SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-KA
AMENDED CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 15, 1996
GORAN CAPITAL INC.
(Exact name of registrant as specified in its charter)
Canada 000-24366 Not Applicable
(State or other jurisdiction of (Commission (I.R.S. Employer
Incorporation or organization) File Number) Identification No.)
181 University Avenue, Suite 1101 - Box 11, Toronto, Ontario, Canada M5H 3M7
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 594-1155 (Canada)
(317) 259-6300 (USA)
(Former name or former address, if changed since last report) Not Applicable
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
The following financial statements and pro-forma financial statements amend
Goran Capital Inc.'s Form 8-K filing as of May 14, 1996:
1. Business Acquired: Superior Insurance Company. Financial statements of
Superior Insurance Company.
2. Pro-forma financial statements of Goran Capital Inc.
ITEM 7. Exhibits
2.1 Superior Agreement
2.2 GSCP Agreement
4.1 Shareholder Agreement
4.2 Registration Rights Agreement
4.3 Credit Agreement
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GORAN CAPITAL INC.
(Registrant)
July 15, 1996 By: /s/ Alan G. Symons
President and Chief Executive Officer
<PAGE>
SUPERIOR INSURANCE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<PAGE>
Superior Insurance Company, Inc. and Subsidiaries
Table of Contents
Report of Independent Accountants 2-3
Consolidated Financial Statements:
Consolidated Balance Sheets
as of December 31, 1994 and 1995 and March 31, 1996 4
Consolidated Statements of Operations for the Years
Ended December 31, 1993, 1994 and 1995 and the
Three Months Ended March 31, 1995 and 1996 5
Consolidated Statements of changes in Stockholders'
Equity for the Years Ended December 31, 1993, 1994
and 1995 and the Three Months Ended March 31, 1995 and 1996 6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1993, 1994 and 1995 and
the Three Months Ended March 31, 1995 and 1996 7
Notes to Consolidated Financial Statements 8-23
<PAGE>
Report of Independent Accountants
Board of Directors and Stockholders of
Superior Insurance Company, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Superior
Insurance Company, Inc. and Subsidiaries as of December 31, 1994 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Superior Insurance Company, Inc. and Subsidiaries as of December 31, 1994 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board's Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities in 1993.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes during the year ended
December 31, 1993.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
June 14, 1996
<PAGE>
Report of Independent Accountants
Board of Directors and Stockholders of
Superior Insurance Company, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of Superior
Insurance Company, Inc. and Subsidiaries as of March 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the three-month periods ended March 31, 1995 and 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
June 14, 1996
<PAGE>
Superior Insurance Company, Inc. and Subsidiaries
Consolidated Balance Sheets
as of December 31, 1994 and 1995 and March 31, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------------
ASSETS 1994 1995 1996
-------------- -------------- ----------
Assets: (unaudited)
Investments:
Available for sale:
<S> <C> <C> <C>
Fixed maturities, at market $93,860 $99,556 $101,013
Equity securities, at market 7,140 8,070 8,639
Short-term investments, at amortized cost, 5,538 8,462 10,852
which approximates market
Other investment, at cost 808 274 274
Cash and cash equivalents 11 1,430 108
Receivables (net of allowance for doubtful
accounts of $310 and
$500 at December 31, 1994 and 1995,
respectively, and $500 (unaudited) at 31,425 30,209 31,543
March 31, 1996)
Reinsurance recoverable on unpaid losses 1,099 987 987
Federal income tax receivable 3521 - -
Accrued investment income 1,888 1,602 1,979
Deferred policy acquisition costs 9,004 7,574 7,853
Deferred income taxes 3,785 44 1,309
Property and equipment 357 697 654
Other assets 3,428 1,225 1,165
-------- -------- --------
Total assets $ $ $
161,864 160,130 166,376
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Losses and loss adjustment expenses $54,577 $47,112 $45,700
Unearned premiums 44,593 41,048 44,516
Draft payables 6,509 6,070 6,680
Accrued expenses 4,307 4,107 5,542
Federal income tax payable - 177 1,185
-------- -------- --------
Total liabilities
109,986 98,514 103,623
-------- -------- --------
Stockholders' equity:
Common stock, $100 par value, 30,000 3,000 3,000 3,000
shares authorized, issued and outstanding
outstanding
Additional paid-in capital 37,025 37,025 37,025
Unrealized (loss) gain on investments, net of
deferred tax (benefit) expense of
$(412) in 1994, $2,605 in 1995 and $1,702 -765 4,838 3,161
(unaudited) at March 31, 1996
Retained earnings 12,618 16,753 19,567
-------- -------- --------
Total stockholders' equity 51,878 61,616 62,753
-------- -------- --------
Total liabilities and stockholders' equity $161,864 $160,130 $166,376
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Superior Insurance Company, Inc. and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995
and 1996
(in thousands)
<TABLE>
<CAPTION>
Years ended Three months ended
----------------------
December 31, March 31,
------------------------------------ ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross premiums written $115,660 $112,906 $94,756 $21,954 $32,289
Less ceded premiums (366) (391) (686) - (163)
--------- --------- --------- --------- ---------
Net premiums written 115,294 112,515 94,070 21,954 32,126
Change in unearned premiums 2,842 322 3,544 3,712 (3,467)
--------- --------- --------- --------- ---------
Net premiums earned 118,136 112,837 97,614 25,666 28,659
Net investment income 8170 7024 7093 1826 1,807
Other income 5,879 3,344 4,171 1,285 1,473
Net realized capital gain (loss) 3,559 (200) 1954 103 29
--------- --------- --------- --------- ---------
Total revenues 135,744 123,005 110,832 28,880 31,968
--------- --------- --------- --------- ---------
Expenses:
Losses and loss adjustment
expenses 85,902 92,378 72,343 19,364 19,511
Policy acquisition and general and
administrative expenses 36,292 38,902 32,705 8,864 8,188
--------- --------- --------- --------- ---------
Total expenses 122,194 131,280 105,048 28,228 27,699
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and cumulative
effect of change in 13,550 (8,275) 5,784 652 4,269
accounting principle --------- --------- --------- --------- ---------
Income taxes:
Current income tax expense 3,207 (2,770) 925 (596) 1,817
(benefit)
Deferred income tax expense (benefit) 774 (1,030) 724 689 (362)
--------- --------- --------- --------- ---------
Total income taxes 3,981 (3,800) 1,649 93 1,455
--------- --------- --------- --------- ---------
Income (loss) before
cumulative effect of a
change in accounting 9,569 (4,475) 4,135 559 2,814
principle
Cumulative effect of a 1,389 - - - -
change in accounting principle
--------- --------- --------- --------- ---------
Net income (loss) $10,958 $(4,475) $4,135 $559 $2,814
========= ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Superior Insurance Company, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995 and
1996 (in thousands)
<TABLE>
<CAPTION>
Unrealized on
Additional (Loss) Total
Common Paid-in on Retained Stockholders'
Stock Capital Investment Earnings Equity
----- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $1,500 $37,025 $655 $29,635 $68,815
Change in unrealized (loss)
gain on investments,
net of deferred taxes - - 3,983 - 3,983
Cash dividends paid - - - (10,000) (10,000)
Common stock dividends 1,500 - - (1,500) -
paid
Net income - - - 10,958 10958
-------- -------- -------- -------- --------
Balance at December 31, 1993 3,000 37,025 4,638 29,093 73,756
Change in unrealized (loss)
gain on investments,
net of deferred taxes - - (5,403) - (5,403)
Cash dividends paid - - - (12,000) (12,000)
Net loss - - - (4,475) (4,475)
-------- -------- -------- -------- --------
Balance at December 31, 1994 3,000 37,025 (765) 12,618 51,878
Change in unrealized (loss)
gain on investments,
net of deferred taxes - - 2,166 - 2,166
(unaudited)
Net income (unaudited) - - - 559 559
-------- -------- -------- -------- --------
Balance at March 31, 1995 $3,000 $3,025 $1,401 $13,177 $54,603
(unaudited)
-------- -------- -------- -------- --------
Balance at December 31, $3,000 $37,025 $(765) $12,618 $51,878
Change in unrealized (loss)
gain on investments,
net of deferred taxes - - 5,603 - 5,603
Net income - - - 4,135 4,135
-------- -------- -------- -------- --------
Balance at December 31, 1995 3,000 37,025 4,838 16,753 61,616
-------- -------- -------- -------- --------
Change in unrealized (loss)
gain on investments
net of deferred taxes - - (1,677) - (1,677)
(unaudited)
Net income (unaudited) - - - 2,814 2,814
-------- -------- -------- -------- --------
Balance at March 31, 1996 $3,000 $37,025 $3,161 $19,567 $62,753
(unaudited) ====== ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Superior Insurance Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1995 and 1996 (in thousands)
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, March 31,
----------------------------- -----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) $10,958 $(4,475) $4,135 $559 $2,814
Adjustments to reconcile net income
to net cash provided from
(used in) operations:
Net amortization on fixed maturities 909 499 205 46 67
Depreciation of property and 128 185 214 40 64
equipment
Deferred income tax expense (615) 724 689 -
(benefit) (1,030)
Net (gain) loss on sale of fixed (3,546) 210 (1,940) (67) (29)
assets and investments -
Net changes in operating assets and liabilities:
Receivables (4,052) (1,303) 1,216 4,547 (1,334)
Reinsurance recoverable on (12) - 49 18 -
unpaid losses
Accrued investment income 504 524 286 48 (377)
Federal income taxes receivable (23) 3698 (597) 646
(payable) (4,075)
Deferred policy acquisition costs 248 (78) 1430 814 (279)
Other assets 89 (2,382) 2,203 4528 60
Losses and loss adjustment
expenses (4,260) 985 (7,402) (3,323) (1,412)
Unearned premiums (2,842) (322) (3,545) (3,712) 3,468
Drafts payable
(2,091) (1,897) (439) (196) 610
Accrued expenses - 4,307 (200) (994) 1,435
--------- --------- --------- --------- ---------
Net cash provided from (used
in) operations (4,605) (8,852) 634 1,793 5,733
--------- --------- --------- --------- ---------
Cash flow from investing activities:
Net (purchases) sales of short-term 5,322 1,845 (2,924) 1,360 (2,390)
investments
Proceeds from sales, calls and
maturities of fixed maturities 9,866 77,224 58,725 17,621 17,131
Purchases of fixed maturities
(76,991) (64,678) (56,222) (21,223) (21,460)
Proceeds from sales of equity
securities 91,397 136,121 87,319 21003 22,768
Purchase of equity securities
(92,605) (133,482) (86,663) (21,187) (23,083)
Proceeds from the sale of other - - 1,105 953 -
investments
Proceeds from sales of property and 30 33 - - -
equipment
Purchases of property and equipment (388 -198 (555) (107) (21)
--------- --------- --------- --------- ---------
Net cash provided from (used
in) investing activities 18,631 16,865 785 (1,580) (7,055)
--------- --------- --------- --------- ---------
Cash flow from financing activities:
Payment of dividends - - -
(10,000) (12,000)
--------- --------- --------- --------- ---------
Net cash (used in) financing - - -
activities (10,000) (12,000)
--------- --------- --------- --------- ---------
Increase (decrease) in cash 4,026 (3,987) 1,419 213 (1,322)
and cash equivalents
Cash and cash equivalents, beginning (28) 3,998 11 11 1,430
of year
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year $3,998 $11 $1,430 $224 $108
--------- --------- --------- --------- ---------
Supplemental cash flow information:
Cash paid for income taxes, net of refunds $3,230 $1,305 $(2,773) $0 $809
========= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Superior Insurance Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
1. Nature of Operations and Significant Accounting Policies:
Superior Insurance Company, Inc. ("Superior" or the "Company") was a
wholly-owned subsidiary of Interfinancial Inc. (the "Parent").
Interfinancial Inc. is a wholly-owned subsidiary of Fortis, Inc. Fortis,
Inc. is equally owned by Fortis AMEV, The Netherlands ("AMEV") and Fortis
AG, Brussels, Belgium. As further discussed in Note 14 the Company was sold
by the Parent to GGS Holdings on May 1, 1996.
The Company writes primarily private passenger automobile insurance
coverage. Approximately one-half of the Company's business is written in
the State of Florida. As such, a significant portion of agents' balances
and uncollected premiums is due from Florida policyholders.
The following is a description of the significant accounting policies and
practices employed:
Principles of Consolidation
The consolidated financial statements include the accounts, after intercompany
eliminations, of the Company and its wholly owned subsidiaries as follows:
Superior American Insurance Company ("Superior American") and Superior Guaranty
Insurance Company ("Superior Guaranty").
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") which differ from statutory
accounting practices ("SAP") prescribed or permitted for insurance companies by
regulatory authorities in the following respects:
o Certain assets are included in the balance sheet that are excluded as
"Nonadmitted Assets" under statutory accounting.
o Costs incurred by the Company relating to the acquisition of new
business which are expensed for statutory purposes are deferred and
amortized on a straight-line basis over the term of the related
policies. Commissions allowed by reinsurers on business ceded are
deferred and amortized with policy acquisition costs.
o The investment in wholly owned subsidiaries is consolidated for GAAP
rather than valued on the statutory equity method. The net income or
loss and changes in unassigned surplus of the subsidiaries is
reflected in net income for the period rather than recorded directly
to unassigned surplus.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
1. Nature of Operations and Significant Accounting Policies, continued:
o Investments in bonds are designated at purchase as held to maturity,
trading, or available for sale. Held-to-maturity fixed maturity
investments are reported at amortized cost, and the remaining fixed
maturity investments are reported at fair value with unrealized
holding gains and losses reported in operations for those designated
as trading and as a separate component of stockholder's equity for
those designated as available for sale. All securities have been
designated as available for sale. For SAP, such fixed maturity
investments would be reported at amortized cost or market value based
on their NAIC rating.
o The liability for losses and loss adjustment expenses and unearned
premium reserves are recorded net of their reinsured amounts for
statutory accounting purposes.
o Deferred income taxes are not recognized on a statutory basis.
o Credits for reinsurance are recorded only to the extent considered
realizable. Under SAP, credit for reinsurance ceded are allowed to the
extent the reinsurers meet the statutory requirements of the Insurance
Department of the State of Florida, principally statutory solvency.
A reconciliation of statutory net income and capital and surplus to GAAP net
income and stockholders' equity for Superior Insurance Company is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------------------- ------------------------- ---------------------
Capital Capital Net Capital
and Net and Income and Net
Surplus Income Surplus (Loss) Surplus Income
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Statutory balance $56,656 $10,597 $43,577 $201 $49,277 $5,639
Non-admitted assets 130 - 225 - 472 -
Investments market 5,571 - (1,988) - 5,279 -
value adjustment
Deferred acquisition 8,926 (248) 9,004 78 7,574 (1,430)
costs
Losses and loss 2,677 59 (1,600) (4,822) - 600
adjustment expense
Deferred income tax (154) 615 3,785 1,030 44 (724)
Rent rebate - - (333) (333) (277) 55
Pension and other (50) 49 (548) (479) (667) (120)
postretirement benefits
Other - (114) (244) (150) (86) 115
-------- -------- -------- -------- -------- --------
GAAP balance $73,756 $10,958 $51,878 $(4,475) $61,616 $4,135
======= ======= ======= ======= ======= ======
</TABLE>
Premiums
Premiums are recognized as income ratably over the life of the related policies
and are stated net of ceded premiums. Unearned premiums are computed on the
semimonthly pro rata basis.
<PAGE>
1. Nature of Operations and Significant Accounting Policies, continued:
Investments
During 1993, the Company adopted Financial Accounting Standards Board's
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Accordingly, invest- ments are presented on the following bases: o
Fixed maturities and equity securities - at market value - all such securities
are classified as available for sale and are carried at market value with the
unrealized gain or loss as a component of stockholder's equity.
o Short-term investments - at amortized cost, which approximates market
o Other investment - at cost
Realized gains and losses on sales of investments are recorded on the
trade date and are recognized in net income on the specific
identification basis. Other than temporary market value declines are
recognized in the period in which they are determined. Other changes in
market values of debt and equity securities are reflected as unrealized
gain or loss directly in stockholders' equity, net of deferred tax, and,
accordingly, have no effect on net income. Interest and dividend income
are recognized as earned.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company includes in cash
and cash equivalents all cash on hand and demand deposits with original
maturities of three months or less.
Deferred Policy Acquisition Costs
Deferred policy acquisition costs are comprised of agents' commissions,
premium taxes and certain other costs which are related directly to the
acquisition of new and renewal business, net of expense allowances
received in connection with reinsurance ceded, which have been accounted
for as a reduction of the related policy acquisition costs and are
deferred and amortized accordingly. These costs, to the extent that they
are considered recoverable, are deferred and amortized over the terms of
the policies to which they relate.
Property and Equipment
Property and equipment are recorded at cost. All additions to property
and equipment made in 1995 are depreciated based on the straight-line
method over their estimated useful lives. Additions made prior to 1995
are depreciated using the declining balance method over their estimated
useful lives ranging from five to seven years. Asset and accumulated
depreciation accounts are relieved for dispositions, with resulting gains
or losses reflected in net income.
<PAGE>
Notes to Consolidated Financial Statements, Continued (Dollars in thousands)
1. Nature of Operations and Significant Accounting Policies, continued:
Losses and Loss Adjustment Expenses
The liability for losses and loss adjustment expenses includes estimates
for reported unpaid losses and loss adjustment expenses and for estimated
losses incurred, but not reported. This liability has not been
discounted. The Company's losses and loss adjustment expense liability
includes an aggregate stop-loss program. The Company retains an
independent actuarial firm to estimate the liability. The liability is
established using individual case-basis valuations and statistical
analysis as claims are reported. Those estimates are subject to the
effects of trends in loss severity and frequency. While management
believes the liability is adequate, the provisions for losses and loss
adjustment expenses are necessarily based on estimates and are subject to
considerable variability. Changes in the estimated liability are charged
or credited to operations as additional information on the estimated
amount of a claim becomes known during the course of its settlement. The
liability for losses and loss adjustment expenses is reported net of the
receivables for salvage and subrogation of approximately $1,622 and
$2,242 at December 31, 1995 and 1994, respectively.
Income Taxes
During January 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes. The Company adopted SFAS No. 109 during the year ended
December 31, 1993. The Statement adopts the liability method of
accounting for deferred income taxes. Under the liability method,
companies establish a deferred tax liability or asset for the future tax
effects of temporary differences between book and taxable income. Changes
in future tax rates result in immediate adjustments to deferred taxes.
(See Note 6.) Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income
tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
Reinsurance
Reinsurance premiums, commissions, expense reimbursements, and reserves
related to reinsured business are accounted for on bases consistent with
those used in accounting for the original policies and the terms of the
reinsurance contracts. Premiums ceded to other companies have been
reported as a reduction of premium income.
Other Income
Other income consists of finance and service fees paid by policyholders
in relation to installment billings.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
1. Nature of Operations and Significant Accounting Policies, continued:
Recently Issued Accounting Pronouncements:
In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, was issued. SFAS No.
121 requires that long-lived assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
This Statement is effective for financial statements for fiscal years
beginning after December 31, 1995. The Company intends to adopt SFAS No.
121 in 1996. Based upon management's review and analysis, adoption of
SFAS No. 121 is not expected to have a material impact on the Company's
results of operations in 1996.
Vulnerability from Concentration
At December 31, 1995, the Company did not have a material concentration
of financial instruments in a single investee, industry or geographic
location. Also at December 31, 1995, the Company did not have a
concentration of (1) business transactions with a particular customer,
lender or distributor, (2) revenues from a particular product or service,
(3) sources of supply of labor or services used in the business, or (4) a
market or geographic area in which business is conducted that makes it
vulnerable to an event that is at least reasonably possible to occur in
the near term and which could cause a serious impact to the Company's
financial condition, except for the market and geographic concentration
described in the following paragraph.
The Company writes nonstandard automobile insurance primarily in
California and Florida. As a result, the Company is always at risk that
there could be significant losses arising in certain geographic areas.
The Company protects itself from such events by purchasing catastrophe
insurance.
Reclassifications
Certain amounts from the previous years have been reclassified to conform
to the current year's presentation.
Use of Estimates
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported
in the financial statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes known
which could impact the amounts reported and disclosed herein.
<PAGE>
2. Investments: Investments are summarized as follows:
<TABLE>
<CAPTION>
Unrealized Estimated
Amortized ------------------------ Market
December 31, 1994 Cost Gain Loss Value
- ----------------- ---- ---- ---- -----
Fixed maturities:
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations and $ 25,312 $31 $(767) $24,576
Obligations of states and
political subdivisions 30,567 380 (680) 30,267
Corporate securities 39,969 292 (1,244) 39,017
--------- --------- --------- ---------
Total fixed maturities 95,848 703 (2,691) 93,860
--------- --------- --------- ---------
Equity securities:
Preferred stocks 713 32 - 745
Common stocks 5,616 1,201 (422) 6,395
--------- --------- --------- ---------
6,329 1,233 (422) 7,140
Short-term investments 5,538 - - 5,538
Other investments 808 - - 808
--------- --------- --------- ---------
Total investments $108,523 $1,936 $(3,113) $107,346
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Unrealized Estimated
Amortized ------------------------ Market
December 31, 1995 Cost Gain Loss Value
- ----------------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and
obligations of U.S.
government corporations and $28,612 $1,057 $ - $29,669
agencies
Obligations of states and
political subdivisions 24,595 1,251 (15) 25,831
Corporate securities
41,070 2,988 (2) 44,056
------- ------ ----- --------
Total fixed maturities 5,296 (17) 94,277 99,556
------- ------ ----- --------
Equity securities:
Preferred stocks 713 25 - 738
Common stocks 5,193 2,370 (231) 7,332
------- ------ ----- --------
5,906 2,395 (231) 8,070
Short-term investments 8,462 - - 8,462
Other investments 274 - - 274
------- ------ ----- --------
Total investments 108,919 $7,691 $(248) $116,362
======= ====== ===== ========
</TABLE>
2. Investments, continued:
The amortized cost and estimated market value of fixed maturities at
December 31, 1995 and 1994, by contractual maturity, are shown in the
table which follows. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without penalty:
<TABLE>
<CAPTION>
1994 1995
-------------------------- ---------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ----------- --------- ----------
Maturity:
<S> <C> <C> <C> <C>
Due in one year or less $5,514 $5,521 $2,508 $2,510
Due after one year through five
years 20,403 20,086 31,166 32,164
Due after five years through ten
years 33,522 32,550 33,012 35,338
Due after ten years
36,409 35,703 27,591 29,544
------- ------- ------- --------
Total $95,848 $93,860 $94,277 $ 99,556
======= ======= ======= ========
</TABLE>
Gains and losses realized on sales of investments are as follows:
1993 1994 1995
------ ------ ------
Gross gains realized on fixed matur$ $3,040 $779 $1,442
Gross losses realized on fixed maturities 95 1,270 322
Gross gains realized on equity securities 637 694 507
Gross losses realized on equity securities 28 457 256
An analysis of net investment income for the years ended December 31, 1993,
1994, and 1995 follows:
1993 1994 1995
------ ------ ------
Fixed maturities $7,939 $6,691 $6,630
Equity securities 461 538 603
Short-term investments 141 106 68
------ ------ ------
Total investment income 8,541 7,335 7,301
Investment expenses 371 311 208
------ ------ ------
Net investment income $8,170 $7,024 $7,093
------ ------ ------
Investments with an approximate market value of $17,384 and $2,366 (amortized
cost of $16,907 and $2,362) as of December 31, 1995 and 1994, respectively, were
on deposit in the United States and Canada. The deposits are required by law to
support certain reinsurance contracts, performance bonds and outstanding loss
liabilities on assumed business.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
2. Investments, continued:
In May 1990, Superior entered into a limited partnership agreement with
AMEV Venture Management ("AVM"), an AMEV affiliate. The Limited
Partnership, AMEV Venture III, is an investment pool which is managed by
AVM as a general partner. The purpose of the pool is to make speculative
investments in small business, with the partners sharing in the
profits/losses resulting from the pool. Superior committed to an
investment of $2,000,000 which is approximately 8% of the total pool.
This investment is carried at cost and included in, "other investment."
As of May, 1996, the Company had disposed of its remaining interest in
this investment.
3. Deferred Policy Acquisition Costs:
Policy acquisition costs are capitalized and amortized over the life of
the policies. Policy acquisition costs are those costs directly related
to the issuance of insurance policies including commissions and
underwriting expenses net of reinsurance commission income on such
policies. Policy acquisition costs deferred and the related amortization
charged to income were as follows:
1993 1994 1995
------ ------ ------
Balance, beginning of year $9,174 $8,926 $9,004
Costs deferred during year
23,561 23,029 17,606
Amortization during year
(23,809) (22,951) (19,036)
------ ------ ------
Balance, end of year $8,926 $9,004 $7,574
====== ====== ======
4. Property and Equipment:
Property and equipment at December 31 are summarized as follows:
1995
----------------------------------
1994 Accumulated
Net Cost Depreciation Net
--- ---- ------------ ---
Office furniture and $62 $1,099 $723 $376
equipment
Automobiles - 20 20 -
Computer equipment 295 1,086 765 321
Leasehold improvements - 6 6 -
------ ------ ------ ------
$357 $2,211 $1,514 $697
==== ====== ====== ====
Accumulated depreciation at December 31, 1994 was $1,370. Depreciation expense
related to property and equipment for the years ended December 31, 1995, 1994
and 1993 was $214, $185 and $128, respectively.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
5. Unpaid Losses and Loss Adjustment Expenses:
Activity in the liability for unpaid losses and loss adjustment expenses
is summarized as follows:
1993 1994 1995
-------- -------- --------
Balance at January 1 $57,164 $52,610 $54,577
Less reinsurance recoverables 361 68 1,099
-------- -------- --------
Net balance at January 1 56,803 52,542 53,478
-------- -------- --------
Incurred related to:
Current year 92,619 91,064 77,266
Prior years (6,717) 1,314 (4,923)
-------- -------- --------
Total incurred 85,902 92,378 72,343
-------- -------- --------
Paid related to:
Current year 57,929 56,505 48,272
Prior years 32,234 34,937 31,424
-------- -------- --------
Total paid 90,163 91,442 79,696
-------- -------- --------
Net balance at December 31 52,542 53,478 46,125
Plus reinsurance recoverables 68 1,099 987
-------- -------- --------
Balance at December 31 $52,610 $54,577 $47,112
-------- -------- --------
The foregoing reconciliation shows that redundancies of $4,923 and $6,717
in the December 31, 1994 and 1992 liabilities, respectively, emerged in
the following year. These redundancies resulted from lower than
anticipated losses resulting from a change in settlement costs relating
to those estimates. The reconciliation shows that a deficiency of $1,314
in the December 31, 1993 liability emerged in the following year. This
deficiency resulted from higher than anticipated losses resulting
primarily from a change in the settlement cost of loss reported in 1990.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and loss adjustment expenses. While
anticipated price increases due to inflation are considered in estimating
the ultimate claim costs, the increase in average severities of claims is
caused by a number of factors that vary with the individual type of
policy written. Future average severities are projected based on
historical trends adjusted for implemented changes in underwriting
standards, policy provisions, and general economic trends. Those
anticipated trends are monitored based on actual development and are
modified if necessary.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
5. Unpaid Losses and loss Adjustment Expenses, continued:
Case liabilities (and costs of related litigation) have been established
when sufficient information has been developed to indicate the
involvement of a specific insurance policy. In addition, incurred but not
reported liabilities have been established to cover additional exposure
on both known and unasserted claims. Those liabilities are reviewed and
updated continually.
6. Income Taxes:
For the year ended December 31, 1995, the Company will file a
consolidated federal income tax return with its former subsidiaries owned
by Fortis, Inc. An intercompany tax sharing agreement between the Company
and its subsidiaries provided that income taxes will be allocated based
upon the percentage that each subsidiary's separate return tax liability
bears to the total amount of tax liability calculated for all members of
the group in accordance with the Internal Revenue Code of 1986, as
amended. Intercompany tax payments are remitted at such times as
estimated taxes would be required to be made to the Internal Revenue
Service. A reconciliation of the differences between federal tax computed
by applying the federal statutory rate of 35% to income before income
taxes and the income tax provision is as follows:
1993 1994 1995
------- ------- -------
Computed income taxes at statutory rate $4,743 $(2,896) $2,024
Dividends received deduction (118) (69) (53)
Tax-exempt interest (1,136) (866) (538)
Proration 188 140 89
Other 304 (109) 127
------- ------- -------
Income tax expense (benefit) $3,981 $(3,800) $1,649
------- ------- -------
As described in Note 1, the Company adopted SFAS No. 109 effective in 1993. The
effect on years prior to 1993 of changing to this method was a benefit of $1,389
and is reflected in the consolidated statement of operations as the cumulative
effect of a change in accounting principle. The current or deferred tax
consequences of a transaction are measured by applying the provisions of enacted
tax laws to determine the amount of taxes payable currently or in future years.
The method of accounting for income taxes prior to SFAS No. 109 provided that
deferred taxes, once recorded, were not adjusted for changes in tax rates.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
6. Income Taxes, continued:
The net deferred tax asset at December 31, 1995 and 1994 is comprised of the
following:
1994 1995
------ ------
Deferred tax assets:
Unpaid losses and loss adjustment expenses $1,848 $1,454
Unearned premiums 3,122 2,873
Allowance for doubtful accounts 109 175
Unrealized losses on investments 412 -
Salvage and subrogation 694 541
Other 751 257
------ ------
Net deferred tax asset 6,936 5,300
------ ------
Deferred tax liabilities: -
Deferred policy acquisition costs 3,151 2,651
Unrealized gain on investments - 2,605
------ ------
3,151 5,256
------ ------
Net deferred tax asset $3,785 $44
====== ===
The Company is required to establish a "valuation allowance" for any
portion of its deferred tax assets which is unlikely to be realized. No
valuation allowance was established as of December 31, 1995 or 1994 on
the deferred tax assets, since management believes it is more likely than
not that the Company will realize the benefit of its deferred tax assets.
Federal income tax attributed to the Company has been examined through
1993. In the opinion of management, the Company has adequately provided
for the possible effects of future assessments related to prior years.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
7. Retirement and Other Employee Benefits:
As part of the sale of the Company, as described in Note 14, the Company
withdrew from all of the plans mentioned below and paid Fortis $557 to
assume the related liabilities.
Superior participated in a non-contributory defined benefit pension plan
("the Pension Plan") administered by Fortis, Inc., covering substantially
all employees who were at least 21 years of age and who had one year of
service with Superior. The Pension Plan provided benefits payable to
participants on retirement or disability and to beneficiaries of
participants in the event of death. The benefits were based on years of
service and the employee's compensation during such years of service. The
Company's funding policy was to contribute annually at least the amount
required to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974. Contributions were
intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future. The net periodic
pension cost allocated to Superior under the Pension Plan for 1993, 1994
and 1995 was $206, $186 and $119, respectively. In 1993, pension expense
includes a one-time accrual for implementation of SFAS 106 of $81.
Superior also participated in a contributory profit sharing plan ("the
Profit Sharing Plan") sponsored by Fortis, Inc. This Profit Sharing Plan
covered all employees with one year of service to the Company and
provided benefits payable to participants on retirement or disability and
to beneficiaries of participants in the event of death. The amount
expensed for the Profit Sharing Plan for 1993, 1994 and 1995 was $252,
$381 and $146, respectively.
In addition to retirement benefits, the Company participated in other
health care and life insurance benefit plans ("postretirement benefits")
for retired employees, sponsored by Fortis, Inc. Health care benefits,
either through a Fortis-sponsored retiree plan for retirees under age 65
or through a cost offset for individually purchased Medigap policies for
retirees over age 65, were available to employees who retired on or after
January 1, 1993, at age 55 or older, with 15 or more years of service.
Life insurance, on a retiree pay all basis, was available to those who
retired on or after January 1, 1993. Both the retiree medical and retiree
life programs were implemented in 1993. The Company made contributions to
these plans as claims were incurred; no claims were incurred during 1993,
1994 or 1995. In 1993, the NAIC issued new rules that required the
projected future cost of providing postretirement benefits, such as
health care and life insurance, be recognized as an expense as employees
render service instead of when the benefits are paid.
As required, Superior complied with the new rules beginning in 1995 and
elected to record these costs on a prospective basis. The effect of this
accounting change on the financial statements of the Company was not
material.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
8.Reinsurance:
The Company limits the maximum net loss that can arise from a large risk, or
risks in concentrated areas of exposure, by reinsuring (ceding) certain levels
of risks with other insurers or reinsurers. Superior has a casualty excess of
loss treaty which covers loses in excess of $100,000 up to a maximum of
$4,000,000. Superior maintains both auto and property catastrophe excess
reinsurance. Superior's first automobile casualty excess contains limits of
$200,000 excess of $100,000, its second casualty excess contains limits of
$700,000 excess of $300,000 and its third casualty excess has a limit of $4
million excess of $1 million. Further, Superior's first layer of property
catastrophe excess reinsurance covers 95% of $500,000 with an annual limit of $1
million and its second layer or property catastrophe excess reinsurance covers
95% of $2 million excess of $1 million with an annual limit of $4 million. The
Company remains contingently liable with respect to reinsurance, which would
become an ultimate liability of the Company in the event that such reinsuring
companies might be unable, at some later date, to meet their obligations under
the reinsurance agreements. In 1993, 1994 and 1995, 100% of amounts recoverable
from reinsurers are with Prudential Re, which maintains an A.M. Best rating of
A. Company management believes amounts recoverable from reinsurers are
collectible. Amounts recoverable from reinsurers relating to unpaid losses and
loss adjustment expenses were $1,099 and $987 as of December 31, 1994 and 1995,
respectively. Reinsurance activity for 1993, 1994 and 1995, which includes
reinsurance with related parties, is summarized as follows:
Direct Assumed Ceded Net
------ ------- ----- ---
1993
Premiums written $88,877 $26,783 $366 115,294
Premiums earned 87,618 31,183 665 118,136
Incurred losses and loss
adjustment expenses 64,228 21,896 222 85,902
Commission expenses 13,700 4,570 18,270
1994
Premiums written $92,540 $20,366 $391 $112,515
Premiums earned 89,755 23,437 355 112,837
Incurred losses and loss
adjustment expenses 73,181 20,244 1,047 92,378
Commission expenses 14,165 3,192 17,357
1995
Premiums written $84,840 $9,916 $686 $94,070
Premiums earned 84,641 13,592 619 97,614
Incurred losses and loss
adjustment expenses 63,462 8,777 (104) 72,343
Commission expenses 12,314 1,324 13,638
<PAGE>
9. Related-Party Transactions:
The Company and its subsidiaries have entered into transactions with various
related parties including transactions with its affiliated companies and Fortis,
Inc. The following transactions occurred with related parties in the years ended
December 31, 1993, 1994, and 1995:
1993 1994 1995
------ ------ ------
Management fees charged by Fortis $832 $842 $729
Reinsurance with affiliated companies, net:
Assumed premiums earned 8,321 9,092 7,786
Assumed losses and loss adjustment
expenses incurred 8,480 6,266 5,847
Assumed commissions 1,337 1,755 1,112
10. Effects of Statutory Accounting Practices and Dividend Restrictions:
Under state of Florida insurance regulations, the maximum amount of
dividends Superior, Superior American and Superior Guaranty can pay to
their stockholders without prior approval of the Insurance Commissioner
of the State of Florida is limited. The maximum amount of dividends which
Superior can pay to its stockholders during 1996 is approximately $4,900.
The maximum amount of dividends which Superior American can pay to its
stockholder during 1996 is approximately $320. The maximum amount of
dividends which Superior Guaranty can pay to its stockholder during 1996
is approximately $277.
11. Regulatory Matters:
Superior, Superior American and Superior Guaranty, domiciled in Florida,
prepare their statutory financial statements in accordance with
accounting practices prescribed or permitted by the Florida Department of
Insurance ("FDOI"). Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance
Commissioners ("NAIC"), as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed. Superior, Superior American
and Superior Guaranty utilize no significant permitted practices.
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
11. Regulatory Matters, continued:
The NAIC has promulgated risk-based capital ("RBC") requirements for
property/casualty insurance companies to evaluate the adequacy of statutory
capital and surplus in relation to investment and insurance risks, such as asset
quality, asset and liability matching, loss reserve adequacy and other business
factors. The RBC information is used by state insurance regulators as an early
warning tool to identify, for the purpose of initiating regulatory action,
insurance companies that potentially are inadequately capitalized. In addition,
the formula defines new minimum capital standards that will supplement the
current system of fixed minimum capital and surplus requirements on a
state-by-state basis. Regulatory compliance is determined by a ratio (the
"Ratio") of the enterprise's regulatory total adjusted capital, as defined by
the NAIC, to its authorized control level RBC, as defined by the NAIC.
Generally, a Ratio in excess of 200% of authorized control level RBC (the
"company action level") requires no corrective actions by Superior, Superior
American, Superior Guaranty, or regulators. As of December 31, 1995, all three
company's RBC level were in excess of the company action level.
12. Leases:
The Company has certain commitments under long-term operating leases for
its home and sales offices. Rental expense under these commitments was
$800, $483 and $1,012 for 1993, 1994 and 1995, respectively. Future
minimum lease payments required under these noncancelable operating
leases are as follows:
1996 $ 948
1997 921
1998 440
1999 350
2000 and thereafter 58
------
Total $2,717
======
<PAGE>
Notes to Consolidated Financial Statements, Continued
(Dollars in thousands)
13. Contingencies:
The Company, and its subsidiaries, are named as defendants in various
lawsuits relating to their business. Legal actions arise from claims made
under insurance policies issued by the Company and its subsidiaries.
These actions were considered by the Company in establishing its loss
liabilities. The Company believes that the ultimate disposition of these
lawsuits will not materially affect the Company's operations or financial
position.
The increase in number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in
increased assessments by state guaranty funds to cover losses to
policyholders of insolvent or rehabilitated insurance companies. Those
mandatory assessments may be partially recovered through a reduction in
future premium taxes in certain states. The Company recognizes its
obligations for guaranty fund assessments when it receives notice that an
amount is payable to a guaranty fund. The ultimate amount of these
assessments may differ from that which has already been assessed.
14. Subsequent Event (unaudited):
On May 1, 1996, the Symons International Group Incorporated entered into
an agreement ("Agreement") with GS Capital Partners II, L.P. to create a
company, GGS Management Holdings, Inc. ("GGS Holdings") to be owned 52%
by Symons and 48% by investment funds associated with Goldman, Sachs &
Co.
In connection with the above transaction, GGS Holdings acquired all of
the outstanding shares of common stock of the Company and its wholly
owned subsidiaries, Superior American and Superior Guaranty, for cash of
$65,057.
The purchase of the Company shall be accounted for in accordance with the
purchase method of accounting.
<PAGE>
GORAN CAPITAL INC.
CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE PERIOD ENDED
MARCH 31, 1996
GORAN CAP. GORAN CAP. -
US$ CDN$
GORAN CAPITAL GORAN CAPITAL
PRO-FORMA PRO-FORMA
US$ CDN$
------------- -------------
Gross premiums written $73,710,617 $100,917,206
=========== ============
Net premiums written 57,466,262 78,677,087
=========== ============
Net premiums owned 53,177,311 72,805,056
Net Investment income 2,763,263 3,783,184
Net reafted investment gains/(losses) 29,000 39,704
Other income / (expenses) 2,049,986 2,806,635
----------- ------------
Total revenue 58,019,559 79,434,579
Claims incurred 34,774,102 47,609,224
Otter underwriting expenses 0 0
Operating expenes 155,377 212,726
General & admin. expenses 15,359,303 21,028,422
Interest expense 1,558,946 2,134,353
----------- ------------
Total expenses 51,847,728 70,984,725
----------- ------------
Income before tax & minority interest 6,171,831 8,449,654
Provision for income taxes current 1,900,577 2,613,033
Deferred 18,260 25,000
----------- ------------
Provision for income taxes 1,926,838 2,638,033
----------- ------------
Income before minority interest 4,244,993 5,811,820
Minority interest (1,311,496) (1,796,569)
----------- ------------
2,933,498 4,016,252
Discontinued operations 0 0
----------- ------------
Net Income for the period 2,933,498 4,016,252
=========== ============
<PAGE>
GORAN CAPITAL INC.
CONSOLIDATED BALANCE SHEET
AS AT
MARCH 31, 1996
GORAN CAPITAL GORAN CAPITAL
PRO-FORMA PRO-FORMA
US$ CDN$
------------- -------------
Cash (1,085,391) (1,463,847)
Short-term investments 17,351,892 23,841,600
Investments 162,994,615 223,954,600
----------- -----------
Total Cash & Investments 179,281,116 246,332,253
Accounis receivable
Amounts due from agents 16,328,152 22,434,881
Amounts due from other Ins co 57,019,983 76,345,457
Amounts due from assoc co 49,000 67,326
Amounts due from parent co 392,372 539,119
Loans to shareholders 359,934 494,549
Other receivable 2,764,293 3,825,619
----------- -----------
Total Receivables 76,933,734 105,706,951
Fixad assets 3,184,247 4,375,155
Income taxes recoverable 225,531 309,880
Other assets 5,886,531 8,088,094
Deferred policy acqu costs 14,646,226 20,123,817
Deferred income taxes 1,001,587 1,376,181
Accrued investment Income 0 0
Investment In Subs/Affiliates 0 0
Goodwill 3,637,660 4,998,131
----------- -----------
28,581,774 39.27,1,357
----------- -----------
TOTAL ASSETS 284,796,624 391,310,561
=========== ===========
LIABILITIES
Accounts payable
Amounts due to other Ins co 1,981,229 2,722,209
Amounts due to assoc co 0 0
Amounts due to parent 0 0
Other payables 17,420,513 23,935,785
----------- -----------
Total Accounts Payable 19,401,742 26,557,984
Outstanding claims 88,588,845 121,721,073
Unearned premiums 72,152,154 99,137,000
ContingeM commissions payable 0 0
Additional policy provisions 0 0
income taxes payable 1,750,331 2,404,955
Loan from Parent Company 0 0
Loan from Affiliated Company 0 0
Line of Credit 7,750,000 10,648,500
Term Loan 48,000,000 65.GS2.000
Subordinated Debenture 11,013,282 15,132,249
Minority interest 21,200,000 29,128,800
----------- -----------
TOTAL LIABILITIES 269,856,354 370,782,630
----------- -----------
SHAREHOLDERS' EQUITY
Capital Stock - Common 16,927,598 23,258,520
Capital stock - Preferred 0 0
Treasury stock 0 0
Contributed surplus 0 0
Unrealized gain/(loss) on equities 0 0
Retained earnings (1,939,649) (2,668,653)
Foreign currency trans adj (47,679) (61,936)
----------- -----------
TOTAL SHAREHOLDERS'EQUITY 14,840,270 20,527,931
----------- -----------
TOTAL LIABILITIES & S/H EQUITY 284,796,624 391,310,561
=========== ===========
<PAGE>
GORAN CAPITAL INC.
CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE PERIODS ENDED
DECEMBER 31, 1995
GORAN CAPITAL GORAN CAPITAL
PRO-FORMA PRO-FORMA
US$ CDN$
------------- -------------
Gross premiums written $246,644,792 $338,358,072
============ ============
Net premiums written 180,430,201 247,622,408
============ ============
Net premiums earne 173,715,909 238,407,714
Net investment and other income 10,902,926 14,963,176
Net realized investment gains/(losses) 1,954,000 2,681,670
Other Income / (expenses) 6,513,432 a,939.033
------------ ------------
Total revenue 193,086,267 264,991,593
Losses & loss adj exp 120,650,638 166,580,936
0 0
Policy acq'n & general & admin. expenses 55,563,563 76,255,434
Other expenses (521,000) (715,020)
Interest expense 6,648,796 9,124,808
------------ ------------
Total expenses 182,341,997 250,246,157
------------ ------------
Income before taxes & minority interest 10,744,270 14,745,436
Provision for income taxes
Current 1,725,439 2,367,992
Deferred 869,730 1,193,618
Provision for income taxes 2,595,169 3,561,610
------------ ------------
Income before minority interest 8,149,101 11,183,826
Minority interest (135,607) (186,107)
------------ ------------
Net income for the period 8,013,494 10,997,719
============ ============
STOCK PURCHASE AGREEMENT
by and among
GORAN CAPITAL INC.,
SYMONS INTERNATIONAL GROUP, INC.,
FORTIS, INC.
and
INTERFINANCIAL INC.
Dated as of January 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 CERTAIN DEFINITIONS
Affiliate................................................... 1
Agreement................................................... 2
Applicable Law.............................................. 2
Business Day................................................ 2
Closing..................................................... 2
Closing Balance Sheet....................................... 2
Closing Date................................................ 2
Code........................................................ 2
Companies................................................... 2
Earnest Money............................................... 2
ERISA....................................................... 2
Florida Insurance Code...................................... 2
GAAP........................................................ 2
Governmental Authority...................................... 2
Hart-Scott Act.............................................. 2
June 30 Balance Sheet....................................... 2
Knowledge................................................... 3
Letter of Intent............................................ 3
Material Adverse Effect..................................... 3
Net Book Value.............................................. 3
Person...................................................... 3
Prime Rate.................................................. 3
Purchasers Disclosure Memorandum............................ 3
Seller Related Party........................................ 3
Seller Subsidiaries......................................... 4
Sellers Disclosure Memorandum............................... 4
Shares...................................................... 4
Standard.................................................... 4
Superior American........................................... 4
Superior Guaranty........................................... 4
Tax Returns................................................. 4
Taxes....................................................... 4
ARTICLE 2 STOCK PURCHASE AND CLOSING
2.1 Purchase and Sale of the Shares............................ 4
2.2 Consideration.............................................. 4
2.3 Payment of Purchase Price.................................. 4
<PAGE>
2.4 Closing.................................................. 6
2.5 Earnest Money ....................................... 6
2.6 Deliveries and Proceedings at the Closing................ 7
2.7 Composition of Investment Portfolios..................... 8
2.8 Assignment to Affiliate.................................. 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 Organization and Good Standing of Sellers; Power and
Authority............................................... 8
3.2 Organization and Good Standing of Superior; Power and
Authority............................................... 8
3.3 Capitalization and Ownership............................. 8
3.4 Seller Subsidiaries...................................... 9
3.5 Qualification............................................ 9
3.6 No Violation of Applicable Laws or Agreements............ 9
3.7 Financial Statements..................................... 10
3.8 Absence of Certain Changes............................... 10
3.9 Reserves................................................. 11
3.10 Tax Matters.............................................. 11
3.11 Pending Litigation or Proceedings........................ 12
3.12 Compliance With Applicable Laws.......................... 12
3.13 Compliance with Material Contracts....................... 13
3.14 Consents and Approvals................................... 14
3.15 Legal Investments........................................ 14
3.16 Insurance Issued by the Companies; Reinsurance........... 14
3.17 Title.................................................... 14
3.18 Employee Benefit Plans................................... 14
3.19 Compensation Arrangements; Bank Accounts; Officers and
Directors; Related Party Agreements...................... 17
3.20 Labor Matters............................................ 17
3.21 Brokerage................................................ 18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASERS
4.1 Organization and Good Standing of Purchasers; Power
and Authority......................................... 18
4.2 No Violation of Applicable Laws or Agreements........... 18
4.3 Pending Litigation or Proceedings....................... 18
4.4 Consents and Approvals.................................. 19
4.5 Brokerage............................................... 19
4.6 Investment Intent....................................... 19
4.7 Acquisition Approval Filing............................. 19
4.8 Financing............................................... 19
<PAGE>
ARTICLE 5 CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Operation of the Companies' Business Pending Closing.... 19
5.2 Financing............................................... 21
5.3 Access to Information................................... 21
5.4 Certain Tax Matters..................................... 21
5.5 Disclosure Memoranda.................................... 27
5.6 Superior Intercompany Agreements........................ 27
5.7 Regulatory Approvals and Consents....................... 28
5.8 Efforts to Close........................................ 29
5.9 Expenses................................................ 29
5.10 Resignations............................................ 29
5.11 Post-Closing Cooperation................................ 29
5.12 Post-Closing Examinations............................... 29
5.13 Maintenance of Records.................................. 30
5.14 Certain Agreements Regarding Benefit Plans and Other
Employee Matters....................................... 30
5.15 PMSC Negotiations....................................... 31
5.16 Press Releases.......................................... 32
ARTICLE 6 CONDITIONS TO CLOSING
6.1 Conditions to Obligations of Purchasers................. 32
6.2 Conditions to Obligations of Sellers.................... 34
ARTICLE 7 INDEMNIFICATION
7.1 Indemnification by Sellers.............................. 35
7.2 Indemnification by Purchasers........................... 37
7.3 Indemnification Procedures.............................. 38
7.4 Sole Remedy............................................. 40
ARTICLE 8 TERMINATION
8.1 When Agreement May be Terminated........................ 40
8.2 Final Termination....................................... 40
8.3 Effect of Termination................................... 40
ARTICLE 9 ARBITRATION
9.1 Agreement to Arbitrate.................................. 41
9.2 Initiating Arbitration.................................. 41
9.3 Effect.................................................. 41
9.4 Costs................................................... 42
<PAGE>
ARTICLE 10 MISCELLANEOUS
10.1 Nature and Survival of Representation.................. 42
10.2 Amendment.............................................. 42
10.3 Waiver................................................. 42
10.4 Governing Law.......................................... 42
10.5 Notices................................................ 42
10.6 Invalid Provision...................................... 43
10.7 Assignment............................................. 43
10.8 Binding Effect......................................... 44
10.9 Further Assurances..................................... 44
10.10 Headings............................................... 44
10.11 Person and Gender...................................... 44
10.12 Entire Agreement....................................... 44
10.13 Interpretations........................................ 44
10.14 Execution in Counterparts.............................. 44
10.15 No Third-Party Beneficiaries........................... 44
EXHIBITS:
1 June 30 Balance Sheet
5.2 Financing Terms
6.1(c) Opinion of Sellers' Counsel
6.2(c) Opinion of Purchasers' Counsel
SCHEDULES:
6.1(f) Sellers Required Consents
6.2(f) Purchasers Required Consents
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of January 31,
1996 by and among GORAN CAPITAL INC., a Canadian federally chartered corporation
organized under the laws of Canada and existing under the laws of Ontario,
Canada ("Goran"), SYMONS INTERNATIONAL GROUP, INC., an Indiana corporation
("SIG") (Goran and SIG are referred to collectively as "Purchasers"), FORTIS,
INC., a Nevada corporation ("Fortis") and INTERFINANCIAL INC., a Georgia
corporation ("Interfinancial") (Fortis and Interfinancial are referred to
collectively as "Sellers").
RECITALS
WHEREAS, Interfinancial owns 100% of the issued and outstanding capital
stock of Superior Insurance Company, a Florida corporation ("Superior"), and
Superior owns 100% of the issued and outstanding capital stock of each of
Superior American Insurance Company, Superior Guaranty Insurance Company, and
The Standard Plan, Inc.; and
WHEREAS, Fortis owns 100% of the issued and outstanding capital stock of
Interfinancial; and
WHEREAS, Goran owns 100% of the issued and outstanding capital stock of
SIG; and
WHEREAS, Sellers desire that Interfinancial sell to SIG, and Purchasers
desire that SIG purchase, all of the capital stock of Superior, in accordance
with the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used herein and in the Schedules and Exhibits hereto, the following
terms have the following respective meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Affiliate" of a Person means any Person directly, or indirectly through
one or more intermediaries, controlling, controlled by or under common control
with such Person. For purposes of this Agreement, "control" shall be
conclusively presumed if a Person holds the power, by equity ownership or
AD951840.095
<PAGE>
otherwise, to elect at least 50% of the directors of the other Person or
otherwise direct the policies and business activities of the other Person.
"Agreement" means this Stock Purchase Agreement and all Exhibits hereto, as
the same may be supplemented, modified or amended from time to time.
"Applicable Law" means all applicable provisions of constitutions,
statutes, laws, rules, regulations and orders of all Governmental Authorities.
"Business Day" means any day other than a Saturday, a Sunday, or any day
upon which commercial banks in the city of New York are authorized or required
by law to be closed.
"Closing" means the consummation of the transactions described in this
Agreement.
"Closing Balance Sheet" is defined in Section 2.3(b).
"Closing Date" means the date upon which Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Companies" means Superior collectively with the Seller Subsidiaries.
"Earnest Money" is defined in Section 2.5.
"ERISA" means the Employee Retirement Income Security Act of 1974, as in
effect from time to time.
"Florida Insurance Code" means Title XXXVII of the Florida Statutes.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Authority" means any federal, state, county, local, foreign
or other governmental or public agency, instrumentality, commission, authority,
board or body.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and all regulations promulgated thereunder.
"June 30 Balance Sheet" means the unaudited balance sheet of the Companies
on a consolidated basis prepared as of June 30, 1995 and attached hereto as
Exhibit 1.
- 2 -
AD951840.095
<PAGE>
"Knowledge" (i) with respect to Sellers means those facts known (or which
should be known) by any of the executive officers of Fortis and Interfinancial
and the following persons: Howard Wexler, Meril Joseph, Steve Pierson, Jim
Cizek, Roger Sullivan and Don Ringham; and (ii) with respect to Purchasers,
means those facts known (or which should be known) by any of the executive
officers or directors of any Purchaser.
"Letter of Intent" means that certain Letter of Intent dated by Fortis on
June 28, 1995 and approved and accepted by Goran on June 30, 1995.
"Material Adverse Effect" means a material adverse effect to the property,
results of operations or financial condition of a Person; provided, however,
that a Material Adverse Effect shall not include the effect of any matter which
has or may have an industry-wide effect, or any general economic conditions.
"Net Book Value" means the aggregate book value of all assets less the
aggregate book value of all liabilities as of the specified date, as reflected
on a balance sheet as of such date prepared on an accrual basis in accordance
with GAAP.
"Person" means an individual, corporation, partnership, association, trust
or unincorporated organization, or a government or any agency or political
subdivision thereof.
"Prime Rate" means the prime rate as published in the "Money Rates" column
of The Wall Street Journal, Eastern Edition; in the event that more than one
such rate is reported, the Prime Rate shall equal the average of such rates. Use
of the term "Prime Rate" in this Agreement shall mean a per annum rate, simple
interest.
"Purchasers Disclosure Memorandum" means the written information entitled
"Purchasers Disclosure Memorandum" delivered to Fortis prior to the date of this
Agreement and referencing specific Sections of this Agreement. Any matter
disclosed by Purchasers with respect to one Section shall be deemed disclosed
with respect to all other Sections, provided that the relevance to the Section
from which any such matter is omitted is apparent from the disclosure with
respect to the Section for which such matter is included.
"Seller Related Party" means (i) Fortis, (ii) Interfinancial, (iii) any of
the Companies, (iv) any Affiliate of Fortis, Interfinancial or any of the
Companies, (v) any officer or director of Fortis, Interfinancial, any of the
Companies or any Affiliate thereof, (vi) any family member of any officer or
director of Fortis, Interfinancial, any of the Companies or any of their
Affiliates, and (vii) any business entity in which any officer or director of
Fortis, Interfinancial, any of the Companies or any Affiliate thereof, or any
family member of any such officer or director, individually or in the aggregate,
holds a majority interest.
- 3 -
AD951840.095
<PAGE>
"Seller Subsidiaries" means Standard, Superior American and Superior
Guaranty.
"Sellers Disclosure Memorandum" means the written information entitled
"Sellers Disclosure Memorandum" delivered to Goran prior to the date of this
Agreement and referencing specific Sections of this Agreement. Any matter
disclosed by Sellers with respect to one Section shall be deemed disclosed with
respect to all other Sections, provided that the relevance to the Section from
which any such matter is omitted is apparent from the disclosure with respect to
the Section for which such matter is included.
"Shares" means 100% of the issued and outstanding shares of capital stock
(including warrants, if any) of Superior.
"Standard" means The Standard Plan, Inc., a Georgia corporation and wholly
owned subsidiary of Superior.
"Superior American" means Superior American Insurance Company, a Florida
corporation and wholly owned subsidiary of Superior.
"Superior Guaranty" means Superior Guaranty Insurance Company, a Florida
corporation and wholly owned subsidiary of Superior.
"Tax Returns" means all returns, reports, statements, estimates,
declarations, notices or forms, including accompanying schedules, in each case
with respect to Taxes.
"Taxes" means all federal, state, local and foreign income, premium,
payroll, withholding, excise, sales, use, gains, transfer, real and personal
property, use and occupation, capital stock, franchise and other taxes,
including interest and penalties thereon and all estimated taxes.
ARTICLE 2
STOCK PURCHASE AND CLOSING
2.1 Purchase and Sale of the Shares. Upon and subject to the terms and
conditions of this Agreement, Interfinancial shall sell, and SIG shall purchase,
30,000 Shares of common stock, par value One Hundred Dollars ($100.00) per
share, which represents 100% of the issued and outstanding shares of capital
stock of Superior.
2.2 Consideration. The aggregate consideration (the "Purchase Price") to be
paid by SIG to Interfinancial for the Shares shall equal (i) 1.05 multiplied by
the Net Book Value of Superior as reflected on the Closing Balance Sheet plus
(ii) Three Hundred Sixty Thousand Dollars ($360,000).
2.3 Payment of Purchase Price. SIG shall pay the Purchase Price as follows:
- 4 -
AD951840.095
<PAGE>
(a) Closing Date Payment. At the Closing, SIG shall pay to
Interfinancial an amount equal to (i) 1.05 multiplied by the Net Book
Value of Superior as reflected on an unaudited balance sheet prepared
by Superior as of close of business on the last day of the month
immediately preceding the month in which Closing occurs, less (ii) the
Earnest Money (plus interest as described in Section 2.5). The sum of
the amount paid by SIG in cash at Closing and the Earnest Money shall
be referred to herein as the "Closing Date Payment."
(b) Post-Closing Adjustment.
(i) As soon as practicable, but in any event within
45 days after the Closing, Sellers will prepare and deliver to
Purchasers a balance sheet and related notes of Superior as of
the close of business on the Closing Date (the "Closing
Balance Sheet") prepared in accordance with GAAP (except to
the extent set forth in Sections 5.4 and 5.14) and reflecting
accounting principles and practices consistent with those used
in the preparation of the June 30 Balance Sheet. Such Closing
Balance Sheet shall be accompanied by the report of Ernst &
Young, independent auditors for Superior, which report shall
state (without qualification as to scope of audit or other
matters) that in the opinion of Ernst & Young the Closing
Balance Sheet fairly presents the financial position, assets
and liabilities of Superior as of the Closing Date and has
been prepared in accordance with GAAP (except to the extent
set forth in Sections 5.4 and 5.14) reflecting accounting
principles and practices consistent with those used in the
preparation of the June 30 Balance Sheet. Notwithstanding the
foregoing, (i) the Closing Balance Sheet shall be prepared
using a materiality standard appropriate under GAAP for the
Companies on a consolidated basis, without regard for any
other Affiliate of the Companies, and (ii) any asset,
liability or negative liability that will be extinguished by
reason of the transactions contemplated hereby shall not be
included on the Closing Balance Sheet.
(ii) Following delivery of the Closing Balance Sheet
by Sellers, Purchasers shall have 15 days in which to review
the Closing Balance Sheet. During such 15-day period, Sellers
shall cause Ernst & Young to provide to Purchasers and their
independent auditors, Coopers & Lybrand, full access to Ernst
& Young's work papers in connection with the audit of the
Closing Balance Sheet. Such Closing Balance Sheet shall be
deemed conclusive and binding on the parties, unless
Purchasers notify Sellers in writing within such 15-day period
of their disagreement therewith (which notice shall state with
reasonable specificity the reasons for any disagreement and
the amounts in dispute). If there is a disagreement, and such
disagreement cannot be resolved by Purchasers and Sellers
within 10 days following Sellers' receipt of Purchasers'
notice of disagreement, the dispute shall be submitted to the
- 5 -
AD951840.095
<PAGE>
independent auditing firm of Arthur Andersen, provided that
Arthur Andersen has not worked for either party. If Arthur
Andersen has worked for either party, Sellers and Purchasers
shall mutually select another independent auditing firm that has
not worked for either party. The determination by Arthur Andersen
or such other independent auditing firm, which shall be made
within 30 days of the date upon which the dispute is submitted to
such firm, shall be binding and conclusive on the parties.
Purchasers and Sellers shall each pay one-half of the cost of the
fees and expenses of such independent auditing firm.
(iii) Within 5 days after all disputes have been resolved
with respect to the Closing Balance Sheet, the parties shall make
any necessary payment to ensure that SIG has paid the full
Purchase Price and no more. Therefore, if the Purchase Price is
(x) less than the Closing Date Payment, Interfinancial shall
refund to SIG the difference, or (y) greater than the Closing
Date Payment, SIG shall pay to Interfinancial the difference. Any
such refund or payment shall bear interest at the Prime Rate as
reported for the Closing Date from the Closing Date through and
including the date of payment.
(c) Each monetary amount stated in this Agreement is stated in
United States Dollars, and each payment or refund made pursuant to this
Article 2 shall be in United States Dollars paid by means of a wire
transfer of immediately available funds to an account designated by the
recipient.
2.4 Closing. Closing shall be effective as of close of business on the
last day of the month in which all of the conditions set forth in Article 6 are
satisfied or waived, and Closing shall take place at such time and place as the
parties may agree.
2.5 Earnest Money.
(a) The parties acknowledge and agree that heretofore Goran
has paid to Fortis the sum of $100,000 pursuant to paragraph 3 of the
Letter of Intent, and an additional $300,000 pursuant to that certain
Letter Agreement between Goran and Fortis dated December 31, 1995 (the
"December Letter Agreement") (collectively, the "Earnest Money").
Fortis shall continue to hold the Earnest Money until the earlier of
(i) the Closing Date, or (ii) termination of this Agreement in
accordance with Article 8. In the event that Closing occurs, the
Earnest Money plus interest as described in Section 2.5(b) shall be
applied against the Purchase Price as set forth in Section 2.3 above.
In the event that Closing does not occur as a result of a breach of
this Agreement by Sellers, Fortis shall promptly pay to Goran the
Earnest Money plus interest as described in Section 2.5(b) (and such
payment shall be in addition to, and not in lieu of or limitation of,
any other remedies that Purchasers may have hereunder or otherwise). In
the event that Closing does not occur for any reason other than a
- 6 -
AD951840.095
<PAGE>
breach of this Agreement by Sellers, Fortis shall retain the Earnest
Money in consideration for its having agreed to the exclusivity
provisions of the Letter of Intent and the December Letter Agreement.
In such event, if Closing does not occur because Purchasers have
breached this Agreement, Fortis' retention of the Earnest Money shall
be in addition to, and not in lieu of or limitation of, any other
remedies that Fortis may have hereunder or otherwise. In such event,
if Closing does not occur for any reason other than a breach of this
Agreement by Purchasers, Fortis' retention of the Earnest Money shall
be Fortis' sole right and Fortis shall not have the right to seek from
Purchasers payment for any damages.
(b) The parties acknowledge and agree that, contrary to the
Letter of Intent, Fortis has not held the Earnest Money in an interest
bearing account. In lieu of any interest that would have been earned on
such an interest bearing account, in any instance in which Fortis will
return the Earnest Money plus interest to Goran, or apply the Earnest
Money plus interest to the Purchase Price, as described in Section
2.5(a), Fortis will pay to Goran interest on the Earnest Money at the
rate of 6.00% per annum simple interest, as follows:
(i) interest on $50,000 from July 7, 1995 through
either the Closing Date or the date that the Earnest Money is
refunded to Goran, as applicable;
(ii) interest on $50,000 from August 30, 1995 through
either the Closing Date or the date that the Earnest Money is
refunded to Goran, as applicable; and
(iii) interest on $300,000 from January 15, 1996
through either the Closing Date or the date that the Earnest
Money is refunded to Goran, as applicable.
2.6 Deliveries and Proceedings at the Closing. At the Closing, the
parties shall execute and deliver each agreement and instrument required or
contemplated by this Agreement to be so executed and delivered and not
theretofore executed and delivered, including, without limitation: (a) SIG shall
deliver to Interfinancial the payment required by Section 2.3(a); and (b)
Interfinancial shall deliver to SIG (i) the certificate or certificates
evidencing the Shares, duly endorsed in blank for transfer or accompanied by
duly executed irrevocable stock powers in blank, free and clear of all liens,
encumbrances, pledges, options, voting agreements, contractual rights or other
claims whatsoever; and (ii) a certificate in accordance with Treasury Regulation
Section 1.1445- 2(b)(2) certifying that Interfinancial is not a "foreign
person." If, on or prior to the Closing, SIG shall not have received such
certificate identified in (ii) above, SIG may withhold from the Closing Date
Payment such sums as are required to be withheld therefrom under Section 1445 of
the Code. All actions taken at the Closing shall be deemed to occur
simultaneously.
- 7 -
AD951840.095
<PAGE>
2.7 Composition of Investment Portfolios. Upon the request of
Purchasers, delivered to Sellers within a reasonable time prior to Closing,
Sellers shall cause those investments of the Companies that are eligible
investments only by virtue of Section 625.331(1)(b) of the Florida Insurance
Code to be sold or otherwise converted to cash on or before the Closing Date.
2.8 Assignment to Affiliate. Notwithstanding Section 10.7, SIG may
assign its rights and obligations under this Agreement to any Person that is an
Affiliate of SIG; provided, however, that such assignee shall execute and
deliver to Sellers an agreement agreeing to be bound by the terms and conditions
of this Agreement applicable to SIG; and provided, further, that no such
assignment shall relieve SIG of any obligations under this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby, jointly and severally, represent and warrant to
Purchasers as follows:
3.1 Organization and Good Standing of Sellers; Power and Authority.
Each of Fortis and Interfinancial is a corporation duly organized, validly
existing and in good standing under the laws of the state in which it is
incorporated. Sellers have the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of, and the performance by
Sellers of their obligations under, this Agreement have been duly and validly
authorized by all necessary corporate action on the part of each of the Sellers.
No other corporate or shareholder proceedings on the part of either Seller are
necessary to approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Sellers and constitutes Sellers' valid and binding obligations,
enforceable against Sellers in accordance with its terms.
3.2 Organization and Good Standing of Superior; Power and Authority.
Superior is a corporation duly organized, validly existing and in good standing
under the laws of Florida. Superior has all requisite corporate power and
authority to own or lease its properties and assets as now owned or leased. The
copies of Superior's articles of incorporation and bylaws, as amended to date,
which have been delivered to Purchaser, are correct and complete and are in full
force and effect.
3.3 Capitalization and Ownership. Superior's authorized capital stock
consists solely of 30,000 shares of common stock, par value $100 per share,
30,000 of which are currently issued and outstanding and none of which are held
in its treasury. All of such outstanding shares of Superior have been duly
authorized, validly issued and are fully paid and nonassessable. There are no
- 8 -
AD951840.095
<PAGE>
outstanding options, warrants, rights, agreements, calls, commitments or demands
of any character relating to the capital stock of Superior and no securities
convertible into or exchangeable for any of such capital stock. Interfinancial
(a) is the sole record and beneficial owner of the Shares, free and clear of any
lien, security interest, restriction, encumbrance or claim, and (b) owns all of
the issued and outstanding capital stock of Superior.
