holding Corporation 1987 Stock Option
Plan (the "1987 Plan") and the Pac Rim Holding Corporation 1988 Stock Option
Plan (the "1988 Plan") (the 1987 Plan and 1988 Plan, collectively, the "Pac Rim
Stock Option Plans") shall, in settlement thereof, receive from Pac Rim for each
share of Pac Rim Common Stock subject to such option an amount (subject to
applicable withholding tax) in cash equal to the excess of the Merger Price Per
Share over the per share exercise or strike price of such option as of the
Effective Time, multiplied by the total number of shares of Pac Rim Common Stock
issuable upon the exercise of such option (such amount being hereinafter
referred to as the "Option Consideration"). At the Effective Time, each In The
Money Option shall be cancelled and converted into the right to receive Option
Consideration. The surrender of an In The Money Option shall be deemed a
release of any and all rights the holder had or may have had in respect of such
option. Each "Out Of The Money Option" (as defined in Section 4.5(g) hereof)
shall be cancelled without consideration.
4.4 WARRANTS. At the Effective Time, each holder of a then outstanding
"In The Money Warrant" (as defined in Section 4.5(a) hereof) to purchase shares
of Pac Rim Common Stock pursuant to the terms of the Debenture/Warrant Agreement
shall, in settlement thereof and pursuant to the terms of the Purchase
Agreement, receive from Pac Rim for each share of Pac Rim Common Stock subject
to such warrant an amount in cash equal to the excess of the Merger Price Per
Share over the per share exercise or strike price of such warrant as of the
Effective Time (after adjustment of the exercise or strike price, if applicable,
under the Debenture/Warrant Agreement), multiplied by the total number of shares
issuable upon the exercise of such warrant (such amount being hereinafter
referred to as the "Warrant Consideration"). At the Effective Time, each In The
Money Warrant shall be cancelled and converted into the right to receive Warrant
Consideration. The surrender of a warrant shall be deemed a release of any and
all rights the holder had or may have had in respect of such warrant. Each Out
Of The Money Warrant (as defined in Section 4.5(h) hereof) shall be cancelled
without consideration. All amounts payable under this Section 4.4 shall
hereinafter be referred to as the Warrant Consideration.
4.5 DEFINITIONS. The following terms shall, when used in this Agreement,
have the following meanings:
A-3
<PAGE>
(a) "In The Money Option" means an option issued under the Pac Rim Stock
Option Plans whose exercise price per share as of the Effective Time is less
than the Merger Price Per Share.
(b) "In The Money Warrant" means a warrant issued pursuant to the
Debenture-Purchase Agreement whose exercise price per share as of the Effective
Time is less than the Merger Price Per Share.
(c) "Preliminary Merger Price Per Share" is $54,021,032 (the "Purchase
Price") plus the aggregate exercise price for the In The Money Options and In
The Money Warrants divided by the "Deemed Number of Shares" (as defined in
Section 4.5(e) hereof).
(d) "Merger Price Per Share" shall be the Preliminary Merger Price Per
Share rounded to the nearest $0.0025. In no event will the Merger Price Per
Share cause the amounts calculated pursuant to Sections 4.1, 4.2, 4.3 and 4.4
hereof to exceed $54,021,032 in the aggregate, subject to the effect of rounding
discussed in the preceding sentence.
(e) "Deemed Number of Shares" is the actual number of outstanding shares
of Pac Rim Common Stock as of the Effective Time plus the number of shares of
Pac Rim Common Stock into which the Convertible Debentures may be converted plus
the total number of shares of Pac Rim Common Stock that would be issued upon
exercising all of the In The Money Options and In The Money Warrants outstanding
as of the Effective Time.
(f) "Out Of The Money Options" means all options issued under the Pac Rim
Stock Option Plans that are not In The Money Options.
(g) "Out Of The Money Warrants" means all warrants issued under the
Debenture/Purchase Agreement that are not In The Money Warrants.
4.6 EXCHANGE OF CERTIFICATES REPRESENTING PAC RIM COMMON STOCK.
(a) On the Closing Date, Parent shall deposit, or shall cause to be
deposited, with a bank or trust company selected by Parent, which shall be
Parent's paying and transfer agent (the "Exchange Agent"), for the benefit of
the holders of shares of Pac Rim Common Stock and to settle the In The Money
Options, for payment in accordance with this Article 4, $54,021,032 less that
Debenture Consideration, the Warrant Consideration, and any amounts attributable
to the Dissenting Shares (as hereinafter defined), such amount being hereinafter
referred to as the ("Exchange Fund"), to be paid pursuant to this Section 4.6 in
exchange for outstanding shares of Pac Rim Common Stock and pursuant to Section
4.3 upon settlement of the In The Money Options.
(b) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates (i) a
letter of transmittal which shall specify that delivery of such Certificates
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for payment of the Merger Price Per Share hereunder. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
therefor, in cash, the product of (x) the Merger Price Per Share and (y) the
number of shares of Pac Rim Common Stock represented by such Certificates so
surrendered by such holder, and the Certificate so surrendered shall forthwith
be cancelled. In the event of a transfer of ownership of Pac Rim Common Stock
A-4
<PAGE>
which is not registered in the transfer records of Pac Rim, the Exchange Agent
may condition payment hereunder upon the surrender of the Certificate
representing such Pac Rim Common Stock to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Pac Rim of the shares of Pac Rim Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for payment in accordance with the procedures set forth
in this Article 4.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the former stockholders of Pac
Rim nine (9) months after the Effective Time shall be delivered to the Surviving
Corporation. Any former stockholders of Pac Rim who have not theretofore
complied with this Article 4 shall thereafter look only to the Surviving
Corporation as general creditors thereof for payment of the Purchase Price in
respect of each share of Pac Rim Common Stock that such stockholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
(e) None of Parent, Pac Rim, the Exchange Agent or any other person shall
be liable to any former holder of shares of Pac Rim Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will pay in exchange for such lost, stolen or destroyed Certificate the Merger
Price Per Share as provided in Section 4.6(a), deliverable in respect thereof
pursuant to this Agreement.
4.7 DISSENTING SHARES.
(a) Notwithstanding anything in this Agreement to the contrary, shares of
Pac Rim Common Stock which are held by any recordholder who has not voted in
favor of the Merger or consented thereto in writing and who has demanded
appraisal rights in accordance with Section 262 of the DGCL ("the Dissenting
Shares") shall not be converted into the right to receive the Merger Price Per
Share hereunder but shall become the right to receive such consideration as may
be determined due in respect of such Dissenting Shares pursuant to the DGCL;
provided, however, that any holder of Dissenting Shares who shall have failed to
perfect, or shall have withdrawn or lost, his rights to appraisal of such
Dissenting Shares, in each case under the DGCL, shall forfeit the right to
appraisal of such Dissenting Shares, and such Dissenting Shares shall be deemed
to have been converted into the right to receive, as of the Effective Time, the
Merger Price Per Share in accordance with this Article 4, without interest.
Notwithstanding anything contained in this Section 4.7, if (i) the Merger is
rescinded or abandoned or (ii) if the stockholders of Pac Rim revoke the
authority to effect the Merger, then the right of any stockholder to be paid the
fair value of such stockholder's Dissenting Shares shall cease. The Surviving
Corporation shall be the only obligor with respect to and shall comply with all
of its obligations under the DGCL with respect to holders of Dissenting Shares.
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(b) Pac Rim shall give Parent (i) prompt notice of any demands for
appraisal, and any withdrawals of such demands, received by Pac Rim and any
other related instruments served pursuant to the DGCL and received by Pac Rim,
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. Pac Rim shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle any such demands.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PAC RIM
Except as set forth in the disclosure letter delivered by or on behalf of
Pac Rim to Parent at or prior to the execution hereof in form and substance
satisfactory to Parent (the "Pac Rim Disclosure Letter") and except to the
extent qualified by Section 11.16(b) hereof, Pac Rim represents and warrants to
Parent as of the date of this Agreement as follows:
5.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE WITH LAW.
Pac Rim is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Pac Rim is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary. Pac Rim has all requisite
corporate power and authority to own, operate and lease its properties and carry
on its business as now conducted. Each of Pac Rim's "Subsidiaries" (as defined
in Section 11.15 hereof) is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of incorporation
or organization, has the corporate power and authority to own its properties and
to carry on its business as it is now being conducted, and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the ownership of its property or the conduct of its business requires such
qualification. The Pac Rim Disclosure Letter sets forth the states in which Pac
Rim and its Subsidiaries are incorporated and licensed or qualified to do
business. Neither Pac Rim nor any of its Subsidiaries is in violation of any
order of any court, governmental authority or arbitration board or tribunal.
Neither Pac Rim nor any of its Subsidiaries is in violation of any law,
ordinance, governmental rule or regulation to which Pac Rim or any Pac Rim
Subsidiary or any of their respective properties or assets is subject. Pac Rim
and its Subsidiaries have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted.
The copies of Pac Rim's Certificate of Incorporation and Bylaws previously
delivered to Parent are true and correct.
5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.
(a) Pac Rim has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of this Agreement and the transactions contemplated
hereby by the affirmative vote of at least seventy percent (70%) in the
aggregate of (i) the issued and outstanding shares of Pac Rim Common Stock and
(ii) the number of shares of Pac Rim Common Stock into which the outstanding
Convertible Debentures (as hereinafter defined) may be converted, voting
together, the consummation by Pac Rim of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents contemplated hereby (when executed
and delivered pursuant hereto) will constitute, the valid and legally binding
obligations of Pac Rim, enforceable in accordance with their respective terms,
subject to applicable
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bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
(b) The provisions of Section 203 of the DGCL do not apply to the
transactions contemplated by this Agreement.
