Letterhead of Strategy International Insurance Group, Inc.]
Exhibit
99.1
[Letterhead
of Strategy International Insurance Group, Inc.]
October
25, 2005
Grupo
Lakas S.A.
Av.
De la
Hortensa/497
Piso
5
San Borja
Lima,
Peru
Attn:
▇.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ R.
Dear
▇▇.
▇▇▇▇▇:
Re:
U.S. $700,000,000 Investment
This
Agreement (this “Agreement”) shall set forth the terms and conditions under
which Strategy International Insurance Group, Inc. (“SG”) and Grupo Lakas S.A.
(“Grupo Lakas”) will enter into a business relationship, which terms and
conditions are as follows.
| Investment: |
An
investment by Grupo Lakas through a wholly-owned Barbados subsidiary
of
Grupo Lakas (the “Investor”) in shares of shares of preferred stock of
SG’s Barbados subsidiary, Strategy Holdings Company, Ltd. (“Holdings”),
designated as Class D Preferred Stock (the “Preferred Stock”), having a
value of U.S.$700,000,000 (the “Investment”). The investment in the
Preferred Stock shall be paid by the Investor by the issuance to
Holdings
of a promissory note in the principal amount of U.S.$700,000,000,
which
has a maturity date of ten (10) years from its date of issuance
(the
“Note”). The note will be secured by bearer certificates which entitle
the
holder thereof to obtain peat from sources in the Republic of Panama
(the
“Peat Certificates”), as more fully described
herein.
|
| Purpose: |
Holdings
will contribute the Note to its Barbados subsidiary, Strategy Insurance
Limited (“SIL”), which investment will qualify as additional statutory
capital for SIL. ▇▇▇ will use the capital to establish a book of
business
that will consist principally of writing insurance or reinsurance
as
determined by the Underwriting Committee of SIL, in accordance
with
applicable laws and regulations, and utilizing underwriting practices
customary in the industry.
|
| Preferred Stock: |
The
Class D Preferred Stock in Holdings will provide for a dividend
at an
annual rate of 0.0343% (i.e., Twenty Four Million Dollars (US$24,000,000)
per annum (the “Base Dividend”), which shall accrue and be payable on the
last day of June and December in each year, commencing on June
30, 2006.
In addition to the Base Dividend the Class D Preferred Stock will
provide
an additional dividend equal to 12% of the gross premium written
by SIL,
above $200,000,000 (the “Bonus Dividend”); provided
that the Bonus Dividend shall not exceed $60,000,000 in any year.
The
Preferred Stock will be perpetual, but shall be redeemable by the
Holdings, at its option, in an amount equal to US$700,000,000,
plus
accrued on unpaid dividends.
|
| Term of Note: |
The
Note issued shall provide that interest shall accrue on the outstanding
principal amount of the Note at a rate of three percent (3%) per
annum.
Interest on the Note shall be payable on the last day of June and
December
in each year, commencing on June 30, 2006 and ending on the Maturity
Date
or until the Note is repaid in
full.
|
| Note Collateral: |
The
Note will provide that it shall at all times be secured by Peat
Certificates, which shall be in bearer form and shall be held by
▇▇▇▇▇
& ▇▇▇▇▇▇▇▇ LLP, as bailee and escrow agent for Holdings (the “Escrow
Agent”), which have a value of not less than U.S.$900,000,000 at any
time
based upon the then quoted “ex-mine price” of peat, as quoted from time to
time by the United States Department of Agriculture. If the value
of the
Peat Certificates are less than U.S.$900,000,000 at any time, then
the
Investor shall tender to the Escrow Agent additional Peat Bonds,
so that
the aggregate value of the Peat Certificates then held is not less
than
U.S.$900,000,000.
|
|
Regulatory
Approval:
|
Within
sixty (60) days from the establishment of the execution and delivery
of
this Agreement, SIL will undertake to make application to the Secretary
of
Insurance in Barbados to determine that the Investment by Holdings
into
SIL qualifies as regulatory capital under Barbados law. Should
the
Secretary of Insurance not provide a favorable ruling with ninety
(90)
days from the submission by ▇▇▇, then, upon the option of either
SG or
Grupo Lakas, the parties agree to unwind any and all agreements
entered
the into relating to the Investment. In particular, if the Investment
is
unwound, the shares of Preferred Stock shall be redeemed in consideration
of the tender by Holdings to the Investor of the Note and the Peat
Bonds.