3.4 Seller Subsidiaries. Superior owns, free and clear of all liens and
encumbrances whatsoever, 100% of the issued and outstanding capital stock of
each Seller Subsidiary. All of such outstanding shares of the Seller
Subsidiaries have been duly authorized, validly issued and are fully paid and
nonassessable. There are no outstanding options, warrants, rights, agreements,
calls, commitments or demands of any character relating to the capital stock of
any Seller Subsidiary and no securities convertible into or exchangeable for any
of such capital stock. Sellers Disclosure Memorandum accurately sets forth the
number of shares, classes and par values of the authorized and issued shares of
the Seller Subsidiaries. Superior does not, directly or indirectly, own any
stock of, or any other interest in, any Person other than the Seller
Subsidiaries, except that Superior may own interests held for investment
purposes not exceeding 10% of any such single Person. Each Seller Subsidiary is
a corporation duly organized, validly existing and in good standing under the
laws of the state in which it is incorporated, and each Seller Subsidiary has
all requisite corporate power and authority to own or lease its properties and
assets as now owned or leased. The copies of the articles of incorporation and
bylaws of each Seller Subsidiary, as amended to date, which have been delivered
to Purchasers, are correct and complete and are in full force and effect.
3.5 Qualification. Each of the Companies is duly qualified or licensed
to do business and is in good standing as a foreign corporation in each
jurisdiction in which such qualification or licensing is necessary under
Applicable Law, except where the failure to be so duly qualified or licensed or
in good standing would not have a Material Adverse Effect on Superior.
Notwithstanding the foregoing, Superior is qualified to do insurance business in
the following states: Alabama, Arizona, California, Florida, Georgia, Illinois,
Maryland, Mississippi, Ohio, South Carolina, Tennessee, Texas, Virginia and
Wisconsin.
3.6 No Violation of Applicable Laws or Agreements. The execution and
delivery of this Agreement by Sellers do not, and the consummation of the
transactions contemplated by this Agreement and the compliance with the terms,
conditions and provisions of this Agreement by Sellers, will not (a) violate or
conflict with any provision of Sellers' or the Companies' articles of
incorporation or bylaws; (b) except as set forth in Sellers Disclosure
Memorandum, violate, conflict with or result in the breach or termination of, or
otherwise give any contracting party (which has not consented to such execution,
delivery and consummation) the right to change the terms of, or to terminate or
accelerate the maturity of, or constitute a default under the terms of, any
indenture, mortgage, loan or credit agreement or any other material agreement or
instrument to which any of Sellers or the Companies is a party or by which any
- 9 -
AD951840.095
<PAGE>
of them or any of their assets may be bound or affected, or any Applicable Law;
(c) result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the Companies' assets or give to others any
interests or rights therein; other than any such conflicts, breaches,
terminations, accelerations, defaults or violations that would not, individually
or in the aggregate, have an adverse financial impact on Superior of $50,000 or
more.
3.7 Financial Statements. Sellers have delivered to Purchasers complete and
correct copies of the following:
(a) the Annual Statements of Superior filed with the
Department of Insurance of the State of Florida for the years ending
December 31, 1991, 1992, 1993 and 1994, together with the exhibits and
schedules thereto, and the Annual Statement of each of Superior
American and Superior Guaranty filed with the Florida Insurance
Department for the year ending December 31, 1994, together with the
exhibits and schedules thereto (collectively the "Superior Annual
Statements");
(b) the Quarterly Statements of each of Superior, Superior
American and Superior Guaranty filed with the Department of Insurance
of the State of Florida for the quarters ending March 31, 1995 and June
30, 1995, together with the exhibits and schedules thereto
(collectively, the "Superior Quarterly Statements"); and
(c) the June 30 Balance Sheet.
The financial statements contained in the Superior Annual Statements
and the Superior Quarterly Statements (i) have been prepared in accordance with
statutory accounting principles ("SAP") as prescribed or permitted by the
Florida Insurance Department, except that the financial statements contained in
the Quarterly Statements are unaudited; and (ii) are correct and complete and in
accordance with the books and records of each Company, respectively. The
financial statements contained in the Annual Statements fairly present in
accordance with SAP the financial condition, assets and liabilities of each
Company, respectively, as at their respective dates and the results of its
operations for the periods covered thereby. The financial statements contained
in the Quarterly Statements include all adjustments necessary for a fair
presentation of the financial position of each Company, respectively, and the
results of its operations for the interim period presented, subject to normal
recurring year-end adjustments and the omission of footnote disclosures. The
June 30 Balance Sheet has been prepared in accordance with GAAP and fairly
presents the assets and liabilities of the Companies on a consolidated basis as
of June 30, 1995.
3.8 Absence of Certain Changes. Except as disclosed in Sellers Disclosure
Memorandum, since June 30, 1995 (i) there has been no occurrence having, or
which would reasonably be expected to result in, a Material Adverse Effect on
Superior, and (ii) none of the Companies has taken any action that would be
- 10 -
AD951840.095
<PAGE>
prohibited under Section 5.1 after the date of this Agreement. Since June 30,
1995, the business of the Companies has been conducted only in the ordinary and
usual course consistent with past practice, except with respect to the
transactions contemplated by this Agreement.
3.9 Reserves. Each reserve established or reflected in the June 30
Balance Sheet in respect of the Companies' insurance policies was determined in
accordance with generally accepted actuarial standards, was based on actuarial
assumptions that were in accordance with those called for in relevant insurance
policy and contract provisions, is fairly stated in accordance with sound
actuarial principles and is in compliance with the applicable requirements of
the Florida Insurance Code.
3.10 Tax Matters. Except as set forth in Sellers Disclosure Memorandum:
(a) The Companies, Sellers and certain other Affiliates of
Fortis constitute an affiliated group of corporations within the
meaning of Section 1504 of the Code (the "Group"), and Superior has
joined in the filing of a consolidated federal income Tax Return with
the Group for taxable years beginning with 1984.
(b) The Group has (i) timely filed all Tax Returns required to
be filed by it; (ii) paid all Taxes shown to have become due pursuant
to such filed Tax Returns; and (iii) paid all other Taxes for which a
notice of assessment or demand for payment has been received or which
are otherwise due and payable. All Tax Returns of the Group (i) have
been prepared in accordance with all Applicable Laws, and (ii)
accurately reflect the taxable income (or other measure of tax) of the
corporation or corporations filing the same. All Taxes of the Companies
for periods after December 31, 1994 have been paid or are adequately
reserved against on the books of the Companies, except as may otherwise
be permitted under Section 5.4 hereof. The Companies have timely filed
all information returns or reports, including Forms 1099, that are
required to be filed and have accurately reported all information
required to be included on such returns or reports. True copies of
federal income tax returns of the Companies included in the
consolidated Tax Returns for the Group for each of the fiscal years
ended December 31, 1992 through December 31, 1994 have been delivered
to Purchasers. True copies of the state Tax Returns of the Companies
filed most recently in each state, respectively, in which the Companies
have filed Tax Returns have been delivered to Purchasers. The Companies
have paid all insurance guaranty fund assessment liabilities for which
a notice of assessment or demand for payment has been received or which
are otherwise due and payable.
(c) There is no action, suit, proceeding, investigation, audit
or claim pending or proposed with respect to any liability for Tax that
relates to any of the Companies, and there are no proposed assessments
of Taxes against the Companies, no proposed adjustments to any Tax
Return pending against the Group with respect to the Companies'
operations or assets, and no proposed adjustments to the manner in
- 11 -
AD951840.095
<PAGE>
which any Tax of the Group is determined with respect to the
Companies' operations or assets. No taxing authority in a jurisdiction
where the Companies do not file Tax Returns has made a claim or threat
that any of the Companies is or may be subject to taxation by that
jurisdiction.
(d) None of the Companies has (i) filed any consent agreement
under Section 341(f) of the Code, (ii) executed or been the subject of
a waiver or consent extending any statute of limitation for any Tax
liability that remains outstanding, (iii) joined in or been required to
join in filing a consolidated or combined federal, state or local Tax
Return with any corporation other than a current or former member of
the Group, (iv) been the subject of a ruling of the Internal Revenue
Service or any state or local taxing authority that has continuing
application to the Companies, (v) been the subject of a closing
agreement with any taxing authority that has continuing effect, (vi)
filed an election under Section 338(g) or Section 338(h)(10) of the
Code or caused a deemed election under Section 338(e) thereof, or (vii)
granted a power of attorney with respect to any Tax matters that has
continuing effect. None of the Companies has agreed to make nor is it
required to make any adjustment under Section 481 of the Code or any
comparable provision of state, local or foreign law by reason of a
change in accounting method or otherwise and the Internal Revenue
Service (or other taxing authority) has not proposed any such change in
accounting method in connection with an ongoing audit of any of the
Companies. None of the Companies has disposed of property in a
transaction being accounted for under the installment method pursuant
to Section 453 of the Code, or any comparable state, local or foreign
law.
3.11 Pending Litigation or Proceedings. Except for claims under
insurance contracts against the Companies in the ordinary course of business, or
as set forth in Sellers Disclosure Memorandum, there are no claims, suits,
actions, proceedings, arbitrations or investigations pending, or to the
Knowledge of Sellers threatened, against or otherwise relating to or involving
any of the Companies or any of their properties, which (i) in the aggregate
exceed $50,000 and (ii) will not be shown as a liability on the Closing Balance
Sheet. Sellers Disclosure Memorandum sets forth a complete and accurate list of
all litigation relating to the transactions contemplated hereby.
3.12 Compliance With Applicable Laws.
(a) None of the Companies is in violation of any Applicable Law, except
for possible violations that would not, individually or in the aggregate, have
or be reasonably likely to have a Material Adverse Effect on Superior. Each of
the Companies holds all licenses, permits, registrations and other
authorizations required to conduct its business, including, without limitation,
insurance business where applicable, and all such licenses, permits,
registrations and other authorizations are valid and in full force and effect,
except for those the absence of which are not reasonably likely to have a
- 12 -
AD951840.095
<PAGE>
Material Adverse Effect on Superior. Each of the Companies is in compliance with
all such licenses, permits, registrations and authorizations, except for
possible failures to be so in compliance which are not reasonably likely to have
a Material Adverse Effect on Superior.
(b) The Companies are in compliance in all material respects with all
Applicable Laws relating to air, water, soil, solid waste management, Hazardous
Materials (as defined below), or the protection of health or the environment
(collectively, the "Environmental Laws"). There are no claims, actions, suits or
proceedings pending or, to Sellers' Knowledge threatened, against or involving
the Companies or relating to any real property at any time owned, leased or used
by any of the Companies under any of the Environmental Laws (whether by reason
of any failure to comply with any of the Environmental Laws or otherwise). No
decree, judgment or order of any kind under any of the Environmental Laws has
been entered against any of the Companies. There has not been a Release (as
defined below) of any Hazardous Material on any real property leased by the
Companies, and the Companies have not received any notification from any
Governmental Authority that as to any real property leased by the Companies or
any business or activities conducted on any such property, there exists or has
occurred a violation of applicable Environmental Laws or potential liability for
Release of Hazardous Materials. For purposes of this Section 3.12(b), (i)
"Hazardous Materials" means materials defined as "hazardous waste or substances"
under the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ss. 9601 et seq. and the Resource Conservation and Recovery Act, 42
U.S.C. ss. 6903 et seq., and other solid, semi-solid, liquid or gaseous
substances which are toxic, ignitable, corrosive, carcinogenic or otherwise
dangerous to human, plant or animal health and well being; and (ii) "Release"
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or other disposal in any amount into or
onto the air, ground or surface water, land or other parts of the environment,
however caused.
(c) Sellers Disclosure Memorandum sets forth a complete and accurate
list of all examinations and audits conducted with respect to the Companies by
state insurance regulatory authorities during 1993, 1994 or 1995, or that are
currently in progress, (i) for which such regulatory authorities have issued
written reports, or (ii) for which the Companies reasonably expect to receive
written reports from such regulatory authorities. With respect to all such
examinations and audits for which written reports have been issued, the
Companies have paid all fines and penalties assessed pursuant thereto, and the
Companies are in material compliance with all changes required to be implemented
by the Companies pursuant thereto.
3.13 Compliance With Material Contracts. The Companies do not have any
contract, lease, agreement or legal commitment of any kind, oral or written,
formal or informal, pursuant to which the Companies owe more than $75,000 per
calendar year except as described in Sellers Disclosure Memorandum (the
"Material Contracts"). All Material Contracts are in full force and effect, and
none of the Companies is in default under, nor has any event occurred which with
the passage of time or giving of notice or both would result in any of the
Companies being in default under, any of the terms thereof.
- 13 -
AD951840.095
<PAGE>
3.14 Consents and Approvals. Except (a) as set forth in the Sellers
Disclosure Memorandum, (b) as required under the Hart-Scott Act, and (c) for the
approval of the Florida Insurance Department, the execution, delivery and
performance of this Agreement by Sellers and the consummation of the
transactions contemplated hereby do not require any consent, approval or
authorization of, or registration or filing with, any Person or Governmental
Authority.
3.15 Legal Investments. The bonds, stocks and other investments owned
beneficially or of record by the Companies are permissible investments for them
under the Florida Insurance Code. The Companies own good and marketable title to
such investment assets, free and clear of any lien, encumbrance, mortgage,
pledge, charge or security interest whatsoever, other than those that are not,
individually or in the aggregate, material to Superior. The Companies'
investment assets are invested by Fortis Asset Management, a division of Fortis,
pursuant to authority granted by an intercompany agreement between Superior and
Fortis and subject to the supervision of the Companies' Boards of Directors.
3.16 Insurance Issued by the Companies; Reinsurance. All insurance
policies and contracts issued by any of the Companies now in force (other than
policies and contracts issued under applicable surplus lines laws) are on forms
and at rates approved by the insurance regulatory authority of the state or
jurisdiction where issued or have been filed with and not objected to by such
authority within the period provided for objection. Except as set forth in
Sellers Disclosure Memorandum, all insurance policies issued by the Companies
that are currently in force are nonstandard automobile insurance policies.
Sellers Disclosure Memorandum sets forth a complete and accurate list of all
reinsurance agreements pursuant to which any of the Companies is a party (the
"Reinsurance Agreements"). Subject only to the Companies' right to amend those
Reinsurance Agreements specified in Section 5.6(c), each of the Reinsurance
Agreements is in full force and effect, and none of the Companies is in default
under, nor has any event occurred which with the passage of time or giving of
notice or both would result in any of the Companies being in default under, any
of the terms thereof.
3.17 Title. Each of the Companies has (i) good and marketable title, or
valid and binding leasehold rights in the case of leased property, to all
material personal property owned or leased by it, and (ii) valid and binding
leasehold rights to all real property leased by it, free and clear of any lien,
encumbrance, mortgage, pledge, charge or security interest whatsoever, other
than those that are not, individually or in the aggregate, material to Superior.
None of the Companies owns any real property. Sellers Disclosure Memorandum sets
forth a complete and accurate list of all real property leased by any of the
Companies.
3.18 Employee Benefit Plans.
(a) The only employee pension benefit plans (as defined in
Section 3(2) of ERISA), welfare benefit plans (as defined in Section
- 14 -
AD951840.095
<PAGE>
3(1) of ERISA), bonus, stock purchase, stock ownership, stock option,
deferred compensation, incentive or other compensation plan or
arrangement, and other material employee fringe benefit plans (each an
"Employee Plan") presently maintained by, or contributed to by the
Companies or by Sellers, or under which the Companies or Sellers have
any obligations, for the benefit of any current or former employee of
the Companies, other than a multiemployer plan as defined in Section
3(37) of ERISA, are those listed in Sellers Disclosure Memorandum (the
"Benefit Plans"), which identifies whether each Benefit Plan is
provided by Sellers as part of an employee benefit plan also covering
employees of other Affiliates of Sellers ("Sellers' Plans"), or is
provided separately by the Companies ("Companies' Plans") and does not
cover employees other than employees of the Companies.
(b) The Companies, Sellers and any other sponsor of any of the
Benefit Plans have performed all material obligations required to be
performed by them under the Benefit Plans, and each of the Benefit
Plans is in compliance in all material respects with the applicable
provisions of ERISA and those provisions of the Code applicable to the
Benefit Plans.
(c) All contributions to, and payments from, the Benefit Plans
which may have been required to be made in accordance with the Benefit
Plans and, when applicable, Section 302 of ERISA or Section 412 of the
Code, have, in all material respects, been timely made.
(d) Except as set forth in Sellers Disclosure Memorandum,
there are (i) no pending, or to Sellers' Knowledge threatened, audits
or investigations by any Governmental Authority involving the Benefit
Plans, (ii) no pending, or to Sellers' Knowledge threatened,
termination proceedings involving the Benefit Plans, and (iii) no
pending, or to Sellers' Knowledge no threatened, claims (except for
routine claims for benefits payable in the normal operation of the
Benefit Plans), suits or proceedings involving any Benefit Plan or
asserting any rights or claims to benefits under any Benefit Plan or
any employee agreement described in Section 3.20(a) which could give
rise to any material liability.
(e) Neither the Benefit Plans, the Companies, Sellers nor any
employee of the foregoing, nor, to Sellers' Knowledge, any trusts
created thereunder or any trustee, administrator or other fiduciary
thereof, has engaged in a "prohibited transaction" (as such term is
defined in Section 4975 of the Code or Section 406 of ERISA) which
could subject the Companies to the tax or penalty on prohibited
transactions imposed by such Section 4975 or the sanctions imposed
under Title I of ERISA or any material liability under Chapter 43 of
Subtitle D of the Code. Neither the Benefit Plans nor any such trust
has been terminated nor have there been any "reportable events" (as
defined in Section 4043 of ERISA and the regulations thereunder) with
respect to either thereof.
- 15 -
AD951840.095
<PAGE>
(f) No Benefit Plan subject to Title IV of ERISA has been
terminated, and neither Sellers, the Companies nor any ERISA Affiliate
(as defined below) has incurred any material liability to the Pension
Benefit Guaranty Corporation other than for the payment of premiums,
all of which have been paid when due. No Benefit Plan has applied for
or received a waiver of the minimum funding standards imposed by
Section 412 of the Code.
(g) At no time have (a) any of Sellers, (b) any of the
Companies or (c) any business or entity that is or was, together with
the Companies, treated as a "single employer" under Section 414(b),
414(c) or 414(m) of the Code, required to be aggregated with any of the
Companies under Section 414(o) of the Code or under "common control"
with any of the Companies under Section 4001(a)(14) of ERISA (an "ERISA
Affiliate"), incurred any liability which could subject Purchaser or
the Companies to liability under Section 4062, 4063 or 4064 of ERISA.
(h) At no time for which any relevant statute of limitations
remains open have Sellers, the Companies or any ERISA Affiliate been
required to contribute to, or incurred any withdrawal liability within
the meaning of Section 4201 of ERISA, to any multiemployer pension
plan, within the meaning of Section 3(37) of ERISA, which liability has
not been fully paid as of the date hereof.
(i) Sellers and the Companies have complied in all material
respects with the notice and continuation coverage requirements of
Section 4980B of the Code and the regulations thereunder with respect
to each Benefit Plan that is, or was during any taxable year of Sellers
or the Companies for which the statute of limitations on the assessment
of federal income taxes remains open, by consent or otherwise, a group
health plan within the meaning of Section 5000(b)(1) of the Code.
(j) Neither Sellers nor the Companies have incurred or are
reasonably likely to incur any liability that is or could reasonably be
expected to become a material liability of the Companies with respect
to any plan or arrangement that would be included within the definition
of "Benefit Plan" or within the employment agreements described in
Section 3.20(a) hereunder but for the fact that such plan or
arrangement was terminated or expired by its terms before the date of
this Agreement.
(k) No payment which is or may be made by Sellers or the
Companies, or from any Benefit Plan or any employee agreement
described in Section 3.20(a), to any employee, former employee,
director or agent of the Companies under the terms of any Benefit Plan
or such employee agreement, either alone or in conjunction with any
other payment, will or could be characterized as an excess parachute
payment under Section 28OG of the Code.
- 16 -
AD951840.095
<PAGE>
(l) Except as set forth in Sellers Disclosure Memorandum,
under the terms of the Companies' Plans, consummation of the
transactions contemplated by this Agreement (either alone or together
with any other event specified in such Companies' Plans) will not
result in any payment, acceleration, restriction on amendments,
forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits under any of the Companies'
Plans.
3.19 Compensation Arrangements; Bank Accounts; Officers and Directors;
Related Party Agreements. Sellers Disclosure Memorandum sets forth the following
information:
(a) the name and current annual salary, including any bonus,
if applicable, of each of the present officers and employees of the
Companies whose current annual salary, including any promised or
customary bonus, equals or exceeds $100,000, together with a statement
of the full amount of all cash remuneration paid by the Companies to
each such person and to any director of the Companies, during the
twelve-month period preceding the date hereof;
(b) the name of each bank in which any of the Companies has an
account or safe deposit box, the identifying numbers thereof, and the
names of all persons authorized to draw thereon or to have access
thereto;
(c) the name and title of each director and officer of each of
the Companies and of each trustee, fiduciary or plan administrator of
each Benefit Plan;
(d) a list of all executive perquisites, such as automobiles,
club memberships, and the like, that the Companies will be obligated to
provide to any officer of the Companies after the Closing; and
(e) a list of all agreements, including, without limitation,
all loan agreements, if any, between any of the Companies and any
Seller Related Party.
3.20 Labor Matters. Except as disclosed in Sellers Disclosure
Memorandum, (a) there are no written agreements pursuant to which the Companies
have agreed to pay any Person any salary or bonus compensation or severance
payments which will continue in effect or could result in liability to the
Companies after Closing, (b) the Companies are not, nor have been, bound by any
collective bargaining agreement or other contract with a labor union; (c) there
is no unfair labor practice, employment discrimination, or wage/hour complaint
pending or, to Sellers' Knowledge threatened; (d) there is no labor strike,
dispute, slow down or stoppage actually pending or, to Sellers' Knowledge,
threatened against or involving any of the Companies; and (e) none of the
Companies has effectuated a "plant closing" as defined in The Worker Adjustment
and Retraining Notification Act, 29 U.S.C. ss.ss. 2101-2109 or engaged in
layoffs or employment terminations sufficient in number to trigger application
of any similar state or local law.
- 17 -
AD951840.095
<PAGE>
3.21 Brokerage. None of Sellers or the Companies has made any agreement
or taken any other action which might cause anyone to become entitled to a
broker's fee or commission as a result of the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
With respect to Goran and SIG, Purchasers hereby, jointly and
severally, represent and warrant to Sellers as follows:
4.1 Organization and Good Standing of Purchasers; Power and Authority.
Each of Goran and SIG is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated.
Purchasers have the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of, and the performance by Purchasers of their
obligations under, this Agreement have been duly and validly authorized by all
necessary corporate action on the part of each of the Purchasers. No other
corporate or shareholder proceedings on the part of either Purchaser are
necessary to approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Purchasers and constitutes Purchasers' valid and binding
obligation, enforceable against Purchasers in accordance with its terms.
4.2 No Violation of Applicable Laws or Agreements. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and the compliance with the terms, conditions and
provisions of this Agreement by Purchasers, will not (a) violate or conflict
with any provision of Purchasers' charters, articles of incorporation, bylaws or
other governing documents; (b) except as set forth in Purchasers Disclosure
Memorandum, violate, conflict with or result in the breach or termination of, or
otherwise give any contracting party (which has not consented to such execution,
delivery and consummation) the right to change the terms of, or to terminate or
accelerate the maturity of, or constitute a default under the terms of, any
indenture, mortgage, loan or credit agreement or any other material agreement or
instrument to which either Purchaser is a party or by which any of its assets
may be bound or affected, or any Applicable Law; (c) result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of Purchasers' assets or give to others any interests or rights therein; other
than any such conflicts, breaches, terminations, accelerations, defaults or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect on either Purchaser.
4.3 Pending Litigation or Proceedings. Except as set forth in
Purchasers Disclosure Memorandum, there are no claims, suits, actions,
- 18 -
AD951840.095
<PAGE>
proceedings, arbitrations or investigations pending or, to the Knowledge of
Purchasers, threatened, against or otherwise relating to or involving Purchasers
or any of their properties, the outcome of which would reasonably be expected to
materially adversely affect the ability of Purchasers to consummate the
transactions contemplated by this Agreement. Purchasers Disclosure Memorandum
sets forth a complete and accurate list of all litigation relating to the
transactions contemplated hereby.
4.4 Consents and Approvals. Except (a) as set forth in Purchasers
Disclosure Memorandum, (b) as required under the Hart-Scott Act, and (c) for the
approval of the Florida Insurance Department the execution, delivery and
performance of this Agreement by Purchasers and the consummation of the
transactions contemplated hereby do not require any consent, approval or
authorization of, or registration or filing with, any Person or Governmental
Authority.
4.5 Brokerage. Neither of the Purchasers has made any agreement or
taken any other action which might cause anyone to become entitled to a broker's
fee or commission as a result of the transactions contemplated hereby.
4.6 Investment Intent. SIG is acquiring the Shares for investment for its
own account and not with a view to, or for offer or sale in connection with, any
public distribution thereof.
4.7 Acquisition Approval Filing. Purchasers Disclosure Memorandum
contains a true, correct and complete copy of the form of the filing entitled
"Acquisition of Controlling Interests of a Domestic Insurer" that Purchasers
will execute and deliver to the Florida Insurance Department in connection with
the transactions contemplated hereby, as further described in Section 5.7. All
of the statements and other information contained in such filing are true,
correct and complete in all material respects and provide all material facts and
information required to be included therein by the Florida Insurance Code, and
such filing does not omit to state a material fact necessary to make the
statements and other information contained therein not misleading.
4.8 Financing. Purchasers have or will have, as and when required, the
funds necessary to consummate the transactions contemplated hereby in accordance
with the terms hereof.
ARTICLE 5
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Operation of the Companies' Business Pending Closing. Prior to the
Closing Date, except with the prior consent of Goran and as otherwise provided
in this Agreement:
- 19 -
AD951840.095
<PAGE>
(a) Sellers shall cause the Companies to conduct their business
in the usual and ordinary course as currently being conducted, and
(b) without limiting the generality of the foregoing clause (a),
Sellers shall cause each of the Companies not to do any of the
following:
(i) amend its articles of incorporation or bylaws, or merge,
consolidate, liquidate or dissolve;
(ii) issue any capital stock, any securities convertible or
exchangeable into capital stock, or any options, warrants or
rights with respect to capital stock, or split, subdivide or
reclassify its capital stock;
(iii) declare or pay any dividend or make any other
distribution on its capital stock;
(iv) increase the compensation or benefits of officers or
employees of the Companies or pay any bonuses except for normal
and customary increases made or bonuses paid or accrued in
accordance with past practices;
(v) except in the ordinary course of business, create or
incur any lien, encumbrance, mortgage, pledge, charge or security
interest whatsoever on any of its properties; or, except for the
issuance of insurance contracts or policies and the settlement of
insurance claims in the ordinary course of business, incur or
assume any guaranty or other liability to discharge an obligation
of another, or incur or assume any obligations for money
borrowed, or cancel or discount any material debt owed to it;
provided, however, that Sellers and the Companies may take
actions to have all Seller Related Parties (other than the
Companies) released from any guarantees or other similar
obligations relating to the business of the Companies;
(vi) enter into, terminate or amend any Material Contract,
including, without limitation, the Quota Share Reinsurance
Agreement between Southern County Mutual Insurance Company and
Superior dated November 26, 1985, as amended (which according to
the terms of such agreement may be terminated by either party at
any time upon 120 days' notice);
(vii) make any expenditure for fixed assets in excess of
$25,000 for any single item or $100,000 in the aggregate;
(viii) do or fail to do anything that will cause a breach
of, or default under, any Material Contract;
- 20 -
AD951840.095
<PAGE>
(ix) make any loan to or enter into any agreement with any
Seller Related Party other than in the ordinary course of
business, or change the material terms of any existing
intercompany agreement or agreement with any Seller Related
Party, except as permitted by Section 5.6;
(x) make any change in the Companies' accounting procedures,
methods, policies or practices or the manner in which the
Companies maintain their records;
(xi) transfer or enter into an agreement to transfer any of
the Companies' capital stock or any material portion of the
Companies' assets, other than assets in the Companies' investment
portfolios pursuant to the Companies' current investment policies
and guidelines; or
(xii) acquire or agree to acquire the capital stock or any
material portion of the assets of any other Person (other than
assets acquired for the Companies' investment portfolios pursuant
to the Companies' current investment policies and guidelines),
create any subsidiary, or enter into any settlement agreement
that will obligate any of the Companies other than with respect
to making a payment of a claim then due and payable.
5.2 Financing. Purchasers covenant and agree that they have arranged to
obtain debt and equity funds to finance the transactions contemplated hereby in
accordance with the terms of the commitments attached as Exhibit 5.2, and
Purchasers agree to use all commercially reasonable efforts to close the loan
and equity investment offered under such terms.
5.3 Access to Information. Subject to the terms of the Letter Agreement
between Fortis and Goran dated May 5, 1995, regarding confidentiality of
information (the "Confidentiality Agreement"), between the date hereof and the
Closing Date (a) Sellers shall give, and shall cause the Companies to give, to
Purchasers and their authorized representatives, during normal business hours,
access to all of the Companies' contracts, books and records, and Sellers shall
furnish, and shall cause the Companies to furnish, to Purchasers and their
authorized representatives such additional financial, legal and other
information with respect to the Companies that Purchasers may reasonably
request; and (b) Sellers shall permit Alan Symons of Goran to use an office
at Superior's headquarters in Atlanta, Georgia and to meet with Superior's
employees at times agreed upon in advance by Sellers and subject to Sellers'
supervision.
5.4 Certain Tax Matters.
(a) Except as otherwise provided in this Section 5.4, all tax
sharing agreements, arrangements, policies and guidelines, formal or
- 21 -
AD951840.095
<PAGE>
informal, express or implied, that may exist between the Companies and
Sellers or their Affiliates and all obligations thereunder shall
terminate as of the Closing Date, and the Companies shall have no
liability thereunder for any and all amounts due in respect to periods
prior to the Closing Date. Notwithstanding any other provision of this
Agreement, Sellers and the Companies may make reasonable payments
pursuant to such tax sharing agreements and understandings prior to the
Closing Date in amounts consistent with past practices and procedures
under such tax sharing agreements.
(b) The Companies shall continue to be included in the Group's
consolidated federal income Tax Return and in any required state or
local consolidated or combined income Tax Returns that include any of
the Companies with respect to periods ending on or before the Closing
Date (all such Tax Returns filed or to be filed with respect to taxable
periods of the Companies ending on or before the Closing Date are
hereinafter referred to as "Pre-Closing Consolidated Returns," even
though certain of such Tax Returns may be filed subsequent to the
Closing Date).
Sellers shall timely prepare and file (or cause to be
prepared and filed) (which may include Sellers' seeking any allowable
filing extensions), consistent with prior practices, (i) all
Pre-Closing Consolidated Returns and (ii) all other Tax Returns not yet
filed and required to be filed on or before the Closing Date with
respect to the Companies (the "Group Returns"). Sellers shall timely
pay (or cause to be paid) all Taxes shown as due and payable on the
Group Returns ("Sellers' Taxes").
Purchasers and Sellers agree that if the Companies
are permitted under any Applicable Law relating to state or local
income tax to treat the Closing Date as the last day of a taxable
period, Purchasers and Sellers shall treat (and cause their respective
Affiliates to treat) the Closing Date as the last day of a taxable
period, and any Tax Return for such a period shall be considered as a
Group Return for purposes hereof.
(c) Purchasers shall timely prepare and file (or cause to be
prepared and filed) (which may include Purchasers' seeking any
allowable filing extensions) all Tax Returns required by Applicable
Law for the Companies that are not required to be prepared and filed
by Sellers pursuant to Section 5.4(b) ("Purchasers' Returns"). Any
Purchasers' Return filed or to be filed with respect to a period prior
to or including the Closing Date shall be prepared in a manner
consistent with prior practice, except where in Purchasers' good faith
discretion otherwise required by law, and copies of such Purchasers'
Returns shall be delivered to Sellers. Purchasers shall timely pay (or
cause to be paid) all Taxes shown as due and payable on the
Purchasers' Returns ("Purchasers' Taxes").
- 22 -
AD951840.095
<PAGE>
(d) After the Closing Date, Sellers may submit to Purchasers
blank Tax Return workpaper packages reasonably necessary for Sellers to
prepare any Group Returns. Purchasers shall cause the Companies to
prepare completely and accurately (provided that all workpapers
prepared consistent with prior practice of the Companies shall be
deemed to be prepared accurately for purposes of this Section 5.4(d))
all information that Sellers shall reasonably request in such workpaper
packages and shall submit to Sellers such packages within the later of
90 days after Purchasers' receipt thereof or 60 days after the close of
the taxable period to which a workpaper package relates. Each party
shall cooperate with the other in connection with any tax filing,
investigation, audit or other proceeding. Purchasers and Sellers and
their subsidiaries shall preserve all information, returns, books,
records and documents relating to any liabilities for Taxes with
respect to a taxable period until the later of the expiration of all
applicable statutes of limitation and extensions thereof, or the
conclusion of all litigation with respect to Taxes for such period.
(e) After the Closing Date, Sellers shall indemnify and hold
harmless Purchasers from and against any Tax liability with respect to:
(i) any Sellers' Taxes;
(ii) Purchasers' Taxes attributable to or apportioned
to any period on or before the Closing Date in accordance with
the allocation rules of Section 5.4(i) for Sellers' Accrued
Taxes to the extent the liability therefore exceeds the
liability for Sellers' Accrued Taxes accrued with respect
thereto as reflected on the Closing Balance Sheet;
(iii) any increase in Tax liability resulting from
the Companies being severally liable for any Taxes of the
Group or any other consolidated group of which any of the
Companies was a member prior to the Closing Date pursuant to
Treasury Regulations ss. 1.1502-6 or any analogous state,
local or foreign tax provision;
(iv) any federal income Taxes (but not state, local
or foreign taxes) of the Companies for periods ending on or
before the Closing Date that are not Sellers' Taxes;
(v) any additional premium Taxes that become due by the
Companies to the State of Florida for periods ending on or
before the Closing Date to the extent the liability therefor
exceeds the reserves established with respect thereto on the
Closing Balance Sheet;
(vi) subject to Section 7.1(c), any Taxes with
respect to periods ending on or before the Closing Date for
which returns have been filed or were required to be filed
(taking into account extensions) on or before the Closing
Date, other than Taxes that are Sellers' Taxes, federal income
- 23 -
AD951840.095
<PAGE>
Taxes, or Florida premium Taxes described in (v) above, in
excess of the respective reserves established with respect
thereto on the Closing Balance Sheet; and
(vii) subject to Section 7.1(c), any guaranty or
solvency-type fund assessment with respect to any period
ending on or before the Closing Date in excess of the reserves
established with respect thereto on the Closing Balance Sheet;
provided, however, that any guaranty or solvency-type fund
assessments that are charged to the Companies or that become
due and payable by the Companies after the Closing Date and
that are allocated among insurance companies based on
operations before the Closing Date shall not be included in
this Section 5.4(e)(vii) (for example, the assessment required
by Official Code of Georgia Annotated Section 33-36-7 which
provides for a possible assessment in 1996 against insurers
doing business in Georgia in 1996 using an allocation based on
the premiums written in 1995 would not be covered by the above
indemnity, whereas the correction in 1996 of a 1995 assessment
by a state that provides that the insurers doing business in
the state in 1995 must pay the correction would be included in
the indemnity).
Sellers shall pay such amounts as they are obligated to pay to
Purchasers under the preceding sentence within 15 days after receipt of
written notice from Purchasers that they have paid any such Tax
liability and, to the extent not paid by Sellers within such 15-day
period, shall thereafter include interest thereon at the Prime Rate
(reported as of the last day of such 15-day period).
After the Closing Date, Purchasers shall indemnify
and hold harmless Sellers and its Affiliates from and against any Tax
liability with respect to Purchasers' Taxes that (i) are allocable to
or apportioned to a period after the Closing Date or (ii) are allocable
to or apportioned to a period ending on or before the Closing Date but
do not exceed Sellers' Accrued Taxes accrued with respect thereto as
reflected on the Closing Balance Sheet. Purchasers shall pay such
amounts within 15 days after receipt of written notice from Sellers
that they have paid any such Tax liability and, to the extent not paid
by Purchasers within such 15-day period, shall thereafter include
interest thereon at the Prime Rate (reported as of the last day of such
15-day period).
For purposes of clarification, the parties hereto acknowledge
their intention that there be no duplication of credits for reserves
on the Closing Balance Sheet. For example, if there is a $100 reserve
for Alabama tax liability on the Closing Balance Sheet and, after the
Closing, $100 of Alabama tax properly chargeable to such reserve is
paid by the Companies, subsequent indemnification for Alabama tax
under this Section 5.4(e) would be for amounts in excess of a net
- 24 -
AD951840.095
<PAGE>
reserve of zero (rather than the $100 for Alabama taxes originally
reserved on the Closing Balance Sheet).
(f) In the event that Purchasers or any of the Companies
receives written notice of any pending or threatened federal, state,
local, municipal or foreign tax examinations, claims settlements,
proposed adjustments, assessments or reassessments or related matters
with respect to Taxes that could affect the Group, or if Sellers
receive written notice of matters that could affect Purchasers or the
Companies, the party receiving such notice shall notify in writing the
potentially affected party within 10 days thereof. The failure of any
party to give the notice required by this paragraph shall not impair
that party's rights under this Agreement except to the extent that the
other parties demonstrate that they have been damaged thereby.
Subject to Section 5.4(g), each of Sellers and Purchasers (as
applicable, the "Controlling Party") shall have the right to control
any audit or examination by any taxing authority, initiate any claim
for refund, file any amended return, contest, resolve and defend
against any assessment, notice of deficiency or other adjustment or
proposed adjustment relating to or with respect to those Tax Returns
that each is required to prepare and file pursuant to Sections 5.4(b)
and (c); provided that, in the event that any such adjustment could
have an adverse effect on the Tax liability of the other party (or
affect the Purchasers by having an adverse effect on the Tax liability
of the Companies, or affect Sellers by having an adverse effect on the
Tax liability of the Group) (the "Affected Party") , the Controlling
Party (i) shall give the Affected Party written notice of any such
adjustment, (ii) shall permit the Affected Party to participate in the
proceeding to the extent the adjustment may adversely affect the Tax
liability of the Affected Party at its own expense and (iii) shall not
settle or otherwise compromise such proceeding without the prior
written consent of the Affected Party, which consent shall not be
unreasonably withheld or delayed. Except as specified in Section
5.4(g) or the following sentence, Sellers and Purchaser shall each be
entitled to retain for its own account any refunds of Taxes
attributable to those Tax Returns that each is required to prepare and
file pursuant to Sections 5.4(b) and (c) and shall pay to the other
the amount of any refund to which the other is entitled, net of any
liability for Taxes resulting from the receipt of such refund, within
15 days after the receipt of such refund and, to the extent not paid
within such 15-day period, shall thereafter include interest at the
Prime Rate (reported as of the last day of such 15-day period). In the
case of Purchasers, a refund attributable to any Purchasers' Return
filed with respect to a period prior to the Closing Date shall be
divided between Purchasers and Sellers, using the principles outlined
in the last sentence of Section 5.4(i) to determine such amount;
provided, however, in no event shall Sellers be entitled to a refund
unless the amount of such refund exceeds the amount, if any, which is
accrued with respect thereto as an asset on the Closing Balance Sheet.
- 25 -
AD951840.095
<PAGE>
(g) To the extent permitted under applicable law, neither
Purchasers nor the Companies shall carry back any tax attribute
("Purchasers Tax Attribute") to a period ending on or before the
Closing Date ("Pre-Closing Period"). Notwithstanding anything to the
contrary contained in this Section 5.4(g), if an election not to carry
back a Purchasers' Tax Attribute is not permitted by law or would be
unreasonably burdensome to Purchasers, Purchasers may request Sellers
to waive the restrictions imposed by this Section 5.4(g), and Sellers
shall agree to such request unless Sellers' obligations hereunder would
be unreasonably burdensome to Sellers. If, in accordance with the
preceding sentence, Purchasers carry back a Purchasers Tax Attribute to
a Pre-Closing Period, Sellers shall promptly file (or cause to be
filed) a claim for refund and shall pay (or cause to be paid) to
Purchasers the full amount of any resulting Tax Benefit within 30 days
of the date such Tax Benefit is realized, but only to the extent that
Sellers would not otherwise have been entitled to utilize such Tax
Attribute. The Tax Benefit shall be recomputed and any payment made in
excess of the redetermined Tax Benefit shall be refunded if and to the
extent that Sellers subsequently realize tax attributes that could have
been utilized but for the carryback of Purchasers' Tax Attributes
pursuant to this Section 5.4(g). Such recomputation shall assume that
the tax attributes of Sellers were utilized first and that the
Purchaser Tax Attributes carried back by Purchasers were then utilized
in accordance with Applicable Law. For purposes hereof, "Tax Benefit"
shall mean
(i) in the case of any Tax Return, the sum of the
amount by which the Tax liability is reduced (or the Tax
refund is increased) plus any interest (in each case, net of
Taxes, if any, on such refund or interest) relating to such
Tax liability (or Tax refund), and in the case of a
consolidated federal income Tax Return or unconsolidated,
combined, unitary or similar state, local or other Tax return,
the sum of the amount by which the Tax liability of the
affiliated group of corporations is reduced (or Tax refund is
increased) plus any interest (in each case, net of Taxes, if
any, on such refund or interest) from such government or
jurisdiction relating to such Tax liability or Tax refund;
(ii) a Tax Benefit shall be deemed to have been
realized (A) at the time any refund of Taxes is received, (B)
at the time any refund of Taxes is applied against other Taxes
due (which, in the case of refunds so applied in the course of
an audit or other proceeding, shall be the date on which the
audit or other proceeding is finalized) or (C) at the time a
liability for Taxes is otherwise reduced (which, in each case,
shall be 2 1/2 months after the close of the year in which
such liability for Taxes arose);
and
(iii) where a party has other losses, deductions,
credits or similar items available to it, losses, deductions,
credits or items for which the other party would be entitled
- 26 -
AD951840.095
<PAGE>
to a payment under this Agreement shall be treated as the last
items utilized to produce a Tax Benefit.
(h) Purchasers and Sellers agree that any indemnification
payments made pursuant to this Agreement shall be treated for tax
purposes as an adjustment to the Purchase Price unless otherwise
required by Applicable Law.
(i) In preparing the Closing Balance Sheet, in lieu of an
accrual of liability for Taxes computed in accordance with GAAP with
respect to periods covered by Purchasers' Returns, such Closing Balance
Sheet shall reflect (as a liability for amounts unpaid net of amounts
prepaid) the portion of Purchaser's Taxes allocable to Purchasers'
Returns for the period up to and including the Closing Date ("Sellers'
Accrued Taxes"). Such allocable portion shall, in the case of Taxes
that are based on income or gross receipts, be determined as if the
Closing Date were the last day of any applicable taxable period and, in
the case of other Taxes, be apportioned ratably on a daily basis. The
Closing Balance Sheet specifically shall not reflect a liability for
Taxes allocable to Group Returns or for any other federal income Taxes,
which Taxes are solely the responsibility of Sellers.
5.5 Disclosure Memoranda. At any time and from time to time between the
date hereof and the date that is two business days prior to the Closing Date,
Sellers and Purchasers shall have the right and the continuing obligation to
supplement their respective Disclosure Memoranda with respect to any matter
arising after the date hereof that, if existing or occurring at such date, would
have been required to be set forth or described in such Disclosure Memoranda.
If, in the recipient party's reasonable determination, any such supplements
provided by the other party reveal any Material Adverse Effect or any condition
or event that individually or in the aggregate would be reasonably likely to
result in a Material Adverse Effect on the other party, the recipient party may
terminate this Agreement.
5.6 Superior Intercompany Agreements. Effective as of Closing, all
agreements among any of the Companies and any Seller Related Party shall be
terminated, except for the following agreements:
(a) Quota Share Reinsurance Agreement between Superior and
Superior American dated July 25, 1994.
(b) Quota Share Reinsurance Agreement between Superior and
Superior Guaranty dated July 25, 1994.
(c) Quota Share Reinsurance Agreement between Superior and
American Security Insurance Company ("ASIC") dated May 1, 1986, as
amended; Retrocession Agreement between Superior and ASIC effective
April 1, 1994; Administrative Service Agreement among Superior, ASIC
- 27 -
AD951840.095
<PAGE>
and Standard Guaranty Insurance Company ("SGIC"), dated April 1, 1994;
and Trust Agreement among Superior, ASIC, SGIC and Marshall & Ilsley
Trust Company dated November 17, 1986, as amended; provided, however,
that all of such agreements in this subsection (c) shall be amended
prior to Closing to provide that ASIC and SGIC will continue to provide
fronting services for the Companies, through no later than December 31,
1997, including the following terms and other such terms as may be
normal, customary and commercially reasonable: (i) ASIC and SGIC will
write no more than an aggregate of $10,000,000 in premiums per calendar
year under the fronting arrangement; (ii) for the calendar year ending
December 31, 1996, the Companies will pay ASIC and SGIC, collectively,
a fee equal to $50,000 plus no more than 2% of premiums written during
that year; (iii) for the calendar year ending December 31, 1997, the
Companies will pay ASIC and SGIC, collectively, a fee equal to $50,000
plus no more than 3.5% of premiums written during that year; (iv) the
Companies, at their expense, shall maintain a reinsurance trust with
respect to all policies reinsured under the fronting arrangement that
at no time will have cash and/or U.S. government obligations equal to
less than 100% of the total amount of unearned premiums, claims
reserves, and reserves for incurred but not reported claims; (v) at any
time after September 30, 1996, ASIC and SGIC may cancel the arrangement
as to future policy sales upon 90 days' notice; and (vi) the Companies
may cancel the arrangement as to future policy sales at any time upon
90 days' notice.
5.7 Regulatory Approvals and Consents.
(a) As soon as practicable, but in any event within 5 days,
after the date hereof:
(i) Each of Goran and Fortis will make all necessary
filings under the Hart-Scott Act. Each party shall pay the
expenses of preparing its own filing, and Goran shall pay the
$45,000 filing fee.
(ii) Purchasers shall file with the Florida Insurance
Department complete and duly executed filings, in the form set
forth in Purchasers Disclosure Memorandum with reference to
Section 4.7, as required by the Florida Insurance Code in
order to request such Department's approval of the changes in
control of Superior, Superior American and Superior Guaranty
that will be effected by the transfer of the Shares. Sellers
shall cause the Companies to cooperate reasonably with
Purchasers in preparing such filings. Sellers and the
Companies shall support such filings by Purchasers, so long as
they are consistent with this Agreement, and Purchasers shall
use all commercially reasonable efforts to obtain the
approval of the Florida Insurance Department for the changes
in control. All costs and fees of making such filings shall be
paid by Purchasers; provided, however, that Purchasers shall
- 28 -
AD951840.095
<PAGE>
not be obligated to reimburse Sellers for any costs or
expenses incurred by Sellers in supporting such filings.
(b) Sellers and Purchasers shall promptly advise the other of
all oral, and promptly provide each other with copies of all written,
communications, requests, inquiries or other notifications received
from any Governmental Authorities with respect to the transactions
contemplated hereby.
(c) Sellers shall take all reasonable action required to
obtain prior to Closing all consents and approvals listed in Sellers
Disclosure Memorandum with reference to Section 3.14.
(d) Purchasers shall take all reasonable action required to
obtain prior to Closing all consents and approvals listed in Purchasers
Disclosure Memorandum with reference to Section 4.4.
5.8 Efforts to Close. Each of the parties hereto agrees to use all
reasonable efforts to take, or to cause to be taken, all reasonable actions and
to do, or to cause to be done, all reasonable things necessary, proper or
advisable under Applicable Laws to consummate the transactions contemplated by
this Agreement. None of the parties hereto will take or permit to be taken any
action that would be in breach of the terms or provisions of this Agreement or
that would cause any of the representations contained herein to be or become
untrue.
5.9 Expenses. Whether or not the Closing occurs, except as otherwise
stated herein, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense.
5.10 Resignations. At Closing, Sellers will deliver written resignations of
the Companies' directors and of the following officers: Howard Wexler, Meril
Joseph and Jim Cizek.
5.11 Post-Closing Cooperation. After Closing, Purchasers shall cause
the Companies to make available to Sellers all books, records, financial
information, officers and employees as Sellers may request in connection with
Sellers' preparation of the Closing Balance Sheet.
5.12 Post-Closing Examinations. The costs or expenses of any regulatory
examinations or audits performed with respect to any of the Companies after
Closing, regardless of the time period to which they relate, shall be the
responsibility of the Companies, and not Sellers; provided, however, that this
provision shall not apply to any insurance regulatory fines or penalties that
the Companies may owe (as a result of the Companies' conduct prior to Closing
which may be discussed in such examination or audit or otherwise).
- 29 -
AD951840.095
<PAGE>
5.13 Maintenance of Records. For a period of 7 years after Closing, or
for any longer period (i) as may be required by any federal, state, local or
foreign Governmental Authority, (ii) as may be reasonably necessary in respect
of the prosecution or defense of any suit, action, litigation or administrative,
arbitration or other proceeding or investigation that is pending or threatened
at the time of any notice to Purchasers while such records are still maintained,
or (iii) that is equivalent to the period established by any applicable statute
of limitations (or any extension or waiver thereof) with respect to matters
pertaining to Taxes, Purchasers shall maintain and shall allow Sellers, during
normal business hours, through its employees and representatives, the right, at
Sellers' expense, to examine and make copies of, the books and records of the
Companies pertaining to the Companies' business prior to the Closing Date, for
any reasonable business purpose.
5.14 Certain Agreements Regarding Benefit Plans and Other Employee Matters.
(a) Immediately prior to Closing, Sellers and the Companies shall
enter into an agreement or agreements effective as of Closing (i)
terminating the Companies' liabilities under the Sellers' Plans as
identified in Sellers Disclosure Memorandum with respect to Section
3.18 and any other Employee Plan provided by Sellers or any ERISA
Affiliate thereof to employees other than or in addition to employees
of the Companies (collectively, the "Terminated Sellers' Plans"), and
(ii transferring to Sellers or an Affiliate thereof at Closing the
liabilities and cash in an amount equal to the accrued liabilities as
reflected on the books of the Companies on the Closing Date under such
Terminated Sellers' Plans. Such liabilities will be estimated
reasonably by the Companies at Closing, with any necessary adjustments
being included as a part of obtaining the Closing Balance Sheet, all
such cash and transferred liabilities being excluded from the Closing
Balance Sheet. The Closing Balance Sheet shall not include any assets
attributable to any of the Terminated Sellers' Plans that are
transferred to Sellers on or before the Closing Date as provided
herein. Purchasers shall cause to be amended any group medical, group
dental, group life, group long-term disability, 401(k) savings,
vacation and sick leave programs maintained by Purchasers for the
benefit of their employees (the "Purchasers' Plans") to provide that
(i) as of the Closing Date, each active employee of each of the
Companies and such active employee's eligible dependents shall become
eligible for each of the Purchasers' Plans once the active employee or
eligible dependent satisfies the normal eligibility requirements for
each such Purchasers' Plans, provided that for this purpose, the
service of each active employee of each of the Companies with such
Company shall be treated as service with Purchasers; and (ii) all
pre-existing condition exclusion clauses contained in each medical or
dental insurance or indemnity plan or program that is a Purchasers'
Plan shall be waived with respect to all active employees of the
Companies and their eligible dependents. For purposes of this Section
5.14(a), "active employees" shall mean all current employees of the
- 30 -
AD951840.095
<PAGE>
Companies, including, without limitation, those employees on any type
of temporary or short-term absence, leave or disability who are
expected to return to active employment.
(b) With respect to any Person who is employed by any of the
Companies immediately prior to Closing and who is terminated by the
Companies within the first twelve months after Closing:
(i) Purchasers will cause the Company to pay to any
such employee severance according to Purchasers' standard
severance pay plan in effect generally on the date hereof;
provided, however, that such employee's service with the
Companies shall be treated as service with Purchasers for
purposes of determining the appropriate amount of severance;
and
(ii) Fortis may, in its sole discretion, elect to pay
at its sole expense to all such terminated employees
additional severance amounts, in which event Fortis shall
notify Purchasers prior to Closing of such election and the
terms thereof, and Purchasers will reasonably cooperate with
Fortis to implement such terms; and Sellers shall have no
liability for any severance obligation of the Companies for
any employee terminated at any time after Closing.
(c) From and after the Closing Date, Sellers shall indemnify
and hold harmless Purchasers and their Affiliates and the Companies
against any loss, liability, claim, obligation, damage, deficiency,
cost or expense (including legal and other expenses reasonably incurred
in investigating and defending against the same) arising out of or
relating to (i) the establishment, funding, operation, administration,
amendment or termination of or withdrawal or partial withdrawal from,
any Sellers' Plan as listed in Sellers Disclosure Memorandum, or any
other Employee Plan provided to employees other than or in addition to
employees of the Companies, which is now or previously has been in
existence, established, maintained or contributed to, or required to be
established, maintained or contributed to, by Fortis, Interfinancial or
any ERISA Affiliate, whether arising out of or relating to any event or
state of facts occurring or existing before, on or after the Closing
Date, and including, without limitation, any liabilities arising under
Title IV of ERISA, Section 302 of ERISA and Section 412 or 4971 of the
Code, and (ii) any failure prior to the Closing Date by Fortis,
Interfinancial or any ERISA Affiliate to comply with the continuation
coverage requirements contained in Section 4980B(f) of the Code and/or
Section 6012 of ERISA.
5.15 PMSC Negotiations. Prior to Closing Fortis shall have the right to
cause Superior to enter into an agreement with Policy Management Systems
Corporation ("PMSC") pursuant to which PMSC may provide Superior with certain
fee discounts. If such an agreement provides Superior with a monetary benefit
for the period of time prior to Closing that is greater than the amount included
- 31 -
AD951840.095
<PAGE>
on the Closing Balance Sheet as a prepaid expense (such prepaid expense on the
June 30 Balance Sheet is $318,000), SIG shall pay to Interfinancial the
difference as additional purchase price. In addition, if such an agreement means
that Superior will pay for the period after Closing less money to PMSC than it
would have paid absent such an agreement, Superior will pay to Interfinancial
the amount of such cost savings as its amount is determined and recognized by
Superior. If Superior has not entered into an agreement with PMSC prior to
Closing, Fortis shall have the right to continue negotiations with PMSC after
Closing, and SIG shall pay to Interfinancial in accordance with the terms hereof
the amount of any monetary benefit to Superior that Fortis may be able to obtain
from PMSC. Notwithstanding any of the foregoing, Fortis will not enter into any
agreement with PMSC that prohibits Superior from terminating its obligation to
use PMSC's services after Closing on 90 days or less notice or that requires any
payment by Superior solely in order to terminate such agreement.
5.16 Press Releases. The content and timing of any press release or
other public announcement proposed to be made by either (i) Sellers or any of
their representatives, or (ii) Purchasers or any of their representatives,
including, without limitation, Goldman Sachs & Co., regarding the transactions
contemplated hereby must be consented to in advance by the other party, which
consent shall not be unreasonably withheld or delayed.
ARTICLE 6
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of Purchasers. The obligations of
Purchasers to proceed with the Closing under this Agreement are subject to the
fulfillment prior to or at Closing of the following conditions (any one or more
of which may be waived in whole or in part by Purchasers at Purchasers' option):
(a) Bringdown of Representations and Warranties. The representations
and warranties of Sellers contained in this Agreement shall be true and correct
in all material respects on and as of the time of Closing, with the same force
and effect as though such representations and warranties had been made on, as of
and with reference to such time and Purchasers shall have received a certificate
to such effect signed by an authorized officer of each Seller.
(b) Performance and Compliance. Sellers shall have performed in all
material respects all of the covenants and complied with all of the provisions
required by this Agreement to be performed or complied with by them on or before
the Closing, and Purchasers shall have received a certificate to such effect
signed by an authorized officer of each Seller.
- 32 -
AD951840.095
<PAGE>
(c) Opinion of Counsel. Purchasers shall have received from Alston & Bird,
counsel for Sellers, an opinion dated the Closing Date in substantially the form
of Exhibit 6.1(c).
(d) Hart-Scott Act. The applicable waiting period under the Hart-Scott Act
(and any extension thereof) shall have expired or been terminated.
(e) Regulatory Approval. The Florida Insurance Department shall have
approved the changes in control of the Companies effected by the transfer of the
Shares, without requiring that Purchasers divest any of their current
subsidiaries.
(f) Required Consents. All consents listed on Schedule 6.1(f) shall have
been obtained.
(g) Litigation. No order of any court or administrative agency shall be in
effect which enjoins or prohibits the transactions contemplated hereby or which
would limit or materially adversely affect Purchasers' ownership or control of
Superior or the business of the Companies, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or before
any Governmental Authority (i) reasonably likely to enjoin or prohibit any of
the transactions contemplated by this Agreement or seeking significant monetary
relief by reason of the consummation of such transactions or (ii) which might
have a Material Adverse Effect on the future conduct of the business of the
Companies.
(h) No Material Adverse Effect. There shall not have occurred any Material
Adverse Effect with respect to Superior, or any condition or event which is
reasonably likely to result in a Material Adverse Effect to Superior, subsequent
to June 30, 1995.
(i) Incumbency Certificate. Each of the Sellers shall have delivered to
Purchasers an incumbency certificate dated the Closing Date certifying the
incumbency of all officers of such Seller who have executed this Agreement or
any of the other agreements, documents or instruments required to be delivered
hereunder. These certificates shall contain specimens of the signatures of each
of such officers and shall be executed by an officer of such Seller other than
an officer whose incumbency or authority is certified.
(j) Certificates of Existence and Licensure. Sellers shall have delivered
to Purchasers, with respect to each Seller and each of the Companies, a
certificate of the Secretary of State of the state in which each such
corporation is incorporated, dated not more than 15 days before the Closing
Date, stating that such corporation is a corporation in existence under the laws
of such state and has paid all applicable Taxes due to such state. In addition,
Sellers shall have delivered to Purchasers a certificate of licensure with
respect to each of Superior, Superior American and Superior Guaranty, dated not
more than 30 days before the Closing Date, issued by the insurance regulatory
authority in each state in which such insurer presently conducts insurance
- 33 -
AD951840.095
<PAGE>
business stating that such insurer is authorized to conduct insurance business
in such state.
(k) Certified Copies of Resolutions. Each Seller shall have delivered to
Purchasers copies, certified by the duly qualified and acting Secretary or
Assistant Secretary of such Seller, of resolutions adopted by the Board of
Directors of such Seller approving this Agreement and the consummation of the
transactions contemplated hereby.
(l) Delivery of Original Records. Sellers shall have delivered to
Purchasers the original corporate minute books for each of the Companies, along
with the certificates representing the issued and outstanding shares of capital
stock of each of the Subsidiaries held by Superior.
(m) Catastrophic Events. There shall not have occurred any outbreak of war
or any banking moratorium, in each case within the United States.
6.2 Conditions to Obligations of Sellers. The obligations of Sellers to
proceed with the Closing under this Agreement are subject to the fulfillment
prior to or at Closing of the following conditions (any one or more of which may
be waived in whole or in part by Sellers at Sellers' option):
(a) Bringdown of Representations and Warranties. The representations and
warranties of Purchasers contained in this Agreement shall be true and correct
in all material respects on and as of the time of Closing, with the same force
and effect as though such representations and warranties had been made on, as of
and with reference to such time, and Sellers shall have received a certificate
to such effect signed by an authorized officer of each Purchaser.
(b) Performance and Compliance. Purchasers shall have performed in all
material respects all of the covenants and complied with all of the provisions
required by this Agreement to be performed or complied with by them on or before
the Closing, and Sellers shall have received a certificate to such effect signed
by an authorized officer of each Purchaser.
(c) Opinion of Counsel. Sellers shall have received from counsel for
Purchasers an opinion dated the Closing Date in substantially the form of
Exhibit 6.2(c).
(d) Hart-Scott Act. The applicable waiting period under the Hart-Scott Act
(and any extension thereof) shall have expired or been terminated.
(e) Regulatory Approval. The Florida Insurance Department shall have
approved the changes in control of the Companies effected by the transfer of the
Shares.
(f) Required Consents. All consents listed on Schedule 6.2(f) shall have
been obtained.
- 34 -
AD951840.095
<PAGE>
(g) Litigation. No order of any court or administrative agency shall be in
effect which enjoins or prohibits the transactions contemplated hereby, and
there shall not have been threatened, nor shall there be pending, any action or
proceeding by or before any Governmental Authority reasonably likely to enjoin
or prohibit any of the transactions contemplated by this Agreement or seeking
significant monetary relief by reason of the consummation of such transactions.
(h) Incumbency Certificate. Each of the Purchasers shall have delivered to
Sellers an incumbency certificate dated the Closing Date certifying the
incumbency of all officers of such Purchaser who have executed this Agreement or
any of the other agreements, documents or instruments required to be delivered
hereunder. These certificates shall contain specimens of the signatures of each
of such officers and shall be executed by an officer of such Purchaser other
than an officer whose incumbency or authority is certified.
(i) Certificates of Existence and Licensure. Purchasers shall have
delivered to Sellers, with respect to each Purchaser, a certificate of the
applicable corporate regulatory authority of Canada, or the Secretary of State
of the state in which such corporation is incorporated, as applicable, dated not
more than 15 days before the Closing Date, stating that such corporation is a
corporation in existence under the laws of such jurisdiction and has paid all
applicable Taxes due to such jurisdiction.
(j) Certified Copies of Resolutions. Each Purchaser shall have delivered to
Sellers copies, certified by the duly qualified and acting Secretary or
Assistant Secretary of such Purchaser, of resolutions adopted by the Board of
Directors of such Purchaser approving this Agreement and the consummation of the
transactions contemplated hereby.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by Sellers.
(a) Sellers hereby, jointly and severally, agree to indemnify and hold
harmless Purchasers and the Companies from and against (i) any loss, liability,
claim, obligation, damage or deficiency (any "Damage") of or to any Purchaser or
any of its Affiliates or the Companies, without duplication for any amounts
indemnified hereunder pursuant to Section 5.4(e) or Section 5.14(c), arising out
of or resulting from any misrepresentation, breach of warranty or nonfulfillment
of any covenant or agreement on the part of Sellers contained in this Agreement,
and (ii) any actions, judgments, costs and expenses (including reasonable
attorneys' fees and all other expenses incurred in investigating, preparing or
defending any litigation or proceeding, commenced or threatened) (any "Costs")
incident to any of the foregoing or the enforcement of this Section 7.1;
provided, however, that no indemnification claim may be brought against Sellers
- 35 -
AD951840.095
<PAGE>
after Closing for any Damage or Costs arising out of or resulting from Sellers'
failure to satisfy any condition to Closing set forth in Section 6.1 (other than
the conditions set forth in Sections 6.1(a) and (b)) if Purchasers knew at
Closing that such condition was not satisfied. Any item that involves less than
$5,000 of Damage shall not be covered by this indemnity. Subject to the
preceding sentence, all items that, individually or in the aggregate, would have
been misrepresentations or breaches of warranties contained in Article 3 hereof
but for the fact that such items, individually or in the aggregate, were not
material, did not meet a dollar threshold stated in the representations and
warranties, or did not cause a Material Adverse Effect shall be deemed to be
misrepresentations or breaches of warranties and shall be covered by this
indemnity, subject only to the other provisions contained in this Section 7.1
hereafter.
(b) No action or claim for Damages resulting from breaches of the
representations and warranties of Sellers shall be brought or made after March
31, 1997, except that such time limitation shall not apply to (i) any breach of
the representations contained in Sections 3.1 (except for the first sentence
thereof), 3.3, 3.4 or 3.10 or (ii) any claims which exist prior to March 31,
1997 and which have been the subject of a written notice from Purchasers to
Sellers prior to such date, which notice specified in reasonable detail the
nature of the claim.
(c) Sellers shall be liable to Purchasers for a misrepresentation or
breach of a warranty contained in Article 3 hereof, or for indemnification under
Section 5.4(e)(vi) or (vii), only to the extent the cumulative total of Damages
and Costs under this Section 7.1 for all such misrepresentations and breaches
exceeds $1,000,000, and in no event shall Sellers be liable under this Section
7.1 with respect to all such misrepresentations and breaches for any amount in
excess of $40,000,000; provided, however, no limitation of liability provided in
this paragraph (c) shall apply to any Damage or Cost arising out of or resulting
from common law fraud in connection with the transactions contemplated by this
Agreement or from any breach or nonfulfillment of any covenant or agreement
hereunder.
(d) Any indemnification payment by Sellers under this Agreement shall
be increased by any federal, state, local or foreign tax liability to Purchasers
or the Companies actually incurred by Purchasers or the Companies or expected
with reasonable certainty to be incurred no later than the tax year of the
receipt of such indemnification payment (including payments hereunder)
attributable to such payment and shall be reduced by any Purchasers' Current Tax
Benefit. For purposes hereof, "Purchasers' Current Tax Benefit" shall mean an
amount equal to the federal, state, local or foreign tax savings attributable to
a loss actually realized by Purchasers or the Companies or expected with
reasonable certainty to be realized no later than the tax year in which the
indemnification for such loss occurs (provided that no tax savings with respect
to a loss shall be taken into account to the extent that indemnification for
such loss is not paid as a result of the application of Section 7.1(c)).
Additionally, Purchasers shall pay to Sellers any Purchasers' Deferred Tax
Benefit when and if actually received by Purchasers or the Companies. For
purposes hereof, "Purchasers' Deferred Tax Benefit" shall mean an amount equal
to the net federal, state, local or foreign tax savings actually realized by
- 36 -
AD951840.095
<PAGE>
Purchasers or the Companies in the tax year in which the loss giving rise to the
indemnification occurs or any of the nine succeeding tax years after such tax
year (after taking into account the tax effect, if any, of receipt of any
indemnification payment and without duplication for any amount already accounted
for in Purchasers' Current Tax Benefit) attributable to such loss (provided that
no tax savings with respect to a loss shall be taken into account to the extent
that indemnification for such loss is not paid as a result of the application of
Section 7.1(c)). For purposes of calculating a "tax savings" under this Section
7.1(d), the principles of Section 5.4(g)(ii) and (iii) shall be applied,
including, without limitation, the principle that any damages, costs or losses
giving rise to the indemnification payment shall be considered the last items
utilized in determining whether a tax savings is actually realized. To the
extent the parties cannot agree whether any tax benefit exists or on the
appropriate treatment of any tax benefit, such disagreement shall be resolved by
either an accounting firm or a law firm with a nationally recognized tax
practice selected jointly by Purchasers and Sellers, with the cost of such
accounting or law firm being shared equally by Sellers and Purchasers. If such
parties cannot agree on a firm as specified in the prior sentence, the firm
shall be selected jointly by the independent auditors of such parties.
7.2 Indemnification by Purchasers.
(a) Purchasers hereby, jointly and severally, agree to indemnify and
hold harmless Sellers from and against (i) any Damage of or to Sellers or any of
their Affiliates arising out of or resulting from any misrepresentation, breach
of warranty or nonfulfillment of any covenant or agreement on the part of
Purchasers contained in this Agreement, (ii) any Damage arising out of or
relating to any guarantee or other obligation by any Seller Related Party (other
than the Companies) of any obligations of the Companies, which guarantee or
other obligation has continuing effect after Closing, and (iii) any Costs
incident to any of the foregoing or the enforcement of this Section;
provided, however, that no indemnification claim may be brought against
Purchasers after Closing for any Damage or Costs arising out of or resulting
from Purchasers' failure to satisfy any condition to Closing set forth in
Section 6.2 (other than the conditions set forth in Sections 6.2(a) and (b)) if
Sellers knew at Closing that such condition was not satisfied.
(b) No action or claim for Damages resulting from breaches of the
representations and warranties of Purchasers shall be brought or made after
March 31, 1997, except that such time limitation shall not apply to (i) any
breach of the representations contained in Section 4.1 (except for the first
sentence thereof) or (ii) any claims which exist prior to March 31, 1997 and
which have been the subject of a written notice from Sellers to Purchasers prior
to such date, which notice specified in reasonable detail the nature of the
claim.
