EXHIBIT 5.1
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AGREEMENT AND PLAN OF MERGER
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AMONG
SUPERIOR NATIONAL INSURANCE GROUP, INC.,
SNTL ACQUISITION CORP.
AND
PAC RIM HOLDING CORPORATION
Dated as of September 17, 1996,
TABLE OF CONTENTS
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PAGE
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ARTICLE 1 - THE MERGER............................................ 1
1.1 The Merger.......................................... 1
1.2 The Closing......................................... 1
1.3 Effective Time...................................... 2
ARTICLE 2 - CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION.......................... 2
2.1 Certificate of Incorporation........................ 2
2.2 Bylaws.............................................. 2
ARTICLE 3 - DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION........................................... 2
3.1 Directors........................................... 2
3.2 Officers............................................ 2
ARTICLE 4 - CONVERSION OF PAC RIM COMMON STOCK.................... 3
4.1 Conversion of Pac Rim Common Stock.................. 3
4.2 Exchange of Certificates Representing Pac Rim
Common Stock........................................ 3
4.3 Dissenting Shares................................... 3
4.4 Warrants............................................ 4
4.5 Definitions......................................... 4
4.6 Exchange of Certificates Representing Pac Rim
Common Stock........................................ 5
4.7 Dissenting Shares................................... 6
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF PAC RIM............. 7
5.1 Existence; Good Standing; Corporate Authority;
Compliance With Law................................. 7
5.2 Authorization, Validity and Effect of Agreements.... 8
5.3 Capitalization...................................... 8
5.4 Subsidiaries........................................ 9
5.5 Other Interests..................................... 10
5.6 No Violation........................................ 10
5.7 SEC Documents....................................... 11
5.8 Litigation.......................................... 11
5.9 Absence of Certain Changes.......................... 12
5.10 Taxes............................................... 12
5.11 Certain Employee Plans.............................. 15
5.12 Labor Matters....................................... 16
5.13 No Brokers.......................................... 16
5.14 Fairness Opinion.................................... 16
5.15 Liens............................................... 16
5.16 Leased Real Property................................ 17
5.17 Environment Matters................................. 17
5.18 Intellectual Property............................... 18
5.19 Powers of Attorney; Guarantees...................... 18
5.20 Related Party Transactions.......................... 18
5.21 Information in Proxy Statements..................... 19
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB........................................ 19
6.1 Existence; Good Standing; Corporate Authority;
Compliance With Law................................. 19
6.2 Authorization, Validity and Effect of Agreements.... 19
6.3 No Violation........................................ 19
6.4 Interim Operations of Merger Sub.................... 20
6.5 Financing............................................20
6.6 No Brokers...........................................20
6.7 Fairness Opinion.....................................21
6.8 Surviving Corporation After the Merger...............21
6.9 No Ownership of Company Capital Stock................21
6.10 Information in Proxy Statement.......................21
ARTICLE 7 - COVENANTS..............................................21
7.1 Acquisition Proposals................................21
7.2 Conduct of Businesses................................21
7.3 Meeting of Stockholders..............................25
7.4 Filings; Other Action................................26
7.5 Inspection of Records; Access........................27
7.6 Publicity............................................27
7.7 Proxy Statement......................................27
7.8 Further Action.......................................28
7.9 Expenses.............................................28
7.10 Indemnification and Insurance........................28
7.11 Certain Benefits.....................................30
7.12 Restructuring of Merger..............................31
7.13 Additional Agreements; Best Efforts..................32
ARTICLE 8 - CONDITIONS.............................................32
8.1 Conditions of Each Party's Obligation to Effect
the Merger...........................................32
8.2 Conditions to Obligations of Pac Rim to Effect the
Merger...............................................33
8.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger....................................33
ARTICLE 9 - TERMINATION............................................34
9.1 Termination by Mutual Consent........................34
9.2 Termination by Either Parent or Pac Rim..............34
9.3 Termination by Pac Rim...............................35
9.4 Termination by Parent................................35
9.5 Effect of Termination and Abandonment................36
9.6 Extension; Waiver....................................36
ARTICLE 10 - LIQUIDATED DAMAGES AND BREAKUP FEE....................36
10.1 Payment of Liquidated Damages by Parent..............36
10.2 Payment of Liquidated Damages by Pac Rim.............37
10.3 Payment of Breakup Fee By Pac Rim....................37
ARTICLE 11 - GENERAL PROVISIONS....................................37
11.1 Nonsurvival of Representations, Warranties and
Agreements...........................................37
11.2 Notices..............................................37
11.3 Assignment; Binding Effect; Benefit..................38
11.4 Entire Agreement.....................................39
11.5 Amendment............................................39
11.6 Governing Law........................................39
11.7 Venue................................................39
11.8 Counterparts.........................................39
11.9 Headings.............................................39
11.10 Interpretation.......................................39
11.11 Waivers..............................................40
11.12 Incorporation of Exhibits............................40
11.13 Severability.........................................40
11.14 Enforcement of Agreement.............................40
11.15 Subsidiaries.........................................40
11.16 Material Adverse Effect..............................41
11.17 Attorney's Fees......................................41
11.18 Performance by Merger Sub............................41
SCHEDULE 7.11(e) Severance Program.................................43
Exhibit A Certificate of Incorporation of SNTL
Acquisition Corporation......................................45
Exhibit B Bylaws of SNTL Acquisition Corp....................46
Exhibit C Series A Convertible Debentures and Series
1, 2 and 3 Detachable Warrant Purchase Agreement.............47
Exhibit D Option.............................................48
Exhibit E Series 3 Warrant Surrender Agreement...............49
Exhibit F Chase Manhattan Bank Commitment Loan Letter........50
Exhibit G Executed Insurance Partners Stock
Purchase Agreement...........................................51
Exhibit H Voting Agreement...................................52
Exhibit I Compensation Plan for Senior Management Plan.......53
Exhibit J 1996 Annual Incentive Plan Plan Document...........54
Exhibit K ▇▇▇▇▇▇▇ ▇▇▇▇▇ Employment Agreement and
Amendments Thereto...........................................55
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
as of September 17, 1996, by and among SUPERIOR NATIONAL INSURANCE GROUP, INC.,
a California corporation ("Parent"), SNTL ACQUISITION CORP., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and PAC RIM
HOLDING CORPORATION, a Delaware corporation ("Pac Rim"), with reference to the
following recitals:
R E C I T A L S
A. The Boards of Directors of Parent and Pac Rim each have determined that
a business combination between Parent and Pac Rim is in the best interests of
their respective companies and stockholders and presents an opportunity for
their respective companies to achieve long-term strategic and financial benefits
and, accordingly, have agreed to effect the merger provided for herein upon the
terms and subject to the condition set forth herein.
B. Parent, Merger Sub and Pac Rim desire to make certain representations,
warranties, covenants and agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
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THE MERGER
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1.1 The Merger. Subject to the terms and conditions of this Agreement,
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at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged
with and into Pac Rim in accordance with this Agreement and the separate
corporate existence of Merger Sub shall thereupon cease (the "Merger"). Pac Rim
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation"). The Merger shall have the effects specified
in Section 259 of the Delaware General Corporation Law (the "DGCL").
1.2 The Closing. Subject to the terms and conditions of this Agreement,
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the closing of the Merger ("the "Closing") shall take place at the offices of
▇▇▇▇▇▇ & Wolen LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ at 9:00 a.m., local time, on the first business day immediately following
the day on which the last to be fulfilled or waived of the conditions set forth
in Article 8 shall be fulfilled or waived in accordance herewith, or at such
other time, date or place as Parent and Pac Rim may agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
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Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be
properly executed and filed in accordance with such Section on the Closing Date.
The Merger shall become effective at the time of filing of the Certificate of
Merger with the Secretary of State of the State of Delaware in accordance with
the DGCL or at such later time which the parties hereto shall have agreed upon
and designated in such filing as the effective time of the Merger (the
"Effective Time").
ARTICLE 2
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CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
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2.1 Certificate of Incorporation. The Certificate of Incorporation of
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Merger Sub (a copy of which is attached hereto as Exhibit A) in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
applicable law.
2.2 Bylaws. The Bylaws of Merger Sub (a copy of which is attached hereto
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as Exhibit B) in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation, until duly amended in accordance with
applicable law.
ARTICLE 3
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DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
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3.1 Directors. The directors of Merger Sub immediately prior to the
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Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
3.2 Officers. The officers of Merger Sub immediately prior to the
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Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time to serve until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
ARTICLE 4
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CONVERSION OF PAC RIM COMMON STOCK AND
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OPTIONS; DEBENTURES AND WARRANTS
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4.1 Conversion of Pac Rim Common Stock. (a) At the Effective Time, each
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share of the common stock, $0.01 par value, of Merger Sub outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock, $0.01 par value, of the Surviving Corporation.
(b) At the Effective Time, each share of the common stock, $0.01 par
value, of Pac Rim (the "Pac Rim Common Stock") issued and outstanding
immediately prior to the Effective Time, other than the Dissenting Shares (as
defined below), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive cash in the
amount of "Merger Price Per Share" (as defined in Section 4.5(c) hereof),
without interest except for that certain interest payable under Section 9.2
hereof, which interest shall be distributed pro rata on a per share
basis.
(c) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Pac Rim Common Stock shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of a certificate (a "Certificate") representing any shares of Pac
Rim Common Stock shall thereafter cease to have any rights with respect to such
shares of Pac Rim Common Stock, except the right to receive the Merger Price Per
Share upon the surrender of such Certificate.
(d) Each share of Pac Rim Common Stock issued and held in Pac Rim's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be cancelled and retired without payment of any
consideration therefor.
4.2 Convertible Debentures. At the Effective Time and in accordance with
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the terms of the certain Series A Convertible Debentures and Series 1, 2 and 3
Detachable Warrant Purchase Agreement of even date herewith, a copy of which is
attached hereto as Exhibit C (the "Purchase Agreement"), the holders of the
Convertible Debentures (as defined in Section 5.3 hereof) shall be entitled to
receive consideration in an amount equal to the number of shares of Pac Rim
Common Stock issuable upon conversion of the Convertible Debentures pursuant to
the "Debenture/Purchase Agreement" (as defined in Section 5.3 hereof) multiplied
by the Merger Price Per Share. All amounts payable under this Section 4.2 shall
hereinafter be referred to as the "Debenture Consideration."
4.3 Options. At the Effective Time, each holder of a then outstanding
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"In The Money Option" (as defined in Section 4.5(a) hereof) to purchase shares
of Pac Rim Common Stock under the Pac Rim Holding Corporation 1987 Stock Option
Plan (the "1987 Plan") and the Pac Rim Holding Corporation 1988 Stock Option
Plan (the "1988 Plan") (the 1987 Plan and 1988 Plan, collectively, the "Pac Rim
Stock Option Plans") shall, in settlement thereof, receive from Pac Rim for each
share of Pac Rim Common Stock subject to such option an amount (subject to
applicable withholding tax) in cash equal to the excess of the Merger Price Per
Share over the per share exercise or strike price of such option as of the
Effective Time, multiplied by the total number of shares of Pac Rim Common Stock
issuable upon the exercise of such option (such amount being hereinafter
referred to as the "Option Consideration"). At the Effective Time, each In The
Money Option shall be cancelled and converted into the right to receive Option
Consideration. The surrender of an In The Money Option shall be deemed a
release of any and all rights the holder had or may have had in respect of such
option. Each "Out Of The Money Option" (as defined in Section 4.5(g) hereof)
shall be cancelled without consideration.
