EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SUPERIOR NATIONAL INSURANCE GROUP, INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
FIRST. The name of the corporation is Superior National Insurance
Group, Inc. (the "Corporation").
SECOND. The address of the Corporation's registered office in the
State of Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in
the City of Wilmington, County of New Castle, 19801. The name of its
registered agent at such address is RL&F Service Corp.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. The total number of shares of stock which the Corporation
shall have authority to issue is twenty-five million (25,000,000.00). All such
shares are to be common stock, par value of $.01 per share (the "Common
Stock"), and are to be of one class.
FIFTH. (a) Each holder of the Corporation's 14.5% Senior Subordinated
Voting Notes due April 1, 2002 (the "Special Voting Notes") issued pursuant to
the Note Purchase Agreement dated March 31, 1992 (the "Note Purchase
Agreement") shall be entitled to vote only for the election or removal of
directors to (or from) the board of directors of the Corporation (the "Board"),
and shall have that number of votes arrived at by the following calculations:
(i) dividing the principal amount of the Special Voting Note held by a
particular holder by the total principal amount of all outstanding Special
Voting Notes; and (ii) multiplying the result of (i) by the total number of
shares of this Corporation's Common Stock issuable upon exercise of all the
warrants issued pursuant to the Note Purchase Agreement and outstanding on the
record date for any vote of this Corporation's shareholders for the election or
removal of directors. To the extent of this limited right to vote granted to
holders of the Special Voting Notes, the holders of the Common Stock and of the
Special Voting Notes shall vote together and not as separate classes.
(b) The terms of paragraph (a) of article FIFTH may not be amended
without the approval of the holders of the Special Voting Notes then
outstanding, voting as a separate class.
(c) The Board of Directors shall consist of eleven (11) members unless
changed by an amendment to the Certificate of Incorporation. Any change in the
authorized number
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of directors or the provisions regarding the election of directors shall
require the affirmative vote of the majority of the outstanding Special Voting
Notes, voting as a separate class.
SIXTH. (a) PROHIBITED TRANSFER; EXCESS STOCK. Except as provided in
Section F, until the Restriction Termination Date, any attempted direct or
indirect Transfer of Stock shall be deemed a "Prohibited Transfer" if (i) such
Transfer would increase the Percentage of Stock Owned by any Person that (or by
any person whose Stock is or by virtue of such Transfer would be attributed to
any Person that), either after giving effect to the attribution rules
(including the option attribution rules) of Section 382 or without regard to
such attribution rules, Owns, by virtue of such Transfer would Own, or has at
any time since the period beginning three years prior to the date of such
Transfer Owned, Stock in excess of the Limit, or (ii) such Transfer would cause
an "ownership change" of the corporation within the meaning of Section 382.
Except at otherwise provided in Section E, the Stock or Option sought to be
Transferred in the Prohibited Transfer shall be deemed "Excess Stock."
(b) TRANSFER OF EXCESS STOCK TO TRANSFEREE. Except as otherwise
provided in Section E, a Prohibited Transfer shall be void ab initio as to the
Purported Transferee in the Prohibited Transfer and such Purported Transferee
shall not be recognized as the owner of the Excess Stock for any purpose and
shall not be entitled to any rights as a stockholder of the corporation arising
from the ownership of Excess Stock, including, but not limited to, the right to
vote such Excess Stock or to receive dividends or other distributions in
respect thereof or, in the case of Options, to receive Stock in respect of
their exercise. Any Excess Stock shall automatically be transferred to the
Trustee in trust for the benefit of the Charitable Beneficiary, effective as of
the close of business on the business day prior to the date of the Prohibited
Transfer; provided, however, that if the transfer to the trust is deemed
ineffective for any reason, such Excess Stock shall nevertheless be deemed to
have been automatically transferred to the person selected as the Trustee at
such time, and such person shall have rights consistent with those of the
Trustee as described in this section and in Section C below. Any dividend or
other distribution with respect to such Excess Stock paid prior to the
discovery by the corporation that the Excess Stock has been transferred to the
Trustee ("Prohibited Distributions") shall be deemed to be held by the
Purported Transferee as agent for the Trustee, and shall be paid to the Trustee
upon demand, and any dividend or distribution declared but unpaid shall be paid
when due to the Trustee. Any vote cast by a Purported Transferee with respect
to Excess Stock prior to the discovery by the corporation that the Excess Stock
has been transferred to the Trustee will be rescinded as void and shall be
recast in accordance with the desires of the Trustee acting for the sole
benefit of the Charitable Beneficiary. The Purported Transferee and any other
Person holding certificates representing Excess Stock shall immediately
surrender such certificates to the Trustee. The Trustee shall have all the
rights of the owner of the Excess Stock, including the right to vote, to
receive dividends
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or other distributions, and to receive proceeds from liquidation, which
rights shall be exercised for the sole benefit of the Charitable Beneficiary.
