SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE ACT 1934
For the fiscal year ended December 31, 1995 Commission File Number 0-6964
20TH CENTURY INDUSTRIES
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1935264
- - ----------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
Suite 700, 6301 Owensmouth Avenue, Woodland Hills, California 91367
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 704-3700
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
-------------------------------
(Title of Class)
Series A Preferred Stock, $1,000 Stated Value
---------------------------------------------
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- -----
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the average high and low prices for shares of the
Company's Common Stock on March 12, 1996 as reported by the New York Stock
Exchange, was approximately $579,684,000.
On March 12, 1996, the registrant had outstanding 51,512,006 shares of common
stock, without par value, which is the Company's only class of common stock.
DOCUMENT INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement used in connection with the annual
meeting of shareholders of the registrant, to be held on May 21, 1996, are
incorporated herein by reference into Part III hereof.
Total Pages: 288
---
<PAGE> 1
20TH CENTURY INDUSTRIES
1995 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
------
Item 1. Business.................................... 3
Item 2. Properties.................................. 24
Item 3. Legal Proceedings........................... 24
Item 4. Submission of Matters to a Vote of Security
Holders............................... 25
PART II
-------
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters........... 26
Item 6. Selected Financial Data..................... 28
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 30
Item 8. Financial Statements and Supplementary
Data.................................. 40
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial
Disclosure............................ 68
PART III
--------
Item 10. Directors and Executive Officers of the
Registrant............................ 68
Item 11. Executive Compensation...................... 68
Item 12. Security Ownership of Certain Beneficial
Owners and Management................. 68
Item 13. Certain Relationships and Related
Transactions.......................... 68
PART IV
-------
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K................... 69
Signatures.................................. 78
PART I
------
<PAGE> 2
ITEM 1. BUSINESS
GENERAL
20th Century Industries is an insurance holding company incorporated in
California. Executive offices are located at Suite 700, 6301 Owensmouth
Avenue, Woodland Hills, California 91367. The telephone number of the
Corporate Office is (818) 704-3700. The term "Company", unless the context
requires otherwise, refers to 20th Century Industries and its wholly-owned
subsidiaries, 20th Century Insurance Company and 21st Century Casualty
Company, both of which are property and casualty insurance companies licensed
in California.
The Company directly markets and underwrites private passenger
automobile liability and physical damage and personal excess liability
insurance through 20th Century Insurance Company and similarly markets private
passenger automobile liability and physical damage insurance through 21st
Century Casualty Company. Prior to an order by the California Department of
Insurance in June 1994 (see below), the Company marketed and underwrote
homeowners insurance through 20th Century Insurance Company and condominium
insurance through 21st Century Casualty Company.
The Company had been issuing homeowners policies through 20th Century
Insurance Company since 1982 and condominium policies through 21st Century
Casualty Company since 1989; however, an earthquake occurred in the San
Fernando Valley area of California on January 17, 1994 resulting in
unprecedented losses to the Company. In order to reduce the Company's
earthquake exposure, it ceased writing new homeowners and condominium
insurance and ceased renewing earthquake coverage endorsements in accordance
with an order by the California Department of Insurance in June 1994. The
Company continues to renew existing homeowner and condominium policies,
excluding earthquake coverage. The last earthquake coverages were terminated
in July 1995, and the last homeowners and condominium coverages will be term-
inated in July 1997.
In 1988, the Company expanded its product line to include the Personal
Excess Liability Policy ("PELP") to complement its existing automobile and
homeowners programs. Policies in force totaled 10,400 at December 31, 1995.
<PAGE> 3
The Company limits its underwriting of private passenger automobile
insurance to those drivers defined by California statute as "Good Drivers."
The Company's automobile program has consistently and profitably (excluding
the Proposition 103 rollback and the earthquake impact in 1994) grown to
1,056,028 vehicles in force as of December 31, 1995. For a further discussion
regarding the impact of Proposition 103 and the earthquake losses, refer to
Notes 12 and 13 of the Notes to Consolidated Financial Statements.
The Company believes it has been able to grow profitably by (1) adhering
to its strategy of marketing to responsible prospects with relatively
uncomplicated insurance needs, (2) selling directly to the customer, (3)
generating cost efficiencies by centralizing and streamlining its marketing,
underwriting and customer service processing, and (4) providing a rate
structure that the Company believes is among the lowest in the market it
serves.
LIMITS OF INSURANCE COVERAGE
The Company offers private passenger automobile bodily injury liability,
property damage liability, medical payments, uninsured motorist,
comprehensive, and collision insurance coverages. Policies are written for a
six-month term. Various limits of liability are offered with maximum limits
of $500,000 per person and $500,000 per accident. The most frequent bodily
injury liability limits are $100,000 per person and $300,000 per accident.
The 20th Century Insurance Company homeowners program utilized a
replacement cost insurance policy which covered the dwelling and its contents.
Program rules provided for a minimum dwelling amount of $50,000 and a maximum
dwelling amount of $500,000. Personal liability coverage limits of $100,000,
$200,000 and $300,000 were available. The 21st Century Casualty Company
condominium program utilized a replacement cost policy which covered the
condominium unit owner's contents up to the policy limits. Contents coverage
limits were offered between a minimum of $25,000 and a maximum of $250,000.
Limits for personal liability coverage of $100,000, $200,000 and $300,000 were
also available. These programs are being discontinued as previously discussed.
The PELP is written in 20th Century Insurance Company and provides
liability coverage with a limit of $1,000,000 in excess of the underlying
automobile and homeowners liability coverage. Minimum underlying automobile
limits of $100,000 per person and $300,000 per accident are required while
homeowners must have $100,000 personal liability coverage. The underlying
automobile coverage must be written by the Company.
<PAGE> 4
MARKETING
The Company markets directly to the customer and writes its policies
without utilizing or engaging outside agents or brokers. The Company uses
direct mail, print and radio advertising to market its policies. The Company
continues to develop a substantial amount of its new business by referrals
from existing policyholders. During 1995, approximately 75% of 20th Century
new automobile business was obtained from referrals by current customers.
Automobile advertising outside the Los Angeles area resumed in the first
quarter, 1995, following a year in which advertising campaigns were cancelled
due to the January 17, 1994 Northridge Earthquake. Advertising in
metropolitan Los Angeles resumed in the third quarter. Requests for
automobile quotations in 1995 increased a substantial 28% over the prior year.
However, the conversion rate of new policies produced from these quotations
declined from historical averages largely as a result of a less competitive
pricing level following rate adjustments in October, 1994 and June, 1995.
The Company's marketing efforts continue to focus on the Sacramento, San
Francisco and San Jose areas in Northern California and the San Diego area in
Southern California. In 1995, approximately 30% of new business production
for the Company came from these areas.
The Company will expand its marketing efforts in 1996 in connection with
a new rating plan filed with the Department of Insurance in late 1995 which
became effective March 15, 1996.
UNDERWRITING
The rate regulatory system in California requires the prior approval of
rates. Within this regulatory framework, the Company establishes its
automobile premium rates based on actuarial analysis of its own historical
premium, loss and expense data. These data are compiled and analyzed to
establish overall rate levels as well as classification differentials. The
Company's rates are established at levels intended to generate underwriting
profits and vary for individual policies based on a number of rating charac-
teristics. These characteristics include driving record, number of years a
driver has been licensed, where the vehicle is garaged, annual mileage,
vehicle usage, value of the automobile and limits and deductibles selected.
<PAGE> 5
The Company's risk selection guidelines are designed for the issuing of
statutorily defined "Good Drivers". This definition includes all drivers who
have been licensed more than three years and have had no more than one
violation point count under criteria contained in the California Vehicle Code.
These criteria include a variety of moving violations and at fault accidents
over $500.
Individuals inquiring about purchasing automobile insurance are
preliminarily screened by the Company's marketing representatives, and
individuals who meet the "Good Driver" criteria are sent applications within
two days. The applications contain a preliminary quote based upon the
information received. Returned applications are reviewed by the underwriting
department and information, such as driving record, is verified.
The Company reviews many of its automobile policies at the time of
renewal and/or as changes occur during the policy period. The customer may
contact the Company to make changes, such as the addition or deletion of
drivers or vehicles, changes in the classification of drivers or usage of
vehicles, changes in garaging location and changes in coverages or limits.
Some mid-term changes may result in premium adjustments and some may result in
the policy being reunderwritten and eventually not renewed because of a
substantial increase in hazard.
SERVICING OF BUSINESS
The Company has successfully achieved operating savings and maintained
an extremely low expense ratio compared to industry norms because of its
efficient processing of all aspects of customer service. The Company
continues to design and implement effective systems, fully supported by
management information systems, to improve service and efficiency in the
marketing, policy service, underwriting and claims functions. As in the past,
the Company will increase its processing capabilities to meet growing workload
demands. The management information systems provide the information resources
and data processing capabilities which support the business and technical
needs of the Company. In addition to providing ongoing support, the systems
provide the strategic capabilities necessary to manage the Company's business.
The Company's electronic digital voice communications system facilitated more
than 27.7 million originations during 1995.
<PAGE> 6
CLAIMS
Claims operations include the receipt and analysis of initial loss
reports, assignment of legal counsel and management of the settlement process.
Whenever possible, physical damage claims are handled through the use of
Company drive-in claims and vehicle inspection centers. The claims management
staff administers the claims settlement process and directs the legal and
adjuster components of that process. Each claim is carefully analyzed to
provide for fair loss payments, to comply with the Company's contractual
obligations and to minimize loss adjustment expense. Liability and material
damage claims are handled by specialists in each area.
The Company utilizes its legal staff to handle all aspects of claims
litigation, including trial, from offices in Brea, Ontario, Long Beach and
Woodland Hills. Staff attorneys handle more than 75% of all lawsuits. Suits
which may involve a conflict of interest are assigned to outside counsel.
Recognizing the need to provide its customers with convenient, local
service, the Company has established ten Division Service Offices in Los
Angeles, Orange, San Diego and Ventura Counties. Each Division Service Office
is a full service center, staffed with between seventy-five and one-hundred
employees who provide complete claims services from initial investigation to
final conclusion. In addition, the Company has thirteen drive-in claims
facilities in Los Angeles, Orange, San Diego and Ventura Counties. Each
drive-in facility is staffed with between two and five employees.
The Company also makes extensive use of its Direct Repair Program
("DRP") to expedite the repair process. The program involves agreements
between the Company and approximately 95 independent repair facilities
throughout Northern and Southern California. The Company agrees to accept the
estimate for damages prepared by the repair facility without the vehicle being
inspected by staff adjusters. The facilities selected undergo a screening
process before being accepted, and the Company maintains an aggressive
reinspection program to assure quality results. The customer benefits by
getting the repair process started faster, and the repairs are guaranteed for
as long as they own the vehicle. The Company benefits by not incurring the
overhead expense of a larger staff of appraisers and negotiating rates it
believes are beneficial. Currently over 25% of all damage repairs are handled
using the DRP method.
<PAGE> 7
The Specialty Division is comprised of three vehicle inspection centers
located in Los Angeles and in Orange Counties. Each vehicle inspection center
is staffed with between fifteen and twenty employees who handle total losses,
total thefts and vehicles which are not driveable.
The Claims Services Division employs over 100 people who are responsible
for subrogation and medical payments claims for all programs and workers'
compensation claims arising under the homeowners policy.
The Homeowners Division processes all homeowners property claims on a
regional basis and is made up of three units of approximately twenty employees
each. The units are located in Monrovia, Santa Ana and Woodland Hills.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
The Company establishes reserves, or liabilities, for the future payment
of losses and loss adjustment expenses for claims, both reported and
unreported, which were incurred as of an accounting date. Such reserves are
estimates, as of a particular date, of the amount the Company will ultimately
pay for claims incurred as of the accounting date.
"Case basis" reserves are established for bodily injury liability and
uninsured motorist claims which are either expected to exceed $15,000 or are
older than two years. Such case reserves are based on the specific
circumstances, merits and relevant contractual policy provisions of the claim.
Case reserves for other bodily injury and uninsured motorists claims and
for all other coverages are established by an average case reserve value.
These average values are based on a periodic review of recent claims payments
for each coverage.
The Company supplements the case loss reserve estimates with loss
reserves estimated using actuarial methodologies. These reserves are designed
to provide for claims incurred but not reported to or recorded by the
Company as of the accounting date ("IBNR") and for changes over time in
individual case reserve estimates. The actuarial reserves are estimated using
actuarial techniques and the Company's own historical loss experience and are
reviewed each quarter.
<PAGE> 8
The claims and legal costs estimated to settle incurred claims are
included in reserves for loss adjustment expenses. These reserves are
determined using actuarial techniques and the Company's own historical
experience.