5.3 CAPITALIZATION. The authorized capital stock of Pac Rim consists of
35,000,000 shares of Pac Rim Common Stock, and 500,000 shares of preferred stock
(the "Pac Rim Preferred Stock"). As of August 31, 1996, there were 9,528,200
shares of Pac Rim Common Stock issued and outstanding and no shares of Pac Rim
Preferred Stock issued and outstanding. Since such date, no additional shares
of capital stock of Pac Rim have been issued, except pursuant to the Pac Rim
Stock Option Plans. All options outstanding under the Pac Rim Stock Option
Plans and the exercise price and vesting status thereof (assuming a Closing
occurs) is set forth in Exhibit D. In addition, pursuant to the terms of that
certain Agreement to Purchase Series A Convertible Debentures and Series 1, 2
and 3 Detachable Warrants dated as of April 15, 1994, as amended (the
"Debenture/Warrant Agreement"), Pac Rim has issued and outstanding (i) TWENTY
MILLION AND /NO//100 DOLLARS ($20,000,000.00) aggregate amount of its eight
percent (8%) Series A Convertible Debentures (the "Convertible Debentures");
(ii) 1,500,000 detachable warrants each exercisable at the price of $2.50 for
one share of Pac Rim Common Stock (the "Series 1 Warrants"); (iii) 1,500,000
detachable warrants each exercisable at the price of $3.00 for one share of Pac
Rim Common Stock (the "Series 2 Warrants"); and (iv) 800,000 detachable warrants
each exercisable at the price of $3.50 for one share of Pac Rim Common Stock
(the "Series 3 Warrants"). The Series 1 Warrants, Series 2 Warrants and Series
3 Warrants shall be referred to, collectively, as the "Warrants." The Series 3
Detachable Warrant Surrender Agreement attached hereto as Exhibit E and the
Purchase Agreement will transfer, if consummated, title to all the outstanding
Warrants and Convertible Debentures.
Except as set forth above, Pac Rim has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the stockholders of Pac Rim on any matter. All such issued and outstanding
shares of Pac Rim Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Other than as contemplated by this
Agreement, the Pac Rim Stock Option Plans, the Convertible Debentures and the
Warrants, there are not at the date of this Agreement any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate Pac Rim or any of its Subsidiaries to
issue, transfer or sell any shares of capital stock of Pac Rim or any of its
Subsidiaries. As of June 30, 1996, 12,487,730 shares of Common Stock were
reserved for issuance and are issuable upon or otherwise deliverable in
connection with options outstanding under the Pac Rim Stock Option Plans, the
Convertible Debentures and the Warrants; since that date, no options have been
granted under the Pac Rim Stock Option Plans, no new option plans have been
authorized or adopted and no new warrants or convertible debenture with respect
to the Common Stock have been issued. After the Effective Time, the Surviving
Corporation will have no obligation to issue, transfer or sell any shares of
capital stock of Pac Rim or the Surviving Corporation pursuant to any Pac Rim
Benefit Plans (as defined in Section 5.11). There are no outstanding
obligations of Pac Rim or any of its Subsidiaries to purchase, redeem or
otherwise acquire any shares of Pac Rim Common Stock, any capital voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Pac Rim. No shares of Pac Rim Common Stock are held in the
Pac Rim Benefit Plans.
5.4 SUBSIDIARIES. Pac Rim owns directly or indirectly each of the
outstanding shares of capital stock of each of Pac Rim's Subsidiaries. Each of
the outstanding shares of
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capital stock of each of Pac Rim's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and is owned, directly or indirectly, by
Pac Rim free and clear of all liens, pledges, security interests, claims or
other encumbrances. The following information for each Subsidiary of Pac Rim is
set forth in the Pac Rim Disclosure Letter: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
capital; and (iii) the number of issued and outstanding shares of capital stock
or share capital.
5.5 OTHER INTERESTS. Except for interests in the Pac Rim Subsidiaries and
The Pacific Rim Assurance Company's (the "Assurance Company") interest in its
wholly-owned subsidiary, Regional Benefits Insurance Services, Inc., a
California corporation, neither Pac Rim nor any Pac Rim Subsidiary owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
5.6 NO VIOLATION. Neither the execution and delivery by Pac Rim of this
Agreement nor the consummation by Pac Rim of the transactions contemplated
hereby in accordance with the terms hereof will: (i) conflict with or result in
a breach of any provisions of the respective certificates of incorporation or
bylaws (or similar governing documents) of Pac Rim or its Subsidiaries; (ii)
except as disclosed in the Pac Rim Reports (as defined in Section 5.7), result
in a breach or violation of, a default under, or the triggering of any payment
or other obligations pursuant to, or accelerate vesting under, any of its
existing Pac Rim Stock Option Plans, or any grant or award made under any of the
foregoing other than accelerated vesting of outstanding options under stock
option agreements in existence on the date hereof with certain employees of Pac
Rim or any of its Subsidiaries by reason of, in whole or in part, the
consummation of the Merger; (iii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Pac Rim or its
Subsidiaries under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which Pac Rim or any of its Subsidiaries is a party, or by which Pac Rim or any
of its Subsidiaries or any of their properties is bound or affected; (iv)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to Pac Rim or any of its Subsidiaries or any of their respective
properties or assets; or (v) other than the filings provided for in Article 1,
certain federal, state and local regulatory filings, filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), state
insurance law (including California Insurance Code Sections 1215 et seq.), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or applicable
state securities and "Blue Sky" laws or filings in connection with the
maintenance of qualification to do business in other jurisdictions
(collectively, the "Regulatory Filings"), require any consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority.
5.7 SEC DOCUMENTS. Pac Rim has delivered to Parent each registration
statement, report, proxy statement or information statement prepared by it since
December 31, 1993, including, without limitation, (i) its Annual Report on Form
10-K for the years ended December 31, 1993, 1994 and 1995, (ii) its Quarterly
Report on Form 10-Q for the periods ended March 31 and June 30, 1996, and (iii)
its Proxy Statements for the Annual Meeting of Stockholders held in 1994, 1995
and on July 10, 1996, each in the form (including exhibits and any amendments
thereto) filed with the Securities and Exchange Commission
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(the "SEC") (collectively, the "Pac Rim Reports"), which constitute all such
Reports that were required to be filed during such period. As of their
respective dates, the Pac Rim Reports (including, without limitation, any
financial statements or schedules included or incorporated by reference therein)
(i) were prepared in all respects in accordance with the applicable requirements
of the Exchange Act and the rules and regulations thereunder and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Each of the consolidated balance sheets of Pac Rim included in or incorporated
by reference into the Pac Rim Reports (including the related notes and
schedules) fairly presents the consolidated financial position of Pac Rim and
the Pac Rim Subsidiaries as of its date and each of the consolidated statements
of income, retained earnings and cash flows of Pac Rim included in or
incorporated by reference into the Pac Rim Reports (including any related notes
and schedules) fairly presents the results of operations, retained earnings or
cash flows, as the case may be, of Pac Rim and the Pac Rim Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein. Except as reflected or reserved against or disclosed in the
financial statements of Pac Rim (and the notes thereto) included in the Pac Rim
Reports and incurred subsequent to June 30, 1996 in the ordinary course of
business consistent with past practice, neither Pac Rim nor any of its
Subsidiaries has any liabilities, of any nature, whether accrued, absolute,
contingent or otherwise, whether due or to become due and whether required to be
recorded or reflected on a balance sheet (or the notes thereto) under generally
accepted accounting principles. Except as described in the Pac Rim Disclosure
Letter, since June 30, 1996, neither Pac Rim nor any Subsidiary of Pac Rim has
incurred any liabilities other than liabilities which have been incurred in the
ordinary course of business consistent with past practice.
5.8 LITIGATION. Except as disclosed in the Pac Rim Reports filed with the
SEC prior to the date hereof and as otherwise set forth in this Section 5.8,
neither Pac Rim nor its Subsidiaries have been notified that any governmental
investigations are being conducted with respect to their respective properties,
assets, permits or licenses, and there are no actions, suits or proceedings
pending against Pac Rim or the Pac Rim Subsidiaries or, to the knowledge of Pac
Rim, threatened against Pac Rim or the Pac Rim Subsidiaries or any of their
respective properties or assets, at law or in equity, or before or by any
federal or state commission, board, bureau, agency or instrumentality, that
would prevent or delay the consummation of the transactions contemplated by this
Agreement. Except as disclosed in the Pac Rim Reports filed with the SEC prior
to the date hereof, neither Pac Rim nor any of its Subsidiaries are subject to
any outstanding order, writ, injunction or decree which, would prevent or delay
the consummation of the transactions contemplated hereby. The California
Department of Insurance (the "California Department") is currently conducting a
triennial examination of the Assurance Company and the Assurance Company was
named as a defendant in the following actions: (1) NPI Medical Group, et al. v.
State Compensation Insurance Fund, et al., Case No. BC 116099, Superior Court of
the State of California, Los Angeles County; and (2) FWHC Medical Group, et al.
v. State Compensation Insurance Fund, et al, Case No. BC 089361, Superior Court
of the State of California, Los Angeles County.
5.9 ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, each of Pac Rim and
its Subsidiaries has conducted its business only in the ordinary course of such
business and there has not been (i) any event or changes with respect to Pac Rim
and its Subsidiaries, (ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to its capital stock or any
repurchase, redemption or other acquisition by Pac Rim or its
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Subsidiaries of any outstanding shares of capital stock or other securities in,
or other ownership interests in, Pac Rim or any of its Subsidiaries, (iii) any
change in its accounting principles, practices or methods or (iv) any event or
changes or action taken which would constitute a breach of Section 7.2 of this
Agreement if it had occurred or been taken after the date hereof; provided,
however, this Section 5.9(iv) shall not apply to subsections (c) or (e) of
Section 7.2.
5.10 TAXES.
(A) FILING OF TAX RETURNS. Pac Rim (including, for purposes of this
Section 5.10, each of its Subsidiaries from time to time) has timely filed with
the proper taxing or other governmental authorities all returns (including,
without limitation, information returns and other tax-related information) in
respect of Taxes (as such term is defined in Section 5.10(e)) required to be
filed through the date hereof. Such returns and information filed are, to the
knowledge of Pac Rim, complete, correct and accurate in all respects. Pac Rim
has delivered to Parent complete and accurate copies of all of Pac Rim's
federal, state and local Tax returns filed for its taxable years ended 1991
through 1994. Pac Rim has not filed any federal, state or local tax returns for
its taxable years ended December 31, 1995 and 1996, or has delivered to Parent
complete and accurate copies of all such returns that have been filed for such
taxable years.
(B) PAYMENT OF TAXES. All Taxes for which Pac Rim is shown as owing on
any Tax return for any period or portion thereof ending on or before the Closing
Date, shall have been paid, or an adequate reserve (in conformity with generally
accepted accounting principles applied on a consistent basis and in accordance
with Pac Rim's past custom and practice) has been established therefor, and Pac
Rim has no liability (whether or not due and payable) for Taxes in excess of the
amounts so paid or reserves so established. All Taxes that Pac Rim has been
required to collect or withhold have been duly collected or withheld and, to the
extent required when due, have been or will be duly paid to the proper taxing or
other governmental authority. Pac Rim had, as of December 31, 1995, a net
operating loss carryover of $2,676,000 for federal income tax purposes (the
"NOL").
(C) AUDIT HISTORY. Except as set forth in the Pac Rim Disclosure Letter:
(i) No deficiencies for Taxes or adjustments to the NOL of Pac Rim
have been claimed, proposed or assessed by any taxing or other governmental
authority.