(c) Purchasers shall be liable to Sellers for a misrepresentation or
breach of a warranty contained in Article 4 hereof only to the extent the
cumulative total of Damages and Costs under this Section 7.2 for all such
misrepresentations and breaches exceeds $1,000,000, and in no event shall
Purchasers be liable under this Section 7.2 with respect to all such
misrepresentations and breaches for any amount in excess of $10,000,000;
- 37 -
AD951840.095
<PAGE>
provided, however, no limitation of liability provided in this paragraph (c)
shall apply to any Damage or Cost arising out of or resulting from common law
fraud in connection with the transactions contemplated by this Agreement or from
any breach or nonfulfillment of any covenant or agreement hereunder.
(d) Any indemnification payment by Purchasers under this Agreement
shall be increased by any federal, state, local or foreign tax liability to
Sellers actually incurred by Sellers or expected with reasonable certainty to be
incurred no later than the tax year of the receipt of such indemnification
payment (including payments hereunder) attributable to such payment and shall be
reduced by any Sellers' Current Tax Benefit. For purposes hereof, "Sellers'
Current Tax Benefit" shall mean an amount equal to the federal, state, local or
foreign tax savings attributable to a loss actually realized by Sellers or
expected with reasonable certainty to be realized no later than the tax year in
which the indemnification for such loss occurs (provided that no tax savings
with respect to a loss shall be taken into account to the extent that
indemnification for such loss is not paid as a result of the application of
Section 7.2(c)). Additionally, Sellers shall pay to Purchasers any Sellers'
Deferred Tax Benefit when and if actually received by Sellers. For purposes
hereof, "Sellers' Deferred Tax Benefit" shall mean an amount equal to the net
federal, state, local or foreign tax savings actually realized by Sellers in the
tax year in which the loss giving rise to the indemnification occurs or any of
the nine succeeding tax years after such tax year (after taking into account the
tax effect, if any, of receipt of any indemnification payment and without
duplication for any amount already accounted for in Sellers' Current Tax
Benefit) attributable to such loss (provided that no tax savings with respect to
a loss shall be taken into account to the extent that indemnification for such
loss is not paid as a result of the application of Section 7.2(c)). For purposes
of calculating a "tax savings" under this Section 7.2(d), the principles of
Section 5.4(g)(ii) and (iii) shall be applied, including, without limitation,
the principle that any damages, costs or losses giving rise to the
indemnification payment shall be considered the last items utilized in
determining whether a tax savings is actually realized. To the extent the
parties cannot agree whether any tax benefit exists or on the appropriate
treatment of any tax benefit, such disagreement shall be resolved by either an
accounting firm or a law firm with a nationally recognized tax practice selected
jointly by Purchasers and Sellers, with the cost of such accounting or law firm
being shared equally be Sellers and Purchasers. If such parties cannot agree on
a firm as specified in the prior sentence, the firm shall be selected jointly by
the independent auditors of such parties.
7.3 Indemnification Procedures.
(a) If a claim is made, or any suit or action is commenced for which
defense or indemnity is claimed to be due under Section 5.14(c), 7.1 or 7.2, or
if knowledge is received of any other state of facts which, if not corrected,
may give rise to a right of defense or indemnification under Section 5.14(c),
7.1 or 7.2, the party seeking defense or indemnity ("Indemnified Party") shall
give written notice to the party claimed to be liable on the defense or
indemnity obligation ("Indemnifying Party") as soon as practicable after, but in
no event (i) more than 10 days following notice to the Indemnified Party of any
- 38 -
AD951840.095
<PAGE>
claim, suit or action for which defense or indemnity will be sought, or (ii)
more than 30 days following the Indemnified Party's knowledge of any other state
of facts which may give rise to a right to defense or indemnity under Section
5.14(c), 7.1 or 7.2. A failure to give prompt notice shall not relieve an
Indemnifying Party of its obligation to defend or indemnify, except to the
extent the Indemnifying Party is prejudiced by such failure. The Indemnified
Party shall make available to the Indemnifying Party and its counsel and
accountants at reasonable times and for reasonable periods, during normal
business hours, all books and records of the Indemnified Party relating to the
matter for which defense or indemnity has been claimed, and each party hereunder
will render to the other such assistance as the other may reasonably require in
order to assure prompt and adequate defense of any suit, claim or proceeding to
which this Section 7.3 applies.
(b) If defense or indemnification is sought with respect to a claim,
suit or other proceeding against the Indemnified Party, the Indemnifying Party
shall have the right to defend, compromise and settle the matter in the name of
the Indemnified Party to the extent that the Indemnifying Party may be liable to
the Indemnified Party under Section 5.14(c), 7.1 or 7.2 hereof; provided,
however, that the Indemnifying Party shall not compromise or settle a suit,
claim or proceeding unless it assumes the obligation to indemnify for all losses
relating thereto. The Indemnifying Party shall notify the Indemnified Party
promptly if the Indemnifying Party elects to assume the defense of any such
claim, suit or action. In assuming the defense of a matter hereunder, the
Indemnifying Party shall have the right to select counsel, provided that the
Indemnified Party does not object to such counsel in a reasonable exercise of
its discretion. The Indemnified Party shall have the right to employ its own
counsel who may associate with the counsel designated by the Indemnifying Party
(upon the Indemnifying Party's assumption of the defense of the matter), but the
fees and expenses of such counsel shall be at the Indemnified Party's expense.
(c) The Indemnified Party may at any time notify the Indemnifying Party
of its intention to settle or compromise any claim, suit or action against the
Indemnified Party in respect of which indemnification payments may be sought
from the Indemnifying Party hereunder, but shall not settle nor compromise any
matter for which indemnification may be sought, notwithstanding this Section
7.3(c), in excess of $1,000 without the consent of the Indemnifying Party, which
shall not be unreasonably withheld. Any settlement or compromise of any claim,
suit or action in accordance with the preceding sentence, or any final judgment
or decree entered on or in, any claim, suit or action in which the Indemnifying
Party did not assume the defense in accordance herewith, shall be deemed to have
been consented to by, and shall be binding upon, the Indemnifying Party as fully
as if the Indemnifying Party had assumed the defense thereof and a final
judgment or decree had been entered in such suit or action, or with regard to
such claim, by a court of competent jurisdiction for the amount of such
settlement, compromise, judgment or decree.
(d) The Indemnifying Party shall be subrogated to any claims or rights
of the Indemnified Party as against any other persons with respect to any amount
paid by the Indemnifying Party under this Article 7 or under Section 5.14(c).
- 39 -
AD951840.095
<PAGE>
The Indemnified Party shall cooperate with the Indemnifying Party, at the
Indemnifying Party's expense, in the assertion by the Indemnifying Party of any
such claim against other persons.
7.4 Sole Remedy.
(a) Purchasers' sole and exclusive remedy for any breach of this
Agreement by Sellers shall be the provisions in Sections 5.4(e), 5.14(c) and
7.1, and Purchasers hereby waive any and all other remedies which may be
available at law or equity for any breach or alleged breach of this Agreement.
(b) Sellers' sole and exclusive remedy for any breach of this Agreement
by Purchasers shall be the provisions in Sections 5.4(e) and 7.2, and Sellers
hereby waive any and all other remedies which may be available at law or equity
for any breach or alleged breach of this Agreement.
ARTICLE 8
TERMINATION
8.1 When Agreement May be Terminated. This Agreement may be
terminated at any time prior to Closing:
(a) By mutual written consent of Purchasers and Sellers; or
(b) By Purchasers or Sellers if Closing shall not have occurred prior
to April 30, 1996; provided that Purchasers or Sellers may terminate this
Agreement pursuant to this paragraph (b) only if failure to close is not because
of a breach of this Agreement by the party desiring to terminate the Agreement;
or
(c) In accordance with Section 5.5.
8.2 Final Termination. This Agreement will terminate on May 31, 1996 if the
Closing has not yet occurred.
8.3 Effect of Termination. In the event of termination of this
Agreement by either Sellers or Purchasers, as provided above, this Agreement
shall forthwith terminate and there shall be no liability on the part of any
party or any party's officers or directors, except for liabilities arising from
a breach of this Agreement prior to such termination; provided, however, that
the obligations of the parties set forth in Article 7 shall survive such
termination.
- 40 -
AD951840.095
<PAGE>
ARTICLE 9
ARBITRATION
9.1 Agreement to Arbitrate. Except as set forth in Sections 2.3(b),
7.1(d) and 7.2(b), any claim, controversy or dispute arising out of or relating
to this Agreement, on which an amicable understanding cannot be reached, to the
maximum extent allowed by applicable law and irrespective of the type of relief
sought, shall be submitted to and resolved by arbitration, and such arbitration
shall be the sole remedy for such matter. Such arbitration shall be heard and
conducted in New York, New York and shall be conducted expeditiously and
confidentially in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"), as such rules shall be in effect on
the date of delivery of demand for arbitration, with the exception that the
arbitrators may not award any punitive or exemplary damages or any damages other
than compensatory, and except as such rules may be otherwise inconsistent with
the express provisions of this Article 9.
9.2 Initiating Arbitration. To initiate arbitration, a party shall
notify the other party in writing of its desire to arbitrate, stating the nature
of its dispute and the remedy sought. The receiving party shall acknowledge
receipt of the notice in writing within 5 days, and thereafter the parties shall
attempt in good faith to resolve the dispute within 15 days. If the dispute
cannot be resolved within such 15-day period, any party may file a written
demand for arbitration by filing a written notice with the AAA and with the
other party, complying with the AAA's prescribed procedures for such notices.
Within 15 days of delivery of such demand for arbitration, each party shall
appoint one arbitrator, and the arbitrators so selected shall, within 15 days of
their appointment, appoint an additional arbitrator. In the event that the
arbitrators selected by the parties are unable to agree upon the selection of
the additional arbitrator after reasonable efforts within such 15-day period, a
list of 7 qualified and available persons shall be requested from the AAA. The
parties shall take turns striking one person each from the list, with the last
remaining person being the additional selected arbitrator. Once selected, the
arbitration panel shall meet as expeditiously as possible, select a chairman,
schedule the arbitration hearing, and notify the parties in writing of the date,
time and place of the hearing.
9.3 Effect. All conclusions of law reached by the arbitrators shall be
made in accordance with the internal laws of the State of Georgia without regard
for its conflict of laws doctrine. Any award rendered by the arbitrators shall
be accompanied by a written opinion setting forth the findings of fact and
conclusions of law relied upon in reaching their decision. The award rendered by
the arbitrators shall be final, binding and non-appealable, and judgment upon
such award may be entered by any court having jurisdiction thereof. The parties
agree that the existence, conduct and content of any such arbitration shall be
kept confidential and no party shall disclose to any person any information
about such arbitration, except as may be required by law or for financial
reporting purposes in each party's financial statements.
- 41 -
AD951840.095
<PAGE>
9.4 Costs. Each party shall pay the fees of its own arbitrator,
attorneys, expenses of witnesses and all other expenses in connection with the
presentation of such party's case. The remaining costs of the arbitration,
including, without limitation, fees of the additional arbitrator, costs of
records or transcripts and administrative fees, shall be borne by the parties as
designated by the arbitrators.
ARTICLE 10
MISCELLANEOUS
10.1 Nature and Survival of Representations. The representations,
warranties, covenants and agreements of Purchasers and Sellers contained in this
Agreement shall survive the Closing and shall not merge in the performance of
any obligation by any party hereto. Sellers acknowledge and agree that prior to
Closing, Purchasers intend to perform such investigation of the Companies as
they deem necessary or appropriate; however, no investigation by Purchasers will
diminish or obviate any of the representations, warranties, covenants or
agreements made or to be performed by Sellers pursuant to this Agreement, or
Purchasers' right to rely upon such representations, warranties, covenants and
agreements.
10.2 Amendment. This Agreement may not be amended or modified without the
prior written consent of all parties.
10.3 Waiver. Failure to insist upon strict compliance with any of the terms
or conditions of this Agreement at any one time shall not be deemed a waiver of
such term or condition at any other time; nor shall any waiver or relinquishment
of any right or power granted herein at any time be deemed a waiver or
relinquishment of the same or any other right or power at any other time.
10.4 Governing Law. Notwithstanding the place where this Agreement may
be executed by any of the parties, the parties expressly agree that this
Agreement shall in all respects be governed by, and construed in accordance
with, the laws of the State of Georgia, without regard for its conflict of laws
doctrine.
10.5 Notices. Any notice or other communication to be given hereunder
shall be in writing and shall be deemed sufficient when (i) mailed by United
States certified mail, return receipt requested, (ii) mailed by overnight
express mail, (iii) sent by facsimile or telecopy machine, followed by
confirmation mailed by first-class mail or overnight express mail, or (iv)
delivered in person, at the address set forth below, or such other address as a
party may provide to the other in accordance with the procedure for notices set
forth in this Section:
- 42 -
AD951840.095
<PAGE>
If to Purchasers:
Goran Capital Inc.
4720 Kingsway Drive
Indianapolis, IN 46205
Attention: Alan G. Symons
Telephone: 317-259-6300
Telecopy: 317-259-6395
with a copy (which shall not constitute notice) to:
GS Capital Partners II, L.P.
85 Broad Street
New York, New York 10004
Attention: Michael A. Pruzan
Telephone: 212-902-1000
Telecopy: 212-902-3000
If to Sellers:
Fortis, Inc.
One Chase Manhattan Plaza, 41st Floor
New York, New York 10005
Attention: Katherine Katsidhe, Esq.
Telephone: 212-859-7021
Telecopy: 212-859-7034
with a copy (which shall not constitute notice) to:
Alston & Bird
1201 West Peachtree Street
Atlanta, GA 30309-3424
Attention: B. Harvey Hill, Jr., Esq.
Telephone: 404-881-7000
Telecopy: 404-881-7777
10.6 Invalid Provision. If any provision of this Agreement shall be
determined by arbitrators (acting in accordance with Article 9) to be invalid or
unenforceable, this Agreement shall be deemed amended to delete such provision
and the remainder of this Agreement shall be enforceable by its terms.
10.7 Assignment. This Agreement may not be assigned or delegated by any
party without the prior written consent of all other parties, which consent
shall not be unreasonably withheld or delayed.
- 43 -
AD951840.095
<PAGE>
10.8 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
10.9 Further Assurances. Each party agrees to execute and deliver all such
further instruments and do all such further acts as may be reasonably necessary
or appropriate to effectuate this Agreement.
10.10 Headings. Headings and captions contained in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit, extend or prescribe the scope of this Agreement or the intent of any
provision.
10.11 Person and Gender. The masculine gender shall include the feminine
and neuter genders and the singular shall include the plural.
10.12 Entire Agreement. This Agreement, together with the Schedules and
Exhibits referenced herein, and the Confidentiality Agreement, constitute the
entire agreement of the parties with respect to matters set forth in this
Agreement and supersede any prior understanding or agreement, oral or written,
with respect to such matters.
10.13 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party hereto,
whether under any rule of construction or otherwise. No party shall be
considered the draftsman. On the contrary, this Agreement has been reviewed,
negotiated and accepted by all parties and their lawyers and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
10.14 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all such
counterparts shall constitute one and the same Agreement, binding on all the
parties notwithstanding that all the parties are not signatories to the same
counterpart.
10.15 No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and nothing herein expressed or implied shall give
or be construed to give to any Person, other than the parties hereto, any legal
or equitable rights hereunder.
[Signatures on Next Page]
- 44 -
AD951840.095
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
GORAN CAPITAL INC.
By: /s/ Alan J. Symons
Name: Alan J. Symons
Witness Title: President & CEO
SYMONS INTERNATIONAL GROUP, INC.
By: /s/ Alan G. Symons
Name: Alan G. Symons
Witness Title: Vice Chairman & Director
FORTIS, INC.
By: /s/ H.C. Machin
Name: H.C. Machin
Witness Title: EVP
INTERFINANCIAL INC.
By: /s/ H.C. Machin
Name: H.C. Machin
Witness Title: EVP
- 45 -
AD951840.095
<PAGE>
STOCK PURCHASE AGREEMENT
by and among
GGS MANAGEMENT HOLDINGS, INC.
GS CAPITAL PARTNERS II, L.P.
GORAN CAPITAL INC.
and
SYMONS INTERNATIONAL GROUP, INC.
DATED AS OF
JANUARY 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ECTION 1. Issuance and Purchase of Company Common
Stock....................................................... 2
1.1. Pre-Closing Actions......................................... 2
1.2. The GSCP Purchase........................................... 2
1.3. The Superior Purchase....................................... 2
1.4. The Closing................................................. 3
1.5. Certificate of Incorporation and By-laws.................... 3
1.6. Closing Date Balance Sheet of Pafco......................... 3
1.7. Book Value Adjustment....................................... 5
1.8. Definitions................................................. 6
SECTION 2. Representations and Warranties of Goran
and SIG..................................................... 6
2.1. Organization and Good Standing; Power and
Authority; Qualifications................................... 6
2.2. Authorization............................................... 6
2.3. No Conflict................................................. 7
2.4. Consents.................................................... 7
2.5. Capitalization.............................................. 7
2.6. Authorization and Issuance of Capital
Stock....................................................... 8
2.7. Financial Statements........................................ 9
2.8. Absence of Undisclosed Liabilities.......................... 10
2.9. Absence of Material Changes................................. 10
2.10. Intellectual Property Rights................................ 11
2.11. Business of the Company..................................... 12
2.12. Assets; Subsidiaries........................................ 12
2.13. Litigation; Orders.......................................... 12
2.14. Compliance with Laws; Permits............................... 13
2.15. Regulatory Filings.......................................... 13
2.16. Insurance Business.......................................... 14
2.17. Threats of Cancellation..................................... 15
2.18. Restrictions on Business Activities......................... 15
2.19. Material Contracts.......................................... 15
2.20. Environmental............................................... 15
2.21. Related Party Transactions.................................. 16
2.22. Brokers..................................................... 16
SECTION 3. Representations and Warranties of GSCP...................... 17
3.1. Organization and Good Standing; Power and
Authority................................................... 17
3.2. Authorization............................................... 17
<PAGE>
3.3. No Conflict................................................. 17
3.4. Consents.................................................... 17
3.5. Investment.................................................. 17
3.6. Brokers..................................................... 18
3.7. Availability of Funds....................................... 18
SECTION 4. Pre-Closing Covenants....................................... 18
4.1. Cooperation................................................. 18
4.2. HSR Act/Form A Filing....................................... 18
4.3. Conduct of Business......................................... 18
4.4. Restricted Activities....................................... 19
4.5. Access...................................................... 19
4.6. No Solicitation............................................. 19
4.7. Communications.............................................. 19
4.8. State Regulatory Authorities................................ 19
4.9. Advice of Changes........................................... 20
4.10. Public Announcements........................................ 20
4.11. Tillinghast Study........................................... 20
4.12. Reinsurance Arrangements.................................... 20
4.13. Quota Share Agreements...................................... 21
4.14. Goran EuroNotes............................................. 21
4.15. IGF......................................................... 22
4.16. Option Plan................................................. 23
4.17. Management Agreements....................................... 23
4.18. Release of Encumbrance...................................... 23
4.19. Resignations................................................ 24
SECTION 5. Additional Covenants........................................ 24
5.1. Access to Records........................................... 24
5.2. Financial Reports........................................... 24
5.3. D&O Insurance............................................... 25
5.4. Investment Banking Services................................. 25
5.5. Policies to be Issued by IGF................................ 26
5.6. Goran Reinsurance........................................... 26
5.7. Certain Repurchases......................................... 26
5.8. Tritech System.............................................. 26
5.9. Intercompany Arrangements................................... 26
5.10. Superior Note Purchase...................................... 27
SECTION 6. Taxes....................................................... 27
6.1. Tax Representations and Warranties.......................... 27
6.2. Returns and Payments........................................ 29
<PAGE>
6.3. Indemnification, Audits..................................... 31
6.4. Refunds and Carrybacks...................................... 32
6.5. Cooperation................................................. 32
6.6. Tax Sharing................................................. 32
6.7. Transfer Taxes.............................................. 33
6.8. FIRPTA Affidavit............................................ 33
SECTION 7. Employees and Employee Benefit Plans........................ 33
7.1. Representations and Warranties.............................. 33
7.2. Indemnification............................................. 36
7.3. Covenants................................................... 36
SECTION 8. Conditions.................................................. 36
8.1. Conditions to Obligations of GSCP........................... 36
8.2. Conditions to Obligations of Goran and
SIG......................................................... 38
SECTION 9. Indemnification............................................. 39
9.1. Survival of Representations and
Warranties.................................................. 39
9.2. Indemnification............................................. 39
SECTION 10. Termination................................................. 44
10.1. Termination................................................. 44
10.2. Effect of Termination....................................... 44
SECTION 11. Miscellaneous............................................... 44
11.1. Expenses.................................................... 44
11.2. Remedies.................................................... 45
11.3. Further Assurances.......................................... 45
11.4. Successors and Assigns...................................... 45
11.5. Guarantee................................................... 45
11.6. Entire Agreement............................................ 45
11.7. Notices..................................................... 45
11.8. Amendments.................................................. 47
11.9. Counterparts................................................ 47
11.10. Headings.................................................... 47
11.11. No Third Party Beneficiaries................................ 47
11.12. Governing Law............................................... 47
11.13. Severability................................................ 47
11.14. Interpretation.............................................. 47
11.15. No Waiver................................................... 48
<PAGE>
Exhibits
Exhibit A Superior Purchase Agreement
Exhibit B Form of Stockholder Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Company Amended and Restated Certificate of Incorporation
Exhibit E Form of Company Amended and Restated By-Laws Exhibit F Pafco Financial
Statements and IGF Financial Statements Exhibit G EuroNotes Waiver Provisions
Exhibit H Form of IGF Holdings Notes Exhibit I Covenants and Events of Default
With Respect to IGF Holdings Note Exhibit J Form of Stock Option Plan Exhibit K
Pafco Management Agreement Exhibit L Form of Employment Agreements Exhibit M
Form of Opinion of Counsel Exhibit N Form of Pledge Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of January 31, 1996,
by and among GGS MANAGEMENT HOLDINGS, INC., a Delaware corporation (the
"Company"), GS CAPITAL PARTNERS II, L.P., a Delaware limited partnership
("GSCP"), GORAN CAPITAL INC., a Canadian corporation ("Goran"), and SYMONS
INTERNATIONAL GROUP, INC., an Indiana corporation and a wholly-owned subsidiary
of Goran ("SIG").
W I T N E S S E T H :
WHEREAS, Goran owns directly all of the issued and outstanding shares of
Common Stock, with no par value, of SIG;
WHEREAS, SIG owns directly 75 shares of Common Stock, par value $.01 per
share (the "Company Common Stock"), of the Company (representing 75% of the
issued and outstanding shares of Company Common Stock and GSCP owns directly 25
shares of Company Common Stock (representing 25% of the issued and outstanding
shares of Company Common Stock);
WHEREAS, the Company owns directly all of the issued and outstanding shares
of Common Stock, par value $.01 per share (the "Newsub Common Stock"), of GGS
Management, Inc., a newly- formed Delaware corporation ("Newsub");
WHEREAS, SIG owns directly all of the issued and outstanding shares of
Common Stock, par value $125.00 per share (the "Pafco Common Stock"), of Pafco
General Insurance Company, an Indiana corporation ("Pafco");
WHEREAS, Pafco owns directly all of the issued and outstanding shares of
capital stock of IGF Holdings, Inc., a newly-formed Delaware corporation ("IGF
Holdings"), and IGF Insurance Company, an Indiana corporation ("IGF");
WHEREAS, SIG and Goran have entered into a Purchase Agreement (the
"Superior Purchase Agreement") with Fortis, Inc. and Interfinancial Inc., dated
January 31, 1996 (a copy of which is attached as Exhibit A hereto), pursuant to
which SIG has agreed to purchase all of the issued and outstanding capital stock
of Superior Insurance Company, a Florida corporation ("Superior");
WHEREAS, prior to the Closing, (a) SIG will contribute to the Company, and
the Company will contribute to Newsub, (i) all of SIG's rights and obligations
under the Superior Purchase Agreement and (ii) all of the Pafco Common Stock,
and (b) Pafco will effect the IGF Pre-Closing Transactions (defined in Section
4.15(a));
<PAGE>
WHEREAS, GSCP desires to purchase, and the Company desires to issue to
GSCP, 479,975 shares of newly issued Company Common Stock, such that immediately
following the Closing, GSCP will own 48%, and SIG will own 52%, of the issued
and outstanding shares of Company Common Stock; and
WHEREAS, at the Closing, the Company, Goran, SIG and GSCP will be entering
into a stockholder agreement substantially in the form of Exhibit B hereto (the
"Stockholder Agreement") and a Registration Rights Agreement substantially in
the form of Exhibit C hereto (the "Registration Rights Agreement");
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. ISSUANCE AND PURCHASE OF COMPANY COMMON STOCK.
1.1. PRE-CLOSING ACTIONS. Prior to the Closing, (a) Goran and SIG shall
cause Pafco to effect the IGF Pre-Closing Transactions (defined in Section
4.15(a)), (b) Goran and SIG shall contribute to the Company, and shall
thereafter cause the Company to contribute to Newsub, all of their rights and
obligations under the Superior Purchase Agreement, (c) SIG shall contribute to
the Company, and shall thereafter cause the Company to contribute to Newsub, all
of the Pafco Common Stock and (d) SIG shall contribute to the Company, and shall
thereafter cause the Company to contribute to Newsub, assets of SIG as
hereinafter agreed by the parties and the Company shall assume liabilities of
SIG as hereinafter agreed by the parties (such assets and liabilities being
referred to herein, collectively, as the "SIG Contributed Items") and shall
thereafter cause Newsub to assume such liabilities.
1.2. THE GSCP PURCHASE. At the Closing, the Company shall issue and sell to
GSCP, and GSCP shall purchase from the Company, 479,975 shares of Company Common
Stock (such that immediately following the Closing 48% of the issued and
outstanding Company Common Stock will be owned by GSCP), for an aggregate
purchase price of $20,000,000 in cash (the "GSCP Purchase Price").
1.3. THE SUPERIOR PURCHASE. At the Closing, the Company shall use the
proceeds of the financing to be provided pursuant to the commitment letter (the
"Bank Commitment Letter") of Chase Manhattan Bank, N.A. and Chase Securities,
Inc. (together, the "Bank"), accepted by Goran and GSCP as of January 24, 1996
(or pursuant to such alternative bank financing as the Company may hereafter
arrange), and the proceeds from the purchase by GSCP of Company Common Stock
pursuant to Section 1.2, for the purchase of all of the issued and outstanding
shares of capital stock of Superior pursuant to the Superior Purchase Agreement
(none of the terms or conditions of which may be waived by Goran or the Company
without the consent of GSCP).
<PAGE>
1.4. THE CLOSING.
(a) Subject to the terms and conditions of this Agreement, the
consummation of the transactions contemplated by this Agreement (the
"Closing") will take place on such date which is five business days
following the date (the "Closing Date") upon which all of the conditions
set forth herein have been satisfied (or waived), at 10:00 a.m., at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza,
New York, New York 10004.
(b) At the Closing, the Company shall deliver to GSCP a certificate or
certificates representing the shares of the Company Common Stock purchased
by it, registered in its name or in the name of its nominee. Delivery of
such certificates shall be made against receipt at the Closing by the
Company from GSCP of the GSCP Purchase Price, which shall be paid by wire
transfer to an account designated at least one business day prior to the
Closing Date by the Company.
(c) If the Closing occurs, all actions taken at the Closing shall be
deemed to have occurred simultaneously and no such action shall be
effective until all such actions have been completed.
1.5. CERTIFICATE OF INCORPORATION AND BY-LAWS. Goran and SIG shall cause
the Company (i) to amend and restate its Certificate of Incorporation to read as
set forth in Exhibit D hereto, and such Certificate of Incorporation as so
amended shall be duly filed with the Secretary of State of the State of
Delaware, to be effective as of the Closing Date, and (ii) to amend and restate
its By-laws to read as set forth in Exhibit E hereto, to be effective as of the
Closing Date.
1.6. CLOSING DATE BALANCE SHEET OF PAFCO.
(a) Within 30 days after the Closing Date, Goran and SIG shall cause
the Company to prepare and deliver to GSCP an unconsolidated balance sheet
of Pafco (which for purposes of such Balance Sheet shall be deemed to
include the SIG Contributed Items) (the "Draft Closing Date Balance Sheet")
as of the close of business on the Closing Date (determined on a pro forma
basis as though (x) the IGF Pre-Closing Transactions (defined in Section
4.15(a)) and the Pre-Closing Transactions (defined in Section 4.13) had
been consummated, (y) the SIG Contributed Items had been contributed and
assumed in accordance with Section 1.1(d) (but to and by Pafco rather than
the Company), and (z) no other transactions contemplated by this Agreement
had been consummated). Goran and SIG shall cause the Company to (i) prepare
the Draft Closing Date Balance Sheet in accordance with U.S. GAAP (all
defined terms used in this Section 1.6 and not otherwise defined in this
Agreement are defined in Section 1.8) consistently applied, except that (A)
the materiality standards applied shall not be those historically
<PAGE>
applied to Goran but shall be those determined to be appropriate for Pafco
as a stand-alone entity, (B) the Company shall use as the amount of
reserves for losses set forth on such balance sheet the Tillinghast
December 31 Amount (defined in Section 4.11), as adjusted in accordance
with the Tillinghast Methodology (defined in Section 4.11) to account for
events occurring after December 31, 1995, (C) no reserves for consolidated,
combined or unitary Income Taxes (defined in Section 6.1) shall be included
on such balance sheet (it being understood that Reserves for Deferred
Taxes, if any, shall be included on the Closing Balance Sheet), and (D) the
value of the SIG Contributed Items as reflected on such balance sheet shall
equal the value of such assets as reflected on SIG's most recent balance
sheet, and (ii) cause Coopers & Lybrand, L.L.P. (A) to conduct an audit of
Pafco in accordance with (x) United States generally accepted auditing
standards as in effect from time to time and (y) the provisions of this
Section 1.6(a), (B) to make themselves available at reasonable times during
their conduct of such audit to discuss with GSCP, Goran and SIG the Draft
Closing Date Balance Sheet, (C) to determine, as part of such audit, the
appropriate standards of materiality to have been used in preparing the
Draft Closing Date Balance Sheet for Pafco as a stand-alone entity and (D)
to revise the Draft Closing Date Balance Sheet based on such audit (such
revised Draft Closing Date Balance Sheet being referred to herein as the
"Revised Draft Closing Date Balance Sheet"). Goran and SIG shall instruct
Coopers & Lybrand, L.L.P. to furnish a copy of the Revised Draft Closing
Date Balance Sheet to GSCP.
(b) After receipt by GSCP of the Revised Draft Closing Date Balance
Sheet, GSCP shall instruct accountants associated with a "Big Six"
accounting firm designated by GSCP (the "GSCP Accountants") to review the
Revised Draft Closing Date Balance Sheet. In the event that GSCP and the
GSCP Accountants have no objections to the Revised Draft Closing Date
Balance Sheet, such balance sheet shall be the "Closing Date Balance
Sheet." In the event that GSCP and the GSCP Accountants object to the
Revised Draft Closing Date Balance Sheet, GSCP shall provide to Goran and
SIG a written statement describing their objections. Goran, SIG and GSCP
shall use reasonable efforts to resolve any disputes with respect to the
Revised Draft Closing Date Balance Sheet, but if a resolution is not
obtained within 20 days after GSCP has submitted to Goran and SIG its
objections, either of Goran, SIG or GSCP may submit any remaining disputes
for resolution to a "Big Six" accounting firm (other than Coopers &
Lybrand, L.L.P. and the GSCP Accountants) mutually agreeable to Goran, SIG
and GSCP or, if Goran, SIG and GSCP are unable to so mutually agree, to a
"Big Six" accounting firm mutually selected by Coopers & Lybrand, L.L.P.
and the GSCP Accountants (in either case, such accounting firm shall be
referred to herein as the "Arbitrating Accountants"), and the Revised Draft
Closing Date Balance Sheet as finally revised based on the mutual agreement
of Goran, SIG and GSCP or by the Arbitrating Accountants, as the case may
be, shall be the "Closing Date Balance Sheet."
<PAGE>
(c) GSCP, Goran and SIG shall, and shall cause Pafco to, cooperate
with Coopers & Lybrand, L.L.P. and the GSCP Accountants in all respects
(including in the conduct of the audit of Pafco and the review of the
Revised Draft Closing Date Balance Sheet provided for above). Such
cooperation shall include providing the GSCP Accountants with the work
papers and back-up materials used in preparation of the Draft Closing Date
Balance Sheet and the Revised Closing Date Balance Sheet.
(d) The Company shall pay all fees and expenses of Coopers & Lybrand,
L.L.P., the GSCP Accountants and the Arbitrating Accountants relating to
performance of the services contemplated by this Section 1.6.
1.7. BOOK VALUE ADJUSTMENT.
(a) In the event that the Book Value of Pafco as reflected on the
Closing Date Balance Sheet is less than $14,000,000, Goran shall, upon the
earlier of seven days after an IGF Company Sale (as defined in Section
4.15(a)) and December 31, 1996, contribute to the Company cash equal to the
amount of such deficiency, plus simple interest on such deficiency from the
Closing Date through the date immediately preceding the date of such
contribution, calculated based on an annual rate equal to the Prime Rate.
(b) In the event the Book Value of Pafco as reflected on the Closing
Date Balance Sheet exceeds $14,000,000 (the amount of any such excess being
referred to herein as the "Excess Book Value Amount"), such amount shall be
available to offset any indemnification obligation of Goran or SIG as set
forth in Section 9.2. Notwithstanding the foregoing, at any time after
payment in full of all amounts owing pursuant to the IGF Holdings Notes
(defined in Section 4.15(a)), or such other note as may be issued pursuant
to Section 4.15(a), SIG shall have the right from time to time to elect (by
written notice to GSCP and the Company) to have Pafco pay a dividend (the
"Pafco Excess Book Value Dividend") to Newsub in the amount of all or any
portion of the Excess Book Value Amount, to have Newsub pay a dividend (the
"Newsub Excess Book Value Dividend") to the Company in the same amount as
the Pafco Excess Book Value Dividend, and to have the Company pay to SIG an
amount equal to the amount of the Pafco Excess Book Value Dividend
(subject, in each case, to compliance with all applicable laws, including
obtaining all necessary regulatory approvals therefor). If a Pafco Excess
Book Value Dividend is paid, it shall be payable (i) first (up to the full
amount of the Excess Book Value Amount), by an assignment of all or a
portion of the promissory note of Cliffstan Investments, Inc. held by Pafco
on the date hereof (the "Cliffstan Note") (valued at the book value of such
note as reflected on the Closing Date Balance Sheet), (ii) second (to the
extent that there is any Excess Book Value Amount remaining), by
cancellation of any and all amounts owing to Pafco by SIG or any other
Affiliate of Goran as of the date hereof, and (iii) third (to the extent
that there is any Excess Book Value Amount remaining), in cash. The Excess
Book Value Amount shall
<PAGE>
be increased by an amount equal to deemed interest thereon at an annual
rate equal to the Prime Rate, and shall be decreased by the offsetting of
any indemnification obligation of Goran or SIG pursuant to Section 9.2 and
any payments made to SIG pursuant to the preceding sentence following Pafco
Excess Book Value Dividends and Newsub Excess Book Value Dividends.
1.8. DEFINITIONS. "Book Value" means the excess of assets over liabilities.
"U.S. GAAP" means United States generally accepted accounting principles as in
effect from time to time. "Prime Rate" means the prime rate as published in the
"Money Rates" column of The Wall Street Journal, Eastern Edition (or, in the
event that more than one such rate is so published, the average of such rates).
Reserves for Deferred Taxes means reserves for book tax differences, including
without limitation, differences between the tax basis and book basis of the
assets of the Company and book tax timing differences with respect to items of
income or deduction of the Company, but shall not include reserves for
contingent liability for Taxes for which the Seller has full payment
responsibility pursuant to Sections 6.2 or 6.3(a)(i), such as liability for
disputed consolidated federal Income Taxes.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF GORAN AND SIG. Goran and SIG
hereby, jointly and severally, represent and warrant to GSCP as follows:
2.1. ORGANIZATION AND GOOD STANDING; POWER AND AUTHORITY; QUALIFICATIONS.
Each of Goran, SIG, the Company, Newsub, Pafco, IGF and IGF Holdings (each, a
"Goran Entity" and, collectively, the "Goran Entities") is a corporation duly
organized, validly existing and in good standing under the Laws (defined in
Section 2.3) of its jurisdiction of incorporation. Each of the Goran Entities
has all requisite corporate power and authority to enter into this Agreement and
the ancillary agreements hereto (including, without limitation, the IGF Holdings
Note (defined in Section 4.15(a))) (collectively, the "Ancillary Agreements") to
which it is a party, and to consummate the transactions contemplated hereby and
thereby. Each of the Goran Entities has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as presently conducted and as proposed to be conducted after the Closing and is
qualified to transact business as a foreign corporation in, and is in good
standing under the Laws of, all of the jurisdictions wherein the character of
the property owned or leased or the nature of the activities conducted, or
proposed to be conducted, by it makes such qualification necessary.
2.2. AUTHORIZATION. The execution, delivery and performance by each of the
Goran Entities of this Agreement and the Ancillary Agreements to which it is a
party have been duly authorized by all requisite corporate action, and each such
agreement constitutes (or when executed will constitute) the legal, valid and
binding obligation of each of the Goran Entities which is a party thereto,
enforceable against such party in
<PAGE>
accordance with its terms. No approval of shareholders of Goran is required in
connection with the execution, delivery or performance of this Agreement or any
Ancillary Agreement or consummation of the transactions contemplated hereby or
thereby.
2.3. NO CONFLICT. The execution, delivery and performance by each of the
Goran Entities of this Agreement and the Ancillary Agreements to which it is a
party, and the consummation by the Goran Entities of the transactions
contemplated hereby or thereby (including, without limitation, the issuance,
sale and delivery by the Company of the Company Common Stock to GSCP and Goran
and the issuance by IGF Holdings of the IGF Holdings Notes), will not (a)
violate any provision of any law, statute, rule, regulation, regulatory
requirement, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) (each, a "Law") applicable to such entity,
or any of its properties or assets, (b) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any agreement to which such entity is a
party or (c) violate such entity's Certificate of Incorporation or By-laws.
2.4. CONSENTS. Except for (i) a filing on Form A with, and receipt of the
approval of, the Department of Insurance of the State of Indiana, (ii) a filing
on Form A with, and receipt of the approval of the Department of Insurance of
the State of Florida with respect to the Superior Purchase Agreement, (iii)
expiration or termination of any applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act"), and (iv)
the items set forth on Schedule 2.4, no consent, authorization, consent,
approval, permit or waiver of or by, or any notification of or filing with, any
governmental or regulatory authority (including insurance regulatory
authorities), foreign or domestic, or federal, state or foreign court of
competent jurisdiction (each, a "Governmental Authority"), or any other third
party under any agreement, indenture, lease or other instrument or document to
which any of the Goran Entities is a party or by which any of them is bound, is
required or necessary in connection with the execution, delivery and performance
by each of the Goran Entities of this Agreement and the Ancillary Agreements to
which it is a party, or the consummation by each of the Goran Entities of the
transactions contemplated hereby or thereby.
2.5. CAPITALIZATION. The authorized capitalization and number of shares of
capital stock issued and outstanding, in each case as of the date hereof, of
each of the Company, Newsub, Pafco, IGF Holdings and IGF is as set forth on
Schedule 2.5. As of the date hereof, (i) all of the issued and outstanding
capital stock of Pafco and 75 shares of the Company Common Stock is owned
directly by SIG, (ii) 25 shares of the Company Common Stock is owned directly by
GSCP, (iii) except as set forth in clause (i) and (ii) no shares of capital
stock of the Company are issued and outstanding, (iv) all of the
<PAGE>
issued and outstanding capital stock of Newsub is owned directly by the Company
and (v) all of the issued and outstanding capital stock of each of IGF Holdings
and IGF is owned directly by Pafco. Immediately following the Closing, the
authorized capitalization of each of the Company, Newsub, Pafco, IGF Holdings
and IGF will be as set forth on Schedule 2.5. Immediately following the Closing,
(i)(w) 1,000,000 shares of Company Common Stock will be issued and outstanding,
with the balance held in treasury, (x) 520,000 of such shares of issued and
outstanding Company Common Stock will be owned by SIG, (y) 480,000 of such
shares of issued and outstanding Company Common Stock will be owned by GSCP or
its Affiliates (defined in Section 2.20) and (z) no other shares of capital
stock of the Company will be issued and outstanding; (ii)(x) 1,000 shares of
Newsub Common Stock will be issued and outstanding, all of which will be owned
by the Company and (y) no other shares of capital stock of Newsub will be issued
and outstanding; (iii)(x) 10,000 shares of Pafco Common Stock will be issued and
outstanding, with the balance held in treasury, (y) all of such issued and
outstanding shares of Pafco Common Stock will be owned by Newsub and (z) no
other shares of capital stock of Pafco will be issued and outstanding; (iv) no
shares of the capital stock of IGF or IGF Holdings will be owned or held,
directly or indirectly, by the Company, and all of such shares of capital stock
will be owned, directly or indirectly, by SIG, (v) all of the issued and
outstanding shares of capital stock of Superior will be owned by Newsub; (vi)
all of the issued and outstanding shares of capital stock of each of Superior
American Insurance Company, Superior Guarantee Insurance Company and Standard
Plan, Inc. will be owned by Superior; and (vii) there will be no outstanding
options, warrants, script, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
shares of equity securities (each of the foregoing, an "Equity Security") of the
Company, Newsub, Pafco, IGF Holdings, or IGF, or contracts, commitments,
understandings or arrangements by which the Company, Newsub, Pafco, IGF
Holdings, or IGF will or may be bound to issue Equity Securities of the Company,
Newsub, Pafco, IGF Holdings, or IGF (other than pursuant to the options granted
at the Closing pursuant to the Stock Option Plan (defined in Section 4.6)).
2.6. AUTHORIZATION AND ISSUANCE OF CAPITAL STOCK. The authorization,
issuance, sale and delivery of the Company Common Stock, the capital stock of
IGF Holdings, the capital stock of IGF and the IGF Holdings Notes, or such other
note as may be issued pursuant to Section 4.15(a), have been duly authorized by
all requisite corporate action on the part of the Goran Entities, and when
issued, sold and delivered in accordance with this Agreement, the Company Common
Stock, the capital stock of IGF Holdings and the capital stock of IGF will be
validly issued and outstanding, fully paid and non assessable with no personal
liability attaching to the ownership thereof, and (except as disclosed on
Schedule 2.6) free and clear of any mortgages, judgments, claims, liens,
security interests, pledges, escrows, charges or other encumbrances of any kind
or character whatsoever (each, an "Encumbrance"). Immediately following the
Closing, each of GSCP and
<PAGE>
(except as disclosed on Schedule 2.6) SIG will have valid title to the shares of
Company Common Stock to be received by it hereunder, free and clear of all
Encumbrances (other than, in the case of SIG, a pledge of its shares of Company
Common Stock to the holders of the EuroNotes pursuant to the EuroNotes Waiver
(each as defined in Section 4.14. (a)).
2.7. FINANCIAL STATEMENTS.
(a) Goran and SIG have delivered to GSCP (i) unaudited pro forma
balance sheets of each of Pafco and IGF on a stand-alone and unconsolidated
basis as of September 30, 1995 (in the case of Pafco, the "Pafco September 30
Balance Sheet" and, in the case of IGF, the "IGF September 30 Balance Sheet"),
and unaudited pro forma statements of the operations of each of Pafco and IGF on
a stand-alone and unconsolidated basis for the nine-month period ended September
30, 1995 (in the case of Pafco, together with the Pafco September 30 Balance
Sheet, the "Pafco September 30 Financial Statements" and, in the case of IGF,
together with the IGF September 30 Balance Sheet, the "IGF September 30
Financial Statements"), and (ii) audited balance sheets of each of Pafco and IGF
on a stand-alone and unconsolidated basis as of December 31, 1994 and December
31, 1993, and audited statements of operations of each of Pafco and IGF on a
stand-alone and unconsolidated basis for each of the fiscal years ended December
31, 1994 and December 31, 1993 (in the case of Pafco, collectively, the "Pafco
Annual Financial Statements" and, in the case of IGF, collectively, the "IGF
Annual Financial Statements") (the Pafco September 30 Financial Statements and
the Pafco Annual Financial Statements being referred to, collectively, as the
"Pafco Financial Statements" and the IGF September 30 Financial Statements and
the IGF Annual Financial Statements being referred to, collectively, as the "IGF
Financial Statements"), copies of each of which are attached as Exhibit F
hereto. The Pafco Financial Statements and the IGF Financial Statements (a) are
in accordance with the books and records of Pafco or IGF, as the case may be,
and (b) fairly present the financial condition and results of operations of
Pafco or IGF, as the case may be, as of their respective dates and for such
periods. The Pafco September 30 Financial Statements have been prepared in
accordance with U.S. GAAP consistently applied (other than with respect to
standards of materiality, which have been applied as appropriate for Pafco or
IGF as the case may be as a stand-alone entity). The Pafco Annual Financial
Statements, the IGF Annual Financial Statements and the IGF September 30
Financial Statements have been prepared in accordance with statutory accounting
principles as prescribed by the Department of Insurance of the State of Indiana,
consistently applied (other than with respect to standards of materiality, which
have been applied as appropriate for Pafco or IGF, as the case may be, as a
stand-alone entity).
(b) Goran and SIG have delivered to GSCP true and complete copies of
the Reports on Examination as to Condition for Pafco, constituting the last two
National
<PAGE>
Association of Insurance Commissioners Zone Examinations for Pafco under
applicable insurance laws. Such Reports fairly present the matters required to
be presented therein.
2.8. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on Schedule
2.8, neither Pafco nor IGF has any liabilities or obligations (or facts giving
rise thereto), whether accrued, absolute, contingent, unliquidated or otherwise,
and whether due or to become due, other than (i) liabilities or obligations
reserved against or otherwise disclosed on the Pafco September 30 Balance Sheet
or the IGF September 30 Balance Sheet and (ii) other liabilities or obligations
which were incurred after September 30, 1995 in the ordinary course of business
consistent (in amount and kind) with past practice and which do not exceed
$100,000 in the aggregate.
2.9. ABSENCE OF MATERIAL CHANGES. Except as set forth on Schedule 2.9,
since December 31, 1994, each of Pafco and IGF has conducted its business in the
ordinary course consistent with past practice, and there has not been any (a)
material adverse change in the condition (financial or otherwise), results of
operations, business, assets, liabilities or prospects of Pafco or IGF, or any
fact, event or condition which could reasonably be expected to result in such a
material adverse change, (b) material adverse change in the relationships
between Pafco and its customers, reinsurers, agents, or others having business
relationships with it, (c) incurrence, discharge or satisfaction of any material
claim, liability or obligation of Pafco, nor entry into any material transaction
by Pafco, other than in the ordinary course of business consistent with past
practice, (d) Encumbrance placed on any of the assets of Pafco, other than in
the ordinary course of business consistent with past practice, (e) payment of
dividends on, or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any securities of Pafco, (f) sale, assignment or
transfer of any tangible or intangible assets of Pafco, except in the ordinary
course of business consistent with Pafco's investment policies, (g) loan by
Pafco, to any officer, director, employee, consultant or shareholder of Pafco,
(h) damage, destruction or loss (whether or not covered by insurance) materially
affecting the assets, property, financial condition or results of operations of
Pafco, (i) increase, direct or indirect, in the compensation paid or payable to
any officer or director of Pafco or, other than in the ordinary course of
business consistent with past practice, to any other employee, consultant or
agent of Pafco, (j) change in the accounting methods, practices or policies of
Pafco (including, without limitation, any change in any assumption underlying,
or method of calculating, any contingency or other reserve), (k) indebtedness
incurred for borrowed money by Pafco, other than in the ordinary course of
business consistent with past practice, (l) indebtedness owed to Pafco forgiven
or canceled, or any rights or claims of Pafco of material value waived, (m)
amendment to or termination of any material agreement to which Pafco is a party,
other than the expiration of any such agreement in accordance with its terms,
(n) change (other than as a result of insurance coverage issued or renewed or
lapses and terminations thereof) in the reserves for Pafco's insurance policy
benefits, losses, claims and expenses, (o) change, other than changes in
<PAGE>
the ordinary course of business consistent with past practice, in Pafco's rates,
actuarial assumptions, policy forms, contractual arrangements or claims
procedures, (p) change with respect to the regulation of Pafco or its activities
by any administrative agency or governmental body, (q) material change in the
manner of business or operations of Pafco, or (r) agreement, arrangement or
commitment (contingent or otherwise) by Pafco to do any of the things set forth
in clauses (c) through (q) above.
2.10. INTELLECTUAL PROPERTY RIGHTS.
(a) Except as disclosed on Schedule 2.10(a), Pafco owns or has the
right to use pursuant to license, sub license, agreement or permission all
Intellectual Property (as defined below), individually or in the aggregate,
material to the operation of its business as currently conducted. Each item of
Intellectual Property owned or used by Pafco immediately prior to the Closing
will be owned or available for use by Pafco on identical terms and conditions
immediately subsequent to the Closing.
(b) (i) (A) Pafco has not interfered with, infringed upon or
misappropriated any Intellectual Property rights of third parties, and (B) the
business conducted and proposed to be conducted by the Company will not
interfere with, infringe upon or misappropriate any Intellectual Property rights
of third parties, and (ii) Pafco has not received any charge, complaint, claim,
demand or notice alleging any such interference, infringement or
misappropriation (including any claim that it must license or refrain from using
any Intellectual Property rights of any third party). To the best knowledge of
the Goran Entities, no third party has interfered with, infringed upon or
misappropriated any Intellectual Property rights of Pafco.
(c) "Intellectual Property" means (a) all world-wide inventions and
discoveries (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (b) all
trademarks, service marks, trade dress, logos, trade names and corporate names,
together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (c) all copyrightable works,
all copyrights and all applications, registrations and renewals in connection
therewith, (d) all mask works and all applications, registrations and renewals
in connection therewith, (e) all know-how, trade secrets and confidential
business information, whether patentable or unpatentable and whether or not
reduced to practice (including ideas, research and development, formulas,
compositions, manufacturing and production process and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals), (f) all
computer software (including data and related
<PAGE>
documentation), (g) all management information systems (including, without
limitation, the Tritech System), (h) all other proprietary rights, (i) all
copies and tangible embodiments thereof (in whatever form or medium) and (j) all
licenses and agreements in connection therewith.
(d) SIG owns and has the right to use pursuant to license,
sublicense, agreement or permission, the Tritech System management information
system currently being implemented for use by Pafco (the "Tritech System").
After the Closing, the Tritech System will be available for use by the Company
and its subsidiaries.
2.11. BUSINESS OF THE COMPANY. None of the Company, Newsub nor IGF Holdings
has ever conducted, nor does either of them conduct, any business, nor has any
of them owned, nor do any of them own, directly or indirectly, any capital stock
of, or other proprietary interest in, any corporation, association, trust,
partnership, joint venture or other entity, other than as contemplated by this
Agreement and the Ancillary Agreements. None of the Company, Newsub or IGF
Holdings has any liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due), other than
as contemplated by this Agreement and the Ancillary Agreements.
2.12. ASSETS; SUBSIDIARIES.
(a) Each of Pafco, IGF and the Company has good and marketable title
to all of its assets and properties, free and clear of any Encumbrances, except
as disclosed in Schedule 2.12(a).
(b) Except as set forth on Schedule 2.12(b), the buildings,
facilities, equipment, furniture, leasehold and other improvements, fixtures,
vehicles, structures, any related capitalized items and other tangible property
owned by or leased to Pafco (i) are in good operating condition and repair
(normal wear and tear excepted), free of any material structural or engineering
defects, (ii) are in all material respects subject to continued repair and
replacement in accordance with past practice and all applicable regulations, and
(iii) are materially suitable for their current use.
(c) SIG's only direct and indirect subsidiaries are Pafco, Newsub,
the Company and the entities listed on Schedule 2.12(c). Pafco's only direct and
indirect subsidiaries are IGF Holdings and IGF. Immediately following the
Closing, the Company's only direct and indirect subsidiaries will be Newsub,
Pafco, Superior, Superior American Insurance Company, Superior Guarantee
Insurance Company and Standard Plan, Inc.
2.13. LITIGATION; ORDERS. Except as set forth on Schedule
2.13, there is no civil, criminal or administrative action, suit,
claim, notice, hearing, inquiry, proceeding or
<PAGE>
investigation at Law or in equity by or before any Governmental Authority,
arbitrator or similar panel, now pending or, to the best knowledge of the Goran
Entities, threatened (i) against or affecting Pafco or IGF or any of their
respective directors, officers or employees relating to the business of Pafco or
IGF, which is material, or (ii) against or affecting Goran or any of its
Affiliates, or their directors or officers, which seeks to enjoin or obtain
damages in respect to the consummation of the transactions contemplated hereby
or by the Ancillary Agreements or the assets or the business of Pafco or IGF.
Except as set forth in Schedule 2.13, none of the Goran Entities is subject to
any order, writ, injunction or decree of any Governmental Authority that are or
may be materially adverse to the Company, Pafco, IGF or Superior.
2.14. COMPLIANCE WITH LAWS; PERMITS. Each of Pafco and IGF (a) has complied
in all material respects with all federal, state, local and foreign Laws
applicable to it and its business and (b) has all federal, state, local and
foreign governmental licenses, permits and qualifications necessary in the
conduct of its business as currently conducted, such licenses, permits and
qualifications are in full force and effect, and no violations have been
recorded in respect of any such licenses, permits and qualifications, and no
proceeding is pending or, to the best knowledge of the Goran Entities,
threatened to revoke or limit any such license, permit or qualification.
Schedule 2.14 sets forth a list of all such licenses, permits and qualifications
with respect to Pafco, and the expiration dates thereof.
2.15. REGULATORY FILINGS.
(a) Schedule 2.15 contains a true and complete list of all annual
statements ("Annual Insurance Statements") which Goran, SIG or Pafco have filed
with or submitted to the insurance regulatory authorities of the State of
Indiana (and any other state in which such statements are required to be filed
with respect to Pafco) and all reports of examinations issued by such insurance
authorities since December 31, 1991. Except as indicated in such annual
statements or reports, (i) such filings or submissions were in compliance with
applicable law when filed and, as of their respective dates, did not contain any
untrue statement or misstatement of fact or omit to state any material fact
necessary to make the statements set forth therein, in light of the
circumstances under which such statements were made, not misleading; (ii) no
deficiencies have been asserted by any such regulatory authority with respect to
such filings or submissions; (iii) except as disclosed on Schedule 2.15(a)(iii),
since December 31, 1991, no fine or penalty has been imposed on Goran, SIG or
Pafco by any insurance regulatory authority with respect to Pafco; and (iv) no
deposits have been made by Goran, SIG or Pafco with any insurance regulatory
authority which were not shown in the most recent Annual Insurance Statement.
<PAGE>
(b) The amounts shown in the Annual Insurance Statements with respect
to Pafco on account of (i) aggregate reserves for claim and claim expense,
future policy benefits, unearned premiums and policyholders' funds and (ii)
policy and contract claims liability, are computed in accordance with commonly
accepted industry standards consistently applied, meet the requirements of the
insurance and other applicable laws and regulations of the State of Indiana,
make a good and sufficient provision for all unmatured obligations of the
Company under the terms of its policies and are consistent with the assumptions
previously employed.
(c) Goran or SIG has filed or otherwise provided all material
reports, data, other information and applications required to be filed with or
otherwise provided to all federal, state or local Governmental Authorities with
jurisdiction over Pafco, and all regulatory registrations and approvals of all
federal, state or local Governmental Authorities with jurisdiction over Pafco
are in full force and effect. Since December 31, 1991, there have been no
material disputes or controversies with or investigations undertaken by any such
regulatory authorities, except as set forth in Schedule 2.15.
2.16. INSURANCE BUSINESS.
(a) All contracts, arrangements, treaties, understandings and
agreements to which Pafco (or any Goran Entity wholly or partially on behalf of
Pafco) is a party with respect to reinsurance applicable to insurance in force
(including grace periods and other extensions) on the date of this Agreement,
and all such contracts, arrangements, treaties, understandings and agreements
under which Pafco (or any Goran Entity wholly or partially on behalf of Pafco)
has any obligation to cede insurance (all of the foregoing being referred to,
collectively, as the "Reinsurance Agreements"), are valid, binding and in full
force and effect in accordance with their terms. No Goran Entity is, and, to the
knowledge of the Goran Entities, no other party thereto, is in material default
of any Reinsurance Agreement and no Reinsurance Agreement contains any provision
providing that the other party or parties thereto may terminate the same by
reason of the transactions contemplated by this Agreement or any other provision
which would be altered or otherwise become applicable by reason of such
transactions, except as disclosed on Schedule 2.16. Schedule 2.16 contains a
true and complete list of all Reinsurance Agreements (other than any Reinsurance
Agreements with respect to which liabilities retained by Pafco do not exceed
$100,000 in the aggregate).
(b) Except with respect to terms specifically negotiated with
policyholders, all policies of insurance issued by Pafco and now in force are,
to the extent required under applicable law, on forms approved by applicable
insurance regulatory authorities in the jurisdictions where issued or have been
filed with and not objected to by such authorities within the period provided
for objection. None of the terms embraced by the exception to the representation
and warranty contained in the immediately preceding
<PAGE>
sentence adversely affects the enforceability of any of such policies or
jeopardizes the licensing or authorization of Pafco in any jurisdiction. The
transactions contemplated by this Agreement will not affect the validity or
binding character of any policy of insurance issued by Pafco or render any
admissible assets of Pafco inadmissible under the applicable insurance laws of
any jurisdiction or the regulations promulgated thereunder by insurance
regulatory authorities.
2.17. THREATS OF CANCELLATION. Except as set forth in Schedule 2.17, since
December 31, 1992, no policyholder or related group of policyholders, agents, or
persons or entities producing insurance business which, singly or in the
aggregate, accounted for five percent or more of the gross income of Pafco for
the year ended December 31, 1992 has or have, at its or their initiative,
terminated or threatened to terminate its or their relationship with Pafco,
either as a result of the transactions contemplated by this Agreement or
otherwise, and Pafco has no reason to believe that any such termination will
occur.
2.18. RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, nor, to
the knowledge of the Goran Entities, any Law or other instrument binding upon
any of the Goran Entities which has or would reasonably be expected to have the
effect of prohibiting or materially restricting any business practice of, any
acquisition of property by, or the conduct of business by the Company, Pafco or
Superior as presently conducted.
2.19. MATERIAL CONTRACTS. Except for agreements, contracts, plans,
arrangements or commitments disclosed to GSCP pursuant to Schedule 2.19 (a copy
of each of which has been provided to GSCP) (collectively, "Material
Agreements"), Pafco is not a party or subject to any agreement, contract, plan,
lease, arrangement or commitment which is material to Pafco or which is not made
in the ordinary course of business. All Material Agreements are valid and
binding agreements and are in full force and effect, and neither Pafco nor, to
the knowledge of the Goran Entities, any other party thereto is in default in
any respect under the terms of any such Agreement. No Material Agreement
contains any provision providing that the other party or parties thereto may
terminate the same by reason of the transactions contemplated by this Agreement
or any other provision which would be altered or otherwise become applicable by
reason of such transactions, except as set forth on Schedule 2.19.
2.20. ENVIRONMENTAL.
(a) The Goran Entities and their predecessors and their "affiliates"
(as such term is defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) ("Affiliates") have complied in all
material respects with all Environmental Laws (as defined below), and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced
<PAGE>
against any of them alleging any failure so to comply. Without limiting the
foregoing, the Goran Entities and its predecessors and Affiliates have obtained
and been in compliance with all the terms and conditions of all permits,
licenses and other authorizations which are required under, and have complied
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables which are contained in, all
Environmental Laws.
(b) Neither Pafco nor IGF has any material liability (and, except as
disclosed on Schedule 2.20, none of the Goran Entities, their predecessors or
Affiliates has handled or disposed of any substance, arranged for the deposit of
any substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against any of the
Goran Entities or their Affiliates giving rise to any liability) for damage to
any site, location or body of water, for any illness of or personal injury to
any employee or other individual or for any reason under any Environmental Law.
(c) "Environmental Laws" mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, each as amended, together with all other Laws of federal,
state, local and foreign Governmental Authorities concerning pollution or
protection of the environment, including Laws relating to emissions, discharges,
releases or material releases of pollutants, contaminants or chemical,
industrial, hazardous or toxic materials or wastes into ambient air, surface
water, ground water or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or chemical, industrial, hazardous or toxic
material or waste.
2.21. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule 2.21, (i)
no current stockholder, director, officer or employee of Pafco or IGF, or any
Affiliate or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) of any of the foregoing persons is presently, or during the past
five years has been, a party to any agreement or transaction with respect to
which Pafco or IGF currently has any liability (contingent or otherwise) and
(ii) there are no agreements or ongoing transactions between Pafco or IGF on the
one hand and any Goran Entity or Affiliate of Goran (including Pafco or IGF) on
the other hand. Each ongoing intercompany transaction set forth on Schedule 2.21
is on terms that are (i) consistent with the past practice of Pafco or IGF, as
the case may be, and (ii) at least as favorable to Pafco or IGF, as the case may
be, as would be available with independent third parties dealing at arms'
length.
2.22. BROKERS. Except as set forth on Schedule 2.22, none
of the Goran Entities, nor any of their respective officers,
directors, employees, stockholders or agents, has
<PAGE>
employed any broker or finder in connection with this Agreement, the Ancillary
Agreements or the transactions contemplated hereby or thereby. The Goran
Entities have furnished to GSCP copies of all arrangements disclosed on Schedule
2.22 and the Company will not have any liability thereunder except up to
$250,000.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF GSCP. GSCP
hereby represents and warrants to Goran as follows:
3.1. ORGANIZATION AND GOOD STANDING; POWER AND AUTHORITY. GSCP is a limited
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, with all requisite organizational authority
to enter into this Agreement and the Ancillary Agreements and to consummate the
transactions contemplated hereby or thereby.
3.2. AUTHORIZATION. The execution, delivery and performance by GSCP of this
Agreement and the Ancillary Agreements have been duly authorized by all
requisite partnership action on the part of GSCP and each such agreement
constitutes (or when executed will constitute) the legal, valid and binding
obligation of GSCP, enforceable against it in accordance with its terms.
3.3. NO CONFLICT. The execution, delivery and performance by GSCP of its
obligations under this Agreement and the Ancillary Agreements, and the
consummation by GSCP of the transactions contemplated hereby or thereby, will
not (a) violate any provision of any Law applicable to it, or any of its
properties or assets, (b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with due notice or lapse of
time, or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any agreement to which it is a party or (c) violate
GSCP's organizational documents.
3.4. CONSENTS. Except as set forth on Schedule 3.4, no permit,
authorization, consent, approval or waiver of or by, or any notification of or
filing with, any Governmental Authority or third party is required in connection
with the execution, delivery and performance by GSCP of this Agreement and the
Ancillary Agreements and the consummation by GSCP of the transactions
contemplated hereby or thereby.
3.5. INVESTMENT. GSCP is acquiring the Company Common Stock for investment
and not with a view to the distribution thereof in violation of any applicable
securities laws. GSCP understands that (i) the Company Common Stock will not be,
in connection with the transactions contemplated by this Agreement, registered
under the Securities Act or any state securities laws, by reason of their
issuance by the Company in a transaction exempt from the registration
requirements thereof and (ii) the Company Common Stock may not be sold unless
such disposition is registered under the Securities Act and applicable state
securities laws or is exempt from registration thereunder.
<PAGE>
3.6. BROKERS. Neither GSCP nor any of its officers,
employees, partners or agents has employed any broker or finder
in connection with this Agreement and the Ancillary Agreements or
the transactions contemplated hereby or thereby.
3.7. AVAILABILITY OF FUNDS. GSCP has, or will on the
Closing Date have, sufficient cash to pay the GSCP Purchase
Price.
SECTION 4. PRE-CLOSING COVENANTS.
4.1. COOPERATION. Each of the parties hereto shall use all reasonable
efforts to cause the transactions contemplated hereby and by the Ancillary
Agreements to be consummated, including, without limitation, seeking to obtain
all consents, approvals, authorizations, permits or waivers required to be
obtained from, and making all notifications required to be made to, Governmental
Authorities and other third parties in connection with this Agreement, the
Ancillary Agreements and the transactions contemplated hereby or thereby.
4.2. HSR ACT/FORM A FILING. Each of the parties hereto shall timely and
promptly make and shall cooperate with each other in making, (i) all filings
required under the HSR Act, (ii) a filing on Form A with the Department of
Insurance of the State of Indiana and (iii) and all other filings required by
Law to be made with any other Governmental Authority and shall provide any
additional information or documentation requested by the Federal Trade
Commission, the Department of Justice, the Department of Insurance of the State
of Indiana or any other Governmental Authority, in connection with such filings.
4.3. CONDUCT OF BUSINESS. Goran and SIG shall cause Pafco to conduct its
business between the date hereof and the Closing Date in the ordinary course of
business, consistent with past practice, including, without limitation, (a)
performing in all material respects all of its contracts and agreements and (b)
using its reasonable efforts to maintain (i) all of its buildings, facilities,
equipment, leasehold and other improvements, fixtures, any related capitalized
items and other tangible property owned by or leased to it in good operating
condition and repair, free of any material structural or engineering defects,
(ii) its present workforce and agents, customer base, reinsurance arrangements
and other business relationships substantially intact, and (iii) all its
licenses, permits and qualifications in good standing. Prior to the Closing,
Goran and SIG shall consult with GSCP from time to time with respect to the
conduct of the business of Pafco, and shall cause the Company not to conduct any
business other than such actions as are required to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements.
<PAGE>
4.4. RESTRICTED ACTIVITIES. Between the date hereof and the Closing Date,
Goran and SIG shall cause Pafco not to engage in any of the activities described
in clauses (c) through (r) of Section 2.9, without the prior written consent of
GSCP (other than, with respect to clause (n), a change in the reserves for
losses made pursuant to Section 4.11).
4.5. ACCESS. From the date hereof and prior to the Closing, the Goran
Entities shall provide GSCP with such information as GSCP may from time to time
reasonably request with respect to the Goran Entities and the transactions
contemplated by this Agreement and the Ancillary Agreements (including, without
limitation, the EuroNotes and the EuroNotes Waiver (both as defined in Section
4.14) and any IGF Company Sale), and shall provide GSCP and its representatives,
accountants and lenders reasonable access during regular business hours and upon
reasonable notice to the employees and books and records of Pafco or the Company
as GSCP may from time to time reasonably request.
4.6. NO SOLICITATION. Between the date hereof and the Closing, none of the
Goran Entities, any of their Affiliates or any director, officer, employee,
agent or representative of any of the foregoing, shall, directly or indirectly,
initiate, solicit, encourage or participate in, discussions or negotiations
with, provide any information to, or enter into any agreement, with any person
or entity with respect to any merger, consolidation, recapitalization, sale of
capital stock, sale of substantial assets or similar transaction with respect to
(x) any of SIG, Pafco, the Company, Superior or any subsidiary of Superior (but,
for purposes of clarity, not including IGF, Symons International Group, Inc. -
Florida ("SIG - Florida"), Granite Reinsurance Company Ltd. ("Granite Re") or
Granite Insurance Company) or (y) Goran to the extent that an Acceleration Event
(as defined in the Stockholder Agreement) would occur. The Goran Entities shall,
promptly after receipt thereof by any of them, notify GSCP of the terms of any
offer by any person or entity with respect to any of the foregoing.