Anticipated effects of inflation are implicitly considered in the
actuarial estimates of liabilities for loss and loss adjustment expenses.
Amounts reported are estimates of the ultimate net costs of settlement
which are necessarily subject to the impact of future changes in economic and
social conditions. Management believes that, given the inherent variability
in any such estimates, the aggregate reserves are within a reasonable and
acceptable range of adequacy. The methods of making such estimates and for
establishing the resulting reserves are continually reviewed and updated and
any adjustments resulting therefrom are reflected in earnings currently.
The Company does not discount to present value loss and loss adjustment
expense reserves expected to be paid in future periods.
The following table provides a reconciliation of beginning and ending
reserves for losses and loss adjustment expenses, net of reinsurance
recoverables, for the indicated periods to the gross amounts reported in the
Company's consolidated financial statements.
<PAGE> 9
<TABLE>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Reserves for losses and loss adjustment
expenses, net of reinsurance recover-
ables on unpaid losses, at beginning
of year $ 755,101 $ 574,619 $554,034
Incurred losses and loss adjustment
expenses, net of reinsurance:
Provision for insured events in the
current year, net of reinsurance 891,066 1,912,799 930,437
Decrease in provision for
insured events in prior years,
net of reinsurance (39,464) (84,453) (62,986)
---------- ---------- --------
Total incurred losses and loss
adjustment expenses, net of
reinsurance 851,602 1,828,346 867,451
---------- ---------- --------
Payments, net of reinsurance:
Losses and loss adjustment expenses
attributable to insured events in
the current year, net of reinsurance 534,414 1,302,988 519,232
Losses and loss adjustment expenses
attributable to insured events in
prior years, net of reinsurance 519,969 344,876 327,634
---------- ---------- --------
Total payments, net of reinsurance 1,054,383 1,647,864 846,866
---------- ---------- --------
Reserves for losses and loss adjustment
expenses, net of reinsurance recover-
ables on unpaid losses, at year end 552,320 755,101 574,619
Reinsurance recoverables on unpaid
losses, at year end 32,514 1,142 2,871
---------- ---------- --------
Reserves for losses and loss adjust-
ment expenses, gross of reinsurance
recoverables on unpaid losses and loss
adjustment expenses, at year end $ 584,834 $ 756,243 $577,490
========== ========== ========
</TABLE>
As a result of changes in estimates of insured events in prior years,
the provision for losses and loss adjustment expenses decreased by
$39,464,000, $84,453,000 and $62,986,000 in 1995, 1994 and 1993, respectively,
due to a combination of improvements in the claims handling process,
unanticipated decreases in frequency and random fluctuations in severity. The
1995 decrease in provision for insured events of prior years is affected by a
$28 million net increase in losses related to the Northridge Earthquake.
<PAGE> 10
The following table reconciles the reserves reported in the Company's
consolidated financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") and those reported in the statements
filed with the California Department of Insurance in accordance with statutory
accounting practices ("SAP"). In 1994, the Company began to record estimated
recoveries for salvage and subrogation on a SAP basis. Prior to 1994, such
anticipated recoveries were recorded only on a GAAP basis.
DECEMBER 31,
-----------------------------------
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
Reserves reported on a
SAP basis $552,320 $755,101 $620,939
Adjustments:
Reinsurance recoverables on unpaid
losses and LAE 32,514 1,142 2,871
Estimated recovery for salvage
and subrogation - - (46,320)
-------- -------- --------
Reserves reported on a GAAP basis $584,834 $756,243 $577,490
======== ======== ========
The following table represents the development of GAAP balance sheet
reserves, net of reinsurance, for the years 1985 through 1995. The top line
of the table shows the reserves at the balance sheet date, net of reinsurance
recoverables on unpaid losses and loss adjustment expenses, for each of the
years indicated. Such net amounts represent estimated losses and loss
adjustment expenses unpaid as of the particular balance sheet date for claims
arising prior to the balance sheet date whether or not reported. The upper
portion of the table indicates the cumulative amounts paid as of successive
years with respect to that reserve liability. The lower portion of the table
indicates the re-estimated amount of the previously recorded reserves based on
experience as of the end of each succeeding year, including cumulative
payments made since the end of the respective year. The estimate changes as
more information becomes known about the frequency and severity of claims for
individual years. A redundancy (deficiency) exists when the original reserve
estimate is greater (less) than the re-estimated reserves at December 31, 1995.
Each amount in the following table includes the effects of all changes
in amounts for prior periods. The table does not present accident year or
policy year development data. Conditions and trends that have affected the
development of liabilities in the past may not necessarily occur in the
future. Therefore, it may not be appropriate to extrapolate future
deficiencies or redundancies based on the table.
<PAGE> 11
<TABLE>
AS OF DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for
losses and loss
adjustment exp.$144,972 $206,266 $297,853 $391,748 $472,010 $525,220 $547,098 $554,034 $574,619 $755,101 $552,320
Paid (cumulative)
as of:
One year later 102,660 138,944 180,516 197,555 242,757 300,707 320,264 327,634 344,876 519,969
Two years later 139,652 187,448 238,947 271,163 328,606 391,970 401,019 403,434 423,713
Three years later 158,555 211,477 272,955 310,757 366,369 420,853 426,412 425,671
Four years later 168,627 226,550 289,901 326,495 377,980 429,791 433,642
Five years later 174,716 233,287 296,310 330,014 381,507 431,791
Six years later 176,744 235,367 297,764 330,879 382,230
Seven years later 176,947 235,510 298,098 331,433
Eight years later 176,968 235,515 298,649
Nine years later 176,995 235,813
Ten years later 176,895
Reserves re-
estimated as of:
One year later 156,341 227,848 294,504 357,220 402,706 473,974 473,209 491,048 490,166 715,637
Two years later 171,218 230,412 302,991 342,365 397,847 449,348 461,343 447,880 465,036
Three years later 173,717 237,587 304,925 340,760 389,559 442,508 440,198 438,726
Four years later 178,400 239,096 302,661 333,432 384,948 433,408 437,350
Five years later 178,651 237,528 298,764 332,100 382,331 432,370
Six years later 177,732 236,026 298,603 331,191 381,996
Seven years later 177,104 235,819 298,319 331,274
Eight years later 177,088 235,698 298,661
Nine years later 177,038 235,842
Ten years later 177,010
Redundancy
(Deficiency) $(32,038) $(29,576) $ (808) $ 60,474 $90,014 $92,850 $109,748 $115,308 $109,583 $ 39,464
</TABLE>
<PAGE> 12
Reconciliations for the indicated periods between (1) the net reserves
for losses and loss adjustment expenses at year end (the original reserve
estimate in the ten-year table on the previous page) and the related gross
reserves for losses and loss adjustment expenses on the balance sheet at year
end and (2) the net re-estimated reserves and the related gross re-estimated
reserves as of the end of the latest re-estimation period are as follows:
1994 1995
---- ----
(AMOUNTS IN THOUSANDS)
Gross Liability - End of Year $756,243 $584,834
Reinsurance Recoverable 1,142 32,514
Net Liability - End of Year 755,101 552,320
Gross Re-Estimated Liability - Latest $719,716
Re-Estimated Recoverable - Latest 4,079
Net Re-Estimated Liability - Latest 715,637
Gross Cumulative Redundancy (Deficiency) $ 36,527
OPERATING RATIOS
Loss and Expense Ratios
Loss and expense ratios are traditionally used to interpret the under-
writing experience of property and casualty insurance companies. Losses and
loss adjustment expenses are stated as a percentage of premiums earned as
losses may occur over the life of a particular insurance policy. Underwriting
expenses are stated as a percentage of premiums written for statutory
accounting practices and as a percentage of earned premiums for generally
accepted accounting principles purposes. Underwriting profit margins are a
reflection of the extent to which the combined loss and expense ratios are
less than 100%. The loss ratios, expense ratios (excluding loan interest and
fees), and combined ratios for the Company's subsidiaries, on a SAP and GAAP
basis, are shown in the following tables.
<PAGE> 13
YEARS ENDED DECEMBER 31,
--------------------------------------------
Companywide - SAP 1995 1994 1993 1992 1991
- - ----------------- ---- ---- ---- ---- ----
Loss Ratio 88.7% 173.0% 88.0% 85.9% 88.2%
Expense Ratio 8.7 9.9 10.5 10.0 9.7
----- ----- ---- ---- ----
Combined Ratio 97.4% 182.9% 98.5% 95.9% 97.9%
===== ===== ==== ==== ====
YEARS ENDED DECEMBER 31,
-------------------------------------------
Companywide - GAAP 1995 1994 1993 1992 1991
- - ------------------ ---- ---- ---- ---- ----
Loss Ratio 88.4% 176.8% 87.6% 85.3% 86.0%
Expense Ratio 9.0 9.7 10.7 10.1 10.0
----- ----- ---- ---- ----
Combined Ratio 97.4% 186.5% 98.3% 95.4% 96.0%
===== ===== ==== ==== ====
The Northridge Earthquake contributed 85.1 and 2.9 percentage points on
both a GAAP and SAP basis to the 1994 and 1995 combined ratios, respectively.
Premiums to Surplus Ratio
The following table shows, for the periods indicated, the Company's
statutory ratios of net premiums written to policyholders' surplus. Since
each property and casualty insurance company has different capital needs, an
"appropriate" ratio of net premiums written to policyholders' surplus for one
company may not be the same as for another company. While there is no
statutory requirement applicable to the Company which establishes a
permissible net premium to surplus ratio, guidelines established by the
National Association of Insurance Commissioners provide that such ratio should
generally be no greater than 3 to 1 on a statutory basis.
The Company's 1994 net premiums written to policyholders' surplus ratio
was adversely affected by the Northridge Earthquake. The Company worked with
the California Department of Insurance to improve its surplus levels through
1994 and 1995. This resulted in bringing the ratio back down below 3 to 1 for
1995. For further discussion, see Management's Discussion and Analysis -
Financial Condition.
<PAGE> 14
<TABLE>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
SAP 1995 1994 1993 1992 1991
--- ---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT RATIO)
<S> <C> <C> <C> <C> <C>
Net premiums written $958,614 $1,032,737 $1,021,902 $918,443 $833,194
Policyholders' surplus $358,474 $ 207,018 $ 582,176 $500,619 $406,655
Ratio 2.7:1 4.9:1 1.8:1 1.8:1 2.0:1
</TABLE>
INVESTMENTS AND INVESTMENT RESULTS
The Company's investment guidelines emphasize buying high-quality fixed
income investments. Because of the net operating loss ("NOL")
carryforwards for tax purposes which resulted from the 1994 Northridge
Earthquake, the Company sold all of its appreciated tax-exempt fixed
maturity investments to generate realized gains and used some of the
proceeds to pay losses. The remainder of the proceeds were re-invested in
taxable government and corporate fixed maturity investments and commercial
paper. Until the NOL is substantially utilized, a portion of the Company's
investable cash will go into taxable securities. While the Company's
policy is generally to hold its investments until maturity, its ongoing
monitoring and evaluation of investment holdings and market conditions may,
from time to time, result in selected sales of investments prior to
maturity. The Company currently has designated all of its portfolio as
"available-for-sale". See Note 1 of the Notes to Consolidated Financial
Statements, "Investments."
<PAGE> 15
The following table summarizes investment results for the periods and as
of the dates shown:
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average invested assets
(at amortized cost;
includes cash and
cash equivalents) $1,193,202 $1,259,871 $1,384,926 $1,273,168 $1,161,816
Net investment income:
Before income taxes 81,658 84,761 97,574 94,255 90,043
After income taxes 56,597 68,629 87,915 85,442 79,706
Average annual return
on investments:
Before income taxes 6.8% 6.7% 7.1% 7.4% 7.8%
After income taxes 4.7% 5.4% 6.3% 6.7% 6.9%
Net realized investment
gains after income taxes 6,634 40,010 10,874 7,589 6,030
Net increase (decrease)
in unrealized gains
on fixed maturity
investments after
income taxes 73,286 (134,660) 39,863 12,832 24,838
</TABLE>
The investment portfolio decreased substantially in 1994 as a result of
the sale of investments to generate realized capital gains to offset the
severe losses caused by the Northridge Earthquake. The lower return on
investments is a result of selling older securities with higher yields and
re-investing in taxable securities with lower current yields. In addition,
available cash was invested in commercial paper which yielded a lower
interest rate than that earned on the fixed maturity investments portfolio.
<PAGE> 16
The following table sets forth the composition of the investments and
cash and cash equivalents of the Company at the dates indicated.