4.4 Warrants. At the Effective Time, each holder of a then outstanding
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"In The Money Warrant" (as defined in Section 4.5(a) hereof) to purchase shares
of Pac Rim Common Stock pursuant to the terms of the Debenture/Warrant Agreement
shall, in settlement thereof and pursuant to the terms of the Purchase
Agreement, receive from Pac Rim for each share of Pac Rim Common Stock subject
to such warrant an amount in cash equal to the excess of the Merger Price Per
Share over the per share exercise or strike price of such warrant as of the
Effective Time (after adjustment of the exercise or strike price, if
applicable, under the Debenture/Warrant Agreement), multiplied by the total
number of shares issuable upon the exercise of such warrant (such amount being
hereinafter referred to as the "Warrant Consideration"). At the Effective Time,
each In The Money Warrant shall be cancelled and converted into the right to
receive Warrant Consideration. The surrender of a warrant shall be deemed a
release of any and all rights the holder had or may have had in respect of such
warrant. Each Out Of The Money Warrant (as defined in Section 4.5(h) hereof)
shall be cancelled without consideration. All amounts payable under this Section
4.4 shall hereinafter be referred to as the Warrant Consideration.
4.5 Definitions. The following terms shall, when used in this Agreement,
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have the following meanings:
(a) "In The Money Option" means an option issued under the Pac Rim Stock
Option Plans whose exercise price per share as of the Effective Time is less
than the Merger Price Per Share.
(b) "In The Money Warrant" means a warrant issued pursuant to the
Debenture-Purchase Agreement whose exercise price per share as of the Effective
Time is less than the Merger Price Per Share.
(c) "Preliminary Merger Price Per Share" is $54,021,032 (the "Purchase
Price") plus the aggregate exercise price for the In The Money Options and In
The Money Warrants divided by the "Deemed Number of Shares" (as defined in
Section 4.5(e) hereof).
(d) "Merger Price Per Share" shall be the Preliminary Merger Price Per
Share rounded to the nearest $0.0025. In no event will the Merger Price Per
Share cause the amounts calculated pursuant to Sections 4.1, 4.2, 4.3 and 4.4
hereof to exceed $54,021,032 in the aggregate, subject to the effect of rounding
discussed in the preceding sentence.
(e) "Deemed Number of Shares" is the actual number of outstanding shares
of Pac Rim Common Stock as of the Effective Time plus the number of shares of
Pac Rim Common Stock into which the Convertible Debentures may be converted plus
the total number of shares of Pac Rim Common Stock that would be issued upon
exercising all of the In The Money Options and In The Money Warrants outstanding
as of the Effective Time.
(f) "Out Of The Money Options" means all options issued under the Pac Rim
Stock Option Plans that are not In The Money Options.
(g) "Out Of The Money Warrants" means all warrants issued under the
Debenture/Purchase Agreement that are not In The Money Warrants.
4.6 Exchange of Certificates Representing Pac Rim Common Stock.
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(a) On the Closing Date, Parent shall deposit, or shall cause to be
deposited, with a bank or trust company selected by Parent, which shall be
Parent's paying and transfer agent (the "Exchange Agent"), for the benefit of
the holders of shares of Pac Rim Common Stock and to settle the In The Money
Options, for payment in accordance with this Article 4, $54,021,032 less that
Debenture Consideration, the Warrant Consideration, and any amounts attributable
to the Dissenting Shares (as hereinafter defined), such amount being hereinafter
referred to as the ("Exchange Fund"), to be paid pursuant to this Section 4.6 in
exchange for outstanding shares of Pac Rim Common Stock and pursuant to Section
4.3 upon settlement of the In The Money Options.
(b) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates (i) a
letter of transmittal which shall specify that delivery of such Certificates
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for payment of the Merger Price Per Share hereunder. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
therefor, in cash, the product of (x) the Merger Price Per Share and (y) the
number of shares of Pac Rim Common Stock represented by such Certificates so
surrendered by such holder, and the Certificate so surrendered shall forthwith
be cancelled. In the event of a transfer of ownership of Pac Rim Common Stock
which is not registered in the transfer records of Pac Rim, the Exchange Agent
may condition payment hereunder upon the surrender of the Certificate
representing such Pac Rim Common Stock to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Pac Rim of the shares of Pac Rim Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for payment in accordance with the procedures set forth
in this Article 4.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the former stockholders of Pac
Rim nine (9) months after the Effective Time shall be delivered to the Surviving
Corporation. Any former stockholders of Pac Rim who have not theretofore
complied with this Article 4 shall thereafter look only to the Surviving
Corporation as general creditors thereof for payment of the Purchase Price in
respect of each share of Pac Rim Common Stock that such stockholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
(e) None of Parent, Pac Rim, the Exchange Agent or any other person shall
be liable to any former holder of shares of Pac Rim Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will pay in exchange for such lost, stolen or destroyed Certificate the Merger
Price Per Share as provided in Section 4.6(a), deliverable in respect thereof
pursuant to this Agreement.
4.7 Dissenting Shares.
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(a) Notwithstanding anything in this Agreement to the contrary, shares
of Pac Rim Common Stock which are held by any recordholder who has not voted in
favor of the Merger or consented thereto in writing and who has demanded
appraisal rights in accordance with Section 262 of the DGCL ("the Dissenting
Shares") shall not be converted into the right to receive the Merger Price Per
Share hereunder but shall become the right to receive such consideration as may
be determined due in respect of such Dissenting Shares pursuant to the DGCL;
provided, however, that any holder of Dissenting Shares who shall have failed to
perfect, or shall have withdrawn or lost, his rights to appraisal of such
Dissenting Shares, in each case under the DGCL, shall forfeit the right to
appraisal of such Dissenting Shares, and such Dissenting Shares shall be deemed
to have been converted into the right to receive, as of the Effective Time, the
Merger Price Per Share in accordance with this Article 4, without interest.
Notwithstanding anything contained in this Section 4.7, if (i) the Merger is
rescinded or abandoned or (ii) if the stockholders of Pac Rim revoke the
authority to effect the Merger, then the right of any stockholder to be paid the
fair value of such stockholder's Dissenting Shares shall cease. The Surviving
Corporation shall be the only obligor with respect to and shall comply with all
of its obligations under the DGCL with respect to holders of Dissenting Shares.
(b) Pac Rim shall give Parent (i) prompt notice of any demands for
appraisal, and any withdrawals of such demands, received by Pac Rim and any
other related instruments served pursuant to the DGCL and received by Pac Rim,
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. Pac Rim shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle any such demands.
ARTICLE 5
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REPRESENTATIONS AND WARRANTIES OF PAC RIM
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Except as set forth in the disclosure letter delivered by or on behalf
of Pac Rim to Parent at or prior to the execution hereof in form and substance
satisfactory to Parent (the "Pac Rim Disclosure Letter") and except to the
extent qualified by Section 11.16(b) hereof, Pac Rim represents and warrants to
Parent as of the date of this Agreement as follows:
5.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
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Pac Rim is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Pac Rim is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary. Pac Rim has all requisite
corporate power and authority to own, operate and lease its properties and carry
on its business as now conducted. Each of Pac Rim's "Subsidiaries" (as defined
in Section 11.15 hereof) is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of incorporation
or organization, has the corporate power and authority to own its properties and
to carry on its business as it is now being conducted, and is duly licensed or
qualified to do business and is in good
standing in each jurisdiction in which the ownership of its property or the
conduct of its business requires such qualification. The Pac Rim Disclosure
Letter sets forth the states in which Pac Rim and its Subsidiaries are
incorporated and licensed or qualified to do business. Neither Pac Rim nor any
of its Subsidiaries is in violation of any order of any court, governmental
authority or arbitration board or tribunal. Neither Pac Rim nor any of its
Subsidiaries is in violation of any law, ordinance, governmental rule or
regulation to which Pac Rim or any Pac Rim Subsidiary or any of their respective
properties or assets is subject. Pac Rim and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions required
by applicable law or governmental regulations in connection with their business
as now conducted. The copies of Pac Rim's Certificate of Incorporation and
Bylaws previously delivered to Parent are true and correct.
5.2 Authorization, Validity and Effect of Agreements.
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(a) Pac Rim has the requisite corporate power and authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of this Agreement and the transactions contemplated
hereby by the affirmative vote of at least seventy percent (70%) in the
aggregate of (i) the issued and outstanding shares of Pac Rim Common Stock and
(ii) the number of shares of Pac Rim Common Stock into which the outstanding
Convertible Debentures (as hereinafter defined) may be converted, voting
together, the consummation by Pac Rim of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents contemplated hereby (when executed
and delivered pursuant hereto) will constitute, the valid and legally binding
obligations of Pac Rim, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
(b) The provisions of Section 203 of the DGCL do not apply to the
transactions contemplated by this Agreement.
5.3 Capitalization. The authorized capital stock of Pac Rim consists
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of 35,000,000 shares of Pac Rim Common Stock, and 500,000 shares of preferred
stock (the "Pac Rim Preferred Stock"). As of August 31, 1996, there were
9,528,200 shares of Pac Rim Common Stock issued and outstanding and no shares of
Pac Rim Preferred Stock issued and outstanding. Since such date, no additional
shares of capital stock of Pac Rim have been issued, except pursuant to the Pac
Rim Stock Option Plans. All options outstanding under the Pac Rim Stock Option
Plans and the exercise price and vesting status thereof (assuming a Closing
occurs) is set forth in Exhibit D. In addition, pursuant to the terms of that
certain Agreement to Purchase Series A Convertible Debentures and Series 1, 2
and 3 Detachable Warrants dated as of April 15, 1994, as amended (the
"Debenture/Warrant Agreement"), Pac Rim has issued and outstanding (i) TWENTY
MILLION AND /NO//100 DOLLARS ($20,000,000.00) aggregate amount of its eight
percent (8%) Series A Convertible Debentures (the "Convertible Debentures");
(ii) 1,500,000 detachable warrants each exercisable at the price of $2.50 for
one share of Pac Rim Common Stock (the "Series 1 Warrants"); (iii) 1,500,000
detachable warrants each exercisable at the price of $3.00 for one share of Pac
Rim Common Stock (the "Series
2 Warrants"); and (iv) 800,000 detachable warrants each exercisable at the price
of $3.50 for one share of Pac Rim Common Stock (the "Series 3 Warrants"). The
Series 1 Warrants, Series 2 Warrants and Series 3 Warrants shall be referred to,
collectively, as the "Warrants." The Series 3 Detachable Warrant Surrender
Agreement attached hereto as Exhibit E and the Purchase Agreement will transfer,
if consummated, title to all the outstanding Warrants and Convertible
Debentures.