4.7. COMMUNICATIONS. Between the date hereof and the Closing Date,
communications from Goran or any of its Affiliates to any of Goran's or its
Affiliates' or Superior's employees, policyholders, reinsurers, suppliers or
others having business relationships with any of them, regarding the
transactions contemplated by this Agreement and including any reference to GSCP
or its Affiliates, will be provided to GSCP in advance for its approval.
4.8. STATE REGULATORY AUTHORITIES. The Goran Entities will use their best
efforts to cooperate with all applicable state regulatory authorities with
respect to any request, investigation (for example, a market conduct audit) or
requirement thereof relating to Pafco, and Goran and SIG will cause Pafco to
advise GSCP of the receipt and the status thereof on an ongoing basis.
<PAGE>
4.9. ADVICE OF CHANGES. Each of Goran and SIG, on the one hand, and GSCP,
on the other hand, will use its best efforts promptly to advise the other in
writing of any event occurring after the date hereof which would render any of
its representations and warranties contained in this Agreement, if made on or as
of the date of such event or as of the Closing Date, untrue or inaccurate.
4.10. PUBLIC ANNOUNCEMENTS. GSCP on the one hand, and the Goran Entities on
the other hand, agree that, prior to the Closing, they will not issue any press
release or make any public statement with respect to this Agreement or the
transactions contemplated hereby without obtaining the prior consent of the
other as to the timing, content and wording thereof, except as required by
applicable Law. In the event of any disclosure required by applicable Law, the
parties will consult with each other as to the contents thereof prior to making
such disclosure, if it is possible (consistent with the applicable legal
requirements) to do so.
4.11. TILLINGHAST STUDY. Prior to the Closing, Goran and SIG shall cause
Pafco to retain Tillinghast, a Towers Perin company, to conduct a study of the
reserves for losses established, as of December 31, 1995, by Pafco in respect of
its insurance policies (the "Tillinghast Study") in order to (i) establish the
appropriate amount of reserves for losses (the "Tillinghast December 31 Reserve
Amount") to be included by the Company in preparing the unconsolidated balance
sheet of Pafco as of December 31, 1995 and (ii) to make recommendations as to
the optimum methodology for reflecting appropriate reserves for losses (the
"Tillinghast Methodology"). After receipt by Pafco of the Tillinghast Study,
Goran and SIG shall cause Pafco to adjust its books and records, and to
establish reserves for losses (including on the Draft Closing Balance Sheet), in
accordance with the Tillinghast Methodology. Pafco will continue, after the
Closing, to establish reserves for losses consistent with the Tillinghast
Methodology.
4.12. REINSURANCE ARRANGEMENTS.
(a) Prior to the Closing, Goran and SIG shall cause Pafco to enter
into agreements of reinsurance with respect to all insurance policies issued
prior to the date hereof by Pafco (x) on behalf of SIG-Florida (the "SIG Florida
Policies") and (y) in respect of any type of insurance other than non-standard
auto insurance (the "Other Insurance Policies"). Pursuant to such agreements of
reinsurance, all liabilities under and all rights to receive premiums with
respect to all SIG-Florida Policies and all Other Insurance Policies shall be
assigned to and assumed by a third party (it being understood that Pafco may
enter into such agreements of reinsurance with Granite Re), so long as each such
agreement meets the requirements set forth in Section 2.3(h) of the Stockholder
Agreement). Goran and SIG agree that they will, jointly and severally, hold each
of Pafco, the Company and GSCP harmless from and against any and all Losses
(defined in Section 9.2(c)) with respect to the SIG Florida Policies and the
Other Insurance Policies.
<PAGE>
(b) Prior to the Closing, Goran and SIG shall cause Pafco and IGF to
enter into agreements of reinsurance pursuant to which all liabilities under and
all rights to receive premiums with respect to all policies relating to
non-standard automobile insurance issued prior to the date hereof by IGF on
behalf of Pafco shall be assigned to and assumed by Pafco.
(c) Each agreement of reinsurance entered into by Pafco pursuant to
Sections 4.12(a) and (b) (collectively, the "Reinsurance Arrangements") shall be
on Pafco's standard form of reinsurance agreement (and copies of each such
Reinsurance Arrangement shall be provided to GSCP) or otherwise in form and
substance reasonably satisfactory to GSCP.
(d) Between the date hereof and the Closing Date, Goran and SIG shall
cause Pafco not to issue insurance policies on behalf of any Affiliate of Goran
(except in accordance with Section 5.7 hereof) and Goran shall cause each of its
Affiliates (other than Pafco) not to issue insurance on behalf of Pafco, unless
the parties hereto shall have consented thereto in writing; provided, however,
that SIG-Florida may continue to issue insurance policies on behalf of Pafco
consistent with past practice.
4.13. QUOTA SHARE AGREEMENTS Prior to the Closing, except for quota share
agreements entered into by Pafco pursuant to Sections 4.12(a) and (b), Goran and
SIG shall cause Pafco to cancel and make null and void, without any liability to
Pafco arising from such cancellation, all quota share agreements to which Pafco
is a party as of the date hereof (the "Quota Share Cancellation," and together
with the Reinsurance Arrangements, the "Pre-Closing Transactions"). Between the
date hereof and the Closing Date, Goran and SIG shall cause Pafco not to enter
into any quota share arrangements.
4.14. GORAN EURONOTES.
(a) Prior to the Closing, Goran shall obtain, at no direct or
indirect cost, expense or liability (including any indirect economic cost) to
GSCP or the Company, from or on behalf of the holders of notes (the "EuroNotes")
issued by Goran pursuant to the Amended and Restated Trust Indenture, dated
December 29, 1992 (such indenture and all documents ancillary thereto being
referred to herein as the "EuroNote Documents"), between Goran and Montreal
Trust Company of Canada, a waiver (the "EuroNotes Waiver") containing the
provisions set forth on Exhibit G. Goran shall keep GSCP apprised of the status
of its efforts to obtain the EuroNote Waiver.
(b) Without limiting Section 4.14(a), in the event that, at any time
after the date hereof, there exists any restriction (a "EuroNote Restriction")
on the operation of the business of the Company, Newsub, Pafco, Superior or any
subsidiaries thereof by reason of the EuroNotes or the EuroNote Documents, Goran
and SIG shall, within 30
<PAGE>
days after learning of the existence thereof, take such action as is necessary
to remove such EuroNote Restriction, including, without limitation, redeeming
all of the outstanding EuroNotes. In the event that such EuroNote Restriction is
not so removed, GSCP, in addition to any other remedies it may have, shall be
entitled to elect to purchase from SIG a number of the shares of Company Common
Stock, at a price per share equal to (a) the Total Investment (as defined in
Section 9.2), divided by (b) the number of shares of Investment Company Common
Stock (as defined in Section 9.2), such that such sale of shares of Company
Common Stock will provide SIG and Goran with such proceeds as are necessary for
Goran to redeem all of the outstanding EuroNotes, which proceeds shall be used
by Goran for such purpose.
(c) Goran and SIG, jointly and severally, agree to indemnify and hold
harmless each GSCP Indemnified Party from any and all Losses arising out of,
resulting from or relating to the EuroNotes, the EuroNotes Waiver, or the
EuroNote Documents (including, without limitation, any liabilities arising or
fees, expenses or other amounts already paid or to be paid to the Bank pursuant
to the Bank Commitment Letter in the event that (x) arrangements are not made
with respect to the EuroNotes which are satisfactory to the Bank and (y) the
Bank terminates its obligations under the Bank Commitment Letter).
4.15. IGF.
(a) Prior to the Closing, Goran and SIG shall (x) cause Pafco to
divest all of the capital stock of IGF held by Pafco such that Pafco will not
hold, directly or indirectly, any of the capital stock of IGF) and, (y) in
connection therewith, shall (a) cause IGF Holdings to pay a cash dividend to
Pafco in an amount (the "IGF Amount") equal to the greater of the book value or
the statutory surplus of IGF as of December 31, 1995, as set forth on the
audited financial statements of Pafco as of December 31, 1995, (b) cause IGF
Holdings to pay a dividend to Pafco in the form one or more promissory notes of
IGF Holdings in the aggregate principal amount of the IGF Amount, with each such
note being substantially in the form of Exhibit H hereto (the "IGF Holding
Notes"), or (c) cause to be issued to Pafco by any Affiliate of Goran reasonably
acceptable to GSCP such other promissory notes in the aggregate principal amount
of the IGF Amount (with respect to clause (c), with an accompanying arrangement,
which shall include a pledge agreement with terms similar to the terms of the
Pledge Agreement (as defined in 9.2(j)), providing Pafco with a fully perfected
first security interest in all the issued and outstanding shares of capital
stock of IGF, to secure repayment of such note) or such other assets as shall be
reasonably acceptable to Pafco (the actions referred to in clauses (x) and (y)
of this Section 4.15(a) being referred to herein, collectively, as the "IGF
Pre-Closing Transactions"). An "IGF Company Sale" shall mean (i) a sale or
public offering of any of the shares of capital stock of IGF or IGF Holdings
(pursuant to a merger or consolidation of IGF or IGF Holdings with, or sale of
such stock to, another person or
<PAGE>
entity) or (ii) a sale of any assets of IGF or IGF Holdings not in the ordinary
course of business consistent with past practice.
(b) If the IGF Holdings Notes are issued as set forth in Section
4.15(a), Goran and SIG jointly and severally agree that, so long as there remain
obligations of IGF Holdings pursuant to the IGF Holdings Notes, each shall cause
SIG, IGF Holdings and IGF to comply with the covenants set forth on Exhibit I
hereto, and, upon the occurrence of any of the events set forth in Exhibit I
hereto under the heading "Events of Default," (each, an "Event of Default"),
then, and in such event, GSCP may declare all or a portion of the outstanding
principal amounts of the IGF Holdings Notes (with accrued interest thereon) and
all other amounts owing to Pafco pursuant to the IGF Holdings Notes to be
immediately due and payable, whereupon the same shall immediately become due and
payable. All representations and warranties contained herein relating to IGF and
IGF Holding, shall survive only until all of the outstanding principal amounts,
accrued interest and all other obligations owing, pursuant to the IGF Holdings
Notes have been paid in full. If notes other than the IGF Holdings Notes are
issued as set forth in Section 4.15(a), covenants and events of default similar
to those set forth in Exhibit I shall be applicable, all in form and substance
reasonably satisfactory to GSCP.
(c) Goran and SIG shall cause (i) IGF Holdings to conduct no business
except as expressly contemplated by this Agreement and (ii) IGF to conduct its
business between the date hereof and the Closing Date in the ordinary course of
business, consistent with past practice.
4.16. OPTION PLAN. Effective as of the Closing, the Company
shall adopt a stock option plan substantially in the form of the
plan set forth in Exhibit J hereto (the "Stock Option Plan").
4.17. MANAGEMENT AGREEMENTS. Effective as of the Closing, SIG shall assign
to Newsub all of SIG's rights, and Newsub shall assume all of SIG's obligations,
under the Agreement dated May 1, 1987, between Pafco and SIG attached as Exhibit
K hereto (the "Pafco Management Agreement") and Goran, SIG and the Company shall
cause Newsub and Superior to enter into an administrative services agreement
reasonably satisfactory to GSCP (such agreements being referred to herein as the
"Superior Administrative Management Agreements").
4.18. RELEASE OF ENCUMBRANCE. Prior to the Closing, Goran and SIG (i) shall
cause to be released any Encumbrances existing on the assets or properties of
Pafco pursuant to the Commercial Pledge Agreement (the "Union Pledge
Agreement"), dated December 29, 1994, between Union Federal Savings Bank of
Indianapolis ("Union") and Pafco, and (ii) shall cause the standby letter of
credit, dated December 29, 1994, among United National Insurance Company
("United") and Pafco to be cancelled and of no
<PAGE>
further force and effect, or, if, after using its best efforts to do so, United
shall not agree to such cancellation, then Goran and SIG shall cause Granite Re
to post collateral to secure such letter of credit and shall obtain from Union a
release of any Encumbrance existing pursuant to the Union Pledge Agreement.
4.19. RESIGNATIONS. Immediately prior to the Closing, Goran
and SIG shall cause all officers of the Company to resign their
positions, effective as of the Closing.
SECTION 5. ADDITIONAL COVENANTS.
5.1. ACCESS TO RECORDS. From and after the Closing, the Company shall
afford GSCP and its employees, counsel and other authorized representatives full
access, during normal business hours, upon reasonable advance notice, to all of
Pafco's books, records and properties, and to all of its officers and key
employees for any purpose.
5.2. FINANCIAL REPORTS.
(a) For a period of twelve months after the Closing (the "Initial
Period"), the Company agrees to furnish to GSCP and Goran, within 30 days after
the end of each fiscal month, (i) internal summary financial and operating
statements for such month, prepared by management of the Company ("Monthly
Financial"), (ii) a letter or memorandum prepared by management of the Company
discussing the revenues and operations of the Company and the summary financial
information for such period (a "Management Letter") and (iii) a statement,
certified by the Chief Financial Officer of the Company, certifying that the
financial position at such month-end and results of operations of the Company
for such period as reflected in the Monthly Financial are presented fairly and
have been prepared in accordance with U.S. GAAP (subject to normal year-end
adjustments and the absence of footnotes) consistently applied.
(b) After the Initial Period, the Company will furnish to Goran and
GSCP, after the end of each fiscal quarter, (i) internal summary financial and
operating statements for such quarter, prepared by management of the Company
("Quarterly Financials"), and a letter or memorandum discussing the revenues and
operations of the Company and the summary financial information for such period,
(ii) a Management Letter and (iii) a statement, certified by the Chief Financial
Officer of the Company, certifying that the financial position at such
quarter-end and results of operations of the Company for such period as
reflected in the Quarterly Financials are presented fairly and have been
prepared in accordance with U.S. GAAP (subject to normal year-end adjustments
and the absence of footnotes) consistently applied. The Company will use its
best efforts to deliver the foregoing within 45 days after the end of each
fiscal quarter.
(c) Commencing with the first fiscal year ending after the Closing,
the Company agrees to use its best efforts to furnish to Goran and GSCP, within
90 days after
<PAGE>
the end of each fiscal year, commencing with the first fiscal year ending after
the Closing, (i) audited balance sheets and an income statement as of the end of
such fiscal year, together with statements of retained earnings and cash flow
for such fiscal year, all in reasonable detail and certified by a recognized
"Big Six" national firm of independent accountants (selected by the Board of
Directors of the Company) as presenting fairly the financial position at such
year-end and results of operations of the Company for such period as having been
prepared in accordance with U.S. GAAP consistently applied, including their
opinion thereon, and (ii) a Management Letter. The Company will use its best
efforts to deliver the foregoing within 90 days after the end of each fiscal
year.
(d) Promptly upon becoming available, (i) copies of all filings made
by the Company with the Securities and Exchange Commission, any securities
exchange or any insurance regulatory agency and (ii) any other information that
GSCP or Goran shall reasonably request.
(e) The financial statements and information delivered pursuant to
the foregoing Sections 5.2(a), (b) and (c) shall be the consolidated and
consolidating financial statements of the Company and all subsidiaries the
accounts of which are consolidated with those of the Company.
5.3. D&O INSURANCE. The Company shall maintain, at all times after the
Closing, with financially sound and reputable insurers, adequate directors' and
officers' liability insurance.
5.4. INVESTMENT BANKING SERVICES. Goldman, Sachs & Co. ("Goldman Sachs") or
any Affiliate of Goldman Sachs shall have the right to perform all investment
banking services for the Company for which an investment banking firm is
retained after the date hereof (including, without limitation, with respect to
the sale of the Company) (but not including with respect to any IGF Company Sale
or the proposed recapitalization or sale of Granite Re or Granite Insurance
Company) and Goldman Sachs shall have the right to act as the lead managing
underwriter with respect to any public offering of securities of the Company or
any secondary offering of the securities of the Company, in each case, upon
customary terms, including compensation, consistent with an arm's-length
transaction. If the Company engages Goldman Sachs or any of its Affiliates to be
a managing underwriter in connection with any underwriting of its capital stock
and the Company desires to engage one or more investment bankers as co-managing
underwriter(s) in connection with such offerings, the Company shall have the
right to select such co-managing underwriter(s). If the Company and Goldman
Sachs or its Affiliate, after good faith discussions, cannot agree on the terms
of any such engagement, the Company may hire such other investment banker as it
finds acceptable, provided that Goldman Sachs shall then be entitled to be a
co-managing underwriter in connection with any such underwriting of capital
stock of the Company.
<PAGE>
5.5. POLICIES TO BE ISSUED BY IGF. After the Closing, when requested by the
Company, so long as Goran, directly or indirectly, has voting control of IGF (it
being understood that Goran shall be deemed to have such voting control of IGF
for so long as (1) in the aggregate it holds, directly or indirectly, in excess
of 25% of the outstanding capital stock of IGF the holders of which are entitled
to vote generally for the election of directors of IGF and (2) no other holder
or "group" (as such term is defined by the Securities Act of 1934, as amended)
of holders holds in excess of 10% of such stock), Goran and SIG shall cause IGF
to issue insurance policies on behalf of Pafco. The Company shall cause Pafco to
enter into agreements of reinsurance with IGF pursuant to which all liabilities
under and rights to receive premiums with respect to such policies shall be
assumed by Pafco.
5.6. GORAN REINSURANCE. In the event that the Board approves the Company,
Pafco or any other subsidiary of the Company issuing any insurance policy on
behalf of Goran, SIG or any of their Affiliates, Goran shall arrange for the
Company or its subsidiary, as the case may be, to enter into agreements of
reinsurance pursuant to which all liabilities and rights to receive premiums
with respect to such policy shall be assumed by a third party (it being
understood that, subject to Section 2.3 of the Stockholder Agreement, the
Company, Pafco or any other subsidiary of the Company may enter into such
agreements of reinsurance with Granite Re). Goran and SIG agree that they will,
jointly and severally, indemnify and hold harmless each of the Company, its
subsidiaries and GSCP from and against all Losses relating to any such policies.
5.7. CERTAIN REPURCHASES. Prior to December 31, 1996, Goran and SIG,
jointly and severally, agree to (a) purchase from the Company or Pafco, as the
case may be, the Cliffstan Note, (to the extent that such Note has not
theretofore been assigned pursuant to Section 1.7(b)), at a purchase price equal
to the book value of such note as reflected on the Closing Date Balance Sheet,
and (b) to repay any and all amounts owing to Pafco by SIG or any other
Affiliate of Goran as of the date hereof (to the extent that such amounts have
not been canceled pursuant to Section 1.7(b)).
5.8. TRITECH SYSTEM. After the Closing, Goran or SIG shall
make available for use by the Company the Tritech System, without
charge therefor.
5.9. Intercompany Arrangements. Except as set forth on Schedule 5.9 or as
expressly contemplated by this Agreement or the Ancillary Agreements, as of the
Closing Date, any and all transactions, agreements or arrangements between Pafco
or IGF on the one hand and Pafco, IGF, SIG, Goran or any of their Affiliates on
the other hand, will be terminated and of no further force and effect, without
any liability to Pafco, IGF or the Company.
<PAGE>
5.10. SUPERIOR NOTE PURCHASE. In the event that pursuant to Section 4.15,
the IGF Holdings Notes or any other notes are issued to Pafco, then, promptly
after the Closing (but in no event later than 10 days from the date thereof),
the Company shall cause Superior to purchase from Pafco, and Pafco to sell to
Superior, one or more notes with an aggregate principal amount equal to 75% of
the aggregate principal amount of the IGF Holdings Notes (or such other notes,
as the case may be).
SECTION 6. TAXES.
6.1. TAX REPRESENTATIONS AND WARRANTIES.
(a) For purposes of this Section 6, the following terms shall have
the meanings set forth below, and all of the representations and warranties made
herein are made jointly and severally by Goran and SIG:
"Tax" or "Taxes" means any taxes, assessments, duties, fees, levies,
imposts, deductions, withholdings, including, without limitation, income, gross
receipts, ad valorem, value added, excise, real or personal property, asset,
sales, use, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes, or other
governmental charges of any nature whatsoever imposed by any government or
taxing authority of any country or political subdivision of any country and any
liabilities with respect thereto, including any penalties, additions to tax,
fines or interest thereon, and includes any liability of any of the Goran
Entities arising under any tax sharing agreement to which any of them is or has
been a party.
"Income Tax" or "Income Taxes" means any income or franchise Taxes or
other Taxes measured in whole or in part by net income.
"Return" shall mean any report, return, statement, estimate,
declaration, notice, form or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) Except as set forth on Schedule 6.1(b), (i) all Tax Returns
required by Law to have been filed by or with respect to Pafco have been timely
filed, (ii) all Taxes shown to have become due pursuant to such Returns have
been paid, (iii) all Taxes (other than those being contested in good faith) for
which a notice of or assessment or demand for payment has been received or which
are otherwise due and payable have been paid and (iv) all such Tax Returns were
true, correct and complete in all material respects. The accruals and reserves
for Taxes in each of the balance sheets included in the Financial Statements are
adequate to cover any liability of Pafco for Taxes for periods through the dates
of such balance sheets. The accruals and reserves for deferred tax
<PAGE>
liability in each of such balance sheets are adequate to cover any such
liability. If Pafco files its Tax Returns for its taxable year that includes the
date hereof in conformance with its past practices and tax reporting, to the
best knowledge of the Goran Entities or any of their directors, officers or
employees, there will be no basis for any material adverse audit adjustments
under any of the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), or any provisions of state, local or foreign Tax Law, with respect
to operations and activities of Pafco during the period which began on January
1, 1995 and ends on the date hereof.
(c) Except as set forth on Schedule 6.1(c), (i) to the best knowledge
of the Goran Entities or any of their directors, officers, or employees, there
is no action, suit, proceeding, investigation, audit, claim or assessment
pending or proposed with respect to any liability for Tax that relates to Pafco,
(ii) all amounts required to be collected or withheld by Pafco with respect to
Taxes have been duly collected or withheld and any such amounts that are
required to be remitted to any taxing authority have been duly remitted, (iii)
no extension of time within which to file any Return that relates to Pafco has
been requested, which Return has not since been filed, (iv) there are no waivers
or extensions of any applicable statute of limitations for the assessment or
collection of Taxes with respect to any Return that relates to Pafco which
remain in effect, (v) there are no tax rulings, requests for rulings, or closing
agreements to which Pafco is a party or is subject which could affect its
liability for Taxes for any period after the Closing, (vi) all federal, state,
local and foreign Income Tax Returns of Pafco with respect to taxable periods
through the year ended December 31, 1991, have been examined and closed or are
Returns with respect to which the applicable statute of limitations has expired
without extension or waiver, (vii) no power of attorney has been granted by
Pafco or SIG with respect to any matter relating to Taxes of Pafco which is
currently in force, (viii) no consent under Section 341(f) of the Code or any
comparable provision of state or local Tax Law has been filed by or with respect
to Pafco, (ix) Pafco has not agreed nor is required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar provisions of
state, local or foreign Tax Law) by reason of a change in accounting method or
otherwise, and the Internal Revenue Service (or other taxing authority) has not
proposed, and to the knowledge of Pafco or SIG is not considering, any such
change in accounting method in connection with an ongoing audit of Pafco, (x)
Pafco has not disposed of any property in a transaction being accounted for
under the installment method pursuant to Section 453 of the Code or any similar
provision of state, local or foreign Tax Law, (xi) none of the Tax Returns of
Pafco filed, or to be filed on or before the Closing Date, contain, or will
contain, a disclosure statement under Section 6662 of the Code or any similar
provision of state, local, or foreign Tax Law and (xii) to the best knowledge of
the Goran Entities, or any of their directors, officers, or employees, no taxing
authority in any jurisdiction in which Pafco does not file Tax Returns has made
a claim, assertion or threat that Pafco is or may be subject to taxation by such
jurisdiction.
<PAGE>
(d) Complete copies of all (i) federal Income Tax Returns, including
amended Returns, of Pafco, that have been filed with respect to taxable periods
beginning on and after December 31, 1990 through the date hereof, and (ii) the
most recently filed state, local and foreign Income Tax and other Returns,
including amended Returns, of Pafco have been delivered or made available to
GSCP prior to the date hereof. Prior to the date hereof, Pafco has provided to
GSCP copies of all revenue agents' reports and other written assertions by
governmental authorities of deficiencies or other liabilities for Taxes of Pafco
with respect to past periods for which the limitations period has not run, and
each of such items have been set forth on Schedule 6.1(d). Schedule 6.1(d)
contains a list of states, territories and jurisdictions (whether foreign or
domestic) in which Pafco has filed an income, franchise, sales or use Tax Return
for taxable periods ending on or after December 31, 1990.
6.2. RETURNS AND PAYMENTS. (a) The Company shall cause Pafco to consent to
join, for all taxable periods of Pafco ending on or before the Closing Date for
which it is eligible to do so, in any consolidated, combined or unitary Income
Tax Returns which SIG shall request it to join. SIG shall cause to be prepared
and filed all such consolidated, combined or unitary Returns. The Company agrees
to cooperate with SIG and its affiliates in the preparation of the portions of
such Returns pertaining to Pafco. For purposes of this Section 6.2(a), SIG shall
treat (and shall cause Pafco to treat) the Closing Date as the last date of the
taxable period of Pafco in which the Closing occurs. SIG shall cause to be
timely paid all Taxes to which such Returns relate for all periods covered by
such Returns.
(b) The Company shall cause to be prepared and filed, subject to
review by SIG, all required Tax Returns of Pafco (other than those to be filed
by SIG pursuant to paragraph (a) of this Section 6.2) for any period which ends
on or before the Closing Date for which Tax Returns have not been filed as of
the Closing Date. For purposes of this Section 6.2(b), to the extent permitted
by applicable state, local or foreign Law, the Company shall treat (and shall
cause Pafco to treat) the Closing Date as the last day of the taxable period in
which the Closing occurs. SIG shall pay all Taxes to which such Returns relate
for all periods covered by such Returns (after taking into account any estimated
Taxes paid prior to the Closing and to the extent in excess of any amounts
reserved with respect thereto on the Closing Date Balance Sheet) within five
days of the Company's request therefor or five days prior to the date on which
the related tax liability is due, whichever is later.
(c) The Company shall cause to be prepared and filed, subject to
review by SIG, all required Income Tax Returns of Pafco for any period which
begins before and ends after the Closing Date (a "Straddle Period"). The Company
shall cause to be paid all Income Taxes with respect to the Returns to be caused
to be filed by the Company pursuant to this Section 6.2(c). Such Income Taxes to
be caused to be paid by the
<PAGE>
Company, to the extent attributable to any period or portion thereof ending on
or before the Closing Date, shall be referred to herein as "Pre-Closing Straddle
Period Income Taxes." SIG shall pay to the Company an amount equal to the
Pre-Closing Straddle Period Income Taxes due with respect to any such Returns
caused to be filed by the Company (after taking into account any estimated Taxes
paid prior to the Closing and to the extent in excess of any amounts reserved
with respect thereto on the Closing Date Balance Sheet). Such Pre-Closing
Straddle Period Income Taxes shall be calculated as though the taxable year of
Pafco terminated at the close of business on the Closing Date; provided,
however, that, in the case of a franchise Tax not based on income, Pre-Closing
Straddle Period Income Taxes shall be equal to the amount of franchise Tax for
the taxable year which would have been imposed if such Tax were determined based
on the assets and liabilities of Pafco as of the Closing, multiplied by a
fraction, the numerator of which shall be the number of days from the beginning
of the taxable year through the Closing Date and the denominator of which shall
be the number of days in the taxable year. Any amounts owed by SIG to the
Company pursuant to this Section 6.2(c) shall be paid by SIG within five days of
the Company's request therefor or five days prior to the date on which the
Company is required to cause to be paid the related Tax liability, whichever is
later.
(d) As of the Closing Date, any Taxes in respect of Pafco (other than
Income Taxes) for any Straddle Period shall be apportioned based on an interim
closing of the books method to determine the amount of such Taxes allocable to
the portion of such Straddle Period elapsed through the Closing Date (provided
that, for this purpose, property Taxes shall be prorated based on the number of
days in the relevant taxable period elapsed through the Closing Date as compared
with the number of days in the Straddle Period). SIG shall be responsible for
all such Taxes (in excess of any amounts reserved with respect thereto on the
Closing Date Balance Sheet) relating (as determined under applicable law) to
periods or portions thereof ending on or before the Closing Date (which Taxes,
together with Pre-Closing Straddle Period Income Taxes, shall be referred to
herein as "Pre- Closing Straddle Period Taxes") and the Company shall be
responsible for all such Taxes relating to periods or portions thereof beginning
after the Closing Date. Any payments or reimbursements of such Taxes required to
be made by SIG to the Company or by the Company to SIG pursuant to this
provision shall be paid by SIG or the Company within the later of five days of
SIG's or the Company's request therefor or five days prior to the date on which
SIG or the Company is required to pay or cause to be paid the related Tax
liability; provided, that in no event shall SIG request such payment prior to
the Closing Date.
(e) To the extent permitted by applicable Law, all Tax Returns
prepared pursuant to this Section 6.2 shall be prepared in all material
respects, and all elections with respect to such Returns shall be made,
consistent with prior practice with respect to
<PAGE>
Pafco, except as may be mutually agreed by the Company (with approval of the
Company's Board of Directors) and SIG.
6.3. INDEMNIFICATION, AUDITS.
(a) Goran and SIG shall jointly and severally indemnify and hold
harmless the Company and Pafco against (i) any and all liability assessed
against Pafco for Income Taxes, the Tax Returns for which SIG is responsible for
filing under Section 6.2(a); (ii) any liability for any other Taxes assessed
against Pafco with respect to taxable periods ending on or before the Closing
Date; (iii) any liability assessed against Pafco with respect to any period
ending on or before the last day of the taxable year of SIG's consolidated (or
combined or unitary) group in which the Closing occurs by reason of Pafco being
severally liable for Income Taxes of SIG or any of its affiliates pursuant to
Treasury Regulation Section 1.1502-6 (or any analogous provision of state, local
or foreign Tax Law); (iv) any liability for Pre-Closing Straddle Period Taxes
assessed against Pafco (other than Pre-Closing Straddle Period Taxes for which
SIG has paid the Company pursuant to Sections 6.2(c) and (d)), and (v) any
liability which may be determined to be payable in connection with the execution
and delivery and performance of this Agreement and the Ancillary Agreements or
the consummation of any of the transactions contemplated hereby or thereby
(including, without limitation, the IGF Pre-Closing Transactions and the actions
contemplated by Section 1.1), including without limitation in each of (i)
through (v) above any liability resulting from changes made on audit, but in the
case of Taxes described in (ii) and (iv) above, only to the extent in excess of
the amounts, if any, reserved with respect thereto on the Closing Date Balance
Sheet, as reduced from time to time by payments made with respect thereto. Any
indemnification payable by SIG to the Company or Pafco pursuant to this Section
6.3(a) shall be paid within the later of five days of the Company's request
therefor and five days prior to the date on which the liability upon which the
indemnification is based is required to be satisfied by the Company or Pafco, as
the case may be.
(b) Each party shall promptly notify the other in writing upon
receipt of notice of any pending or threatened federal, state, local or foreign
Tax audits or assessments which may affect the Tax liabilities of Pafco with
respect to periods ending on or before the Closing Date; provided, however, that
the failure of the Company to give SIG prompt notice as provided herein shall
not relieve SIG of any of its obligations hereunder, except to the extent that
SIG's position is actually and materially prejudiced as a result of such
failure. SIG shall, at its own expense, control any audit or determination by
any authority, initiate any claim for refund or amended return, and contest,
resolve and defend against any assessment, notice of deficiency, or other
adjustment or proposed adjustment of Income Taxes (collectively, a "Tax
Contest") attributable to Tax Returns for which it has filing responsibility
pursuant to Section 6.2(a), and shall be responsible for the timely payment of
any liability for Income Taxes that relate to such periods;
<PAGE>
provided, however, that to the extent such audit or assessment relates to a Tax
for which Pafco could be held liable or affects the amount of Taxes to be paid
or caused to be paid by the Company, the Company shall have the right to
participate in any such Tax Contest in the manner it deems appropriate and SIG
shall be prohibited from reaching a settlement with regard to such Tax Contest
without the Company's consent. The Company shall, at its own expense, control
all Tax Contests attributable to Tax Returns for which it has filing
responsibility pursuant to Section 6.2(b), and shall be responsible for the
timely payment of any liability for Income Taxes that relate to such periods;
provided, however, that to the extent such audit or assessment relates to a Tax
for which SIG could be held liable or affects the amount of Taxes to be paid or
caused to be paid by SIG, SIG shall have the right to participate in any such
Tax Contest in the manner it deems appropriate and the Company shall be
prohibited from reaching a settlement with regard to such Tax Contest without
SIG's consent.
6.4. REFUNDS AND CARRYBACKS. (a) Any refunds or credits of Taxes of Pafco
received by or credited to the Company or Pafco attributable to periods ending
on or before the Closing Date or to such portions of Straddle Periods ending at
the close of business on the Closing Date, (collectively, "SIG's Refunds"),
shall, to the extent in excess of amounts, if any, accrued with respect thereto
as an asset on the Closing Date Balance Sheet, be for the benefit of SIG. The
Company shall cause any such refund (net of any Tax liability resulting from
such refund) to be paid to SIG within ten days of the Company's or Pafco's
receipt thereof.
(b) SIG agrees that if Pafco carries back any item of loss, deduction
or credit which arises in any taxable period ending after the Closing Date
("Subsequent Loss") into any taxable period beginning before the Closing Date,
then Pafco shall be entitled to any Tax benefit or refund of Taxes realized as a
result thereof (after giving priority to any existing Tax attributes of SIG).
The Company and SIG shall negotiate in good faith to resolve any dispute with
respect to the calculation of any such benefit. Any unresolved disputes with
respect to the calculation of Tax benefits related to a Subsequent Loss shall be
submitted to a "Big Six" accounting firm for arbitration, the costs of which
shall be shared equally by the Company and SIG.
6.5. COOPERATION. After the Closing Date, the Company and SIG shall make
available to the other, as reasonably requested, all information, records,
documents or assistance relating to Tax liabilities or potential Tax liabilities
of Pafco for all periods prior to or including the Closing Date and shall
preserve all such information, records and documents until the expiration of any
applicable statute of limitations or extensions thereof.
6.6. TAX SHARING. Other than pursuant to this Agreement,
as of the Closing Date, Pafco shall have no further rights or
obligations under any Tax-sharing agreement
<PAGE>
or arrangement among Pafco and SIG and/or any of SIG's Affiliates, and all
intercompany accounts with respect to Taxes shall be canceled.
6.7. TRANSFER TAXES. SIG will pay all sales, use, transfer, stamp,
conveyance, recording, value added or other similar Taxes, duties, excise or
governmental charges (including any Income Taxes or any real property gains Tax
imposed with respect to the transfer of the stock of Pafco) imposed by any
taxing jurisdiction, domestic or foreign, and all recording or filing fees,
notaries fees and other similar costs of Closing with respect to the transfer of
the stock of Pafco or otherwise on account of this Agreement or the transactions
contemplated hereby.
6.8. firpta affidavit. SIG shall deliver to the Company at the Closing an
affidavit (a so called "FIRPTA Affidavit") in form and substance reasonably
satisfactory to the Company, duly executed and acknowledged, certifying facts
that would exempt the transaction contemplated hereby from the provisions of the
Foreign Investment in Real Property Tax Act.
SECTION 7. EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
7.1. REPRESENTATIONS AND WARRANTIES.
(a) Definitions. For purposes of this Section 7, the following terms
shall have the meanings set forth below, and all of the representations and
warranties made herein are made jointly and severally by Goran and SIG:
"Benefit Plan" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including, without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Sections 3(37) or 4001(a)(3) of ERISA.
"Department" means the U.S. Department of Labor.
"Employee" means each current, former, or retired employee, officer,
consultant, independent contractor, agent or director of Pafco, including those
persons who perform services for or write insurance on behalf of Pafco pursuant
to the Agreement between Pafco and SIG dated May 1, 1987.
"Employee Agreement" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between the Pafco, SIG, Goran or any of their Affiliates and an Employee.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any regulations promulgated or proposed thereunder.
"ERISA Affiliate" means each business or entity which is a member of
a "controlled group of corporations," under "common control" or a member of an
"affiliated service group" with Pafco within the meaning of Sections 414(b), (c)
or (m) of the Code, or required to be aggregated with Pafco under Section 414(o)
of the Code, or is under "common control" with Pafco, within the meaning of
Section 4001(a)(14) of ERISA.
"Multi-Employer Plan" means each Pafco Benefit Plan which is a
"multi-employer plan" within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA.
"Pafco Benefit Plan" means each Benefit Plan (other than an Employee
Agreement) which is now or previously has been, or is or was required to be,
sponsored, maintained or contributed to, or with respect to which any withdrawal
liability (within the meaning of Section 4201 of ERISA) has been incurred, by
Pafco, SIG, Goran or any ERISA Affiliate for the benefit of any Employee, and
pursuant to which the Pafco, SIG, Goran or any ERISA Affiliate has or may have
any liability, contingent or otherwise.
"Pension Plan" means each Pafco Benefit Plan (other than a
Multi-Employer Plan) which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA.
"Welfare Plan" means each Pafco Benefit Plan which is an "employee
welfare benefit plan" within the meaning of Section 3(2) of ERISA.
(b) Schedule 7.1(b) contains a true and complete list of each Pafco
Benefit Plan and each Employee Agreement and all material documents relating
thereto have been provided to GSCP. Neither Pafco, SIG, Goran nor any ERISA
Affiliate has any plan or commitment to establish any new Pafco Benefit Plan, to
enter into any Employee Agreement or to modify or to terminate any Pafco Benefit
Plan or Employee Agreement, nor has any intention to do any of the foregoing
been communicated to Employees.
(c) With respect to each Pafco Benefit Plan and/or Employee
Agreement, (i) Pafco, SIG, Goran and each ERISA Affiliate have performed all
material obligations required to be performed by them thereunder, (ii) each
Pafco Benefit Plan has been established and maintained in material compliance
with all applicable laws, statutes, orders, rules and regulations; (iii) each
Pafco Benefit Plan intended to qualify under Section 401 of the Code is, and
since its inception has been, so qualified and each trust forming a part of any
such Pafco Benefit Plan is exempt from tax pursuant to Section 501(a) of the
Code; (iv) no "prohibited transaction," within the meaning of Section 4975 of
the Code or Section 406 of ERISA has occurred with respect to any
<PAGE>
Pafco Benefit Plan, (v) there are no audits, investigations, actions,
proceedings, arbitrations, suits or claims (other than routine claims for
benefits) pending, or to the knowledge of the Pafco, SIG, Goran or any ERISA
Affiliate, threatened or anticipated against Pafco, SIG, Goran or any ERISA
Affiliate or any administrator, trustee or other fiduciary of any Pafco Benefit
Plan with respect to any Pafco Benefit Plan or Employee Agreement, or against
any Pafco Benefit Plan or against the assets of any Pafco Benefit Plan; (vi)
each Pafco Benefit Plan and Employee Agreement can be amended, terminated or
otherwise discontinued without liability to Pafco, SIG, Goran or any ERISA
Affiliate; and (vii) Pafco, SIG, Goran and each ERISA Affiliate have made all
payments with respect to all periods through the date hereof, in each case which
are required by each Pafco Benefit Plan, each related trust, each collective
bargaining agreement or by Law to be made to, or with respect to each Pafco
Benefit Plan (including all insurance premiums or intercompany charges with
respect to each Pafco Benefit Plan).
(e) There are no Pension Plans or Multi-Employer
Plans.
(f) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Pafco
Benefit Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of Pafco or the
Company to amend or terminate any Pafco Benefit Plan. No payment or benefit
which will or may be made by Pafco, SIG, Goran, the Company, or any of their
respective affiliates with respect to any Employee will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
(g) Pafco, SIG, Goran and each of their Affiliates (i) is in
compliance with all applicable laws, rules and regulations relating to
employment with respect to Employees; (ii) is not liable for any arrears of
wages; and (iii) is not liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees.
(h) None of Pafco, SIG, Goran or any of their Affiliates, (i) is
involved in or, to their best knowledge, threatened with any labor dispute,
grievance, or litigation relating to labor matters involving any Employees, (ii)
has engaged in any unfair labor practices within the meaning of the National
Labor Relations Act or the Railway Labor Act, nor (iii) is presently, or has
been in the past, a party to, or bound by, any collective bargaining agreement
or union contract with respect to Employees and no such agreement or contract is
currently being negotiated by any of them.
<PAGE>
(i) Immediately following the Closing, Newco will be primarily
engaged, directly or through a majority-owned subsidiary or subsidiaries, in the
production or sale of a product or service other than the investment of capital
within the meaning of Department Regulation 2510.3-101 (c), (d) or (e).
7.2. INDEMNIFICATION. SIG and Goran, jointly and severally, agree that they
will indemnify and each will hold harmless the Company and each GSCP Indemnified
Party against any and all Losses arising out of or relating to (i) any Benefit
Plan which is now or previously has been entered into, established, maintained
or contributed to, or required to be established, maintained or contributed to,
by Pafco, SIG, Goran or any ERISA Affiliate, whether arising out of or relating
to any event or state of facts occurring or existing before, on or after the
Closing Date, and including, without limitation, any liabilities arising under
Title IV of ERISA, Section 302 of ERISA and Section 412 or 4971 of the Code,
(ii) any failure prior to the Closing Date by Pafco, SIG, Goran or any ERISA
Affiliate to comply with the continuation coverage requirements contained in
Section 4980B(f) of the Code and/or Section 601 of ERISA, (iii) any claims made
for compensation and/or benefits pursuant to any Benefit Plan established,
maintained or contributed to by Pafco, SIG, Goran or any ERISA Affiliate with
respect to severance, salary continuation, the continuation of medical or other
welfare benefits or similar post-employment benefits, whether arising out of or
relating to any event or state of facts occurring or existing before, on or
after the Closing Date and (iv) any claims made by or relating to Employees with
respect to their employment prior to the Closing Date.
7.3. COVENANTS. Goran and SIG shall take all such actions as are reasonably
necessary to cause all persons currently employed by SIG or its Affiliates who
primarily perform services for the benefit of Pafco to cease to be employed by
SIG and its Affiliates, and to become employees of the Company, as of the
Closing Date.
SECTION 8. CONDITIONS.
8.1. CONDITIONS TO OBLIGATIONS OF GSCP. The obligations of
GSCP to consummate the transactions contemplated hereby at the
Closing is subject to the satisfaction (or waiver by GSCP) of the
following conditions at or prior to the Closing:
(a) (i) Any waiting period under the HSR Act applicable to the
transactions contemplated by this Agreement and by the Ancillary Agreements
shall have expired or been terminated, and (ii) the transactions contemplated by
this Agreement and the Ancillary Agreements shall have been approved by the
Department of Insurance of the State of Indiana, in the case of each of (i) and
(ii), without any material restrictions or conditions applicable to GSCP, the
Company, Newsub, Pafco, IGF, IGF Holdings, Superior or any subsidiary of
Superior.
<PAGE>
(b) No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Law which has the effect of making the
transactions contemplated by this Agreement or the Ancillary Agreements illegal
or otherwise prohibiting consummation of such transactions.
(c) The Stockholder Agreement shall have been duly executed and
delivered by the Company and Goran.
(d) The Registration Rights Agreement shall have been duly executed
and delivered by the Company and Goran.
(e) Employment and non-competition agreements between the Company and
each of Alan G. Symons and Douglas G. Symons, substantially in the form of
Exhibit L hereto (the "Employment Agreements"), shall have been duly executed
and delivered by the parties thereto, and shall be in full force and effect at
and as of the Closing Date.
(f) The Pafco Management Agreement shall have been assigned by SIG to
Newsub and the Superior Administrative Services Agreement shall have been duly
executed and delivered by the parties thereto.
(g) The Company shall have adopted the Stock Option
Plan.
(h) GSCP shall have received from one or more outside counsel to the
Goran Entities, reasonably acceptable to GSCP, the opinions set forth in Exhibit
M hereto.
(i) The representations and warranties of Goran and SIG set forth in
this Agreement shall have been true and correct as of the date hereof and shall
be true and correct as of the Closing Date with the same effect as though such
representations and warranties had been made as of such date.
(j) Goran and SIG shall have performed in all material respects their
obligations hereunder required to be performed on or prior to the Closing.
(k) GSCP shall have received an officer's certificate, executed by an
officer of each of Goran and SIG, dated the Closing Date, certifying that the
conditions set forth in clauses (i) and (j) of this Section 8.1 are satisfied on
and as of such date; and GSCP shall have received from Goran and SIG such other
documents and information as GSCP may reasonably request to evidence
satisfaction of the other conditions set forth herein.
(l) All material consents, approvals, authorizations or permits
required to be obtained from, or filings required to be made with, or
notifications required to be
<PAGE>
made to, any Governmental Authority by any of the Goran Entities in connection
with the execution, delivery and performance of this Agreement and the Ancillary
Agreements or consummation of the transactions contemplated hereby or thereby
shall have been obtained or made.
(m) All material consents, approvals, authorizations or waivers
required to be obtained from, or notifications required to be made to, third
parties (other than Governmental Authorities) in connection with the execution,
delivery and performance of this Agreement and the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby (including,
without limitation, the Eurodebenture Waiver) shall have been obtained or made.
(n) Since December 31, 1994, there shall have occurred no material
adverse effect change in the condition (financial or otherwise), results of
operations, business, assets, liabilities or prospects of any of the Company,
Pafco, IGF Holdings, IGF, or Superior and its subsidiaries taken as a whole.
(o) Concurrently with the Closing, the transactions contemplated by
the Superior Purchase Agreement shall be consummated, substantially on the terms
set forth in the Superior Purchase Agreement (it being agreed that neither SIG
nor the Company shall amend the terms of the Superior Purchase Agreement or
waive any of the conditions to closing thereof without the prior written consent
of GSCP).
8.2. CONDITIONS TO OBLIGATIONS OF GORAN AND SIG. The
obligations of Goran and SIG to consummate the transactions
contemplated hereby at the Closing is subject to the satisfaction
of (or waiver by Goran and SIG) of the following conditions at or
prior to the Closing:
(a) (i) Any waiting period under the HSR Act applicable to the
transactions contemplated by this Agreement and by the Ancillary Agreements
shall have expired or been terminated, and (ii) the transitions contemplated by
this Agreement and the Ancillary Agreements shall have been approved by the
Department of Insurance of the State of Indiana, in the case of each of (i) and
(ii), without any material restrictions or conditions applicable to Goran, the
Company, Pafco or Superior.
(b) No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Law which has the effect of making the
transactions contemplated by this Agreement or the Ancillary Agreements illegal
or otherwise prohibiting consummation of such transactions.
(c) The Stockholder Agreement shall have been duly executed and
delivered by GSCP.
<PAGE>
(d) The Registration Rights Agreement shall have been duly executed
and delivered by GSCP.
(e) The Employment Agreements shall have been duly executed and
delivered by GSCP.
(f) The representations and warranties of GSCP set forth in this
Agreement shall have been true and correct as of the date hereof and shall be
true and correct as of the Closing Date with the same effect as though such
representations and warranties had been made as of such date.
(g) GSCP shall have performed in all material respects all of its
obligations hereunder required to be performed on or prior to the Closing.
(h) The Company shall have received an officer's certificate, executed
by an officer of GSCP, dated the Closing Date, certifying that the conditions
set forth in clauses (f) and (g) of this Section 8.2 are satisfied on and as of
such date.
SECTION 9. INDEMNIFICATION.
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as otherwise set
forth herein, all representations and warranties herein shall survive the
Closing until the third anniversary of the date hereof (except to the extent an
Indemnification Notice (as defined in Section 9.2(d)) shall have been given
prior to such date with respect to a breach of a representation and warranty, in
which case such representation and warranty shall survive until such claim is
resolved) and shall in no way be affected by any investigation or knowledge of
the subject matter thereof made by or on behalf of any party; provided, however,
that the representations and warranties set forth in Sections 2.1, 2.2, 2.3,
2.4, 2.5, 2.6, 2.11, 2.12, 2.20, 6.1 and 7.1 shall survive the Closing
indefinitely. All statements contained in any certificate or other instrument
delivered by the Goran Entity, or any of their respective officers or
representatives, pursuant to this Agreement or the Ancillary Agreements shall
constitute representations and warranties by Goran and SIG under this Agreement.
9.2. INDEMNIFICATION.
(a) Goran and SIG, jointly and severally, shall indemnify, defend and
hold GSCP, its Affiliates, officers, directors, employees, agents,
representatives, successors and assigns (each a "GSCP Indemnified Party"),
harmless from and against all Losses (as defined below) incurred or suffered by
a GSCP Indemnified Party (whether incurred or suffered directly or indirectly
through ownership of Company Common Stock) arising from or relating to (i) the
breach of any of the representations and warranties or covenants and agreements
made by Goran or SIG herein (in each case,
<PAGE>
without regard to materiality or knowledge exceptions contained in any
representation or warranty or covenant or agreement), (ii) the items disclosed
on Schedule 2.20, (iii) the operation of any Goran Entity prior to the Closing
Date or the operation of Goran, SIG or any of their Affiliates (other than the
Company) from and after the Closing Date, (iv) any IGF Company Sale and any
agreements, transactions or liabilities relating thereto or (v) any litigation
seeking to enjoin or to obtain damages in respect of consummation of the
transactions contemplated hereby or by the Stockholder Agreement (other than any
such litigation brought by a competitor of Pafco or Superior). All items that,
individually or in the aggregate, would have been breaches of representations or
warranties made by Goran or SIG herein but for the fact that such items,
individually or in the aggregate, were not material or did not meet a dollar
threshold stated in the representations and warranties shall be deemed to be
breaches of representations and warranties and shall be covered by this
indemnity.
(b) GSCP shall indemnify, defend and hold Goran and SIG, and their
respective affiliates, officers, directors, employees, agents, representatives,
successors and assigns (each a "Goran Indemnified Party"), harmless from and
against all Losses incurred or suffered by a Goran Indemnified Party arising
from or relating to the breach of any of the representations and warranties made
by GSCP herein (in each case, without regard to materiality or knowledge
exceptions contained in any representation or warranty). All items that,
individually or in the aggregate, would have been breaches of representations or
warranties made by GSCP herein but for the fact that such items, individually or
in the aggregate, were not material or did not meet a dollar threshold stated in
the representations and warranties shall be deemed to be breaches of
representations and warranties and shall be covered by this indemnity.
(c) For purposes of this Agreement, "Losses" shall mean each and all
of the following items: claims, losses, (including, without limitation, losses
of earnings), liabilities, obligations, payments, damages (actual, punitive or
consequential), charges, judgments, fines, penalties, amounts paid in
settlement, costs and expenses (including, without limitation, interest which
may be imposed in connection therewith, costs and expenses of investigations,
actions, suits, proceedings, demands and assessments, and fees, expenses and
disbursements of counsel, consultants and other experts), whether direct or
indirect, and if incurred or suffered directly or indirectly through ownership
of Company Common Stock, determined based on, in the case of GSCP, the
Applicable Percentage (as defined in Section 9.2) at the time of the
determination of such Loss and, in the case of Goran and SIG, (x) one minus (y)
the Applicable Percentage at the time of the determination of such Loss.
(d) In the event that any party shall incur or suffer any Losses in
respect of which indemnification may be sought by such party hereunder, the
party seeking to be indemnified hereunder (the "Indemnitee") shall assert a
claim for indemnification by
<PAGE>
written notice (an "Indemnification Notice") to the party from whom
indemnification is sought (the "Indemnitor") stating the nature and basis of
such claim. In the case of Losses arising by reason of any third party claim,
the Indemnification Notice shall be given promptly after the filing or other
written assertion of any such claim against the Indemnitee, but the failure of
the Indemnitee to so provide the Indemnification Notice shall not relieve the
Indemnitor of any liability that the Indemnitor may have except to the extent
that the Indemnitor is materially prejudiced thereby.
(e) In the case of third party claims for which indemnification is
sought hereunder, the Indemnitor shall have the option (i) to conduct any
proceedings or negotiations in connection therewith, (ii) to take all other
steps to settle or defend any such claim (provided that the Indemnitor shall not
settle any such claim without the consent of the Indemnitee) and (iii) to employ
counsel (reasonably acceptable to Indemnitee) to contest any such claim or
liability in the name of the Indemnitee or otherwise. In any event, the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in any proceedings relating to any third party claim. The Indemnitor
shall, within 15 days of receipt of the Indemnification Notice, notify the
Indemnitee of its intention to assume the defense of such claim. Until the
Indemnitee has received notice of the Indemnitor's election whether to defend
any claim, the Indemnitee shall take reasonable steps to defend (but may not
settle) such claim, and, if the Indemnitor shall decline to assume the defense
of any such claim, or shall fail to notify the Indemnitee within 15 days after
receipt of the Indemnification Notice of the Indemnitor's election to defend
such claim, the Indemnitee shall defend against such claim (provided that the
Indemnitee shall not settle such claim without the consent of the Indemnitor,
which consent shall not be unreasonably withheld). The expenses of all
proceedings, contests or lawsuits in respect of such claims shall be borne by
the Indemnitor but only if the Indemnitor is responsible pursuant hereto to
indemnify the Indemnitee in respect of the third party claim. Regardless of
which party shall assume the defense of the claim, the parties agree to
cooperate fully with one another in connection therewith.
(f) In the event that a GSCP Indemnified Party shall at any time be
entitled to be indemnified or held harmless for any Loss pursuant to this
Agreement, such obligation shall be satisfied as follows:
(i) If prior to the earlier of (k) an IGF Company Sale and (y)
the first anniversary of the Closing Date, first, any then existing Excess Book
Value Amount shall be reduced to the extent necessary for such GSCP Indemnified
Party to be fully indemnified and held harmless for such Loss; and second, to
the extent that the amount by which the Excess Book Value Amount must be reduced
for such GSCP Indemnified Party to be fully indemnified and held harmless for
such Loss exceeds the amount of the then existing Excess Book Value Amount (such
excess being referred to herein as the "Subject
<PAGE>
Excess"), Goran or SIG shall issue to GSCP a promissory note in an amount (the
"Note Amount") equal to such remaining Loss (or, at GSCP's election, in lieu of
Goran or SIG issuing such note, (1) Goran or SIG shall issue a promissory note
to the Company in an amount equal to the Subject Excess or (2) subject to
paragraph (g) below, the Company shall issue to GSCP a number of shares of
Company Common Stock such that after issuing such shares GSCP and its
Affiliates, in the aggregate, will own the Applicable Percentage of the
Investment Company Common Stock). The "Applicable Percentage" shall mean (a)
$20,000,000 divided by, (b) the Total Investment less (i) the Note Amount, (ii)
in the case of an issuance of shares of Company Stock pursuant to Section
9.2(f)(ii), the Excess Amount or, (iii) in the case of an issuance of shares of
Company Common Stock pursuant to Section 9.2(i), the amount owing pursuant to a
promissory note issued by Goran or SIG and not paid in full when due. The "Total
Investment" means $41,666,667 less (a) the aggregate amount of all Note Amounts
and Excess Amounts which, in lieu of Goran or SIG issuing a promissory note or
paying cash to the Company pursuant to Section 9.2(f)(i) or Section 9.2(f)(ii),
respectively, the Company issued shares of Company Common Stock to GSCP and (b)
the aggregate amount owed pursuant to all promissory notes issued by Goran or
SIG pursuant to Section 9.2 and not paid in full when due and in respect of
which the Company issued shares of Company Common Stock to GSCP. "Investment
Company Common Stock" shall mean the shares of Company Common Stock held as of
the Closing and any shares of Company Common Stock issued pursuant to Section
9.2 hereof, in each case, as adjusted as appropriate to reflect stock dividends
paid, stock splits effected or other similar transactions, by the Company.
(ii) If after the earlier of an IGF Company Sale and (y) the
first anniversary of the Closing Date, first, any then existing Excess Book
Value Amount shall be reduced to the extent necessary for such GSCP Indemnified
Party to be fully indemnified and held harmless for such Loss; and second, to
the extent that the amount by which the Excess Book Value Amount must be reduced
for such GSCP Indemnified Party to be fully indemnified and held harmless for
such Loss exceeds the amount of the then existing Excess Book Value Amount (the
"Excess Amount"), Goran or SIG shall pay to GSCP in cash an amount equal to such
remaining Loss (or, at GSCP's election, in lieu of Goran or SIG paying to GSCP
such amount of cash, (1) Goran or SIG shall contribute to the Company an amount
equal to the Excess Amount or, (2) if such amount is not contributed to the
Company, the Company shall issue to GSCP a number of shares of Company Common
Stock such that after issuing such shares GSCP and its Affiliates, in the
aggregate, will own the Applicable Percentage of the Investment Company Common
Stock).
(g) If the Company is required to issue to GSCP shares of Company
Common Stock pursuant to Section 9.2(f)(i), the maximum number of shares which
the Company shall be required to issue (the "Maximum Number of Shares") shall be
the
<PAGE>
number of shares the issuance of which would result in Goran, SIG and their
Affiliates holding, in the aggregate, 50.01% of the outstanding shares of
Company Common Stock. If without reference to this paragraph (g) the number of
shares to be issued pursuant to Section 9.2(f)(i) would be greater than the
Maximum Number of Shares, then, in lieu of the Company issuing such excess
shares, Goran or SIG shall issue to GSCP a promissory note in an amount equal to
the amount of any Loss for which a GSCP Indemnified Party has not been fully
indemnified and held harmless after the Company has issued to GSCP the Maximum
Number of Shares (or, at GSCP's election, shall issue a promissory note to the
Company in an amount necessary for GSCP to be fully indemnified and held
harmless for any Loss for which GSCP has not been fully indemnified and held
harmless.
(h) Any promissory note issued by Goran or SIG pursuant to this
Section 9.2 (i) shall bear interest, from the date of issuance through the date
immediately preceding payment, calculated on the basis of a per annum rate equal
to the Prime Rate, and (ii) shall become due and payable on the earlier of 90
days after (x) an IGF Company Sale or (y) notice from GSCP requesting payment
thereof (on its own behalf or on behalf of the Company, as the case may be)
(provided, however, that such notice may not be delivered by GSCP prior to nine
months after the date of issuance of such promissory note).
(i) If any promissory note issued by, or any payment obligation of,
Goran or SIG pursuant to this Section 9.2 is not paid in full on the date it
becomes due and payable, then, in addition to any other right or remedy which
may be available to GSCP or the Company, as the case may be, GSCP shall have the
right to elect to have the note or the payment obligation satisfied by the
Company's issuing to GSCP a number of shares of Company Common Stock such that
after issuing such shares GSCP and its affiliates, in the aggregate, will own
the Applicable Percentage of the Investment Company Common Stock.
(j) At the Closing, Goran and SIG shall cause IGF Holdings and Pafco
to, enter into a pledge agreement, substantially in the Form of Exhibit N hereto
(the "Pledge Agreement"), and take all such other action (including, without
limitation, pledging to Pafco all certificates representing all of the issued
and outstanding shares of capital stock of IGF) reasonably necessary for Pafco
to have in all of the issued and outstanding shares of capital stock of IGF a
fully perfected first security interest securing the obligations of IGF Holdings
pursuant to the IGF Holdings Notes (or any such other note as may be issued
pursuant to Section 4.15(a)).
<PAGE>
SECTION 10. TERMINATION.
10.1. TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(i) by mutual written consent of the parties
hereto;
(ii) by either Goran or GSCP if there has been a material
misrepresentation or breach of warranty or covenant on the part of the other
party in the representations and warranties and covenants contained herein;
(iii) by either Goran or GSCP if the Closing shall not have
occurred on or before May 31, 1996; provided, that neither Goran nor GSCP, as
the case may be, may terminate this Agreement pursuant to this clause if such
party's failure to fulfill any of its obligations under this Agreement shall
have been the reason that the Closing shall not have occurred on or before said
date; or
(iv) by either Goran or GSCP if there shall be any (A) Law that
makes consummation of the transactions contemplated hereby illegal or otherwise
prohibited or (B) any judgment, injunction, order or decree enjoining any of the
parties hereto from consummating the transactions contemplated hereby or by the
Stockholder Agreement and such judgment, injunction, order or decree shall
become final and nonappealable.
In the event that this Agreement is terminated at any time prior to the
Closing, the Company shall redeem the shares of Company Common Stock then held
by GSCP at a price equal to the aggregate par value per share thereof.
10.2. EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 10.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that (i) the agreements
contained in Sections 4.10, 4.14(e), 9.2(a)(iv) and (v), 10.1 and 11.1 shall
survive the termination hereof and (ii) such termination shall not relieve any
party from liability for breach of any representation or warranty, covenant or
agreement contained herein arising prior to such termination.
SECTION 11. MISCELLANEOUS.
11.1. EXPENSES. Except as set forth in the next sentence, or as otherwise
expressly provided in this Agreement or the Ancillary Agreements, each of the
parties hereto shall pay all the costs and expenses incurred by it or on its
behalf in connection with this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby. At the
Closing, the Company shall reimburse each of GSCP and Goran for its reasonable
out-of-pocket expenses incurred in
<PAGE>
connection with the negotiation and execution of this Agreement and the
Ancillary Agreements (including, without limitation, the fees and expenses of
outside counsel) (but excluding, without limitation, any expenses whatsoever
incurred by or on behalf of Goran and SIG or their Affiliates in connection with
the EuroNotes or the EuroNote Waiver).
11.2. REMEDIES. No right or remedy conferred upon any person under this
Agreement is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and is in addition to every other right or
remedy available hereunder or by law or in equity.
11.3. FURTHER ASSURANCES. Subject to the terms hereof, prior to and after
the Closing, the parties agree to cooperate with each other, and to execute and
deliver any further instruments or documents and to take all such further action
as the other party may reasonably request in order to evidence or effectuate the
consummation of the transactions contemplated hereby and otherwise to carry out
the intent of the parties hereunder.
11.4. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and the respective successors and permitted
assigns. No party hereto may assign its rights and obligations hereunder without
the prior written consent of the other parties hereto, except that GSCP may
assign its rights and obligations hereunder, in whole or in part, to any
affiliate (including any affiliated investment fund) of the Goldman Sachs Group,
L.P.
11.5. GUARANTEE. Goran and SIG hereby, jointly and severally, guarantee all
of the representations, warranties, covenants, agreements, commitments and
obligations of the Company hereunder and of IGF Holdings pursuant to the Pledge
Agreement; and Goran hereby guarantees all of the representations, warranties,
covenants, agreements, commitments and obligations of SIG hereunder (including,
without limitation, the obligations of Goran and SIG under any promissory note
and related agreements or entered into hereunder).
11.6. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto), the Ancillary Agreements (including the Stockholder Agreement
and the Registration Rights Agreement) and the Letter Agreement, dated December
31, 1995, between GSCP and Goran contain the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
11.7. NOTICES. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be
sufficient if contained in a written instrument delivered in
person or sent by telecopy, nationally recognized overnight
<PAGE>
courier or first class registered or certified mail, return receipt requested,
postage prepaid, addressed to such party at the address set forth below or such
other address as may hereafter be designated in writing by such party to the
other parties:
<PAGE>
(i) if to the Company, to:
GGS Management Holdings, Inc.
c/o Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telecopy: (317) 259-6395
Attention: Mr. Alan G. Symons
with a copy to each of Goran, SIG and GSCP.
(ii)if to GSCP to:
GS Capital Partners II, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Michael A. Pruzan
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8587
Attention: Gail Weinstein, Esq.
(iii) if to SIG or Goran, to:
Goran Capital Inc.
Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telecopy: (317) 259-6395
Attention: David L. Bates, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been given when received.
11.8. AMENDMENTS. The terms and provisions of this
Agreement may not be modified or amended, or any of the
provisions hereof waived, temporarily or permanently, without the
prior written consent of each of the parties hereto.
<PAGE>
11.9. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be
deemed to be an original instrument, but all such counterparts
together shall constitute but one agreement.
11.10. HEADINGS. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement.
11.11. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended
to or shall create any third party beneficiary rights in any person or entity
(other than the GSCP Designees and the Goran Designees (each as defined in the
Stockholder Agreement) under Sections 1.5 and 5.3).
11.12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflict of laws. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the United States of America located in the County of New York, for
any action, proceeding or investigation in any court or before any governmental
authority ("Litigation") arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any Litigation
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by U.S. registered mail to its respective
address set forth in this Agreement shall be effective service of process for
any Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the United States of America located in the
County of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Litigation
brought in any such court has been brought in an inconvenient forum.
11.13. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
<PAGE>
11.14. INTERPRETATION. Neither this Agreement nor the Ancillary Agreements,
nor any uncertainty or ambiguity herein or therein, shall be construed or
resolved against any party hereto, whether under any rule of construction or
otherwise. No party shall be considered the draftsperson of this Agreement or
the Ancillary Agreements. On the contrary, this Agreement and the Ancillary
Agreements have been reviewed, negotiated and accepted by all parties hereto and
thereto and their respective legal counsel. For purposes of this Agreement, the
words "herein," "hereof," "herewith," "hereunder," and other words of similar
import refer to this Agreement as a whole and not to any particular provision.
11.15. NO WAIVER. No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
GGS MANAGEMENT HOLDINGS, INC.
By: /s/ Alan Symons
------------------------------
Name: Alan Symons
Title: President
GS CAPITAL PARTNERS II, L.P.
By:GS Advisors, L.P., its general partner
By: GS Advisors, Inc., its general
partner
By: /s/ Richard A. Friedman
------------------------------
Name: Richard A. Friedman
Title: President
GORAN CAPITAL INC.
By: /s/ Alan Symons
------------------------------
Name: Alan Symons
Title: President
SYMONS INTERNATIONAL GROUP, INC.
By: /s/ Alan Symons
------------------------------
Name: Alan Symons
Title: Treasurer
STOCKHOLDER AGREEMENT
BY AND AMONG
GGS MANAGEMENT HOLDINGS, INC.,
GS CAPITAL PARTNERS II, L.P.,
SYMONS INTERNATIONAL GROUP, INC.
AND
GORAN CAPITAL INC.
DATED AS OF
APRIL 30, 1996
<PAGE>
TABLE OF CONTENTS
SECTION 1. Certain Definitions............................................. 1
"Acceleration Event"................................................... 1
"Affiliate"............................................................ 2
"Beneficially Own" or "Beneficial Ownership"........................... 2
"Company Sale"......................................................... 2
"Equity Securities".................................................... 2
"Goran Stock".......................................................... 2
"Group"................................................................ 2
"Initial Public Offering".............................................. 2
"Other Stockholders,".................................................. 2
"Person"............................................................... 2
"Proportionate Percentage"............................................. 3
"Public Sale".......................................................... 3
"Sell"................................................................. 3
"Selling Stockholder".................................................. 3
"Stockholders"......................................................... 3
"Subsidiary"........................................................... 3
"Termination Date"..................................................... 3
SECTION 2. Corporate Governance............................................ 4
2.1. Board of Directors.............................................. 4
2.2. Management...................................................... 5
2.3. Actions Requiring Board Approval................................ 6
SECTION 3. Limitations on Sales of Stock by
Stockholders.................................................... 9
3.1. Transfer Restriction............................................ 9
3.2. Rights of First Offer........................................... 9
3.3. Tag-Along Rights................................................ 10
3.4. Procedures...................................................... 12
3.5. Transferees..................................................... 12
SECTION 4. Company Sale.................................................... 13
SECTION 5. Representations and Warranties.................................. 13
SECTION 6. Miscellaneous................................................... 14
6.1. No Inconsistent Agreements; Furthe
Assurances...................................................... 14
6.2. Legends......................................................... 15
6.3. Termination..................................................... 16
<PAGE>
6.4. Severability.................................................... 16
6.5. Governing Law................................................... 16
6.6. Successors and Assigns.......................................... 16
6.7. Notices......................................................... 16
6.8. Amendments...................................................... 17
6.9. Headings........................................................ 18
6.10. Remedies........................................................ 18
6.11. No Third Party Beneficiaries.................................... 18
6.12. Guarantee....................................................... 18
6.13. Entire Agreement................................................ 18
6.14. Newsub.......................................................... 18
6.15. Counterparts.................................................... 18
<PAGE>
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of April 30, 1996, by and between GGS
MANAGEMENT HOLDINGS, INC., a Delaware corporation (the "Company"), GS CAPITAL
PARTNERS II, L.P., a Delaware limited partnership ("GSCP"), SYMONS INTERNATIONAL
GROUP, INC., an Indiana corporation ("SIG"), and GORAN CAPITAL INC., a Canadian
corporation ("Goran"), and the other parties that may be listed on Schedule A
hereto.