<TABLE>
DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------
(AMOUNTS IN THOUSANDS)
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
Type of Security COST VALUE COST VALUE COST VALUE
- - ---------------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury Secur-
ities and obliga-
tions of U.S. Govern-
ment corporations
and agencies $ 68,283 $ 69,711 $ 240,690 $ 232,678 $ 6,258 $ 6,777
Obligations of
states and politi-
cal sub-divisions 219,026 222,844 292,723 261,614 1,273,231 1,399,173
Public utilities 182,828 191,224 147,241 139,173 11,060 11,935
Corporate secur-
ities 604,884 641,769 322,177 307,941 131,467 149,876
---------- ---------- ---------- ---------- --------- ---------
Total Fixed Maturities 1,075,021 1,125,548 1,002,831 941,406 1,422,016 1,567,761
Common Stock 539 1,564 539 768 - -
Nonredeemable
Preferred Stock - - - - 539 539
---------- ---------- ---------- ---------- ---------- ---------
Total Investments 1,075,560 1,127,112 1,003,370 942,174 1,422,555 1,568,300
---------- ---------- ---------- ---------- ---------- ----------
Cash and Cash
Equivalents 50,609 50,609 249,834 249,834 17,894 17,894
---------- ---------- ---------- ---------- ---------- ----------
Total Investments
and Cash and Cash
Equivalents $1,126,169 $1,177,721 $1,253,204 $1,192,008 $1,440,449 $1,586,194
========== ========== ========== ========== ========== ==========
</TABLE>
In 1994, the Company implemented Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". For a further discussion of this standard, refer to Note 1 of
the Notes to Consolidated Financial Statements, "Investments".
<PAGE> 17
COMPETITION
The property and casualty insurance market is highly competitive and is
comprised of a large number of well capitalized companies, many of which
operate in a number of states and offer a wide variety of products. Several
of these competitors are larger and have greater financial resources than the
Company. Based on published statistics, the Company is the fifth largest
writer of private passenger automobile insurance in California.
While the Company competes with all private passenger automobile
insurers in the state, the Company is in more direct competition with other
major writers which concentrate on the larger good driver market than with
those which specialize in "non-standard", "high-risk" or other niche market
segments.
The Company's marketing and underwriting strategy is to appeal to
careful and responsible drivers who are willing to deal directly with the
Company in order to save a significant amount of money on their insurance
premium. As a result, the Company is able to maintain policy renewal rates
above the industry average.
By selling its products directly to the insured, the Company has
eliminated agent and broker commissions. The Company believes it provides the
same services as agents, but at a reduced cost. The Company also relies
heavily on its centralization of operations and its computerized information
services system to efficiently service its policyholders and claimants.
Consequently, the Company consistently operates with one of the lowest
underwriting expense ratios in the industry and is able to maintain its rates
among the lowest in the market it serves while still providing quality service
to its customers.
REINSURANCE
The Company purchases reinsurance to reduce its loss in the event of a
catastrophe or from infrequent, large individual claims. A reinsurance trans-
action occurs when the Company transfers or cedes a portion of its exposure
from direct business written to a reinsurer which assumes that exposure for a
premium. The reinsurance cession does not legally discharge the Company from
its liability for a covered primary loss, but provides for reimbursement from
the reinsurer to the Company for the ceded portion.
<PAGE> 18
The Company reviews the financial condition of its reinsurers with its
reinsurance intermediary at annual treaty renewal. Participants with
financial difficulties, if any, can be removed at that time. The Company is
presently not aware of any of its reinsurers experiencing financial
difficulties.
In connection with an investment agreement in 1995 with American
International Group, Inc. ("AIG"), each of the Company's insurance
subsidiaries entered into a five-year quota share reinsurance agreement with
an AIG affiliate covering all ongoing lines of business. Under this contract,
10% of each subsidiary's premiums earned and losses incurred in connection
with policies incepted during the period January 1, 1995 through December 31,
1999 are ceded. At the end of the five-year period, the AIG affiliate may
elect to renew the agreement annually for four years at declining coverage
percentages. A ceding commission of 10.8% was earned by the insurance
subsidiaries for 1995 and, thereafter, a commission is paid at a rate equal to
their actual underwriting expense ratio.
The Company maintains a catastrophe reinsurance program to provide
coverage through the run-off period of its remaining homeowners policies. The
program currently in place provides coverage for the period from July 1, 1995
through June 30, 1996 for a total annual premium of approximately $13 million.
Coverage under these treaties is provided by a number of domestic, foreign and
London market companies in two layers as follows:
Catastrophe Company Reinsurance
Loss Layer Retention Amount
----------------- ----------- -----------
first $ 10,000,000 $ 7,750,000 $ 2,250,000
next $ 90,000,000 $ 4,500,000 $ 85,500,000
The Company has a homeowners' excess-of-loss reinsurance treaty with
General Reinsurance Corporation. In this excess treaty, the reinsurer's limit
is $650,000 in excess of the Company's retention of $300,000 per risk, subject
to a maximum reinsurer's limit of $1,300,000 per occurrence. This treaty will
be cancelled as of May 1, 1996.
The Company has a quota share reinsurance treaty for the PELP whereby
60% of premiums and losses are ceded to the reinsurer.
<PAGE> 19
REGULATION
The Company and its subsidiaries are subject to regulation and
supervision by the California Department of Insurance ("DOI") which has broad
regulatory, supervisory and administrative powers, related primarily to:
1. licensing of insurance companies and agents,
2. prior approval of rates, rules, and forms,
3. standards of solvency,
4. nature of, and limitations on, insurance company investments,
5. periodic examination of the affairs of insurers,
6. annual and other periodic reports of the financial condition and
results of operations of insurers,
7. the establishment of accounting rules regarding loss and loss
adjustment expense and other reserves, and
8. the issuance of securities by insurers.
Regulation by the DOI is designed principally for the benefit of
policyholders. The DOI conducts periodic examinations of the Company's
insurance subsidiaries.
In January 1995, the Company and the DOI reached a settlement concerning
the Company's Proposition 103 rate rollback liability, whereby $78 million was
allocated for customer refunds consistent with rollback obligations estab-
lished through a DOI administrative hearing during 1992. The Company paid a
total of $46 million to customers in 1995 for Proposition 103 rebates and sub-
sequently reduced its liability by $32 million due to the ultimate level of
claims costs incurred in connection with the 1994 Northridge Earthquake, in
accordance with the settlement. The Company has no remaining liability for
rollback rebates.
The operations of the Company are governed by the laws of the State of
California and changes in those laws can affect the revenues and expenses of
the Company. The Company is a member of industry organizations which may
advocate legislative and initiative proposals and which provide financial sup-
port to officeholders and candidates for California statewide public offices.
The Company also makes financial contributions to those officeholders and can-
didates who, in the opinion of management, have a favorable understanding of
the needs of the property and casualty insurance industry. In 1995, these
<PAGE> 20
contributions were approximately $56,000. The Company believes that such con-
tributions are important to the future of the property and casualty insurance
industry in California and intends to continue to make such contributions as
it determines to be appropriate.
PROPOSED LEGISLATION
The State of California Assembly and Senate have proposed several bills
over the past year affecting the automobile insurance industry.
Senate Bill (SB) 1433 would amend Proposition 103 by codifying certain
auto rating factor regulations. The bill faces strong opposition by consumer
groups and would require a two-thirds majority in both houses to pass. This
bill is pending for the 1996 legislative session.
Two bills were introduced which limited insurers' exposure to drivers
convicted of driving under the influence ("DUI") or driving while uninsured.
AB 432 prohibits the recovery of non-economic losses suffered by persons con-
victed of DUI or driving while uninsured. This bill is pending the 1996 ses-
sion. SB 905 places a seven-year restriction on Good Driver Discounts for
persons convicted of DUI. This bill was signed into law and took effect
January 1, 1996.
Two bills introduced in 1994 were still pending as of the end of the
1995 legislative session. SB 49 would make certain changes to the Financial
Responsibility law and impose arbitration requirements for specific third-
party bodily injury claims. AB 607 contains a proposal for a no-fault system
for the compensation of automobile injury claims.
At this time, the likelihood of passage of any pending legislative
proposals or their potential for future legal challenges, amendments or
agreement or veto by the state's governor is uncertain.
HOLDING COMPANY ACT
The Company's subsidiaries are subject to regulation by the California
Department of Insurance pursuant to the provisions of the California Insurance
Holding Company System Regulatory Act (the "Holding Company Act"). The DOI
may examine the affairs of the subsidiaries at any time. Certain transactions
<PAGE> 21
defined to be of an "extraordinary" nature may not be effected without the
prior approval of the California Department of Insurance. Such transactions
include, but are not limited to, sales, purchases, exchanges, loans and exten-
sions of credit, and investments made within the immediately preceding 12
months involving in the net aggregate, more than the lesser of 5% of the Com-
pany's admitted assets or surplus as to policyholders, as of the preceding
December 31. An extraordinary transaction also includes a dividend which,
together with other dividends or distributions made within the preceding
twelve months, exceeds the greater of 10% of the insurance company's
policyholders' surplus as of the preceding December 31 or the insurance com-
pany's net income for the preceding calendar year. The California code fur-
ther provides that property and casualty insurers may pay dividends only from
earned surplus. The Holding Company Act generally restricts the ability of
any one person to acquire more than 10% of the Company's voting securities
without prior regulatory approval.
ASSIGNED RISKS
Automobile liability insurers in California are required to participate
in the California Automobile Assigned Risk Plan ("CAARP"). Each company is
required to write liability insurance coverages for drivers applying to CAARP
for placement as "assigned risks" because their driving records or other
relevant characteristics make them difficult to insure in the voluntary
market. The number of assignments for each insurer is based on the total
applications received by the plan and the insurer's market share.
While the number of applicants to CAARP fluctuated in both directions
between 1993 and 1995, the number of CAARP policies in force for the Company
steadily increased from 6,427 in 1993 to 7,285 and 8,204 in 1994 and 1995,
respectively.
In June 1995, CAARP increased its rates 5.2%. The increased rate level,
while not making the remaining assigned risk business profitable, did, at
least, cause the business to be less unprofitable. The Company experienced
combined loss and expense ratios of 126.9%, 137.0% and 134.2% for the years
ended December 31, 1995, 1994 and 1993, respectively, for this business. The
future effect of the assigned risk plan on the Company cannot be predicted
because it depends on the ability of CAARP to achieve and maintain an adequate
rate level.
<PAGE> 22
EMPLOYEES
The Company had approximately 2,300 full and part-time employees at
December 31, 1995. The Company provides medical, pension and 401(k) savings
plan benefits to its employees according to the provisions of each plan. The
Company believes that its relationship with its employees is excellent, and
employee turnover generally is very low.
<PAGE> 23
ITEM 2. PROPERTIES
The Company leases its Home Office building in Woodland Hills, Califor-
nia, which contains approximately 234,000 square feet of leasable office
space. The lease was amended in October 1994 which extended the lease term
until November 1999. The lease may be renewed for two consecutive five-year
periods.
The Company also leases office space in nineteen other locations
throughout Southern California. The Company anticipates no difficulty in
extending these leases or obtaining comparable office facilities in comparable
locations.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is named as a defendant in
lawsuits related to claims issues. Currently included in this class of liti-
gation are several actions that arise out of the Northridge Earthquake. It is
believed that a majority of these claims were filed to protect statutes of
limitations. Some of the actions request exemplary or punitive damages.
These actions are vigorously defended unless a reasonable settlement appears
appropriate.
On January 27, 1995, the California Department of Insurance issued an
order which addressed the issue of the Company's rebate liability associated
with Proposition 103. The order, based upon a stipulated agreement with the
Company, provided for certain refunds to policyholders, immediate capital
additions to improve the Company's financial strength, and financial resources
for possible increases in earthquake claims. Responding to a written demand
by a consumer group, a hearing was held by the DOI with a decision rendered on
August 29, 1995 that the order was in the public interest. We believe this
case, affirmed by the Superior Court on January 12, 1996, is concluded and the
time to appeal has run. For further details regarding the order, see Note 12
of the Notes to Consolidated Financial Statements.
<PAGE> 24
On January 16, 1996, a shareholder derivative lawsuit was filed in Los
Angeles Superior Court against various current and prior directors and
officers of the Company. The Company is named in the lawsuit as a nominal
defendant only. Legal counsel has been retained for both the Company and for
the directors and officers and is investigating the allegations contained in
the Complaint.
While any litigation has an element of uncertainty, the Company does not
believe that the ultimate outcome of these pending actions will have a
material effect on its consolidated financial condition or results of its
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
None.