Except as set forth above, Pac Rim has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the stockholders of Pac Rim on any matter. All such issued and outstanding
shares of Pac Rim Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Other than as contemplated by this
Agreement, the Pac Rim Stock Option Plans, the Convertible Debentures and the
Warrants, there are not at the date of this Agreement any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate Pac Rim or any of its Subsidiaries to
issue, transfer or sell any shares of capital stock of Pac Rim or any of its
Subsidiaries. As of June 30, 1996, 12,487,730 shares of Common Stock were
reserved for issuance and are issuable upon or otherwise deliverable in
connection with options outstanding under the Pac Rim Stock Option Plans, the
Convertible Debentures and the Warrants; since that date, no options have been
granted under the Pac Rim Stock Option Plans, no new option plans have been
authorized or adopted and no new warrants or convertible debenture with respect
to the Common Stock have been issued. After the Effective Time, the Surviving
Corporation will have no obligation to issue, transfer or sell any shares of
capital stock of Pac Rim or the Surviving Corporation pursuant to any Pac Rim
Benefit Plans (as defined in Section 5.11). There are no outstanding obligations
of Pac Rim or any of its Subsidiaries to purchase, redeem or otherwise acquire
any shares of Pac Rim Common Stock, any capital voting securities or securities
convertible into or exchangeable for capital stock or voting securities of Pac
Rim. No shares of Pac Rim Common Stock are held in the Pac Rim Benefit Plans.
5.4 Subsidiaries. Pac Rim owns directly or indirectly each of the
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outstanding shares of capital stock of each of Pac Rim's Subsidiaries. Each of
the outstanding shares of capital stock of each of Pac Rim's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by Pac Rim free and clear of all liens, pledges,
security interests, claims or other encumbrances. The following information for
each Subsidiary of Pac Rim is set forth in the Pac Rim Disclosure Letter: (i)
its name and jurisdiction of incorporation or organization; (ii) its authorized
capital stock or share capital; and (iii) the number of issued and outstanding
shares of capital stock or share capital.
5.5 Other Interests. Except for interests in the Pac Rim Subsidiaries
---------------
and The Pacific Rim Assurance Company's (the "Assurance Company") interest in
its wholly-owned subsidiary, Regional Benefits Insurance Services, Inc., a
California corporation, neither Pac Rim nor any Pac Rim Subsidiary owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
5.6 No Violation. Neither the execution and delivery by Pac Rim of this
------------
Agreement nor the consummation by Pac Rim of the transactions contemplated
hereby in accordance with the terms hereof
will: (i) conflict with or result in a breach of any provisions of the
respective certificates of incorporation or bylaws (or similar governing
documents) of Pac Rim or its Subsidiaries; (ii) except as disclosed in the Pac
Rim Reports (as defined in Section 5.7), result in a breach or violation of, a
default under, or the triggering of any payment or other obligations pursuant
to, or accelerate vesting under, any of its existing Pac Rim Stock Option Plans,
or any grant or award made under any of the foregoing other than accelerated
vesting of outstanding options under stock option agreements in existence on the
date hereof with certain employees of Pac Rim or any of its Subsidiaries by
reason of, in whole or in part, the consummation of the Merger; (iii) violate,
or conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties of Pac Rim or its Subsidiaries under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which Pac Rim or any of its Subsidiaries
is a party, or by which Pac Rim or any of its Subsidiaries or any of their
properties is bound or affected; (iv) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to Pac Rim or any of its
Subsidiaries or any of their respective properties or assets; or (v) other than
the filings provided for in Article 1, certain federal, state and local
regulatory filings, filings required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), ▇▇▇▇▇ insurance law (including
California Insurance Code Sections 1215 et seq.), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or applicable state securities and "Blue
Sky" laws or filings in connection with the maintenance of qualification to do
business in other jurisdictions (collectively, the "Regulatory Filings"),
require any consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority.
5.7 SEC Documents. Pac Rim has delivered to Parent each registration
-------------
statement, report, proxy statement or information statement prepared by it since
December 31, 1993, including, without limitation, (i) its Annual Report on Form
10-K for the years ended December 31, 1993, 1994 and 1995, (ii) its Quarterly
Report on Form 10-Q for the periods ended March 31 and June 30, 1996, and (iii)
its Proxy Statements for the Annual Meeting of Stockholders held in 1994, 1995
and on July 10, 1996, each in the form (including exhibits and any amendments
thereto) filed with the Securities and Exchange Commission (the "SEC")
(collectively, the "Pac Rim Reports"), which constitute all such Reports that
were required to be filed during such period. As of their respective dates, the
Pac Rim Reports (including, without limitation, any financial statements or
schedules included or incorporated by reference therein) (i) were prepared in
all respects in accordance with the applicable requirements of the Exchange Act
and the rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. Each of the
consolidated
balance sheets of Pac Rim included in or incorporated by reference into the Pac
Rim Reports (including the related notes and schedules) fairly presents the
consolidated financial position of Pac Rim and the Pac Rim Subsidiaries as of
its date and each of the consolidated statements of income, retained earnings
and cash flows of Pac Rim included in or incorporated by reference into the Pac
Rim Reports (including any related notes and schedules) fairly presents the
results of operations, retained earnings or cash flows, as the case may be, of
Pac Rim and the Pac Rim Subsidiaries for the periods set forth therein (subject,
in the case of unaudited statements, to normal year-end audit adjustments which
would not be material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as may be noted therein. Except as reflected or reserved
against or disclosed in the financial statements of Pac Rim (and the notes
thereto) included in the Pac Rim Reports and incurred subsequent to June 30,
1996 in the ordinary course of business consistent with past practice, neither
Pac Rim nor any of its Subsidiaries has any liabilities, of any nature, whether
accrued, absolute, contingent or otherwise, whether due or to become due and
whether required to be recorded or reflected on a balance sheet (or the notes
thereto) under generally accepted accounting principles. Except as described in
the Pac Rim Disclosure Letter, since June 30, 1996, neither Pac Rim nor any
Subsidiary of Pac Rim has incurred any liabilities other than liabilities which
have been incurred in the ordinary course of business consistent with past
practice.
5.8 Litigation. Except as disclosed in the Pac Rim Reports filed with
----------
the SEC prior to the date hereof and as otherwise set forth in this Section 5.8,
neither Pac Rim nor its Subsidiaries have been notified that any governmental
investigations are being conducted with respect to their respective properties,
assets, permits or licenses, and there are no actions, suits or proceedings
pending against Pac Rim or the Pac Rim Subsidiaries or, to the knowledge of Pac
Rim, threatened against Pac Rim or the Pac Rim Subsidiaries or any of their
respective properties or assets, at law or in equity, or before or by any
federal or state commission, board, bureau, agency or instrumentality, that
would prevent or delay the consummation of the transactions contemplated by this
Agreement. Except as disclosed in the Pac Rim Reports filed with the SEC prior
to the date hereof, neither Pac Rim nor any of its Subsidiaries are subject to
any outstanding order, writ, injunction or decree which, would prevent or delay
the consummation of the transactions contemplated hereby. The California
Department of Insurance (the "California Department") is currently conducting a
triennial examination of the Assurance Company and the Assurance Company was
named as a defendant in the following actions: (1) NPI Medical Group, et al. v.
State Compensation Insurance Fund, et al., Case No. BC 116099, Superior Court of
the State of California, Los Angeles County; and (2) FWHC Medical Group, et al.
v. State Compensation Insurance Fund, et al, Case No. BC 089361, Superior Court
of the State of California, Los Angeles County.
5.9 Absence of Certain Changes. Since June 30, 1996, each of Pac Rim and
--------------------------
its Subsidiaries has conducted its business only in the ordinary course of such
business and there has not been (i) any event or changes with respect to Pac Rim
and its Subsidiaries, (ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to its capital stock or any
repurchase, redemption or other acquisition by Pac Rim or its Subsidiaries of
any outstanding shares of capital stock or other securities in, or other
ownership interests in, Pac Rim or any of its Subsidiaries, (iii) any change in
its accounting principles, practices or methods or (iv) any
event or changes or action taken which would constitute a breach of Section 7.2
of this Agreement if it had occurred or been taken after the date hereof;
provided, however, this Section 5.9(iv) shall not apply to subsections (c) or
(e) of Section 7.2.
5.10 Taxes.
-----
(a) Filing of Tax Returns. Pac Rim (including, for purposes of this
---------------------
Section 5.10, each of its Subsidiaries from time to time) has timely filed with
the proper taxing or other governmental authorities all returns (including,
without limitation, information returns and other tax-related information) in
respect of Taxes (as such term is defined in Section 5.10(e)) required to be
filed through the date hereof. Such returns and information filed are, to the
knowledge of Pac Rim, complete, correct and accurate in all respects. Pac Rim
has delivered to Parent complete and accurate copies of all of Pac Rim's
federal, state and local Tax returns filed for its taxable years ended 1991
through 1994. Pac Rim has not filed any federal, state or local tax returns for
its taxable years ended December 31, 1995 and 1996, or has delivered to Parent
complete and accurate copies of all such returns that have been filed for such
taxable years.
(b) Payment of Taxes. All Taxes for which Pac Rim is shown as owing on
----------------
any Tax return for any period or portion thereof ending on or before the Closing
Date, shall have been paid, or an adequate reserve (in conformity with generally
accepted accounting principles applied on a consistent basis and in accordance
with Pac Rim's past custom and practice) has been established therefor, and Pac
Rim has no liability (whether or not due and payable) for Taxes in excess of the
amounts so paid or reserves so established. All Taxes that Pac Rim has been
required to collect or withhold have been duly collected or withheld and, to the
extent required when due, have been or will be duly paid to the proper taxing or
other governmental authority. Pac Rim had, as of December 31, 1995, a net
operating loss carryover of $2,676,000 for federal income tax purposes (the
"NOL").
(c) Audit History. Except as set forth in the Pac Rim Disclosure Letter:
-------------
(i) No deficiencies for Taxes or adjustments to the NOL of Pac Rim
have been claimed, proposed or assessed by any taxing or other
governmental authority.
(ii) There are no pending or, to the best of Pac Rim's knowledge,
threatened audits, investigations or claims for or relating to any
liability in respect of Taxes of Pac Rim, and there are no matters under
discussion with any taxing or other governmental authority with respect to
Taxes of Pac Rim.
(iii) All audits of federal, state and local returns for Taxes by the
relevant taxing or other governmental authority have been completed for
all periods.
(iv) Pac Rim has not been notified in writing that any taxing or
other governmental authority intends to audit a return for any other
period.
(v) No extension of a statute of limitations relating to Taxes
is in effect with respect to Pac Rim.
(d) Tax Elections. Except as set froth in Pac Rim Disclosure Letter:
-------------
(i) There are no material elections with respect to Taxes affecting
Pac Rim.
(ii) Pac Rim has not made an election and is not required to treat
any asset of Pac Rim as owned by another person or as tax-exempt bond
financed property or tax-exempt use property within the meaning of Section
168 of the Internal Revenue Code of 1986, as amended (the "Code"), or
under any comparable state or local income Tax or other Tax provision.