(c) DISPOSITION OF EXCESS STOCK. As soon as practicable following
receipt of notice from the corporation that Excess Stock has been transferred
to the Trustee, the Trustee shall take such actions as it deems necessary to
dispose of the Excess Stock in an arm's-length transaction that would not
constitute a Prohibited Transfer. Upon the disposition of such Excess Stock,
(i) the interest of the Charitable Beneficiary in the Excess Stock shall
terminate, and (ii) the Trustee shall distribute the net proceeds of the sale
as follows: (a) the Purported Transferee shall receive an amount of the net
proceeds of such sale not to exceed the Purported Transferee's cost incurred to
acquire such Excess Stock, or, if such Excess Stock was Transferred for less
than fair market value on the date of the Prohibited Transfer, the fair market
value of the Excess Stock on the date of the Prohibited Transfer, in each case
less all costs incurred by the corporation, the Trustee and the Transfer Agent
in enforcing the Restrictions, and (b) the Charitable Beneficiary shall receive
the balance of the net proceeds from the sale of the Excess Stock, if any,
together with any Prohibited Distributions received from the Purported
Transferee and any other distributions with respect to such Excess Stock while
such Stock was held by the Trustee. In the event the Purported Transferee has
disposed of the Excess Stock and distributed the proceeds and other amounts
otherwise than in accordance with this section, then (w) such Purported
Transferee shall be deemed to have disposed of such Excess Stock as an agent
for the Trustee, (x) such Purported Transferee shall be deemed to hold such
proceeds and any Prohibited Distributions as an agent for the Trustee, (y) such
Purported Transferee shall be required to return to the Trustee the proceeds
from such sale, together with any Prohibited Distributions theretofore received
by the Purported Transferee with respect to such Excess Stock, provided that
upon receipt of written permission from the Trustee, the Purported Transferee
will be entitled to retain an amount of such sale proceeds not to exceed the
amount that such purported Transferee would have received from the Trustee if
the Trustee had obtained and resold the Excess Stock, and (z) the Trustee shall
transfer any remaining proceeds to the Charitable Beneficiary. Neither the
Trustee, the corporation, the Purported Transferee nor any other party shall
claim an income tax deduction with respect to any transfer to the Charitable
Beneficiary and neither the Trustee nor the corporation shall benefit in any
way from the enforcement of the Restrictions, except insofar as these
restrictions protect the corporation's Income Tax Net Operating Loss Carryover.
Neither the Trustee, the corporation nor the Transfer Agent shall have any
liability to any Person for any loss arising from or related to a Prohibited
Transfer.