(ii) There are no pending or, to the best of Pac Rim's knowledge,
threatened audits, investigations or claims for or relating to any liability in
respect of Taxes of Pac Rim, and there are no matters under discussion with any
taxing or other governmental authority with respect to Taxes of Pac Rim.
(iii) All audits of federal, state and local returns for Taxes by the
relevant taxing or other governmental authority have been completed for all
periods.
(iv) Pac Rim has not been notified in writing that any taxing or
other governmental authority intends to audit a return for any other period.
(v) No extension of a statute of limitations relating to Taxes
is in effect with respect to Pac Rim.
(D) TAX ELECTIONS. Except as set froth in Pac Rim Disclosure Letter:
(i) There are no material elections with respect to Taxes affecting
Pac Rim.
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(ii) Pac Rim has not made an election and is not required to treat
any asset of Pac Rim as owned by another person or as tax-exempt bond financed
property or tax-exempt use property within the meaning of Section 168 of the
Internal Revenue Code of 1986, as amended (the "Code"), or under any comparable
state or local income Tax or other Tax provision.
(iii) Pac Rim is not a party to or bound by any binding tax sharing,
tax indemnity or tax allocation agreement or other similar arrangement with any
other person or entity.
(iv) Pac Rim has not filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state or local law) or agreed to have Section 341(f)(2) of the Code
(or any corresponding provision of state or local law apply to any disposition
of any asset owned by it.
(E) ADDITIONAL TAX REPRESENTATIONS. Except as set forth in the Pac Rim
Disclosure Letter:
(i) There are no liens for Taxes (other than for Taxes not yet
delinquent upon the assets of Pac Rim).
(ii) Pac Rim has never been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code, nor has Pac Rim or
any present or former Subsidiary of Pac Rim, or any predecessor or affiliate of
any of them, become liable (whether by contract, as transferee or successor, by
law or otherwise) for the Taxes of any other person or entity under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
law.
(iii) Pac Rim has not made, requested or agreed to make, nor is it
required to make, any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise for any taxable year.
(iv) Pac Rim is not a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code or would require payment of any amount as to which a deduction
may be denied under Section 162(m) of the Code.
(v) Pac Rim is not a party to any joint venture, partnership, or
other arrangement or contract which could be treated as a partnership for
federal, state, local or foreign Tax purposes.
(vi) Pac Rim has prepared and made available to Parent all of Pac
Rim's books and working papers that clearly demonstrate the income and
activities of Pac Rim for the last full reporting period ending prior to the
date hereof.
(vii) Pac Rim has not been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii).
(F) DEFINITION OF TAXES. For purposes of this Agreement, the term "Taxes"
shall mean all federal, state, local, foreign and other taxes, assessments or
other governmental charges, including, without limitation, income, estimated
income, gross receipts, profits, occupation, franchise, capital stock, real or
personal property, sales, use, value added,
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transfer, license, commercial rent, payroll, employment or unemployment, social
security, disability, withholding, alternative or add-on minimum, customs,
excise, stamp or environmental taxes, and further including all interest,
penalties and additions in connection therewith for which Pac Rim may be liable.
5.11 CERTAIN EMPLOYEE PLANS.
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and any
bonus, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, vacation, severance,
death benefit, insurance or other plan, arrangement or understanding (whether or
not legally binding), in each case maintained or contributed to for the benefit
of employees of Pac Rim or any of its Subsidiaries (all the foregoing being
herein called the "Pac Rim Benefit Plans"), individually and in the aggregate,
no event has occurred, and to the knowledge of Pac Rim or any of its
Subsidiaries, there exists no condition or set of circumstances, in connection
with which Pac Rim or any of its Subsidiaries could be subject to any liability
(except liability for benefits claims and funding obligations payable in the
ordinary course), under ERISA or any other applicable law.
(b) With respect to the Pac Rim Benefit Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, established in accordance with
generally accepted accounting principles, or otherwise properly footnoted in
accordance with generally accepted accounting principles, on the financial
statements of Pac Rim or any of its Subsidiaries. Pac Rim has not been nor is
it currently obligated under any multi-employer plans as defined in ERISA.
(c) Except as required by applicable law, neither Pac Rim nor any of its
Subsidiaries provides any health, welfare or life insurance benefits to any of
their former or retired employees.
(d) Except for changes due to increases in the length of employment,
Schedule 5.11(d) of the Pac Rim Disclosure Letter lists the employees of Pac Rim
and its Subsidiaries who are eligible for severance benefits and the amounts
that would be due such employees if they were terminated as of July 24, 1996.
5.12 LABOR MATTERS.
(a) Neither Pac Rim nor any of its Subsidiaries is a party to, or bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
Pac Rim, threatened against Pac Rim or its Subsidiaries relating to their
business. To the knowledge of Pac Rim, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of Pac Rim or any of its Subsidiaries.
(b) Pac Rim has delivered to Parent copies of all employment agreements,
consulting agreements, severance agreements, bonus and incentive plans, profit-
sharing plans and other agreements, plans or arrangements with respect to
compensation of the employees or arrangements with respect to compensation of
the employees of Pac Rim and its Subsidiaries (the "Compensation Arrangements")
and, to the extent required by
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applicable regulation, all Compensation Arrangements are described in the Pac
Rim Reports.
5.13 NO BROKERS. Pac Rim has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
Pac Rim or Parent to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except
that Pac Rim has retained Salomon Brothers Inc. ("Salomon"), whose fees and
expenses will be paid by Pac Rim, as its financial advisor to render a fairness
opinion with respect to the Purchase Price, which arrangement has been disclosed
in writing to Parent prior to the date hereof. Other than the foregoing
arrangement, Pac Rim is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby.
5.14 FAIRNESS OPINION. Pac Rim has received the opinion of Salomon to the
effect that the consideration to be received in the Merger by the stockholders
of Pac Rim is fair to such stockholders from a financial point of view.
5.15 LIENS. Other than liens, mortgages, security interests, pledges and
encumbrances which do not materially interfere with Pac Rim's or any of its
Subsidiaries' use and enjoyment of their property or assets or diminish or
detract from the value thereof, neither Pac Rim nor any of its Subsidiaries has
granted, created or suffered to exist with respect to any of its assets, any
mortgage, pledge, charge, hypothecation, collateral, assignment, lien (statutory
or otherwise), encumbrance or security agreement of any kind or nature
whatsoever.
5.16 LEASED REAL PROPERTY. Neither Pac Rim nor any Subsidiary owns any
real property. The Pac Rim Disclosure Letter sets forth a list of all of the
leases and subleases (the "Real Property Leases") under which, as of the date
hereof, Pac Rim or any of its Subsidiaries has the right to occupy space. Pac
Rim has heretofore delivered to the Parent a true, correct and complete copy of
all of the Real Property Leases, including all amendments thereto. All Real
Property Leases and leases pursuant to which Pac Rim or any of its Subsidiaries
leases personal property from others are valid, binding and enforceable in
accordance with their terms; neither Pac Rim nor any Subsidiary has received
notice of any default by Pac Rim or any Subsidiary under any Real Property
Lease; there are no existing defaults, or any condition or event which with the
giving of notice or lapse of time would constitute a default, by any party to
the Real Property Leases.
5.17 ENVIRONMENTAL MATTERS. Attached to the Pac Rim Disclosure Letter are
copies of all environmental audits or other studies or reports that Pac Rim has
in its possession, which were prepared by third parties to assess Hazardous
Material (as hereinafter defined) risks at any site or facility owned or leased
presently or within the last three (3) years by Pac Rim or any of its
Subsidiaries (a "Site"). Pac Rim and each of its Subsidiaries is in compliance
with all, and has no liability under, any Environmental Laws (as defined below).
Neither Pac Rim nor any of its Subsidiaries has been alleged to be in violation
of, or has been subject to any administrative or judicial proceeding pursuant
to, such Environmental Laws either now or any time during the past three (3)
years. There are no facts or circumstances which Pac Rim reasonably expects
could form the basis for the assertion of any Claim (as defined below) against
Pac Rim or any of its Subsidiaries relating to environmental matters including,
but not limited to, any Claim arising from past or present environmental
practices asserted under any Environmental Laws.
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For purposes of this Section 5.17, the following terms shall have the
following meanings:
(a) "Hazardous Materials" shall mean asbestos, petroleum products,
underground tanks of any type and all other materials now or hereafter
defined as "hazardous substances," "hazardous wastes," "toxic substances"
or "solid wastes," or otherwise now or hereafter listed or regulated
pursuant to (collectively, the "Environmentally Laws"): the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S)9601 et seq., and any amendments thereto; the Resource Conservation and
Recovery Act, 42 U.S.C. (S)6901 et seq., and any amendments thereto; the
Hazardous Materials Transportation Act, 49 U.S.C. (S)1801 et seq.; and any
other similar federal, state or local statute, regulation, ordinance,
order, decree, or any other law, common law theory or reported decision of
any state or federal court, as now or at any time hereafter in effect,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material.
(b) "Claim" shall mean any and all claims, demands, causes of actions,
suits, proceedings, administrative proceedings, losses, judgments, decrees,
debts, damages, liabilities, court costs, attorneys' fees and any other
expenses incurred, assessed or sustained by or against Pac Rim or any of
its Subsidiaries.
5.18 INTELLECTUAL PROPERTY. The Pac Rim Disclosure Letter identifies all
registered trademarks, copyrights and patents owned or licensed by Pac Rim and
its Subsidiaries as of the date hereof. To Pac Rim's best knowledge, Pac Rim or
its Subsidiaries own, or are licensed or otherwise have adequate right to use,
all patents, patent rights, trademarks, trademark rights, service marks, service
mark rights, trade names, trade name rights, copyrights, know-how, technology,
trade secrets and other proprietary information (collectively, the "Intellectual
Property") which are material to the conduct of the business of Pac Rim and its
Subsidiaries. Neither Pac Rim nor any of its Subsidiaries have received any
written claims by any person, and neither Pac Rim nor any of its Subsidiaries
has asserted a claim against any person, with respect to any of the Intellectual
Property owned or used by Pac Rim or its Subsidiaries or challenging or
questioning the validity or effectiveness of any license or agreement relating
thereto to which Pac Rim or any Subsidiary is a party.
5.19 POWERS OF ATTORNEY; GUARANTEES. Neither Pac Rim nor any of its
Subsidiaries has any power of attorney outstanding, nor any liability as
guarantor, surety, co-signer, endorser (other than for purposes of collection in
the ordinary course of business) or co-maker in respect of the obligation of any
person, corporation (other than wholly-owned Subsidiaries of Pac Rim),
partnership, joint venture, association, organization or other entity.