(iii) Pac Rim is not a party to or bound by any binding tax sharing,
tax indemnity or tax allocation agreement or other similar arrangement
with any other person or entity.
(iv) Pac Rim has not filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state or local law) or agreed to have Section 341(f)(2) of
the Code (or any corresponding provision of state or local law apply to
any disposition of any asset owned by it.
(e) Additional Tax Representations. Except as set forth in the Pac Rim
------------------------------
Disclosure Letter:
(i) There are no liens for Taxes (other than for Taxes not yet
delinquent upon the assets of Pac Rim).
(ii) Pac Rim has never been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code, nor has Pac
Rim or any present or former Subsidiary of Pac Rim, or any predecessor or
affiliate of any of them, become liable (whether by contract, as
transferee or successor, by law or otherwise) for the Taxes of any other
person or entity under Treasury Regulation Section 1.1502-6 or any similar
provision of state, local or foreign law.
(iii) Pac Rim has not made, requested or agreed to make, nor is it
required to make, any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise for any taxable year.
(iv) Pac Rim is not a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate,
in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code or would require payment of any amount as to
which a deduction may be denied under Section 162(m) of the Code.
(v) Pac Rim is not a party to any joint venture, partnership, or
other arrangement or contract which could be treated as a partnership for
federal, state, local or foreign Tax purposes.
(vi) Pac Rim has prepared and made available to Parent all of Pac
Rim's books and working papers that clearly demonstrate the income and
activities of Pac Rim for the last full reporting period ending prior to
the date hereof.
(vii) Pac Rim has not been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii).
(f) Definition of Taxes. For purposes of this Agreement, the term "Taxes"
-------------------
shall mean all federal, state, local, foreign and other taxes, assessments or
other governmental charges, including, without limitation, income, estimated
income, gross receipts, profits, occupation, franchise, capital stock, real or
personal property, sales, use, value added, transfer, license, commercial rent,
payroll, employment or unemployment, social security, disability, withholding,
alternative or add-on minimum, customs, excise, stamp or environmental taxes,
and further including all interest, penalties and additions in connection
therewith for which Pac Rim may be liable.
5.11 Certain Employee Plans.
----------------------
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and any
bonus, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, vacation, severance,
death benefit, insurance or other plan, arrangement or understanding (whether or
not legally binding), in each case maintained or contributed to for the benefit
of employees of Pac Rim or any of its Subsidiaries (all the foregoing being
herein called the "Pac Rim Benefit Plans"), individually and in the aggregate,
no event has occurred, and to the knowledge of Pac Rim or any of its
Subsidiaries, there exists no condition or set of circumstances, in connection
with which Pac Rim or any of its Subsidiaries could be subject to any liability
(except liability for benefits claims and funding obligations payable in the
ordinary course), under ERISA or any other applicable law.
(b) With respect to the Pac Rim Benefit Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, established in accordance with
generally accepted accounting principles, or otherwise properly footnoted in
accordance with generally accepted accounting principles, on the financial
statements of Pac Rim or any of its Subsidiaries. Pac Rim has not been nor is
it currently obligated under any multi-employer plans as defined in ERISA.
(c) Except as required by applicable law, neither Pac Rim nor any of its
Subsidiaries provides any health, welfare or life insurance benefits to any of
their former or retired employees.
(d) Except for changes due to increases in the length of employment,
Schedule 5.11(d) of the Pac Rim Disclosure Letter lists the employees of Pac Rim
and its Subsidiaries who are eligible for severance benefits and the amounts
that would be due such employees if they were terminated as of July 24, 1996.
5.12 Labor Matters.
-------------
(a) Neither Pac Rim nor any of its Subsidiaries is a party to, or bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
Pac Rim, threatened against Pac Rim or its Subsidiaries relating to their
business. To the knowledge of Pac Rim, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of Pac Rim or any of its Subsidiaries.
(b) Pac Rim has delivered to Parent copies of all employment agreements,
consulting agreements, severance agreements, bonus and incentive plans, profit-
sharing plans and other agreements, plans or arrangements with respect to
compensation of the employees or arrangements with respect to compensation of
the employees of Pac Rim and its Subsidiaries (the "Compensation Arrangements")
and, to the extent required by applicable regulation, all Compensation
Arrangements are described in the Pac Rim Reports.
5.13 No Brokers. Pac Rim has not entered into any contract, arrangement
----------
or understanding with any person or firm which may result in the obligation of
Pac Rim or Parent to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except
that Pac Rim has retained Salomon Brothers Inc. ("Salomon"), whose fees and
expenses will be paid by Pac Rim, as its financial advisor to render a fairness
opinion with respect to the Purchase Price, which arrangement has been disclosed
in writing to Parent prior to the date hereof. Other than the foregoing
arrangement, Pac Rim is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby.
5.14 Fairness Opinion. Pac Rim has received the opinion of Salomon to the
----------------
effect that the consideration to be received in the Merger by the stockholders
of Pac Rim is fair to such stockholders from a financial point of view.
5.15 Liens. Other than liens, mortgages, security interests, pledges and
-----
encumbrances which do not materially interfere with Pac Rim's or any of its
Subsidiaries' use and enjoyment of their property or assets or diminish or
detract from the value thereof, neither Pac Rim nor any of its Subsidiaries has
granted, created or suffered to exist with respect to any of its assets, any
mortgage, pledge, charge, hypothecation, collateral, assignment, lien (statutory
or otherwise), encumbrance or security agreement of any kind or nature
whatsoever.
5.16 Leased Real Property. Neither Pac Rim nor any Subsidiary owns any
--------------------
real property. The Pac Rim Disclosure Letter sets forth a list of all of the
leases and subleases (the "Real Property Leases") under which, as of the date
hereof, Pac Rim or any of its Subsidiaries has the right to occupy space. Pac
Rim has heretofore delivered to the Parent a true, correct and complete copy of
all of the Real Property Leases, including all amendments thereto. All Real
Property Leases and leases pursuant to which Pac Rim or any of its Subsidiaries
leases personal property from others are valid, binding and enforceable in
accordance with their terms; neither Pac Rim nor any Subsidiary has received
notice of any default by Pac Rim or any Subsidiary under any Real Property
Lease; there are no existing defaults, or any condition or event which with the
giving of notice
or lapse of time would constitute a default, by any party to the Real Property
Leases.
5.17 Environmental Matters. Attached to the Pac Rim Disclosure Letter
---------------------
are copies of all environmental audits or other studies or reports that Pac Rim
has in its possession, which were prepared by third parties to assess Hazardous
Material (as hereinafter defined) risks at any site or facility owned or leased
presently or within the last three (3) years by Pac Rim or any of its
Subsidiaries (a "Site"). Pac Rim and each of its Subsidiaries is in compliance
with all, and has no liability under, any Environmental Laws (as defined below).
Neither Pac Rim nor any of its Subsidiaries has been alleged to be in violation
of, or has been subject to any administrative or judicial proceeding pursuant
to, such Environmental Laws either now or any time during the past three (3)
years. There are no facts or circumstances which Pac Rim reasonably expects
could form the basis for the assertion of any Claim (as defined below) against
Pac Rim or any of its Subsidiaries relating to environmental matters including,
but not limited to, any Claim arising from past or present environmental
practices asserted under any Environmental Laws.
For purposes of this Section 5.17, the following terms shall have the
following meanings:
(a) "Hazardous Materials" shall mean asbestos, petroleum products,
underground tanks of any type and all other materials now or hereafter
defined as "hazardous substances," "hazardous wastes," "toxic substances"
or "solid wastes," or otherwise now or hereafter listed or regulated
pursuant to (collectively, the "Environmentally Laws"): the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S)9601 et seq., and any amendments thereto; the Resource Conservation and
-- ---
Recovery Act, 42 U.S.C. (S)6901 et seq., and any amendments thereto; the
-- ---
Hazardous Materials Transportation Act, 49 U.S.C. (S)1801 et seq.; and any
-- ---
other similar federal, state or local statute, regulation, ordinance,
order, decree, or any other law, common law theory or reported decision of
any state or federal court, as now or at any time hereafter in effect,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material.
(b) "Claim" shall mean any and all claims, demands, causes of
actions, suits, proceedings, administrative proceedings, losses, judgments,
decrees, debts, damages, liabilities, court costs, attorneys' fees and any
other expenses incurred, assessed or sustained by or against Pac Rim or any
of its Subsidiaries.
5.18 Intellectual Property. The Pac Rim Disclosure Letter identifies all
---------------------
registered trademarks, copyrights and patents owned or licensed by Pac Rim and
its Subsidiaries as of the date hereof. To Pac Rim's best knowledge, Pac Rim or
its Subsidiaries own, or are licensed or otherwise have adequate right to use,
all patents, patent rights, trademarks, trademark rights, service marks, service
▇▇▇▇ rights, trade names, trade name rights, copyrights, know-how, technology,
trade secrets and other proprietary information (collectively, the "Intellectual
Property") which are material to the conduct of the business of Pac Rim and its
Subsidiaries. Neither Pac Rim nor any of its Subsidiaries have received any
written claims by
any person, and neither Pac Rim nor any of its Subsidiaries has asserted a claim
against any person, with respect to any of the Intellectual Property owned or
used by Pac Rim or its Subsidiaries or challenging or questioning the validity
or effectiveness of any license or agreement relating thereto to which Pac Rim
or any Subsidiary is a party.
5.19 Powers of Attorney; Guarantees. Neither Pac Rim nor any of its
------------------------------
Subsidiaries has any power of attorney outstanding, nor any liability as
guarantor, surety, co-signer, endorser (other than for purposes of collection in
the ordinary course of business) or co-maker in respect of the obligation of any
person, corporation (other than wholly-owned Subsidiaries of Pac Rim),
partnership, joint venture, association, organization or other entity.
5.20 Related Party Transactions. No director, officer, partner, employee,
--------------------------
"affiliate" or "associate" (as such terms are defined in rule 12b-2 under the
Exchange Act) of Pac Rim or any of its Subsidiaries (i) has borrowed any monies
from or has outstanding any indebtedness or other similar obligations to Pac Rim
or any of its Subsidiaries; (ii) except as disclosed in Pac Rim's Proxy
Statement for its 1996 annual meeting, owns, directly or indirectly, any
interest of any kind in, or is a director, officer, employee, partner, affiliate
or associate of, or consultant or lender to, or borrower from or has the right
to participate in the management, operations or profits of, any person or entity
which is (x) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of Pac Rim or any of its Subsidiaries, (y) engaged in a
business related to the business of Pac Rim or any of its Subsidiaries or (z)
participating in any transaction to which Pac Rim or any of its Subsidiaries is
a party; or (iii) is otherwise a party to any contract, arrangement or
understanding with Pac Rim or any of its Subsidiaries.