(d) TRANSFER AGENT'S RIGHTS AND RESPONSIBILITIES. The Transfer Agent
shall not register any Transfer of Stock on the corporation's stock transfer
records if it has knowledge that such Transfer is a Prohibited Transfer. The
Transfer Agent shall have the right, prior and as a condition to registering
any Transfer of Stock on the corporation's stock transfer records, to request
any transferee of the Stock to submit an affidavit, on a form agreed to by the
Transfer Agent and the corporation, stating the number of shares of each class
of Stock Owned by the transferee (and by Persons who would Own the transferee's
Stock) before the proposed Transfer and that would, if effect were given to the
proposed Transfer, be Owned by the transferee (and by Persons who would Own the
prospective Transferee's Stock) after the proposed Transfer. If either (i) the
Transfer Agent does not receive such affidavit, or (ii) such affidavit
evidences that the Transfer was a Prohibited Transfer, the Transfer Agent shall
notify the corporation and shall not enter the Prohibited Transfer into the
corporation's stock
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transfer records, and the Trustee, the corporation and the Transfer Agent shall
take such steps as provided in the Restrictions in order to dispose of the
Excess Stock purportedly Owned by such Purported Transferee. If the Transfer
Agent, for whatever reason, enters a Prohibited Transfer in the corporation's
stock transfer records, such Transfer shall be nonetheless void AB INITIO and
shall have no force and effect, in accordance with the Restrictions, and the
corporation's stock transfer records shall be revised to so provide.
(e) CERTAIN INDIRECT PROHIBITED TRANSFERS. In the event a Transfer
would be a Prohibited Transfer as a result of attribution to the Purported
Transferee of the Ownership of Stock by a person (an "Other Person") who is not
controlling, controlled by or under common control with the Purported
Transferee, which Ownership is nevertheless attributed to the Purported
Transferee, the Restrictions shall not apply in a manner that would invalidate
any Transfer to such Other Person, and the Purported Transferee and any Persons
controlling, controlled by or under common control with the Purported
Transferee (collectively, the "Purported Transferee Group") shall automatically
be deemed to have transferred to the Trustee at the time and in a manner
consistent with Section B hereof, sufficient Stock (which Stock shall (i)
consist only of Stock held legally or beneficially, whether directly or
indirectly, by any member of the Purported Transferee Group, but not Stock held
through any Other Person, other than shares held through a Person acting as
agent or fiduciary for any member of the Purported Transferee Group, (ii) be
deemed transferred to the Trustee, in the inverse order in which it was
acquired by members of the Purported Transferee Group, and (iii) be treated as
Excess Stock) to cause the Purported Transferee, following such transfer to the
Trustee, not to be in violation of the Restrictions; provided, however, that to
the extent the foregoing provisions of this Section E would not be effective to
prevent a Prohibited Transfer, the Restrictions shall apply to such other Stock
Owned by the Purported Transferred (including Stock actually owned by Other
Persons), in a manner designed to minimize the amount of Stock subject to the
Restrictions or as otherwise determined by the Board of Directors to be
necessary to prevent a Prohibited Transfer (which Stock shall be treated as
Excess Stock).
(f) EXCEPTIONS. The term "Prohibited Transfer" shall not include:
(i) the original issuance of Common Stock pursuant to the Stock Purchase
Agreement, (ii) any Transfer described in Section 382(1)(3)(B) of the Code
(relating to transfers upon death or divorce and certain gifts) if all Persons
who would Own the Stock Transferred would be treated for purposes of Section
382 as having Owned such Stock at all times beginning more than three (3) years
prior to the date of the Transfer, and (iii) any Transfer with respect to which
the Person who would otherwise be the Purported Transferee obtains or is
granted the prior written approval of the Board of Directors of the
corporation, which approval shall be granted in its sole and absolute
discretion after considering all facts and circumstances, including but not
limited to future events the occurrence of which are deemed by the Board of
Directors of the corporation to be reasonably possible.
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(g) LEGEND. All certificates or other instruments evidencing
Ownership of Stock shall bear a conspicuous legend describing the
restrictions. The Board of Directors shall take such actions as it deems
necessary to substitute certificates evidencing ownership of Stock and
bearing such legend for certificates not bearing such legend.