The date, that the approval of the Investment is received from
the
Secretary of Insurance, if applicable, is herein called the “Approval
Date”.
|
|
Underwriting
Business:
|
The
Investor and Grupo Lakas shall be entitled to comfort from SG that
it
shall continue to operate its business and those of its subsidiaries
in a
prudential and appropriate risk basis consistent with reasonable
industry
practices and insurance underwriting standards. SG shall provide
the
Investor and Grupo Lakas with reports in form, content and substance
sufficient to allow each of the Investor and Grupo Lakas to satisfy
itself
that these standards are being maintained, such report to be delivered
on
a semi-annual basis during the first year and quarterly
thereafter.
|
| Stock Ownership: |
As
additional consideration for making the Investment, SG shall issue
to
Grupo Lakas or its assigns warrants to acquire 6,944,009 shares
of SG’s
common stock or such greater number of shares as shall equal 9.9%
of the
fully diluted common stock of SG as of the Approval Date (the “Warrants”).
The Warrants will be issued on the Approval Date and will be exerciseable
for a period of two (2) years from the issue date at an exercise
price of
$1.75 per share. If not registered within one (1) year from their
date of
issuance, the Investor shall have a demand registration right with
respect
to the common stock underlying the
Warrants.
|
| Board Membership: |
During
the term that more than 50% of the Preferred Stock is outstanding,
the
holder of the Preferred Stock shall be entitled to appoint two
members to
the Board of Directors of SG, which appointment shall be effectuated
within thirty (30) days after the Approval
Date.
|
| Legal Expenses: |
The
parties herein agree that each will pay their respective legal
expenses.
SG agrees that should ▇▇▇ not obtain the approval of the Secretary
of
Insurance of Barbados within the time stated above, SIG shall reimburse
Grupo Lakas for all reasonable out-of-pocket expenses incurred
by Grupo
Lakas and/or the Investor in respect of the transaction contemplated
hereby.
|
|
Facility
Activation
Fee:
|
SIG
agrees to pay a fee to Grupo Lakas or its designees of US$2,000,000
upon
receipt of regulatory approval from the Secretary of Insurance
in a manner
which is reasonably acceptable to SG, which fee will be paid within
ninety
(90) days of the Approval Date.
|
| Binding Agreement: |
The
parties acknowledge that is a binding agreement between them with
respect
to the subject matter of this Agreement. Promptly following the
execution
and delivery of this Agreement, the parties shall prepare and execute
the
definitive documentation for Investment and the other transactions
contemplated hereby. The definitive documentation shall contain
customary
provisions with respect to defaults (including cure provisions),
confidentiality and indemnification as are customary for transactions
of
this nature. Until such definitive documentation is executed and
delivered, this letter agreement shall be the sole embodiment of
the
understanding and agreement of the parties with respect to the
subject
matter hereof.
|
| Press Releases: |
SG
will not issue any press release relating to this Agreement or
the
transactions contemplated hereby without the prior written consent
of
Grupo Lakas, which consent shall not be unreasonably withheld or
delayed,
except that SG may make such disclosure as may be required by applicable
securities laws or regulations.
|
| Governing Law: |
This
Agreement shall be governed by and construed in accordance with
the laws
of the State of New York, without regard to any of its conflicts
of law
provisions which would result in the application of the substantive
laws
of another jurisdiction.
|
Please
indicate Grupo Lakas’s agreement to the foregoing, by executing and returning
the enclosed copy of this Agreement.
|
Very
truly yours,
Strategy
International Insurance Group, Inc.
By:
/s/
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
Name:
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
Title:
Chairman of the Board and Chief Executive Officer
Strategy
Holdings Company Limited
By:
/s/
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
Name:
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
Title:
Chairman of the Board and Chief Executive
Officer
|
Agreed
and Accepted this
25
day of
October 2005
Grupo
Lakas S.A.
By:
/s/
▇▇▇▇ ▇.
▇▇▇▇▇
Name:
▇▇▇▇ ▇. ▇▇▇▇▇
Title:
President