W I T N E S S E T H :
WHEREAS, the Company, GSCP, Goran and SIG are parties to that certain
Stock Purchase Agreement, dated as of January 31, 1996 (the "Stock Purchase
Agreement"), pursuant to which GSCP has agreed to purchase from the Company
shares of Common Stock, par value $.01 per share, of the Company ("Stock");
WHEREAS, the Company, GSCP, Goran and SIG are simultaneously entering
into a Registration Rights Agreement (the "Registration Rights Agreement");
WHEREAS, a condition to the closing of the Stock Purchase Agreement is
that the parties hereto enter into this Stockholder Agreement, and the parties
hereto deem it to be in their best interests to establish and set forth their
agreement with respect to certain rights and obligations associated with
ownership of shares of Stock;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto hereby agree
as follows:
SECTION 1. CERTAIN DEFINITIONS. As used herein, the following terms
shall have the following meanings (capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the Stock Purchase
Agreement):
"Acceleration Event" shall mean (i) the third separate occasion on
which GSCP in good faith proposes to the Board an equity financing or
acquisition transaction which the Board does not approve, and (ii) any
time at which Alan G. Symons, family members of Alan G. Symons
(including, without limitation, G. Gordon Symons), and entities
controlled by Alan G. Symons and such family members no longer have
voting control of SIG or Goran (it being understood that Alan G.
Symons and such family members shall be deemed to have voting control
of Goran for so long as (a) in the aggregate they hold directly or
indirectly in excess of 40% of the Goran Stock or (b)(i) in the
aggregate they hold directly or indirectly in excess of 25% of the
Goran Stock and (ii) no other holder or "group" (as such term is
defined in the Securities Exchange Act of 1934, as amended) of holders
holds in excess of 10% of the Goran Stock.)
<PAGE>
"Affiliate" shall mean with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person.
"Beneficially Own" or "Beneficial Ownership" shall have the meaning
set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended.
"Company Sale" shall mean a merger or consolidation of the Company and
any other Person, a sale or transfer of all or substantially all of
the assets or capital stock of the Company to another Person, or any
other similar business combination transaction or series of
transactions.
"Equity Securities" shall mean (i) Stock and (ii) all securities
convertible into, or exchangeable or exercisable for, shares of Stock.
"Goran Stock" shall mean the outstanding capital stock at any time of
Goran the holders of which are entitled to vote generally in the
election of directors of Goran.
"Group" shall mean two or more Persons who agree to act together for
the purpose of acquiring, holding, voting or disposing of Stock.
"Initial Public Offering" shall mean an underwritten public offering
of Stock which (i) is effected pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the
"Securities Act"), (ii) involves Equities Securities representing, on
a fully-diluted basis, at least 20% of all issued and outstanding
Stock of the Company, and (iii) generates net proceeds to the sellers
in such underwritten public offering of at least $25,000,000.
"Other Stockholders," with respect to any Selling Stockholder, shall
mean the Stockholders other than the Selling Stockholder (provided,
however, that GSCP and its Affiliates shall be considered collectively
as one Other Stockholder for all purposes under Section 5 hereof).
"Person" shall mean any individual, corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or government
or any agency or political subdivisions thereof, and any Group.
<PAGE>
"Proportionate Percentage" shall mean, as to each Stockholder, the
quotient obtained (expressed as a percentage) by dividing (A) the
number of shares of Stock owned by such Stockholder on the first day
of the Acceptance Period (as defined in Section 3.2(a)) or the
Tag-Along Offer Period (as defined in Section 3.3(a)), as the case may
be, by (B) the aggregate number of shares of Stock owned on the first
day of the Acceptance Period or the Tag-Along Offer Period, as the
case may be, by all Stockholders who deliver Acceptance Notices to
purchase Subject Stock (as defined in Section 3.2(a)) or who elect to
Sell Stock to a Tag- Along Offeror (as defined in Section 3.3(a)).
"Public Sale" shall mean a Sale pursuant to a bona fide underwritten
public offering pursuant to an effective registration statement filed
under the Securities Act or a Sale pursuant to Rule 144 under the
Securities Act.
"Sell", as to any Stock, shall mean to sell, or in any other way
directly or indirectly transfer, assign, distribute, encumber or
otherwise dispose of, such Stock, either voluntarily or involuntarily;
and the terms Sale and Sold shall have meanings correlative to the
foregoing.
"Selling Stockholder" shall mean any Stockholder who proposes to Sell
shares of Stock pursuant to Section 3.2 or 3.3 hereof.
"Stockholders" shall mean the parties to this Agreement (other than
the Company) and any other person who executes and agrees to be bound
by the terms of this Agreement.
"Subsidiary" shall mean, with respect to any Person, (i) any
corporation, partnership or other entity of which shares of stock or
other ownership interests having ordinary voting power to elect a
majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned,
directly or indirectly, or (ii) the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries,
or both, by such Person.
"Termination Date" shall mean the earliest of (i) the date of
consummation of an Initial Public Offering, (ii) the date of
consummation of a Company Sale and (iii) the tenth anniversary of the
date hereof.
<PAGE>
SECTION 2. CORPORATE GOVERNANCE.
2.1. BOARD OF DIRECTORS.
(a) Members. The Board of Directors of the Company (the "Board")
shall consist of four members, of whom two shall be designated by GSCP (such
persons being so designated, and their successors, being referred to herein as
the "GSCP Designees") and two shall be designated by SIG (such persons being so
designated, and their successors, being referred to herein as the "SIG
Designees"). Notwithstanding the foregoing, if at any time SIG and its
Affiliates own less than 25% of the then issued and outstanding shares of Stock
by reason of the issuance by the Company of shares of Stock to GSCP or its
Affiliates in satisfaction of the indemnification obligations of Goran and SIG
pursuant to the Stock Purchase Agreement (the date on which such condition
occurs being referred to as the "Indemnity Date"), thereafter, SIG shall be
entitled to designate only one director (and there shall be only one SIG
Designee), and GSCP shall be entitled to designate three directors (and there
shall be three GSCP Designees). At each meeting of the stockholders of the
Company held for the purpose of electing directors, GSCP and SIG, respectively,
shall cause the GSCP Designees and the SIG Designees to be elected as directors.
(b) Vacancies. Each of the GSCP Designees and SIG Designees shall
hold office until his death, resignation or removal or until his successor shall
have been duly elected and qualified. If any GSCP Designee shall cease to serve
as a director of the Company for any reason, the vacancy resulting thereby shall
be filled by another person designated by GSCP. If any SIG Designee shall cease
to serve as a director of the Company for any reason, the vacancy resulting
thereby shall be filled by another person designated by SIG. In the event that
at any time there exists vacancies on the Board such that there is either no
GSCP Designee or no SIG Designee, no action may be taken by the Board until such
vacancy is filled.
(c) Removal. No GSCP Designee may be removed from office except
by GSCP and no SIG Designee may be removed from office except by SIG. GSCP shall
have the right to remove any GSCP Designee, and SIG shall have the right to
remove any SIG Designee, with or without cause, at any time.
(d) Quorum Requirements. The quorum which shall be required for
action to be taken by the Board (other than an adjournment of any meeting of the
Board) shall be one GSCP Designee and one SIG Designee (provided, that, after
the Indemnity Date, the quorum shall be any two directors). Directors
participating by telephone conference in any meeting of the Board shall be
considered in determining whether a quorum of directors is present.
<PAGE>
(e) Voting Requirements. Action may be taken by the Board with
the approval of at least one GSCP Designee and one SIG Designee (provided, that,
after the Indemnity Date, action may be taken by the Board with the approval of
a majority of the entire Board of Directors.
(f) Committees. The Company shall cause a GSCP Designee
designated by GSCP to be appointed to each of the committees of the Board as may
be requested at any time or from time to time by GSCP.
(g) Chairman of the Board. GSCP shall have the right to designate
the Chairman of the Board.
(h) Directors' Indemnification. The Company's Certificate of
Incorporation and By-Laws shall, to the fullest extent permitted by law, provide
for indemnification of, and advancement of expenses to, and limitation of the
personal liability of, the directors of the Company or such other person or
persons, if any, who, pursuant to a provision of such Certificate of
Incorporation, exercise or perform any of the powers or duties otherwise
conferred or imposed upon such directors, which provisions shall not be amended,
repealed or otherwise modified in any manner adverse to the directors until at
least six years following the Termination Date.
(i) Expenses. The Company shall, promptly after receipt of
satisfactory evidence therefor, reimburse each member of the Board for his
reasonable travel and other out-of-pocket expenses incurred to attend meetings
of the Board or of any committees thereof.
(j) Access to Information. The Company shall cause its management
at all times to provide to the GSCP Designees all information made available to
the SIG Designees.
2.2. MANAGEMENT.
(a) Chief Executive Officer. Subject to the provisions of this
Agreement and the Employment Agreement, dated the date hereof, between the
Company and Alan G. Symons, Alan G. Symons shall be the Chief Executive Officer
of the Company.
<PAGE>
(b) Appointment of Management. All management members of the
Company (other than the Chief Executive Officer) shall be designated by, their
compensation shall be determined by, and they may be removed, promoted or
demoted by, the Chief Executive Officer of the Company; provided, however, that
(i) the designation of, setting of compensation for, or removal, promotion or
demotion of, any person who will earn compensation from the Company and its
Subsidiaries of $100,000 or more per annum shall be subject to the prior
approval of the Board and (ii) the GSCP Designees shall have the right at any
time to designate a Chief Operating Officer of the Company, to remove any person
so designated, with or without cause, at any time, and to designate successors
thereto. The Chief Operating Officer of the Company shall be required to report
directly to the Board.
2.3. ACTIONS REQUIRING BOARD APPROVAL. The Company shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, take any of
the following actions without first obtaining approval of such action by the
Board (except to the extent otherwise specifically provided for in this
Agreement, the Stock Purchase Agreement or the Registration Rights Agreement):
(a) consolidate or merge with or into any other Person, or enter
into any other similar business combination transaction;
(b) voluntarily liquidate, dissolve or wind up;
(c) purchase, acquire or obtain any capital stock or other
proprietary interest, directly or indirectly, in any other entity or all or a
substantial portion of the business or assets of another Person for
consideration (including assumed liabilities) in excess of $250,000 in the
aggregate with respect to the Company and all of its Subsidiaries taken together
(but excluding securities acquired in the ordinary course of business pursuant
to and in accordance with the Company's or such Subsidiary's investment policy);
(d) enter or commit to enter into any joint ventures or
partnerships or establish any non-wholly-owned subsidiaries, in each case, where
the contribution or investment by the Company and all of its Subsidiaries taken
together is in excess of $250,000 in the aggregate in cash or assets;
(e) expand into new lines of business (it being understood that
"new lines of business" do not include the conduct in additional states in the
United States of businesses conducted by the Company or its Subsidiaries as of
the date hereof);
(f) offer any type of insurance other than non-standard
automobile insurance (other than insurance policies issued by the Company or any
of its Subsidiaries on behalf of IGF Insurance Company or SIG - Florida in
compliance with Section 5.7 of the Stock Purchase Agreement);
(g) sell, lease, transfer or otherwise dispose of any asset or
group of assets, for aggregate consideration (as to the Company and all of its
Subsidiaries taken together), in excess of $1,000,000 (excluding asset sales
effected in the ordinary course of business pursuant to and in accordance with
the Company's or any of its Subsidiary's investment policies);
<PAGE>
(h) enter into any transaction with a director or officer of
Goran (or any relative or Affiliate of any such Person) or with any Affiliate of
Goran (provided, however, that the Company and any of its Subsidiaries may enter
into reinsurance arrangements with Granite Reinsurance Company Ltd.
("GraniteRe") so long as (i) each such arrangement is on arm's length market
terms and (ii) with respect to each such arrangement, GraniteRe posts cash
collateral in an amount equal to the total liabilities assumed by GraniteRe
pursuant thereto, pursuant to written collateral arrangements in form and
substance satisfactory to the Board);
(i) enter into one or more agreements to reinsure a substantial
portion of the Company's or any of its Subsidiary's liabilities;
(j) adopt or change the reserve policy or the investment policy
of the Company or any of its Subsidiaries;
(k) create, incur, assume or suffer to exist any indebtedness of
the Company or any of its Subsidiaries for borrowed money (which shall include
for purposes hereof capitalized lease obligations and guarantees or other
contingent obligations for indebtedness for borrowed money) in an aggregate
amount (as to the Company and all of its Subsidiaries taken together) in excess
of $1,000,000 excluding such indebtedness that exists as of the date hereof;
(l) mortgage, encumber, create, incur or suffer to exist, liens
on its assets, in an aggregate amount (as to the Company and all of its
Subsidiaries taken together) in excess of $1,000,000 (excluding liens on assets
that exist as of the date hereof);
(m) pay, or set aside any sums for the payment of, any dividends,
or make any distribution on, any shares of its capital stock or redeem,
repurchase or otherwise acquire any outstanding shares of its capital stock or
any other of its outstanding securities or debt for borrowed money (including
capital leases) (except for indebtedness to the extent it becomes due in
accordance with its terms and except for the repayment of indebtedness in an
aggregate amount (as to the Company and all of its Subsidiaries taken together)
of up to $1,000,000);
(n) make or commit to make (with respect to the Company and all
of its Subsidiaries taken together) any one capital expenditure in an amount in
excess of $250,000, or make or commit to make capital expenditures (with respect
to the Company and all of its Subsidiaries taken together) in any year in an
aggregate amount in excess of the amount contemplated by the Company's business
plan;
<PAGE>
(o) issue or sell any Equity Securities or any shares of capital
stock of any of the Company's Subsidiaries;
(p) enter into, adopt or amend any employment contract (providing
for compensation to any employee in excess of $100,000) or benefit plan, policy
or arrangement (other than non-material changes to the Company's health, life
and non-contributory 401(k) plans);
(q) amend its Certificate of Incorporation or By-laws, including,
without limitation, any change in the number of directors comprising its Board
of Directors;
(r) amend, modify or waive any provision of this Agreement, the
Stock Purchase Agreement or the agreements ancillary thereto, or become a party
to any agreement which by its terms restricts the Company's or any of its
Subsidiary's, or any Stockholder's, performance of the terms of any of such
agreements;
(s) change its independent certified accountants or actuaries;
(t) register any securities under the Securities Act or grant any
registration rights therefor;
(u) take any action required by law to be approved by its Board
of Directors (but including, without limitation, all matters with respect to
material agreements and the adoption of a business plan); or
(v) agree or otherwise commit to take any of the actions set
forth in the foregoing subparagraphs (a) through (v).
Notwithstanding any other provision of this Agreement or the Stock Purchase
Agreement, approval of the Board hereunder will not be required with respect to
any obligation of the Company set forth in the Stock Purchase Agreement or any
agreement ancillary thereto (the "Ancillary Agreements") and, if such approval
by the Board is required by law, the SIG Designees and the GSCP Designees shall
cause such approval to be provided, and the Stockholders, the SIG Designees and
the GSCP Designees shall cause the Company to take such actions as may be
necessary for the Company to meet its obligations under the Stock Purchase
Agreement and the Ancillary Agreements.
Notwithstanding any other provision of this Agreement, the GSCP Designees
(in that the consent or vote of the SIG Designees) may cause the Company, or may
cause the Company to cause Newsub to cause Pafco General Insurance Company
("Pafco"), to take any action under the Pledge Agreement, dated the date,
hereof, by IGF Holdings, Inc. in favor of Pafco.
<PAGE>
SECTION 3. LIMITATIONS ON SALES OF STOCK BY STOCKHOLDERS.
3.1. TRANSFER RESTRICTION. Except as set forth on Schedule 3.1, no
Stockholder shall Sell any Stock (whether owned on the date hereof or acquired
hereafter) for a period of two years from the date hereof (the "Mandatory
Holding Period"); provided, however, that (i) the foregoing restriction shall
not apply to (x) any Sale of Stock to an Affiliate of such Stockholder, (y) any
Sale that is a Public Sale or (z) a Company Sale pursuant to Section 4, and (ii)
the foregoing restriction shall not apply to GSCP in the event that an
Acceleration Event occurs.
3.2. RIGHTS OF FIRST OFFER. In addition to (and not in limitation of)
any other restrictions on Sales of Stock contained in this Agreement, and
subject to Section 3.2(e), any Sale by a Stockholder shall be solely for cash
consideration and shall be consummated only in accordance with the following
procedures:
(a) The Selling Stockholder shall first deliver to each Other
Stockholder a written notice (an "Offer Notice"), which shall (i) state such
Selling Stockholder's intention to sell Stock to one or more Persons, the amount
of Stock to be sold (the "Subject Stock"), the proposed purchase price therefor
and a summary of the other material terms and conditions of the proposed Sale
and (ii) offer to each such Other Stockholder the option to acquire all or any
portion of such Subject Stock upon the terms and subject to the conditions of
the proposed Sale as set forth in the Offer Notice (the "Offer"); provided,
however, that the Offer may provide that such Offer will be revoked if less than
all of the Subject Stock will be purchased by Other Stockholders pursuant to
this Section 3.2 (an Offer with such qualifications being referred to herein as
a "Conditional Offer"). Each Other Stockholder shall have the right, for a
period of 45 days after receipt of an Offer Notice (the "Acceptance Period"), by
written notice to the Selling Stockholder (an "Acceptance Notice"), to accept
all or any portion of the Subject Stock so offered, at the purchase price and on
the terms stated in the Offer Notice. Each Acceptance Notice must specify the
number of shares of Subject Stock which the Other Stockholder wishes to purchase
pursuant to the Offer (such number of shares being referred to herein as the
"Specified Shares" with respect to each Acceptance Notice, and the "Aggregate
Specified Shares" with respect to all of the Acceptance Notices taken together).
<PAGE>
(b) In the event of a Conditional Offer, the Selling Stockholder
shall not be obligated to sell any Subject Stock to any Other Stockholders
pursuant to this Section 3.2 if the number of Aggregate Specified Shares is less
than the number of shares of Subject Stock, and the Selling Stockholder shall be
free to Sell the Subject Stock, at any time within 90 days after expiration of
the Acceptance Period (the "Sale Period"), at a price not less than the price,
and on terms not more favorable to the purchaser thereof than the terms, stated
in the Offer Notice.
(c) In the event of an Offer which is not a Conditional Offer (or
in the event of a Conditional Offer where the number of Aggregate Specified
Shares equals or exceeds the number of shares of Subject Stock), the Selling
Stockholder shall sell to each Other Stockholder who delivered an Acceptance
Notice a number of shares of Subject Stock which is equal to such Other
Stockholder's number of Specified Shares, and the Selling Stockholder shall be
free to sell any remaining unsold shares of Subject Stock, at any time during
the Sale Period, at a price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms, set forth in the Offer
Notice.
(d) In the event that the number of Aggregate Specified Shares
exceeds the number of shares of Subject Stock, then the Subject Stock shall be
allocated among such Other Stockholders as follows: (i) First, each such Other
Stockholder shall be entitled to purchase a number of shares of Subject Stock
equal to the lesser of the number of such Other Stockholder's Specified Shares
or such Other Stockholder's Proportionate Percentage of Subject Stock; (ii)
Second, if any Subject Stock remains unallocated ("Remaining Shares"), each
Other Stockholder whose number of Specified Shares exceeded the number of shares
of Subject Stock allocated to it pursuant to (i) above (the amount of such
excess being referred to herein as the "Excess Amount") (each, an
"Oversubscribed Stockholder") shall be entitled to purchase a number of
Remaining Shares equal to the lesser of the Excess Amount and such
Oversubscribed Stockholder's Proportionate Percentage (treating only
Oversubscribed Stockholders as Other Stockholders for these purposes) of the
Remaining Shares; and (iii) Third, the process set forth in (ii) above shall be
repeated with respect to any Subject Stock not allocated for purchase, until all
shares of Subject Stock are allocated for purchase.
(e) The requirements of this Section 3.2 shall not apply to (i)
any Sale of Stock by a Stockholder to an Affiliate of such Stockholder, (ii) any
Sale of Stock which is a Public Sale or (iii) a Company Sale pursuant to Section
4.
3.3. TAG-ALONG RIGHTS. In addition to (and not in limitation of) any
other restrictions on Sales of Stock contained in this Agreement, and subject to
Section 3.3(d), no Stockholder may, in any transaction or series of
transactions, Sell Stock representing more than 20% of the then issued and
outstanding Stock to another Person, except in accordance with the following
procedures:
<PAGE>
(a) The Selling Stockholder shall first deliver to each Other
Stockholder a written notice (a "Tag-Along Notice"), which shall (i)
specifically identify the proposed transferee of the Stock (the "Tag-Along
Offeror"), the amount of Stock proposed to be Sold (the "Tag-Along Subject
Stock"), the purchase price therefor and a summary of the other material terms
and conditions of the proposed Sale, and (ii) contain an offer (the "Tag-Along
Offer") from the Tag-Along Offeror to each such Other Stockholder to purchase
from the Stockholders (including the Selling Stockholder and the Other
Stockholders), in the aggregate, up to the number of shares of Tag-Along Subject
Stock, upon the terms and subject to the conditions of the proposed Sale as set
forth in the Tag-Along Notice. The Tag-Along Offer may be accepted in whole or
in part at the option of each of the Stockholders. Acceptance of a Tag-Along
Offer, in whole or in part, shall be made by delivery of a written notice (a
"Tag-Along Acceptance Notice") to the Tag-Along Offeror within 15 days after
receipt of the Tag-Along Notice (the "Tag-Along Offer Period"), setting forth
the maximum number of shares of Stock that such Stockholder elects to Sell
pursuant thereto (such number of shares being referred to herein as the
"Specified Tag-Along Shares" with respect to each Tag-Along Acceptance Notice,
and the "Aggregate Specified Tag-Along Shares" with respect to all of the
Tag-Along Acceptance Notices taken together).
(b) In the event that the Aggregate Specified Tag- Along Shares
exceed the number of shares of Tag-Along Subject Stock, each Stockholder
(including the Selling Stockholder and each Other Stockholder who delivers a
Tag-Along Acceptance Notice) shall be entitled to Sell Stock to the Tag-Along
Offeror pursuant to this Section 3.3, as follows: (i) First, each Stockholder
shall be entitled to Sell a number of shares of Stock equal to the lesser of the
number of such Stockholder's Specified Tag-Along Shares or such Stockholder's
Proportionate Percentage of Tag-Along Subject Stock; (ii) Second, if any
Tag-Along Subject Stock remains unallocated ("Remaining Tag-Along Shares"), each
Stockholder whose number of Specified Tag-Along Shares exceeded the number of
shares of Stock Sold pursuant to (i) above (the amount of such excess being
referred to herein as the "Excess Tag- Along Amount") (each, a "Remaining
Tag-Along Stockholder") shall be entitled to Sell to the Tag-Along Offeror a
number of shares of Stock equal to the lesser of the Excess Amount and such
Remaining Tag-Along Stockholder's Proportionate Percentage (treating only
Remaining Tag-Along Stockholders as Stockholders for these purposes) of the
Remaining Tag Along Shares; and (iii) Third, the process set forth in (ii) above
shall be repeated with respect to any Tag-Along Stock not sold to the Tag- Along
Offeror, until all specified Tag-Along Shares are so Sold.
(c) No Other Stockholder who delivers an Acceptance Notice with
respect to a proposed Sale of Stock by a Selling Stockholder shall have the
right to deliver a Tag-Along Acceptance Notice with respect to such proposed
Sale of Stock.
<PAGE>
(d) The requirements of this Section 3.3 shall not apply to (i)
any Sale of Stock by a Stockholder to an Affiliate of such Stockholder, (ii) any
Sale of Stock which is a Public Sale or (iii) a Company Sale pursuant to Section
4.
3.4. PROCEDURES.
(a) All Sales of Subject Stock to Other Stockholders pursuant to
an Offer Notice, or of Tag-Along Subject Stock to a Tag-Along Offeror pursuant
to a Tag-Along Notice, shall be consummated on the later of (i) a mutually
satisfactory business day within 30 days after the expiration of the Acceptance
Period or the Tag-Along Acceptance Period, as the case may be, or (ii) the fifth
business day following the expiration or termination of all waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the receipt of all other necessary governmental approvals, including, without
limitation, insurance regulatory approvals, applicable to such Sale, or at such
other time and/or place as the parties to such Sale may agree. The delivery of
certificates or other instruments evidencing such Subject Stock, or Tag-Along
Subject Stock, as the case may be, duly endorsed for transfer, shall be made on
such date against payment of the purchase price for such Stock.
(b) If a Selling Stockholder sells Subject Stock during the Sale
Period, or sells Tag-Along Subject Stock to a Tag- Along Offeror, the Selling
Stockholder shall promptly notify the Other Stockholders, as to (i) the number
of shares of Stock, if any, that the Selling Stockholder owns after such Sale,
(ii) the number of shares of Stock that the Selling Stockholder has Sold, (iii)
the terms of such Sale and (iv) the name of the owner(s) of any shares of Stock
Sold.
(c) In the event that Subject Stock is not Sold by the Selling
Stockholder during the Sale Period, the right of the Selling Stockholder to Sell
such unsold Stock shall expire and the obligations of Section 3.2 shall be
reinstated upon expiration of the Sale Period.
3.5. TRANSFEREES. Any transferee of Stock (other than a transferee pursuant
to a Public Sale or a Company Sale) who is not (immediately prior to the time of
such transfer) a Stockholder shall, upon consummation of, and as a condition to,
such Sale, (A) execute, and agree to be bound by the terms of, this Agreement
and shall thereafter be listed as a party on Schedule A hereto and deemed a
Stockholder for purposes of this Agreement and (B) execute and deliver a
certificate, in form and substance reasonably satisfactory to the Company, to
the effect that (i) such Person is purchasing the Stock for its own account, for
investment and not with a view to the distribution thereof and (ii) such Sale is
otherwise being made in compliance with all applicable federal and state laws
(including, without limitation, federal and state securities laws and "blue sky"
laws). Upon the Sale by GSCP of all of its Stock, any
<PAGE>
transferees thereof (to the extent the rights are assigned by GSCP) shall have
all of the rights of GSCP under this Agreement, but excluding (x) the right
pursuant to Section 2.2(b) to designate or remove the Chief Operating Officer of
the Company and (y) the right pursuant to Section 2.1(f) to designate the
Chairman of the Board.
SECTION 4. COMPANY SALE. Notwithstanding any other provision of this
Agreement, in the event that (i) the Termination Date has not occurred within
five years from the date hereof, (ii) an Acceleration Event occurs or (iii) Mr.
Alan G. Symons ceases to be employed as the Chief Executive Officer of the
Company for any reason whatsoever, GSCP shall have the right to provide to SIG,
at any time or from time to time thereafter, a written notice (a "Company Sale
Notice"), which shall state GSCP's intention to seek to effect a Company Sale
and shall offer to SIG the opportunity to provide to GSCP, within 30 days after
receipt of the Company Sale Notice, a written notice (a "SIG Purchase Notice")
to the effect that SIG wishes to acquire or combine with the Company in a
Company Sale transaction. The SIG Purchase Notice shall include the proposed
purchase price and other material terms and conditions of the Company Sale being
proposed by SIG, with such specificity as is necessary for GSCP, in its
reasonable discretion, to be able to compare such terms and conditions with
those which may be proposed by other potential bidders. After delivery of a
Company Sale Notice, GSCP may conduct such sale process to seek to effect a
Company Sale as GSCP shall determine in its sole discretion, and GSCP is hereby
authorized to execute on behalf of the Company and the Stockholders an agreement
with respect to any Company Sale which contains terms and conditions acceptable
to GSCP in its sole discretion (any such agreement being referred to herein as
the "Company Sale Agreement"); provided, however, that (i) for a period of 180
days after receipt of a SIG Purchase Notice, GSCP may not effect a Company Sale
with any Person on terms which, in the aggregate, are less favorable to the
Stockholders than the terms set forth in the SIG Purchase Notice, (ii) any
Company Sale effected by GSCP must provide that each Stockholder will receive
the same consideration per share of Stock owned by it, and (iii) GSCP may not
effect a Company Sale pursuant to which the Company will be acquired by or
combined with any Affiliate of GSCP. Upon delivery of a SIG Purchase Notice, SIG
will be obligated to effect a Company Sale on the terms and conditions set forth
therein if, within 90 days after delivery of the SIG Purchase Notice, GSCP
accepts such terms and conditions by written notice to SIG.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Each
party hereto represents and warrants to the other parties hereto
as follows:
(i) It has full power and authority to execute, deliver and
perform its obligations under this Agreement.
<PAGE>
(ii) This Agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding obligation of
it, enforceable against it in accordance with its terms.
(iii) The execution, delivery and performance of this Agreement
by it does not (x) violate, conflict with, or constitute a breach of or default
under its organizational documents, if any, or any material agreement to which
it is a party or by which it is bound or (y) violate any law, regulation, order,
writ, judgment, injunction or decree applicable to it.
(iv) Except for (i) the approval of the Department of Insurance
of the State of Indiana and (ii) expiration or termination of any applicable
waiting periods under the Hart- Scott-Rodino Antitrust Improvement Act of 1976,
as amended, no consent or approval of, or filing with, any governmental or
regulatory body is required to be obtained or made by it in connection with the
transactions contemplated hereby.
(v) It is not a party to any agreement which is inconsistent with
the rights of any party hereunder or otherwise conflicts with the provisions
hereof.
SECTION 6. MISCELLANEOUS.
6.1. NO INCONSISTENT AGREEMENTS; FURTHER ASSURANCES. Neither the
Company nor any Stockholder shall take any action or enter into any agreement
which is inconsistent with the rights of any party hereunder or otherwise
conflicts with the provisions hereof. Each Stockholder agrees to vote all shares
of Stock of the Company Beneficially Owned by it (including, without limitation,
any shares of Stock of another Stockholder with respect to which it has voting
control, whether as a result of a voting trust or otherwise), and to take all
necessary action within its control, to cause the provisions of this Agreement
to be effected (including, without limitation, voting to approve a Company Sale
Agreement and a Company Sale effected by GSCP pursuant to Section 4). Each
Stockholder agrees not to vote any Stock, take any action by written consent, or
take any other action as a stockholder of the Company, to take or approve any
corporate action or transaction by the Company not previously approved by the
Board. At any time and from time to time after the date hereof, the parties
agree to cooperate with each other, and at the request of any other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby and to
otherwise carry out the intent of the parties hereunder.
<PAGE>
6.2. LEGENDS. Each certificate representing shares of
Common Stock shall bear a legend containing the following words:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH SUCH ACT."
"IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE
STOCKHOLDER AGREEMENT DATED AS OF HOLDING COMPANY, 1995 BY AND
AMONG GGS MANAGEMENT HOLDINGS, INC. AND THE PARTIES THERETO, A
COPY OF WHICH IS ON FILE IN THE OFFICE OF GGS MANAGEMENT
HOLDINGS, INC."
The requirement that the above securities legend be placed upon
certificates evidencing any such securities shall cease and terminate upon the
earliest of the following events: (i) when such shares are transferred in an
underwritten public offering, (ii) when such shares are transferred pursuant to
Rule 144 under the Securities Act or (iii) when such shares are transferred in
any other transaction if the seller delivers to the Company an opinion of its
counsel, which counsel and opinion shall be reasonably satisfactory to the
Company, or a "no-action" letter from the staff of the Securities and Exchange
Commission, in either case to the effect that such legend is no longer necessary
in order to protect the Company against a violation by it of the Securities Act
upon any sale or other disposition of such shares without registration
thereunder. The requirement that the above legend regarding the Stockholder
Agreement be placed upon certificates evidencing any such securities shall cease
and terminate upon the termination of this Agreement. Upon the occurrence of any
event requiring the removal of a legend hereunder, the Company, upon the
surrender of certificates containing such legend, shall, at its own expense,
deliver to the holder of any such shares as to which the requirement for such
legend shall have terminated, one or more new certificates evidencing such
shares not bearing such legend.
<PAGE>
6.3. TERMINATION. This Agreement shall terminate on
the Termination Date, except with respect to the Company's
obligations pursuant to Section 2.1(g), which shall terminate
pursuant to its terms.
6.4. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
6.5. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the principles of conflicts of law thereof. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the United States of America located in the County of New York,
for any action, proceeding or investigation in any court or before any
governmental authority ("Litigation") arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any Litigation relating thereto except in such courts), and further agrees that
service of any process, summons, notice or document by U.S. registered mail to
its respective address set forth in this Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the United States of America
located in the County of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Litigation brought in any such court has been brought in an
inconvenient forum.
6.6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and shall be binding upon the parties hereto and their respective successors,
assigns, heirs and personal representatives. No Stockholder shall have the right
to assign its rights and obligations under this Agreement without the consent of
the other Stockholders; provided, however, that GSCP may assign its rights and
obligations hereunder, in whole or in part, to any Affiliate of GSCP. Upon any
permitted assignment, such assignee shall have and be able to exercise all
rights of the assigning Stockholder, to the extent so assigned.
6.7. NOTICES. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or by telecopy, nationally-recognized
overnight courier or first class registered or certified mail, return receipt
requested, postage prepaid, addressed to such party at the address set forth
below or such other address as may hereafter be designated in writing by such
party to the other parties:
<PAGE>
(i) if to the Company, to:
GGS MANAGEMENT HOLDINGS, INC.
c/o Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telecopy: (317) 259-6395
Attention: Mr. Alan G. Symons
with copies to each of GSCP, SIG and Goran.
(ii) if to GSCP, to:
GS Capital Partners II, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Mr. Michael A. Pruzan
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8585
Attention: Gail Weinstein, Esq.
(iii) if to SIG or Goran, to:
Goran Capital Inc.
Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telecopy: (317) 259-6395
Attention: David L. Bates, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
6.8. AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended, or any of the provisions
hereof waived, temporarily or permanently, only pursuant to the
written consent of the Company, GSCP and SIG.
<PAGE>
6.9. HEADINGS. The headings of the Sections of this
Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement.
6.10. REMEDIES. Without intending to limit the remedies available to
any party hereto, each party (i) acknowledges that breach of this Agreement will
result in irreparable harm for which there is no adequate remedy at law, and
(ii) agrees that any party seeking to enforce this Agreement shall be entitled
to injunctive relief or other equitable remedies upon any such breach.
6.11. NO THIRD PARTY BENEFICIARIES. Nothing in this
Agreement is intended to or shall create any third party
beneficiary rights in any person or entity (other than the GSCP
Designees and the Goran Designees under Section 2.1(h)).
6.12. GUARANTEE. Goran hereby guarantees all of the
representations and warranties, covenants, agreements,
commitments and obligations of SIG hereunder.
6.13. ENTIRE AGREEMENT. This Agreement, the Stock Purchase Agreement
and the Ancillary Agreements (and the other writings referred to herein or
therein or delivered pursuant hereto or thereto which form a part hereof or
thereof) contain the entire agreement among the parties hereto with respect to
the subject matter hereof and supersede all prior and contemporaneous agreements
and understandings with respect thereto.
6.14. NEWSUB. The parties agree that they will cause a
Stockholder Agreement by and between GGS Management, Inc. and the
Company to be entered into promptly after the date hereof,
substantially in the form of this Agreement, but with GGS
Management, Inc. substituted for the Company.
6.15. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, and each such counterpart shall be
deemed to be an original instrument, but all such counterparts
together shall constitute but one agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GGS MANAGEMENT HOLDINGS, INC.
By:/s/ Alan Symons
------------------------------
Name: Alan Symons
Title: President
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P., its general
partner
By: GS Advisors, Inc., its general
partner
By:/s/ Sanjay Patel
------------------------------
Name: Sanjay Patel
Title: Vice President
SYMONS INTERNATIONAL GROUP, INC.
By:/s/ Alan Symons
------------------------------
Name: Alan Symons
Title: Treasurer
GORAN CAPITAL INC.
By:/s/ Alan Symons
------------------------------
Name: Alan Symons
Title: President
REGISTRATION RIGHTS AGREEMENT
among
GGS MANAGEMENT HOLDINGS, INC.
GS CAPITAL PARTNERS II, L.P.,
SYMONS INTERNATIONAL GROUP, INC.
and
GORAN CAPITAL INC.
Dated as of April 30, 1996
<PAGE>
TABLE OF CONTENTS
1. Certain Definitions.................................................. 1
1.1. "Affiliate".................................................... 1
1.2. "Closing"...................................................... 1
1.3. "Closing Date"................................................. 2
1.4. "Commission"................................................... 2
1.5. "Common Stock"................................................. 2
1.6. "Holder" or "Holders".......................................... 2
1.7. "Initial Public Offering" or "IPO"............................. 2
1.8. "Person"....................................................... 2
1.9. "Registrable Securities"....................................... 2
1.10. "Securities Act"............................................... 3
2. Registration Rights.................................................. 3
2.1. Demand Registrations........................................... 3
2.2. Piggyback Registrations........................................ 5
2.3. Allocation of Securities Included in
Registration Statement......................................... 6
2.4. Registration Procedures........................................ 7
2.5. Registration Expenses.......................................... 13
2.6. Certain Limitations on Registration Rights..................... 14
2.7. Limitations on Sale or Distribution of Other
Securities..................................................... 14
2.8. No Required Sale............................................... 15
2.9. Indemnification................................................ 15
3. Underwritten Offerings............................................... 19
3.1. Requested Underwritten Offerings..............................
3.2. Piggyback Underwritten Offerings............................... 19
4. General.............................................................. 20
4.1. Investment Banking Services.................................... 20
4.2. Adjustments Affecting Registrable Securities................... 20
4.3. Rule 144....................................................... 21
4.4. Nominees for Beneficial Owners................................. 21
4.5. Amendments and Waivers......................................... 21
4.6. Notices........................................................ 22
4.7. Miscellaneous.................................................. 23
4.8. Guarantee...................................................... 24
4.9. Additional Registration Rights................................. 24
4.10. No Inconsistent Agreements..................................... 25
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of April 30,
1996, by and among GGS MANAGEMENT HOLDINGS, INC., a Delaware corporation (the
"Company"), GS CAPITAL PARTNERS II, L.P., a Delaware limited partnership
("GSCP"), SYMONS INTERNATIONAL GROUP, INC., an Indiana corporation ("SIG") and
GORAN CAPITAL INC, a Canadian corporation ("Goran").
WHEREAS, as of the date hereof, SIG holds shares of Common Stock, par value
$.01 per share, of the Company ("Common Stock");
WHEREAS, the Company, GSCP, SIG and Goran have entered into a Stock
Purchase Agreement (the "Purchase Agreement"), dated as of January 31, 1996,
pursuant to which GSCP has agreed to purchase from the Company shares of Common
Stock;
WHEREAS, the Company, GSCP, SIG and Goran have entered into a Stockholder
Agreement ("Stockholder Agreement"), dated as of the date herein, pursuant to
which the parties established certain rights and obligations associated with
ownership of shares of Common Stock; and
WHEREAS, the parties hereto desire to provide certain registration rights
with respect to the shares of Common Stock of the Company held as of the date
hereof by GSCP and SIG.
ACCORDINGLY, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
1.1. "Affiliate": shall mean with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person.
1.2. "Closing": shall mean the consummation of the transaction described in
the Stock Purchase Agreement.
1.3. "Closing Date": shall mean the date upon which Closing occurs.
1.4. "Commission": shall mean the Securities and Exchange Commission.
<PAGE>
1.5. "Common Stock":shall have the meaning set forth in the recitals.
1.6. "Holder" or "Holders": shall mean any party who is a signatory to this
Agreement and any party who shall hereafter acquire and hold
Registrable Securities.
1.7. "Initial Public Offering" or "IPO": shall mean an initial underwritten
public offering of Common Stock effected pursuant to an effective
registration statement filed under the Securities Act.
1.8. "Person": shall mean any natural person, corporation, partnership,
firm, association, trust, government, governmental agency or other
entity, whether acting in an individual, fiduciary or other capacity.
1.9. "Registrable Securities": shall mean any (i) shares of Common Stock
held as of the Closing Date by GSCP and SIG and (ii) any shares issued
upon any subdivision, combination or reclassification of such shares
or any stock dividend in respect of any of the foregoing shares. As to
any particular Registrable Securities, such securities shall cease to
be Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) such
securities shall have been sold (other than in a privately negotiated
sale) pursuant to Rule 144 (or any successor provision) under the
Securities Act and in compliance with the requirements of paragraphs
(f) and (g) of Rule 144 (notwithstanding the provisions of paragraph
(k) of such Rule) or (iii) such securities are at any time being held
by a Person permitted to sell such securities pursuant to Rule 144(k);
provided, however, that if at any time the holder of such securities
is not permitted to sell such securities pursuant thereto, such
securities shall again become Registrable Securities.
1.10. "Securities Act": shall mean the Securities Act of 1933, as amended.
<PAGE>
2. REGISTRATION RIGHTS.
2.1. DEMAND REGISTRATIONS.
(a)(i) Subject to Sections 2.1(b) and 2.3 below, at any time and from
time to time after the earlier of (x) the closing of an IPO and (y) the
second anniversary of the Closing Date, a Holder or Holders holding at
least 25% of Registrable Securities shall have the right to require the
Company to file a registration statement under the Securities Act covering
all or any part of their respective Registrable Securities, by delivering a
written request therefor to the Company specifying the number of
Registrable Securities to be included in such registration by such
Holder(s) and the intended method of distribution thereof. All such
requests pursuant to this Section 2.1(a)(i) are referred to herein as
"Demand Registration Requests," and the registrations so requested are
referred to herein as "Demand Registrations." As promptly as practicable,
but no later than ten days after receipt of a Demand Registration Request,
the Company shall give written notice (the "Demand Exercise Notice") of
such Demand Registration Request to all Holders of record of Registrable
Securities.
(ii) The Company, subject to Sections 2.3 and 2.6, shall include in a
Demand Registration (x) the Registrable Securities of the Holder(s) which
requested such registration and (y) the Registrable Securities of any
Holder which shall have made a written request to the Company for
registration thereof (which request shall specify the maximum number of
Registrable Securities intended to be disposed of by such Holder(s)) within
30 days after the receipt of the Demand Exercise Notice (or, 15 days if, at
the request of the Holder(s) which requested such registration, the Company
states in such written notice or gives telephonic notice to all Holders,
with written confirmation to follow promptly thereafter, that such
registration will be on Form S-3).
(iii) The Company shall, as expeditiously as possible following a
Demand Registration Request, use its best efforts to (x) effect such
registration under the Securities Act (including, without limitation, by
means of a shelf registration pursuant to Rule 415 under the Securities Act
if so requested and if the Company is then eligible to use such a
registration) of the Registrable Securities which the Company has been so
requested to register, for distribution in accordance with such intended
method of distribution, and (y) if requested by the Holder(s) making such
demand for registration, obtain acceleration of the effective date of the
registration statement relating to such registration.
(b) The right of the Holders to initiate a Demand Registration
pursuant to Section 2.1 (a) herein, is subject to the following limitations: (i)
no party shall be entitled to initiate a Demand Registration unless at least 20%
of Registrable Securities are registered pursuant to the demand; (ii) each
registration in respect of a Demand Registration Request must include
Registrable Securities having an aggregate offering price of at least
$25,000,000 (based on the then-current market price or fair value estimated by
the underwriters in the case of an IPO); and (iii) the Company shall not be
required to effect any Demand Registration within six months of the effective
date of any other registration of the Common Stock.
<PAGE>
(c) The Company, subject to Sections 2.3 and 2.6, may elect to
include in any registration statement and offering made pursuant to Section
2.1(a)(i), any other shares of Common Stock which are requested to be included
in such registration pursuant to the exercise of registration rights granted by
the Company after the date hereof in accordance with the terms of this Agreement
and Section 2.3 of the Stockholder Agreement ("Additional Registration Rights");
provided, however, that such inclusion shall be permitted only to the extent
that it is pursuant to and subject to the terms of the underwriting agreement or
arrangements, if any, entered into by the Holders making such Demand
Registration Request.
(d) Underwriting of Demand Registration. At the election of
Holders of a majority of the Registrable Securities proposed to be included in
any Demand Registration, the offering of a Registrable Securities pursuant to
such Demand Registration shall be in the form of an underwritten offering.
Subject to Section 4.1, Holders of a majority of the Registrable Securities
proposed to be included in such offering, shall select managing underwriters in
connection therewith and any additional investment bankers and managers to be
used in connection with such offering.
2.2. PIGGYBACK REGISTRATIONS.
(a) If, at any time, the Company proposes or is required to
register any equity securities for its own account of for the account of others
under the Securities Act (other than pursuant to (i) registrations on such form
or similar form(s) solely for registration of securities in connection with an
employee benefit plan or dividend reinvestment plan or a merger or consolidation
or (ii) a Demand Registration under Section 2.1) on a registration statement on
Form S-1, Form S-2 or Form S-3 (or an equivalent general registration form then
in effect), whether or not for its own account, the Company shall give prompt
written notice of its intention to do so to each of the Holders of record of
Registrable Securities. Upon the written request of any Holder, made within 15
days following the receipt of any such written notice (which request shall
specify the maximum number of Registrable Securities intended to be disposed of
by such Holder and the intended method of distribution thereof), the Company
shall, subject to Sections 2.2(b), 2.3 and 2.6 hereof, use its best efforts to
cause all such Registrable Securities, the Holders of which have so requested
the registration thereof, to be registered under the Securities Act (with the
securities which the Company at the time proposes to register) to permit the
sale or other disposition by the Holders (in accordance with the intended method
of distribution thereof) of the Registrable Securities to be so registered.
There is no limitation on the number of such piggyback registrations pursuant to
the preceding sentence which the Company is obligated to effect. No registration
effected under this Section 2.2(a) shall relieve the Company of its obligations
to effect Demand Registrations.
<PAGE>
(b) If, at any time after giving written notice of its intention
to register any equity securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
equity securities, the Company may, at its election, give written notice of such
determination to all Holders of record of Registrable Securities and (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such abandoned
registration, without prejudice, however, to the rights of Holders under Section
2.1, and (ii) in the case of a determination to delay such registration of its
equity securities, shall be permitted to delay the registration of such
Registrable Securities for the same period as the delay in registering such
other equity securities.
(c) Any Holder shall have the right to withdraw its request for
inclusion of its Registrable Securities in any registration statement pursuant
to this Section 2.2 by giving written notice to the Company of its request to
withdraw.
2.3. ALLOCATION OF SECURITIES INCLUDED IN REGISTRATION STATEMENT.
(a) If any requested registration pursuant to Section 2.1
involves an underwritten offering and a co-manager of such offering which shall
be a prominent investment banking firm which is unaffiliated with the Holders
(the "Co-Manager"), shall advise the Company that, in its view, the number of
Registrable Securities requested to be included in such registration by the
Holders or any other persons (including those securities requested by the
Company or by holders exercising Additional Registration Rights to be included
in such registration) exceeds the largest number (the "Section 2.1 Sale Number")
that can be sold in an orderly manner in such offering without affecting the
price at which the securities can be sold, the Company shall include in such
registration:
(i) all Registrable Securities requested to be included in
such registration by Holders of Registrable Securities; provided, however, that,
if the number of such Registrable Securities exceeds the Section 2.1 Sale
Number, the number of such Registrable Securities (not to exceed the Section 2.1
Sale Number) to be included in such registration, shall be allocated on a pro
rata basis among all Holders requesting that Registrable Securities be included
in such registration, based on the number of Registrable Securities then owned
by each Holder requesting inclusion in relation to the number of Registrable
Securities owned by all Holders requesting inclusion.
<PAGE>
(ii) to the extent that the number of Registrable Securities
to be included by all Holders is less than the Section 2.1 Sale Number,
securities that the Company proposes to register; and
(iii) to the extent that the number of Registrable
Securities to be included by all Holders and the number of securities to be
included by the Company is less than the Section 2.1 Sale Number, any other
securities that the holders thereof propose to register pursuant to the exercise
of Additional Registration Rights.
If, as a result of the proration provisions of this Section
2.3(a), any Holder shall not be entitled to include all Registrable Securities
in a registration that such Holder has requested be included, such Holder may
elect to withdraw his request to include Registrable Securities in such
registration or may reduce the number requested to be included.
(b) If any registration pursuant to Section 2.2 involves an
underwritten offering and the Co-Manager shall advise the Company that, in its
view, the number of securities requested to be included in such registration
exceeds the number (the "Section 2.2 Sale Number") that can be sold in an
orderly manner in such registration without affecting the price at which the
securities can be sold, the Company shall include in such registration:
(i) all Common Stock that the Company proposes to register
for its own account (the "Company Securities");
(ii) to the extent that the number of Company Securities is
less than the Section 2.2 Sale Number, the remaining shares to be included in
such registration shall be allocated on a pro rata basis among all Holders
requesting that Registrable Securities be included in such registration, based
on the number of Registrable Securities owned by each Holder requesting
inclusion in relation to the number of Registrable Securities then owned by all
Holders requesting inclusion; and
(iii) to the extent the number of Company Securities plus
the number of Registrable Securities requested to be included by all Holders is
less than the Section 2.2 Sale Number, any other securities that the holders
thereof propose to register pursuant to the exercise of Additional Registration
Rights.
2.4. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company shall, as expeditiously as possible:
<PAGE>
(a) prepare and file with the Commission a registration statement
on an appropriate registration form of the Commission for the disposition of
such Registrable Securities in accordance with the intended method of
disposition thereof, which form (i) shall be selected by the Company and (ii)
shall, in the case of a shelf registration, be available for the sale of the
Registrable Securities by the selling Holders thereof and such registration
statement shall comply as to form in all material respects with the requirements
of the applicable form and include all financial statements required by the
Commission to be filed therewith, and the Company shall use its best efforts to
cause such registration statement to become and remain effective (provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, or comparable statements under securities or
blue sky laws of any jurisdiction, the Company will furnish to one counsel for
the Holders participating in the planned offering (selected by the Holders
making the Demand Registration Request, in the case of a registration pursuant
to Section 2.1, and selected by the Holders of a majority of the Registrable
Securities included in such registration, in the case of a registration pursuant
to Section 2.2) and the underwriters, if any, copies of all such documents
proposed to be filed (including all exhibits thereto), which documents will be
subject to the reasonable review and reasonable comment of such counsel, and the
Company shall not file any registration statement or amendment thereto or any
prospectus or supplement thereto to which the holders of a majority of the
Registrable Securities covered by such registration statement or the
underwriters, if any, shall reasonably object in writing);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period (which shall not be required to exceed [150 days] in the case of a
registration pursuant to Section 2.1 or [120 days] in the case of a registration
pursuant to Section 2.2) as any seller of Registrable Securities pursuant to
such registration statement shall request and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all
Registrable Securities covered by such registration statement in accordance with
the intended methods of disposition by the seller or sellers thereof set forth
in such registration statement;
<PAGE>
(c) furnish, without charge, to each seller of such Registrable
Securities and each underwriter, if any, of the securities covered by such
registration statement such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits), and
the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act, and other documents, as such seller and underwriter may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities owned by such seller (the Company hereby consenting
to the use in accordance with all applicable law of each such registration
statement (or amendment or post-effective amendment thereto) and each such
prospectus (or preliminary prospectus or supplement thereto) by each such
seller of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
registration statement or prospectus);
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other securities or
"blue sky" laws of such jurisdictions as any sellers of Registrable Securities
or any managing underwriter, if any, shall reasonably request, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such sellers or underwriter, if any, to consummate the disposition of the
Registrable Securities in such jurisdictions, except that in no event shall the
Company be required to qualify to do business as a foreign Company in any
jurisdiction where it would not, but for the requirements of this paragraph (d),
be required to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction;
(e) promptly notify each Holder selling Registrable Securities
covered by such registration statement and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or state securities authority for
amendments or supplements to the registration statement or the prospectus
related thereto or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the securities or
blue sky laws of any jurisdiction or the initiation of any proceeding for such
purpose; (v) of the existence of any fact of which the Company becomes aware
which results in the registration statement, the prospectus related thereto or
any document incorporated therein by reference containing an untrue statement of
a material fact or omitting to state a material fact required to be stated
therein or necessary to make any statement therein not misleading; and (vi) if
at any time the representations and warranties contemplated by Section 3 below
cease to be true and correct in all material respects; and, if the notification
relates to an event described in clause (v), the Company shall promptly prepare
and furnish to each such seller and each underwriter, if any, a reasonable
number of copies of a prospectus supplemented or amended so that, as thereafter
<PAGE>
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein in the light of the circumstances under which they were made not
misleading;
(f) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon as
reasonably practicable after the effective date of the registration statement
(and in any event within 16 months thereafter), an earnings statement (which
need not be audited) covering the period of at least twelve consecutive months
beginning with the first day of the Company's first calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(g) (i) cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the rules of such
exchange, (ii) if no similar securities are then so listed or if the listing of
such Registrable Securities is then not permitted under the rules of such
exchange, to either cause all such Registrable Securities to be listed on the
New York Stock Exchange ("NYSE"), if the listing of such Registrable Securities
is then permitted under the rules of the NYSE; or (iii) if the listing of such
Registrable Securities is not permitted under the rules of the NYSE, secure
designation of all such Registrable Securities as a National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") "national market
system security" within the meaning of Rule 11Aa2-1 of the Commission or,
failing that, secure NASDAQ authorization for such shares and, without limiting
the generality of the foregoing, take all actions that may be required by the
Company as the issuer of such Registrable Securities in order to facilitate the
managing underwriter's arranging for the registration of at least two market
makers as such with respect to such shares with the National Association of
Securities Dealers, Inc. (the "NASD");
(h) provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
<PAGE>
(i) enter into such customary agreements (including, if
applicable, an underwriting agreement) and take such other actions as the
Holders of a majority of the Registrable Securities participating in such
offering shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities, provided that the underwriting
agreement, if any, shall be reasonably satisfactory in form and substance to the
Company. The Holders of the Registrable Securities which are to be distributed
by such underwriters shall be parties to such underwriting agreement and may, at
their option, require that the Company make to and for the benefit of such
Holders the representations, warranties and covenants of the Company which are
being made to and for the benefit of such underwriters and which are of the type
customarily provided to institutional investors in secondary offerings;
(j) use its best efforts to obtain an opinion from the Company's
counsel and a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters as are customarily
covered by such opinions and "cold comfort" letters delivered to underwriters in
underwritten public offerings, which opinion and letter shall be reasonably
satisfactory to the underwriter, if any, and to the Holders of a majority of the
Registrable Securities participating in such offering, and furnish to each
Holder participating in the offering and to each underwriter, if any, a copy of
such opinion and letter addressed to such Holder or underwriter;
(k) deliver promptly to each Holder participating in the offering
and each underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement, other than those portions of any such correspondence and memoranda
which contain information subject to attorney-client privilege with respect to
the Company, and, upon receipt of such confidentiality agreements as the Company
may reasonably request, make reasonably available for inspection by any seller
of such Registrable Securities covered by such registration statement, by any
underwriter, if any, participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent financial and
other records, pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(l) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement;
(m) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the registration statement;
<PAGE>
(n) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into account
the needs of the Company's businesses and the requirements of the marketing
process) in the marketing of Registrable Securities in any underwritten
offering;
(o) promptly prior to the filing of any document which is to be
incorporated by reference into the registration statement or the prospectus
(after the initial filing of such registration statement) provide copies of such
document to counsel for the selling holders of Registrable Securities and to the
managing underwriter, if any, and make the Company's representatives reasonably
available for discussion of such document and make such changes in such document
concerning the selling holders prior to the filing thereof as counsel for such
selling holders or underwriters may reasonably request;
(p) furnish to each Holder participating in the offering and the
managing underwriter, without charge, at least one signed copy of the
registration statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(q) cooperate with the selling holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing the
Registrable Securities to be sold, and cause such Registrable Securities to be
issued in such denominations and registered in such names in accordance with the
underwriting agreement prior to any sale of Registrable Securities to the
underwriters or, if not an underwritten offering, in accordance with the
instructions of the selling holders of Registrable Securities at least three
business days prior to any sale of Registrable Securities; and
(r) take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Section 2.4 that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request provided that such information shall be
used only in connection with such registration.
<PAGE>
Each Holder of Registrable Securities agrees that upon receipt of
any notice from the Company of the happening of any event of the kind described
in clause (v) of paragraph (e) of this Section 2.4, such Holder will discontinue
such Holder's disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by paragraph
(e) of this Section 2.4 and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the prospectus covering such Registrable
Securities that was in effect at the time of receipt of such notice. In the
event the Company shall give any such notice, the applicable period mentioned in
paragraph (b) of this Section 2.4 shall be extended by the number of days during
such period from and including the date of the giving of such notice to and
including the date when each seller of any Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (e) of this Section 2.4.
If any such registration statement or comparable statement under
"blue sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require (i)
the insertion therein of language, in form and substance satisfactory to such
Holder and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.
2.5. REGISTRATION EXPENSES.
(a) "Expenses" shall mean any and all fees and expenses incident
to the Company's performance of or compliance with this Article 2, including,
without limitation: (i) Commission, stock exchange or NASD registration and
filing fees and all listing fees and fees with respect to the inclusion of
securities in NASDAQ, (ii) fees and expenses of compliance with state securities
or "blue sky" laws and in connection with the preparation of a "blue sky"
survey, including without limitation, reasonable fees and expenses of blue sky
counsel, (iii) printing and copying expenses, (iv) messenger and delivery
expenses, (v) fees and disbursements of counsel for the Company, (vi) with
respect to each registration, the reasonable fees and disbursements of one
counsel for the selling Holder(s) (selected by the Holder(s) making the Demand
Registration Request, in the case of a registration pursuant to Section 2.1, and
selected by the Holders of a majority of the Registrable Securities included in
such registration, in the case of a registration pursuant to Section 2.2), (vii)
fees and disbursements of all independent public accountants (including the
expenses of any audit and/or "cold comfort" letter) and fees and expenses of
other persons, including special experts, retained by the Company, (viii) fees
and expenses payable to a Qualified Independent Underwriter and (ix) any other
fees and disbursements of underwriters, if any, customarily paid by issuers or
sellers of securities.
<PAGE>
(b) The Company shall pay all Expenses with respect to any Demand
Registration effected under Section 2.1(b) and any registration effected under
Section 2.2.
(c) Notwithstanding the foregoing, (x) the provisions of this
Section 2.5 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (y) in connection with any registration hereunder, each
Holder of Registrable Securities being registered shall pay all underwriting
discounts and commissions and any transfer taxes, if any, attributable to the
sale of such Registrable Securities, pro rata with respect to payments of
discounts and commissions in accordance with the number of shares sold in the
offering by such Holder, and (z) the Company shall, in the case of all
registrations under this Article 2, be responsible for all its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties).
2.6. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. In the case of any
registration under Section 2.1 pursuant to an underwritten offering, or in the
case of a registration under Section 2.2 if the Company has determined to enter
into an underwriting agreement in connection therewith, all securities to be
included in such registration shall be subject to an underwriting agreement and
no person may participate in such registration unless such person agrees to sell
such person's securities on the basis provided therein and completes and
executes all reasonable questionnaires, and other documents (other than powers
of attorney) which must be executed in connection therewith, and provides such
other information to the Company or the underwriter as may be necessary to
register such person's securities.
<PAGE>
2.7. LIMITATIONS ON SALE OR DISTRIBUTION OF OTHER SECURITIES.
(a) If requested in writing by the Company or the managing
underwriter, if any, of any registration effected pursuant to Section 2.1, each
Holder of Registrable Securities agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the Securities Act,
of any Registrable Securities, or of any other equity security of the Company
during the time period reasonably requested by the managing underwriter, not to
exceed 90 days (and the Company hereby also so agrees (except that the Company
may effect any sale or distribution of any such securities pursuant to a
registration on Form S-4 (if reasonably acceptable to the managing underwriter)
or Form S-8, or any successor or similar form which is then in effect) and
agrees to use its reasonable best efforts to cause each holder of any equity
security or of any security convertible into or exchangeable or exercisable for
any equity security of the Company purchased from the Company at any time other
than in a public offering so to agree).
(b) The Company hereby agrees that, if it shall previously have
received a request for registration pursuant to Section 2.1 or 2.2, and if such
previous registration shall not have been withdrawn or abandoned, the Company
shall not, effect any registration of any of its securities under the Securities
Act (other than a registration on Form S-4 or Form S-8 or any successor or
similar form which is then in effect), whether or not for sale for its own
account, until a period of 120 days shall have elapsed from the effective date
of such previous registration; and the Company shall so provide in any
registration rights agreements hereafter entered into with respect to any of its
securities.
2.8. NO REQUIRED SALE. Nothing in this Agreement shall be deemed to create
an independent obligation on the part of any Holder to sell any Registrable
Securities pursuant to any effective registration statement.
<PAGE>
2.9. INDEMNIFICATION.
(a) In the event of any registration of any securities of the
Company under the Securities Act pursuant to this Article 2, the Company will,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, each Holder of Registrable Securities, its directors, officers,
fiduciaries, employees and stockholders or general and limited partners (and the
directors, officers, employees and stockholders thereof), each other individual,
partnership, joint venture, corporation, trust, unincorporated organization or
government or any department or agency thereof (each, a "Person") who
participates as an underwriter or a Qualified Independent Underwriter, if any,
in the offering or sale of such securities, each officer, director, employee,
stockholder or partner of such underwriter or Qualified Independent Underwriter,
and each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act, against any and all losses, claims,
damages or liabilities, joint or several, actions or proceedings (whether
commenced or threatened) in respect thereof ("Claims") and expenses (including
reasonable fees of counsel and any amounts paid in any settlement effected with
the Company's consent, which consent shall not be unreasonably withheld or
delayed) to which each such indemnified party may become subject under the
Securities Act or otherwise, insofar as such Claims or expenses arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
securities were registered under the Securities Act or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (iii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
Claim as such expenses are incurred; provided, however, that the Company shall
not be liable to any such indemnified party in any such case to the extent such
Claim or expense arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact made in such registration statement or amendment thereof or
supplement thereto or in any such prospectus or any preliminary, final or
summary prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such indemnified party specifically
for use therein.
<PAGE>
(b) Each Holder of Registrable Securities that are included in
the securities as to which any registration under Section 2.1 or 2.2 is being
effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 2.1 or 2.2, any underwriter and Qualified Independent Underwriter, if
any) shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in paragraph (a) of this Section 2.9)
to the extent permitted by law the Company, its officers and directors, each
Person controlling the Company within the meaning of the Securities Act and all
other prospective sellers and their directors, officers, general and limited
partners and respective controlling Persons with respect to any untrue statement
or alleged untrue statement of any material fact in, or omission or alleged
omission of any material fact from, such registration statement, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf of
such Holder or underwriter or Qualified Independent Underwriter, if any,
specifically for use therein and reimburse such indemnified party for any legal
or other expenses reasonably incurred in connection with investigating or
defending any such Claim as such expenses are incurred; provided, however, that
the aggregate amount which any such Holder shall be required to pay pursuant to
this Section 2.9(b) and Sections 2.9(c) and (e) shall in no case be greater than
the amount of the net proceeds received by such person upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim. Such indemnity and reimbursement of expenses shall remain in full
force and effect regardless of any investigation made by or on behalf of such
indemnified party and shall survive the transfer of such securities by such
Holder.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 2.9 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any state securities and "blue sky" laws.
(d) Any person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section 2.9, but the failure of any indemnified party
to provide such notice shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 2.9, except to the
extent the indemnifying party is materially prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Article 2. In case any action or
proceeding is brought against an indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, unless in the reasonable opinion of outside
counsel to the indemnified party a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim, to assume the
defense thereof jointly with any other indemnifying party similarly notified, to
the extent that it chooses, with counsel reasonably satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party that it so chooses, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that (i) if the indemnifying party fails to take reasonable steps
necessary to defend diligently the action or proceeding within 20 days after
receiving notice from such indemnified party that the indemnified party believes
it has failed to do so; or (ii) if such indemnified party who is a defendant in
any action or proceeding which is also brought against the indemnifying party
reasonably shall have concluded that there may be one or more legal defenses
available to such indemnified party which are not available to the indemnifying
party; or (iii) if representation of both parties by the same counsel is
otherwise inappropriate under applicable standards of professional conduct,
<PAGE>
then, in any such case, the indemnified party shall have the right to assume or
continue its own defense as set forth above (but with no more than one firm of
counsel for all indemnified parties in each jurisdiction, except to the extent
any indemnified party or parties reasonably shall have concluded that there may
be legal defenses available to such party or parties which are not available to
the other indemnified parties or to the extent representation of all indemnified
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct) and the indemnifying party shall be liable
for any expenses therefor. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(A) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable or
is insufficient to hold harmless an indemnified party under Sections 2.9(a), (b)
or (c), then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative fault of the indemnifying party, on the
one hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section 2.9(e) were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the preceding sentences
of this Section 2.9(e). The amount paid or payable in respect of any Claim shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
<PAGE>
anything in this Section 2.9(e) to the contrary, no indemnifying party (other
than the Company) shall be required pursuant to this Section 2.9(e) to
contribute any amount in excess of the net proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate, less the amount of any indemnification payment made by such indemnifying
party pursuant to Sections 2.9(b) and (c).
(f) The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
(g) The indemnification and contribution required by this Section
2.9 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
3. UNDERWRITTEN OFFERINGS.
3.1. REQUESTED UNDERWRITTEN OFFERINGS. If requested by the underwriters for
any underwritten offering by the Holders pursuant to a registration requested
under Section 2.1, the Company shall enter into a customary underwriting
agreement with the underwriters. Such underwriting agreement shall be
satisfactory in form and substance to the Holders which requested such
registration and shall contain such representations and warranties by, and such
other agreements on the part of, the Company and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities and contribution agreements. Any Holder participating in the
offering shall be a party to such underwriting agreement and may, at its option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holder and that
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the obligations of
such Holder; provided, however, that the Company shall not be required to make
any representations or warranties with respect to written information
specifically provided by a selling Holder for inclusion in the registration
statement. Such underwriting agreement shall also contain such representations
and warranties by the participating Holders as are customary in agreements of
that type.
<PAGE>
3.2. PIGGYBACK UNDERWRITTEN OFFERINGS. In the case of a registration
pursuant to Section 2.2 hereof, if the Company shall have determined to enter
into an underwriting agreement in connection therewith, all of the Holders'
Registrable Securities to be included in such registration shall be subject to
such underwriting agreement. Such underwriting agreement shall contain such
representations and warranties by, and such other agreements on the part of, the
Company and such other terms as are generally prevailing in agreements of this
type, including, without limitation, indemnities and contribution agreements.
Any Holder participating in such registration may, at its option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such Holder and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holder. Such underwriting agreement shall also contain such representations and
warranties by the participating Holders as are customary in agreements of that
type.