5.21 Information in Proxy Statement. None of the information supplied by
------------------------------
Pac Rim or its Subsidiaries for inclusion or incorporation by reference in
Parent's "Proxy Statement" (as herein after defined) for the special meeting of
its stockholders to be called to consider the Stock Purchase Agreement referred
to in Section 6.5 hereof will, at the date mailed to stockholders and at the
time of the meeting of Parent's stockholders to be held in connection with the
such Stock Purchase Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE 6
---------
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
-------------------------------------------------------
Except as set forth in the disclosure letter delivered by or on behalf of
Parent and Merger Sub to Pac Rim at or prior to the execution hereof in form and
substance satisfactory to Pac Rim (the "Parent Disclosure Letter") and except to
the extent qualified by Section 11.16(b) hereof, Parent and Merger Sub represent
and warrant to Pac Rim as of the date of this Agreement as follows:
6.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
------------------------------------------------------------------
Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Parent has all requisite
corporate power and authority to own, operate and lease its properties and carry
on its business as now conducted.
6.2 Authorization, Validity and Effect of Agreements. Each of Parent and
------------------------------------------------
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of the Stock Purchase Agreement described in
Section 6.5 hereof by the holders of a majority of the outstanding shares of
Parent's common stock, the consummation by Parent and Merger Sub of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of Parent
and Merger Sub, enforceable in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
6.3 No Violation. Neither the execution and delivery by Parent and Merger
------------
Sub of this Agreement, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Articles of
Incorporation of Parent, the Certificate of Incorporation of Merger Sub or
Bylaws of Parent or Merger Sub; (ii) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default), under or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Parent or its
"Subsidiaries" (as defined in Section 11.14 hereof) under, or result in being
declared void, voidable, or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any license, franchise, permit, lease, contact, agreement or other
instrument, commitment or obligation to which Parent or any of its Subsidiaries
is a party, or by which Parent or any of its Subsidiaries or any of their
properties is bound or affected; or (iii) other than the Regulatory Filings,
require any consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority.
6.4 Interim Operations of Merger Sub. Merger Sub was formed solely for
--------------------------------
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
6.5 Financing. In obtaining the funds necessary to enable Parent and
---------
Merger Sub to consummate the Merger on the terms contemplated by this Agreement,
Parent and Merger Sub have received a written loan commitment from Chase
Manhattan Bank N.A., a copy of which commitment is attached hereto as Exhibit F,
and Parent has simultaneously herewith entered into a "Stock Purchase Agreement"
with Insurance Partners, L.P., a Delaware limited partnership ("IP") and
Insurance Partners Offshore (Bermuda), L.P., a Bermuda limited partnership ("IP
Bermuda") (IP and IP Bermuda, collectively, "Insurance Partners"), and the
additional equity investors party thereto, for the sale of shares of Parent's
common stock, an executed
copy of which is attached hereto as Exhibit G. At the Effective Time, Parent and
the Merger Sub will have available all funds necessary (a) for the acquisition
of all the Convertible Debentures and In The Money Warrants, (b) for the
acquisition of all shares of Pac Rim Common Stock and In The Money Options
pursuant to the Merger and (c) to perform their respective obligations under
this Agreement.
6.6 No Brokers. Parent has not entered into any contract, arrangement or
----------
understanding with any person or firm which may result in the obligation of Pac
Rim or Parent to pay a finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby, except that Parent has
retained Donaldson, Lufkin, ▇▇▇▇▇▇▇▇ Securities Corporation ("DLJ"), whose fees
and expenses will be paid by Parent, as its financial advisor and to render a
fairness opinion with respect to the sale of Parent's common stock pursuant to
the Stock Purchase Agreement, which arrangement has been disclosed in writing to
Pac Rim prior to the date hereof. Other than the foregoing arrangement, Parent
is not aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
6.7 Fairness Opinion. Parent has a received the opinion of DLJ to the
----------------
effect that the financing arrangements described in Section 6.5 hereof are fair
to Parent's stockholders from a financial point of view.
6.8 Surviving Corporation After the Merger. Immediately after the
--------------------------------------
Effective Time and after giving effect to any change in the Surviving
Corporation's assets and liabilities as a result of the Merger, the Surviving
Corporation will not (i) be insolvent (either because its financial condition is
such that the sum of its debts is greater than the fair value of its assets or
because the fair saleable value of its assets is less than the amount required
to pay its probable liability on existing debts as they become absolute and
mature), (ii) have unreasonably small capital with which to engage in its
business or (iii) have incurred liabilities beyond its ability to pay as they
become due.
6.9 No Ownership of Company Capital Stock. Neither Parent nor Merger
-------------------------------------
Sub own, directly or indirectly, more that five percent (5%) of Pac Rim Common
Stock.
6.10 Information in Proxy Statement. None of the information supplied by
------------------------------
Parent or Merger Sub for inclusion or incorporation by reference in Pac Rim's
"Proxy Statement" (as herein after defined) for the special meeting of its
stockholders to be called to consider the Merger will, at the date mailed to
stockholders and at the time of the meeting of Pac Rim's stockholders to be held
in connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE 7
---------
COVENANTS
---------
7.1 Acquisition Proposals. Prior to the Effective Time, Pac Rim agrees
---------------------
(a) that neither Pac Rim nor any of its Subsidiaries nor
its or their officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) shall (except to the extent necessary
to comply with fiduciary duties to stockholders as provided in this Section 7.1)
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a merger,
acquisition, consolidation, tender offer, exchange offer, business combination
or similar transaction involving, or any purchase of more than forty percent
(40%) of the assets or any equity securities of, Pac Rim or any of its
Subsidiaries (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and will inform any individuals or entities with whom an
Acquisition Proposal is currently being discussed or hereinafter making an
Acquisition Proposal of the obligations undertaken in this Section 7.1; and (c)
that it will notify Parent immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with Pac Rim or its
Subsidiaries; provided, however, that nothing contained in this Section 7.1
shall, prior to approval of the transaction described herein by the holders of
Pac Rim Common Stock, prohibit the Board of Directors of Pac Rim from (i)
furnishing information to or entering into discussions or negotiations with, any
person or entity that makes an unsolicited bona fide written Acquisition
Proposal, if, and only to the extent that, (A) such Acquisition Proposal is on
terms that the Board of Directors of Pac Rim determines, with the assistance of
its financial advisors, represents a financially superior transaction to the
holders of Pac Rim Common Stock compared with the Merger, (B) such Acquisition
Proposal is not conditioned upon the acquiror obtaining financing, (C) the Board
of Directors of Pac Rim determines in good faith, based as to legal matters on
the written opinion of outside legal counsel, that such action is required for
the Board of Directors to comply with its fiduciary duties to stockholders
imposed by law, (D) two (2) business days prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
Pac Rim provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, and furnishes Parent with the terms of and a copy of such Acquisition
Proposal and (E) thereafter, Pac Rim keeps Parent informed of the status (and
the terms) of any such discussions or negotiations; and (ii) to the extent
applicable, complying with Rule 14e-2(a) promulgated under the Exchange Act with
regard to an Acquisition Proposal. Nothing in this Section 7.1 shall (x) permit
any party to terminate this Agreement (except as specifically provided in
Article 9 hereof) or (z) affect any other obligation of any party under this
Agreement.
7.2 Conduct of Businesses. From the date hereof to the Effective Time,
---------------------
except as set forth in the Pac Rim Disclosure Letter
or as contemplated by any other provision of this Agreement, unless Parent has
consented in writing thereto, Pac Rim and its Subsidiaries:
(a) shall conduct their operations according to their usual, regular
and ordinary course in substantially the same manner as heretofore
conducted;
(b) shall use their best commercial efforts to preserve intact their
business organization and goodwill, keep available the services of their
officers and employees and maintain satisfactory relationships with those
persons having business relationships with them;
(c) shall confer on a regular basis with one or more representatives
of Parent to report operational matters of materiality and any proposals
to engage in material transactions;
(d) shall not amend their Certificates of Incorporation or Articles
of Incorporation, as the case may be, or Bylaws;
(e) shall promptly notify Parent of (i) any material emergency or
other material change in the condition (financial or otherwise), of Pac
Rim's or any of its Subsidiary's business, properties, assets,
liabilities, prospects or the normal course of its businesses or in the
operation of its properties, (ii) any material litigation or material
governmental complaints, investigations or hearings, or (iii) the breach
in any respect of any representation or warranty or covenant contained
herein;
(f) shall timely file all reports required by applicable securities
laws, rules or regulations to be filed with the SEC and promptly deliver
to Parent true and correct copies of any report, statement or schedule
filed by Pac Rim with the SEC subsequent to the date of this Agreement;
(g) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any shares of
its capital stock, effect any stock split or otherwise change its
capitalization as it exists on the date hereof, (ii) grant, confer or
award any option, warrant, conversion right or other right not existing on
the date hereof to acquire any shares of its capital stock from Pac Rim,
(iii) increase any compensation or enter into or amend any employment
severance, termination or similar agreement with any of its present or
future officers or directors, except for normal increases in compensation
to employees not earning more than $85,000 in annual base compensation
consistent with past practice and the payment of cash bonuses to employees
pursuant to and consistent with existing plans or programs; provided,
however, any such increases in annual base compensation shall not exceed
five percent (5%) of such employees' current annual base compensation
without the prior consent of Parent, which consent shall not be
unreasonably withheld, or (iv) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or
amend any existing employee benefit plan in any respect, except for
changes which may be required by applicable law;
(h) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any
shares of its capital stock for purposes other than satisfying its
obligation to pay interest when due under the Debenture/Warrant Agreement;
provided, however, on the Closing Date, Pac Rim shall pay all interest
accrued but unpaid as of such date under the Debenture/Warrant Agreement;
(ii) except in connection with the use of shares of capital stock to pay
the exercise price or tax withholding in connection with stock-based Pac
Rim Benefit Plans, directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action or (iii) split,
combine or reclassify any of its capital stock;
(i) shall not acquire, sell, lease or otherwise dispose of any of
its assets (including capital stock of Subsidiaries) which are material,
individually or in the aggregate, except in the ordinary course of
business, consistent with past practice;
(j) shall not (i) incur or assume any long-term or short-term debt
or issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business; (ii) except for obligations of
wholly-owned Subsidiaries of Pac Rim; assume, guaranty, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for the obligations of any other person except
in the ordinary course of business consistent with past practices in an
amount not material to Pac Rim and its Subsidiaries, taken as a whole;
(iii) other than wholly-owned Subsidiaries of Pac Rim, make any loans,
advances or capital contributions to or investments in, any other person;
(iv) pledge or otherwise encumber shares of capital stock of Pac Rim or
its Subsidiaries; (v) except for purchase money liens, mortgage or pledge
any of its assets, tangible or intangible, or create or suffer to create
any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind of respect to such asset; or (vi) forgive any loans to officers,
directors, employees or their affiliates and associates;
(k) Except as provided in Section 7.1 hereof, enter into any
commitment, contract or transaction outside the ordinary course of
business consistent with past practices which would be material to Pac Rim
and its Subsidiaries taken as a whole;
(l) except as may be required as a result of a change in law or in
generally accepted accounting principles shall not change any of the
accounting principles or practices used by Pac Rim;
(m) shall not (i) acquire (by merger, consolidation or acquisition
of stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein; (ii)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice which would be material to Pac Rim
and its Subsidiaries taken as a whole; (iii) without the prior consent of
Parent, which consent shall not be unreasonably withheld, authorize any
new capital expenditure or expenditures which, individually, is in excess
of $25,000 or, in the aggregate, are in excess of $750,000; provided, that
none of the foregoing
shall limit any capital expenditure within the aggregate amount previously
authorized by Pac Rim's Board of Directors for capital expenditures; or
(iv) enter into or amend any contract, agreement, commitment or
arrangement providing for the taking of any action which would be
prohibited hereunder;
(n) shall not make any tax election or settle or compromise any
income tax liability material to Pac Rim and its Subsidiaries taken as a
whole;
(o) shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of business
of liabilities reflected or reserved against in, and contemplated by, the
consolidated financial statements (or the notes thereto) of Pac Rim and
its Subsidiaries or incurred in the ordinary course of business consistent
with past practice;
(p) shall not settle or compromise any pending or threatened suit,
action or claim relating to the transaction contemplated hereby; or
(q) shall not take, or agree in writing or otherwise to take, any of
the actions described in Sections 7.2(a) through 7.2(p) or any action that
would make any of the representations and warranties of Pac Rim contained
in this Agreement untrue and incorrect as of the date when made.