5.20 RELATED PARTY TRANSACTIONS. No director, officer, partner, employee,
"affiliate" or "associate" (as such terms are defined in rule 12b-2 under the
Exchange Act) of Pac Rim or any of its Subsidiaries (i) has borrowed any monies
from or has outstanding any indebtedness or other similar obligations to Pac Rim
or any of its Subsidiaries; (ii) except as disclosed in Pac Rim's Proxy
Statement for its 1996 annual meeting, owns, directly or indirectly, any
interest of any kind in, or is a director, officer, employee, partner, affiliate
or associate of, or consultant or lender to, or borrower from or has the right
to participate in the management, operations or profits of, any person or entity
which is (x) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of Pac Rim or any of its Subsidiaries, (y) engaged in a
business related to the business of Pac Rim or any of its Subsidiaries or (z)
participating in any transaction to which Pac Rim or any of
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its Subsidiaries is a party; or (iii) is otherwise a party to any contract,
arrangement or understanding with Pac Rim or any of its Subsidiaries.
5.21 INFORMATION IN PROXY STATEMENT. None of the information supplied by
Pac Rim or its Subsidiaries for inclusion or incorporation by reference in
Parent's "Proxy Statement" (as herein after defined) for the special meeting of
its stockholders to be called to consider the Stock Purchase Agreement referred
to in Section 6.5 hereof will, at the date mailed to stockholders and at the
time of the meeting of Parent's stockholders to be held in connection with the
such Stock Purchase Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure letter delivered by or on behalf of
Parent and Merger Sub to Pac Rim at or prior to the execution hereof in form and
substance satisfactory to Pac Rim (the "Parent Disclosure Letter") and except to
the extent qualified by Section 11.16(b) hereof, Parent and Merger Sub represent
and warrant to Pac Rim as of the date of this Agreement as follows:
6.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE WITH LAW.
Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Parent has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
6.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Each of Parent and
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of the Stock Purchase Agreement described in
Section 6.5 hereof by the holders of a majority of the outstanding shares of
Parent's common stock, the consummation by Parent and Merger Sub of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of Parent
and Merger Sub, enforceable in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
6.3 NO VIOLATION. Neither the execution and delivery by Parent and Merger
Sub of this Agreement, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Articles of
Incorporation of Parent, the Certificate of Incorporation of Merger Sub or
Bylaws of Parent or Merger Sub; (ii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default), under or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Parent or its
"Subsidiaries" (as defined in Section 11.14 hereof) under, or result in being
declared void, voidable, or without further binding effect,
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any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit, lease, contact,
agreement or other instrument, commitment or obligation to which Parent or any
of its Subsidiaries is a party, or by which Parent or any of its Subsidiaries or
any of their properties is bound or affected; or (iii) other than the Regulatory
Filings, require any consent, approval or authorization of, or declaration,
filing or registration with, any domestic governmental or regulatory authority.
6.4 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
6.5 FINANCING. In obtaining the funds necessary to enable Parent and
Merger Sub to consummate the Merger on the terms contemplated by this Agreement,
Parent and Merger Sub have received a written loan commitment from Chase
Manhattan Bank N.A., a copy of which commitment is attached hereto as Exhibit F,
and Parent has simultaneously herewith entered into a "Stock Purchase Agreement"
with Insurance Partners, L.P., a Delaware limited partnership ("IP") and
Insurance Partners Offshore (Bermuda), L.P., a Bermuda limited partnership ("IP
Bermuda") (IP and IP Bermuda, collectively, "Insurance Partners"), and the
additional equity investors party thereto, for the sale of shares of Parent's
common stock, an executed copy of which is attached hereto as Exhibit G. At the
Effective Time, Parent and the Merger Sub will have available all funds
necessary (a) for the acquisition of all the Convertible Debentures and In The
Money Warrants, (b) for the acquisition of all shares of Pac Rim Common Stock
and In The Money Options pursuant to the Merger and (c) to perform their
respective obligations under this Agreement.
6.6 NO BROKERS. Parent has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of Pac
Rim or Parent to pay a finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby, except that Parent has
retained Donaldson, Lufkin, Jenrette Securities Corporation ("DLJ"), whose fees
and expenses will be paid by Parent, as its financial advisor and to render a
fairness opinion with respect to the sale of Parent's common stock pursuant to
the Stock Purchase Agreement, which arrangement has been disclosed in writing to
Pac Rim prior to the date hereof. Other than the foregoing arrangement, Parent
is not aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
6.7 FAIRNESS OPINION. Parent has a received the opinion of DLJ to the
effect that the financing arrangements described in Section 6.5 hereof are fair
to Parent's stockholders from a financial point of view.
6.8 SURVIVING CORPORATION AFTER THE MERGER. Immediately after the
Effective Time and after giving effect to any change in the Surviving
Corporation's assets and liabilities as a result of the Merger, the Surviving
Corporation will not (i) be insolvent (either because its financial condition is
such that the sum of its debts is greater than the fair value of its assets or
because the fair saleable value of its assets is less than the amount required
to pay its probable liability on existing debts as they become absolute and
mature), (ii) have unreasonably small capital with which to engage in its
business or (iii) have incurred liabilities beyond its ability to pay as they
become due.
6.9 NO OWNERSHIP OF COMPANY CAPITAL STOCK. Neither Parent nor Merger Sub
own, directly or indirectly, more that five percent (5%) of Pac Rim Common
Stock.
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6.10 INFORMATION IN PROXY STATEMENT. None of the information supplied by
Parent or Merger Sub for inclusion or incorporation by reference in Pac Rim's
"Proxy Statement" (as herein after defined) for the special meeting of its
stockholders to be called to consider the Merger will, at the date mailed to
stockholders and at the time of the meeting of Pac Rim's stockholders to be held
in connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE 7
COVENANTS
7.1 ACQUISITION PROPOSALS. Prior to the Effective Time, Pac Rim agrees
(a) that neither Pac Rim nor any of its Subsidiaries nor its or their officers,
directors, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) shall (except to the extent necessary to comply with fiduciary
duties to stockholders as provided in this Section 7.1) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its stockholders) with respect to a merger, acquisition, consolidation,
tender offer, exchange offer, business combination or similar transaction
involving, or any purchase of more than forty percent (40%) of the assets or any
equity securities of, Pac Rim or any of its Subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will inform any individuals
or entities with whom an Acquisition Proposal is currently being discussed or
hereinafter making an Acquisition Proposal of the obligations undertaken in this
Section 7.1; and (c) that it will notify Parent immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with Pac Rim or its Subsidiaries; provided, however, that nothing contained in
this Section 7.1 shall, prior to approval of the transaction described herein by
the holders of Pac Rim Common Stock, prohibit the Board of Directors of Pac Rim
from (i) furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited bona fide written
Acquisition Proposal, if, and only to the extent that, (A) such Acquisition
Proposal is on terms that the Board of Directors of Pac Rim determines, with the
assistance of its financial advisors, represents a financially superior
transaction to the holders of Pac Rim Common Stock compared with the Merger, (B)
such Acquisition Proposal is not conditioned upon the acquiror obtaining
financing, (C) the Board of Directors of Pac Rim determines in good faith, based
as to legal matters on the written opinion of outside legal counsel, that such
action is required for the Board of Directors to comply with its fiduciary
duties to stockholders imposed by law, (D) two (2) business days prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Pac Rim provides written notice to Parent to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity, and furnishes Parent with the terms of
and a copy of such Acquisition Proposal and (E) thereafter, Pac Rim keeps Parent
informed of the status (and the terms) of any such discussions or negotiations;
and (ii) to the extent applicable, complying with Rule 14e-2(a) promulgated
under the Exchange Act with regard to an Acquisition Proposal. Nothing in this
Section 7.1 shall (x)
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permit any party to terminate this Agreement (except as specifically provided in
Article 9 hereof) or (z) affect any other obligation of any party under this
Agreement.