<PAGE> 25
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) PRICE RANGE OF COMMON STOCK
The stock is currently traded on the New York Stock Exchange under the
trading symbol "TW." The following table sets forth the high and low bid
prices for the common stock for the indicated periods.
High Low
---- ---
1995
Fourth Quarter 21-1/4 15-1/4
Third Quarter 16-3/8 11-3/8
Second Quarter 13-1/4 10-3/4
First Quarter 13-7/8 10-3/8
1994
Fourth Quarter 12-7/8 9-5/8
Third Quarter 17-3/8 8-3/4
Second Quarter 19-3/8 14-1/4
First Quarter 28-1/8 18-7/8
<PAGE> 26
(b) HOLDERS OF COMMON STOCK
The approximate number of record holders of the Common Stock on Decem-
ber 31, 1995 was 1,225.
(c) DIVIDENDS
The Company paid regular cash dividends on its Common Stock each year
since 1973 through the second quarter of 1994. Dividends were paid at the
rate of $.16 per share for each of the first two quarters of 1994 and $.16 per
share per quarter during 1993. Due to the adverse impact of the Northridge
Earthquake on the financial strength of the Company, no dividends were paid in
the last two quarters of 1994 and no dividends were paid on common shares in
1995. 20th Century Industries paid cash dividends on preferred shares of
$14,623,000 and in-kind dividends of $4,950,000 in 1995.
As a holding company, the Company is dependent upon dividends from its
subsidiaries to pay dividends to its stockholders. The Company's subsidiaries
are subject to California laws that restrict their ability to distribute
dividends. California law permits a casualty insurance company to pay
dividends, within any 12-month period, without any prior regulatory approval,
in an amount up to the greater of 10% of policyholders' surplus as of the
preceding December 31 or the insurance company's net income for the calendar
year preceding the date the dividend is paid. The California insurance code
further provides that property and casualty insurers may pay dividends only
from earned surplus. Under these rules, 20th Century Insurance Company and
21st Century Casualty Company were unable to pay dividends to the Company dur-
ing 1995 without regulatory approval. The Company expects to generate positive
earned surplus early in 1996 and resume normal dividends from the insurance
subsidiaries to service the debt and preferred dividend requirements.
<PAGE> 27
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of
the end of, each of the years in the five-year period ended December 31, 1995
are derived from the consolidated financial statements of 20th Century
Industries and its subsidiaries. The consolidated financial statements as of
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995 are included elsewhere in this Form 10-K. All dollar
amounts set forth in the following tables are in thousands, except per share
data.
<TABLE>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operations Data:
<S> <C> <C> <C> <C> <C>
Net premiums earned $ 963,797 $1,034,003 $ 989,712 $ 896,353 $810,636
Net investment income 81,658 84,761 97,574 94,255 90,043
Realized investment gains 10,207 61,554 16,729 11,498 9,137
---------- ---------- ---------- ---------- --------
Total Revenues 1,055,662 1,180,318 1,104,015 1,002,106 909,816
---------- ---------- ---------- ---------- --------
Net losses and loss
adjustment expenses 851,602 1,828,346 867,451 764,374 697,521
Policy acquisition costs 38,647 43,409 48,375 41,996 38,372
Other operating expenses 48,311 57,198 57,769 48,486 42,577
Proposition 103 expense - 29,124 3,474 3,474 6,195
Loan interest and
fees expense 15,897 8,348 - - 361
---------- ---------- ---------- ---------- --------
Total Expenses 954,457 1,966,425 977,069 858,330 785,026
---------- ---------- ---------- ---------- --------
Income (loss) before
federal income taxes
and cumulative effect
of change in accounting
for income taxes 101,205 (786,107) 126,946 143,776 124,790
Federal income taxes
(benefit) 31,575 (288,087) 18,350 26,309 21,253
---------- ---------- --------- --------- --------
Income (loss) before cumu-
lative effect of change
in accounting for
income taxes 69,630 (498,020) 108,596 117,467 103,537
Cumulative effect of change
in accounting for income
taxes - - 3,959 - -
---------- ---------- --------- --------- --------
Net Income (Loss) $ 69,630 $ (498,020) $ 112,555 $ 117,467 $103,537
========== ========== ========= ========= ========
</TABLE>
<PAGE> 28
<TABLE>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
PRIMARY -
Before cumulative effect
of change in accounting
for income taxes $ .88 $ (9.69) $ 2.11 $ 2.29 $ 2.02
Cumulative effect of
change in accounting
for income taxes - - .08 - -
--------- --------- -------- -------- --------
Net Income (Loss) $ .88 $ (9.69) $ 2.19 $ 2.29 $ 2.02
========= ========= ======== ======== ========
FULLY DILUTED -
Net Income (Loss) $ .88 $ (9.69)
========= =========
Dividends paid per
common share $ - $ .32 $ .64 $ .52 $ .42
========= ========= ========= ======== ========
</TABLE>
<TABLE>
DECEMBER 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total investments $1,127,112 $ 942,174 $1,422,555 $1,307,031 $1,200,067
Total assets 1,608,886 1,702,810 1,644,670 1,498,330 1,372,628
Unpaid losses and loss
adjustment expenses 584,834 756,243 577,490 554,541 548,377
Unearned premiums 288,927 298,519 299,941 267,556 245,290
Bank loan payable 175,000 160,000 - - -
Claims checks payable 49,306 70,725 41,535 39,329 36,884
Stockholders' equity 466,585 317,944 655,209 575,674 484,578
Book value per common share $ 4.69 $ 2.29 $ 12.74 $ 11.19 $ 9.43
</TABLE>
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INDUSTRY OVERVIEW AND COMPANY STRATEGY
The property and casualty insurance business has a history of fluctuat-
ing results and underwriting profitability and has tended to vary in cycles.
Insurer profitability is influenced by many factors, including price competi-
tion, claim frequency and severity, crime rates, natural disasters, economic
conditions, interest rates, state regulations and laws, changes in the legal
system and court decisions. Insurance industry price levels tend to change
with underwriting results. As companies experience underwriting losses, and
therefore reduced surplus levels, prices tend to increase and competition
decreases. As underwriting results improve, and surplus levels increase,
prices tend to decrease and competition increases. One of the challenging and
unique features of the property and casualty insurance business is that its
products must be priced before costs are fully known because premiums are
charged before claims are incurred.
The Company markets its products to individual insureds to meet their
personal insurance needs. The Company has no commercial risks. Prior to
1994, the Company actively marketed private passenger automobile, homeowners,
condominium, earthquake and personal excess liability insurance in California.
The Company's primary focus has been private passenger automobile insurance
since its inception. Private passenger automobile insurance has always
accounted for over 90% of premiums written by the Company.
The Northridge, California Earthquake which occurred on January 17, 1994
("Northridge Earthquake") resulted in unprecedented losses for the Company.
In order to reduce future earthquake exposure, the Company ceased writing new
homeowner and condominium insurance and renewing earthquake insurance in
accordance with an order received from the California Department of Insurance
("DOI") in June 1994. The last earthquake coverages were terminated in July
1995. In accordance with the order, the Company will continue to renew
existing homeowner and condominium policies (without earthquake coverage)
until June 1996. The last homeowners and condominium coverages will be term-
inated in July 1997.
<PAGE> 30
Financial Condition
The Northridge Earthquake significantly affected the financial condition
of the Company and its operating results for the entire year of 1994 and, to a
lesser extent, 1995.
The Company experienced a reduction in its historical pattern of growth,
ceased all advertising and marketing in 1994 for new policies, and suspended
its quarterly dividend on common shares for the third and fourth quarters of
fiscal 1994 and all of 1995. As of December 31, 1995, total estimated gross
losses and allocated loss adjustment expenses from the Northridge Earthquake
were $1 billion.
During 1994, when the magnitude of the Company's losses became evident,
the DOI imposed certain requirements on the Company and its insurance sub-
sidiaries designed to reduce further exposure to earthquake losses and to
strengthen the financial position of the Company. The Company's insurance
subsidiaries were ordered to stop writing new homeowners and condominium
policies and to non-renew all existing earthquake coverages. The DOI also
granted the Company a 17% increase in homeowners premium rates and a 6%
increase in automobile premium rates.
In June 1994, the Company obtained a bank loan of $175 million and in
December 1994 entered into an Investment and Strategic Alliance Agreement
("Investment Agreement") with American International Group, Inc. ("AIG").
Under the terms of the Investment Agreement, AIG provided the Company with a
total of $216 million of equity capital in exchange for 200,000 shares of
convertible preferred stock and certain preferential stock warrants. As
a part of the agreement, each of the Company's insurance subsidiaries and
an AIG affiliate have entered into a five-year quota share reinsurance agree-
ment for 10% of each subsidiaries' policies incepting on and after January 1,
1995. After the initial term, the AIG affiliate may renew the agreement
annually for four years at declining rates of coverage. In addition, the
Company and AIG have formed a joint venture to market personal automobile in-
surance in Arizona which is expected to become operational in the second quar-
ter of 1996.
In January 1995, the Company reached a settlement of rebate liabilities
associated with Proposition 103 with the DOI in the amount of $78 million.
The Company was to refund $46 million to customers specified in the agreement
as soon as practicable with the remaining $32 million set aside for additional
<PAGE> 31
customer refunds conditioned on the ultimate level of claim costs associated
with the 1994 Northridge Earthquake. The settlement required the Company to
withdraw its request for a hearing before the United States Supreme Court to
appeal the California Supreme Court decision on Proposition 103.
In addition, the settlement required the Company to obtain new capital
of $50 million and contribute the funds to the surplus of the insurance sub-
sidiaries, consisting of $30 million by March 31, 1995 and $20 million by
December 31, 1995. The $30 million capital contribution was made on March 30,
1995. The Company has been informed that the $20 million capital requirement
has been waived by the DOI due to the significant recovery in statutory
surplus in 1995.
As of December 31, 1995, the Company's insurance subsidiaries had a com-
bined statutory surplus of $358,474,000, a ratio of 2.7:1 of net written
premium to surplus and was in compliance with DOI requirements and its loan
covenants. The 1995 underwriting results for auto business were favorable and
demonstrated a return to profitability and stability.
With the statutory surplus of the Company restored to levels within
regulatory norms as a result of the capital infusion by AIG in December 1994
and operating profits in 1995, the Company filed for an auto rate decrease of
3.15% in December 1995. These new rates have been approved and are effective
March 15, 1996. The Company expects the new rates combined with an aggressive
marketing and advertising campaign to restore unit growth in the automobile
line. Because the Company is still subject to the order issued by the DOI in
June 1994, the homeowners and condominium policies will have to be non-renewed
starting July 1996 and the Company will be fully withdrawn from this line in
July 1997.
RESULTS OF OPERATIONS
Units in Force
Units in force for the Company's insurance programs as of December 31
were as follows:
1995 1994 1993
---- ---- ----
Units in Force
Private Passenger Automobile
(number of vehicles) 1,056,028 1,132,605 1,130,446
Homeowner and Condominium
(number of policies) 174,968 206,167 233,436
Personal Excess Liability
(number of policies) 10,400 11,072 11,350
--------- --------- ---------
Total 1,241,396 1,349,844 1,375,232
========= ========= =========
<PAGE> 32
The Company had total unit growth of over 10% on average for the
ten years prior to 1994. The Northridge Earthquake significantly reduced
statutory surplus and thus required the Company to reduce its insured
exposures. As a result, the Company ceased all advertising and marketing for
new policies in the first quarter of 1994. In June 1994, the DOI ordered the
Company to stop writing all new homeowners and condominium policies and to
non-renew all existing earthquake coverages. The DOI also granted the Company
a 17% increase in homeowners premium rates effective August 1, 1994 and a 6%
increase in automobile premium rates effective October 7, 1994. While improv-
ing profitability, the effect of these actions was to cause a decline in units
in force which carried into 1995. A further automobile rate increase of 3.65%
was effective June 15, 1995, causing the decline in units to continue in 1995.
Total units declined from December 31, 1993 to December 31, 1995 9.7% (6.6%
for automobile and 25.0% for homeowners and condominium).