7.3 Meeting of Stockholders. Pac Rim and Parent (to the extent and if
-----------------------
required on the part of Parent) shall each take all action necessary in
accordance with applicable law and their Certificate of Incorporation or
Articles of Incorporation, as the case may be, and Bylaws to convene a meeting
of their stockholders as promptly as practicable to consider and vote upon the
approval, in the case of Pac Rim, of this Agreement and the transactions
contemplated hereby, and, in the case of Parent, the Stock Purchase Agreement in
connection with the transaction contemplated hereby. The Boards of Directors of
Pac Rim and Parent shall each recommend such approval and take all lawful action
to solicit such approval, including, without limitation, timely mailing of the
Proxy Statements (as defined in Section 7.7); provided, however, that Pac Rim's
Board of Directors' recommendation or solicitation is subject to any action
taken by, or upon authority of, the Board of Directors of Pac Rim in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law and as permitted in Section 7.1 hereof. In
connection with the vote of Pac Rim Common Stock, holders of the Convertible
Debentures shall execute that certain Voting Agreement as of the date hereof, a
copy of which is attached hereto as Exhibit H (the "Voting Agreement"). Pursuant
to the terms thereof, the parties to the Voting Agreement shall agree to vote in
favor of this Agreement and the Merger at a meeting of Pac Rim's stockholders;
provided, however, if Pac Rim's Board of Directors, in the exercise of its good
faith judgment as to its fiduciary duties to its stockholders imposed by law and
in accordance with Section 7.1 hereof, recommends an Acquisition Proposal, the
obligation to vote in favor of this Agreement and the Merger pursuant to the
Voting Agreement shall terminate.
7.4 Filings; Other Action. Subject to the terms and conditions herein
---------------------
provided, Pac Rim and Parent shall: (a) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Merger; (b) use all reasonable
efforts to cooperate with one another in (i) determining which Regulatory
Filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained prior
to the Effective Time from, third parties or governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations; and (c) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement. Each of Parent and Pac Rim will use its best
efforts to resolve such objections, if any, as may be asserted with respect to
the Merger under the HSR Act or other antitrust laws. In the event a suit is
instituted challenging the Merger as violative of the HSR Act or other antitrust
laws, each of Parent and Pac Rim will use its best efforts to resist or resolve
such suit. Each of Parent and Pac Rim and will use its best efforts to take such
action as may be required (a) by the Antitrust Division of the Department of
Justice or the Federal Trade Commission in order to resolve such objections as
either of them may have to the Merger under the HSR Act or other antitrust Laws
or (b) by any federal or state court of the United States, in any suit
challenging the Merger as violative of the HSR Act or other antitrust laws, in
order to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order which has the effect of preventing
the consummation of the Merger. In complying with the foregoing, each of Parent
and Pac Rim shall use all reasonable and appropriate measures available to them,
including, if appropriate, "hold-separate" agreements or divestitures of
Subsidiaries, assets or operations if necessary to consummate the transactions
contemplated hereby, so long as such actions do not, in the aggregate, have a
Pac Rim Material Adverse Effect (after giving effect to the Merger). If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purpose of this Agreement, the proper officers and directors of
Parent and Pac Rim shall take all such necessary action. Within twenty (20) days
following the date of this Agreement, Parent and Merger Sub shall make all
necessary filings with state insurance regulatory authorities, including the
filing with the California Department of a Form A Information Statement pursuant
to California Insurance Code Section 1215 et seq. Parent and Merger Sub shall
use their respective best efforts to promptly resolve any objections and respond
to any inquiries that may arise in connection with any such filings. Pac Rim
shall cooperate with Parent in connection with the preparation and filing of the
Form A.
7.5 Inspection of Records; Access. From the date hereof to the Effective
-----------------------------
Time, Pac Rim shall allow all designated officers, attorneys, accountants and
other representatives of Parent ("Parent's Representatives") access, during
normal business hours during the period prior to the Effective Time, to all
employees, offices and other facilities and to the records and files, including
claim files and litigation files, correspondence, audits and properties, to the
accountants and auditors of Pac Rim and their work-papers, and to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs, of Pac Rim and its
Subsidiaries; provided, however, Parent's Representatives
shall use their reasonable best efforts to avoid interfering with, hindering or
otherwise disrupting the employees of Pac Rim in the execution of their
employment duties during any visit to, or inspection of, Pac Rim's facilities or
offices; provided, further, that with respect to the work-papers of Pac Rim's
accountants and auditors, Parent's Representatives shall execute all necessary
documents reasonably required and satisfy all conditions reasonably imposed by
such accountants and auditors in order to obtain such documentation.
7.6 Publicity. Pac Rim and Parent shall, subject to their respective
---------
legal obligations (including requirements of stock exchanges and other similar
regulatory bodies), consult with each other, and use reasonable efforts to agree
upon the text of any press release, before issuing any such press release or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state governmental or
regulatory agency or with any national securities exchange with respect thereto.
7.7 Proxy Statement. Pac Rim and Parent (to the extent and if required
---------------
on the part of Parent) shall each promptly prepare and then file with the SEC
their respective proxy statements with respect to the meetings of their
respective stockholders as provided in Section 7.3 hereof (collectively, the
"Proxy Statements"). Pac Rim and Parent shall each cause their respective Proxy
Statements to comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder. Pac Rim
and Parent each agree that their respective Proxy Statements and each amendment
or supplement thereto at the time of mailing thereof and at the time of the
meeting of the stockholders of Pac Rim or Parent, as the case may be, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
7.8 Further Action. Each party hereto shall, subject to the fulfillment at
--------------
or before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
7.9 Expenses. Whether or not the Merger is consummated, except as provided
--------
in Article 10 hereof, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
7.10 Indemnification and Insurance.
-----------------------------
(a) For a period of three (3) years from and after the Effective Time,
Parent and the Surviving Corporation shall indemnify, defend and hold harmless
to the fullest extent permitted under the Certificate of Incorporation or Bylaws
(as amended or restated, as the case may be) of Pac Rim and any indemnification
agreement among Pac Rim, its Subsidiaries and their respective officers and
directors (whether current or former) (collectively, the "Indemnification
Documents") each person who is now, or has been at any time prior to the date
hereof, an officer or director of Pac Rim (or any Subsidiary or division
thereof), including, without limitation, each person controlling any of the
foregoing persons (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses to which they are indemnified under
the Indemnification Documents, whether commenced, asserted or claimed
before or after the Effective Time and including, without limitation,
liabilities arising under the Securities Act of 1933, the Exchange Act and state
corporation laws in connection with the Merger. In the event of any
indemnifiable claim, action, suit, proceeding or investigation, the Indemnified
Party shall promptly notify the Surviving Corporation thereof (the failure to
give notice, however, shall not relieve the Surviving Corporation of its duty to
indemnify the Indemnified Party unless the failure to give notice causes the
Surviving Corporation to be unable to assume the defense of such claim, action,
suit, proceeding or investigation reasonably promptly or otherwise prejudices
the Surviving Corporation). Upon receipt of notice (i) the Surviving Corporation
shall have the right to assume the defense thereof and shall not be liable to
such Indemnified Party for any legal expenses of other counsel or any other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof, except that if the Surviving Corporation elects not to assume
the defense thereof or counsel for the Indemnified Party advises in writing that
there are issues which raise conflicts of interest between Parent or Surviving
Corporation and the Indemnified Party, the Indemnified Party may retain counsel
satisfactory to it, and the Surviving Corporation shall pay all reasonable fees
and expenses of such counsel for the Indemnified Party; provided, however, that
in no event shall the Surviving Corporation be required to pay fees and
expenses, including disbursements or other charges, for more than one firm of
attorneys in any one legal action or group of related legal actions unless (A)
counsel for the Indemnified Party advises that there is a conflict of interest
that requires more than one firm of attorneys, or (B) local counsel of record is
needed in any jurisdiction in which any such action is pending, (ii) the
Surviving Corporation and the Indemnified Party shall cooperate in the defense
of any matter, and (iii) the Surviving Corporation shall not be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided, further, that the Surviving Corporation
shall not have any obligation hereunder to any Indemnified Party if and to the
extent a court of competent jurisdiction ultimately determines, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law or beyond the scope of this Agreement.
(b) For a period of three (3) years from and after the Effective Time,
Parent shall cause the Surviving Corporation to keep in effect provisions in its
Certificate of Incorporation and Bylaws providing for exculpation of director
and officer liability and indemnification of the Indemnified Parties to the
fullest extent permitted under the DGCL, which provisions shall not be amended
except as required by applicable law or except to make changes permitted by law
that would enlarge the Indemnified Parties' right of indemnification.
(c) For a period of three (3) years after the Effective Time, Parent
shall cause to be maintained officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their capacities
as officers and directors, by Pac Rim and its Subsidiaries' existing officers'
and directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance; provided,
however, through February 16, 1997, the policy limits of such coverage shall not
be less than $20 million and from February
17, 1997 until three (3) years after the Effective Time, the policy limits of
such coverage shall not be less than the higher of $15 million or such policy
limits then provided by Parent for its officers and directors.
(d) Parent shall pay all expenses, including attorneys' fees, that may be
incurred by any Indemnified Parties in enforcing the indemnity and other
obligations provided for in this Section 7.10.
(e) The provisions of this Section shall survive the consummation of the
Merger and expressly are intended to benefit each of the Indemnified Parties.