4. GENERAL.
4.1 INVESTMENT BANKING SERVICES. Subject to Section 5.4 of the Purchase
Agreement, Goldman, Sachs & Co. ("GS&Co.") shall have the right to perform all
investment banking services for the Company, including acting as the lead
managing underwriter in any registration of Registrable Securities, for
customary compensation and other terms consistent with an arm's length
transaction. If GS&Co. acts as managing underwriter in any such registered
offering, to the extent required by applicable law, a Qualified Independent
Underwriter (as defined in Schedule E to the National Association of Securities
Dealers, Inc. By-Laws) shall be retained by the Company and shall be acceptable
to GS & Co. (which consent shall not be unreasonably withheld), and the Company
shall pay all fees and expenses (other than underwriting discounts and
commissions) of such Qualified Independent Underwriter.
4.2. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company agrees that
it shall not effect or permit to occur any combination or subdivision of shares
which would adversely affect the ability of the Holder of any Registrable
Securities to include such Registrable Securities in any registration
contemplated by this Agreement or the marketability of such Registrable
Securities in any such registration. The Company agrees that it will take all
reasonable steps necessary to effect a subdivision of shares if in the
reasonable judgment of (a) the Holder of Registrable Securities that makes a
Demand Registration Request and (b) the managing underwriter for the offering in
respect of such Demand Registration Request, such subdivision would enhance the
marketability of the Registrable Securities. Each Holder agrees to vote all of
its shares of capital stock in a manner, and to take all other actions
necessary, to permit the Company to carry out the intent of the preceding
sentence including, without limitation, voting in favor of an amendment to the
<PAGE>
Certificate of Incorporation of the Company in order to increase the number of
authorized shares of capital stock of the Company.
4.3. RULE 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of the
Common Stock, the Company covenants that (i) so long as it remains subject to
the reporting provisions of the Exchange Act, it will timely file the reports
required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 under the Securities
Act), and (ii) will take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (A) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(B) any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any Holder of Registrable Securities, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
4.4. NOMINEES FOR BENEFICIAL OWNERS. If Registrable Securities are held by
a nominee for the beneficial owner thereof, the beneficial owner thereof may, at
its option, be treated as the Holder of such Registrable Securities for purposes
of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement (or any determination of any number or
percentage of shares constituting Registrable Securities held by any Holder or
Holders of Registrable Securities contemplated by this Agreement), provided that
the Company shall have received assurances reasonably satisfactory to it of such
beneficial ownership.
4.5. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified,
supplemented or waived only upon the written agreement of the party against whom
enforcement of such amendment, modification, supplement or waiver is sought.
4.6. NOTICES. Except as otherwise provided in this Agreement, all notices,
requests, consents and other communications hereunder to any party shall be
deemed to be sufficient if contained in a written instrument delivered in person
or by telecopy, nationally recognized overnight courier or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by such party to the other parties:
(i) if to the Company, to:
<PAGE>
GGS Management Holdings, Inc.
c/o Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telecopy: (317) 259-6395
Attention: Mr. Alan G. Symons
with a copy to:
GSCP, SIG and Goran
(ii) if to GSCP, to:
GS Capital Partners II, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Michael A. Pruzan
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: Gail L. Weinstein, Esq.
(ii) if to SIG or Goran, to:
Goran Capital Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telecopy: (317) 259-6395
Attention: David L. Bates, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been given when received.
<PAGE>
4.7. MISCELLANEOUS.
(a) This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and the respective successors,
personal representatives and assigns of the parties hereto, whether so expressed
or not. No Person other than a Holder shall be entitled to any benefits under
this Agreement, except as otherwise expressly provided herein. This Agreement
and the rights of the parties hereunder may be assigned by any of the parties
hereto to any transferee of Registrable Securities provided that upon the
consummation of, and as a condition to, any such assignment the transferee
assumes the obligations of the assignor under, and agrees to be bound by the
terms of, this Agreement.
(b) This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(c) This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of New York without giving effect to
the conflicts of law principles thereof.
(d) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
section references are to this Agreement unless otherwise expressly provided.
(e) This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
(f) Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such 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
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
(g) It is hereby agreed and acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person will be irreparably damaged
and will not have an adequate remedy at law. Any such person, therefore, shall
be entitled to injunctive
<PAGE>
relief, including specific performance, to enforce such obligations, without the
posting of any bond, and, if any action should be brought in equity to enforce
any of the provisions of this Agreement, none of the parties hereto shall raise
the defense that there is an adequate remedy at law.
(h) Each party hereto shall do and perform or cause to be done
and performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
4.8. GUARANTEE. Goran hereby guarantees all of the covenants, agreements,
commitments and obligations of SIG hereunder.
4.9. ADDITIONAL REGISTRATION RIGHTS. Following the date hereof, without the
prior written consent of GSCP and SIG, the Company shall not grant any
registration rights to any Person; provided, however, that subject to Section
2.3 of the Stockholders Agreement, the Company may grant registration rights to
any Person in connection with its issuance of new securities if (i) the terms of
such registration rights so granted by the Company shall not be more favorable
than the terms of the registration rights granted, and shall be subject to the
priority rights granted to the Holders of Registrable Securities, under this
Agreement and (ii) any additional demand registration rights shall provide (A)
that prior to exercising any such demand registration right the proposed
requesting party (the "Proposed Requesting Party") or the Company shall provide
each Holder with 30 days' prior written notice of such proposed demand and (B)
if within 30 days' after receipt of such notice a Demand Registration Request is
made pursuant to Section 2.1 of this Agreement, the Proposed Requesting Party
shall not effect any public sale or distribution of any equity securities of the
Company or of any security convertible, exercisable or exchangeable for any
equity security of the Company (except pursuant to Section 2.3(a) of this
Agreement) for a period of 90 days after the consummation of the registration
relating to such Demand Registration Request.
4.10. NO INCONSISTENT AGREEMENTS. Without the prior written consent of GSCP
and SIG, neither the Company nor any Holder will, on or after the date of this
Agreement, enter into any agreement with respect to its securities which is
inconsistent with the rights granted in this Agreement or otherwise conflicts
with the provisions hereof, other than any lock-up agreement with the
underwriters in connection with any registered offering effected hereunder,
pursuant to which the Company shall agree not to register for sale, and the
Company shall agree not to sell or otherwise dispose of, Common Stock for a
specified period following the registered offering.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
GGS MANAGEMENT HOLDINGS, INC.
By:/s/ Alan Symons
-----------------------------
Name: Alan Symons
Title: President
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P., its general partner
By: GS Advisors, Inc., its general partner
By:/s/ Sanjay Patel
-----------------------------
Name: Sanjay Patel
Title: Vice President
SYMONS INTERNATIONAL GROUP, INC.
By:/s/ Alan Symons
-----------------------------
Name: Alan Symons
Title: Treasurer
GORAN CAPITAL INC.
By:/s/ Alan Symons
----------------------------
Name: Alan Symons
Title: President
EXECUTION COPY
************************************************************
GGS MANAGEMENT, INC.
-----------------------------
$48,000,000
-----------------------------
CREDIT AGREEMENT
Dated as of April 30, 1996
------------------------------
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Administrative Agent
************************************************************
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
Page
Section 1. Definitions and Accounting Matters........................ 1
1.01 Certain Defined Terms.................................. 1
1.02 Accounting Terms and Determinations.................... 19
1.03 Types of Loans......................................... 19
Section 2. Commitments, Loans, Notes and Prepayments................. 20
2.01 Loans.................................................. 20
2.02 Borrowings............................................. 20
2.03 Changes of Commitments................................. 20
2.04 Lending Offices........................................ 20
2.05 Several Obligations; Remedies Independent.............. 21
2.06 Notes.................................................. 21
2.07 Optional Prepayments and Conversions or Continuations
of Loans............................................... 22
2.08 Mandatory Prepayments and Reductions of Commitments.... 22
Section 3. Payments of Principal and Interest........................ 24
3.01 Repayment of Loans..................................... 24
3.02 Interest............................................... 24
Section 4. Payments; Pro Rata Treatment; Computations; Etc........... 25
4.01 Payments............................................... 25
4.02 Pro Rata Treatment..................................... 26
4.03 Computations........................................... 26
4.04 Minimum Amounts........................................ 26
4.05 Certain Notices........................................ 26
4.06 Non-Receipt of Funds by the Administrative Agent....... 27
4.07 Sharing of Payments, Etc............................... 28
Section 5. Yield Protection, Etc..................................... 29
5.01 Additional Costs....................................... 29
5.02 Limitation on Types of Loans........................... 31
5.03 Illegality............................................. 32
5.04 Treatment of Affected Loans............................ 32
5.05 Compensation........................................... 33
5.06 U.S. Taxes............................................. 33
5.07 Replacement of Banks; No Rights of Participants........ 36
Section 6. Conditions Precedent...................................... 36
(i)
<PAGE>
Page
Section 7. Representations and Warranties............................ 40
7.01 Corporate Existence.................................... 40
7.02 Financial Condition.................................... 40
7.03 Litigation............................................. 40
7.04 No Breach.............................................. 41
7.05 Action................................................. 41
7.06 Approvals.............................................. 41
7.07 Use of Credit.......................................... 42
7.08 ERISA.................................................. 42
7.09 Taxes.................................................. 42
7.10 Investment Company Act................................. 42
7.11 Public Utility Holding Company Act..................... 42
7.12 Material Agreements and Liens.......................... 42
7.13 Environmental Matters.................................. 43
7.14 Capitalization......................................... 43
7.15 Subsidiaries, Etc...................................... 44
7.16 True and Complete Disclosure........................... 44
7.17 Insurance Licenses..................................... 44
7.18 Superior Stock Purchase Agreement...................... 45
7.19 Superior Acquisition................................... 45
7.20 Sole Assets............................................ 45
7.21 Security Documents..................................... 45
Section 8. Covenants of the Company.................................. 46
8.01 Financial Statements, Etc.............................. 46
8.02 Litigation............................................. 50
8.03 Existence, Etc......................................... 50
8.04 Prohibition of Fundamental Changes..................... 51
8.05 Limitation on Liens.................................... 52
8.06 Indebtedness........................................... 53
8.07 Investments; Derivative Transactions................... 54
8.08 Restricted Payments.................................... 55
8.09 Certain Financial Covenants............................ 55
8.10 Risk-Based Capital Ratio............................... 56
8.11 Capital Expenditures................................... 56
8.12 Lines of Business; Etc................................. 56
8.13 Subsidiary Dividend Payments........................... 56
8.14 Ceded Reinsurance...................................... 57
8.15 Transactions with Affiliates........................... 57
8.16 Use of Proceeds........................................ 57
8.17 Certain Obligations Respecting Subsidiaries............ 58
8.18 Modifications of Certain Documents..................... 58
8.19 Amendment and Restatement of Credit Agreement.......... 58
8.20 Employment Agreement................................... 58
8.21 Pooling Arrangements................................... 59
(ii)
<PAGE>
Section 10. The Administrative Agent................................. 62
10.01 Appointment, Powers and Immunities.................... 62
10.02 Reliance by Administrative Agent...................... 63
10.03 Defaults.............................................. 63
10.04 Rights as a Bank...................................... 64
10.05 Indemnification....................................... 64
10.06 Non-Reliance on Administrative Agent and Other Banks.. 64
10.07 Failure to Act........................................ 65
10.08 Resignation or Removal of Administrative Agent........ 65
10.09 Consents under Other Loan Documents................... 65
10.10 Collateral Sub-Agents................................. 65
Section 11. Miscellaneous............................................ 66
11.01 Waiver................................................ 66
11.02 Notices............................................... 66
11.03 Expenses, Etc......................................... 66
11.04 Amendments, Etc....................................... 67
11.05 Successors and Assigns................................ 68
11.06 Assignments and Participations........................ 68
11.07 Survival.............................................. 70
11.08 Captions.............................................. 71
11.09 Counterparts.......................................... 71
11.10 Governing Law; Submission to Jurisdiction............. 71
11.11 Waiver of Jury Trial.................................. 71
11.12 Treatment of Certain Information; Confidentiality..... 71
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Subsidiaries
SCHEDULE III - Insurance Licenses
SCHEDULE IV - Litigation
EXHIBIT A - Form of Note
EXHIBIT B-1 - Form of Company Pledge Agreement
EXHIBIT B-2 - Form of GGS Pledge Agreement
EXHIBIT C-1 - Form of Opinion of Special New York Counsel to
the Credit Parties
EXHIBIT C-2 - Form of Opinion of Special Indiana Counsel to the
Credit Parties
EXHIBIT D - Form of Opinion of Special New York Counsel to
Chase
EXHIBIT E - Form of Confidentiality Agreement
EXHIBIT F - Form of Assignment and Acceptance
EXHIBIT G - Form of Exemption Certificate
EXHIBIT H - Form of Employment Agreement
(iii)
<PAGE>
CREDIT AGREEMENT dated as of April 30, 1996, between: GGS
MANAGEMENT, INC., a corporation duly organized and validly existing under the
laws of the State of Delaware (the "Company"); each of the lenders that is a
signatory hereto identified under the caption "BANKS" on the signature pages
hereto and each lender that becomes a "Bank" after the date hereof pursuant to
Section 11.06(b) hereof (individually, a "Bank" and, collectively, the "Banks");
and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking
association, as agent for the Banks (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
The Company has requested that the Banks make loans to it in
an aggregate principal amount not exceeding $48,000,000 and the Banks are
prepared to make such loans upon the terms and conditions hereof. Accordingly,
the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Affiliate" shall mean, with respect to any Person (the
"Relevant Person"), any other Person that directly or indirectly controls, or is
under common control with, or is controlled by, the Relevant Person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
Person that owns directly or indirectly securities having 5% or more of the
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
Relevant Person (other than as a limited partner of such Relevant Person) will
be deemed to control such Relevant Person. Notwithstanding the foregoing, (a) no
individual shall be an Affiliate of any Relevant Person solely by reason of his
or her being a director, officer or employee of such Relevant Person or any of
its Subsidiaries, (b) the Company and its Wholly-Owned Subsidiaries shall not be
Affiliates of each other and (c) no Person (other than Alan G. Symons, family
members of Alan G. Symons and Persons controlled by Alan G. Symons and such
family members) shall be an Affiliate of the Company or any of its Subsidiaries
by reason of such Person owning securities having 5% or more of the voting power
for the election of directors of Goran so long as such Person owns less than 15%
of such voting power.
"Applicable Insurance Regulatory Authority" shall mean, when
used with respect to any Insurance Subsidiary, the insurance department or
similar administrative authority or agency located in the State in which such
Insurance Subsidiary is domiciled.
"Applicable Lending Office" shall mean, for each Bank and for
each Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such
Bank) designated for such Type of Loan on the signature pages hereof or such
other office of such Bank (or of an affiliate of such Bank) as
<PAGE>
- 2 -
such Bank may from time to time specify to the Administrative Agent and the
Company as the office by which its Loans of such Type are to be made and
maintained.
"Applicable Margin" shall mean: (a) with respect to Base Rate
Loans, 1.50% per annum; and (b) with respect to Eurodollar Loans, 2.75% per
annum.
"Assumed Reinsurance" shall mean reinsurance assumed by any
Insurance Subsidiary from another Person (other than from another Insurance
Subsidiary).
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of
1978, as amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal
to the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b)
the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at
rates based upon the Base Rate.
"Basle Accord" shall mean the proposals for risk-based
capital framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
"Billing Fees" shall mean fees with respect to the payment of
premiums on an installment basis that are received by an Insurance Subsidiary
from policyholders and in turn paid to the Company or received directly by the
Company, regardless of whether paid on a per transaction basis, as a percentage
of account balance or otherwise.
"Business Day" shall mean any day (a) on which commercial
banks are not authorized or required to close in New York City and (b) if such
day relates to a borrowing of, a payment or prepayment of principal of or
interest on, a Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a notice by the Company with respect to any such borrowing, payment,
prepayment, Conversion or Interest Period, which is also a day on which dealings
in Dollar deposits are carried out in the London interbank market.
"Capital Expenditures" shall mean, for any period,
expenditures (including, without limitation, the aggregate amount of Capital
Lease Obligations incurred during such period) made by the Company or any of its
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
<PAGE>
- 3 -
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Cash Flow" shall mean, for any period, the sum, for the
Company (determined on an unconsolidated basis) of the following:
(a) cash dividends actually received during such period
plus
(b) Net Billing Fees received, plus Net Management Fees
received, for such period plus
(c) the aggregate amount of dividends legally available
for payment to the Company by its Subsidiaries as at the last day of such
period plus
(d) tax allocation agreement receipts received by the
Company from its Subsidiaries during such period minus
(e) tax allocation agreement amounts paid by the Company
to GGS during such period.
"Change in Control" shall be deemed to have occurred if (a)
Goldman, Sachs & Co., GS Capital and GS Affiliates no longer are the "beneficial
owners" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act
of 1934, as amended (the "Act") except that a person shall be deemed to have
"beneficial ownership" of all shares that such person has the right to acquire
without condition (other than the passage of time) whether such rights are
exercisable immediately or only after the passage of time) of at least 46% on a
fully-diluted basis of the capital stock of any Credit Party, or (b) the Persons
referred to in clause (a) above, together with Alan G. Symons, family members of
Alan G. Symons and Persons controlled by Alan G. Symons and/or any such family
members, no longer are the "beneficial owners" (as defined as aforesaid) of at
least 95% on a fully-diluted basis of the capital stock of any Credit Party, in
each case calculated without giving effect to any such capital stock issued to
(or warrants, options or other rights to acquire any such capital stock held by)
directors, officers and employees of GGS pursuant to the Management Stock Option
Plan). For purposes of this definition, Alan G. Symons, family members of Alan
G. Symons and Persons controlled by Alan G. Symons and/or such family members
shall be deemed to control Goran for so long as (i) in the aggregate they are
the "beneficial owners" (as defined as aforesaid) of in excess of 40% of the
outstanding voting stock of Goran or (ii)(A) in the aggregate they are the
"beneficial owners" (as defined as aforesaid) of in excess of 25% of the
outstanding voting stock of Goran and (B) no other holder or "group" (as such
term is defined in the Act) is the "beneficial owner" (as defined as aforesaid)
of in excess of 10% of the outstanding voting stock of Goran.
<PAGE>
- 4 -
"Ceded Reinsurance" shall mean reinsurance ceded by any
Insurance Subsidiary to any other Person (other than to another Insurance
Subsidiary), other than Surplus Relief Reinsurance.
"Chase" shall mean The Chase Manhattan Bank (National
Association).
"Closing Date" shall mean the date on which the Loans are made.
"CMO Derivative Investments" means Z bonds, floaters/inverse
floaters, PAC II, PAC III, Ioettes, support bonds, interest only investments,
principal only investments, residuals, inverse IO's, super floaters, any bonds
backed in whole or in part by tranches of these bonds (including component or
kitchen sink bonds) and any bonds or investments similar to any of the
foregoing.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment" shall mean, as to each Bank, the obligation of
such Bank to make a Loan on or before the Commitment Termination Date in an
amount up to but not exceeding the amount set opposite the name of such Bank on
the signature pages hereof under the caption "Commitment" (as the same may be
reduced at any time or from time to time pursuant to Section 2.03 or 2.08
hereof).
"Commitment Termination Date" shall mean May 31, 1996.
"Company Pledge Agreement" shall mean a Pledge Agreement
substantially in the form of Exhibit B-2 hereto between the Company and the
Administrative Agent, as the same shall be modified and supplemented and in
effect from time to time.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.07 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 2.07 hereof of one Type of Loans into another
Type of Loans, which may be accompanied by the transfer by a Bank (at its sole
discretion) of a Loan from one Applicable Lending Office to another.
"Credit Parties" shall mean the Company and GGS.
"Debt Service" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all regularly
scheduled payments of principal of Funded Debt (including, without limitation,
the principal component of any payments in respect of Capital Lease Obligations)
made during such period plus (b) all Interest Expense for such period.
<PAGE>
- 5 -
"Default" shall mean an Event of Default or an event that
with notice or lapse of time or both would become an Event of Default.
"Derivative Transaction" shall mean (a) any "swap agreement"
as defined in Section 101(53B) of the Bankruptcy Code (other than a spot foreign
exchange transaction), (b) any equity swap, floor, collar, cap or option
transaction, (c) any option to enter into any of the foregoing and (d) any
combination of the foregoing.
"Disposition" shall mean any sale, assignment, transfer or
other disposition (including, without limitation, by Ceded Reinsurance) of all
or any part of the Property (whether now owned or hereafter acquired) of the
Company or any of its Subsidiaries to any other Person, excluding any sale,
assignment, transfer or other disposition of any Property sold or disposed of in
the ordinary course of business and on ordinary business terms (which ordinary
course of business, shall include, without limitation, sales or dispositions of
Property in connection with the management of the investment portfolio of any of
the Insurance Subsidiaries); provided that Ceded Reinsurance (other than Quota
Share Reinsurance) to the extent that it does not exceed in the aggregate at any
time outstanding 10% of the total liability of the Company and its Subsidiaries
under all of their gross written insurance policies shall not constitute a
"Disposition"; and provided, further, that Quota Share Reinsurance that does not
exceed 25% of the total liability of the Company and its Subsidiaries under all
of their gross written insurance policies shall not constitute a "Disposition."
The verb "Dispose" shall have a correlative meaning.
"Dollars" and "$" shall mean lawful money of the United
States of America.
"EBIT" shall mean, for any period for the Company and its
Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), operating earnings (calculated before Interest Expense
and taxes) for such period.
"Environmental Laws" shall mean any and all present and
future Federal, state, local and foreign laws, rules or regulations, and any
orders or decrees, in each case as now or hereafter in effect, relating to the
regulation or protection of human health, safety or the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or toxic or hazardous substances or wastes into the
indoor or outdoor environment, including, without limitation, ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or toxic
or hazardous substances or wastes.
"Equity Issuance" shall mean (a) any issuance or sale by the
Company or any of its Subsidiaries after the Closing Date of (i) any of its
capital stock, (ii) any warrants or options exercisable in respect of, or rights
to acquire, its capital stock, or (iii) any other security or instrument
representing an equity interest (or the right to obtain any equity interest) in
the Company or any of its Subsidiaries or (b) the receipt by the Company or any
<PAGE>
- 6 -
of its Subsidiaries after the Closing Date of any capital contribution (whether
or not evidenced by any equity security issued by the recipient of such
contribution); provided that Equity Issuance shall not include (w) any such
issuance or sale by any Subsidiary of the Company to the Company or any
Wholly-Owned Subsidiary of the Company, (x) any capital contribution by the
Company or any Wholly-Owned Subsidiary of the Company to any Subsidiary of the
Company, (y) any capital stock, warrants or options exercisable in respect of,
or rights to acquire, capital stock (or capital stock issued upon exercise
thereof) or other security or instrument representing an equity interest (or the
right to obtain an equity interest issued or sold to directors, officers or
employees of the Company or any of its Subsidiaries pursuant to the Management
Incentive Plan and (z) capital contributions made by GGS to the Company in
amounts equal to amounts paid to GGS in respect of indemnification pursuant to
Section 9.2(f)(ii) of the GGS Stock Purchase Agreement.
"Equity Rights" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business that is a member of any group of organizations (i) described in Section
414(b) or (c) of the Code of which the Company is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Company is a member.
"Eurodollar Base Rate" shall mean, with respect to any
Eurodollar Loan for any Interest Period therefor, the arithmetic mean (rounded
upwards, if necessary, to the nearest 1/16 of 1%), as determined by the
Administrative Agent, of the rates per annum quoted by the respective Reference
Banks at approximately 11:00 a.m. London time (or as soon thereafter as
practicable) on the date two Business Days prior to the first day of such
Interest Period for the offering by the respective Reference Banks to leading
banks in the London interbank market of Dollar deposits having a term comparable
to such Interest Period and in an amount comparable to the principal amount
of the Eurodollar Loan to be made or maintained by the respective Reference
Banks for such Interest Period.
"Eurodollar Loans" shall mean Loans that bear interest at
rates based on rates referred to in the definition of "Eurodollar Base Rate" in
this Section 1.01.
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to
<PAGE>
- 7 -
the Eurodollar Base Rate for such Loan for such Interest Period divided by 1
minus the Reserve Requirement (if any) for such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to such
term in Section 9 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
"Final Maturity Date" shall mean the date six years after the
Closing Date; provided that if such day is not a Business Day, the Final
Maturity Date shall be the immediately preceding Business Day.
"Fixed Charges Ratio" shall mean, as at any date, the ratio
of (a) Cash Flow for the period of four consecutive fiscal quarters (or, if
less, the number of full fiscal quarters since the Closing Date) of the Company
ending on or most recently ended prior to such date to (b) Debt Service for such
period.
"Funded Debt" shall mean (a) any obligation of the Company or
any of its Subsidiaries for borrowed money or the purchase price of property
(including, without limitation, Capital Lease Obligations) which is shown on the
financial statements of the Company or such Subsidiary as a liability, excluding
(i) items customarily reflected as current liabilities and classified as other
than debt (it being understood that trade accounts payable, obligations under
leases which are not capitalized and income taxes payable are excluded from
"Funded Debt" under this definition) and (ii) deferred income taxes and (b)
Guarantees by the Company and its Subsidiaries of obligations of others of the
type included under clause (a).
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.
"GGS" shall mean GGS Management Holdings, Inc., a Delaware
corporation and, on the Closing Date, the sole shareholder of the Company.
<PAGE>
- 8 -
"GGS Pledge Agreement" shall mean a Pledge Agreement
substantially in the form of Exhibit B-1 hereto between GGS and the
Administrative Agent, as the same shall be modified and supplemented and in
effect from time to time.
"GGS Stock Purchase Agreement" shall mean the Stock Purchase
Agreement dated as of January 31, 1996 by and among GGS, GS Capital, Goran and
SIG (including without limitation, all exhibits, schedules, disclosure letters
and other documents referred to therein or delivered pursuant thereto), as
modified and supplemented and in effect from time to time.
"Goran" shall mean Goran Capital Inc., a Canadian insurance
holding company.
"GS Affiliates" shall mean (a) GS Capital Partners II
Offshore, L.P., (b) Goldman, Sachs & Co. Verwaltungs GmbH, (c) Stone Street Fund
1995, L.P., (d) Bridge Street Fund 1995, L.P., (e) Bridge Street Fund 1996,
L.P., (f) Stone Street Fund 1996, L.P., and (g) any other Affiliate of Goldman,
Sachs & Co. acceptable to the Majority Banks.
"GS Capital" shall mean GS Capital Partners II, L.P., a
Delaware limited partnership and an Affiliate of Goldman, Sachs & Co.
"Guarantee" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
"IGF" shall mean IGF Insurance Company, an Indiana insurance
company and, on the Closing Date, a direct Wholly-Owned Subsidiary of IGF
Holdings.
"IGF Holdings" shall mean IGF Holdings, Inc., an Indiana
corporation and, on the Closing Date, a direct Wholly-Owned Subsidiary of SIG.
<PAGE>
- 9 -
"IGF Holdings Note" shall mean the promissory note of IGF
Holdings issued to Pafco and payable no later than November 30, 1996 in the
amount of $3,475,269, the payment of which promissory note is secured by a
second lien on all of the shares of IGF.
"IGF Pre-Closing Transactions" shall have the meaning
assigned to such term in Section 4.15(a) of the GGS Stock Purchase Agreement.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person; provided that Indebtedness shall not include (i)
obligations with respect to insurance policies underwritten by, or Assumed
Reinsurance underwritten by, or Reinsurance Agreements entered into by, an
Insurance Subsidiary in the ordinary course of its business, (ii) indebtedness
arising from deferral by employees of their right to receive a portion of their
salary or wages pursuant to any pension plan and (iii) commissions or other
amounts payable in the ordinary course of business to agents or to other
representatives of any of the Insurance Subsidiaries.
"Information Memorandum" shall mean the Confidential
Information Memorandum dated March, 1996 distributed to the Banks.
"Insurance Subsidiaries" shall mean, collectively, the
Subsidiaries of the Company licensed to do property and casualty insurance
business.
"Interest Coverage Ratio" shall mean, as at any date, the
ratio of (a) EBIT for the period of four consecutive fiscal quarters (or, if
less, the number of full fiscal quarters since the Closing Date) of the Company
ending on or most recently ended prior to such date to (b) Interest Expense for
such period.
"Interest Expense" shall mean, for any period, the sum, for
the Company and its Subsidiaries (determined on a consolidated basis without
<PAGE>
- 10 -
duplication in accordance with GAAP), of the following: (a) all interest in
respect of Funded Debt (including, without limitation, the interest component of
any payments in respect of Capital Lease Obligations) accrued or capitalized
during such period (whether or not actually paid during such period) plus (b)
the net amount payable (or minus the net amount receivable) under Interest Rate
Protection Agreements during such period (whether or not actually paid or
received during such period).
"Interest Period" shall mean, with respect to any Eurodollar
Loan, each period commencing on the date such Eurodollar Loan is made or
Converted from a Base Rate Loan or (in the event of a Continuation) the last day
of the next preceding Interest Period for such Loan and (subject to the
requirements of the proviso set forth at the end of Section 2.01 hereof) ending
on the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Company may select as provided in Section 4.05
hereof, except that each Interest Period that commences on the last Business Day
of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after any Principal Payment Date unless, after giving
effect thereto, the aggregate principal amount of the Loans having Interest
Periods that end after such Principal Payment Date shall be equal to or less
than the aggregate principal amount of the Loans scheduled to be outstanding
after giving effect to the payments of principal required to be made on such
Principal Payment Date; (ii) each Interest Period that would otherwise end on a
day that is not a Business Day shall end on the next succeeding Business Day
(or, if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); (iii) notwithstanding clause (i)
above, no Interest Period shall have a duration of less than one month and, if
the Interest Period for any Eurodollar Loan would otherwise be a shorter period,
such Interest Period shall not be available hereunder for such period; and (iv)
until the earlier of (i) the date that Chase shall have notified the Company
that syndication of the Commitments and Loans has been completed and (ii) the
ninetieth day after the Closing Date, Interest Periods in excess of one month
shall not be available hereunder.
"Interest Rate Protection Agreement" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person (other than any Wholly-Owned Subsidiary of
such first Person) or any agreement to make any such acquisition (including,
without limitation, any "short sale" or any sale of any securities at a time
when such securities are not owned by the Person entering into such sale); (b)
an investment in real estate; (c) the making of any deposit with, or advance,
loan or other extension of credit to, any other Person (including the purchase
of Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person), but excluding
any such advance, loan or extension of credit having a term not exceeding 90
days arising in connection with the sale of inventory or supplies by such Person
in the ordinary course of business; (d) the entering into of any Guarantee of,
<PAGE>
- 11 -
or other contingent obligation with respect to, Indebtedness or other liability
of any other Person and (without duplication) any amount committed to be
advanced, lent or extended to such Person; or (e) solely for the purposes of
Section 8.15 hereof, the entering into of any Derivative Transaction.
"Lien" shall mean, with respect to any Property, any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such Property. For purposes of this Agreement and the other Loan
Documents, a Person shall be deemed to own subject to a Lien any Property that
it has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"Loan Documents" shall mean, collectively, this Agreement,
the Notes and the Pledge Agreements.
"Loans" shall mean the loans provided for in Section 2.01
hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"Majority Banks" shall mean Banks having at least 66-2/3% of
the aggregate amount of the Commitments or, if the Commitments shall have
terminated, Banks holding at least 66-2/3% of the aggregate unpaid principal
amount of the Loans.
"Management Fees" shall mean all fees paid by an Insurance
Subsidiary to the Company that are calculated as a percentage of gross written
premiums.
"Management Stock Option Plan" shall mean a stock option plan
substantially in the form of the plan set forth in Exhibit J to the GGS Stock
Purchase Agreement.
"Margin Stock" shall mean "margin stock" within the meaning
of Regulations G, U and X.
"Material Adverse Effect" shall mean a material adverse
effect on (a) the Property, business, operations, financial condition,
prospects, liabilities or capitalization of the Company and its Subsidiaries
taken as a whole, (b) the ability of the Company to perform its obligations
under any of the Loan Documents or the Transaction Documents, (c) the validity
or enforceability of any of the Loan Documents or the Transaction Documents, (d)
the rights and remedies of the Banks and the Administrative Agent under any of
the Loan Documents, (e) the timely payment of the principal of or interest on
the Loans or other amounts payable in connection therewith or (f) the ability of
the Company to consummate the Superior Acquisition; provided, that consummation
of the transactions contemplated by the Transaction Documents shall in no event
be deemed to have a Material Adverse Effect.
<PAGE>
- 12 -
"Multiemployer Plan" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been made by the
Company or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NAIC" shall mean the National Association of Insurance
Commissioners and any successor thereto.
"Net Available Proceeds" shall mean:
(i) in the case of any Disposition, (x) by the Company or any
Subsidiary (other than an Insurance Subsidiary), the amount of Net Cash
Payments received in connection with such Disposition and (y) by any
Insurance Subsidiary, the lesser of (A) Net Cash Payments received in
connection with such Disposition and (B) the after-tax net gain
realized from such Disposition; and
(ii) in the case of any Equity Issuance, the aggregate amount of
all cash received by the Company and its Subsidiaries in respect of
such Equity Issuance net of reasonable expenses incurred by the Company
and its Subsidiaries in connection therewith.
"Net Billing Fees" shall mean Billing Fees less all direct
expenses of the Company incurred in providing the billing services to which such
Billing Fees relate.
"Net Cash Payments" shall mean, with respect to any
Disposition by the Company or any Subsidiary (other than an Insurance
Subsidiary), the aggregate amount of all cash payments, and the fair market
value of any non-cash consideration, received by the Company and its
Subsidiaries directly or indirectly in connection with such Disposition;
provided that (a) Net Cash Payments shall be net of (i) the amount of any legal,
title and recording tax expenses, commissions and other fees and expenses paid
by the Company and its Subsidiaries in connection with such Disposition and (ii)
any Federal, state and local income or other taxes estimated to be payable by
the Company and its Subsidiaries as a result of such Disposition (but only to
the extent that such estimated taxes are in fact paid to the relevant Federal,
state or local governmental authority within four months of the date of such
Disposition) and (b) Net Cash Payments shall be net of any repayments by the
Company or any of its Subsidiaries of Indebtedness to the extent that (i) such
Indebtedness is secured by a Lien on the Property that is the subject of such
Disposition and (ii) the transferee of (or holder of a Lien on) such Property
requires that such Indebtedness be repaid as a condition to the purchase of such
Property.
"Net Management Fees" shall mean Management Fees less all
direct expenses of the Company incurred in providing the management services to
which such Management Fees relate.
"Notes" shall mean the promissory notes provided for by
Section 2.06 hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
<PAGE>
- 13 -
and in effect from time to time. The term "Notes" shall include any Registered
Notes executed and delivered pursuant to Section 2.06(d) hereof.
"Pafco" shall mean Pafco General Insurance Company, an
Indiana insurance company and, on the Closing Date, a direct Wholly-Owned
Subsidiary of the Company.
"Participant" shall have the meaning assigned to such term
in Section 11.06(c) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean Investments in: (a) direct
obligations of the United States of America, or of any agency thereof, or
obligations guaranteed as to principal and interest by the United States of
America, or of any agency thereof, in either case maturing not more than 90 days
from the date of acquisition thereof; (b) certificates of deposit issued by any
bank or trust company organized under the laws of the United States of America
or any state thereof and having capital, surplus and undivided profits of at
least $500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Ratings Group, a Division of McGraw Hill, Inc., or Moody's Investors Service,
Inc., respectively, maturing not more than 90 days from the date of acquisition
thereof, (d) Interest Rate Protection Agreements and (e) deposits with Union
Federal Savings Bank of Indianapolis up to but not exceeding $500,000 at any one
time outstanding; so long as, in the case of clauses (a), (b) and (c) above, the
same (x) provide for the payment of principal and interest (and not principal
alone or interest alone) and (y) are not subject to any contingency regarding
the payment of principal or interest.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency, instrumentality
or political subdivision thereof).
"Plan" shall mean an employee benefit or other plan
established or maintained by the Company or any ERISA Affiliate and that is
covered by Title IV of ERISA, other than a Multiemployer Plan.
"Pledge Agreements" shall mean the Company Pledge Agreement
and the GGS Pledge Agreement.
"Post-Default Rate" shall mean a rate per annum equal to 2%
plus the Base Rate as in effect from time to time plus the Applicable Margin for
Base Rate Loans, provided that, with respect to principal of a Eurodollar Loan
that shall become due (whether at stated maturity, by acceleration, by optional
or mandatory prepayment or otherwise) on a day other than the last day of the
Interest Period therefor, the "Post-Default Rate" shall be, for the period from
<PAGE>
- 14 -
and including such due date to but excluding the last day of such Interest
Period, 2% plus the interest rate for such Loan as provided in Section 3.02(b)
hereof and, thereafter, the rate provided for above in this definition.
"Prime Rate" shall mean the rate of interest from time to
time announced by Chase at its principal office as its prime commercial lending
rate.
"Principal Payment Dates" shall mean each six-month
anniversary of the Closing Date, the first of which shall be the date one year
after the Closing Date and the last of which shall be the Final Maturity Date;
provided that if any such day is not a Business Day, the applicable Principal
Payment Date shall be the immediately preceding Business Day.
"Property" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Publicly Traded Stock" shall mean Margin Stock or other
stock traded on the Toronto Stock Exchange.
"Quarterly Dates" shall mean each quarterly anniversary of
the Closing Date, the first of which shall be the first such day after the
Closing Date; provided that if any such day is not a Business Day, the
applicable Quarterly Date shall be the immediately preceding Business Day.
"Quota Share Reinsurance" shall mean Ceded Reinsurance under
which a specified percentage of gross premium, losses and loss adjustment
expenses of an Insurance Subsidiary's portfolio of written insurance policies is
ceded to another Person (other than to another Insurance Subsidiary), without
the specification of individual policies to be so ceded.
"Reference Banks" shall mean Chase and such other Bank as the
Company and each Bank may from time to time agree.
"Registered Holder" shall have the meaning assigned to such
term in Section 5.06(a)(ii) hereof.
"Registered Loan" shall have the meaning assigned to such
term in Section 2.06(d) hereof.
"Registered Note" shall have the meaning assigned to such
term in Section 2.06(d) hereof.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated as of April 30, 1996, by and between GGS, GS Capital, SIG
and Goran, as modified and supplemented and in effect from time to time.
<PAGE>
- 15 -
"Regulations A, D, G, U and X" shall mean, respectively,
Regulations A, D, G, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any
change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Reinsurance Agreement" shall mean any agreement, contract,
treaty or other arrangement providing for Ceded Reinsurance by any Insurance
Subsidiary or any Subsidiary of such Insurance Subsidiary.
"Reserve Requirement" shall mean, for any Interest Period for
any Eurodollar Loan, the average maximum rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D by
member banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency liabilities" (as such term
is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve Requirement shall include any other reserves required to be maintained
by such member banks by reason of any Regulatory Change with respect to (i) any
category of liabilities that includes deposits by reference to which the
Eurodollar Base Rate is to be determined as provided in the definition of
"Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions
of credit or other assets that includes Eurodollar Loans.
"Restricted Payment" shall mean, with respect to any Person,
(a) dividends (in cash, Property or obligations) on, or other payments or
distributions on account of, or the setting apart of money for a sinking or
other analogous fund for, or the purchase, redemption, retirement or other
acquisition of, any shares of any class of stock of such Person or of any
warrants, options or other rights to acquire the same (or to make any payments
to any other Person, such as "phantom stock" payments, where the amount thereof
is calculated with reference to the fair market or equity value of such Person
or any of its Subsidiaries), but excluding (i) dividends payable solely in
shares of common stock or in options, warrants or other rights to purchase
common stock of such Person and (ii) any purchase, redemption or retirement of
shares of stock, options, warrants or other rights issued or sold to directors,
officers and employees of the Company or any of its Subsidiaries under the
Management Stock Option Plan up to but not exceeding $1,000,000 in the aggregate
and (b) administrative fees, advisory fees, management fees and billing fees,
and all other cash or non-cash consideration (other than in connection with
Special Reinsurance Arrangements), payable by such Person to any of its
Affiliates, other than customary and reasonable investment banking fees payable
to Goldman, Sachs & Co.
<PAGE>
- 16 -
"Risk-Based Capital Ratio" shall mean, with respect to any
Insurance Subsidiary on any date of determination thereof, the ratio of (a)
Total Adjusted Capital (as defined by the NAIC) for such Insurance Subsidiary to
(b) Authorized Control Level Risk-Based Capital (as defined by the NAIC) for
such Insurance Subsidiary.
"SAP" shall mean, with respect to any Insurance Subsidiary,
the accounting procedures and practices prescribed or permitted by the
Applicable Insurance Regulatory Authority, applied on a basis consistent with
those that, in accordance with the last sentence of Section 1.02(a) hereof, are
to be used in making the calculations for purposes of determining compliance
with this Agreement.
"Seller" shall mean, collectively, (i) Fortis, Inc. and (ii)
Interfinancial, Inc., an indirect Wholly-Owned Subsidiary of Fortis, Inc.
"SIG" shall mean Symons International Group, Inc., an Indiana
corporation and on the date hereof a direct Wholly-Owned Subsidiary of Goran.
"Special Reinsurance Arrangements" shall mean, with respect
to any Insurance Subsidiary, (a) subject to Section 8.14 hereof, Ceded
Reinsurance by such Insurance Subsidiary to Granite Reinsurance Company Ltd.
that does not require the approval of the Board of Directors of GGS under
Section 2.3(h) of the Stockholder Agreement, and the aggregate annual amount of
premiums ceded under which does not exceed $15,000,000, (b) the transactions
contemplated by the last sentence of Section 5.5 and, subject to Section 8.14
hereof, by Section 5.6 of the GGS Stock Purchase Agreement and (c) the
transactions contemplated by Section 5.6(c) of the Superior Stock Purchase
Agreement.
"Statutory Net Premiums Written" shall mean, for any period,
the net premiums written of the Insurance Subsidiaries (on a combined basis)
during such period, determined in accordance with SAP.
"Statutory Statement" shall mean, as to any Insurance
Subsidiary, a statement of the condition and affairs of such Insurance
Subsidiary, prepared in accordance with statutory accounting practices required
or permitted by the Applicable Insurance Regulatory Authority, and filed with
the Applicable Insurance Regulatory Authority.
"Statutory Surplus" shall mean, as at any date for any
Insurance Subsidiary or IGF, the aggregate amount of surplus as regards
policyholders (determined without duplication in accordance with SAP) of such
Insurance Subsidiary or IGF, respectively.
"Stockholder Agreement" shall mean the Stockholder Agreement
dated as of April 30, 1996, by and between GGS, GS Capital, SIG and Goran, as
modified and supplemented and in effect from time to time.
<PAGE>
- 17 -
"Subordinated Indebtedness" shall mean, with respect to the
Company, Indebtedness (i) for which the Company is directly and primarily
liable, (ii) in respect of which none of its Subsidiaries is contingently or
otherwise obligated, (iii) that does not have any principal or sinking fund
payment prior to the Final Maturity Date, (iv) in respect of which interest is
payable not more often than semi-annually and (v) that is subordinated to the
obligations of the Company to pay principal of and interest on the Loans and
Notes and Fees and other amounts payable hereunder on terms, and pursuant to
documentation containing other terms (including covenants and events of
default), in form and substance satisfactory to the Majority Banks in their
reasonable determination.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Superior" shall mean Superior Insurance Company, a Florida
insurance company.
"Superior Acquisition" shall mean the purchase by the Company
of 100% of the issued and outstanding capital stock of Superior from the Seller
pursuant to the Stock Purchase Agreement.
"Superior Stock Purchase Agreement" shall mean the Stock
Purchase Agreement dated as of January 31, 1996 by and among Goran, SIG and the
Seller (including, without limitation, all exhibits, schedules, disclosure
letters and other documents referred to therein or delivered pursuant thereto),
pursuant to which SIG has agreed to purchase from the Seller all of the capital
stock of Superior, all of SIG's rights and obligations under which have been
contributed by SIG to GGS and by GGS to the Company, as modified and
supplemented and in effect from time to time.
"Surplus Relief Reinsurance" shall mean any transaction in
which any Insurance Subsidiary or any Subsidiary of such Insurance Subsidiary
cedes business under a reinsurance agreement that would be considered a
"financing-type" reinsurance agreement as determined by the independent
certified public accountants of the Company in accordance with principles
published by the Financial Accounting Standards Board or the Second Edition of
the AICPA Audit Guide for Stock Life Insurance Companies (pp. 91-92), as the
same may be revised from time to time.
"Tangible Net Worth" shall mean, as at any date, the sum for
the Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
<PAGE>
- 18 -
(a) the amount of capital stock; plus
(b) the amount of surplus and retained earnings (or, in the
case of a surplus or retained earnings deficit, minus the amount of
such deficit); minus
(c) treasury stock; minus
(d) the net book value of all assets which would be treated
as intangibles, including (without limitation) goodwill (including from
acquisitions), trademarks, trade names, copyrights, patents, deferred
preoperating expenses, unamortized debt discount and expense, and all
other deferred charges.
"Total Capitalization" shall mean, as at any time, the sum of
Total Debt plus Tangible Net Worth.
"Total Debt" shall mean, as at any time, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of all Funded Debt.
"Total Debt to Total Capitalization Ratio" shall mean, at any
time, the ratio of Total Debt to Total Capitalization at such time.
"Transaction Documents" shall mean the Registration Rights
Agreement, the Stockholder Agreement, the Superior Stock Purchase Agreement
and the GGS Stock Purchase Agreement.
"Type" shall have the meaning assigned to such term in
Section 1.03 hereof.
"U.S. Person" shall mean a citizen or resident of the United
States of America, a corporation, partnership or other entity created or
organized in or under any laws of the United States of America or any State
thereof, or any estate or trust that is subject to Federal income taxation
regardless of the source of its income.
"U.S. Taxes" shall mean any present or future tax, assessment
or other charge or levy imposed by or on behalf of the United States of America
or any taxing authority thereof, other than net income or franchise taxes or any
other taxes imposed in lieu of net income taxes.
"Wholly-Owned Subsidiary" shall mean, with respect to any
Person, any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly-Owned Subsidiaries of such
Person or by such Person and one or more Wholly-Owned Subsidiaries of such
Person.
<PAGE>
- 19 -
1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
the Banks hereunder shall (unless otherwise disclosed to the Banks in writing at
the time of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles or
statutory accounting practices, as the case may be, applied on a basis
consistent with those used in the preparation of the latest financial statements
furnished to the Banks hereunder (which, prior to the delivery of the first
financial statements under Section 8.01 hereof, shall mean the audited, or
annual statutory, financial statements as at December 31, 1995 referred to in
Section 7.02 hereof). All calculations made for the purposes of determining
compliance with this Agreement shall (except as otherwise expressly provided
herein) be made by application of generally accepted accounting principles or
statutory accounting practices, as the case may be, applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
financial statements furnished to the Banks pursuant to Section 8.01 hereof (or,
prior to the delivery of the first financial statements under Section 8.01
hereof, used in the preparation of the audited, or annual statutory, financial
statements as at December 31, 1995 referred to in Section 7.02 hereof) unless
(i) the Company shall have objected to determining such compliance on such basis
at the time of delivery of such financial statements or (ii) the Majority Banks
shall so object in writing within 30 days after delivery of such financial
statements, in either of which events such calculations shall be made on a basis
consistent with those used in the preparation of the latest financial statements
as to which such objection shall not have been made (which, if objection is made
in respect of the first financial statements delivered under Section 8.01
hereof, shall mean the audited, or annual statutory, financial statements
referred to in Section 7.02 hereof).
(b) The Company shall deliver to the Banks at the same time
as the delivery of any annual or quarterly financial statement under Section
8.01 hereof (i) a description in reasonable detail of any material variation
between the application of accounting principles, or statutory accounting
practices, employed in the preparation of such statement and the application of
accounting principles, or statutory accounting practices, employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (a) above and (ii) reasonable estimates of the difference between
such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8 hereof, the Company will
not change the last day of its fiscal year from December 31 of each year, or the
last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30 of each year, respectively.
1.03 Types of Loans. Loans hereunder are distinguished by
"Type". The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or
a Eurodollar Loan, each of which constitutes a Type.
<PAGE>
- 20 -
Section 2. Commitments, Loans, Notes and Prepayments.
2.01 Loans. Each Bank severally agrees, on the terms and
conditions of this Agreement, to make a term loan to the Company in Dollars on
or before the Commitment Termination Date in an amount up to but not exceeding
the amount of the Commitment of such Bank. Thereafter the Company may Convert
Loans of one Type into Loans of another Type (as provided in Section 2.07
hereof) or Continue Loans of one Type as Loans of the same Type (as provided in
Section 2.07 hereof); provided that no more than three separate Interest Periods
in respect of Eurodollar Loans from each Bank may be outstanding at any one
time; and provided, further, that until the earlier of (i) the date that Chase
shall have notified the Company that syndication of the Commitments and Loans
has been completed and (ii) the ninetieth day after the Closing Date, all
Eurodollar Loans must have an Interest Period of one month's duration and be
coterminous with the Interest Periods of all other Eurodollar Loans, and, to the
extent that prior to such date a Eurodollar Loan would not satisfy such
conditions, such Loan shall be made, or Continued as or Converted into, a Base
Rate Loan.
2.02 Borrowings. The Company shall give the Administrative
Agent notice of the borrowing hereunder as provided in Section 4.05 hereof. Not
later than 1:00 p.m. New York time on the date specified for the borrowing
hereunder, each Bank shall make available the amount of the Loan or Loans to be
made by it on such date to the Administrative Agent, at an account designated by
the Administrative Agent, in immediately available funds, for account of the
Company. The amount so received by the Administrative Agent shall, subject to
the terms and conditions of this Agreement, be made available to the Company by
depositing the same, in immediately available funds, in an account of the
Company designated by the Company and maintained with Chase at its principal
office.
2.03 Changes of Commitments.
(a) The Company shall have the right at any time or from time
to time to terminate or reduce the aggregate unused amount of the Commitments;
provided that (x) the Company shall give notice of each such termination or
reduction as provided in Section 4.05 hereof and (y) each partial reduction
shall be in an aggregate amount at least equal to $1,000,000 (or a larger
multiple of $1,000,000).
(b) Any portion of the Commitments not used on the Closing
Date shall be automatically terminated.
(c) The Commitments once terminated or reduced may not be
reinstated.
2.04 Lending Offices. The Loans of each Type made by each
Bank shall be made and maintained at such Bank's Applicable Lending Office for
Loans of such Type.
<PAGE>
- 21 -
2.05 Several Obligations; Remedies Independent. The failure
of any Bank to make any Loan to be made by it on the date specified therefor
shall not relieve any other Bank of its obligation to make its Loan on such
date, but neither any Bank nor the Administrative Agent shall be responsible for
the failure of any other Bank to make a Loan to be made by such other Bank, and
(except as otherwise provided in Section 4.06 hereof) no Bank shall have any
obligation to the Administrative Agent or any other Bank for the failure by such
Bank to make any Loan required to be made by such Bank. The amounts payable by
the Company at any time hereunder and under the Notes to each Bank shall be a
separate and independent debt and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement and the Notes, and it shall not
be necessary for any other Bank or the Administrative Agent to consent to, or be
joined as an additional party in, any proceedings for such purposes.
2.06 Notes.
(a) The Loan (other than Registered Loans) made by each Bank
shall be evidenced by a single promissory note of the Company substantially in
the form of Exhibit A hereto, dated the date hereof, payable to such Bank in a
principal amount equal to the amount of its Commitment as originally in effect
and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan made by each Bank to the Company,
and each payment made on account of the principal thereof, shall be recorded by
such Bank on its books and, prior to any transfer of any Note held by it,
endorsed by such Bank on the schedule attached to such Note or any continuation
thereof; provided that the failure of such Bank to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing hereunder or under such Note in respect of the
Loans.
(c) No Bank shall be entitled to have its Note substituted or
exchanged for any reason, or subdivided for promissory notes of lesser
denominations, except in connection with a permitted assignment of all or any
portion of such Bank's Commitment, Loan and Note pursuant to Section 11.06
hereof and except as provided in clause (d) below (and, if requested by any
Bank, the Company agrees to so exchange any Note).
(d) Notwithstanding the foregoing, any Bank that is not a
U.S. Person and is not a "bank" within the meaning of Section 881(c)(3)(A) of
the Code and that has certified, by completing a certificate in the form
attached hereto as Exhibit G (or such other form as the Company may reasonably
request), that it is eligible for a complete exemption from withholding of U.S.
Taxes under Section 871(h) or 881(c) of the Code may request the Company
(through the Administrative Agent), and the Company agrees thereupon, to record
on the Register referred to in Section 11.06(g) hereof any Loans held by such
Bank under this Agreement. Loans recorded on the Register ("Registered Loans")
may not be evidenced by promissory notes other than Registered Notes as defined
<PAGE>
- 22 -
below and, upon the registration of any Loan, any promissory note (other than a
Registered Note) evidencing the same shall be null and void and shall be
returned to the Company. The Company agrees, at the request of any Bank that is
the holder of Registered Loans, to execute and deliver to such Bank a promissory
note in registered form to evidence such Registered Loans (i.e., containing the
optional registered note language as indicated in Exhibit A hereto) and
registered as provided in Section 11.06(g) hereof (herein, a "Registered Note"),
dated the date hereof, payable to such Bank and otherwise duly completed. A Loan
once recorded on the Register may not be removed from the Register so long as it
remains outstanding and a Registered Note may not be exchanged for a promissory
note that is not a Registered Note.
2.07 Optional Prepayments and Conversions or Continuations of
Loans. Subject to Section 4.04 hereof, the Company shall have the right to
prepay Loans without penalty or premium (except as provided in Section 5.05
hereof), or to Convert Loans of one Type into Loans of another Type or Continue
Loans of one Type as Loans of the same Type, at any time or from time to time,
provided that: (a) the Company shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section 4.05
hereof (and, upon the date specified in any such notice of prepayment, the
amount to be prepaid shall become due and payable hereunder); (b) Eurodollar
Loans may be prepaid or Converted only on the last day of an Interest Period for
such Loans unless the Company agrees to pay the amount, if any, specified in
Section 5.05 hereof; (c) prepayments of the Loans shall be applied to the
installments of the Loans ratably; and (d) any Conversion or Continuation of
Eurodollar Loans shall be subject to the proviso set forth at the end of Section
2.01 hereof. Notwithstanding the foregoing, and without limiting the rights and
remedies of the Banks under Section 9 hereof, in the event that any Event of
Default shall have occurred and be continuing, the Administrative Agent may (and
at the request of the Majority Banks shall) suspend the right of the Company to
Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar
Loan, in which event all Loans shall be Converted (on the last day(s) of the
respective Interest Periods therefor) or Continued, as the case may be, as Base
Rate Loans.
2.08 Mandatory Prepayments and Reductions of Commitments.
(a) Equity Issuance. Promptly upon any Equity Issuance, the
Company shall prepay the Loans in an aggregate amount equal to 75% of the Net
Available Proceeds thereof, such prepayment to be effected in the manner and to
the extent specified in paragraph (e) of this Section 2.08.
(b) Sale of Assets. Without limiting the obligation of the
Company to obtain the consent of the Majority Banks pursuant to Section 8.04
hereof to any Disposition not otherwise permitted under Section 8.04 hereof, in
the event that after the Closing Date the Net Available Proceeds of any
Disposition (herein, the "Current Disposition"), and of all prior Dispositions
after the Closing Date as to which a prepayment has not yet been made under this
Section 2.08(b), shall exceed $1,000,000 then, no later than five Business Days
prior to the occurrence of the Current Disposition, the Company will deliver to
the Banks a statement, certified by a senior financial officer of the Company,
in form and detail satisfactory to the Administrative Agent, of the amount of
Net Available Proceeds of the Current Disposition and of all such prior
<PAGE>
- 23 -
Dispositions and will prepay the Loans or reduce the Commitments in an aggregate
amount equal to 100% of the Net Available Proceeds of the Current Disposition
and such prior Dispositions, such prepayment to be effected in the manner and to
the extent specified in paragraph (e) of this Section 2.08; provided, that no
prepayment shall be required under this Section with respect to (i) any
Dispositions up to but not exceeding $5,000,000 in the aggregate, the Net
Available Proceeds of which are promptly used to make Investments permitted by
Section 8.07 hereof or Capital Expenditures permitted by Section 8.11 hereof,
(ii) any disposition for cash of the IGF Holdings Note, or (iii) the
Dispositions contemplated by Sections 5.6 and 5.7 of the GGS Stock Purchase
Agreement.
(c) Funded Debt Incurrence. Upon the creation, incurrence or
issuance by the Company after the Closing Date of any Funded Debt (other than
(x) the Loans and (y) borrowings under unsecured short-term credit lines), the
Company shall prepay the Loans in an aggregate amount equal to 75% of all cash
received by the Company in respect of such Funded Debt (net of reasonable
expenses incurred by the Company in connection therewith), such prepayment to be
effected in the manner and to the extent specified in paragraph (e) of this
Section 2.08.
(d) Purchase Price Adjustments. Promptly upon the payment by
the Seller of any refund of any portion of the purchase price of the Superior
Acquisition pursuant to clause (x) of Section 2.3(c)(iii) of the Superior Stock
Purchase Agreement aggregating $1,000,000 or more, the Company shall prepay the
Loan in an aggregate amount equal to the total amount of such refund, such
prepayment to be effected in the manner and to the extent specified in paragraph
(e) of this Section 2.08.
(e) Application; Limitations on Application. Prepayments
described in the above paragraphs of this Section 2.08 shall be applied to the
Loans then outstanding (i) in the inverse order of the maturities of the
installments thereof in the case of prepayments under clause (a), (b) and (c) of
this Section 2.08 and (ii) ratably to the installments thereof in the case of
prepayments under clause (d) of this Section 2.08, in each case without penalty
or premium (except as provided in Section 5.05 hereof). To the extent that
amounts required to be applied pursuant to clauses (a) and (b) of this Section
2.08 are only available to the Company through dividend payments to the Company
from one or more of the Insurance Subsidiaries, which payments (i) require
regulatory approval that, after due written application or request, cannot be
obtained or (ii) may not otherwise be made in accordance with applicable law,
upon certification by the Company to the Administrative Agent to such effect
(together with, in the case of an application or request for regulatory
approval, copies of all documents submitted, and all written responses received,
in connection therewith), the Company shall not, to such extent, be required to
make such application for so long as such dividend payments may not, for such
reasons, be made.
<PAGE>
- 24 -
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Company hereby promises to pay
to the Administrative Agent for account of the Banks the aggregate principal of
the Loans in eleven consecutive semi-annual installments payable on the
Principal Payment Dates as follows:
Aggregate Amount
Principal Payment Date of Installment ($)
First $ 3,128,000
Second $ 2,886,500
Third $ 2,886,500
Fourth $ 3,608,000
Fifth $ 3,608,000
Sixth $ 4,330,000
Seventh $ 4,330,000
Eighth $ 5,412,000
Ninth $ 5,412,000
Tenth $ 6,199,500
Eleventh $ 6,199,500
-----------
$48,000,000
If the Company does not borrow the full amount of the aggregate Commitments on
or before the Commitment Termination Date, the shortfall shall be applied to
reduce the foregoing installments ratably.
3.02 Interest. The Company hereby promises to pay to the
Administrative Agent for account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(a) during such periods as such Loan is a Base Rate Loan, the
Base Rate (as in effect from time to time) plus the Applicable Margin
and
(b) during such periods as such Loan is a Eurodollar Loan,
for each Interest Period relating thereto, the Eurodollar Rate for such
Loan for such Interest Period plus the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Bank interest at the applicable
Post-Default Rate on any principal of any Loan made by such Bank and on any
other amount payable by the Company hereunder or under the Note held by such
Bank to or for account of such Bank, that shall not be paid in full when due
<PAGE>
- 25 -
(whether at stated maturity, by acceleration, by mandatory prepayment or
otherwise), for the period from and including the due date thereof to but
excluding the date the same is paid in full. Accrued interest on each Loan shall
be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly
Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest
Period therefor and, if such Interest Period is longer than three months, at
three-month intervals following the first day of such Interest Period, and (iii)
in the case of any Loan, upon the payment or prepayment thereof or the
Conversion of such Loan to a Loan of another Type (but only on the principal
amount so paid, prepaid or Converted), except that interest payable at the
Post-Default Rate shall be payable from time to time on demand. Promptly after
the determination of any interest rate provided for herein or any change
therein, the Administrative Agent shall give notice thereof to the Banks and to
the Company.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement and the Notes, and, except to the extent otherwise provided
therein, all payments to be made by the Company under any other Loan Document,
shall be made in Dollars, in immediately available funds, without deduction,
set-off or counterclaim, to the Administrative Agent at an account designated by
the Administrative Agent not later than 1:00 p.m. New York time on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day).
(b) Any Bank for whose account any such payment is to be made
may (but shall not be obligated to) debit the amount of any such payment that is
not made by such time to any ordinary deposit account of the Company with such
Bank (with notice to the Company and the Administrative Agent), provided that
such Bank's failure to give such notice shall not affect the validity thereof.
(c) The Company shall, at the time of making each payment
under this Agreement or any Note for account of any Bank, specify to the
Administrative Agent (which shall so notify the intended recipient(s) thereof)
the Loans or other amounts payable by the Company hereunder to which such
payment is to be applied (and in the event that the Company fails to so specify,
or if an Event of Default has occurred and is continuing, the Administrative
Agent may distribute such payment to the Banks for application in such manner as
it or the Majority Banks, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Each payment received by the Administrative Agent under
this Agreement or any Note for account of any Bank shall be paid by the
Administrative Agent promptly to such Bank, in immediately available funds, for
account of such Bank's Applicable Lending Office for the Loan or other
obligation in respect of which such payment is made.
<PAGE>
- 26 -
(e) If the due date of any payment under this Agreement or
any Note would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and interest shall be
payable for any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) the borrowing from the Banks under Section 2.01 hereof
shall be made from the Banks, and each termination or reduction of the amount of
the Commitments under Section 2.03 hereof shall be applied to the respective
Commitments of the Banks, pro rata according to the amounts of their respective
Commitments; (b) except as otherwise provided in Section 5.04 hereof, Eurodollar
Loans having the same Interest Period shall be allocated pro rata among the
Banks according to the amounts of their respective Commitments (in the case of
the making of Loans) or their respective Loans (in the case of Conversions and
Continuations of Loans); (c) each payment or prepayment of principal of Loans by
the Company shall be made for account of the Banks pro rata in accordance with
the respective unpaid principal amounts of the Loans held by them; and (d) each
payment of interest on Loans by the Company shall be made for account of the
Banks pro rata in accordance with the amounts of interest on such Loans then due
and payable to the respective Banks.
4.03 Computations. Interest on Eurodollar Loans shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable and interest on Base Rate Loans shall be computed on the basis of a year
of 365 or 366 days, as the case may be, and actual days elapsed (including the
first day but excluding the last day) occurring in the period for which payable.
Notwithstanding the foregoing, for each day that the Base Rate is calculated by
reference to the Federal Funds Rate, interest on Base Rate Loans shall be
computed on the basis of a year of 360 days and actual days elapsed.
4.04 Minimum Amounts. Except for mandatory prepayments made
pursuant to Section 2.08 hereof and Conversions or prepayments made pursuant to
Section 5.04 hereof, the borrowing, and each Conversion and partial prepayment
of principal, of Loans shall be in an aggregate amount at least equal to
$1,000,000 or a larger multiple of $1,000,000 (borrowing, Conversions or
prepayments of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder to be deemed
separate borrowings, Conversions and prepayments for purposes of the foregoing,
one for each Type or Interest Period); provided that the aggregate principal
amount of Eurodollar Loans having the same Interest Period shall be in an amount
at least equal to $1,000,000 or a larger multiple of $1,000,000 and, if any
Eurodollar Loans would otherwise be in a lesser principal amount for any period,
such Loans shall be Base Rate Loans during such period.
4.05 Certain Notices. Notices by the Company to the
Administrative Agent of terminations or reductions of the Commitments and of the
borrowing, Conversions, Continuations and optional prepayments of Loans, of
Types of Loans and of the duration of Interest Periods shall be irrevocable and
shall be effective only if received by the Administrative Agent not later than
10:00 a.m. New York time on the number of Business Days prior to the date of the
<PAGE>
- 27 -
relevant termination, reduction, borrowing, Conversion, Continuation or
prepayment or the first day of such Interest Period specified below:
Number of
Business
Notice Days Prior
Termination or reduction
of Commitments 3
Borrowing or prepayment of,
or Conversions into,
Base Rate Loans same day
Borrowing or prepayment of,
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to Section
4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or
prepaid and the date of borrowing, Conversion, Continuation or optional
prepayment (which shall be a Business Day). Each such notice of the duration of
an Interest Period shall specify the aggregate amount of the Loans to which such
Interest Period is to relate. The Administrative Agent shall promptly notify the
Banks of the contents of each such notice. In the event that the Company fails
to select the Type of Loan, or the duration of any Interest Period for any
Eurodollar Loan, within the time period and otherwise as provided in this
Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day of the then
current Interest Period for such Loan or (if outstanding as a Base Rate Loan)
will remain as, or (if not then outstanding) will be made as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Bank or the Company (the
"Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be
made by such Bank hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Banks hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
<PAGE>
- 28 -
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
the Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day and, if
such recipient(s) shall fail promptly to make such payment, the Administrative
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid, provided that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Administrative Agent
within three Business Days of the Advance Date, then, retroactively to the
Advance Date, the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment as follows:
(i) if the Required Payment shall represent a payment to be
made by the Company to the Banks, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment at the Post-Default Rate
(without duplication of the obligation of the Company under Section
3.02 hereof to pay interest on the Required Payment at the Post-Default
Rate), it being understood that the return by the recipient(s) of the
Required Payment to the Administrative Agent shall not limit such
obligation of the Company under said Section 3.02 to pay interest at
the Post-Default Rate in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a Loan to
be made by the Banks to the Company, the Payor and the Company shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment pursuant to whichever of the rates
specified in Section 3.02 hereof is applicable to the Type of such
Loan, it being understood that the return by the Company of the
Required Payment to the Administrative Agent shall not limit any claim
the Company may have against the Payor in respect of such Required
Payment.
4.07 Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option (to the fullest
extent permitted by law), to set off and apply any deposit (general or special,
time or demand, provisional or final), or other indebtedness, held by it for the
credit or account of the Company at any of its offices, in Dollars or in any
other currency, against any principal of or interest on any of such Bank's Loan
or any other amount payable to such Bank hereunder, that is not paid when due
(regardless of whether such deposit or other indebtedness are then due to the
Company), in which case it shall promptly notify the Company and the
Administrative Agent thereof, provided that such Bank's failure to give such
notice shall not affect the validity thereof.