7.2 CONDUCT OF BUSINESSES. From the date hereof to the Effective Time,
except as set forth in the Pac Rim Disclosure Letter or as contemplated by any
other provision of this Agreement, unless Parent has consented in writing
thereto, Pac Rim and its Subsidiaries:
(a) shall conduct their operations according to their usual, regular
and ordinary course in substantially the same manner as heretofore
conducted;
(b) shall use their best commercial efforts to preserve intact their
business organization and goodwill, keep available the services of their
officers and employees and maintain satisfactory relationships with those
persons having business relationships with them;
(c) shall confer on a regular basis with one or more representatives
of Parent to report operational matters of materiality and any proposals to
engage in material transactions;
(d) shall not amend their Certificates of Incorporation or Articles
of Incorporation, as the case may be, or Bylaws;
(e) shall promptly notify Parent of (i) any material emergency or
other material change in the condition (financial or otherwise), of Pac
Rim's or any of its Subsidiary's business, properties, assets, liabilities,
prospects or the normal course of its businesses or in the operation of its
properties, (ii) any material litigation or material governmental
complaints, investigations or hearings, or (iii) the breach in any respect
of any representation or warranty or covenant contained herein;
(f) shall timely file all reports required by applicable securities
laws, rules or regulations to be filed with the SEC and promptly deliver to
Parent true and correct copies of any report, statement or schedule filed
by Pac Rim with the SEC subsequent to the date of this Agreement;
(g) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any shares of
its capital stock, effect any stock split or otherwise change its
capitalization as it exists on the date hereof, (ii) grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock from Pac Rim, (iii)
increase any compensation or enter into or amend any employment severance,
termination or similar agreement with any of its present or future officers
or directors, except for normal increases in compensation to employees not
earning more than $85,000 in annual base compensation consistent with past
practice and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or programs; provided, however, any such
increases in annual base compensation shall not exceed five percent (5%) of
such employees' current annual base compensation without the prior consent
of Parent, which consent shall not be unreasonably withheld, or (iv) adopt
any new employee benefit plan (including any stock option, stock benefit or
stock purchase plan) or amend any existing employee benefit plan in any
respect, except for changes which may be required by applicable law;
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(h) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock for purposes other than satisfying its obligation to pay interest
when due under the Debenture/Warrant Agreement; provided, however, on the
Closing Date, Pac Rim shall pay all interest accrued but unpaid as of such
date under the Debenture/Warrant Agreement; (ii) except in connection with
the use of shares of capital stock to pay the exercise price or tax
withholding in connection with stock-based Pac Rim Benefit Plans, directly
or indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its Subsidiaries, or make any
commitment for any such action or (iii) split, combine or reclassify any of
its capital stock;
(i) shall not acquire, sell, lease or otherwise dispose of any of its
assets (including capital stock of Subsidiaries) which are material,
individually or in the aggregate, except in the ordinary course of
business, consistent with past practice;
(j) shall not (i) incur or assume any long-term or short-term debt or
issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business; (ii) except for obligations of
wholly-owned Subsidiaries of Pac Rim; assume, guaranty, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for the obligations of any other person except
in the ordinary course of business consistent with past practices in an
amount not material to Pac Rim and its Subsidiaries, taken as a whole;
(iii) other than wholly-owned Subsidiaries of Pac Rim, make any loans,
advances or capital contributions to or investments in, any other person;
(iv) pledge or otherwise encumber shares of capital stock of Pac Rim or its
Subsidiaries; (v) except for purchase money liens, mortgage or pledge any
of its assets, tangible or intangible, or create or suffer to create any
mortgage, lien, pledge, charge, security interest or encumbrance of any
kind of respect to such asset; or (vi) forgive any loans to officers,
directors, employees or their affiliates and associates;
(k) Except as provided in Section 7.1 hereof, enter into any
commitment, contract or transaction outside the ordinary course of business
consistent with past practices which would be material to Pac Rim and its
Subsidiaries taken as a whole;
(l) except as may be required as a result of a change in law or in
generally accepted accounting principles shall not change any of the
accounting principles or practices used by Pac Rim;
(m) shall not (i) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein; (ii) enter
into any contract or agreement other than in the ordinary course of
business consistent with past practice which would be material to Pac Rim
and its Subsidiaries taken as a whole; (iii) without the prior consent of
Parent, which consent shall not be unreasonably withheld, authorize any new
capital expenditure or expenditures which, individually, is in excess of
$25,000 or, in the aggregate, are in excess of $750,000; provided, that
none of the foregoing shall limit any capital expenditure within the
aggregate amount previously authorized by Pac Rim's Board of Directors for
capital expenditures; or (iv) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action which
would be prohibited hereunder;
(n) shall not make any tax election or settle or compromise any
income tax liability material to Pac Rim and its Subsidiaries taken as a
whole;
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(o) shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of business
of liabilities reflected or reserved against in, and contemplated by, the
consolidated financial statements (or the notes thereto) of Pac Rim and its
Subsidiaries or incurred in the ordinary course of business consistent with
past practice;
(p) shall not settle or compromise any pending or threatened suit,
action or claim relating to the transaction contemplated hereby; or
(q) shall not take, or agree in writing or otherwise to take, any of
the actions described in Sections 7.2(a) through 7.2(p) or any action that
would make any of the representations and warranties of Pac Rim contained
in this Agreement untrue and incorrect as of the date when made.
7.3 MEETING OF STOCKHOLDERS. Pac Rim and Parent (to the extent and if
required on the part of Parent) shall each take all action necessary in
accordance with applicable law and their Certificate of Incorporation or
Articles of Incorporation, as the case may be, and Bylaws to convene a meeting
of their stockholders as promptly as practicable to consider and vote upon the
approval, in the case of Pac Rim, of this Agreement and the transactions
contemplated hereby, and, in the case of Parent, the Stock Purchase Agreement in
connection with the transaction contemplated hereby. The Boards of Directors of
Pac Rim and Parent shall each recommend such approval and take all lawful action
to solicit such approval, including, without limitation, timely mailing of the
Proxy Statements (as defined in Section 7.7); provided, however, that Pac Rim's
Board of Directors' recommendation or solicitation is subject to any action
taken by, or upon authority of, the Board of Directors of Pac Rim in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law and as permitted in Section 7.1 hereof. In
connection with the vote of Pac Rim Common Stock, holders of the Convertible
Debentures shall execute that certain Voting Agreement as of the date hereof, a
copy of which is attached hereto as Exhibit H (the "Voting Agreement").
Pursuant to the terms thereof, the parties to the Voting Agreement shall agree
to vote in favor of this Agreement and the Merger at a meeting of Pac Rim's
stockholders; provided, however, if Pac Rim's Board of Directors, in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law and in accordance with Section 7.1 hereof,
recommends an Acquisition Proposal, the obligation to vote in favor of this
Agreement and the Merger pursuant to the Voting Agreement shall terminate.
7.4 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, Pac Rim and Parent shall: (a) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Merger; (b) use all reasonable efforts to cooperate with one
another in (i) determining which Regulatory Filings are required to be made
prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
third parties or governmental or regulatory authorities of the United States,
the several states and foreign jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely seeking
all such consents, approvals, permits or authorizations; and (c) use all
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
Each of Parent and Pac Rim will use its best efforts to resolve such objections,
if any, as may be asserted with respect to the Merger under the HSR Act or other
antitrust laws. In the event a suit is instituted challenging the Merger as
violative of the HSR Act or other antitrust laws, each of Parent
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and Pac Rim will use its best efforts to resist or resolve such suit. Each of
Parent and Pac Rim and will use its best efforts to take such action as may be
required (a) by the Antitrust Division of the Department of Justice or the
Federal Trade Commission in order to resolve such objections as either of them
may have to the Merger under the HSR Act or other antitrust Laws or (b) by any
federal or state court of the United States, in any suit challenging the Merger
as violative of the HSR Act or other antitrust laws, in order to avoid the entry
of, or to effect the dissolution of, any injunction, temporary restraining order
or other order which has the effect of preventing the consummation of the
Merger. In complying with the foregoing, each of Parent and Pac Rim shall use
all reasonable and appropriate measures available to them, including, if
appropriate, "hold-separate" agreements or divestitures of Subsidiaries, assets
or operations if necessary to consummate the transactions contemplated hereby,
so long as such actions do not, in the aggregate, have a Pac Rim Material
Adverse Effect (after giving effect to the Merger). If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Parent and Pac
Rim shall take all such necessary action. Within twenty (20) days following the
date of this Agreement, Parent and Merger Sub shall make all necessary filings
with state insurance regulatory authorities, including the filing with the
California Department of a Form A Information Statement pursuant to California
Insurance Code Section 1215 et seq. Parent and Merger Sub shall use their
respective best efforts to promptly resolve any objections and respond to any
inquiries that may arise in connection with any such filings. Pac Rim shall
cooperate with Parent in connection with the preparation and filing of the Form
A.
7.5 INSPECTION OF RECORDS; ACCESS. From the date hereof to the Effective
Time, Pac Rim shall allow all designated officers, attorneys, accountants and
other representatives of Parent ("Parent's Representatives") access, during
normal business hours during the period prior to the Effective Time, to all
employees, offices and other facilities and to the records and files, including
claim files and litigation files, correspondence, audits and properties, to the
accountants and auditors of Pac Rim and their work-papers, and to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs, of Pac Rim and its
Subsidiaries; provided, however, Parent's Representatives shall use their
reasonable best efforts to avoid interfering with, hindering or otherwise
disrupting the employees of Pac Rim in the execution of their employment duties
during any visit to, or inspection of, Pac Rim's facilities or offices;
provided, further, that with respect to the work-papers of Pac Rim's accountants
and auditors, Parent's Representatives shall execute all necessary documents
reasonably required and satisfy all conditions reasonably imposed by such
accountants and auditors in order to obtain such documentation.
7.6 PUBLICITY. Pac Rim and Parent shall, subject to their respective
legal obligations (including requirements of stock exchanges and other similar
regulatory bodies), consult with each other, and use reasonable efforts to agree
upon the text of any press release, before issuing any such press release or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state governmental or
regulatory agency or with any national securities exchange with respect thereto.
7.7 PROXY STATEMENT. Pac Rim and Parent (to the extent and if required on
the part of Parent) shall each promptly prepare and then file with the SEC their
respective proxy statements with respect to the meetings of their respective
stockholders as provided in Section 7.3 hereof (collectively, the "Proxy
Statements"). Pac Rim and Parent shall each cause their respective Proxy
Statements to comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder. Pac
Rim and Parent each agree that their respective Proxy Statements and each
amendment or
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supplement thereto at the time of mailing thereof and at the time of the meeting
of the stockholders of Pac Rim or Parent, as the case may be, will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.8 FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
7.9 EXPENSES. Whether or not the Merger is consummated, except as
provided in Article 10 hereof, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
7.10 INDEMNIFICATION AND INSURANCE.
(a) For a period of three (3) years from and after the Effective Time,
Parent and the Surviving Corporation shall indemnify, defend and hold harmless
to the fullest extent permitted under the Certificate of Incorporation or Bylaws
(as amended or restated, as the case may be) of Pac Rim and any indemnification
agreement among Pac Rim, its Subsidiaries and their respective officers and
directors (whether current or former) (collectively, the "Indemnification
Documents") each person who is now, or has been at any time prior to the date
hereof, an officer or director of Pac Rim (or any Subsidiary or division
thereof), including, without limitation, each person controlling any of the
foregoing persons (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses to which they are indemnified under
the Indemnification Documents, whether commenced, asserted or claimed before or
after the Effective Time and including, without limitation, liabilities arising
under the Securities Act of 1933, the Exchange Act and state corporation laws in
connection with the Merger. In the event of any indemnifiable claim, action,
suit, proceeding or investigation, the Indemnified Party shall promptly notify
the Surviving Corporation thereof (the failure to give notice, however, shall
not relieve the Surviving Corporation of its duty to indemnify the Indemnified
Party unless the failure to give notice causes the Surviving Corporation to be
unable to assume the defense of such claim, action, suit, proceeding or
investigation reasonably promptly or otherwise prejudices the Surviving
Corporation). Upon receipt of notice (i) the Surviving Corporation shall have
the right to assume the defense thereof and shall not be liable to such
Indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof, except that if the Surviving Corporation elects not to assume the
defense thereof or counsel for the Indemnified Party advises in writing that
there are issues which raise conflicts of interest between Parent or Surviving
Corporation and the Indemnified Party, the Indemnified Party may retain counsel
satisfactory to it, and the Surviving Corporation shall pay all reasonable fees
and expenses of such counsel for the Indemnified Party; provided, however, that
in no event shall the Surviving Corporation be required to pay fees and
expenses, including disbursements or other charges, for more than one firm of
attorneys in any one legal action or group of related legal actions unless (A)
counsel for the Indemnified Party advises that there is a conflict of interest
that requires more than one firm of attorneys, or (B) local counsel of record is
needed in any jurisdiction in which any such action is pending, (ii) the
Surviving Corporation and the Indemnified Party shall cooperate in the defense
of any matter, and (iii) the Surviving Corporation shall not be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided, further, that the Surviving Corporation
shall not have any obligation hereunder to any Indemnified
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Party if and to the extent a court of competent jurisdiction ultimately
determines, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law or beyond the scope of this Agreement.