(h) PROMPT ENFORCEMENT; FURTHER ACTIONS. As soon as practicable and
within thirty (30) business days of learning of a purported Prohibited
Transfer, the corporation through its Secretary or any assistant Secretary
shall demand that the Purported Transferee (or any other member of the
Purported Transferee Group) surrender to the Trustee the certificates
representing the Excess Stock or any resale proceeds therefrom, and any
Prohibited Distributions or other dividends or distributions received thereon,
and if such surrender is not made within twenty (20) business days from the
date of such demand, the corporation shall institute legal proceedings to
compel such surrender and for compensatory damages on account of any failure to
take such actions; provided, however, that nothing in this Section H shall
preclude the corporation in its discretion from immediately bringing legal
proceedings without a prior demand, and also provided that failure of the
corporation to act within the time periods set out in this section shall not
constitute a waiver of any right of the corporation to compel any transfer
required hereby. Upon a determination by the Board of Directors that there has
been or is threatened a Prohibited Transfer, the Board of Directors may
authorize such additional action as its deems advisable to give effect to the
Restrictions, including, without limitation, refusing to give effect on the
books of the Company to any such purported Prohibited Transfer or instituting
proceedings to enjoin any such purported Prohibited Transfer. Nothing
contained in the Restrictions shall limit the authority of the Board of
Directors to take such other action to the extent permitted by law as it deems
necessary or advisable to protect the corporation and the interests of the
holders of its securities in preserving the Income Tax Net Operating Loss
Carryover, including, but not limited to, refusing to give effect to any
Prohibited Transfer or other action on the books of the corporation or
instituting proceedings to enjoin any Prohibited Transfer or other action;
provided, however, that any Prohibited Transfer shall nevertheless result in
the consequences otherwise described in the Restrictions.
(i) BOARD AUTHORITY TO INTERPRET. The Board of Directors shall have
the authority to interpret the provisions of the Restrictions for the purpose
of protecting the Income Tax Net Operating Loss Carryover. Any such
interpretation shall be final and binding on any Person who Owns or purports to
acquire Ownership of Stock.
(j) DAMAGES. Any person who knowingly violates the Restrictions, and
any persons controlling, controlled by or under common control with such a
person, shall be jointly and several liable to the corporation for, and shall
indemnify and hold the corporation harmless against, any and all damages
suffered as a result of such violation, including but not limited to damages
resulting from a reduction in or elimination of the corporation's ability to
utilize its Income Tax Net Operating Loss Carryover, and attorneys' and
accountants' fees incurred in connection with such violation.
(k) SEVERABILITY. If any part of the Restrictions is judicially
determined to be invalid or otherwise unenforceable, such invalidity or
unenforceability shall not affect
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the remainder of the Restrictions, which shall be thereafter interpreted as
if the invalid or unenforceable part were not contained herein, and, to the
maximum extent possible, in a manner consistent with preserving the ability
of the corporation to utilize to the greatest extent possible the Income Tax
Operating Loss Carryover.
(l) EFFECT ON STOCK EXCHANGE TRANSACTIONS. Nothing in the
Restrictions shall preclude the settlement of a transaction entered into
through the facilities of Nasdaq. The Stock that is the subject of such
transaction shall continue to be subject to the terms and Restrictions after
such settlement.
(m) DEFINITIONS:
"Charitable Beneficiary" shall mean one or
more organizations described in Sections 170(b)(1)(A), 170(c)(2) and
501(c)(3) of the Code designated in writing by the corporation.
"Code" shall mean the Internal Revenue Code
of 1986, as amended and as it may be amended from time to time
hereafter.
"Common Stock" shall mean the common stock of
the Corporation, $0.01 par value per share.
"Control" shall mean the possession, direct
or indirect, of the power to direct or cause the direction of the
management, policies or decisions of a Person, whether through the
ownership of voting securities, by contract, family relationship or
otherwise. The terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings. A Person shall be
deemed to control or be under common control with a Purported
Transferee if the Excess Stock Owned by such Person is treated as
Owned by the Purported Transferee by virtue of the family attribution
rules of Section 318 of the Code.