Underwriting Results
Premium revenue and underwriting results for the Company's insurance
programs were as follows:
Years Ended DECEMBER 31,
------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
Gross Premiums Written
Automobile $ 991,969 $ 991,268 $ 932,497
Homeowner and Condominium 69,847 85,088 99,060
Personal Excess Liability 2,146 2,307 2,338
---------- ---------- ----------
Total $1,063,962 $1,078,663 $1,033,895
========== ========== ==========
Net Premiums Earned
Automobile $ 920,560 $ 981,893 $ 908,523
Homeowner and Condominium 42,394 51,166 80,630
Personal Excess Liability 843 944 559
---------- ---------- ----------
Total $ 963,797 $1,034,003 $ 989,712
========== ========== ==========
Underwriting Profit (Loss)
Automobile $ 103,744 $ (45,850) $ 23,800
Homeowner and Condominium (78,976) (879,221) (11,641)
Personal Excess Liability 469 997 484
---------- ---------- ----------
Total $ 25,237 $ (924,074) $ 12,643
========== ========== ==========
<PAGE> 33
Automobile
Automobile insurance is the primary line of business written by the Com-
pany and has been consistently profitable. Excluding earthquake-related
claims and expenses, the earthquake reinsurance reinstatement premium and the
Proposition 103 rollback, the Company would have realized an automobile
underwriting profit of $73.8 million in 1995 and $10.1 million in 1994.
Because of the cessation of advertising in 1994 and some loss of auto business
from not offering new homeowner business or earthquake coverage, total
automobile units in force for 1995 decreased from 1994 by 6.8% compared to a
slight increase of .2% in 1994. Gross written premiums in 1995 remained level
despite the decrease in units in force, primarily as a result of the rate
increases effective during the year. Net earned premiums decreased 6.2% in
1995 compared to an increase of 8.1% in 1994, reflecting the impact of the
quota share treaty with an AIG affiliate effective January 1, 1995 which ceded
10% of premiums and losses on a net written basis.
The voluntary automobile insurance business written by the Company is
comprised of "Good Drivers", as defined by California statute. While the
majority of this business would have been acceptable to the Company before
Proposition 103, those who had no prior insurance would have been written at a
higher rate level than those who had been insured prior to being written by
the Company. The underwriting losses produced by this segment of the market
suggests that the former differential was appropriate. These drivers have
produced automobile underwriting losses of $26,286,000 in 1995, compared to
$31,134,000 in 1994 and $16,877,000 in 1993.
Overall automobile underwriting results are also affected by assigned
risk units in force. Such units have increased steadily since 1993.
Underwriting losses for assigned risk business were $3,082,000 in 1995, com-
pared to $3,800,000 in 1994 and $3,031,000 in 1993. A 5.2% rate increase for
assigned risk business was implemented by the DOI in June 1995.
Homeowner and Condominium
As ordered by the DOI, the Company no longer writes new homeowners or
condominium policies or earthquake coverage endorsements. Additionally, the
Company will continue to renew existing homeowner and condominium policies
<PAGE> 34
without earthquake coverage through July 1996. Due to the requirement to exit
the homeowners' market, units in force for the homeowner and condominium
programs decreased 15.1% in 1995 and 11.7% in 1994. This decline in units
resulted in lower gross premiums written and, therefore, net earned premiums
in 1995 and 1994. This program will continue to decline until the final
policy expires in July 1997.
Underwriting results for these programs are subject to variability
caused by weather-related claims and by infrequent disasters. Results in 1995
include storm losses of $14.2 million in the first quarter, $24 million of
earthquake-related catastrophe reinsurance premiums, and Northridge Earthquake
related losses of $60 million. Results in 1994 include $35 million of
catastrophe reinsurance premiums related to the additional reinsurance
coverage and $844.1 million of net losses as related to the Northridge
Earthquake. Results in 1993 were influenced by $4.6 million in storm losses
in the first quarter and by $4.3 million in claims due to the Southern
California fires in the fourth quarter plus a $2.6 million California Fair
Plan assessment.
The Company maintains a catastrophe reinsurance program to provide
coverage through the run-off period of its remaining homeowners policies. The
program currently in place provides coverage for the period from July 1, 1995
through June 30, 1996 for a total annual premium of approximately $13 million.
Coverage under these treaties is provided by a number of domestic, foreign and
London market companies in two layers as follows:
Catastrophe Company Reinsurance
Loss Layer Retention Amount
----------------- ----------- -----------
first $ 10,000,000 $ 7,750,000 $ 2,250,000
next $ 90,000,000 $ 4,500,000 $ 85,500,000
The Company will maintain a catastrophe reinsurance program in place
until the homeowner and condominium program expires. It is expected that the
cost will decline as the exposures decline.
Personal Excess Liability
The personal excess liability program has remained stable over the
three-year period ended December 31, 1995 producing approximately $2 million
in gross written premiums each year. Underwriting profits can vary sig-
nificantly with the number of claims which occur infrequently.
<PAGE> 35
Policy Acquisition and General Operating Expenses
The Company's policy acquisition and general operating expense ratio
continues to be one of the lowest in the industry. The ratio of underwriting
expenses (excluding loan interest and fees) to earned premiums was 9.0% in
1995, 9.7% in 1994 and 10.7% in 1993. The decline in the ratio from 1993 to
1995 reflects the impact of the ceding commission earned on the quota share
agreement with an affiliate of AIG and a reduction in general operating
expenses due to the decline in business as well as cost efficiencies. Such
efficiency, as reflected in its expense advantage over its competitors,
enables the Company to maintain its price leadership and provide for future
growth and profitability.
Investment Income
Net pre-tax investment income was $81,658,000 in 1995, $84,761,000 in
1994 and $97,574,000 in 1993. Average invested assets decreased 5.3% and 9.0%
in 1995 from 1994 and 1994 from 1993, respectively. Average annual pre-tax
yield on invested assets declined from 7.1% in 1993 to 6.7% in 1994 and
increased slightly to 6.8% in 1995. The overall decline in investment income
and yields from 1993 levels is the result of lower rates available on fixed
maturity investments purchased since 1993, the sale of relatively higher
yielding bonds in 1994 to generate cash for paying earthquake claims in 1994
and the decline in business in 1995.
Realized capital gains on the sales of investments increased from
$16,729,000 in 1993 to $61,554,000 in 1994 and then decreased to $10,207,000
in 1995.
As of December 31, 1995, the Company had a net unrealized gain on fixed
maturity investments of $50,527,000 compared to a net unrealized gain (loss)
of ($61,425,000) and $145,745,000 in 1994 and 1993, respectively. The primary
reasons for the shifts in unrealized gains and losses are twofold. Interest
rates rose sharply in 1994 but fell in 1995 reducing the fair value of the
bond portfolio in 1994 and increasing it in 1995. In addition, in 1994, the
Company sold practically all appreciated fixed maturity investments, realizing
$62 million in investment gains.
<PAGE> 36
Of the Company's total investments, $195,609,000 at fair value was
invested in tax-exempt state and municipal bonds and the balance was invested
in taxable government, corporate and municipal securities. At December 31,
1995, the portfolio contained 83% taxable instruments compared to 76% a year
earlier.
Statutory regulations require the majority of the Company's investments
to be made in high-grade securities to provide ample protection for
policyholders. The Company primarily invests in long-term fixed maturity
investments such as bonds.
The Company's investment guidelines currently emphasize buying high-
quality, fixed income, taxable securities because of the Company's substantial
net operating loss carryforward. While the Company's policy is generally to
hold these investments until maturity, its ongoing monitoring and evaluation
of investment holdings and market conditions may, from time to time, result in
selected sales of investments prior to maturity. The Company has designated
its portfolio as "available-for-sale" and it is carried at fair value as of
December 31, 1995 and 1994 in accordance with the standards set forth in
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". For a more complete description
of this standard, see Note 1 of the Notes to Consolidated Financial State-
ments, "Investments".
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1994, the Company experienced positive cash flow from operating
activities. In 1994, the Company paid for the Northridge Earthquake losses
with cash flow from operations, investment sales, loan proceeds and equity
financing. For 1995, funds needed to pay these claims as well as
Proposition 103 rebates came from normal operating cash flows, available cash
on deposit, additional loan proceeds of $15 million and preferred stock pro-
ceeds of $20 million. As of December 31, 1995, the Company had total cash of
$50,609,000 and total investments at fair value of $1,127,112,000.
Loss and loss expense payments are the most significant cash flow
requirements of the Company. The Company continually monitors loss payments
to provide projections of future cash requirements.
<PAGE> 37
Prior to 1994, the Company's most significant capital requirement
resulted from its need to maintain an acceptable ratio of net premiums written
to policyholders' surplus. In 1994, the losses from the Northridge Earthquake
were so severe that the Company obtained a bank loan for its subsidiaries and
equity financing from AIG to meet its obligation to pay earthquake claims and
strengthen surplus. See Notes 7 and 14 of the Notes to Consolidated Financial
Statements.
As of December 31, 1995, there was $224,950,000 of preferred stock out-
standing, bearing interest at 9% per year payable quarterly, resulting in a
dividend of $5,061,500 per quarter.
The Company also increased in 1995 its revolving credit line to
$225 million, with interest obligations varying according to market condi-
tions. As of December 31, 1995, the outstanding balance on the loan was
$175 million. First quarter 1996 interest payments are estimated to be
approximately $2,900,000.
Funds required by 20th Century Industries to pay dividends and meet its
debt obligations are provided by the insurance subsidiaries. The ability of
the insurance subsidiaries to pay dividends to the holding company is regu-
lated by state law. Because of statutory regulations which require dividends
to be paid from earned surplus, no dividends were paid by the subsidiaries in
1995. The Company expects to generate positive earned surplus early in 1996
and resume normal dividends from the insurance subsidiaries to service the
debt and preferred dividend requirements.
The Company expects to have very small cash outlays for income taxes,
specifically alternative minimum tax for the next two to three years. Until
the net operating losses caused by the Northridge Earthquake are fully util-
ized, the Company expects that cash outlays for income taxes will be less than
income tax expense recorded in accordance with generally accepted accounting
principles. The net operating loss carryforwards will expire in the year
2009.
RISK-BASED CAPITAL
The National Association of Insurance Commissioners requires property
and casualty insurance companies to calculate and report information under
a Risk-Based Capital ("RBC") formula in their annual statements. The RBC
<PAGE> 38
requirements are intended to assist regulators in identifying inadequately
capitalized companies. The RBC calculation is based on the type and mix of
risks inherent in the Company's business and includes components for
underwriting, asset, interest rate and other risks. The Company's insurance
subsidiaries have sufficient capital to meet all RBC requirements.
HOME OFFICE LEASE
The Company leases its Home Office building in Woodland Hills, Califor-
nia, which contains approximately 234,000 square feet of leasable office
space. The current lease comes up for renewal in November 1999 and may be
renewed for two consecutive five-year periods.
<PAGE> 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors
20th Century Industries
We have audited the accompanying consolidated balance sheets of 20th
Century Industries and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of 20th Century Industries and subsidiaries at December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with gen-
erally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic finan-
cial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As described in Note 1, 20th Century Industries and subsidiaries adopted
in 1994 the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As
described in Note 4, 20th Century Industries and subsidiaries adopted in 1993
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
ERNST & YOUNG LLP
Los Angeles, California
February 2, 1996
<PAGE> 40
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
------------------------------
1995 1994
---- ----
(Amounts in thousands)
Investments:
Fixed maturities - available-for-
sale, at fair value $1,125,548 941,406
Equity securities, at fair value 1,564 768
---------- ----------
Total investments - Note 2 1,127,112 942,174
Cash and cash equivalents 50,609 249,834
Accrued investment income 19,862 19,631
Premiums receivable 90,835 90,236
Reinsurance receivables and recoverables 48,314 2,737
Prepaid reinsurance premiums 28,823 1,237
Income taxes receivable - 74,064
Deferred income taxes - Note 4 206,230 276,570
Deferred policy acquisition
costs - Note 3 10,481 14,776
Other assets 26,620 31,551
---------- ----------
$1,608,886 $1,702,810
========== ==========
See accompanying notes to financial statements.
<PAGE> 41
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
-----------------------------
1995 1994
---- ----
(Amounts in thousands, except share data)
Unpaid losses and loss adjustment
expenses - Note 6 $ 584,834 $ 756,243
Unearned premiums 288,927 298,519
Bank loan payable - Note 7 175,000 160,000
Claims checks payable 49,306 70,725
Reinsurance payable 23,176 296
Proposition 103 payable - Note 12 - 78,307
Other liabilities - Note 5 21,058 20,776
---------- ----------
Total liabilities 1,142,301 1,384,866
---------- ----------
Commitments - Note 9 and
Contingencies - Note 11
Stockholders' equity - Note 10
Capital Stock
Preferred stock, par value $1.00
per share; authorized 500,000
shares, none issued
Series A convertible preferred stock,
stated value $1,000 per share, authorized
376,126 shares, outstanding 224,950 in
1995 and 200,000 in 1994 224,950 200,000
Common stock without par value;
authorized 110,000,000 shares,
outstanding 51,493,406 in 1995
and 51,472,471 in 1994 69,805 69,340
Common stock warrants 16,000 16,000
Unrealized investment gains
(losses), net - Note 2 33,508 (39,777)
Retained earnings 122,322 72,381
---------- ----------
Total stockholders' equity 466,585 317,944
---------- ----------
$1,608,886 $1,702,810
========== ==========
See accompanying notes to financial statements.