7.11 Certain Benefits.
----------------
(a) From and after the Effective Time, subject to applicable law, and
except as contemplated hereby with respect to the Pac Rim Stock Option Plans,
Parent and its Subsidiaries will honor in accordance with their terms, all Pac
Rim Benefit Plans; provided, however, that nothing herein shall preclude any
change effected on a prospective basis following the Effective Time in any Pac
Rim Benefit Plan in accordance with applicable law. With respect to the employee
benefit or compensation plan or arrangement, including each "employee benefit
plan" as defined in Section 3(3) of ERISA maintained by Parent or any of its
Subsidiaries (the "Parent Benefit Plans"), Parent and the Surviving Corporation
shall grant all Pac Rim employees from and after the Effective Time credit for
all service with Pac Rim and its affiliates and predecessors prior to the
Effective Time for all purposes for which such service was recognized by Pac
Rim. To the extent Parent Benefit Plans provide medical or dental welfare
benefits after the Effective Time to Pac Rim and its Subsidiaries' employees,
Parent or the Surviving Corporation, as the case may be, shall use reasonable
and best efforts to ensure that such plan shall waive any pre-existing
conditions and actively-at-work exclusions and shall provide that any expenses
incurred on or before the Effective Time shall be taken into account under
Parent Benefit Plans for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions.
(b) Parent agrees to employ at the Effective Time all employees of Pac
Rim and its Subsidiaries who are employed on the Closing Date at- will, with all
material terms of their employment at Pac Rim, under Parent's then-current
employment practices and policies. Such employment shall be at-will and Parent
shall be under no obligation to continue to employ any such individuals.
(c) For purposes of this Section 7.11, the term "employees" shall mean
all current employees of Pac Rim and its Subsidiaries (including those on lay-
off, disability or leave of absence, paid or unpaid).
(d) Notwithstanding the provisions of Section 7.11(a), at the Effective
Time, Surviving Corporation shall perform its obligations as the surviving
corporation of the Merger under:
(i) the "Pac Rim Holding Corporation and The Pacific Rim Assurance
Company Compensation Plan For Senior Management" (the "SMT Plan") (a copy
of which is attached hereto as Exhibit I);
(ii) "The Pacific Rim Assurance Company 1996 Annual Incentive Plan"
(a copy of which is attached hereto as Exhibit J) (the "1996 Incentive
Plan"); provided, however, purchase accounting related adjustments made by
the Surviving
Corporation following the Effective Time and any adjustments in the
Assurance Company's reserves, to the extent that such adjustment shall not
result in a Pac Rim Material Adverse Effect, shall not be included in
incurred losses of the Assurance Company in calculating the combined ratio
exhibit of the matrix ("Matrix") referred to in the 1996 Incentive Plan;
provided, further, such reserve adjustment shall be taken into
consideration in calculating the combined ratio exhibit of the Matrix if,
upon year-end review, it is determined that such adjustment was required
under generally accepted accounting principles; and
(iii) that certain Employment Agreement dated as of April 15, 1994
(the "Employment Agreement") by and among Pac Rim, Assurance Company and
▇▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇"), the Amendment to Employment Agreement dated as of
March 27, 1995 (the "First Amendment") and the Second Amendment to
Employment Agreement dated as of March 30, 1996 (the "Second Amendment")
with respect thereto (copies of which are attached hereto as Exhibit K).
The Employment Agreement, the First Amendment and the Second Amendment
shall hereinafter be referred to, collectively, as the "Employment
Documents." Parent and its Subsidiaries unconditionally guaranty the
obligations of Pac Rim, Assurance Company, Surviving Corporation and any
successors to any of them (each, an "Employer") under the Employment
Documents. If any Employer breaches any of its obligations or otherwise
fails to perform under the Employment Documents, Parent and its
Subsidiaries unconditionally promises to perform such obligations.
On and following the Closing Date and for a period of one (1) year
thereafter, neither Parent nor the Surviving Corporation shall, without the
prior written consent of each of the respective parties or participants thereto,
amend or modify the terms of the SMT Plan, 1996 Annual Incentive Plan, or
Severance Program (as defined in Section 7.11(e) hereof).
(e) At the Closing, Pac Rim shall provide Parent with a list of all
persons employed by Pac Rim and its Subsidiaries on the Closing Date (each, a
"Pac Rim Employee" and, collectively, the "Pac Rim Employees"). In accordance
with Pac Rim and its Subsidiaries' Severance Program, a copy of which is
attached hereto as Schedule 7.11(e) (the "Severance Program"), Parent or
Surviving Corporation, as appropriate, shall pay funds due thereunder in order
to satisfy the severance obligations with respect to any Pac Rim Employees that
are terminated within nine (9) months following the Closing Date.
7.12 Restructuring of Merger. Upon the mutual agreement of Parent and Pac
-----------------------
Rim, the Merger shall be restructured in the form of a forward triangular merger
of Pac Rim into Merger Sub, with Merger Sub being the surviving corporation, or
as a merger of Pac Rim into Parent, with Parent being the surviving corporation.
In such event, this Agreement shall be deemed appropriately modified to reflect
such form of merger.
7.13 Additional Agreements; Best Efforts. Subject to the terms and
-----------------------------------
conditions of this Agreement, each of the parties hereto agrees to use best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including cooperating fully with
the other party, including by provision of information and making of all
necessary filings under the HSR Act and state insurance laws. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either Pac Rim or Merger Sub, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
ARTICLE 8
---------
CONDITIONS
----------
8.1 Conditions of Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved in the manner required by applicable law or by applicable
regulations of any stock exchange or other regulatory body by the holders of the
issued and outstanding shares of capital stock of Pac Rim entitled to vote
thereon and the issuance of Parent's common stock under the Stock Purchase
Agreement shall have been approved in the manner required by applicable law or
by applicable regulations of any stock exchange or other regulatory body by the
holders of the issued and outstanding shares of capital stock of Parent entitled
to vote thereon.
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(c) The required state insurance regulatory approvals, including the
California Department's approval of the consummation of the transaction
contemplated hereunder pursuant to California Insurance Code Section 1215 et
seq., shall have been obtained.
(d) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the event
any such order or injunction shall have been issued, each party agrees to use
its reasonable efforts to have any such injunction lifted.
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Time and except where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration would not
have a Pac Rim Material Adverse Effect following the Effective Time.
8.2 Conditions to Obligations of Pac Rim to Effect the Merger.
---------------------------------------------------------
The obligation of Pac Rim to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following condition:
(a) Parent shall have performed its agreements contained in this
Agreements required to be performed on or prior to the Closing Date and the
representations and warranties of Parent and Merger Sub contained in this
Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date, and Pac Rim shall have received a
certificate of the President or a Vice President of Parent, dated the
Closing Date, certifying to such effect; provided, however, that
notwithstanding anything herein to the contrary, this Section 8.2(a) shall
be deemed to have been satisfied even if such representations or warranties
are not true and correct, unless the failure of the representations or
warranties to be so true and correct, individually or in the aggregate,
would have or would be reasonably likely to have a Parent Material Adverse
Effect.
(b) Pac Rim shall have received the opinion of Salomon, dated as of
the date of delivery of Pac Rim's Proxy Statement, to the effect that, as
of such date, the consideration to be received in the Merger by the
stockholders of Pac Rim is fair to such stockholders from a financial point
of view.
(c) Pac Rim shall have received, on and as of the Closing Date, an
opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to Parent and Merger Sub, in usual
and customary form reasonably acceptable to Pac Rim.
8.3 Conditions to Obligation of Parent and Merger Sub to Effect the
---------------------------------------------------------------
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
------
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Rim shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Pac Rim contained in this Agreement and
in any document delivered in connection herewith shall be true and correct
as of the Closing Date and Parent shall have received a certificate of the
President or a Vice President of Pac Rim, dated the Closing Date,
certifying to such effect; provided, however, that notwithstanding anything
herein to the contrary, this Section 8.3(a) shall be deemed to have been
satisfied even if such representations or warranties are not true and
correct, unless the failure of the representations or warranties to be so
true and correct, individually or in the aggregate, would have or would be
reasonably likely to have a Pac Rim Material Adverse Effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any changes in the financial condition, business,
operations or prospects of Pac Rim and its Subsidiaries, taken as a whole,
which changes taken together, would have or would be reasonably likely to
have a Pac Rim Material Adverse Effect.
(c) The parties to that certain Series A Convertible Debentures and
Series 1, 2 and 3 Detachable Warrants Purchase Agreement shall have sold
and transferred to Parent all of such parties' right, title and interest in
and to the Convertible Debentures and Warrants and the parties to that
certain Series 3 Detachable Warrants Surrender Agreement shall have
surrendered and transferred to Pac Rim all of their right, title and
interest in and to the Series 3 Warrants, and Parent, thereby, upon the
Effective Time, will own or control all of the Convertible Debentures and
Warrants.
(d) Parent and Merger Sub shall have received, on and as of the
Closing Date, an opinion of ▇▇▇▇▇▇ & Wolen, counsel to Pac Rim, in usual
and customary form reasonably acceptable to Parent and Merger Sub.
ARTICLE 9
---------
TERMINATION
-----------
9.1 Termination by Mutual Consent. This Agreement may be terminated and
-----------------------------
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of Pac Rim, by the
mutual consent of Parent and Pac Rim.
9.2 Termination by Either Parent or Pac Rim. This Agreement may be
---------------------------------------
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or Pac Rim if (a) the Merger shall not have been consummated by
March 1, 1997 (the "Termination Date") or (b) the required approval of Pac Rim
and Parent's respective stockholders required by Section 7.3 shall not have been
obtained at meetings duly convened therefor or at any adjournments thereof, or
(c) a United States or state court of competent jurisdiction or United States
federal or state governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable; provided, that the party seeking to
terminate this Agreement pursuant to this clause (c) shall have used all
reasonable efforts to remove such injunction, order or decree; and provided, in
the case of a termination pursuant to clause (a) above, that the terminating
party shall not have breached in any material respect its representations or
obligations under this Agreement in any manner that shall have proximately
contributed to the occurrence of the failure referred to in said clause. If the
Merger shall not have been consummated on or before February 1, 1997 and as of
such date Pac Rim has satisfied its conditions to effect the Merger set forth in
Article 8 hereof and is prepared to consummate the Merger, Parent shall pay
interest of $5,000.00 per day, without offset or deduction for amounts Parent
claims owed to it by Pac Rim or any of its Subsidiaries, for the benefit of the
holders of shares of Pac Rim Common Stock (the "Extension Consideration") for
each day commencing on February 2, 1997 and ending with the earlier to occur of
the Closing Date or the termination of this Agreement. Parent shall pay the
Extension Consideration to the Exchange Agent on the Closing Date in order to
effect pro rata distribution of such amount to the holders of shares of Pac Rim
Common Stock, or if the Closing does not occur and this Agreement is terminated,
Parent shall promptly, but in no event later than two (2) days after such
termination, pay the same by wire transfer to Pac Rim of same day funds.