(b) For a period of three (3) years from and after the Effective Time,
Parent shall cause the Surviving Corporation to keep in effect provisions in its
Certificate of Incorporation and Bylaws providing for exculpation of director
and officer liability and indemnification of the Indemnified Parties to the
fullest extent permitted under the DGCL, which provisions shall not be amended
except as required by applicable law or except to make changes permitted by law
that would enlarge the Indemnified Parties' right of indemnification.
(c) For a period of three (3) years after the Effective Time, Parent shall
cause to be maintained officers' and directors' liability insurance covering the
Indemnified Parties who are currently covered, in their capacities as officers
and directors, by Pac Rim and its Subsidiaries' existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance; provided,
however, through February 16, 1997, the policy limits of such coverage shall not
be less than $20 million and from February 17, 1997 until three (3) years after
the Effective Time, the policy limits of such coverage shall not be less than
the higher of $15 million or such policy limits then provided by Parent for its
officers and directors.
(d) Parent shall pay all expenses, including attorneys' fees, that may be
incurred by any Indemnified Parties in enforcing the indemnity and other
obligations provided for in this Section 7.10.
(e) The provisions of this Section shall survive the consummation of the
Merger and expressly are intended to benefit each of the Indemnified Parties.
7.11 CERTAIN BENEFITS.
(a) From and after the Effective Time, subject to applicable law, and
except as contemplated hereby with respect to the Pac Rim Stock Option Plans,
Parent and its Subsidiaries will honor in accordance with their terms, all Pac
Rim Benefit Plans; provided, however, that nothing herein shall preclude any
change effected on a prospective basis following the Effective Time in any Pac
Rim Benefit Plan in accordance with applicable law. With respect to the
employee benefit or compensation plan or arrangement, including each "employee
benefit plan" as defined in Section 3(3) of ERISA maintained by Parent or any of
its Subsidiaries (the "Parent Benefit Plans"), Parent and the Surviving
Corporation shall grant all Pac Rim employees from and after the Effective Time
credit for all service with Pac Rim and its affiliates and predecessors prior to
the Effective Time for all purposes for which such service was recognized by Pac
Rim. To the extent Parent Benefit Plans provide medical or dental welfare
benefits after the Effective Time to Pac Rim and its Subsidiaries' employees,
Parent or the Surviving Corporation, as the case may be, shall use reasonable
and best efforts to ensure that such plan shall waive any pre-existing
conditions and actively-at-work exclusions and shall provide that any expenses
incurred on or before the Effective Time shall be taken into account under
Parent Benefit Plans for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions.
(b) Parent agrees to employ at the Effective Time all employees of Pac Rim
and its Subsidiaries who are employed on the Closing Date at-will, with all
material terms of their employment at Pac Rim, under Parent's then-current
employment practices and policies.
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Such employment shall be at-will and Parent shall be under no obligation to
continue to employ any such individuals.
(c) For purposes of this Section 7.11, the term "employees" shall mean all
current employees of Pac Rim and its Subsidiaries (including those on lay-off,
disability or leave of absence, paid or unpaid).
(d) Notwithstanding the provisions of Section 7.11(a), at the Effective
Time, Surviving Corporation shall perform its obligations as the surviving
corporation of the Merger under:
(i) the "Pac Rim Holding Corporation and The Pacific Rim Assurance
Company Compensation Plan For Senior Management" (the "SMT Plan") (a copy
of which is attached hereto as Exhibit I);
(ii) "The Pacific Rim Assurance Company 1996 Annual Incentive Plan" (a
copy of which is attached hereto as Exhibit J) (the "1996 Incentive Plan");
provided, however, purchase accounting related adjustments made by the
Surviving Corporation following the Effective Time and any adjustments in
the Assurance Company's reserves, to the extent that such adjustment shall
not result in a Pac Rim Material Adverse Effect, shall not be included in
incurred losses of the Assurance Company in calculating the combined ratio
exhibit of the matrix ("Matrix") referred to in the 1996 Incentive Plan;
provided, further, such reserve adjustment shall be taken into
consideration in calculating the combined ratio exhibit of the Matrix if,
upon year-end review, it is determined that such adjustment was required
under generally accepted accounting principles; and
(iii) that certain Employment Agreement dated as of April 15, 1994
(the "Employment Agreement") by and among Pac Rim, Assurance Company and
Stanley Braun ("Braun"), the Amendment to Employment Agreement dated as of
March 27, 1995 (the "First Amendment") and the Second Amendment to
Employment Agreement dated as of March 30, 1996 (the "Second Amendment")
with respect thereto (copies of which are attached hereto as Exhibit K).
The Employment Agreement, the First Amendment and the Second Amendment
shall hereinafter be referred to, collectively, as the "Employment
Documents." Parent and its Subsidiaries unconditionally guaranty the
obligations of Pac Rim, Assurance Company, Surviving Corporation and any
successors to any of them (each, an "Employer") under the Employment
Documents. If any Employer breaches any of its obligations or otherwise
fails to perform under the Employment Documents, Parent and its
Subsidiaries unconditionally promises to perform such obligations.
On and following the Closing Date and for a period of one (1) year
thereafter, neither Parent nor the Surviving Corporation shall, without the
prior written consent of each of the respective parties or participants thereto,
amend or modify the terms of the SMT Plan, 1996 Annual Incentive Plan, or
Severance Program (as defined in Section 7.11(e) hereof).
(e) At the Closing, Pac Rim shall provide Parent with a list of all
persons employed by Pac Rim and its Subsidiaries on the Closing Date (each, a
"Pac Rim Employee" and, collectively, the "Pac Rim Employees"). In accordance
with Pac Rim and its Subsidiaries' Severance Program, a copy of which is
attached hereto as Schedule 7.11(e) (the "Severance Program"), Parent or
Surviving Corporation, as appropriate, shall pay funds due thereunder in order
to satisfy the severance obligations with respect to any Pac Rim Employees that
are terminated within nine (9) months following the Closing Date.
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7.12 RESTRUCTURING OF MERGER. Upon the mutual agreement of Parent and Pac
Rim, the Merger shall be restructured in the form of a forward triangular merger
of Pac Rim into Merger Sub, with Merger Sub being the surviving corporation, or
as a merger of Pac Rim into Parent, with Parent being the surviving corporation.
In such event, this Agreement shall be deemed appropriately modified to reflect
such form of merger.
7.13 ADDITIONAL AGREEMENTS; BEST EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperating fully with the other party, including by
provision of information and making of all necessary filings under the HSR Act
and state insurance laws. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either Pac
Rim or Merger Sub, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
ARTICLE 8
CONDITIONS
8.1 CONDITIONS OF EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved in the manner required by applicable law or by
applicable regulations of any stock exchange or other regulatory body by
the holders of the issued and outstanding shares of capital stock of Pac
Rim entitled to vote thereon and the issuance of Parent's common stock
under the Stock Purchase Agreement shall have been approved in the manner
required by applicable law or by applicable regulations of any stock
exchange or other regulatory body by the holders of the issued and
outstanding shares of capital stock of Parent entitled to vote thereon.
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(c) The required state insurance regulatory approvals, including the
California Department's approval of the consummation of the transaction
contemplated hereunder pursuant to California Insurance Code Section 1215
et seq., shall have been obtained.
(d) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with
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the Merger and any other documents required to be filed after the Effective
Time and except where the failure to have obtained or made any such
consent, authorization, order, approval, filing or registration would not
have a Pac Rim Material Adverse Effect following the Effective Time.
8.2 CONDITIONS TO OBLIGATIONS OF PAC RIM TO EFFECT THE MERGER. The
obligation of Pac Rim to effect the Merger shall be subject to the fulfillment
at or prior to the Closing Date of the following condition:
(a) Parent shall have performed its agreements contained in this
Agreements required to be performed on or prior to the Closing Date and the
representations and warranties of Parent and Merger Sub contained in this
Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date, and Pac Rim shall have received a
certificate of the President or a Vice President of Parent, dated the
Closing Date, certifying to such effect; provided, however, that
notwithstanding anything herein to the contrary, this Section 8.2(a) shall
be deemed to have been satisfied even if such representations or warranties
are not true and correct, unless the failure of the representations or
warranties to be so true and correct, individually or in the aggregate,
would have or would be reasonably likely to have a Parent Material Adverse
Effect.
(b) Pac Rim shall have received the opinion of Salomon, dated as of
the date of delivery of Pac Rim's Proxy Statement, to the effect that, as
of such date, the consideration to be received in the Merger by the
stockholders of Pac Rim is fair to such stockholders from a financial point
of view.
(c) Pac Rim shall have received, on and as of the Closing Date, an
opinion of Riordan & McKinzie, counsel to Parent and Merger Sub, in usual
and customary form reasonably acceptable to Pac Rim.
8.3 CONDITIONS TO OBLIGATION OF PARENT AND MERGER SUB TO EFFECT THE
MERGER. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Pac Rim shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Pac Rim contained in this Agreement and
in any document delivered in connection herewith shall be true and correct
as of the Closing Date and Parent shall have received a certificate of the
President or a Vice President of Pac Rim, dated the Closing Date,
certifying to such effect; provided, however, that notwithstanding anything
herein to the contrary, this Section 8.3(a) shall be deemed to have been
satisfied even if such representations or warranties are not true and
correct, unless the failure of the representations or warranties to be so
true and correct, individually or in the aggregate, would have or would be
reasonably likely to have a Pac Rim Material Adverse Effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any changes in the financial condition, business,
operations or prospects of Pac Rim and its Subsidiaries, taken as a whole,
which changes taken together, would have or would be reasonably likely to
have a Pac Rim Material Adverse Effect.
(c) The parties to that certain Series A Convertible Debentures and
Series 1, 2 and 3 Detachable Warrants Purchase Agreement shall have sold
and transferred to
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Parent all of such parties' right, title and interest in and to the
Convertible Debentures and Warrants and the parties to that certain Series
3 Detachable Warrants Surrender Agreement shall have surrendered and
transferred to Pac Rim all of their right, title and interest in and to the
Series 3 Warrants, and Parent, thereby, upon the Effective Time, will own
or control all of the Convertible Debentures and Warrants.
(d) Parent and Merger Sub shall have received, on and as of the
Closing Date, an opinion of Barger & Wolen, counsel to Pac Rim, in usual
and customary form reasonably acceptable to Parent and Merger Sub.