<TABLE>
<PAGE> 42
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
REVENUES:
Net premiums earned - Note 8 $ 963,797 $1,034,003 $ 989,712
Net investment income - Note 2 81,658 84,761 97,574
Realized investment gains - Note 2 10,207 61,554 16,729
----------- ---------- ----------
1,055,662 1,180,318 1,104,015
----------- ---------- ----------
LOSSES AND EXPENSES:
Net losses and loss adjustment
expenses - Note 6 851,602 1,828,346 867,451
Policy acquisition costs - Note 3 38,647 43,409 48,375
Other operating expenses 48,311 57,198 57,769
Proposition 103 expense - Note 12 - 29,124 3,474
Loan interest and fees
expense - Note 7 15,897 8,348 -
----------- ---------- ----------
954,457 1,966,425 977,069
----------- ---------- ----------
Income (loss) before federal income
taxes and cumulative effect
of change in accounting for
income taxes 101,205 (786,107) 126,946
Federal income taxes (benefit) -
Note 4 31,575 (288,087) 18,350
----------- ---------- ----------
Income (loss) before cumulative
effect of change in accounting
for income taxes 69,630 (498,020) 108,596
Cumulative effect of change in
accounting for income taxes - - 3,959
----------- ---------- ----------
NET INCOME (LOSS) $ 69,630 $ (498,020) $ 112,555
=========== ========== ==========
EARNINGS (LOSS) PER COMMON
SHARE - Note 1
PRIMARY -
Before cumulative effect of
change in accounting for
income taxes $ .88 $ (9.69) $ 2.11
Cumulative effect of change in
accounting for income taxes - - .08
----------- ---------- ----------
NET INCOME (LOSS) $ .88 $ (9.69) $ 2.19
=========== ========== ==========
FULLY DILUTED -
NET INCOME (LOSS) $ .88 $ (9.69)
=========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 43
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 and 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK UNREALIZED
$1 PAR VALUE WITHOUT COMMON INVESTMENT
PER SHARE PAR VALUE STOCK GAINS RETAINED
AMOUNT AMOUNT WARRANTS (LOSSES) EARNINGS
-------------- - --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ - $ 68,431 $ - $ - $ 507,243
Net income for the year 112,555
Effects of common stock issued
under restricted shares plan 417
Unrealized pension loss (511)
Cash dividends paid on common
stock ($.64 per share) (32,926)
-------- -------- -------- -------- ---------
Balance at December 31, 1993 - 68,848 - - 586,361
Net loss for the year (498,020)
Effects of common stock issued
under restricted shares plan 492
Effect of implementing change
in accounting for investments
at January 1, 1994 - Note 2 36,757
Net decrease in unrealized gains
on investments, net of deferred
taxes of $(21,419) - Note 2 (76,534)
Issuance of Series A
Preferred Stock - Note 14 200,000
Issuance of Series A Common
Stock Warrants - Note 14 16,000
Unrealized pension gain 511
Cash dividends paid on common
stock ($.32 per share) (16,471)
-------- -------- -------- -------- ---------
Balance at December 31, 1994 200,000 69,340 16,000 (39,777) 72,381
Net income for the year 69,630
Effects of common stock issued
under restricted shares plan 465
Issuance of Series A
Preferred Stock - Note 14 24,950 (4,950)
Net increase in unrealized gains
on investments, net of deferred
taxes of $39,461 - Note 2 73,285
Unrealized pension loss (116)
Cash dividends paid on
preferred stock (14,623)
-------- -------- -------- -------- ---------
Balance at December 31, 1995 $224,950 $ 69,805 $ 16,000 $ 33,508 $ 122,322
======== ======== ======== ======== =========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 44
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 69,630 $(498,020) $ 112,555
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Provision for depreciation
and amortization 6,555 7,195 7,203
Provision for deferred income taxes 30,856 (214,522) (6,518)
Realized gains on sale of invest-
ments, fixed assets, etc. (10,128) (61,470) (16,515)
Federal income taxes 74,718 (72,668) (1,255)
Prepaid reinsurance premiums
and reinsurance receivables
and recoverables (73,163) (737) 1,501
Unpaid losses and loss
adjustment expenses (171,409) 178,753 22,950
Unearned premiums (9,592) (1,422) 32,385
Claims checks payable (21,419) 29,190 2,206
Proposition 103 payable (78,307) 29,122 3,474
Other 27,614 (572) (18,333)
--------- --------- ---------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (154,645) (605,151) 139,653
</TABLE>
<PAGE> 45
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Investments held-to-maturity:
Purchases - - (308,543)
Called or matured - - 19,760
Sales - - 58,116
Investments available-for-sale:
Purchases (666,203) (821,822) -
Called or matured 33,308 27,531 14,323
Sales 570,443 1,275,091 117,503
Net purchases of property and
equipment (2,505) (3,238) (4,895)
---------- ---------- ----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (64,957) 477,562 (103,736)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 20,000 200,000 -
Proceeds from issuance of common stock
warrants - 16,000 -
Payments on installment contract - - (75)
Proceeds from bank loan 15,000 160,000 -
Dividends paid (14,623) (16,471) (32,926)
---------- ---------- ----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 20,377 359,529 (33,001)
---------- ---------- ----------
Net increase (decrease) in cash (199,225) 231,940 2,916
Cash, beginning of year 249,834 17,894 14,978
---------- ---------- ----------
Cash, end of year $ 50,609 $ 249,834 $ 17,894
========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 46
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Consolidation and Presentation
The accompanying financial statements include the accounts of 20th
Century Industries and its wholly-owned subsidiaries, 20th Century Insurance
Company and 21st Century Casualty Company (collectively, the Company). The
Company is engaged in the sale of private passenger automobile insurance and
personal excess liability policies in the State of California. The Company
also has homeowner and condominium insurance, although this line is being run-
off with all policies expiring in July 1997. All material intercompany
accounts and transactions have been eliminated. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles which differ in some respects from those followed in reports to
insurance regulatory authorities. The preparation of the financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and footnotes. Actual results could differ from
these estimates.
Investments
The Company has classified its investments as available-for-sale in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS
No. 115, which was adopted January 1, 1994, requires that fixed maturity
securities are to be classified as either held-to-maturity, available-for-
sale, or trading. Held-to-maturity debt securities are to be reported at
amortized cost; trading securities are to be reported at fair value, with
unrealized gains or losses included in earnings; and available-for-sale
securities are to be reported at fair value, with unrealized gains or losses
excluded from earnings and reported in a separate component of stockholders'
equity.
Fair values for fixed maturity and equity securities are based on quoted
market prices. Unrealized investment gains and losses are credited or charged
directly to stockholders' equity, net of any tax effect. When investment
<PAGE> 47
securities are sold, the cost used to determine any realized gain or loss is
based on specific identification.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments in
demand deposits.
Reinsurance
In the normal course of business, the Company seeks to reduce the loss
that may arise from catastrophes or other events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas of
exposure with other insurance enterprises or reinsurers. Reinsurance premiums
and reserves on reinsured business are accounted for on a basis consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts. Amounts applicable to ceded unearned premiums
and ceded claim liabilities are reported as assets in the accompanying balance
sheets.
Income Recognition
Premiums written are recorded as earned proportionately over the term of
the policy.
Losses and Loss Adjustment Expenses
The estimated liabilities for losses and loss adjustment expenses
include the accumulation of estimates of losses for claims reported prior to
the balance sheet dates, estimates (based upon actuarial analysis of
historical data) of losses for claims incurred but not reported and estimates
of expenses for investigating and adjusting all incurred and unadjusted
claims. Amounts reported are estimates of the ultimate net costs of
settlement which are necessarily subject to the impact of future changes in
economic and social conditions. Management believes that, given the inherent
variability in any such estimate, the aggregate reserves are within a
reasonable and acceptable range of adequacy. The methods of making such
estimates and for establishing the resulting reserves are continually reviewed
and updated and any adjustments resulting therefrom are reflected in earnings.
<PAGE> 48
Policy Acquisition Costs
Policy acquisition costs, principally direct and indirect costs related
to production of business, are deferred and amortized against the premiums
earned.
Income Taxes
Income taxes have been provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes". Under that method, deferred
tax assets and liabilities are determined based on the differences between
their financial reporting and their tax bases and are measured using the
enacted tax rates.
Earnings (Losses) Per Common Share
Earnings (losses) per common share are computed using the weighted
average number of common shares outstanding during the respective periods.
The primary weighted average number of shares was 57,223,839 for the year
ended December 31, 1995, 51,387,120 for 1994 and 51,411,968 for 1993. The
fully diluted weighted average number of shares was 79,325,308 for the year
ended December 31, 1995, and were the same as primary for 1994. Primary
earnings per share amounts for 1993 reflect a simple capital structure in
which there were no securities in existence allowing common stock to be
acquired as a result of exercising the conversion rights of such securities.
The 1994 and 1995 primary and fully diluted loss per share amounts reflect a
complex capital structure in which securities exist that allow for the
acquisition of additional common stock through the exercise of conversion
rights in these securities. Primary and fully diluted loss per share amounts
for 1994 are the same since there was a net loss for the year, as including
the convertible securities in the computation of the loss per share would be
antidilutive.
Fair Values of Financial Instruments
The carrying amounts of financial instruments, other than investment
securities, approximate their fair values. For investment securities, fair
values are based on quoted market prices. The carrying amounts and fair
values for all investment securities are disclosed in Note 2.
<PAGE> 49
New Accounting Standard
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting and Disclosure of Stock-Based Compensation", became effective with
fiscal years beginning after December 15, 1995. Stock-based compensation is
accounted for presently in accordance with the requirements set forth in APB
Opinion No. 25, "Accounting for Stock Issued to Employees". At this time, the
Company is evaluating the provisions of SFAS No. 123 and has not yet
determined whether it will adopt the Statement for expense recognition
purposes.
Reclassifications
The accompanying 1993 and 1994 financial statements have been
reclassified to conform with the 1995 presentation.
NOTE 2. INVESTMENTS
The changes in unrealized gains (losses) for 1995 and 1994 total
$73,285,000 and ($39,777,000), net of deferred income taxes of $39,461,000 and
($21,419,000), respectively.
A summary of net investment income is as follows:
<TABLE>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Interest and dividends on fixed
maturities $ 74,286 $ 82,125 $ 97,771
Interest on short-term cash
investments (demand deposits) 8,049 3,210 522
Dividends and other 109 128 51
-------- -------- --------
Total investment income 82,444 85,463 98,344
Investment expense 786 702 770
-------- -------- --------
Net investment income $ 81,658 $ 84,761 $ 97,574
======== ======== ========
</TABLE>
<PAGE> 50
A summary of realized investment gains and losses before income taxes
is as follows:
<TABLE>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Fixed maturities available-for-sale:
Gross realized gains $ 12,080 $ 65,300 $ 11,528
Gross realized losses (1,873) (3,746) (99)
Fixed maturities held-to-maturity:
Gross realized gains - - 5,300
Gross realized losses - - -
-------- ---------- --------
Net realized investment gains $ 10,207 $ 61,554 $ 16,729
======== ========== ========
</TABLE>
The amortized cost, gross unrealized gains and losses, and fair values
of fixed maturities as of December 31, 1995 and 1994, respectively, are as
follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
1995 Cost Gains Losses Value
- - ---- --------- ---------- ----------- -----------
(Amounts in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 68,283 $ 1,440 $ 12 $ 69,711
Obligations of states and
political subdivisions 219,026 4,681 863 222,844
Public utilities 182,828 8,396 - 191,224
Corporate securities 604,884 36,972 87 641,769
----------- -------- ------- -----------
Total available-for-sale $ 1,075,021 $ 51,489 $ 962 $ 1,125,548
=========== ======== ======= ===========
1994
- - ----
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 240,690 $ 65 $ 8,077 $ 232,678
Obligations of states and
political subdivisions 292,723 355 31,464 261,614
Public utilities 147,241 11 8,079 139,173
Corporate securities 322,177 1,594 15,830 307,941
----------- -------- ------- -----------
Total available-for-sale $ 1,002,831 $ 2,025 $63,450 $ 941,406
=========== ======== ======= ===========
</TABLE>
<PAGE> 51
The maturity distribution of the Company's fixed maturity investments at
December 31, 1995 was as follows: (Amounts in thousands)
Available-for-Sale
---------------------------
Amortized Fair
Fixed maturities due: Cost Value
- - --------------------- ---------- --------
1996 $ 5,138 $ 5,201
1997 - 2000 120,561 126,126
2001 - 2005 492,272 515,480
2006 - 2015 455,860 477,496
2016 and after 1,190 1,245
---------- ----------
Total $1,075,021 $1,125,548
========== ==========
Expected maturities of the Company's investment portfolios differ from
contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
NOTE 3. POLICY ACQUISITION COSTS
The following reflects the policy acquisition costs deferred for
amortization against future income and the related amortization charged to
income from operations, excluding certain amounts deferred and amortized in
the same period:
<TABLE>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs
at beginning of year $ 14,776 $ 15,712 $ 13,345
Acquisition costs deferred 34,352 42,473 50,742
-------- -------- --------
49,128 58,185 64,087
Deferred policy acquisition costs
at end of year 10,481 14,776 15,712
-------- -------- --------
Acquisition costs amortized and
charged to income during the year $ 38,647 $ 43,409 $ 48,375
======== ======== ========
</TABLE>
<PAGE> 52
NOTE 4. FEDERAL INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". The adoption of SFAS 109
changed the Company's method of accounting for income taxes from the deferred
method to the liability method. The liability method requires the recognition
of deferred tax liabilities and tax assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. This adoption is shown as a cumulative
effect of a change in accounting for income taxes in the 1993 Statement of
Operations.