"5% Shareholder" shall mean any Person or
Public Group who is a "5-percent shareholder" of the corporation
within the meaning of Section 382, substituting "4.9 percent" for "5
percent" each place it appears therein.
"Income Tax Net Operating Loss Carryover"
shall mean the net operating loss, capital loss, net unrealized
built-in loss, general business credit, alternative minimum tax
credit, foreign tax credit and any other carryovers or losses as
determined for United States federal income tax purposes that are or
could become subject to limitation under Section 382, and to which the
corporation is entitled under the Code and Regulations, at any time
during which the Restrictions are in force.
"IP Delaware" shall mean Insurance Partners,
L.P., a Delaware limited partnership.
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"IP Bermuda" shall mean Insurance Partners
Offshore (Bermuda), L.P., a Bermuda limited partnership.
"Limit" shall mean 4.9 Percent of the Stock.
"Option" shall mean any interest that could
give rise to the Ownership of Stock and that is an option, contract,
warrant, convertible instrument, put, call, stock subject to a risk of
forfeiture, pledge of stock or any interest that is similar to any of
such interests or any other interest that would be treated, under
paragraph (d)(9) of Treasury Regulation Section 1.382-4, in the same
manner as an option, whether or not any of such interests is subject
to contingencies.
"Own," and all derivations of the word "Own,"
shall mean any direct or indirect, actual or beneficial interest,
including, except as otherwise provided, a constructive ownership
interest under the attribution rules (including the option attribution
rules) of Section 382. In determining whether a Person Owns an amount
of Stock in excess of the Limit, Options Owned by such Person (or
other Persons whose Ownership of Stock is or would be attributable
under Section 382 to such Person) shall be treated as exercised (and
the Stock that would be acquired by such exercise as outstanding) and
Options Owned by other Persons shall be treated as not exercised (and
the Stock that would be acquired by such exercise as outstanding) and
Options Owned by other Persons shall be treated as not exercised (and
the Stock that would be acquired if such Options owned by other
Persons were exercised shall be treated as not outstanding), in each
case without regard to whether such treatment would result in an
ownership change within the meaning of Section 382. In determining
whether a Transfer that is an exercise, conversion or similar
transaction with respect to an Option increases the Percentage
Ownership of Stock of any Person or Public Group, such Option shall be
treated as if it were not Owned by such Person immediately prior to
such Transfer.
"Percent," "Percentage" or "%" shall mean
percent or percentage by value.
"Person" shall mean any individual (other
than a Public Group treated as an individual under Section 382) or any
"entity" as that term is defined in Regulations Section 1.382-3(a).
"Public Group" shall have the meaning
assigned to such term in the applicable Regulations under Section 382.
"Purported Transferee" shall mean a Person or
Public Group who acquires Ownership of Excess Stock in a Prohibited
Transfer or, except as otherwise provided in the Restrictions, any
subsequent transferee of such Excess Stock.
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"Purported Transferor" shall mean a Person
who Transfers Excess Stock in a Prohibited Transfer.
"Regulations" shall mean Treasury
Regulations, including proposed or temporary regulations, promulgated
under the Code, as the same may be amended from time to time.
References herein to specific provisions of temporary Regulations
shall include the analogous provisions of final Regulations or other
successor Regulations.
"Restriction Effective Date" shall mean the
date of the closing of the purchase of 2,390,438 shares of Common
Stock by IP Delaware, IP Bermuda and the Subscribing Stockholders
pursuant to the Stock Purchase Agreement.
"Restriction Termination Date" shall mean the
earliest to occur of (a) the end of the thirty-sixth (36th) month
following the Restriction Effective Date, (b) the first day of the
first taxable year following the taxable year (or years) in which the
Income Tax Net Operating Loss Carryover has been reduced to zero, or
(c) the date upon which the Board of Directors has determined that
there has been a change in law (including but not limited to the
repeal of Section 382 without a successor provision that places
restrictions on the Income Tax Net Operating Loss Carryover based on
changes of ownership of the corporation's Stock similar to Section
382) eliminating the need for the Restrictions in order to preserve
the corporation's ability to utilize the Income Tax Net Operating Loss
Carryover.