ARTICLE 9
TERMINATION
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of Pac Rim, by the
mutual consent of Parent and Pac Rim.
9.2 TERMINATION BY EITHER PARENT OR PAC RIM. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or Pac Rim if (a) the Merger shall not have been consummated by
March 1, 1997 (the "Termination Date") or (b) the required approval of Pac Rim
and Parent's respective stockholders required by Section 7.3 shall not have been
obtained at meetings duly convened therefor or at any adjournments thereof, or
(c) a United States or state court of competent jurisdiction or United States
federal or state governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable; provided, that the party seeking to
terminate this Agreement pursuant to this clause (c) shall have used all
reasonable efforts to remove such injunction, order or decree; and provided, in
the case of a termination pursuant to clause (a) above, that the terminating
party shall not have breached in any material respect its representations or
obligations under this Agreement in any manner that shall have proximately
contributed to the occurrence of the failure referred to in said clause. If the
Merger shall not have been consummated on or before February 1, 1997 and as of
such date Pac Rim has satisfied its conditions to effect the Merger set forth in
Article 8 hereof and is prepared to consummate the Merger, Parent shall pay
interest of $5,000.00 per day, without offset or deduction for amounts Parent
claims owed to it by Pac Rim or any of its Subsidiaries, for the benefit of the
holders of shares of Pac Rim Common Stock (the "Extension Consideration") for
each day commencing on February 2, 1997 and ending with the earlier to occur of
the Closing Date or the termination of this Agreement. Parent shall pay the
Extension Consideration to the Exchange Agent on the Closing Date in order to
effect pro rata distribution of such amount to the holders of shares of Pac Rim
Common Stock, or if the Closing does not occur and this Agreement is terminated,
Parent shall promptly, but in no event later than two (2) days after such
termination, pay the same by wire transfer to Pac Rim of same day funds.
9.3 TERMINATION BY PAC RIM. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before the
adoption and approval by the stockholders of Pac Rim referred to in Section 7.3,
by action of the Board of Directors of Pac Rim, if (i) in the exercise of its
good faith judgment as to its fiduciary
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duties to its stockholders imposed by law the Board of Directors of Pac Rim
determines that such termination is required by reason of an Acquisition
Proposal complying with Section 7.1 hereof being made, or (ii) there have been
breaches by Parent or Merger Sub of representations or warranties contained in
this Agreement which, in the aggregate, would have or would be reasonably likely
to have a Parent Material Adverse Effect, or (iii) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of Parent, which breach is not curable or, if curable, is not cured within
thirty (30) days after written notice of such breach is given by Pac Rim to
Parent.
9.4 TERMINATION BY PARENT. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent, if (a) there have been breaches by Pac Rim of
representations or warranties contained in this Agreement which, in the
aggregate, would have or would be reasonably likely to have a Pac Rim Material
Adverse Effect, (b) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of Pac Rim, which breach is
not curable or, if curable, is not cured within thirty (30) days after written
notice of such breach is given by Parent to Pac Rim or (c) the holders of more
than 1,000,000 shares of Pac Rim Common Stock have demanded appraisal rights in
accordance with Section 4.7 hereof.
9.5 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article 9, all
obligations of the parties hereto shall terminate, except the obligations of the
parties pursuant to this Section 9.5 and Sections 7.9, Article 10 and Sections
11.3, 11.4, 11.6, 11.10, 11.13 and 11.17 and the Confidentiality Agreement
referred to in Section 11.4.
9.6 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of the party granting such extension or waiver.
ARTICLE 10
LIQUIDATED DAMAGES AND BREAKUP FEE
10.1 PAYMENT OF LIQUIDATED DAMAGES BY PARENT. The parties hereto agree
that if this Agreement shall not be consummated in accordance with its terms and
conditions as a result of: (a) the occurrence of the events described in Section
9.3(ii) and (iii); (b) Parent or Merger Sub's failure to comply with the
covenants described in Sections 7.3, 7.4, 7.7, 7.8 or 7.13 or the conditions
described in Section 8.2(a) or (c); or (c) Parent refusing to consummate the
transaction contemplated hereunder after satisfying each of the covenants,
conditions and events referred to in subsections (a) and (b) of this Section
10.1, then the resulting damages would be impracticable or extremely difficult
to determine. Because of the difficulty in determining the damages resulting
from the acts described in subsections (a), (b) and (c) of this Section 10.1,
the parties hereto agree that in such event, Parent must pay the sum of
$5,000,000.00 to Pac Rim immediately upon demand therefor as liquidated damages.
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10.2 PAYMENT OF LIQUIDATED DAMAGES BY PAC RIM. The parties hereto agree
that if this Agreement shall not be consummated in accordance with its terms and
conditions as a result of: (a) the occurrence of the events described in Section
9.4(a) or (b); (b) Pac Rim's failure to comply with the covenants described in
Sections 7.2, 7.3, 7.4, 7.5, 7.7, 7.8 or 7.13, or the conditions described in
Section 8.3(a) or (d); or (c) Pac Rim refusing to consummate the transaction
contemplated hereunder after satisfying each of the covenants, conditions or
events referred to in subsections (a) and (b) of this Section 10.2, then the
resulting damages would be impracticable or extremely difficult to determine.
Because of the difficulty in determining the damages resulting from the acts
described in subsections (a), (b) and (c) of this Section 10.2, the parties
hereto agree that in the event of such breach, Pac Rim must pay the sum of
$2,500,000.00 to Parent immediately upon demand therefor as liquidated damages.
10.3 PAYMENT OF BREAKUP FEE BY PAC RIM. In the event that (a) Pac Rim's
Board of Directors terminates this Agreement pursuant to Section 9.3(i) hereof
by reason of an Acquisition Proposal or (b) following public announcement of an
Acquisition Proposal, Pac Rim's Board of Directors terminates this Agreement
pursuant to Section 9.2(b) due to the failure to obtain the required vote in
favor of this Agreement from the holders of Pac Rim Common Stock and Convertible
Debentures at a meeting duly called therefor, and, in either event, the
definitive transaction document with respect to such Acquisition Proposal is
executed by Pac Rim within six (6) months following any such termination, Pac
Rim shall pay Parent a breakup fee of $5 million (the "Breakup Fee"). The
Breakup Fee is not separately payable in the event that liquidated damages are
due and paid under Section 10.2 hereof.
ARTICLE 11
GENERAL PROVISIONS
11.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger, provided, however, that the agreements contained in Article 4 and in
Sections 7.10, 7.11 and 7.13 and this Article 11 and the agreements delivered
pursuant to this Agreement shall survive the Merger.
11.2 NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(a) if to Parent or Merger Sub, to
Superior National Insurance
Group, Inc.
26601 Agoura Road
Calabasas, California 91302
Attention: William L. Gentz
Telecopy No.: 818-880-8615
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with a copy to
Dana M. Warren, Esq.
Riordan & McKinzie
5743 Corsa Avenue
Suite 116
Westlake Village, California 91362
Telecopy No.: 818-706-2956
(b) if to Pac Rim, to
Pac Rim Holding Corporation
6200 Canoga Avenue
Woodland Hills, California 91367
Attention: Stanley Braun
Telecopy No.: 818-595-0099
with a copy to
Dennis W. Harwood, Esq.
Barger & Wolen LLP
19800 MacArthur Boulevard
8th Floor
Irvine, California 92612
Telecopy No. 714-752-6313
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions in
Article 4 and Sections 7.10, 7.11, and 7.13 (collectively, the "Third Party
Provisions"), nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, and no Third
Party Provision shall be enforceable until after the Effective Time.
11.4 ENTIRE AGREEMENT. This Agreement, the Exhibits, the Pac Rim
Disclosure Letter, the Parent Disclosure Letter, the Confidentiality Agreement
between Pac Rim and Parent and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto. No
addition to or modification of any provision of this Agreements shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
During the term of this Agreement, neither party hereto shall terminate the
foregoing Confidentiality Agreement.
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11.5 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Board of Directors, at any time before or after
approval of matters presented in connection with the Merger by the stockholders
of Pac Rim, but after any such stockholder approval, no amendment shall be made
which by law requires the further approval of stockholders without obtaining
such further approval. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties hereto.
11.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws.
11.7 VENUE. Any action concerning or dispute arising out of or concerning
this Agreement, regarding the interpretation of this Agreement, or regarding the
relationships among the parties created pursuant to this Agreement shall be
filed only in the United States District Court for the Central District of
California or in the Superior Court of the State of California for the County of
Los Angeles.
11.8 COUNTERPARTS. This Agreements may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
11.9 HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
11.10 INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
11.11 WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitations, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
11.12 INCORPORATION OF EXHIBITS. The Pac Rim Disclosure Letter, the
Parent Disclosure Letter and all Exhibits and Schedules attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
11.13 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
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11.14 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any California Court, this being
in addition to any other remedy to which they may be entitled at law or in
equity.
11.15 SUBSIDIARIES. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner. When a reference is made in this Agreement to Significant
Subsidiaries, the words "Significant Subsidiaries" shall refer to Subsidiaries
(as defined above) which constitute "significant subsidiaries" under Rule 405
promulgated by the SEC under the Securities Act.
11.16 MATERIAL ADVERSE EFFECT. (a) As used in this Agreement, the term
"Pac Rim Material Adverse Effect" means an adverse effect on the business,
results of operations, prospects or financial condition of Pac Rim and its
Subsidiaries, taken as a whole, having an economic value of $1,000,000 or more;
provided, however, based upon the reserves booked by the Assurance Company, no
adverse development in Assurance Company's reserves, to the extent that such
adverse development does not exceed the sum of (i) the $4,500,000 and (ii)
$1,000,000, shall be included in determining whether a Pac Rim Material Adverse
Effect exists; provided, further, any change in the book value of Pac Rim or any
of its Subsidiaries based on an adjustment of the market value of securities
valued at book value on such companies' books and records shall not be included
in determining if a Pac Rim Material Adverse Effect exists; provided, further,
any amounts that may be payable under the SMT Plan, the 1996 Incentive Plan, the
Employment Documents or the Severance Program that are not reflected in Pac
Rim's financial statements shall not be included in determining if a Pac Rim
Material Adverse Effect exists. As used in this Agreement, the term "Parent
Material Adverse Effect" means an adverse effect on the business, results of
operations, prospects or financial condition of Parent and its Subsidiaries,
taken as a whole, having an economic value of $1,000,000 or more; provided,
however, any change in the book value of Parent or any of its Subsidiaries based
on an adjustment of the market value of securities valued at book value on such
companies' books and records shall not be included in determining if a Parent
Material Adverse Effect exists.