Federal income tax expense consists of:
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Current tax expense (benefit) $ 719 $ (73,565) $ 24,868
Deferred tax expense (benefit) 30,856 (214,522) (6,518)
--------- --------- --------
$ 31,575 $(288,087) $ 18,350
========= ======== ========
</TABLE>
The Company's net deferred income tax asset is composed of:
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994
---- ----
(Amounts in thousands)
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward $181,393 $192,334
Unearned premiums 18,207 20,810
Loss reserves 14,728 21,886
Alternative minimum tax credit 8,778 8,084
Proposition 103 - 14,138
Unrealized investment losses - 21,419
Non-qualified retirement plans 2,903 2,761
Other 2,868 1,373
-------- --------
228,877 282,805
-------- --------
Deferred Tax Liabilities:
Deferred policy acquisition costs 3,668 5,173
Salvage and subrogation 936 1,062
Unrealized investment gains 18,043 -
-------- --------
22,647 6,235
-------- --------
Net Deferred Tax Asset $206,230 $276,570
======== ========
</TABLE>
<PAGE> 53
Under normal operations, the Company's principal deferred tax assets
arise from the discounting of loss reserves for tax purposes which delays a
portion of the loss deduction, and from the acceleration of 20% of the
unearned premium reserve into taxable income before it is earned. The Company
as of December 31, 1995 has a net operating loss carryforward of approximately
$518,000,000 for regular tax purposes and $373,000,000 for alternative minimum
tax purposes expiring in the year 2009 and an alternative minimum tax credit
carryforward of $8,778,000.
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax asset that management believes will not be
realized. In order to utilize the deferred tax asset, the Company must have
the ability to generate sufficient future taxable income to realize the tax
benefits. The Company has available the following tax-planning strategies to
generate additional taxable income in the future above historical levels:
1) The Company, as of December 31, 1995, has approximately 83% of its
$1.1 billion investment portfolio invested in taxable securities
compared to 76% at December 31, 1994. By converting the remainder
of its investment portfolio from tax-exempt securities and
investing new cash flow into taxable securities, the Company could
increase its future taxable income.
2) The Company could reinsure outstanding loss reserves and thus
eliminate the temporary difference related to the discounting of
loss reserves for tax purposes.
The Company has a strong record of profitable operations. Except for
the losses arising from the Northridge Earthquake, the Company has been
profitable for each of the past 10 years. Over the last five years, the
Company's combined ratio has been approximately 99% excluding the Northridge
Earthquake, and investment earnings have averaged approximately $101 million a
year over the same five year period. Historically, the Company has generated
almost all of its profits from its automobile line of business. In accordance
with the order by the California Department of Insurance, the Company is
withdrawing from the homeowner, condominium and earthquake lines of business.
As of July 23, 1995, the Company was out of the earthquake line of business
and will be out of the homeowner and condominium line of business by July 23,
1997. This withdrawal will substantially reduce the Company's exposure to
future earthquake catastrophes.
<PAGE> 54
The Company believes that because of its historically strong earnings
performance, return to profitability in 1995, and the tax planning strategies
available, it is more likely than not that the Company will realize the
benefit of the deferred tax asset, and therefore, no valuation allowance has
been established.
Income taxes do not bear the expected relationship to income because of
differences in the recognition of revenue and expense for tax and financial
reporting purposes. The tax effects of such differences are:
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Federal income tax (benefit)
at statutory rate $ 35,422 $(275,138) $ 44,431
(Decrease) increase due to:
Tax-exempt income, net (3,520) (13,535) (24,492)
Adjustment of deferred tax for
1% increase in tax rate - 1,696 (1,074)
Other (327) (1,110) (515)
--------- --------- --------
Federal taxes on income $ 31,575 $(288,087) $ 18,350
========= ======== ========
</TABLE>
The statutory tax rate was 35% for 1993 through 1995.
Cash paid for income taxes was $65,000, $-0- and $26,026,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE> 55
NOTE 5. EMPLOYEE BENEFITS
Pension Plan and Supplemental Executive Retirement Plan
The Company sponsors a non-contributory defined benefit pension plan
(Pension Plan) which covers essentially all employees who have completed at
least one year of service. The benefits are based on employees' compensation
during all years of service. The Company's funding policy is to make annual
contributions as required by applicable regulations. The Pension Plan's
assets consist of high-grade fixed income securities and cash equivalents.
The Company also sponsors unfunded Supplemental Executive Retirement
Plans (Supplemental Plan) which cover certain key employees, designated by the
Board of Directors. The Supplemental Plan benefits are based on years of
service and compensation during the last three years of employment, and are
reduced by the benefit payable from the Pension Plan.
The net periodic pension cost for these plans reflected in the 1995,
1994 and 1993 Consolidated Statements of Operations is $3,147,000, $3,722,000,
and $2,998,000, respectively. Accrued pension costs reflected in the
Consolidated Balance Sheets at December 31, 1995 and 1994 are $5,637,000 and
$4,713,000, respectively.
Savings and Security Plan
The Company has voluntary qualified contributory savings and security
plans for eligible employees which incorporate Section 401(k) of the Internal
Revenue Code to permit certain pre-tax contributions by participants. Under
the plans, the Company matches 75% of all employee contributions up to a limit
of 6% of each participating employee's compensation. Contributions charged
against operations were $2,376,000, $2,210,000 and $1,943,000 in 1995, 1994
and 1993, respectively.
<PAGE> 56
NOTE 6. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the liability for unpaid losses and loss adjustment expenses
is summarized as follows:
<TABLE>
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Reserves for losses and loss adjustment
expenses, net of reinsurance recover-
ables on unpaid losses, at beginning
of year $ 755,101 $ 574,619 $554,034
Incurred losses and loss adjustment
expenses, net of reinsurance:
Provision for insured events of the
current year, net of reinsurance 891,066 1,912,799 930,437
Decrease in provision for
insured events of prior years,
net of reinsurance (39,464) (84,453) (62,986)
---------- ---------- --------
Total incurred losses and loss
adjustment expenses, net of
reinsurance 851,602 1,828,346 867,451
---------- ---------- --------
Payments, net of reinsurance:
Losses and loss adjustment expenses
attributable to insured events of
the current year, net of reinsurance 534,414 1,302,988 519,232
Losses and loss adjustment expenses
attributable to insured events of
prior years, net of reinsurance 519,969 344,876 327,634
---------- ---------- --------
Total payments, net of reinsurance 1,054,383 1,647,864 846,866
---------- ---------- --------
Reserves for losses and loss adjustment
expenses, net of reinsurance recover-
ables on unpaid losses, at year end 552,320 755,101 574,619
Reinsurance recoverables on unpaid
losses, at year end 32,514 1,142 2,871
---------- ---------- --------
Reserves for losses and loss adjust-
ment expenses, gross of reinsurance
recoverables on unpaid losses, at
year end $ 584,834 $ 756,243 $577,490
========== ========== ========
</TABLE>
As a result of changes in estimates of insured events in prior years,
the provision for losses and loss adjustment expenses decreased by
$39,464,000, $84,453,000 and $62,986,000 in 1995, 1994 and 1993, respectively,
due to a combination of improvements in the claims handling process,
unanticipated decreases in frequency and random fluctuations in severity. The
1995 decrease in provision for insured events of prior years is affected by a
$28 million net increase in losses related to the Northridge Earthquake.
<PAGE> 57
NOTE 7. BANK LOAN PAYABLE
Effective December 1995, the Company increased its reducing-revolver
credit facility (the Facility) to an aggregate commitment of $225 million.
As of December 31, 1995, the Company's outstanding advances against the
Facility totalled $175 million for which loan origination fees totaling
$9.8 million were incurred. Loan fees are being amortized over the life of
the Facility. Interest is charged at a variable rate based, at the option of
the Company, on either (1) the contractually defined Alternate Base Rate (ABR)
plus a margin of 0.25% or (2) the Eurodollar Rate plus a margin of 1.00%.
Margins will be adjusted in relation to certain financial and operational
levels of the Company. The ABR is defined as a daily rate which is the higher
of (a) the prime rate for such day or (b) the Federal Funds Effective Rate for
such day plus 1/2% per annum. Interest is payable at the end of each interest
period. The stock of the Company's insurance subsidiaries is pledged as
collateral under the loan agreement. At December 31, 1995, the annual
interest rate for the specified interest period was approximately 6.9%.
Interest paid was $12,636,000 in 1995 and $7,277,000 in 1994.
On both April 1, 1996 and July 1, 1996, the aggregate commitment will be
reduced by $5,625,000, and thereafter by $11,250,000 on the first day of each
quarter through the Facility's maturity on April 1, 2001. Principal
repayments are required when total outstanding advances exceed the aggregate
commitment. The Company may prepay principal amounts of the advances, as well
as voluntarily cause the aggregate commitment to be reduced at any time during
the term of the Facility.
NOTE 8. REINSURANCE
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. The Company periodically reviews the financial condition of
its reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. It is the Company's policy to hold collateral under related
reinsurance agreements in the form of letters of credit for unpaid losses for
all reinsurers not licensed to do business in the Company's state of domicile.
<PAGE> 58
The effect of reinsurance on premiums written and earned is as follows
(amounts in thousands):
<TABLE>
1995 1994 1993
----------------------- ---------------------- ----------------------
Written Earned Written Earned Written Earned
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross $1,063,962 $1,073,556 $1,078,663 $1,080,086 $1,033,895 $1,001,510
Ceded (137,345) (109,759) (45,926) (46,083) (11,993) (11,798)
---------- ---------- ---------- ---------- ---------- ----------
Net premiums $ 926,617 $ 963,797 $1,032,737 $1,034,003 $1,021,902 $ 989,712
========== ========== ========== ========== ========== ==========
</TABLE>
Loss and loss adjustment expenses have been reduced by reinsurance ceded
as follows (amounts in thousands):
1995 1994 1993
-------- ---------- --------
Gross losses and loss
adjustment expenses incurred $921,104 $1,905,161 $871,151
Ceded losses and loss
adjustment expenses (69,502) (76,815) (3,700)
-------- ---------- --------
Net losses and loss
adjustment expenses incurred $851,602 $1,828,346 $867,451
======== ========== ========
In connection with an investment agreement formed in 1995 with American
International Group, Inc. ("AIG") (see Note 14), each of the Company's
insurance subsidiaries entered into a five-year quota share reinsurance
agreement with an AIG affiliate to provide coverage for all ongoing lines of
business. Under this contract, 10% of each subsidiary's premiums earned and
losses incurred in connection with policies incepted during the period
January 1, 1995 through December 31, 1999 are ceded. Substantially all of the
Company's reinsurance receivables are due from the AIG affiliate. At the end
of the five-year period, the AIG affiliate may elect to renew the agreement
annually at declining coverage percentages. A ceding commission of 10.8% was
earned by the insurance subsidiaries for 1995 and, thereafter, is paid a
ceding commission at a rate equal to their actual underwriting expense ratio.