<PAGE>
- 29 -
(b) If any Bank shall obtain from the Company payment of any
principal of or interest on the Loan owing to it or payment of any other amount
under this Agreement or any other Loan Document through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise
(other than from the Administrative Agent as provided herein), and, as a result
of such payment, such Bank shall have received a greater percentage of the
principal of or interest on such Loan or such other amounts then due hereunder
or thereunder by the Company to such Bank than the percentage received by any
other Bank, it shall promptly purchase from such other Banks participations in
(or, if and to the extent specified by such Bank, direct interests in) the Loans
or such other amounts, respectively, owing to such other Banks (or in interest
due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Banks shall share the benefit of such excess payment (net of any expenses that
may be incurred by such Bank in obtaining or preserving such excess payment) pro
rata in accordance with the unpaid principal of and/or interest on the Loans or
such other amounts, respectively, owing to each of the Banks. To such end all
the Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of a Loan or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Company. If, under any applicable bankruptcy,
insolvency or other similar law, any Bank receives a secured claim in lieu of a
set-off to which this Section 4.07 applies, such Bank shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Banks entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Company shall pay directly to each Bank from time to
time such amounts as such Bank may determine to be necessary to compensate such
Bank for any costs that such Bank determines are attributable to its making or
maintaining of any Eurodollar Loans or its obligation to make any Eurodollar
Loans hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Eurodollar Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change that:
<PAGE>
- 30 -
(i) shall subject any Bank (or its Applicable Lending Office
for any of such Eurodollar Loans) to any tax, duty or other charge in
respect of such Eurodollar Loans or its Note or changes the basis of
taxation of any amounts payable to such Bank under this Agreement or
its Note in respect of any of such Eurodollar Loans (excluding changes
in the rate of tax on or measured by the overall net income or receipts
of such Bank or of such Applicable Lending Office by the jurisdiction
in which such Bank has its principal office or such Applicable Lending
Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such
Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof), or any commitment of such Bank
(including, without limitation, the Commitment of such Bank hereunder);
or
(iii) imposes any other condition affecting its Eurodollar Loans or
its Commitment to make or maintain Eurodollar Loans.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Administrative
Agent), suspend the obligation of such Bank thereafter to make or Continue
Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the
Regulatory Change giving rise to such request ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable), provided that
such suspension shall not affect the right of such Bank to receive the
compensation so requested.
(b) Without limiting the effect of the foregoing provisions
of this Section 5.01 (but without duplication), the Company shall pay directly
to each Bank from time to time on request such amounts as such Bank may
determine to be necessary to compensate such Bank (or, without duplication, the
bank holding company of which such Bank is a subsidiary) for any costs that it
determines are attributable to the maintenance by such Bank (or any Applicable
Lending Office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) of any
court or governmental or monetary authority (i) following any Regulatory Change
or (ii) implementing any risk-based capital guideline or other requirement
(whether or not having the force of law and whether or not the failure to comply
therewith would be unlawful) hereafter issued by any government or governmental
or supervisory authority implementing at the national level the Basle Accord, of
capital in respect of its Commitment or Loans (such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
assets or equity of such Bank (or any Applicable Lending Office or such bank
holding company) to a level below that which such Bank (or any Applicable
Lending Office or such bank holding company) could have achieved but for such
law, regulation, interpretation, directive or request).
<PAGE>
- 31 -
(c) Each Bank shall notify the Company of any event occurring
after the date hereof entitling such Bank to compensation under paragraph (a) or
(b) of this Section 5.01 as promptly as practicable, but in any event within 45
days, after such Bank obtains actual knowledge thereof; provided that (i) if any
Bank fails to give such notice within 45 days after it obtains actual knowledge
of such an event, such Bank shall, with respect to compensation payable pursuant
to this Section 5.01 in respect of any costs resulting from such event, only be
entitled to payment under this Section 5.01 for costs incurred from and after
the date 45 days prior to the date that such Bank does give such notice and (ii)
each Bank will designate a different Applicable Lending Office for the Loans of
such Bank affected by such event if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the sole opinion of
such Bank, be disadvantageous to such Bank, except that such Bank shall have no
obligation to designate an Applicable Lending Office located in the United
States of America. Each Bank will furnish to the Company a certificate setting
forth in reasonable detail the basis and calculation of the amount of each
request by such Bank for compensation under paragraph (a) or (b) of this Section
5.01. Determinations and allocations by any Bank for purposes of this Section
5.01 of the effect of any Regulatory Change pursuant to paragraph (a) of this
Section 5.01, or of the effect of capital maintained pursuant to paragraph (b)
of this Section 5.01, on its costs or rate of return of maintaining Loans or its
obligation to make Loans, or on amounts receivable by it in respect of Loans,
and of the amounts required to compensate such Bank under this Section 5.01,
shall be conclusive, provided that such determinations and allocations are made
on a reasonable basis and any calculations are absent manifest error.
5.02 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Base Rate for any Interest Period:
(a) the Administrative Agent determines, which determination
shall be conclusive, that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of
interest for Eurodollar Loans as provided herein; or
(b) the Majority Banks determine, which determination shall
be conclusive, and notify the Administrative Agent that the relevant
rates of interest referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof upon the basis of which the rate of
interest for Eurodollar Loans for such Interest Period is to be
determined are not likely adequately to cover the cost to such Banks of
making or maintaining Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Company and each Bank prompt notice
thereof and, so long as such condition remains in effect, the Banks shall be
under no obligation to make additional Eurodollar Loans, to Continue Eurodollar
Loans or to Convert Base Rate Loans into Eurodollar Loans, and the Company
shall, on the last day(s) of the then current Interest Period(s) for the
<PAGE>
- 32 -
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into Base Rate Loans in accordance with Section 2.07 hereof.
5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
hereunder (and, in the sole opinion of such Bank, the designation of a different
Applicable Lending Office would either not avoid such unlawfulness or would be
disadvantageous to such Bank), then such Bank shall promptly notify the Company
thereof (with a copy to the Administrative Agent) and such Bank's obligation to
make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans
shall be suspended until such time as such Bank may again make and maintain
Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be
applicable).
5.04 Treatment of Affected Loans. If the obligation of any
Bank to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans
into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03
hereof, such Bank's Eurodollar Loans shall be automatically Converted into Base
Rate Loans on the last day(s) of the then current Interest Period(s) for
Eurodollar Loans (or, in the case of a Conversion resulting from a circumstance
described in Section 5.03 hereof, on such earlier date as such Bank may specify
to the Company with a copy to the Administrative Agent) and, unless and until
such Bank gives notice as provided below that the circumstances specified in
Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Bank's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made or Continued instead as
Base Rate Loans, and all Base Rate Loans of such Bank that would
otherwise be Converted into Eurodollar Loans shall remain as Base Rate
Loans.
If such Bank gives notice to the Company with a copy to the Administrative Agent
that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise
to the Conversion of such Bank's Eurodollar Loans pursuant to this Section 5.04
no longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Base Rate and Eurodollar Loans are allocated among the Banks ratably (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
<PAGE>
- 33 -
5.05 Compensation. The Company shall pay to the
Administrative Agent for account of each Bank, upon the request of such Bank
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Bank) to compensate it for any loss, cost or
expense that such Bank determines is attributable to:
(a) any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan made by such Bank for any reason
(including, without limitation, the acceleration of the Loans pursuant
to Section 9 hereof) on a date other than the last day of the Interest
Period for such Loan; or
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 6 hereof to be satisfied) to borrow a Eurodollar
Loan from such Bank on the date for such borrowing specified in the
relevant notice of borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Bank).
5.06 U.S. Taxes.
(a) The Company agrees to pay to each Bank that is not a U.S.
Person such additional amounts as are necessary in order that the net payment of
any amount due to such non-U.S. Person hereunder after deduction for or
withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, provided
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Bank hereunder (other than in
respect of any Registered Loan) unless such Bank (a) is, on the date
hereof (or on the date it becomes a Bank hereunder as provided in
Section 11.06(b) hereof) and on the date of any change in the
Applicable Lending Office of such Bank, either entitled to submit a
Form W-8 or W-9 and either (x) a Form 1001 (relating to such Bank and
entitling it to a complete exemption from withholding on all interest
to be received by it hereunder in respect of the Loans) or (y) a Form
<PAGE>
- 34 -
4224 (relating to all interest to be received by such Bank hereunder in
respect of the Loans) and (b) has delivered to each of the Company and
the Administrative Agent such forms on or before such date or dates,
(ii) to any payment to any Bank hereunder in respect of a
Registered Loan (a "Registered Holder"), unless such Registered Holder
(or, if such Registered Holder is not the beneficial owner of such
Registered Loan, the beneficial owner thereof) (a) is, on the date
hereof (or on the date such Registered Holder becomes a Bank as
provided in Section 11.06(b) hereof) and on the date of any change in
the Applicable Lending Office of such Bank, entitled to submit a Form
W-8, together with an annual certificate in the form attached hereto as
Exhibit G (or such other form as the Company may reasonably request)
and (b) has delivered to each of the Company and the Administrative
Agent such forms on or before such date or dates, or
(iii) to any U.S. Taxes imposed solely by reason of the failure by
such non-U.S. Person (or, if such non-U.S. Person is not the beneficial
owner of the relevant Loan, such beneficial owner) to comply with
applicable certification, information, documentation or other reporting
requirements concerning the nationality, residence, identity or
connections with the United States of America of such non-U.S. Person
(or beneficial owner, as the case may be) if such compliance is
required by statute or regulation of the United States of America as a
precondition to relief or exemption from such U.S. Taxes.
For purposes of this Section 5.06, any Bank that fails to (a) provide a Form W-9
to each of the Company and the Administrative Agent on or before the date hereof
(or the date it becomes a Bank pursuant to Section 5.08, 11.04(b) or 11.06(b)
hereof) and on the date of any change in the Applicable Lending Office of such
Bank and (b) comply with the additional reporting requirements of Section
5.06(c) hereof, shall be deemed to be a non-U.S. Person for purposes of the
withholding of U.S. Taxes. Any Bank deemed to be a non U.S. Person for such
purposes that fails to (x) provide to each of the Company and the Administrative
Agent on or before the date hereof (or the date it becomes a Bank pursuant to
Section 5.08, 11.04(b) or 11.06(b) hereof) and on the date of any change in the
Applicable Lending Office of such Bank the forms described in either Section
5.06(a)(i) or 5.06(a)(ii) and (y) comply with the additional reporting
requirements of Section 5.06(c) hereof, shall be subject to full withholding of
U.S. Taxes.
For the purposes of this Section 5.06, (A) "Form 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (B) "Form 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America, (C) "Form W-8" shall mean Form W-8
(Certificate of Foreign Status) of the Department of the Treasury of the United
States of America and (D) "Form W-9" shall mean Form W-9 (Request for Taxpayer
Identification Number and Certification) of the Department of the Treasury of
the United States of America. Each of the Forms referred to in the foregoing
<PAGE>
- 35 -
clauses (A), (B), (C) and (D) shall include such successor and related forms as
may from time to time be adopted by the relevant taxing authorities of the
United States of America to document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Bank from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law to
remit such deduction or withholding to any relevant taxing or other authority,
the Company shall deliver to the Administrative Agent for delivery to such
non-U.S. Person evidence satisfactory to such Person of such deduction,
withholding or payment (as the case may be).
(c) Each Bank that delivers to each of the Company and the
Administrative Agent a Form W-8, W-9, 1001 or 4224 pursuant to Section 5.06(a)
hereof further undertakes to deliver to each of the Company and the
Administrative Agent said Form W-8, W-9, 1001 or 4224 or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Company, and
such extensions or renewals thereof as may reasonably be requested by the
Company, certifying that such Bank is entitled to receive payments under this
Agreement without deduction or withholding of any U.S. Taxes. Each Bank that
delivers an exemption certificate in the form of Exhibit G hereto further
undertakes to deliver to the Company and the Administrative Agent, such
statement on an annual basis on the anniversary of the date on which such Bank
became a party to this Agreement and to deliver promptly to the Company and the
Administrative Agent such additional statements and forms as shall be reasonably
requested by the Company from time to time. In the event that any change in any
law, rule, regulation, treaty or directive, or in the interpretation or
application therein (a "Law Change"), has occurred prior to the date on which
any such delivery would otherwise be required, which change renders all such
forms inapplicable or would prevent such Bank from duly completing and
delivering any such form with respect to such Bank, then promptly following such
Law Change, but in any event prior to the time the next payment under the Notes
is due following such Law Change, such Bank shall advise the Company in writing
that it is not capable of receiving payments without any deduction or
withholding of U.S. Tax.
(d) If the Administrative Agent or any Bank receives a
refund in respect of U.S. Taxes paid by the Company, it shall promptly pay such
refund to the Company, provided, however, that the Company agrees to promptly
return such refund to the Administrative Agent or the applicable Bank, as the
case may be, if it receives notice from the applicable Bank that such Bank is
required to repay such refund.
(e) Each Bank agrees to indemnify and hold harmless the
Company and the Administrative Agent from and against any taxes, penalties,
interest and other costs or losses (including, without limitation, reasonable
attorneys' fees and expenses) incurred or payable by the Company or the
Administrative Agent as a result of the failure of the Company or the
Administrative Agent to comply with its obligations to deduct or withhold any
U.S. Taxes from any payments made pursuant to this Agreement to such Bank or the
Administrative Agent which failure resulted from (i) the Company's or the
<PAGE>
- 36 -
Agent's reliance on any form, statement, certificate or other information
provided to it by such Bank pursuant to this Section 5.06 or (ii) any
Participation.
5.07 Replacement of Banks; No Rights of Participants.
(a) If any Bank shall become affected by any of the changes
or events described in this Section 5 (any such Bank being hereinafter referred
to as a "Replaced Bank") and shall petition the Company for any increased cost,
U.S. Taxes or other amounts thereunder, then in such case, so long as no Default
shall have occurred and be continuing, the Company may, upon at least five (5)
Business Days' notice to the Administrative Agent and such Replaced Bank,
designate a replacement lender (a "Replacement Bank") acceptable to the
Administrative Agent in its reasonable discretion, to which such Replaced Bank
shall, subject to its receipt (unless a later date of the remittance thereof
shall be agreed upon by the Company and the Replaced Bank) of all amounts owed
to such Replaced Bank under this Section 5, assign all (but not less than all)
of its rights, obligations, Loans and Commitment hereunder. Upon any assignment
by any Bank pursuant to this Section 5.07 becoming effective, the Replacement
Bank shall thereupon be deemed to be a "Bank" for all purposes of this Agreement
and such Replaced Bank shall thereupon cease to be a "Bank" for all purposes of
this Agreement and shall have no further rights or obligations hereunder (other
than pursuant to Section 11.12). Notwithstanding any Replaced Bank's failure or
refusal to assign its rights, obligations, Loans and Commitment under this
Section 5.07, the Replaced Bank shall cease to be a "Bank" for all purposes of
this Agreement and the Replacement Bank substituted therefor shall be deemed to
be a "Bank" for all purposes of this Agreement upon payment to the Replaced Bank
by the Replacement Bank of all amounts set forth in this Section 5.07 without
any further action of the Replaced Bank.
(b) Without limiting the generality of Section 11.06, in no
event shall any rights granted to any Bank pursuant to this Section 5 be
available to any Participant.
Section 6. Conditions Precedent. The obligation of any Bank
to make its Loan hereunder is subject to the conditions precedent that the
Administrative Agent shall have received the following documents (with, except
in the case of clause (e) below, sufficient copies for each Bank), each of which
shall be satisfactory to the Administrative Agent (and to the extent specified
below, to each Bank) in form and substance:
(a) Corporate Documents. Certified copies of the charter and
by-laws (or equivalent documents) of each Credit Party and of all
corporate authority for each Credit Party (including, without
limitation, board of director resolutions and evidence of the
incumbency, including specimen signatures, of officers) with respect to
the execution, delivery and performance of the Loan Documents and each
other document to be delivered by the Credit Parties from time to time
in connection herewith and the Loans hereunder (and the Administrative
Agent and each Bank may conclusively rely on such certificate until it
receives notice in writing from the relevant Credit Party to the
contrary).
<PAGE>
- 37 -
(b) Officer's Certificate. A certificate of a senior
officer of the Company, dated the Closing Date, to the effect set
forth in clauses (i) and (ii) of the last paragraph of this Section 6.
(c) Opinion of Counsel to the Company. An opinion, dated the
Closing Date, of Fried, Frank, Harris, Shriver & Jacobson, special New
York counsel to the Credit Parties, substantially in the form of
Exhibit C-1 hereto, and an opinion, dated the Closing Date, of Dann,
Pecar, Newman & Kleiman, special Indiana counsel to the Credit Parties,
substantially in the form of Exhibit C-2 hereto, and in each case
covering such other matters as the Administrative Agent or any Bank may
reasonably request (and the Company hereby instructs such counsel to
deliver such opinion to the Banks and the Administrative Agent).
(d) Opinion of Special New York Counsel to Chase. An opinion,
dated the Closing Date, of Milbank, Tweed, Hadley & McCloy, special New
York counsel to Chase, substantially in the form of Exhibit D hereto
(and Chase hereby instructs such counsel to deliver such opinion to the
Banks).
(e) Notes. The Notes, duly completed and executed for each
Bank (except that, in the case of a Registered Holder, a Note shall be
required only to the extent that such Registered Holder shall have
requested the execution and delivery of a Note pursuant to Section
2.06(d) hereof).
(f) Security Documents. The Company Pledge Agreement, duly
executed and delivered by the Company and the Administrative Agent, and
the GGS Pledge Agreement, duly executed and delivered by GGS and the
Administrative Agent, in each case, together with the certificates
identified in Annex 1 thereto, accompanied by undated stock powers
executed in blank. In addition, each Credit Party shall have taken such
other action (including, without limitation, delivering to the
Administrative Agent, for filing, appropriately completed and duly
executed copies of Uniform Commercial Code financing statements) as the
Administrative Agent shall have requested in order to perfect the
security interests created pursuant to each Pledge Agreement.
(g) A.M. Best Ratings. Evidence that the claims-paying
rating by A.M. Best & Co., after giving effect to the making of the
Loans and the Superior Acquisition, shall equal or exceed B- for each
of Pafco and Superior.
(h) Equity Contribution. Evidence that the Company shall
have received a cash contribution to its equity capital from GGS in an
aggregate amount of not less than $20,000,000.
<PAGE>
- 38 -
(i) Reserve Analysis. A reserve analysis prepared by Tillinghast,
a Towers Perin company, relating to the insurance business of Pafco
and of Superior, in form and substance satisfactory to the
Administrative Agent.
(j) Tax Sharing Agreements. True, correct and complete copies of
all tax sharing agreements among Goran, SIG, GGS, the Company and/or
any Subsidiary of the Company and all modifications and supplements
thereto.
(k) Financial Statements; Investments. True copies of (1) the
financial statements and other financial information referred to in
Section 7.02 hereof, (2) the annual Statutory Statement of IGF as at
December 31, 1995, (3) the balance sheet of IGF as at December 31,
1995, (4) a pro forma unconsolidated balance sheet of the Company after
giving effect to the IGF Pre-Closing Transactions, the equity
contribution referred to in paragraph (h) above, the Loans and the
consummation of the Superior Acquisition and (5) a list of all
Investments (other than Investments disclosed in Schedule II hereto)
held by the Company or any of its Subsidiaries in any Person on the
last day of the fiscal quarter of the Company most recently ended on or
before the date 45 days prior to the Closing Date (after giving effect
to the Superior Acquisition) and, for each such Investment, (x) the
identity of the Person or Persons holding such Investment and (y) the
nature of such Investment.
(l) Transaction Documents. (i) A true copy of each
Transaction Document (which shall include copies of all amendments,
schedules, exhibits and other attachments thereto and contain terms and
conditions in form and substance satisfactory to the Banks in their
reasonable determination), together with true copies of each document,
certificate and opinion referred to therein, (ii) a true copy of the
IGF Holdings Note and the Intercreditor and Subordination Agreement
entered into as of April 26, 1996 among IGF Holdings, Union Federal
Savings Bank of Indianapolis and Pafco and (iii) a certificate of a
senior officer of the Company, dated the Closing Date, to the effect
that each Transaction Document has been duly executed and delivered by
each of the parties thereto and is in full force and effect on the
Closing Date.
(m) Consummation of the Superior Acquisition. A certificate
of a senior officer of the Company, dated the Closing Date, to the
effect that (i) none of the Transaction Documents or the IGF Holdings
Note have been amended or otherwise modified, or executed
and delivered in a form other than the form heretofore delivered to the
Administrative Agent, (ii) the Superior Acquisition will simultaneously
be consummated in accordance with the Stock Purchase Agreement, and
(iii) all conditions to the consummation of the Superior Acquisition as
set forth in the Stock Purchase Agreement have been fulfilled or waived
by the parties thereto (which waiver (x) in the case of any material
waiver by the Company, shall be given only with the consent of the
Majority Banks and (y) in the case of any other waiver by the Company,
shall be given only with the consent of Chase).
<PAGE>
- 39 -
(n) IGF. Evidence that Pafco has transferred to SIG or one of
its Subsidiaries (other than GGS or any of its Subsidiaries or Persons
that will become its Subsidiaries pursuant to the Transaction
Documents) all of the capital stock of IGF Holdings, and Pafco has
received from IGF Holdings a dividend consisting of cash (in an amount
not less than $7,500,000) which, together with the principal amount of
the IGF Holdings Note, aggregates not less than the stockholder's
equity of IGF as reflected in the balance sheet of IGF referred to in
clause (3) of paragraph (k) above, together with evidence that such
dividend was lawful and that the IGF Holdings Note is a legal, valid
and binding obligation of IGF Holdings, enforceable in accordance with
its terms.
(o) EuroNote Documents. The EuroNote Waiver (as defined in
Section 4.14(a) of the GGS Stock Purchase Agreement).
(p) Approvals and Consents. Evidence that all governmental
(including insurance regulatory) and third party filings, licenses,
permits, consents and approvals necessary in connection with the
execution and delivery of the Loan Documents, the Transaction
Documents, the borrowings hereunder and the consummation of the
Superior Acquisition have been obtained by the Company and its
Subsidiaries and are in full force and effect on the date hereof.
(q) Other Documents. Such other documents as the Administrative
Agent or any Bank or special New York counsel to Chase may reasonably
request.
The obligation of any Bank to make its Loan hereunder is also subject to the
payment by the Company of such fees as the Company shall have agreed to pay or
deliver to any Bank or the Administrative Agent in connection herewith,
including, without limitation, the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase, in connection with
the negotiation, preparation, execution and delivery of this Agreement and the
Notes and the other Loan Documents and the making of the Loans hereunder (to the
extent that statements for such fees and expenses have been delivered to the
Company).
The obligation of any Bank to make its Loan hereunder is
subject to the further conditions precedent that, both immediately prior to the
making of such Loan and also after giving effect thereto and to the intended use
thereof:
(i) no Default shall have occurred and be continuing; and
(ii) the representations and warranties made by the Company
in Section 7 hereof, and by each Credit Party in each of the other Loan
Documents, shall be true and correct on and as of the date of the
making of such Loan with the same force and effect as if made on and as
of such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific
date).
<PAGE>
- 40 -
The notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such borrowing, as of the date of
such borrowing).
Section 7. Representations and Warranties. The Company
represents and warrants to the Administrative Agent and the Banks that:
7.01 Corporate Existence. Each of the Company and its
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being conducted; and (c) is
qualified to do business and is in good standing in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary,
except in the cases of (b) and (c) where failure so to hold all licenses,
authorizations, consents and approvals or the failure so to qualify is not
reasonably likely (either individually or in the aggregate) to have a Material
Adverse Effect.
7.02 Financial Condition.
(a) The Company has heretofore furnished to each of the Banks
(i) the unconsolidated unaudited balance sheet of Pafco as at December 31, 1995
and the related unconsolidated unaudited statement of income for the fiscal year
ended on said date and (ii) the unconsolidated balance sheet of Superior as at
December 31, 1995 and the related unconsolidated unaudited statement of income
for the fiscal year ended on such date. All such financial statements present
fairly, in all material respects, the financial condition of Pafco, and of
Superior, as the case may be, as at said date and the results of their
operations for the fiscal year ended on said date, all in accordance with
generally accepted accounting principles and practices (except for the absence
of statements of cash flows and stockholder's equity and of footnotes). As at
the Closing Date there has been no material adverse change in the unconsolidated
financial condition of Pafco or of Superior from that set forth in such
financial statements (it being understood that the consummation of the IGF
Pre-Closing Transactions do not result in a material adverse change with respect
to Pafco).
(b) The Company has heretofore furnished to each of the Banks
the annual Statutory Statement of Pafco and of Superior for the fiscal year
ended December 31, 1995, in each case as filed with the Applicable Insurance
Regulatory Authority. All such Statutory Statements present fairly, in all
material respects, the financial condition of such Person as at, and the results
of its operations for the fiscal year ended December 31, 1995, in accordance
with statutory accounting practices prescribed or permitted by the Applicable
Insurance Regulatory Authority.
7.03 Litigation. Except as disclosed to the Banks in Schedule
IV hereto and except for claims under insurance contracts in the ordinary course
of business, there are no legal or arbitral proceedings, or any proceedings by
<PAGE>
- 41 -
or before any governmental or regulatory authority or agency, now pending or (to
the knowledge of the Company) threatened against the Company or any of its
Subsidiaries or Superior or any of its Subsidiaries that, if adversely
determined, is reasonably likely (either individually or in the aggregate) to
have a Material Adverse Effect.
7.04 No Breach. None of the execution and delivery of the
Loan Documents or the Transaction Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of the Company, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which any of them
or any of their Property is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument, or (except for the
Liens created pursuant to the Pledge Agreements) result in the creation or
imposition of any Lien upon any Property of the Company or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.
7.05 Action. The Company has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Loan Documents and the Transaction Documents to which it is a party;
the execution, delivery and performance by the Company of each of the Loan
Documents and the Transaction Documents to which it is a party have been duly
authorized by all necessary corporate action on its part (including, without
limitation, any required shareholder approvals); and this Agreement has been
duly and validly executed and delivered by the Company and constitutes, and each
of the Notes and the other Loan Documents to which it is a party when executed
and delivered (in the case of the Notes, for value) will constitute, its legal,
valid and binding obligation, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
7.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange, are necessary for the execution, delivery
or performance by the Company of this Agreement or any of the other Loan
Documents to which it is a party or for the legality, validity or enforceability
hereof or thereof, except for (i) filings and recordings in respect of the Liens
created pursuant to the Pledge Agreements, (ii) the approval of the insurance
department or similar insurance regulatory or administrative authority or agency
of the state in which an Insurance Subsidiary whose shares are pledged under the
Company Pledge Agreement is domiciled or licensed to do an insurance business
(and any Subsidiary of such Insurance Subsidiary that is also an Insurance
Subsidiary) as may be required in connection with a foreclosure on the shares
pledged under the Company Pledge Agreement and (iii) except for such approvals
and consents required in connection with the Superior Acquisition or the GGS
<PAGE>
- 42 -
Stock Purchase Agreement, which approvals and consents shall have been obtained
by the Company, and shall be in full force and effect, on the Closing Date.
7.07 Use of Credit. No part of the proceeds of the Loans
hereunder will be used to buy or carry any Margin Stock.
7.08 ERISA. As of the Closing Date (after giving effect to
the Superior Acquisition), each Plan, and, to the knowledge of the Company, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, except where
such non-compliance would not result in a material liability to the Company and
its Subsidiaries taken as a whole.
7.09 Taxes.
(a) From and after the Closing Date, the Company and its
Subsidiaries will be members of an affiliated group of corporations eligible to
file consolidated returns for Federal income tax purposes, of which GGS will be
the "common parent" (within the meaning of Section 1504 of the Code) of such
group. As of the close of business on the Closing Date, the charges, accruals
and reserves on the books of GGS and its Subsidiaries in respect of taxes and
other governmental charges are, in the opinion of the Company, adequate.
(b) Each tax sharing agreement to which any Insurance
Subsidiary is a party and that has been delivered pursuant to Section 6(j)
hereof has been approved by the commissioner of insurance of the State in which
such Insurance Subsidiary is organized.
7.10 Investment Company Act. Neither the Company nor any
of its Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7.11 Public Utility Holding Company Act. Neither the Company
nor any of its Subsidiaries is a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
7.12 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and correct
list as of the Closing Date (after giving effect to the Superior Acquisition) of
each credit agreement, loan agreement, indenture, purchase agreement, guarantee,
letter of credit or other arrangement providing for or otherwise relating to any
Indebtedness or any extension of credit (or commitment for any extension of
credit) to, or Guarantee by, the Company or any of its Subsidiaries, outstanding
on the Closing Date the aggregate principal or face amount of which equals or
<PAGE>
- 43 -
exceeds (or may equal or exceed) $1,000,000, and the aggregate principal or face
amount outstanding or that may become outstanding under each such arrangement is
correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct
list as of the Closing Date (after giving effect to the Superior Acquisition) of
each Lien securing Indebtedness of any Person outstanding on the date hereof the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $1,000,000 and covering any Property of the Company or any of its
Subsidiaries, and the aggregate Indebtedness secured (or that may be secured) by
each such Lien and the Property covered by each such Lien is correctly described
in Part B of said Schedule I.
7.13 Environmental Matters. As of the Closing Date (after
giving effect to the Superior Acquisition), each of the Company and its
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on its
business as now being conducted, except to the extent failure to have any such
permit, license or authorization would not (either individually or in the
aggregate) have a Material Adverse Effect.
7.14 Capitalization.
(a) The authorized capital stock of the Company consists, on
the Closing Date, of an aggregate of 1,500 shares consisting of (i) 1,000 shares
of common stock, par value $0.01 per share, of which 1,000 shares are duly and
validly issued and outstanding, each of which shares is fully paid and
nonassessable. As of the Closing Date 100% of such issued and outstanding shares
of common stock are owned beneficially and of record by GGS. As of the Closing
Date (x) there are no outstanding Equity Rights with respect to the Company and
(y) there are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital
stock of the Company nor are there any outstanding obligations of the Company or
any of its Subsidiaries to make payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market value or equity value of the Company or any of its Subsidiaries.
(b) On the Closing Date, (i) Goran will own 100% of the
issued and outstanding capital stock of SIG, (ii) SIG will own (x) 100% of the
issued and outstanding capital stock of IGF Holdings and (y) 52% of the issued
and outstanding capital stock of GGS, (iii) GS Capital and the GS Affiliates,
individually or in the aggregate, will own 48% of GGS, (iv) GGS will own 100% of
the issued and outstanding capital stock of the Company, (v) the Company will
own 100% of the issued and outstanding capital stock of (x) Pafco and (y) after
giving effect to the Superior Acquisition, Superior.
<PAGE>
- 44 -
7.15 Subsidiaries, Etc.
(a) Set forth in Schedule II hereto is a complete and correct
list of all of the Subsidiaries of the Company as of the Closing Date (after
giving effect to the Superior Acquisition) together with, for each such
Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each
Person holding ownership interests in such Subsidiary and (iii) the nature of
the ownership interests held by each such Person and the percentage of ownership
of such Subsidiary represented by such ownership interests. Each of the Company
and its Subsidiaries owns, free and clear of Liens (other than Liens created
pursuant to the Pledge Agreements), and has the unencumbered right to vote, all
outstanding ownership interests in each Person shown to be held by it in
Schedule II hereto, all of the issued and outstanding capital stock of each such
Person organized as a corporation is validly issued, fully paid and
nonassessable and there are no outstanding Equity Rights with respect to such
Person.
(b) The list of Investments furnished pursuant to Section
6(k) hereof is complete and correct as of the date specified in Section 6(k)
hereof. Except as disclosed in Part B of Schedule I hereto, each of the Company
and its Subsidiaries owned as of the date specified in Section 6(k) hereof, free
and clear of all Liens, all the Investments set forth in such list.
(c) None of the Subsidiaries of the Company is, on the
Closing Date (after giving effect to the Superior Acquisition), subject to any
indenture, agreement, instrument or other arrangement of the type described in
Section 8.17(b) hereof.
7.16 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company to the Administrative Agent or any Bank in connection with
the negotiation, preparation or delivery of this Agreement and the other Loan
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole (together with the Information Memorandum) do not contain
any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by the Company and its Subsidiaries
to the Administrative Agent and the Banks in connection with this Agreement and
the other Loan Documents and the transactions contemplated hereby and thereby
will be true, complete and accurate in every material respect, or (in the case
of projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to the Company that
could have a Material Adverse Effect that has not been disclosed herein, in the
other Loan Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Banks for use in connection
with the transactions contemplated hereby or thereby.
7.17 Insurance Licenses. Schedule III attached hereto lists
on the Closing Date (after giving effect to the Superior Acquisition) all of the
jurisdictions in which each of the Insurance Subsidiaries holds active licenses
<PAGE>
- 45 -
(including, without limitation, licenses or certificates of authority from
Applicable Insurance Regulatory Authorities), permits or authorizations to
transact insurance and reinsurance business or to act as an insurance agent or
broker (collectively, the "Licenses"). Except as set forth in said Schedule III,
no such License is the subject of a proceeding for suspension or revocation or
any similar proceedings, there is no sustainable basis for such a suspension or
revocation, and to the Company's knowledge no such suspension or revocation has
been threatened by any licensing authority except in any such case where such
proceeding would not have a Material Adverse Effect. Said Schedule III indicates
the line or lines of insurance that is permitted to be engaged in with respect
to each License therein listed. None of the Insurance Subsidiaries transacts any
material insurance business, directly or indirectly, in any state other than
those enumerated on said Schedule III, where such business requires any license,
permit, governmental approval, consent or other authorization.
7.18 Superior Stock Purchase Agreement. On the Closing Date,
the Superior Stock Purchase Agreement shall have been duly executed and
delivered by the parties thereto and shall be in full force and effect. As of
the date of the Superior Stock Purchase Agreement and as of the Closing Date,
the representations and warranties of the Company contained in the Superior
Stock Purchase Agreement (including all exhibits, schedules and disclosure
letters referred to therein or delivered pursuant thereto, if any) are true,
complete and correct in all material respects.
7.19 Superior Acquisition.
(a) On and as of the Closing Date, the Superior Stock
Purchase Agreement has not been amended or otherwise modified since, or executed
and delivered in a form other than, the form heretofore delivered to the
Administrative Agent.
(b) On and as of the Closing Date, all conditions to the
consummation of the Superior Acquisition as set forth in the Superior Stock
Purchase Agreement shall have been fulfilled or waived by the parties thereto
(which waiver (x) in the case of any material waiver by the Company, shall be
given only with the consent of the Majority Banks and (y) in the case of any
other waiver by the Company, shall be given only with the consent of Chase).
7.20 Sole Assets. On the Closing Date, after giving effect to
the Superior Acquisition, the sole assets of the Company will be (i) all of the
issued and outstanding capital stock of Pafco, (ii) all of the issued and
outstanding capital stock of Superior and (iii) assets transferred to the
Company by SIG pursuant to the GGS Stock Purchase Agreement.
7.21 Security Documents. On and after the Closing Date, each
of the Company Pledge Agreement and the GGS Pledge Agreement creates, as
security for the obligations purported to be secured thereby, a valid and
enforceable perfected security interest in and the Lien on all of the Properties
covered thereby in favor of the Banks, superior to and prior to the right of all
third Persons and subject to no other Liens. No filings or recordings are
required in order to perfect the security interest created under, or the Liens
granted by, each of the Company Pledge Agreement and the GGS Pledge Agreement
<PAGE>
- 46 -
except for filings of Uniform Commercial Code financing statements contemplated
by Section 6(f) hereof.
Section 8. Covenants of the Company. The Company covenants
and agrees with the Banks and the Administrative Agent that, so long as any
Commitment or Loan is outstanding and until payment in full of all amounts
payable by the Company hereunder:
8.01 Financial Statements, Etc. The Company shall deliver
to each of the Banks:
(a) as soon as available and in any event within 45 days
after the end of each of the first three quarterly fiscal periods, and
within 90 days after the end of the fourth quarterly fiscal period, of
each fiscal year of the Company, consolidated and consolidating
statements of income, retained earnings and cash flows of the Company
and its Subsidiaries for such period and for the period from the
beginning of the respective fiscal year to the end of such period, and
the related consolidated and consolidating balance sheets of the
Company and its Subsidiaries as at the end of such period, setting
forth (commencing with the first fiscal quarter in 1997) in each case
in comparative form the corresponding consolidated and consolidating
figures for the corresponding periods in the preceding fiscal year
(except that, in the case of balance sheets, such comparison shall be
to the last day of the prior fiscal year), accompanied by a certificate
of a senior financial officer of the Company, which certificate shall
state that said consolidated financial statements present fairly, in
all material respects, the consolidated financial condition and results
of operations of the Company and its Subsidiaries, and said
consolidating financial statements fairly present the respective
individual unconsolidated financial condition and results of operations
of the Company and of each of its Subsidiaries, in each case in
accordance with generally accepted accounting principles, consistently
applied, as at the end of, and for, such period (subject to normal
year-end audit adjustments);
(b) as soon as available and in any event within 90 days
after the end of each fiscal year of the Company, consolidated and
consolidating statements of income, retained earnings and cash flows of
the Company and its Subsidiaries for such fiscal year and the related
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year, setting forth in each
case in comparative form the corresponding consolidated and
consolidating figures for the preceding fiscal year, and accompanied
(i) in the case of said consolidated statements and balance sheet of
the Company, by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state
that said consolidated financial statements present fairly, in all
material respects, the consolidated financial condition and results of
operations of the Company and its Subsidiaries as at the end of, and
for, such fiscal year in accordance with generally accepted accounting
principles, and a statement of such accountants to the effect that, in
making the examination necessary for their opinion, nothing came to
their attention that caused them to believe that the Company was not
in compliance with Sections 8.08 through 8.11 (inclusive) hereof,
insofar as such Sections relate to accounting matters, and (ii) in the
case of said consolidating statements and balance sheets, by a
<PAGE>
- 47 -
certificate of a senior financial officer of the Company, which
certificate shall state that said consolidating financial statements
fairly present the respective individual unconsolidated financial
condition and results of operations of the Company and of each of its
Subsidiaries, in each case in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and
for, such fiscal year;
(c) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within five Business Days after
the date on which each Insurance Subsidiary is required (after giving
effect to any extensions) to file its quarterly Statutory Statement for
each of the first three quarterly fiscal periods of each fiscal year
with the Applicable Insurance Regulatory Authority, such quarterly
Statutory Statement of such Insurance Subsidiary for such quarterly
fiscal period, together with the opinion thereon of a senior financial
officer of such Insurance Subsidiary stating that such Statutory
Statement presents fairly, in all material respects, the financial
condition of such Insurance Subsidiary for such quarterly fiscal period
in accordance with statutory accounting practices required or permitted
by the Applicable Insurance Regulatory Authority;
(d) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within five Business Days after
the date on which each Insurance Subsidiary is required (after giving
effect to any extensions) to file its annual Statutory Statement with
the Applicable Insurance Regulatory Authority, the annual Statutory
Statement of such Insurance Subsidiary for such year, together with the
opinion thereon of a senior financial officer of such Insurance
Subsidiary stating that said annual Statutory Statement presents
fairly, in all material respects, the financial condition of such
Insurance Subsidiary for such fiscal year in accordance with statutory
accounting practices required or permitted by the Applicable Insurance
Regulatory Authority;
(e) within 180 days after the end of each fiscal year of each
Insurance Subsidiary, the report of Coopers & Lybrand, L.L.P. (or other
independent certified public accountants of recognized national
standing) on the annual Statutory Statements delivered pursuant to
Section 8.01(d) hereof;
(f) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Securities and Exchange Commission
(or any governmental agency substituted therefor) or any national
securities exchange;
(g) promptly upon the mailing thereof to the shareholders of
the Company generally or to holders of Subordinated Indebtedness
generally, copies of all proxy statements so mailed;
<PAGE>
- 48 -
(h) promptly after the Company receives the final results of
a triennial examination by the NAIC of the financial condition and
operations of the Company and/or any of its Subsidiaries, a copy
thereof;
(i) within five Business Days after receipt, notice from any
Applicable Insurance Regulatory Authority of any threatened or actual
proceeding for suspension or revocation of any License or any similar
proceeding with respect to any such License;
(j) as soon as possible, and in any event within ten days
after the Company knows or has reason to believe that any of the events
or conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a senior financial
officer of the Company setting forth details respecting such event or
condition and the action, if any, that the Company or its ERISA
Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to the PBGC by the
Company or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which the PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard
of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or
before its due date a required installment under Section
412(m) of the Code or Section 302(e) of ERISA, shall be a
reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code); and any request
for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of
ERISA of a notice of intent to terminate any Plan or any
action taken by the Company or an ERISA Affiliate to
terminate any Plan;
(iii) the institution by the PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice
from a Multiemployer Plan that such action has been taken by
the PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Company
or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to
<PAGE>
- 49 -
Section 4241 or 4245 of ERISA or that it intends to terminate
or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a
fiduciary of any Multiemployer Plan against the Company or
any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code or Section
307 of ERISA, would result in the loss of tax-exempt status
of the trust of which such Plan is a part if the Company or
an ERISA Affiliate fails to timely provide security to the
Plan in accordance with the provisions of said Sections;
(k) promptly, notice of any denial of coverage, litigation or
arbitration arising out of any material Reinsurance Agreements to which
any of the Insurance Subsidiaries is a party;
(l) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default describing the
same in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the Company
has taken or proposes to take with respect thereto;
(m) not later than the end of each fiscal year of the
Company, a managementprepared budget for the following fiscal year set
forth on a quarterly basis with comparisons to the current year's
budget;
(n) not more than 90 days after the end of each fiscal year
of the Company, a reserve analysis, in form and substance satisfactory
to the Majority Banks, as of the last day of such fiscal year, prepared
by Tillinghast, a Towers Perin company, or another independent
actuarial consulting firm of recognized national standing satisfactory
to the Majority Banks, relating to the insurance business of each
Material Subsidiary that is an Insurance Subsidiary (for which purpose,
the term "Material Subsidiary" shall mean, at any time, any Subsidiary
of the Company that as at such time meets the definition of
"significant subsidiary" contained on the date hereof in Regulation S-X
of the Securities and Exchange Commission); and
(o) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company
or any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Bank or the Administrative Agent may
reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
<PAGE>
- 50 -
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 8.08, 8.09, 8.10 and 8.11 hereof as of
the end of the respective quarterly fiscal period or fiscal year.
8.02 Litigation. The Company will promptly give to each Bank
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company or any of
its Subsidiaries, except proceedings that, if adversely determined, would not
(either individually or in the aggregate) have a Material Adverse Effect.
8.03 Existence, Etc. The Company will, and will cause each
of its Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges and licenses (provided that nothing in this
Section 8.03 shall prohibit any transaction expressly permitted under
Section 8.04 hereof);
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements is reasonably likely
(either individually or in the aggregate) to have a Material Adverse
Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and
(f) permit representatives of any Bank or the Administrative
Agent, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect any of its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Bank or the Administrative Agent (as the
case may be), so long as, unless a Default shall have occurred and be
continuing, the business of the Company or any of its Subsidiaries is
not materially burdened thereby.
<PAGE>
- 51 -
8.04 Prohibition of Fundamental Changes. The Company will
not, nor will it permit any of its Subsidiaries to, enter into any transaction
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution).
The Company will not, nor will it permit any of its
Subsidiaries to, acquire any business (including, without limitation, by Assumed
Reinsurance) or Property from, or capital stock of, or be a party to any
acquisition of, any Person except for purchases of equipment and other Property
to be used in the ordinary course of business, Assumed Reinsurance in the
ordinary course of business, Investments permitted under Section 8.07 hereof,
and Capital Expenditures permitted under Section 8.11 hereof.
The Company will not, nor will it permit any of its
Subsidiaries to, Dispose of, or refer to another Person, any part of its
business or Property, whether now owned or hereafter acquired (including,
without limitation, receivables and leasehold interests, but excluding obsolete
or worn-out equipment no longer used or useful in its business).
Notwithstanding the foregoing provisions of this Section
8.04:
(a) any Subsidiary of the Company may be merged or
consolidated with or into: (i) the Company if the Company shall be the
continuing or surviving corporation or (ii) any other such Subsidiary;
provided that if any such transaction shall be between a Subsidiary and
a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the
continuing or surviving corporation;
(b) any Subsidiary of the Company may sell, lease, transfer
or otherwise dispose of any or all of its Property (upon voluntary
liquidation or otherwise) to the Company or a Wholly-Owned Subsidiary
of the Company;
(c) the Company may consummate the Superior Acquisition;
(d) Pafco may Dispose of all or a portion of the IGF
Holdings Note so long as such Disposition is for cash;
(e) the Company or any of its Subsidiaries may make
Dispositions up to but not exceeding $5,000,000 in the aggregate the
Net Available Proceeds of which are promptly used to make Investments
permitted by Section 8.07 hereof or Capital Expenditures permitted
by Section 8.11 hereof;
(f) the Company or any of its Subsidiaries may make any
Disposition up to but not exceeding $5,000,000 in the aggregate, the
Net Available Proceeds of which are promptly used to make a mandatory
<PAGE>
- 52 -
prepayment required in connection therewith pursuant to Section 2.08
hereof, provided that such mandatory prepayment is made when due or
delayed as permitted by Section 2.08(d) hereof); and
(g) the Company or any of its Subsidiaries may, subject to
Section 8.14 hereof, consummate the Dispositions contemplated by
Sections 5.6 and 5.7(a) of the GGS Stock Purchase Agreement.
8.05 Limitation on Liens. The Company will not, nor will it
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its Property, whether now owned or hereafter acquired, except:
(a) Liens created pursuant to the Pledge Agreements;
(b) Liens in existence on the date hereof and listed in Part
B of Schedule I hereto and any extension, renewal or replacement
thereof; provided that such Liens shall not be spread to cover any
additional Indebtedness or Property (other than a substitution of like
Property);
(c) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if, unless the amount thereof is
not material with respect to it or its financial condition, adequate
reserves with respect thereto are maintained on the books of the
Company or the affected Subsidiaries, as the case may be, in accordance
with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in an Event of Default under Section 9(i) hereof;
(e) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(f) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that, in the aggregate, are not material in amount, and that do
not in any case materially detract from the value of the Property
<PAGE>
- 53 -
subject thereto or interfere with the ordinary conduct of the business
of the Company and its Subsidiaries taken as a whole;
(h) Liens arising under escrows, trusts, custodianships,
separate accounts, funds withheld procedures, and similar deposits,
arrangements, or agreements established with respect to insurance
policies, or Assumed Reinsurance entered into by, any Insurance
Subsidiary in the ordinary course of business (including, without
limitation, Liens securing reimbursement obligations of an Insurance
Subsidiary with respect to letters of credit, or cash collateral
deposits made by an Insurance Subsidiary, in each case in connection
with Assumed Reinsurance);
(i) deposits with insurance regulatory authorities;
(j) Liens on Property of any Person that becomes a Subsidiary
of the Company after the date hereof, provided that such Liens are in
existence at the time such Person becomes a Subsidiary of the Company
and were not created in anticipation thereof;
(k) Liens upon real and/or tangible personal Property
acquired by Capital Expenditure after the date hereof (by purchase,
construction or otherwise) by the Company or any of its Subsidiaries,
each of which Liens either (A) existed on such Property before the time
of its acquisition and was not created in anticipation thereof or (B)
was created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost
(including the cost of construction) of such Property; provided that
(i) no such Lien shall extend to or cover any Property of the Company
or such Subsidiary other than the Property so acquired and improvements
thereon and (ii) the principal amount of Indebtedness secured by any
such Lien shall at no time exceed 90% of the fair market value (as
determined in good faith by a senior financial officer of the Company)
of such Property at the time it was acquired (by purchase, construction
or otherwise);
(l) Liens arising in the ordinary course of business for sums
up to but not exceeding $1,000,000 in the aggregate being contested in
good faith and by appropriate proceedings and with respect to which
adequate reserves are being maintained in accordance with GAAP, or for
sums not due, and in either case not involving any Liens for Funded
Debt; and
(m) additional Liens not otherwise permitted hereby upon real
and/or personal Property created after the date hereof, provided that
the aggregate Indebtedness secured thereby and incurred on and after
the date hereof shall not exceed $3,000,000 in the aggregate at any one
time outstanding.
8.06 Indebtedness. The Company will not, nor will it permit
any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness
except:
<PAGE>
- 54 -
(a) Indebtedness to the Banks hereunder;
(b) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule I hereto and any extensions or renewals thereof that
do not increase the principal amount thereof, shorten the average life
thereof or make the terms thereof materially less favorable to the
Company or any of its Subsidiaries;
(c) Indebtedness of Subsidiaries of the Company to the
Company or to other Subsidiaries of the Company;
(d) Subordinated Indebtedness;
(e) Indebtedness that, together with the Indebtedness
referred to in clause (b) above, does not exceed $7,500,000 in the
aggregate at any one time outstanding, under reimbursement obligations
with respect to letters of credit issued in support of Assumed
Reinsurance;
(f) Indebtedness of any Person that becomes a Subsidiary of
the Company after the date hereof up to but not exceeding $5,000,000 in
the aggregate at any one time outstanding as to all such Persons;
provided that such Indebtedness was in existence at the time such
Person became a Subsidiary of the Company and was not incurred in
anticipation thereof; and
(g) additional Indebtedness of the Company and its
Subsidiaries not otherwise permitted by this Section 8.06 (including,
without limitation, Capital Lease Obligations and Indebtedness secured
by Liens permitted by Sections 8.05(k) and 8.05(m)) up to but not
exceeding $7,000,000 in the aggregate at any one time outstanding.
8.07 Investments; Derivative Transactions.
(a) The Company will not, nor will it permit any of its
Subsidiaries to, make any Investments except (i) Investments in its
Subsidiaries, (ii) Permitted Investments, (iii) Investments in real estate
occupied by the Company or any of its Subsidiaries as office space and (iv)
Investments of the Insurance Subsidiaries not prohibited by paragraph (b) below;
provided that the Company will not, nor will it permit any of its Subsidiaries
to, make any CMO Derivative Investments.
(b) The Company shall not permit any of the Insurance
Subsidiaries to make any Investment if, on the date on which such Investment is
made and after giving effect thereto, (1) the aggregate value of Investments
(other than equity Investments) held by such Subsidiary that are rated lower
than "2", or that are not rated, by the NAIC (excluding Investments in real
estate permitted by Section 8.07(a)(iii) above) would exceed 10% of the value of
total invested assets or (2) the aggregate value of Investments held by such
Subsidiary and invested in any single obligor and its Affiliates that are rated
lower than "2", or that are not rated, by the NAIC would exceed 2% of the value
of total invested assets; provided that (i) Investments in equity securities
must be Publicly Traded Stock and shall not exceed 25% of the value of total
<PAGE>
- 55 -
invested assets and (ii) the "value" of an Investment, as used in this Section
8.07, refers to the value of such Investment that would be shown on the
Statutory Statement of the relevant Insurance Subsidiary prepared in accordance
with SAP.
(c) Without limiting the effect of paragraphs (a) and (b) of
this Section 8.07, the Company will not, nor will it permit any of its
Subsidiaries to, acquire or enter into any Derivative Transaction except in the
ordinary course of business as heretofore conducted as a bona fide hedge and not
for speculative purposes.
8.08 Restricted Payments. The Company will not, nor will it
permit any of its Subsidiaries to, make Restricted Payments in excess of
$100,000 per year in the aggregate as to the Company and all of its
Subsidiaries, except that Pafco may pay to SIG a dividend in the amount and
subject to the terms and conditions set forth in the letter dated the date
hereof sent by SIG to, and acknowledged and agreed to by, GS Capital, GGS and
Goran; provided that no dividend shall be paid until the Company shall have
furnished to the Banks a confirmation of Tillinghast that the reserves of Pafco
are adequate. Nothing herein shall be deemed to prohibit the making of any
Restricted Payments by any Subsidiary of the Company to the Company or to any
Wholly-Owned Subsidiary of the Company.
8.09 Certain Financial Covenants.
(a) Total Debt to Total Capitalization Ratio. The Company
will not permit the Total Debt to Total Capitalization Ratio to exceed the
following respective ratios at any time during the following respective periods:
Period Ratio
From the Closing Date
through December 31, 1997 0.59 to 1
From January 1, 1998
through June 30, 1998 0.50 to 1
From July 1, 1998
through December 31, 1998 0.45 to 1
From January 1, 1999
and at all times thereafter 0.35 to 1
(b) Fixed Charges Ratio. The Company will not permit the
Fixed Charges Ratio to be less than 1.30 to 1 at any time.
<PAGE>
- 56 -
(c) Interest Coverage Ratio. The Company will not permit the
Interest Coverage Ratio to be less than the following respective ratios as at
the last day of any fiscal quarter ending during the following respective
periods:
Period Ratio
From the Closing Date
through December 31, 1997 2.5 to 1
From January 1, 1998
through December 31, 1998 3.0 to 1
From January 1, 1999
and at all times thereafter 3.5 to 1
(d) Statutory Surplus. The Company will cause (i) Pafco to
maintain at all times a Statutory Surplus of not less than $9,000,000 and (ii)
Superior to maintain at all times a Statutory Surplus of not less than
$45,000,000.
(e) Maximum Statutory Net Premiums Written. The Company shall
not permit its Insurance Subsidiaries (on a combined basis) to have Statutory
Net Premiums Written during any period of four consecutive fiscal quarters of
the Company to exceed 3 times the combined Statutory Surplus of Pafco and
Superior as at the end of such period.
8.10 Risk-Based Capital Ratio. The Company will not, on any
date, permit the Risk Based Capital Ratio of Pafco to be less than 2 to 1 or of
Superior to be less than 3 to 1.
8.11 Capital Expenditures. The Company will not permit the
aggregate amount of Capital Expenditures by the Company and its Subsidiaries to
exceed $2,500,000 in any one fiscal year.
8.12 Lines of Business; Etc. The Company will not, nor will
it permit any of its Subsidiaries to, engage to any substantial extent in any
activity described in clauses (e) and (f) of Section 2.3 of the Stockholder
Agreement that first requires the approval of such activity by the Board of
Directors of GGS.
8.13 Subsidiary Dividend Payments. The Company will at all
times (a) use its best efforts to cause each of its Insurance Subsidiaries from
time to time to pay cash dividends or make other distributions or payments in
cash including without limitation the payment of Billing Fees and Management
Fees (directly or, through other Subsidiaries of the Company, indirectly) to the
Company in amounts that, taken together, and together with other amounts
otherwise held by the Company, are sufficient to permit the Company to pay all
principal of and interest on the Loans and all other amounts payable hereunder
as the same shall become due and payable (whether at stated maturity, by
<PAGE>
- 57 -
mandatory prepayment, by acceleration or otherwise), (b) cause each Insurance
Subsidiary to request on a timely basis, regulatory approval to the extent
necessary for such Insurance Subsidiary to pay such dividends or make such
distributions or payments and (c) notify the Banks promptly of the failure to
obtain any such regulatory approval. It is expressly understood that the Company
need not seek to cause the Insurance Subsidiaries to pay cash dividends unless
the aggregate of all other types of payments and other amounts held by the
Company are insufficient to permit the Company to pay such principal, interest
and other amounts.
8.14 Ceded Reinsurance. Without limiting Section 8.04(e)
hereof, the Company will not permit any Insurance Subsidiary to:
(a) enter into any Reinsurance Agreement with any Person
other than (i) another Insurance Subsidiary, (ii) any Person for which
the most recently published rating by A.M. Best & Co. is at B++ or
higher, (iii) any Person that posts security under such Reinsurance
Agreement in an amount equal to the total liabilities assumed by such
Person, through a letter of credit issued by an "authorized bank" (as
such term is defined by the Applicable Insurance Regulatory Authority)
or cash collateral deposit or (iv) any other reinsurers acceptable to
the Majority Banks, provided, however, that for the purposes of
the foregoing clause (ii),any "NA" designation shall not be considered
a rating of A.M. Best & Co; or
(b) enter into any Surplus Relief Reinsurance.
8.15 Transactions with Affiliates. Except as expressly
permitted by this Agreement, the Company will not, nor will it permit any of its
Subsidiaries to, directly or indirectly: (a) make any Investment in any of its
Affiliates; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to any of its Affiliates; (c) merge into or consolidate with or
purchase or acquire Property from any of its Affiliates; or (d) enter into any
other transaction directly or indirectly with or for the benefit of any of its
Affiliates (including, without limitation, Guarantees and assumptions of
obligations of an Affiliate); provided that (i) the Company and its Subsidiaries
may enter into transactions with Affiliates (other than extensions of credit by
the Company or any of its Subsidiaries to an Affiliate of the Company) providing
for the leasing of Property, the rendering or receipt of services or the
purchase or sale of Property in the ordinary course of business if the monetary
or business consideration arising therefrom would be substantially as
advantageous to the Company and its Subsidiaries as the monetary or business
consideration that would obtain in a comparable transaction with a Person not an
Affiliate, (ii) any Insurance Subsidiary shall be permitted to enter into
Special Reinsurance Arrangements and (iii) the Company and its Subsidiaries may
engage in the transactions contemplated by Sections 5.4 and 5.7 of the GGS Stock
Purchase Agreement.
8.16 Use of Proceeds. The Company will use the proceeds of
the Loans hereunder solely to finance a portion of the purchase price of the
Superior Acquisition (in compliance with all applicable legal and regulatory
requirements, including, without limitation, Regulations G, U and X and the
<PAGE>
- 58 -
Securities Act of 1933 and the Securities Exchange Act of 1934 and the
regulations thereunder); provided that neither the Administrative Agent nor any
Bank shall have any responsibility as to the use of any of such proceeds.
8.17 Certain Obligations Respecting Subsidiaries.
(a) Ownership of Subsidiaries. The Company will, and will
cause each of its Subsidiaries to, take such action from time to time as shall
be necessary to ensure that the Company and each of its Subsidiaries at all
times owns (subject only to the Liens of the Company Pledge Agreement) at least
the same percentage of the issued and outstanding shares of each class of stock
of each of its Subsidiaries as is owned at the close of business on the Closing
Date. In the event that any additional shares of stock shall be issued by any
Subsidiary, the Company agrees forthwith to deliver to the Administrative Agent
pursuant to the Company Pledge Agreement the certificates evidencing such shares
of stock, accompanied by undated stock powers executed in blank and to take such
other action as the Administrative Agent shall request to perfect the security
interest created therein pursuant to the Company Pledge Agreement.
(b) Certain Restrictions. The Company will not, nor will it
permit any of its Subsidiaries to, enter into, after the date hereof, any
indenture, agreement, instrument or other contractual arrangement that, directly
or indirectly, prohibits or restrains, or has the effect of prohibiting or
restraining, or imposes materially adverse conditions upon, any Subsidiary
paying Indebtedness owing to the Company, declaring or paying dividends, making
Investments in the Company, Disposing of Property, incurring Indebtedness or
granting any Liens.
8.18 Modifications of Certain Documents. The Company will not
consent to any material modification, supplement or waiver of any of the
provisions of any Transaction Document, and the Company will not permit Pafco to
consent to any material modification, supplement or waiver of any of the
provisions of the IGF Holdings Note or the Intercreditor and Subordination
Agreement entered into as of April 26, 1996 among IGF Holdings, Union Federal
Savings Bank of Indianapolis and Pafco, in each case without the prior consent
of the Administrative Agent (with the approval of the Majority Banks).
8.19 Amendment and Restatement of Credit Agreement. The
Company agrees that, upon the request of the Majority Banks (through the
Administrative Agent), the Company shall promptly join in amendment to the
Credit Agreement and the other Loan Documents so as to effect the division of
the Loans into two tranches, one to be secured by the capital stock of Pafco and
Superior and the other to be secured by all of the other assets of the Company
and the capital stock of the Company owned by GGS; provided that the other terms
and conditions of the Credit Agreement shall remain unchanged in all material
respects.
8.20 Employment Agreement. On or before the date 120 days
after the Closing Date, the Company shall enter into a written employment
agreement with Alan G. Symons substantially in the form of Exhibit H hereto
<PAGE>
- 59 -
except that (i) the base salary for the first year of employment shall be not
more than $200,000, but may be subject to reasonable annual increases and (ii)
performance bonuses may be paid at the end of any year of employment not to
exceed an amount equal to 100% of the base salary for such year.
8.21 Pooling Arrangements. On or before the date 30 days
after the Closing Date, the Company shall cause Superior and its Subsidiaries
that are licensed to do a property and casualty insurance business and Pafco to
enter into a written pooling agreement, the effectiveness of which may be
subject to receipt of approvals of Applicable Insurance Regulatory Authorities.
Section 9. Events of Default. If one or more of the
following events (herein called "Events of Default") shall occur and be
continuing:
(a) The Company shall: (i) default in the payment of any
principal of any Loan when due (whether at stated maturity or at
mandatory or optional prepayment); or (ii) default in the payment of
any interest on any Loan, any fee or any other amount payable by it
hereunder or under any other Loan Document when due and such default
shall continue unremedied for a period of 3 or more Business Days; or
(b) The Company or any of its Subsidiaries shall default in
the payment when due of any principal of or interest on any of its
other Indebtedness aggregating $2,000,000 or more; or any event
specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or
the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity; or the Company shall default in the
payment when due of any amount aggregating $2,000,000 or more under any
Interest Rate Protection Agreement; or any event specified in any
Interest Rate Protection Agreement shall occur if the effect of such
event is to cause, or (with the giving of any notice or the lapse of
time or both) to permit, termination or liquidation payment or payments
aggregating $2,000,000 or more to become due; or
(c) Any representation, warranty or certification made or
deemed made herein or in any other Loan Document (or in any
modification or supplement hereto or thereto) by the Company, or in any
Transaction Document by any party thereto, or in any certificate
furnished to any Bank or the Administrative Agent pursuant to the
provisions hereof or thereof, shall prove to have been false or
misleading as of the time made or furnished in any material respect; or
(d) The Company shall default in the performance of any of
its obligations under any of Sections 8.01(n), 8.04 through 8.06
(inclusive), 8.07(a), 8.08 through 8.11 (inclusive), 8.13 through 8.18
<PAGE>
- 60 -
(inclusive), 8.20 or 8.21 hereof or the Company shall default in the
performance of any of its obligations under Section 5.02 of the Company
Pledge Agreement or GGS shall default in the performance of any of its
obligations under Section 6.02 of the GGS Pledge Agreement; or the
Company shall default in the performance of any of its other
obligations in this Agreement or any other Loan Document (other than
the GGS Pledge Agreement) or the Stock Purchase Agreement or GGS shall
default in the performance of any of its other obligations under the
GGS Pledge Agreement and such default shall continue unremedied for a
period of 30 or more days after notice thereof to the Company by the
Administrative Agent or any Bank (through the Administrative Agent); or
(e) The Company or any of its Subsidiaries or GGS shall admit
in writing its inability to, or be generally unable to, pay its debts
as such debts become due; or
(f) The Company or any of its Subsidiaries or GGS shall (i)
apply for or consent to the appointment of, or the taking of possession
by, a receiver, custodian, trustee, examiner or liquidator of itself or
of all or a substantial part of its Property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code, (iv) file a petition seeking
to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up,
or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy
Code or (vi) take any corporate action for the purpose of effecting
any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Company or any of its Subsidiaries or
GGS, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the like of it or
of all or any substantial part of its Property or (iii) similar relief
in respect of the Company or such Subsidiary or GGS under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed
and in effect, for a period of 60 or more days; or an order for relief
against the Company or such Subsidiary or GGS shall be entered in an
involuntary case under the Bankruptcy Code; or
(h) Any Insurance Regulatory Authority shall appoint a
rehabitator, receiver, custodian, trustee, conservator or liquidator or
the like (collectively, a "conservator") for any Insurance Subsidiary,
or cause possession of all or any substantial portion of the property
of any Insurance Subsidiary to be taken by any conservator (or any
Insurance Regulatory Authority shall commence any action to effect any
of the foregoing); or
<PAGE>
- 61 -
(i) A final judgment or judgments for the payment of money of
$2,000,000 or more in the aggregate (regardless of insurance coverage)
shall be rendered by one or more courts, administrative tribunals or
other bodies having jurisdiction against the Company or any of its
Subsidiaries or GGS and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within 30 days from the date of entry thereof
and the Company, the relevant Subsidiary or GGS shall not, within said
period of 30 days, or such longer period during which execution of the
same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
(j) An event or condition specified in Section 8.01(j) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, the Company or any ERISA Affiliate shall
incur or in the opinion of the Majority Banks shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or the PBGC
(or any combination of the foregoing) that, in the determination of the
Majority Banks, would (either individually or in the aggregate) have a
Material Adverse Effect; or
(k) There shall have been asserted against the Company or any
of its Subsidiaries any claims or liabilities, whether accrued,
absolute or contingent, based on or arising from the generation,
storage, transport, handling or disposal of Hazardous Materials by the
Company or any of its Subsidiaries or predecessors that, in the
judgment of the Majority Banks is reasonably likely to be determined
adversely to the Company or any of its Subsidiaries, and the amount
thereof (either individually or in the aggregate) is reasonably likely
to have a Material Adverse Effect (insofar as such amount is payable by
the Company or any of its Subsidiaries but after deducting any portion
thereof that is reasonably expected to be paid by other creditworthy
Persons jointly and severally liable therefor); or
(l) A Change in Control shall have occurred; or
(m) The Liens created by the Pledge Agreements shall, as a
result of any action or inaction on the part of the GGS or any of its
Subsidiaries, at any time not constitute a valid and perfected Lien on
the collateral intended to be covered thereby (to the extent perfection
by filing, registration, recordation or possession is required herein
or therein) in favor of the Administrative Agent, free and clear of all
other Liens (other than Liens permitted under Section 8.05 hereof or
under the respective Pledge Agreements), or, except for expiration in
accordance with its terms, any of the Pledge Agreements shall for
whatever reason be terminated or cease to be in full force and effect,
or the enforceability thereof shall be contested by the Company, with
respect to the Company Pledge Agreement, or GGS, with respect to the
GGS Pledge Agreement; or
(n) Upon any default by IGF Holdings in the payment when due
(regardless of any blockage of payment under any subordination
provision applicable thereto) of any principal of or interest on the
<PAGE>
- 62 -
IGF Holdings Note representing an Excess Amount (as defined in Section
9.2(f) of the GGS Stock Purchase Agreement), GS Capital shall fail to
notify Goran and SIG of its election under Section 9.2(f) of the GGS
Stock Purchase Agreement that Goran and SIG contribute the full amount
of such Excess Amount directly to GGS or, upon any such contribution by
Goran and/or SIG, GGS shall fail to contribute such Excess Amount to
the Company;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 9 with respect to the Company, the
Administrative Agent may and, upon request of the Majority Banks, will, by
notice to the Company, terminate the Commitments and/or declare the principal
amount then outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Company hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.05 hereof) to be forthwith due
and payable, whereupon such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company; and (2) in the case of the occurrence of
an Event of Default referred to in clause (f) or (g) of this Section 9 with
respect to the Company, the Commitments shall automatically be terminated and
the principal amount then outstanding of, and the accrued interest on, the Loans
and all other amounts payable by the Company hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 hereof)
shall automatically become immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Company.
Section 10. The Administrative Agent.
10.01 Appointment, Powers and Immunities. Each Bank hereby
appoints and authorizes the Administrative Agent to act as its agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to the Administrative Agent by the terms of this Agreement and of the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 10.05 and the first sentence of Section 10.06 hereof
shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those
expressly set forth in this Agreement and in the other Loan Documents,
and shall not by reason of this Agreement or any other Loan Document be
a trustee for any Bank;
(b) shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this Agreement
or in any other Loan Document, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity,
<PAGE>
- 63 -
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Loan Document or any other document
referred to or provided for herein or therein or for any failure by the
Company or any other Person to perform any of its obligations hereunder
or thereunder;
(c) shall not, except to the extent expressly instructed by
the Majority Banks with respect to collateral security under the Pledge
Agreements, be required to initiate or conduct any litigation or
collection proceedings hereunder or under any other Loan Document; and
(d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other Loan Document or under
any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith, except for its own
gross negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee (or Registered Holder, as the case may be) of a Note as
the holder thereof for all purposes hereof unless and until a notice of the
assignment or transfer thereof shall have been filed with the Administrative
Agent.
10.02 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including, without limitation, any thereof by telephone,
telecopy, telegram or cable) reasonably believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Administrative Agent. As to any matters not
expressly provided for by this Agreement or any other Loan Document, the
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks, and such instructions of the Majority Banks and any
action taken or failure to act pursuant thereto shall be binding on all of the
Banks.