(b) The existence of facts or circumstances which constitute a breach of
the representations and warranties set forth in Article 5 hereof shall not be
considered to be a breach of any representation and warranty if all such facts
and circumstances do not have, individually or in the aggregate, a Pac Rim
Material Adverse Effect. The existence of facts or circumstances which
constitute a breach of the representations and warranties set forth in Article 6
hereof shall not be considered to be a breach of any representation and warranty
if all such facts and circumstances do not have, individually or in the
aggregate, a Parent Material Adverse Effect.
11.17 ATTORNEY'S FEES. In any legal action to enforce this Agreement or
any provision hereof, the prevailing party in such action shall, in addition to
any other remedy to which it may be entitled hereunder, receive from the party
from which enforcement was sought reasonable attorney's fees and its court costs
in connection with such action.
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11.18 PERFORMANCE BY MERGER SUB. Parent hereby agrees to cause Merger Sub
to comply with its obligations hereunder and to cause Merger Sub to consummate
the Merger as contemplated herein.
IT WITNESS WHEREOF, the parties have caused this Agreement and caused the
same to be duly delivered on their behalf as of the day and year first written
above.
PARENT: SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. Chris Seaman
--------------------------------------------
Name: J. Chris Seaman
Title: Chief Financial Officer
MERGER SUB: SNTL ACQUISITION CORP.
By: /s/ J. Chris Seaman
--------------------------------------------
Name: J. Chris Seaman
Title: Chief Financial Officer
PAC RIM: PAC RIM HOLDING CORPORATION
By: /s/ Stanley Braun
--------------------------------------------
Name: Stanley Braun
Title: President and Chief Executive officer
A-33
<PAGE>
APPENDIX B -- SECTION 262 OF
THE DELAWARE GENERAL CORPORATION LAW
SECTION 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares of fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it
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<PAGE>
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal
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<PAGE>
proceeding, the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE>
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
212-783-7000 [LOGO OF SALOMON BROTHERS INC]
November 20, 1996
Board of Directors
Pac Rim Holding Corporation
6200 Canoga Avenue
Woodland Hills, CA 91367
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares of common stock, $.01
par value (the "Company Common Stock"), of Pac Rim Holding Corporation (the
"Company"), of the consideration to be received by such shareholders in the
proposed merger of SNTL Acquisition Corp. ("Merger Sub"), a subsidiary of
Superior National Insurance Group, Inc. ("Superior"), with and into the Company
pursuant to the Agreement and Plan of Merger, dated as of September 17, 1996
(the "Merger Agreement"), among the Company, Merger Sub and Superior (the
"Proposed Merger").
As more specifically set forth in the Merger Agreement, in the Proposed
Merger each issued and outstanding share of the Company Common Stock (other than
the Company Common Stock whose holders exercise their dissenters' rights) will
be converted into the right to receive an amount in cash equal to the Merger
Price Per Share (as defined in the Merger Agreement), without interest. We
understand that the Merger Price Per Share depends upon certain adjustments to
the exercise price of the Warrants (as defined below) which adjustments will be
based upon a final analysis of the Company's loss reserves and will be finally
determined immediately prior to or at the effective time of the Merger. We
further understand that the Company anticipates that such adjustments will
result in a Merger Price Per Share of not less than $3.00 nor greater than $3.10
per share of Company Common Stock.
In connection with the Proposed Merger, Superior, PRAC Limited Partnership
("PRAC") and Allstate Insurance Company ("Allstate") (collectively, the
"Security Holders") have entered into a Series A Convertible Debentures and
Series 1, 2 and 3 Detachable Warrant Purchase Agreement dated as of September
17, 1996 (the "Purchase Agreement"). Pursuant to the Merger Agreement and the
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<PAGE>
[SECOND PAGE LETTERHEAD OF SALOMON BROTHERS]
Board of Directors
Pac Rim Holding Corporation
November 20, 1996
Page 2
Purchase Agreement, Superior shall purchase all of the outstanding Series A
Convertible Debentures of the Company (the "Debentures") and the outstanding
Series 1, 2 and 3 Detachable Warrants of the Company (the "Warrants" and,
together with the Debentures, the "Securities") held by the Security Holders for
cash equal to the Debenture Consideration (as defined in the Merger Agreement)
and the Warrant Consideration (as defined in the Merger Agreement),
respectively. The Company has informed us that the Debenture Consideration and
the Warrant Consideration to be received by the Security Holders will be equal,
when expressed as a price per common share equivalent, to the Merger Price Per
Share. The Merger Agreement provides that the aggregate price to be paid by
Superior to acquire the outstanding shares of Company Common Stock, together
with all "in the money" common stock equivalents through the Merger and pursuant
to the Purchase Agreement will be $54,021,032.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Merger Agreement, including the
Exhibits thereto; (ii) the Purchase Agreement, including the Exhibits thereto;
(iii) the terms and conditions of the Securities; (iv) certain publicly
available information concerning the Company, including the Annual Reports on
Form 10-K of the Company for each of the years in the five year period ended
December 31, 1995 and the Quarterly Reports on Form 10-Q of the Company for the
quarters ended March 31, June 30 and September 30, 1996, respectively; (v)
statutory financial information regarding the Company's insurance subsidiary for
each of the years in the five year period ended December 31, 1995; (vi) a report
dated August 29, 1996 prepared by Arthur Andersen L.L.P. on the Company's loss
reserves at June 30, 1996; (vii) certain other internal information, primarily
financial in nature, including projections, concerning the business and
operations of the Company furnished to us by the Company for purposes of our
analysis; (viii) certain publicly available information concerning the trading
of, and the trading market for, the Company Common Stock; (ix) certain publicly
available information with respect to certain other companies that we believe to
be comparable to the Company and the trading markets for certain of such other
companies' securities; and (x) certain publicly available information concerning
the nature and terms of certain other transactions that we consider relevant to
our inquiry. We have also considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that we
deemed relevant. We have also met with certain officers and employees of the
Company, to discuss the foregoing as well as other matters we believe relevant
to our inquiry.
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[SECOND PAGE LETTERHEAD OF SALOMON BROTHERS]
Board of Directors
Pac Rim Holding Corporation
November 20, 1996
Page 3
In our review and analysis and in arriving at out opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. We have not made or obtained any independent evaluations or
appraisals of any of the Company's assets, properties or facilities, nor have we
been furnished with any such evaluations or appraisals. We are not actuaries
and our services did not include any actuarial determinations or evaluations by
us or an attempt to evaluate actuarial assumptions. We have relied, directly
and indirectly, on reports and opinions provided to us by the Company and its
independent accountants and actuaries regarding the loss reserves of the
Company's insurance subsidiary. With respect to projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company as to the
future financial performance of the Company and we express no view with respect
to such projections or the assumptions on which they were based.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company; (ii) the business prospects of the Company; (iii) the historical and
current market for the Company Common Stock and for the equity securities of
certain other companies that we believe to be comparable to the Company; and
(iv) the nature and terms of certain other acquisition transactions that we
believe to be relevant. We have also taken into account our assessment of
general economic, market and financial conditions and our knowledge of the
insurance industry as well as our experience in connection with similar
transactions and securities valuation generally. We have also considered the
process that resulted in the negotiation of the Proposed Merger, including our
solicitation of offers to acquire the Company and the responses received to such
solicitation.
As you are aware, Salomon Brothers Inc has acted as financial advisor to
the Company in connection with the Proposed Merger and will receive a fee for
services, a substantial portion of which is contingent upon consummation of the
Proposed Merger. Additionally, Salomon Brothers Inc has previously rendered
certain investment banking and
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<PAGE>
[SECOND PAGE LETTERHEAD OF SALOMON BROTHERS]
Board of Directors
Pac Rim Holding Corporation
November 20, 1996
Page 4
financial advisory services to the Company including, but not limited to, the
sale of the Securities to PRAC in 1994 and the Company's initial public offering
in 1991, for which we received substantial compensation. We have also previously
rendered certain investment banking and financial advisory services to Insurance
Partners L.P., a holder of a controlling interest in Superior. In addition, in
the ordinary course of our business, we may trade the equity securities of the
Company and Superior from time to time for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion necessarily is based upon conditions as they exist and can be
evaluated on the date hereof and we assume no responsibility to update or revise
our opinion based upon circumstances or events occurring after the date hereof.
Our opinion is, in any event, limited to the fairness, from a financial point of
view, of the consideration to be received by the holders of the Company Common
Stock in the Proposed Merger and does not address the Company's underlying
business decision to effect the Proposed Merger or constitute a recommendation
to any holder of Company Common Stock as to how such holder should vote with
respect to the Proposed Merger. In addition, our opinion does not address the
fairness of the consideration to be received by the Security Holders from the
purchase of the Securities by Superior pursuant to the Purchase Agreement.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that the consideration to be received by the holders of the
Company Common Stock in the Proposed Merger is fair, from a financial point of
view, to such holders.
Very truly yours,
/s/ Salomon Brothers Inc
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PROXY
PAC RIM HOLDING CORPORATION
6200 CANOGA AVENUE
WOODLAND HILLS, CALIFORNIA 91367-2402
(818) 226-6200
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Stanley Braun and Timothy R. Busch, or either of them, with full power of
substitution, are hereby appointed proxies (the "Proxies") of the undersigned
and authorized to represent and to vote, as designated below, all shares of
Common Stock of Pac Rim Holding Corporation held of record by the undersigned
on November 19, 1996, at the Special Meeting of Stockholders to be held at the
Company's headquarters, 6200 Canoga Avenue, Woodland Hills, California 91367-
2402 on December 11, 1996, at 10:00 a.m., Pacific Standard Time, and at any
adjournment or postponement thereof, on the following:
(Continued and to be signed on other side)
FOLD AND DETACH HERE
<PAGE>
Please mark
[X] your votes
as this
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER AMONG
SUPERIOR NATIONAL INSURANCE GROUP, INC., SNTL ACQUISITION CORP., AND PAC
RIM HOLDING CORPORATION dated as of September 17, 1996, all as more fully
described in the accompanying Proxy Statement.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting, unless such
authority is withheld.
GRANT WITHHELD
[_] [_]
THIS PROXY IS GIVEN WITH AUTHORITY TO VOTE FOR ITEM (1) UNLESS A CONTRARY
CHOICE IS SPECIFIED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM (1).
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. WHEN SHARES ARE HELD BY JOINT TEN-
ANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Signature(s) ___________________________ Dated: ______________________ , 1996
PLEASE MARK, SIGN EXACTLY AS NAME APPEARS ABOVE, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