9.3 Termination by Pac Rim. This Agreement may be terminated and the
----------------------
Merger may be abandoned at any time prior to the Effective Time, before the
adoption and approval by the stockholders of Pac Rim referred to in Section 7.3,
by action of the Board of Directors of Pac Rim, if (i) in the exercise of its
good faith judgment as to its fiduciary duties to its stockholders imposed by
law the Board of Directors of Pac Rim determines that such termination is
required by reason of an Acquisition Proposal complying with Section 7.1 hereof
being made, or (ii) there have been breaches by Parent or Merger Sub of
representations or warranties contained in this Agreement which, in the
aggregate, would have or would be reasonably likely to have a Parent Material
Adverse Effect, or (iii) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of Parent, which
breach is not curable or, if curable, is not cured within thirty (30) days after
written notice of such breach is given by Pac Rim to Parent.
9.4 Termination by Parent. This Agreement may be terminated and the
---------------------
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent, if (a) there have been breaches by Pac Rim of
representations or warranties contained in this Agreement which, in the
aggregate, would have or would be reasonably likely to have a Pac Rim Material
Adverse Effect, (b) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of Pac Rim, which breach is
not curable or, if curable, is not cured within thirty (30) days after written
notice of such breach is given by Parent to Pac Rim or (c) the holders of more
than 1,000,000 shares of Pac Rim Common Stock have demanded appraisal rights in
accordance with Section 4.7 hereof.
9.5 Effect of Termination and Abandonment. In the event of termination of
-------------------------------------
this Agreement and the abandonment of the Merger pursuant to this Article 9, all
obligations of the parties hereto shall terminate, except the obligations of the
parties pursuant to this Section 9.5 and Sections 7.9, Article 10 and Sections
11.3, 11.4, 11.6, 11.10, 11.13 and 11.17 and the Confidentiality Agreement
referred to in Section 11.4.
9.6 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of the party granting such extension or waiver.
ARTICLE 10
----------
LIQUIDATED DAMAGES AND BREAKUP FEE
----------------------------------
10.1 Payment of Liquidated Damages by Parent. The parties hereto agree
---------------------------------------
that if this Agreement shall not be consummated in
accordance with its terms and conditions as a result of: (a) the occurrence of
the events described in Section 9.3(ii) and (iii); (b) Parent or Merger Sub's
failure to comply with the covenants described in Sections 7.3, 7.4, 7.7, 7.8 or
7.13 or the conditions described in Section 8.2(a) or (c); or (c) Parent
refusing to consummate the transaction contemplated hereunder after satisfying
each of the covenants, conditions and events referred to in subsections (a) and
(b) of this Section 10.1, then the resulting damages would be impracticable or
extremely difficult to determine. Because of the difficulty in determining the
damages resulting from the acts described in subsections (a), (b) and (c) of
this Section 10.1, the parties hereto agree that in such event, Parent must pay
the sum of $5,000,000.00 to Pac Rim immediately upon demand therefor as
liquidated damages.
10.2 Payment of Liquidated Damages by Pac Rim. The parties hereto agree
----------------------------------------
that if this Agreement shall not be consummated in accordance with its terms and
conditions as a result of: (a) the occurrence of the events described in Section
9.4(a) or (b); (b) Pac Rim's failure to comply with the covenants described in
Sections 7.2, 7.3, 7.4, 7.5, 7.7, 7.8 or 7.13, or the conditions described in
Section 8.3(a) or (d); or (c) Pac Rim refusing to consummate the transaction
contemplated hereunder after satisfying each of the covenants, conditions or
events referred to in subsections (a) and (b) of this Section 10.2, then the
resulting damages would be impracticable or extremely difficult to determine.
Because of the difficulty in determining the damages resulting from the acts
described in subsections (a), (b) and (c) of this Section 10.2, the parties
hereto agree that in the event of such breach, Pac Rim must pay the sum of
$2,500,000.00 to Parent immediately upon demand therefor as liquidated damages.
10.3 Payment of Breakup Fee By Pac Rim. In the event that (a) Pac Rim's
---------------------------------
Board of Directors terminates this Agreement pursuant to Section 9.3(i) hereof
by reason of an Acquisition Proposal or (b) following public announcement of an
Acquisition Proposal, Pac Rim's Board of Directors terminates this Agreement
pursuant to Section 9.2(b) due to the failure to obtain the required vote in
favor of this Agreement from the holders of Pac Rim Common Stock and Convertible
Debentures at a meeting duly called therefor, and, in either event, the
definitive transaction document with respect to such Acquisition Proposal is
executed by Pac Rim within six (6) months following any such termination, Pac
Rim shall pay Parent a breakup fee of $5 million (the "Breakup Fee"). The
Breakup Fee is not separately payable in the event that liquidated damages are
due and paid under Section 10.2 hereof.
ARTICLE 11
----------
GENERAL PROVISIONS
------------------
11.1 Nonsurvival of Representations, Warranties and Agreements. All
---------------------------------------------------------
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger, provided, however, that the agreements contained in Article 4 and in
Sections 7.10, 7.11 and 7.13 and this Article 11 and the agreements delivered
pursuant to this Agreement shall survive the Merger.
11.2 Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission and
by courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
(a) if to Parent or Merger Sub, to
Superior National Insurance
Group, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
(b) if to Pac Rim, to
Pac Rim Holding Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ & Wolen LLP
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No. ▇▇▇-▇▇▇-▇▇▇▇
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor
-----------------------------------
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
in Article 4 and Sections 7.10, 7.11, and 7.13 (collectively, the "Third Party
Provisions"), nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, and no Third
Party Provision shall be enforceable until after the Effective Time.
11.4 Entire Agreement. This Agreement, the Exhibits, the Pac Rim
----------------
Disclosure Letter, the Parent Disclosure Letter, the Confidentiality Agreement
between Pac Rim and Parent and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto. No
addition to or modification of any provision of this Agreements shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
During the term of this Agreement, neither party hereto shall terminate the
foregoing Confidentiality Agreement.
11.5 Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken by their respective Board of Directors, at any time before or after
approval of matters presented in connection with the Merger by the stockholders
of Pac Rim, but after any such stockholder approval, no amendment shall be made
which by law requires the further approval of stockholders without obtaining
such further approval. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties hereto.
11.6 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws.
11.7 Venue. Any action concerning or dispute arising out of or concerning
-----
this Agreement, regarding the interpretation of this Agreement, or regarding the
relationships among the parties created pursuant to this Agreement shall be
filed only in the United States District Court for the Central District of
California or in the Superior Court of the State of California for the County of
Los Angeles.
11.8 Counterparts. This Agreements may be executed by the parties hereto
------------
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
11.9 Headings. Headings of the Articles and Sections of this Agreement
--------
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
11.10 Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
11.11 Waivers. Except as provided in this Agreement, no action taken
-------
pursuant to this Agreement, including, without limitations, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
11.12 Incorporation of Exhibits. The Pac Rim Disclosure
-------------------------
Letter, the Parent Disclosure Letter and all Exhibits and Schedules attached
hereto and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
11.13 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
11.14 Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any California Court, this being
in addition to any other remedy to which they may be entitled at law or in
equity.
11.15 Subsidiaries. As used in this Agreement, the word "Subsidiary"
------------
when used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner. When a reference is made in this Agreement to Significant
Subsidiaries, the words "Significant Subsidiaries" shall refer to Subsidiaries
(as defined above) which constitute "significant subsidiaries" under Rule 405
promulgated by the SEC under the Securities Act.
11.16 Material Adverse Effect. (a) As used in this Agreement, the term
-----------------------
"Pac Rim Material Adverse Effect" means an adverse effect on the business,
results of operations, prospects or financial condition of Pac Rim and its
Subsidiaries, taken as a whole, having an economic value of $1,000,000 or more;
provided, however, based upon the reserves booked by the Assurance Company, no
adverse development in Assurance Company's reserves, to the extent that such
adverse development does not exceed the sum of (i) the $4,500,000 and (ii)
$1,000,000, shall be included in determining whether a Pac Rim Material Adverse
Effect exists; provided, further, any change in the book value of Pac Rim or any
of its Subsidiaries based on an adjustment of the market value of securities
valued at book value on such companies' books and records shall not be included
in determining if a Pac Rim Material Adverse Effect exists; provided, further,
any amounts that may be payable under the SMT Plan, the 1996 Incentive Plan, the
Employment Documents or the Severance Program that are not reflected in Pac
Rim's financial statements shall not be included in determining if a Pac Rim
Material Adverse Effect exists. As used in this Agreement, the term "Parent
Material Adverse Effect" means an adverse effect on the business, results of
operations, prospects or financial condition of Parent and its Subsidiaries,
taken as a whole, having an economic value of $1,000,000 or more; provided,
however, any change in the book value of Parent or any of its Subsidiaries based
on an adjustment of the market value of securities valued at book value on such
companies' books and records shall not be included in determining if a Parent
Material Adverse Effect exists.
(b) The existence of facts or circumstances which constitute a breach
of the representations and warranties set forth in Article 5 hereof shall not be
considered to be a breach of any representation and warranty if all such facts
and circumstances do not have, individually or in the aggregate, a Pac Rim
Material Adverse Effect. The existence of facts or circumstances which
constitute a breach of the representations and warranties set forth in Article 6
hereof shall not be considered to be a breach of any representation and warranty
if all such facts and circumstances do not have, individually or in the
aggregate, a Parent Material Adverse Effect.
11.17 Attorney's Fees. In any legal action to enforce this Agreement or
---------------
any provision hereof, the prevailing party in such action shall, in addition to
any other remedy to which it may be entitled hereunder, receive from the party
from which enforcement was sought reasonable attorney's fees and its court costs
in connection with such action.
11.18 Performance by Merger Sub. Parent hereby agrees to cause Merger
-------------------------
Sub to comply with its obligations hereunder and to cause Merger Sub to
consummate the Merger as contemplated herein.
IT WITNESS WHEREOF, the parties have caused this Agreement and caused
the same to be duly delivered on their behalf as of the day and year first
written above.
PARENT: SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------
Name: J. ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Executive Vice President & CFO
MERGER SUB: SNTL ACQUISITION CORP.
By: /s/ J. ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------
Name: J. ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Executive Vice President & CFO
PAC RIM: PAC RIM HOLDING CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: President and Chief Executive Officer
SCHEDULE 7.11(e)
SEVERANCE PROGRAM
EXHIBIT A
CERTIFICATE OF INCORPORATION OF SNTL ACQUISITION CORP.
EXHIBIT B
BYLAWS OF SNTL ACQUISITION CORP.
EXHIBIT C
SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2
AND 3 DETACHABLE WARRANT PURCHASE AGREEMENT
EXHIBIT D
OPTION
EXHIBIT E
SERIES 3 WARRANT SURRENDER AGREEMENT
EXHIBIT F
CHASE MANHATTAN BANK COMMITMENT LOAN LETTER
EXHIBIT G
EXECUTED INSURANCE PARTNERS STOCK PURCHASE AGREEMENT
EXHIBIT H
VOTING AGREEMENT
EXHIBIT I
COMPENSATION PLAN FOR SENIOR MANAGEMENT TEAM
EXHIBIT J
1996 ANNUAL INCENTIVE PLAN
PLAN DOCUMENT
EXHIBIT K
▇▇▇▇▇▇▇ ▇▇▇▇▇ EMPLOYMENT AGREEMENT AND AMENDMENTS THERETO