10.03 Defaults. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of a Default unless the
Administrative Agent has received notice from a Bank or the Company specifying
such Default and stating that such notice is a "Notice of Default". In the event
that the Administrative Agent receives such a notice of the occurrence of a
Default, the Administrative Agent shall give prompt notice thereof to the Banks.
The Administrative Agent shall (subject to Section 10.07 hereof) take such
action with respect to such Default as shall be directed by the Majority Banks,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interest of the Banks except to
the extent that this Agreement expressly requires that such action be taken, or
not be taken, only with the consent or upon the authorization of the Majority
Banks or all of the Banks.
<PAGE>
- 64 -
10.04 Rights as a Bank. With respect to its Commitment and
the Loans made by it, Chase (and any successor acting as Administrative Agent)
in its capacity as a Bank hereunder shall have the same rights and powers
hereunder as any other Bank and may exercise the same as though it were not
acting as the Administrative Agent, and the term "Bank" or "Banks" shall, unless
the context otherwise indicates, include the Administrative Agent in its
individual capacity. Chase (and any successor acting as Administrative Agent)
and its affiliates may (without having to account therefor to any Bank) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Company (and any of its
Subsidiaries or Affiliates) as if it were not acting as the Administrative
Agent, and Chase (and any such successor) and its affiliates may accept fees and
other consideration from the Company for services in connection with this
Agreement or otherwise without having to account for the same to the Banks.
10.05 Indemnification. The Banks agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 11.03 hereof,
but without limiting the obligations of the Company under said Section 11.03)
ratably in accordance with the aggregate principal amount of the Loans held by
the Banks (or, if no Loans are at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by or asserted against the Administrative Agent (including by any Bank) arising
out of or by reason of any investigation in or in any way relating to or arising
out of this Agreement or any other Loan Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses that the Company is obligated to pay under Section 11.03 hereof, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents, provided that no Bank shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.
10.06 Non-Reliance on Administrative Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on the
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and its Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or any
other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or under any other Loan
Document. The Administrative Agent shall not be required to keep itself informed
as to the performance or observance by the Company of this Agreement or any of
the other Loan Documents or any other document referred to or provided for
herein or therein or to inspect the Properties or books of the Company or any of
its Subsidiaries. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the
Administrative Agent hereunder or under the Pledge Agreements, the
Administrative Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
<PAGE>
- 65 -
condition or business of the Company or any of its Subsidiaries (or any of their
affiliates) that may come into the possession of the Administrative Agent or any
of its affiliates.
10.07 Failure to Act. Except for action expressly required of
the Administrative Agent hereunder and under the other Loan Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Banks of their indemnification
obligations under Section 10.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
10.08 Resignation or Removal of Administrative Agent. Subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving notice
thereof to the Banks and the Company, and the Administrative Agent may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Banks and shall have accepted such appointment
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Administrative Agent,
then the retiring Administrative Agent may, on behalf of the Banks, appoint a
successor Administrative Agent, that shall be a bank that has an office in New
York, New York with a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 10 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
10.09 Consents under Other Loan Documents. Except as
otherwise provided in Section 11.04 hereof with respect to this Agreement, the
Administrative Agent may, with the prior consent of the Majority Banks (but not
otherwise), consent to any modification, supplement or waiver under any of the
Loan Documents, provided that, without the prior consent of each Bank, the
Administrative Agent shall not (except as provided herein or in the Pledge
Agreements) (i) release any collateral or otherwise terminate any Lien under
either Pledge Agreement, except that no such consent shall be required, and the
Administrative Agent is hereby authorized, to release any Lien covering Property
that is the subject of either a disposition of Property permitted hereunder or a
disposition to which the Majority Banks have consented and (ii) release the
Guarantor or otherwise terminate the guarantee under the GGS Guarantee and
Pledge Agreement.
10.10 Collateral Sub-Agents. Each Bank by its execution and
delivery of this Agreement agrees, as contemplated by Section 4.02 of the
Company Pledge Agreement and Section 5.02 of the GGS Guarantee and Pledge
<PAGE>
- 66 -
Agreement, that, in the event it shall hold any Permitted Investments referred
to in such Pledge Agreement, such Permitted Investments shall be held in the
name and under the control of such Bank, and such Bank shall hold such Permitted
Investments as a collateral sub-agent for the Administrative Agent under such
Pledge Agreement. The Company by its execution and delivery of this Agreement
hereby consents to the foregoing.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Administrative
Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement or
any Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or any Note
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
11.02 Notices. All notices, requests and other communications
provided for herein and under the Pledge Agreements (including, without
limitation, any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including, without limitation, by
telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof); or, as to any party, at
such other address as shall be designated by such party in a notice to each
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
11.03 Expenses, Etc. The Company agrees to pay or reimburse
each of the Banks, the Administrative Agent and Chase Securities, Inc. for: (a)
all reasonable out-of-pocket costs and expenses of the Administrative Agent
(including, without limitation, the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase) in connection with
(i) the negotiation, preparation, execution and delivery of this Agreement and
the other Loan Documents and the making of the Loans hereunder and (ii) the
negotiation or preparation of any modification, supplement or waiver of any of
the terms of this Agreement or any of the other Loan Documents (whether or not
consummated); (b) all reasonable out-of-pocket costs and expenses of the Banks
and the Administrative Agent (including, without limitation, the reasonable fees
and expenses of legal counsel) in connection with (i) any Default and any
enforcement or collection proceedings resulting therefrom, including, without
limitation, all manner of participation in or other involvement with (x)
bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation
proceedings, (y) judicial or regulatory proceedings and (z) workout,
restructuring or other negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is consummated) and (ii) the
enforcement of this Section 11.03; and (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other Loan
Documents or any other document referred to herein or therein and all costs,
<PAGE>
- 67 -
expenses, taxes, assessments and other charges incurred in connection with any
filing, registration, recording or perfection of any security interest
contemplated by any Pledge Agreement or any other document referred to therein.
The Company hereby agrees to indemnify the Administrative
Agent and each Bank and their respective Affiliates from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages or expenses
incurred by any of them (including, without limitation, any and all losses,
liabilities, claims, damages or expenses incurred by the Administrative Agent to
any Bank, whether or not the Administrative Agent or any Bank is a party
thereto) arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) relating to the Loans hereunder or any actual or proposed use by
the Company or any of its Subsidiaries of the proceeds of any of the Loans
hereunder, including, without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence, willful misconduct of,
or violation of law by, the Person to be indemnified). Without limiting the
generality of the foregoing, the Company will indemnify the Administrative
Agent, each Bank and their respective Affiliates from, and hold the
Administrative Agent and each Bank harmless against, any losses, liabilities,
claims, damages or expenses described in the preceding sentence (but excluding,
as provided in the preceding sentence, any loss, liability, claim, damage or
expense incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified) arising under any Environmental Law as a result of the
past, present or future operations of the Company or any of its Subsidiaries (or
any predecessor in interest to the Company or any of its Subsidiaries), or the
past, present or future condition of any site or facility owned, operated or
leased at any time by the Company or any of its Subsidiaries (or any such
predecessor in interest), or any Release or threatened Release of any Hazardous
Materials at or from any such site or facility, excluding any such Release or
threatened Release that shall occur during any period when the Administrative
Agent or any Bank shall be in possession of any such site or facility following
the exercise by the Administrative Agent or any Bank of any of its rights and
remedies hereunder or under any of the Pledge Agreements, but including any such
Release or threatened Release occurring during such period that is a
continuation of conditions previously in existence, or of practices employed by
the Company and its Subsidiaries, at such site or facility.
11.04 Amendments, Etc. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Company and the
Majority Banks, or by the Company and the Administrative Agent acting with the
consent of the Majority Banks, and any provision of this Agreement may be waived
by the Majority Banks or by the Administrative Agent acting with the consent of
the Majority Banks; provided that: (a) no modification, supplement or waiver
shall, unless by an instrument signed by all of the Banks or by the
Administrative Agent acting with the consent of all of the Banks: (i) increase,
or extend the term of the Commitments, or extend the time or waive any
requirement for the reduction or termination of the Commitments, (ii) extend the
date fixed for the payment of principal of or interest on any Loan or any fee
hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce
the rate at which interest is payable thereon or any fee is payable hereunder,
(v) alter the rights or obligations of the Company to prepay Loans, (vi) alter
<PAGE>
- 68 -
the manner in which payments or prepayments of principal, interest or other
amounts hereunder shall be applied as between the Banks or Types of Loans, (vii)
alter the terms of this Section 11.04, (viii) modify the definition of the term
"Majority Banks" or modify in any other manner the number or percentage of the
Banks required to make any determinations or waive any rights hereunder or to
modify any provision hereof, or (ix) waive any of the conditions precedent set
forth in Section 6 hereof; and (b) any modification or supplement of Section 10
hereof, or of any of the rights or duties of the Administrative Agent hereunder,
shall require the consent of the Administrative Agent.
11.05 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Assignments and Participations.
(a) The Company may not assign any of its rights or
obligations hereunder or under the Notes without the prior consent of all of the
Banks and the Administrative Agent.
(b) Each Bank may assign any of its Loan, its Note, and its
Commitment (but only with the consent of the Administrative Agent, such consent
not to be unreasonably withheld or delayed); provided that
(i) no such consent by the Administrative Agent shall be
required in the case of any assignment to another Bank;
(ii) except to the extent the Administrative Agent shall otherwise
consent, any such partial assignment shall be in an amount at least
equal to $5,000,000;
(iii) each such assignment by a Bank of its Loan, Note or Commitment
shall be made in such manner so that the same portion of its Loan, Note
and Commitment is assigned to the respective assignee;
(iv) upon each such assignment, the assignor and assignee shall
deliver to the Company and the Administrative Agent a Notice of
Assignment in the form of Exhibit F hereto;
(v) no Bank shall make any such assignment to any assignee
which is a non-U.S. Person that is unable to deliver pursuant to
Section 5.06 hereof (a) a Form W-8 or W-9 and either a Form 1001 or
4224 or (b) a Form W-8 and a certificate in the form attached hereto as
Exhibit G, unless the Company consents to such assignment, which
consent may be withheld it its sole discretion, with or without cause;
and
(vi) no Bank shall make any such assignment to any assignee if,
immediately after the effectiveness of such assignment, such assignee
would be entitled to request any payment by the Company pursuant to
Section 5.01 or 5.03 hereof that the assignor was not entitled to
<PAGE>
- 69 -
request or such assignee would no longer have an obligation to Convert
Loans into, or Continue Loans as, Eurodollar Loans while the assignor
would continue to have such an obligation.
Upon execution and delivery by the assignor and the assignee to the Company and
the Administrative Agent of such Notice of Assignment, and upon consent thereto
by the Company and the Administrative Agent to the extent required above, the
assignee shall have, to the extent of such assignment (unless otherwise
consented to by the Company and the Administrative Agent), the obligations,
rights and benefits of a Bank hereunder holding the Commitment and Loan (or
portions thereof) assigned to it and specified in such Notice of Assignment (in
addition to the Commitment and Loan, if any, theretofore held by such assignee)
and the assigning Bank shall, to the extent of such assignment, be released from
the Commitment (or portion thereof) so assigned. Upon each such assignment the
assigning Bank shall pay the Administrative Agent an assignment fee of $3,500.
(c) A Bank may sell or agree to sell to one or more other
Persons (each a "Participant") a participation in all or any part of the Loan
held by it, or in its Commitment, provided that such Participant shall not have
any rights or obligations under this Agreement or any Note or any other Loan
Document (the Participant's rights against such Bank in respect of such
participation to be those set forth in the agreements executed by such Bank in
favor of the Participant), and provided further that no Bank shall sell any such
participation to any Participant that is a non-U.S. Person and is unable to
deliver to such Bank a Form W-8 or W-9 and either a Form 1001 or 4224 pursuant
to Section 5.06 hereof. All amounts payable by the Company to any Bank under
Section 5 hereof in respect of the Loan held by it, and its Commitment, shall be
determined as if such Bank had not sold or agreed to sell any participations in
such Loan and Commitment, and as if such Bank were funding each of such Loan and
Commitment in the same way that it is funding the portion of such Loan and
Commitment in which no participations have been sold. In no event shall a Bank
that sells a participation agree with the Participant to take or refrain from
taking any action hereunder or under any other Loan Document except that such
Bank may agree with the Participant that it will not, without the consent of the
Participant, agree to (i) increase or extend the term of such Bank's Commitment,
(ii) extend the date fixed for the payment of principal of or interest on the
related Loan payable to the Participant, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon
to a level below the rate at which the Participant is entitled to receive such
interest or (v) consent to any modification, supplement or waiver hereof or of
any of the other Loan Documents to the extent that the same, under Section 10.09
or 11.04 hereof, requires the consent of each Bank.
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.06, any Bank may
(without notice to the Company, the Administrative Agent or any other Bank and
without payment of any fee) (i) assign and pledge all or any portion of its Loan
and its Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank and
(ii) assign all or any portion of its rights under this Agreement and its Loan
<PAGE>
- 70 -
and its Note to an affiliate. No such assignment shall release the assigning
Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning the Company
or any of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 11.12(b) hereof.
(f) Anything in this Section 11.06 to the contrary
notwithstanding, no Bank may assign or participate any interest in the Loan held
by it hereunder to the Company or any of its Affiliates or Subsidiaries without
the prior consent of each Bank.
(g) At the request of any Bank that is not a U.S. Person and
is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and that
has certified, by completing a certificate in the form attached hereto as
Exhibit G (or such other form as the Company may reasonably request), that it is
eligible for a complete exemption from withholding of U.S. Taxes under Section
871(h) or 881(c) of the Code, the Company shall maintain, or cause to be
maintained, a register (the "Register") that, at the request of the Company,
shall be kept by the Administrative Agent on behalf of the Company at no charge
to the Company at the address to which notices to the Administrative Agent are
to be sent hereunder, on which it enters the name of such Bank as the registered
owner of each Registered Loan held by such Bank. A Registered Loan (and the
Registered Note, if any, evidencing the same) may be assigned or otherwise
transferred in whole or in part by registration of such assignment or transfer
on the Register (and each Registered Note shall expressly so provide). Any
assignment or transfer of all or part of such Loan (and the Registered Note, if
any, evidencing the same) may be effected only by registration of such
assignment or transfer on the Register, together with the surrender of the
Registered Note, if any, evidencing the same duly endorsed by (or accompanied by
a written instrument of assignment or transfer duly executed by) the holder of
such Registered Note, whereupon, at the request of the designated assignee(s) or
transferee(s), one or more new Registered Notes in the same aggregate principal
amount shall be issued to the designated assignee(s) or transferee(s). Prior to
the registration of assignment or transfer of any Registered Loan (and the
Registered Note, if any, evidencing the same), the Company shall treat the
Person in whose name such Loan (and the Registered Note, if any, evidencing the
same) is registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding notice to the
contrary.
(h) The Register shall be available for inspection by the
Company and any Bank that is a Registered Holder at any reasonable time upon
reasonable prior notice.
11.07 Survival. The obligations of the Company under Sections
5.01, 5.05, 5.06 and 11.03 hereof, and the obligations of the Banks under
Sections 10.05 and 11.12 hereof, shall survive the repayment of the Loans and
the termination of the Commitments and, in the case of any Bank that may assign
any interest in its Commitment or Loans hereunder, shall survive the making of
such assignment, notwithstanding that such assigning Bank may cease to be a
"Bank" hereunder. In addition, each representation and warranty made, or deemed
<PAGE>
- 71 -
to be made by a notice of any Loan, herein or pursuant hereto shall survive the
making of such representation and warranty, and no Bank shall be deemed to have
waived, by reason of making any Loan, any Default that may arise by reason of
such representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was false
or misleading at the time such Loan was made.
11.08 Captions. The table of contents and captions and
section headings appearing herein are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Agreement.
11.09 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.10 Governing Law; Submission to Jurisdiction. This
Agreement and the Notes shall be governed by, and construed in accordance with,
the law of the State of New York. The Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of the Supreme Court of the State of New York sitting in New York
County (including its Appellate Division), and of any other appellate court in
the State of New York, for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. The
Company hereby irrevocably waives, to the fullest extent permitted by applicable
law, any objection that it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.12 Treatment of Certain Information; Confidentiality.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates
of such Bank and the Company hereby authorizes each Bank to share any
information delivered to such Bank by the Company and its Subsidiaries pursuant
to this Agreement, or in connection with the decision of such Bank to enter into
this Agreement, to any such subsidiary or affiliate, it being understood that
any such subsidiary or affiliate receiving such information shall be bound by
the provisions of paragraph (b) below as if it were a Bank hereunder. Such
<PAGE>
- 72 -
authorization shall survive the repayment of the Loans and the termination of
the Commitments.
(b) Each Bank and the Administrative Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, all
information supplied to it by the Company pursuant to this Agreement, provided
that nothing herein shall limit the disclosure of any such information (i) after
such information shall have become public (other than through a violation of
this Section 11.12), (ii) to the extent required by statute, rule, regulation or
judicial process, (iii) to counsel for any of the Banks or the Administrative
Agent, (iv) to bank examiners (or any other regulatory authority having
jurisdiction over any Bank or the Administrative Agent), or to auditors or
accountants, (v) to the Administrative Agent or any other Bank (or to Chase
Securities, Inc.), (vi) in connection with any litigation to which any one or
more of the Banks or the Administrative Agent is a party, or in connection with
the enforcement of rights or remedies hereunder or under any other Loan
Document, (vii) to a subsidiary or affiliate of such Bank as provided in
paragraph (a) above or (viii) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to the respective Bank a
Confidentiality Agreement substantially in the form of Exhibit E hereto (or
executes and delivers to such Bank an acknowledgement to the effect that it is
bound by the provisions of this Section 11.12(b), which acknowledgement may be
included as part of the respective assignment or participation agreement
pursuant to which such assignee or participant acquires an interest in the Loans
hereunder); provided, further, that in no event shall any Bank or the
Administrative Agent be obligated or required to return any materials furnished
by the Company. The obligations of any assignee that has executed a
Confidentiality Agreement in the form of Exhibit E hereto shall be superseded by
this Section 11.12 upon the date upon which such assignee becomes a Bank
hereunder pursuant to Section 11.06(b) hereof.
<PAGE>
- 73 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
GGS MANAGEMENT, INC.
By /s/ Alan G. Symons
Title:
Address for Notices:
c/o Symons International Group,
Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Attention: David L. Bates, Esq.
Telecopier No.: (317) 259-6395
Telephone No.: (317) 259-6384
with a copy to:
GS Capital Partners II, L.P.
85 Broad Street
19th Floor
New York, New York 10004
Attention: Michael A. Pruzan
Telecopier No.: (212) 902-3000
Telephone No.: (212) 902-9123
<PAGE>
- 74 -
BANKS
Commitment THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
$48,000,000 By /s/ J. David Parker, Jr.
Title: Vice President
Lending Office for all Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
Global Insurance Division
1 Chase Manhattan Plaza - 4th Floor
New York, New York 10081
Attention: J. David Parker, Jr.
Telecopier No.: (212) 552-3651
Telephone No.: (212) 552-7631
<PAGE>
- 75 -
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Administrative Agent
By /s/ J. David Parker, Jr.
Title: Vice President
Address for Notices to Chase
as Administrative Agent:
The Chase Manhattan Bank
(National Association)
c/o Chemical Bank
Agent Bank Services
140 East 48th Street, 29th Floor
New York, New York 10017
Telecopier No.: (212) 622-0122
Telephone No.: (212) 622-0004
<PAGE>
EXHIBIT A
[Form of Note]
PROMISSORY NOTE
$_______________ April 30, 1996
New York, New York
FOR VALUE RECEIVED, GGS MANAGEMENT, INC., a [__________]
corporation (the "Company"), hereby promises to pay to __________________ (the
"Bank") [or registered assigns](2), for account of its respective Applicable
Lending Offices provided for by the Credit Agreement referred to below, at the
principal office of The Chase Manhattan Bank (National Association) in New York,
New York, the principal sum of _______________ Dollars (or such lesser amount as
shall equal the aggregate unpaid principal amount of the Loans made by the Bank
to the Company under the Credit Agreement), in lawful money of the United States
of America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Loan, at such office, in like money and funds, for
the period commencing on the date of such Loan until such Loan shall be paid in
full, at the rates per annum and on the dates provided in the Credit Agreement.
[This Note and the Loans evidenced hereby may be transferred
in whole or in part only by registration of such transfer on the register
maintained for such purpose by or on behalf of the Company as provided in
Section 11.06(g) of the Credit Agreement.](1)
The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by the Bank to the Company, and each
payment made on account of the principal thereof, shall be recorded by the Bank
on its books and, prior to any transfer of this Note, endorsed by the Bank on
the schedule attached hereto or any continuation thereof, provided that the
failure of the Bank to make any such recordation or endorsement shall not affect
the obligations of the Company to make a payment when due of any amount owing
under the Credit Agreement or hereunder in respect of the Loans made by the
Bank.
This Note is one of the Notes [(constituting a Registered
Note)](2) referred to in the Credit Agreement dated as of April 30, 1996 (as
modified and supplemented and in effect from time to time, the "Credit
Agreement") between the Company, the lenders party thereto (including the Bank)
and The Chase Manhattan Bank (National Association), as Administrative Agent,
and evidences Loans made by the Bank thereunder. Terms used but not defined in
this Note have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified therein.
_______________________
(2) Bracketed language to be inserted into Registered Notes.
Note
<PAGE>
- 2 -
Except as permitted by Section 11.06 of the Credit Agreement,
this Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
GGS MANAGEMENT, INC.
By_________________________
Title:
Note
<PAGE>
- 3 -
SCHEDULE OF LOANS
This Note evidences Loans made, Continued or Converted under
the within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Amount
Date Paid,
Made, Principal Duration Prepaid,
Continued Amount Type of Continued Unpaid
or of of Interest Interest or Principal Notation
Converted Loan Loan Rate Period Converted Amount Made By
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Note
<PAGE>
EXHIBIT B-1
[Form of Company Pledge Agreement]
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of April 30, 1996 between GGS
MANAGEMENT, INC., a corporation duly organized and validly existing under the
laws of the State of Delaware (the "Company"); and THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), as administrative agent for the Banks party to the
Credit Agreement referred to below (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
The Company, certain lenders (the "Banks") and the
Administrative Agent are parties to a Credit Agreement dated as of April 30,
1996 (as modified and supplemented and in effect from time to time, the "Credit
Agreement"), providing, subject to the terms and conditions thereof, for loans
to be made by said Banks to the Company.
To induce said Banks to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company has agreed
to pledge and grant a security interest in the Collateral (as hereinafter
defined) as security for the Secured Obligations (as so defined). Accordingly,
the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement
are used herein as defined therein. In addition, as used herein:
"Collateral" shall have the meaning ascribed thereto in
Section 3 hereof.
"Collateral Account" shall have the meaning ascribed thereto
in Section 4.01 hereof.
"Issuers" shall mean, collectively, (a) the respective
corporations identified on Annex 1 hereto under the caption "Issuer"
and (b) to the extent not otherwise identified on Annex 1 hereto, each
other direct Subsidiary of the Company.
"Pledged Stock" shall have the meaning ascribed thereto in
Section 3(a) hereof.
"Secured Obligations" shall mean, collectively, (a) the
principal of and interest on the Loans made by the Banks to, and the
Note(s) held by each Bank of, the Company and all other amounts from
time to time owing to the Banks or the Administrative Agent by the
Company under the Loan Documents, (b) all amounts from time to time
owing by the Company to any Bank under any Interest Rate Protection
Agreement and (c) all obligations of the Company to the Banks and the
Administrative Agent hereunder.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Company Pledge Agreement
<PAGE>
- 2 -
Section 2. Representations and Warranties. The Company
represents and warrants to the Banks and the Administrative Agent that:
(a) The Company is the sole beneficial owner of the Collateral
and no Lien exists or will exist upon the Collateral at any time (and
no right or option to acquire the same exists in favor of any other
Person), except for (i) Liens permitted under Section 8.05 of the
Credit Agreement and (ii) the pledge and security interest in favor of
the Administrative Agent for the benefit of the Banks created or
provided for herein, which pledge and security interest, upon delivery
of the Pledged Shares to the Administrative Agent and assuming
continuous possession thereof by the Administrative Agent, and upon the
filing of appropriate financing statements in the jurisdictions
specified by the Uniform Commercial Code in the case of Collateral
other than the Pledged Shares, will constitute a first priority
perfected pledge and security interest in and to all of the Collateral.
(b) The Pledged Stock represented by the certificates
identified in Annex 1 hereto is, and all other Pledged Stock in which
the Company shall hereafter grant a security interest pursuant to
Section 3 hereof will be, duly authorized, validly existing, fully paid
and non-assessable and none of such Pledged Stock is or will be subject
to any contractual restriction, or any restriction under the charter or
by-laws of the respective Issuer of such Pledged Stock, upon the
transfer of such Pledged Stock (except for any such restriction
contained herein or in the Credit Agreement).
(c) The Pledged Stock represented by the certificates
identified in Annex 1 hereto constitutes all of the issued and
outstanding shares of capital stock of any class of the Issuers
beneficially owned by the Company on the date hereof (whether or not
registered in the name of the Company) and said Annex 1 correctly
identifies, as at the date hereof, the respective Issuers of such
Pledged Stock, the respective class and par value of the shares
comprising such Pledged Stock and the respective number of shares (and
registered owners thereof) represented by each such certificate.
Section 3. The Pledge. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, the Company hereby pledges and grants to
the Administrative Agent, for the benefit of the Banks as hereinafter provided,
a security interest in all of the Company's right, title and interest in, to and
under the following Property, whether now owned by the Company or hereafter
acquired and whether now existing or hereafter coming into existence (all being
collectively referred to herein as "Collateral"):
(a) the shares of common stock of the Issuers represented by
the certificates identified in Annex 1 hereto and all other shares of
capital stock of whatever class of the Issuers, now or hereafter owned
by the Company, in each case together with the certificates evidencing
the same (collectively, the "Pledged Stock");
Company Pledge Agreement
<PAGE>
- 3 -
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
(c) without affecting the obligations of the Company under any
provision prohibiting such action hereunder or under the Credit
Agreement, in the event of any consolidation or merger in which an
Issuer is not the surviving corporation, all shares of each class of
the capital stock of the successor corporation (unless such successor
corporation is the Company itself) formed by or resulting from such
consolidation or merger;
(d) each Transaction Document;
(e) the balance from time to time in the Collateral Account;
(f) any and all contracts, agreements and other arrangements
with respect to Net Billing Fees and Net Management Fees ("Accounts");
and
(g) all other tangible and intangible Property of the Company,
including, without limitation, all proceeds, products, accessions,
rents, profits, income, benefits, substitutions and replacements of and
to any of the Property of the Company described in the preceding
clauses of this Section 3 (including, without limitation, all causes of
action, claims and warranties now or hereafter held by the Company in
respect of any of the items listed above and any proceeds of insurance
thereon) and, to the extent related to any Property described in said
clauses or such proceeds, products and accessions, all books,
correspondence, credit files, records, invoices and other papers.
Section 4. Cash Proceeds of Collateral.
4.01 Collateral Account. The Administrative Agent may
establish with Chase a cash collateral account (the "Collateral Account") in the
name and under the control of the Administrative Agent into which there shall be
deposited from time to time the cash proceeds of any of the Collateral required
to be delivered to the Administrative Agent pursuant hereto and into which the
Company may from time to time deposit any additional amounts that it wishes to
pledge to the Administrative Agent for the benefit of the Banks as additional
collateral security hereunder. The balance from time to time in the Collateral
Account shall constitute part of the Collateral hereunder and shall not
constitute payment of the Secured Obligations until applied as hereinafter
provided. Except as expressly provided in the next sentence, the Administrative
Agent shall remit the collected balance standing to the credit of the Collateral
Account to or upon the order of the Company as the Company shall from time to
time instruct. However, at any time following the occurrence and during the
continuance of an Event of Default, the Administrative Agent may (and, if
instructed by the Banks as specified in Section 10.03 of the Credit
Company Pledge Agreement
<PAGE>
- 4 -
Agreement, shall) in its (or their) discretion apply or cause to be applied
(subject to collection) the balance from time to time outstanding to the credit
of the Collateral Account to the payment of the Secured Obligations in the
manner specified in Section 5.09 hereof. The balance from time to time in the
Collateral Account shall be subject to withdrawal only as provided herein. In
addition to the foregoing, the Company agrees that if the proceeds of any
Collateral hereunder shall be received by it, the Company shall as promptly as
possible deposit such proceeds into the Collateral Account to the extent such
proceeds are required to be delivered to the Administrative Agent pursuant
hereto. Until so deposited, all such proceeds shall be held in trust by the
Company for and as the property of the Administrative Agent and shall not be
commingled with any other funds or property of the Company.
4.02 Investment of Balance in Collateral Account. Amounts on
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the Company (or, after the occurrence and during the
continuance of a Default, the Administrative Agent) shall determine, which
Permitted Investments shall be held in the name and be under the control of the
Administrative Agent, provided that (i) at any time after the occurrence and
during the continuance of an Event of Default, the Administrative Agent may
(and, if instructed by the Banks as specified in Section 10.03 of the Credit
Agreement, shall) in its (or their) discretion at any time and from time to time
elect to liquidate any such Permitted Investments and to apply or cause to be
applied the proceeds thereof to the payment of the Secured Obligations in the
manner specified in Section 5.09 hereof and (ii) if requested by the Company,
such Permitted Investments may be held in the name and under the control of one
or more of the Banks (and in that connection each Bank, pursuant to Section
10.10 of the Credit Agreement has agreed that such Permitted Investments shall
be held by such Bank as a collateral sub-agent for the Administrative Agent
hereunder).
Section 5. Further Assurances; Remedies. In furtherance of the
grant of the pledge and security interest pursuant to Section 3 hereof, the
Company hereby agrees with each Bank and the Administrative Agent as follows:
5.01 Delivery and Other Perfection. The Company shall:
(a) if any of the shares, securities, moneys or property
required to be pledged by the Company under clauses (a), (b) and (c) of
Section 3 hereof are received by the Company, forthwith either (x)
transfer and deliver to the Administrative Agent such shares or
securities so received by the Company (together with the certificates
for any such shares and securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank), all of
which thereafter shall be held by the Administrative Agent, pursuant to
the terms of this Agreement, as part of the Collateral or (y) take such
other action as the Administrative Agent shall deem necessary or
appropriate to duly record the Lien created hereunder in such shares,
securities, moneys or property in said clauses (a), (b) and (c);
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that
Company Pledge Agreement
<PAGE>
- 5 -
may be necessary or desirable (in the judgment of the Administrative
Agent) to create, preserve, perfect or validate the security interest
granted pursuant hereto or to enable the Administrative Agent to
exercise and enforce its rights hereunder with respect to such pledge
and security interest, including, without limitation, causing any or
all of the Collateral to be transferred of record into the name of the
Administrative Agent or its nominee (and the Administrative Agent
agrees that if any Collateral is transferred into its name or the name
of its nominee, the Administrative Agent will thereafter promptly give
to the Company copies of any notices and communications received by it
with respect to the Collateral);
(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Administrative Agent may reasonably require in order to
reflect the security interests granted by this Agreement; and
(d) permit representatives of the Administrative Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its books and records pertaining to the
Collateral, and permit representatives of the Administrative Agent to
be present at the Company's place of business to receive copies of all
communications and remittances relating to the Collateral, and forward
copies of any notices or communications received by the Company with
respect to the Collateral, all in such manner as the Administrative
Agent may require.
5.02 Other Financing Statements and Liens. Except as otherwise
permitted under Section 8.05 of the Credit Agreement, without the prior written
consent of the Administrative Agent (granted with the authorization of the Banks
as specified in Section 10.09 of the Credit Agreement), the Company shall not
file or suffer to be on file, or authorize or permit to be filed or to be on
file, in any jurisdiction, any financing statement or like instrument with
respect to the Collateral in which the Administrative Agent is not named as the
sole secured party for the benefit of the Banks.
5.03 Preservation of Rights. The Administrative Agent shall
not be required to take steps necessary to preserve any rights against prior
parties to any of the Collateral.
5.04 Collateral.
(1) The Company will cause the Pledged Stock to constitute at
all times 100% of the total number of shares of each class of capital stock of
each Issuer then outstanding.
(2) So long as no Event of Default shall have occurred and be
continuing, the Company shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Pledged Stock for all purposes
not inconsistent with the terms of this Agreement, the Credit Agreement, the
Notes or any other instrument or agreement referred to herein or therein,
provided that the Company agrees that it will not vote the Pledged Stock in any
manner that is inconsistent with the terms of this Agreement, the Credit
Agreement, the Notes or any such other instrument or agreement; and the
Administrative Agent shall execute and deliver to the Company or cause to be
Company Pledge Agreement
<PAGE>
- 6 -
executed and delivered to the Company all such proxies, powers of attorney,
dividend and other orders, and all such instruments, without recourse, as the
Company may reasonably request for the purpose of enabling the Company to
exercise the rights and powers that it is entitled to exercise pursuant to this
Section 5.04(2).
(3) Unless and until an Event of Default has occurred and is
continuing, the Company shall be entitled to receive, retain and use any
dividends on the Pledged Stock paid in cash out of earned surplus, the proceeds
of Accounts and, subject to Sections 2.08(b) and 8.04 of the Credit Agreement,
the proceeds of Dispositions of Collateral other than the Pledged Stock.
(4) If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not the Administrative
Agent or any Bank exercises any available right to declare any Secured
Obligation due and payable or seeks or pursues any other relief or remedy
available to it under applicable law or under this Agreement, the Credit
Agreement, the Notes or any other agreement relating to such Secured Obligation,
all dividends and other distributions on the Collateral shall be paid directly
to the Administrative Agent and retained by it in the Collateral Account as part
of the Collateral, subject to the terms of this Agreement, and, if the
Administrative Agent shall so request in writing, the Company agrees to execute
and deliver to the Administrative Agent appropriate additional dividend,
distribution and other orders and documents to that end, provided that if such
Event of Default is cured, any such dividend or distribution theretofore paid to
the Administrative Agent shall, upon request of the Company (except to the
extent theretofore applied to the Secured Obligations), be returned by the
Administrative Agent to the Company.
5.05 Events of Default, Etc. During the period during which
an Event of Default shall have occurred and be continuing, but subject to the
provisions of Section 6.11 hereof:
(a) the Administrative Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to exercise all voting,
consensual and other powers of ownership pertaining to the Collateral
as if the Administrative Agent were the sole and absolute owner thereof
(and the Company agrees to take all such action as may be appropriate
to give effect to such right);
(b) the Administrative Agent in its discretion may, in its
name or in the name of the Company or otherwise, demand, sue for,
collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but
shall be under no obligation to do so; and
(c) the Administrative Agent may, upon ten business days'
prior written notice to the Company of the time and place, with respect
to the Collateral or any part thereof that shall then be or shall
Company Pledge Agreement
<PAGE>
- 7 -
thereafter come into the possession, custody or control of the
Administrative Agent, the Banks or any of their respective agents,
sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Administrative Agent deems
best, and for cash or for credit or for future delivery (without
thereby assuming any credit risk), at public or private sale, without
demand of performance or notice of intention to effect any such
disposition or of the time or place thereof (except such notice as is
required above or by applicable statute and cannot be waived), and the
Administrative Agent or any Bank or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at
any private sale) and thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any right or equity
of redemption (statutory or otherwise), of the Company, any such
demand, notice and right or equity being hereby expressly waived and
released. The Administrative Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned
from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the sale
may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.05 shall be applied in accordance with Section 5.09 hereof.
The Company recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Administrative Agent may be compelled, with respect to any
sale of all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Company acknowledges that any such private sales may be at prices and on terms
less favorable to the Administrative Agent than those obtainable through a
public sale without such restrictions, and, notwithstanding such circumstances,
agrees that any such private sale shall not be deemed, for that reason alone,
not to have been made in a commercially reasonable manner and that the
Administrative Agent shall have no obligation to engage in public sales and no
obligation to delay the sale of any Collateral for the period of time necessary
to permit the respective Issuer or issuer thereof to register it for public
sale.
5.06 Deficiency. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 5.05 hereof are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Company shall remain liable for any
deficiency.
5.07 Removals, Etc. Without at least 30 days' prior written
notice to the Administrative Agent, the Company shall not (i) maintain any of
its books and records with respect to the Collateral at any office or maintain
its principal place of business at any place other than at the address indicated
beneath the signature of the Company to the Credit Agreement or (ii) change its
name, or the name under which it does business, from the name shown on the
signature pages hereto.
Company Pledge Agreement
<PAGE>
- 8 -
5.08 Private Sale. The Administrative Agent and the Banks
shall incur no liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to Section 5.05 hereof conducted in a
commercially reasonable manner. The Company hereby waives any claims against the
Administrative Agent or any Bank arising by reason of the fact that the price at
which the Collateral may have been sold at such a private sale was less than the
price that might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Administrative Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree.
5.09 Application of Proceeds. Except as otherwise herein
expressly provided, the proceeds of any collection, sale or other realization of
all or any part of the Collateral pursuant hereto, and any other cash at the
time held by the Administrative Agent under Section 4 hereof or this Section 5,
shall be applied by the Administrative Agent:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Administrative Agent and the
fees and expenses of its agents and counsel, and all expenses incurred
and advances made by the Administrative Agent in connection therewith;
Next, to the payment in full of the Secured Obligations, in
each case equally and ratably in accordance with the respective amounts
thereof then due and owing or as the Banks holding the same may
otherwise agree; and
Finally, to the payment to the Company, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Section 5, "proceeds" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Company or any issuer of or obligor on
any of the Collateral.
5.10 Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to the Administrative Agent while no Event of Default
has occurred and is continuing, upon the occurrence and during the continuance
of any Event of Default the Administrative Agent is hereby appointed the
attorney-in-fact of the Company for the purpose of carrying out the provisions
of this Section 5 and taking any action and executing any instruments that the
Administrative Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, so long as the
Administrative Agent shall be entitled under this Section 5 to make collections
in respect of the Collateral, the Administrative Agent shall have the right and
power to receive, endorse and collect all checks made payable to the order of
the Company representing any dividend, payment or other distribution in respect
of the Collateral or any part thereof and to give full discharge for the same.
Company Pledge Agreement
<PAGE>
- 9 -
5.11 Perfection. Prior to or concurrently with the execution
and delivery of this Agreement, the Company shall deliver to the Administrative
Agent all certificates identified in Annex 1 hereto, accompanied by undated
stock powers duly executed in blank.
5.12 Termination. When all Secured Obligations shall have been
paid in full and the Commitments of the Banks under the Credit Agreement shall
have expired or been terminated, this Agreement shall terminate, and the
Administrative Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect thereof, to
or on the order of the Company.
5.13 Further Assurances. The Company agrees that, from time to
time upon the written request of the Administrative Agent, the Company will
execute and deliver such further documents and do such other acts and things as
the Administrative Agent may reasonably request in order fully to effect the
purposes of this Agreement.
Section 6. Miscellaneous.
6.01 No Waiver. No failure on the part of the Administrative
Agent or any Bank to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Administrative
Agent or any Bank of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
6.02 Notices. All notices, requests, consents and demands
hereunder shall be in writing and telecopied or delivered to the intended
recipient at its "Address for Notices" specified pursuant to Section 11.02 of
the Credit Agreement and shall be deemed to have been given at the times
specified in said Section 11.02.
6.03 Amendments, Etc. The terms of this Agreement may be
waived, altered or amended only by an instrument in writing duly executed by the
Company and the Administrative Agent (with the consent of the Banks as specified
in Section 10.09 of the Credit Agreement). Any such amendment or waiver shall be
binding upon the Administrative Agent and each Bank, each holder of any of the
Secured Obligations and the Company.
6.04 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Company, the Administrative Agent, the Banks and each holder of any of the
Secured Obligations (provided, however, that the Company shall not assign or
transfer its rights hereunder without the prior written consent of the
Administrative Agent).
Company Pledge Agreement
<PAGE>
- 10 -
6.05 Captions. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
6.06 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and either of the parties hereto may execute this Agreement by
signing any such counterpart.
6.07 Governing Law, Etc. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York. The Company
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of the Supreme Court of the
State of New York sitting in New York County (including its Appellate Division),
and of any other appellate court in the State of New York, for the purposes of
all legal proceedings arising out of or relating to this Pledge Agreement or the
transactions contemplated hereby. The Company hereby irrevocably waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT
AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
6.08 Agents and Attorneys-in-Fact. The Administrative Agent
may employ agents and attorneys-in-fact in connection herewith and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
6.09 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Banks in order to carry out the intentions of the parties hereto
as nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
6.10 The Administrative Agent. As provided in Section 10 of
the Credit Agreement, each Bank has appointed The Chase Manhattan Bank (National
Association) as its agent for purposes of this Agreement. Following the payment
in full of all Secured Obligations outstanding under the Credit Agreement and
the termination or expiration of the Commitments thereunder, the provisions of
said Section 10 shall be deemed to continue in full force and effect for the
benefit of the Administrative Agent under this Agreement. In that connection,
following such payment in full and expiration and termination of the
Commitments, the term "Majority Banks" (as defined in said Section 1.01) shall
be deemed to refer to Banks holding Secured Obligations representing more than
50% of the aggregate Secured Obligations.
Company Pledge Agreement
<PAGE>
- 11 -
6.11 Certain Regulatory Requirements. The Administrative Agent
hereby acknowledges that, in connection with any exercise by it of the rights
and remedies afforded to it hereunder, it may be necessary to provide notice to
and/or obtain the prior consent or approval of certain governmental authorities.
Notwithstanding anything to the contrary contained herein, the Administrative
Agent will not take any action pursuant to this Agreement which would constitute
or result in any transfer of control over any Issuer, or any other action, if
such action, in either case, requires notice to and/or the prior consent or
approval of governmental authorities without first providing such notice and/or
obtaining such consent or approval. Upon the exercise by the Administrative
Agent of any power, right or privilege or remedy pursuant to this Agreement
which requires any consent, approval, recording, qualification or authorization
of any governmental authority, the Company will, and will cause each Issuer to,
(a) execute and deliver, or cause the execution and delivery of, all
applications, instruments or other documents and papers that the Administrative
Agent may reasonably require to be obtained for such governmental consent,
approval, recording, qualification or authorization, (b) use its best efforts
otherwise to secure such governmental consent, approval, recording,
qualification or authorization and (c) take no action inconsistent therewith.
The Company acknowledges that the Administrative Agent has no adequate remedy at
law for the breach of any obligation of this Section 6.11, and that such
obligations shall be enforceable by specific performance.
Company Pledge Agreement
<PAGE>
- 12 -
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered as of the day and year first above
written.
GGS MANAGEMENT, INC.
By _________________________
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Administrative Agent
By _________________________
Title:
Company Pledge Agreement
<PAGE>
ANNEX 1
PLEDGED STOCK
[See Section 2(b) and (c)]
<TABLE>
<CAPTION>
Certificate Registered
Issuer Nos. Owner Number of Shares
<S> <C> <C> <C>
Pafco General 2 GGS Management, 10,000 shares of common
Insurance Company Inc. stock, par value $125.
Superior Insurance 3 and 4 GGS Management, 30,000 shares of
Company Inc. common stock,
par value $100.
</TABLE>
Annex 1 to Company Pledge Agreement
<PAGE>
EXHIBIT B-2
[Form of GGS Pledge Agreement]
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of April 30, 1996 between GGS MANAGEMENT
HOLDINGS, INC., a corporation duly organized and validly existing under the laws
of the State of Delaware (the "Pledgor"); and THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION), as administrative agent for the Banks party to the Credit
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "Administrative Agent").
GGS Management, Inc., a Delaware corporation (the "Company"),
certain lenders (the "Banks") and the Administrative Agent are parties to a
Credit Agreement dated as of April 30, 1996 (as modified and supplemented and in
effect from time to time, the "Credit Agreement"), providing, subject to the
terms and conditions thereof, for loans to be made by said Banks to the Company.
To induce said Banks to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Pledgor has agreed
to pledge and grant a security interest in the Collateral (as hereinafter
defined) as security for the Secured Obligations (as hereinafter defined).
Accordingly, the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement
are used herein as defined therein. In addition, as used herein:
"Collateral" shall have the meaning ascribed thereto in
Section 3 hereof.
"Collateral Account" shall have the meaning ascribed thereto
in Section 4.01 hereof.
"Pledged Stock" shall have the meaning ascribed thereto in
Section 3(a) hereof.
"Secured Obligations" shall mean, collectively, (a) the
principal of and interest on the Loans made by the Banks to, and the
Notes held by the Banks of, the Company and all other amounts from time
to time owing to the Banks or the Administrative Agent by the Company
under the Loan Documents, (b) all amounts from time to time owing by
the Company to any Bank under any Interest Rate Protection Agreement
and (c) all obligations of the Pledgor to the Banks and the
Administrative Agent hereunder.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. Representations and Warranties. The Pledgor
represents and warrants to the Banks and the Administrative Agent that:
2.01 Corporate Existence. The Pledgor is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation.
2.02 Litigation. There are no legal or arbitral proceedings or
any proceedings by or before any governmental or regulatory authority or agency,
now pending or (to the knowledge of the Pledgor) threatened against the Pledgor
that, if adversely determined, is reasonably likely (either individually or in
the aggregate) to have a material adverse effect on the making or performance by
the Pledgor of this Agreement or the validity or enforceability thereof.
GGS Pledge Agreement
<PAGE>
- 2 -
2.03 No Breach. None of the execution and delivery of this
Agreement, the consummation of the transactions herein contemplated or
compliance with the terms and provisions hereof will conflict with or result in
a breach of, or require any consent under, the charter or by-laws of the
Pledgor, or any applicable law or regulation, or any order, writ, injunction or
decree of any court or governmental authority or agency, or any agreement or
instrument to which the Pledgor is a party or by which is bound or to which it
is subject, or constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the revenues or
assets of the Pledgor pursuant to the terms of any such agreement or instrument.
2.04 Corporate Action. The Pledgor has all necessary corporate
power and authority to execute, deliver and perform its obligations under this
Agreement; the execution, delivery and performance by the Pledgor of this
Agreement have been duly authorized by all necessary corporate action on its
part; and this Agreement has been duly and validly executed and delivered by the
Pledgor and constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
applicability affecting the enforcement of creditors' rights and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2.05 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange are necessary for the execution, delivery
or performance by the Pledgor of this Agreement or for the validity or
enforceability hereof except for (i) filings and recordings in respect of the
Liens created pursuant to this Agreement, (ii) the approval of the insurance
department or similar insurance regulatory or administrative authority or agency
of the state in which an Insurance Subsidiary is domiciled or licensed to do an
insurance business (and any Subsidiary of such Insurance Subsidiary that is also
an Insurance Subsidiary) as may be required in connection with a foreclosure on
the shares pledged under this Agreement.
2.06 Taxes. From and after the Closing Date, the Pledgor and
its Subsidiaries will be members of an affiliated group of corporations eligible
to file consolidated returns for Federal income tax purposes, of which the
Pledgor will be the "common parent" (within the meaning of Section 1504 of the
Code) of such group. As of the close of business on the Closing Date, the
charges, accruals and reserves on the books of the Pledgor and its Subsidiaries
in respect of taxes and other governmental charges are, in the opinion of the
Pledgor, adequate.
2.07 Pledged Stock.
(a) The Pledgor is the sole beneficial owner of the Collateral
and no Lien exists or will exist upon the Collateral at any time (and no right
or option to acquire the same exists in favor of any other Person), except for
(i) Liens permitted under Section 8.05 of the Credit Agreement and (ii) the
pledge and security interest in favor of the Administrative Agent for the
benefit of the Banks created or provided for herein, which pledge and security
interest, upon delivery of the Pledged Shares to the Administrative Agent and
assuming continuous possession thereof by the Administrative Agent, and upon the
filing of appropriate financing statements in the jurisdictions specified by the
Uniform Commercial Code in the case of Collateral other than the Pledged Shares,
will constitute a first priority perfected pledge and security interest in and
to all of the Collateral.
(b) The Pledged Stock represented by the certificates
identified in Annex 1 hereto is, and all other Pledged Stock in which the
Pledgor shall hereafter grant a security interest pursuant to Section 3 hereof
will be, duly authorized, validly existing, fully paid and non-assessable and
GGS Pledge Agreement
<PAGE>
- 3 -
none of such Pledged Stock is or will be subject to any contractual restriction,
or any restriction under the charter or by-laws of the Company, upon the
transfer of such Pledged Stock (except for any such restriction contained
herein).
(c) The Pledged Stock represented by the certificates
identified in Annex 1 hereto constitutes all of the issued and outstanding
shares of capital stock of any class of the Company beneficially owned by the
Pledgor on the date hereof (whether or not registered in the name of the
Pledgor) and said Annex 1 correctly identifies, as at the date hereof, the
respective class and par value of the shares comprising such Pledged Stock and
the respective number of shares (and registered owners thereof) represented by
each such certificate.
2.08 Investment Company Act. The Pledgor is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
2.09 Public Utility Holding Company Act. The Pledgor is not a
"holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
Section 3. The Pledge. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, the Pledgor hereby pledges and grants to
the Administrative Agent, for the benefit of the Banks as hereinafter provided,
a security interest in all of the Pledgor's right, title and interest in, to and
under the following Property, whether now owned by the Pledgor or hereafter
acquired and whether now existing or hereafter coming into existence (all being
collectively referred to herein as "Collateral"):
(a) the shares of common stock of the Company represented by
the certificates identified in Annex 1 hereto and all other shares of
capital stock of whatever class of the Company, now or hereafter owned
by the Pledgor, in each case together with the certificates evidencing
the same (collectively, the "Pledged Stock");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
(c) without affecting the obligations of the Pledgor under any
provision prohibiting such action hereunder or under the Credit
Agreement, in the event of any consolidation or merger in which the
Company is not the surviving corporation, all shares of each class of
the capital stock of the successor corporation (unless such successor
corporation is the Pledgor itself) formed by or resulting from such
consolidation or merger;
(d) each Transaction Document;
(e) the balance from time to time in the Collateral Account;
and
(f) all proceeds of and to any of the Property of the Pledgor
described in the preceding clauses of this Section 3 (including,
without limitation, all causes of action, claims and warranties now or
hereafter held by the Pledgor in respect of any of the items listed
GGS Pledge Agreement
<PAGE>
- 4 -
above) and, to the extent related to any property described in said
clauses or such proceeds, products and accessions, all books,
correspondence, credit files, records, invoices and other papers.
Section 4. Cash Proceeds of Collateral.
4.01 Collateral Account. The Administrative Agent may
establish with Chase a cash collateral account (the "Collateral Account") in the
name and under the control of the Administrative Agent into which there shall be
deposited from time to time the cash proceeds of any of the Collateral required
to be delivered to the Administrative Agent pursuant hereto and into which the
Pledgor may from time to time deposit any additional amounts that it wishes to
pledge to the Administrative Agent for the benefit of the Banks as additional
collateral security hereunder. The balance from time to time in the Collateral
Account shall constitute part of the Collateral hereunder and shall not
constitute payment of the Secured Obligations until applied as hereinafter
provided. Except as expressly provided in the next sentence, the Administrative
Agent shall remit the collected balance standing to the credit of the Collateral
Account to or upon the order of the Pledgor as the Pledgor shall from time to
time instruct. However, at any time following the occurrence and during the
continuance of an Event of Default, the Administrative Agent may (and, if
instructed by the Banks as specified in Section 10.03 of the Credit Agreement,
shall) in its (or their) discretion apply or cause to be applied (subject to
collection) the balance from time to time standing to the credit of the
Collateral Account to the payment of the Secured Obligations in the manner
specified in Section 4.09 hereof. The balance from time to time in the
Collateral Account shall be subject to withdrawal only as provided herein. In
addition to the foregoing, the Pledgor agrees that if the proceeds of any
Collateral hereunder shall be received by it, the Pledgor shall as promptly as
possible deposit such proceeds into the Collateral Account to the extent such
proceeds are required to be delivered to the Administrative Agent pursuant
hereto. Until so deposited, all such proceeds shall be held in trust by the
Pledgor for and as the property of the Administrative Agent and shall not be
commingled with any other funds or property of the Pledgor.
4.02 Investment of Balance in Collateral Account. Amounts on
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the Pledgor (or, after the occurrence and during the
continuance of a Default, the Administrative Agent) shall determine, which
Permitted Investments shall be held in the name and be under the control of the
Administrative Agent, provided that (i) at any time after the occurrence and
during the continuance of an Event of Default, the Administrative Agent may
(and, if instructed by the Banks as specified in Section 10.03 of the Credit
Agreement, shall) in its (or their) discretion at any time and from time to time
elect to liquidate any such Permitted Investments and to apply or cause to be
applied the proceeds thereof to the payment of the Secured Obligations in the
manner specified in Section 6.09 hereof and (ii) if requested by the Pledgor,
such Permitted Investments may be held in the name and under the control of one
or more of the Banks (and in that connection each Bank, pursuant to Section
10.10 of the Credit Agreement has agreed that such Permitted Investments shall
be held by such Bank as a collateral sub-agent for the Administrative Agent
hereunder).
Section 5. Covenants. The Pledgor agrees that, until the
payment and satisfaction in full of the Secured Obligations and the expiration
or termination of the Commitments of the Banks under the Credit Agreement:
5.01 Litigation. The Pledgor will promptly give to each Bank
(a) notice of all legal or arbitral proceedings, and of all proceedings by or
before any governmental or regulatory authority or agency, affecting the
Pledgor, except proceedings that, if adversely determined, would not (either
GGS Pledge Agreement
<PAGE>
- 5 -
individually or in the aggregate) have a material adverse effect on the making
or performance by the Pledgor of this Agreement or the validity or
enforceability thereof, (b) a copy of any written notice given by the Pledgor or
any of its Subsidiaries to the Seller of any claim for damages resulting from
breaches of the representations and warranties of the Sellers in the Superior
Stock Purchase Agreement and (c) a copy of any written notice to arbitrate given
or received by the Pledgor under Section 9.2 of the Superior Stock Purchase
Agreement.
5.02 Corporate Existence, Etc. The Pledgor will: preserve and
maintain its corporate existence and all of its material rights, privileges and
franchises; comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure to
comply with such requirements could (either individually or in the aggregate)
materially and adversely affect the making or performance by the Pledgor of this
Agreement or the validity or enforceability thereof; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; and permit representatives of any
Bank or the Administrative Agent, during normal business hours, to examine, copy
and make extracts from its books and records relating to the Collateral.
Section 6. Further Assurances; Remedies. In furtherance of the
grant of the pledge and security interest pursuant to Section 3 hereof, the
Pledgor hereby agrees with each Bank and the Administrative Agent as follows:
6.01 Delivery and Other Perfection. The Pledgor shall:
(a) if any of the shares, securities, moneys or property
required to be pledged by the Pledgor under clauses (a), (b) and (c) of
Section 3 hereof are received by the Pledgor, forthwith either (x)
transfer and deliver to the Administrative Agent such shares or
securities so received by the Pledgor (together with the certificates
for any such shares and securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank), all of
which thereafter shall be held by the Administrative Agent, pursuant to
the terms of this Agreement, as part of the Collateral or (y) take such
other action as the Administrative Agent shall deem necessary or
appropriate to duly record the Lien created hereunder in such shares,
securities, moneys or property in said clauses (a), (b) and (c);
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that
may be necessary or desirable (in the judgment of the Administrative
Agent) to create, preserve, perfect or validate the security interest
granted pursuant hereto or to enable the Administrative Agent to
exercise and enforce its rights hereunder with respect to such pledge
and security interest, including, without limitation, causing any or
all of the Collateral to be transferred of record into the name of the
Administrative Agent or its nominee (and the Administrative Agent
agrees that if any Collateral is transferred into its name or the name
of its nominee, the Administrative Agent will thereafter promptly give
to the Pledgor copies of any notices and communications received by
it with respect to the Collateral);
(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Administrative Agent may reasonably require in order to
reflect the security interests granted by this Agreement; and
(d) permit representatives of the Administrative Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its books and records pertaining to the
GGS Pledge Agreement
<PAGE>
- 6 -
Collateral, and permit representatives of the Administrative Agent to
be present at the Pledgor's place of business to receive copies of all
communications and remittances relating to the Collateral, and forward
copies of any notices or communications received by the Pledgor with
respect to the Collateral, all in such manner as the Administrative
Agent may require.
6.02 Other Financing Statements and Liens. Without the prior
written consent of the Administrative Agent (granted with the authorization of
the Banks as specified in Section 10.09 of the Credit Agreement), the Pledgor
shall not file or suffer to be on file, or authorize or permit to be filed or to
be on file, in any jurisdiction, any financing statement or like instrument with
respect to the Collateral in which the Administrative Agent is not named as the
sole secured party for the benefit of the Banks.
6.03 Preservation of Rights. The Administrative Agent shall
not be required to take steps necessary to preserve any rights against prior
parties to any of the Collateral.
6.04 Collateral.
(1) The Pledgor will cause the Pledged Stock to constitute at
all times 100% of the total number of shares of each class of capital stock of
the Company then outstanding.
(2) So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Pledged Stock for all purposes
not inconsistent with the terms of this Agreement, the Credit Agreement, the
Notes or any other instrument or agreement referred to herein or therein,
provided that the Pledgor agrees that it will not vote the Collateral in any
manner that is inconsistent with the terms of this Agreement, the Credit
Agreement, the Notes or any such other instrument or agreement; and the
Administrative Agent shall execute and deliver to the Pledgor or cause to be
executed and delivered to the Pledgor all such proxies, powers of attorney,
dividend and other orders, and all such instruments, without recourse, as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the rights and powers that it is entitled to exercise pursuant to this
Section 6.04(2).
(3) Unless and until an Event of Default has occurred and is
continuing, the Pledgor shall be entitled to receive, retain and use any
dividends on the Pledged Stock paid in cash out of earned surplus and all
proceeds of all other Collateral.
(4) If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not the Administrative
Agent or any Bank exercises any available right to declare any Secured
Obligation due and payable or seeks or pursues any other relief or remedy
GGS Pledge Agreement
<PAGE>
- 7 -
available to it under applicable law or under this Agreement, the Credit
Agreement, the Notes or any other agreement relating to such Secured Obligation,
all dividends and other distributions on the Collateral shall be paid directly
to the Administrative Agent and retained by it in the Collateral Account as part
of the Collateral, subject to the terms of this Agreement, and, if the
Administrative Agent shall so request in writing, the Pledgor agrees to execute
and deliver to the Administrative Agent appropriate additional dividend,
distribution and other orders and documents to that end, provided that if such
Event of Default is cured, any such dividend or distribution theretofore paid to
the Administrative Agent shall, upon request of the Pledgor (except to the
extent theretofore applied to the Secured Obligations), be returned by the
Administrative Agent to the Pledgor.
6.05 Events of Default, Etc. During the period during which
an Event of Default shall have occurred and be continuing, but subject to the
provisions of Section 7.11 hereof:
(a) the Administrative Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to exercise all voting,
consensual and other powers of ownership pertaining to the Collateral
as if the Administrative Agent were the sole and absolute owner thereof
(and the Pledgor agrees to take all such action as may be appropriate
to give effect to such right);
(b) the Administrative Agent in its discretion may, in its
name or in the name of the Pledgor or otherwise, demand, sue for,
collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but
shall be under no obligation to do so; and
(c) the Administrative Agent may, upon ten business days'
prior written notice to the Pledgor of the time and place, with respect
to the Collateral or any part thereof that shall then be or shall
thereafter come into the possession, custody or control of the
Administrative Agent, the Banks or any of their respective agents,
sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Administrative Agent deems
best, and for cash or for credit or for future delivery (without
thereby assuming any credit risk), at public or private sale, without
demand of performance or notice of intention to effect any such
disposition or of the time or place thereof (except such notice as is
required above or by applicable statute and cannot be waived), and the
Administrative Agent or any Bank or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at
any private sale) and thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any right or equity of
redemption (statutory or otherwise), of the Pledgor, any such demand,
notice and right or equity being hereby expressly waived and released.
The Administrative Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the sale may be so
adjourned.
The proceeds of each collection, sale or other disposition under this Section
6.05 shall be applied in accordance with Section 6.09 hereof.
The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Administrative Agent may be compelled, with respect to any
sale of all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sales may be at prices and on terms
less favorable to the Administrative Agent than those obtainable through a
public sale without such restrictions, and, notwithstanding such circumstances,
agrees that any such private sale shall not be deemed, for that reason alone,
not to have been made in a commercially reasonable manner and that the
Administrative Agent shall have no obligation to engage in public sales and no
obligation to delay the sale of any Collateral for the period of time necessary
to permit the Company or issuer thereof to register it for public sale.
GGS Pledge Agreement
<PAGE>
- 8 -
6.06 Deficiency. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 4.05 hereof are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Pledgor shall remain liable for any
deficiency.
6.07 Removals, Etc. Without at least 30 days' prior written
notice to the Administrative Agent, the Pledgor shall not (i) maintain any of
its books and records with respect to the Collateral at any office or maintain
its principal place of business at any place other than at the address indicated
beneath its signature hereto or (ii) change its name, or the name under which it
does business, from the name shown on the signature pages hereto.
6.08 Private Sale. The Administrative Agent and the Banks
shall incur no liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to Section 6.05 hereof conducted in a
commercially reasonable manner. The Pledgor hereby waives any claims against the
Administrative Agent or any Bank arising by reason of the fact that the price at
which the Collateral may have been sold at such a private sale was less than the
price that might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Administrative Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree.
6.09 Application of Proceeds. Except as otherwise herein
expressly provided, the proceeds of any collection, sale or other realization of
all or any part of the Collateral pursuant hereto, and any other cash at the
time held by the Administrative Agent under Section 4 hereof or this Section 6,
shall be applied by the Administrative Agent:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Administrative Agent and the
fees and expenses of its agents and counsel, and all expenses incurred
and advances made by the Administrative Agent in connection therewith;
Next, to the payment in full of the Secured Obligations, in
each case equally and ratably in accordance with the respective amounts
thereof then due and owing or as the Banks holding the same may
otherwise agree; and
Finally, to the payment to the Pledgor, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Section 6, "proceeds" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Pledgor or any issuer of or obligor on
any of the Collateral.
6.10 Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to the Administrative Agent while no Event of Default
has occurred and is continuing, upon the occurrence and during the continuance
of any Event of Default the Administrative Agent is hereby appointed the
attorney-in-fact of the Pledgor for the purpose of carrying out the provisions
of this Section 6 and taking any action and executing any instruments that the
Administrative Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, so long as the
Administrative Agent shall be entitled under this Section 6 to make collections
in respect of the Collateral, the Administrative Agent shall have the right and
GGS Pledge Agreement
<PAGE>
- 9 -
power to receive, endorse and collect all checks made payable to the order of
the Pledgor representing any dividend, payment or other distribution in respect
of the Collateral or any part thereof and to give full discharge for the same.
6.11 Perfection. Prior to or concurrently with the execution
and delivery of this Agreement, the Pledgor shall deliver to the Administrative
Agent all certificates identified in Annex 1 hereto, accompanied by undated
stock powers duly executed in blank.
6.12 Termination. When all Secured Obligations shall have been
paid in full and the Commitments of the Banks under the Credit Agreement shall
have expired or been terminated, this Agreement shall terminate, and the
Administrative Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect thereof, to
or on the order of the Pledgor.
6.13 Further Assurances. The Pledgor agrees that, from time to
time upon the written request of the Administrative Agent, the Pledgor will
execute and deliver such further documents and do such other acts and things as
the Administrative Agent may reasonably request in order fully to effect the
purposes of this Agreement.
Section 7. Miscellaneous.
7.01 No Waiver. No failure on the part of the Administrative
Agent or any Bank to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Administrative
Agent or any Bank of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
7.02 Notices. All notices, requests, consents and demands
hereunder shall be in writing and telecopied or delivered to the intended
recipient at the "Address for Notices" specified beneath its name on the
signature pages hereof or, as to either party, at such other address as shall be
designated by such party in a notice to the other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
7.03 Amendments, Etc. The terms of this Agreement may be
waived, altered or amended only by an instrument in writing duly executed by the
Pledgor and the Administrative Agent (with the consent of the Banks as specified
in Section 10.09 of the Credit Agreement). Any such amendment or waiver shall be
binding upon the Administrative Agent and each Bank, each holder of any of the
Secured Obligations and the Pledgor.
7.04 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Pledgor, the Administrative Agent, the Banks and each holder of any of the
Secured Obligations (provided, however, that the Pledgor shall not assign or
transfer its rights hereunder without the prior written consent of the
Administrative Agent).
7.05 Captions. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
GGS Pledge Agreement
<PAGE>
- 10 -
7.06 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and either of the parties hereto may execute this Agreement by
signing any such counterpart.
7.07 Governing Law, Etc. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York. The Pledgor
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of the Supreme Court of the
State of New York sitting in New York County (including its Appellate Division),
and of any other appellate court in the State of New York, for the purposes of
all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Pledgor hereby irrevocably waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. EACH OF THE PLEDGOR, THE ADMINISTRATIVE AGENT
AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS E AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
7.08 Agents and Attorneys-in-Fact. The Administrative Agent
may employ agents and attorneys-in-fact in connection herewith and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
7.09 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Banks in order to carry out the intentions of the parties hereto
as nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
7.10 The Administrative Agent. As provided in Section 10 of
the Credit Agreement, each Bank has appointed The Chase Manhattan Bank (National
Association) as its agent for purposes of this Agreement. Following the payment
in full of all Secured Obligations outstanding under the Credit Agreement and
the termination or expiration of the Commitments thereunder, the provisions of
said Section 10 shall be deemed to continue in full force and effect for the
benefit of the Administrative Agent under this Agreement. In that connection,
following such payment in full and expiration and termination of the
Commitments, the term "Majority Banks" (as defined in said Section 1.01) shall
be deemed to refer to Banks holding Secured Obligations representing more than
50% of the aggregate Secured Obligations.
7.11 Certain Regulatory Requirements. The Administrative Agent
hereby acknowledges that, in connection with any exercise by it of the rights
and remedies afforded to it hereunder, it may be necessary to provide notice to
and/or obtain the prior consent or approval of certain governmental authorities.
Notwithstanding anything to the contrary contained herein, the Administrative
Agent will not take any action pursuant to this Agreement which would constitute
or result in any transfer of control over the Company, or any other action, if
such action, in either case, requires notice to and/or the prior consent or
approval of governmental authorities without first providing such notice and/or
obtaining such consent or approval. Upon the exercise by the Administrative
Agent of any power, right or privilege or remedy pursuant to this e Agreement
which requires any consent, approval, recording, qualification or authorization
of any governmental authority, the Pledgor will, and will cause the Company to,
(a) execute and deliver, or cause the execution and delivery of, all
applications, instruments or other documents and papers that the Administrative
Agent may reasonably require to be obtained for such governmental consent,
GGS Pledge Agreement
<PAGE>
- 11 -
approval, recording, qualification or authorization, (b) use its best efforts
otherwise to secure such governmental consent, approval, recording,
qualification or authorization and (c) take no action inconsistent therewith.
The Pledgor acknowledges that the Administrative Agent has no adequate remedy at
law for the breach of any obligation of this Section 7.11, and that such
obligations shall be enforceable by specific performance.
GGS Pledge Agreement
<PAGE>
- 12 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
GGS MANAGEMENT HOLDINGS, INC.
By _________________________
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Administrative Agent
By _________________________
Title:
GGS Pledge Agreement
<PAGE>
ANNEX 1
PLEDGED STOCK
[See Section 2(b) and (c)]
Certificate Registered
Issuer Nos. Owner Number of Shares
GGS Management, C1 GGS Management 1,000 shares of
Inc. Holding, Inc. common stock, par
value $0.01 per share
Annex 1 to GGS Guarantee and Pledge Agreement