"Restrictions" shall mean the restrictions on
the Transfer and Ownership of Stock as set forth in this Article VI.
"Section 382" shall mean Section 382 of the
Code and the Regulations promulgated thereunder, and any successor
statute and regulations.
"Stock" shall mean the Common Stock and any
interest in the corporation that would be treated as stock under
Section 382, without regard to clauses (ii)(B) and (iii)(B) of
paragraph (f)(18) of Temporary Treasury Regulation Section 1.382-2T
(but only if, in determining the Ownership by any Person of Stock, the
uniform treatment of such interest as Stock or as not Stock, as the
case may be, would increase such Person's Percentage Ownership of
Stock), and shall also include any Stock the ownership of which may be
acquired by the exercise of an Option.
"Stock Purchase Agreement" shall mean
that Stock Purchase Agreement among the corporation, IP
Delaware, IP Bermuda, TJS and the Subscribing Stockholders,
dated as of September 17, 1996.
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"Subscribing Stockholders" shall mean those
individuals who execute the subscription agreements attached to the
Stock Purchase Agreement as exhibits thereto.
"Transfer" shall mean any direct or indirect
acquisition or disposition of stock, whether by sale, exchange,
merger, consolidation, transfer, assignment, conveyance, distribution,
pledge, inheritance, gift, mortgage, the creation of any security
interest in, or lien or encumbrance upon, or any other acquisition or
disposition of any kind and in any manner, whether voluntary or
involuntary, knowing or unknowing, by operation of law or otherwise.
Notwithstanding any understandings or agreements to which an Owner of
Stock is a party, any arrangement, the effect of which is to transfer
any or all of the rights arising from Ownership of Stock, shall be
treated as a Transfer. A Transfer shall also include (i) a transfer
of an interest in an entity and a change in the relationship between
two or more Persons that results in a change in the Ownership of Stock
and (ii) the creation, grant, exercise, conversion, Transfer or other
disposition of or with respect to an Option, regardless of whether
such Option previously had been treated as exercised or converted for
any other purpose.
"Transfer Agent" means the Person responsible
for maintaining the books and records in which are recorded the
ownership and transfer of shares of Stock or any Person engaged by the
corporation for the purpose of fulfilling the duties required to be
fulfilled by the Transfer Agent hereunder.
"Trustee" means the trustee of the trust
appointed by the corporation, provided that the Trustee shall be a
Person unaffiliated with the corporation, any 5% Shareholder, and any
Person purchasing or disposing of Stock in a Prohibited Transfer.
SEVENTH. The holders of the Special Voting Notes and the Common
Stock, voting together as a single class, shall be entitled at all elections of
directors to as many votes as shall equal the number of votes which (except for
this provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected, and such holder may cast all of such votes
for a single director or may distribute them among the number to be voted for,
or for any two or more of them as he or she may see fit. The holders of the
Common Stock shall be entitled to one vote for each share upon all other
matters.
EIGHTH. The incorporator of the Corporation is C. Stephen Bigler, P.O
Box 551, Wilmington, DE 19899.
NINTH. Unless and except to the extent that the by-laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
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TENTH. In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board is expressly authorized to
make, alter and repeal the by-laws of the Corporation, subject to the power of
the stockholders of the Corporation to alter or repeal any by-law whether
adopted by them or otherwise.
ELEVENTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the Corporation hereunder in
respect of any act or omission occurring prior to the time of such amendment,
modification or repeal.
TWELFTH. The Corporation reserves the right at any time, and from
time to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation
in its present form or as hereafter amended are granted subject to the rights
reserved in this article.
The undersigned incorporator hereby acknowledges that the foregoing
certificate of incorporation is his act and deed on December 2, 1996.
/s/ C. Stephen Bigler
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C. Stephen Bigler
Incorporator
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