The Company maintains a catastrophe reinsurance program to provide
coverage through the run-off period of its remaining homeowner and condominium
policies. The program currently in place provides coverage for the period
from July 1, 1995 through June 30, 1996 for a total annual premium of
approximately $13 million. Coverage under these treaties is provided by a
number of domestic, foreign and London market companies in two layers as
follows:
Catastrophe Company Reinsurance
Loss Layer Retention Amount
------------------ ----------- -----------
first $ 10,000,000 $7,750,000 $ 2,250,000
next $ 90,000,000 $4,500,000 $ 85,500,000
<PAGE> 59
The Company has a homeowners' excess-of-loss reinsurance treaty with
General Reinsurance Corporation. In this excess treaty, the reinsurer's limit
is $650,000 in excess of the Company's retention of $300,000 per risk, subject
to a maximum reinsurer's limit of $1,300,000 per occurrence. The Company has
a quota share treaty for its Personal Excess Liability Policy business whereby
it cedes 60% of its business.
NOTE 9. LEASE COMMITMENTS
The Company leases office space in a building in Woodland Hills,
California. The lease was amended in October 1994, extending the lease term
until November 1999. The lease may be renewed for two consecutive five-year
periods. The Company also leases office space in several other locations
throughout California, primarily for claims servicing.
Minimum rental commitments under the Company's lease obligations are as
follows:
1996 $10,744,000
1997 10,477,000
1998 8,865,000
1999 7,963,000
2000 1,890,000
Thereafter 1,085,000
Rental expense charges to operations for the years ended December 31,
1995, 1994 and 1993 were $12,062,000, $11,694,000, and $11,259,000, respec-
tively.
<PAGE> 60
NOTE 10. STOCKHOLDERS' EQUITY
Retained Earnings:
The Company's insurance subsidiaries have restrictions affecting the
amount of stockholder dividends which may be paid to the parent company within
any one year without the approval of the California Department of Insurance.
The California Insurance Code provides that amounts may be paid as dividends
from earned surplus on an annual, noncumulative basis, without prior approval
by the California Department of Insurance, up to the greater of (1) net income
for the preceding year, or (2) 10 percent of statutory surplus as regards
policyholders as of the preceding December 31.
Stockholder's equity of the insurance subsidiaries on a statutory
accounting basis at December 31, 1995 and 1994 was $358,474,000 and
$207,018,000, respectively. Statutory net income (loss) for the insurance
subsidiaries was $118,562,000, $(657,331,000) and $96,218,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Restricted Shares Plan:
The plan provides for grants of common shares not to exceed 921,920
shares to be made to key employees as determined by the Key Employee Incentive
Committee of the Board of Directors. At December 31, 1995, 313,474 common
shares remain available for future grants. Upon issuance of grants of common
shares under the plan, unearned compensation equivalent to the market value on
the date of grant is charged to common stock and subsequently amortized in
equal monthly installments over the five-year period of the grant.Amortization
of unearned compensation was $550,000, $431,000 and $320,000 in 1995, 1994 and
1993, respectively. At December 31, 1995 and 1994, unearned compensation, net
of amortization, was $605,000 and $1,153,000, respectively. The common shares
are restricted for 5 years retroactive to the first day of the year of grant.
Restrictions are removed on 20% of the shares of each employee on January 1 of
each of the 5 years following the year of grant. A summary of grants
outstanding under the plan from 1993 through 1995 is as follows:
<PAGE> 61
COMMON MARKET PRICE PER
SHARES SHARE ON DATE OF GRANT
------ ----------------------
Outstanding, December 31, 1992 54,950
Granted in 1993 21,225 $28.13
Vested in 1993 19,460
Cancelled or forfeited -
-------
Outstanding, December 31, 1993 56,715
Granted in 1994 25,000 $27.38
Vested in 1994 18,543
Cancelled or forfeited -
-------
Outstanding, December 31, 1994 63,172
Granted in 1995 35,813 $11.17
Vested in 1995 40,224
Cancelled or forfeited 14,878
-------
Outstanding, December 31, 1995 43,883
=======
Stock Option Plan
On May 25, 1995, the shareholders of the Company approved the 1995 Stock
Option Plan (the "Plan"), which provides for the grant of stock options to key
employees and non-employee directors of the Company. The aggregate number of
common shares issued and issuable under the Plan shall not exceed 1,000,000.
At December 31, 1995, options to purchase 180,000 common shares have been
granted with an average exercise price of $12.56 per share.
NOTE 11. LITIGATION
Lawsuits arising from claims under insurance contracts are provided for
through loss and loss adjustment expense reserves established on an ongoing
basis. From time to time, the Company has been named as a defendant in
lawsuits incident to its business. Some of these actions assert claims for
exemplary or punitive damages which are not insurable under California
judicial decisions. The Company vigorously defends these actions unless a
reasonable settlement appears appropriate. While any litigation has an
element of uncertainty, the Company believes that the ultimate outcome of
pending actions will not have a material adverse effect on its consolidated
financial condition or results of operations.
<PAGE> 62
NOTE 12. PROPOSITION 103
On January 27, 1995, the Company announced a settlement of rebate
liabilities associated with Proposition 103, which was passed by California
voters on November 8, 1988, for $78 million.
By the second quarter of 1995, the Company had refunded $46 million to
customers specified in the settlement, representing an average payment per
household of $80.00, approximately 7.5 percent of premiums paid between
November 8, 1988 and November 7, 1989. In accordance with the settlement, the
Company offset the increase in earthquake losses associated with the 1994
Northridge Earthquake with $32 million in funds previously set aside for
potential Proposition 103 rebates. In addition as part of the settlement, the
Company obtained an additional $15 million from the existing bank credit
facility and $20 million from the issuance of 20,000 additional shares of
preferred stock to AIG ( see Notes 7 and 14, respectively ) and contributed
$30 million to the surplus of the insurance subsidiaries.
NOTE 13. NORTHRIDGE EARTHQUAKE
The Northridge, California Earthquake, which occurred on January 17,
1994, significantly affected the operating results and the financial position
of the Company. Since the event occurred, the Company and other members of
the property and casualty insurance industry have revised their estimates of
claim costs and related expenses several times.
The Company's estimate of gross losses and allocated loss adjustment
expenses for this catastrophe as of December 31, 1995 is $1 billion, of which
$60 million was recorded in 1995. In accordance with the terms of the
settlement with the California Department of Insurance, the Company offset the
increase in earthquake losses with approximately $32 million in funds
previously set aside for potential Proposition 103 rebates.
<PAGE> 63
NOTE 14. CAPITAL TRANSACTIONS
On December 16, 1994, the Company received $216 million of equity
capital from AIG and in exchange, issued (i) 200,000 shares of Series A 9%
Convertible Preferred Stock, par value $1.00 per share, at a price and
liquidation value of $1,000 per share and convertible into common shares at a
conversion price of $11.33 per share, and (ii) 16,000,000 Series A Warrants to
purchase an aggregate 16,000,000 shares of the Company's Common Stock at
$13.50 per share (collectively, the "Investment Agreement"). In 1995, an
additional 20,000 shares of preferred stock were issued to AIG in exchange for
$20,000,000 of equity capital. The Series A Preferred Stock ranks senior to
the Common Stock in respect to dividend and liquidation rights. Cash
dividends of $14,622,750 were paid on the preferred stock. Preferred stock
dividends in kind of $4,950,000, representing 4,950 additional shares, were
issued on June 26, 1995. Per the Investment Agreement, the exercise price of
the Series A Warrants is reduced $.08 per share for each million dollars of
gross losses and allocated loss adjustment expenses in excess of $945 million
with respect to the Northridge Earthquake through December 31, 1995. As the
Company's estimate of the gross losses and loss adjustment expenses for the
Northridge Earthquake rose to $1 billion at December 31, 1995, the exercise
price of the Series A Warrants declined to $9.10 per share. The Common Stock
Warrants are generally exercisable from February 1998 to February 2007.
As part of the Investment Agreement, a 10% quota share reinsurance
agreement with an AIG affiliate applicable to each of the Company's insurance
subsidiaries' entire book of business was implemented on January 1, 1995 (see
Note 8).
<PAGE> 64
NOTE 15. UNAUDITED QUARTERLY RESULTS
The summarized unaudited quarterly results of operations were as follows:
<TABLE>
QUARTER ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(Amounts in thousands, except per share data)
1995
----
<S> <C> <C> <C> <C>
Revenues $ 270,091 $ 262,748 $ 261,093 $ 261,730
Net income (loss) $ (1,418) $ 14,611 $ 30,132 $ 26,305
Primary earnings (loss)
per common share $ (0.12) $ .18 $ .44 $ .36
Fully diluted earnings
(loss) per common
share * * $ .39 $ .33
1994
----
Revenues $ 290,599 $ 333,506 $ 280,019 $ 276,194
Net income (loss) $(339,993) $ 4,880 $(114,254) $ (48,653)
Primary earnings (loss)
per common share $ (6.61) $ .09 $ (2.22) $ (.95)
Fully diluted earnings
(loss) per common
share - - - *
* Fully diluted earnings (loss) per common share are not shown as the results
are anti-dilutive.
</TABLE>
The quarterly earnings per share amounts do not add to annual amounts
due to the changing dilutive effect of common stock equivalents as the price
of the common stock fluctuates.
The first quarter 1995 net loss was impacted by $14.2 million in pre-tax
losses resulting from a series of severe storms as well as $6.0 million of
catastrophe reinsurance premiums related to the additional reinsurance
coverage purchased in order to provide reinsurance coverage for the declining
earthquake exposure. The second and fourth quarters of 1995 were adversely
affected by increases in the net loss for the Northridge Earthquake of
$11.7 million and $6.5 million, respectively.
The net income (loss) for all four quarters of 1994 reflects the impact
of the January 17 Northridge Earthquake, which were as follows: first
quarter, $551.3 million; second quarter, $76.5 million; third quarter, $129.8
<PAGE> 65
million; and fourth quarter, $126.2 million. The second quarter 1994 net
income reflects approximately $50 million in realized capital gains from the
sale of investments. The third quarter 1994 net loss reflects additional
deferred revenue of $43.6 million and interest expense of $28 million related
to the Proposition 103 order directing the Company to issue refunds totaling
approximately $78.3 million, plus interest at 10% per annum from May 8, 1989
to September 30, 1994. The fourth quarter 1994 net loss reflects the reversal
of all Proposition 103 interest accrued of approximately $44 million in
accordance with a settlement with the California Department of Insurance.
NOTE 16. RESULTS OF OPERATIONS BY LINE OF BUSINESS
The following table presents premium revenue and underwriting profit
(loss) for the Company's insurance lines on a GAAP basis:
<TABLE>
1995
----
Homeowner Personal
(Amounts in thousands) Auto Lines and Condominium Excess Liability
---------- --------------- ----------------
<S> <C> <C> <C>
Gross premiums written $ 991,969 $ 69,847 $ 2,146
========== ========== ==========
Premiums earned $ 920,560 $ 42,394 $ 843
========== ========== ==========
Underwriting profit (loss) $ 103,744 $ (78,976) $ 469
========== ========== ==========
1994
----
Homeowner Personal
Auto Lines and Condominium Excess Liability
---------- --------------- ----------------
Gross premiums written $ 991,268 $ 85,088 $ 2,307
========== ========== ==========
Premiums earned $ 981,893 $ 51,166 $ 944
========== ========== ==========
Underwriting profit (loss) $ (45,850) $ (879,221) $ 997
========== ========== ==========
1993
----
Homeowner Personal
Auto Lines and Condominium Excess Liability
---------- --------------- ----------------
Gross premiums written $ 932,497 $ 99,060 $ 2,338
========== ========== ==========
Premiums earned $ 908,523 $ 80,630 $ 559
========== ========== ==========
Underwriting profit (loss) $ 23,800 $ (11,641) $ 484
========== ========== ==========
</TABLE>
In 1995, the Homeowner and Condominium line experienced an underwriting
loss primarily as a result of first quarter weather-related losses of
$14.2 million, earthquake-related catastrophe reinsurance premiums of $24
million, Northridge Earthquake-related losses of $60 million, and an
overall decline in homeowner and
<PAGE> 66
condominium premium volume in accordance with the order from the DOI to
discontinue writing new homeowners and condominium owners policies and
earthquake coverages. The Auto line reflects a $30 million reduction in
amounts previously set aside for Proposition 103 rebates due to the increase
in earthquake-related losses, in accordance with the order from the DOI.
In 1994, both the Auto and Homeowner and Condominium lines experienced
an underwriting loss due to the high level of claims incurred as a result of
the January 17 Northridge Earthquake and the cost of the Proposition 103
rollback order.
In 1993 , the Homeowner and Condominium line experienced an
underwriting loss primarily as a result of first quarter weather-related
losses of approximately $4.6 million, and the third quarter Southern
California fires with related net losses incurred of approximately $4.3
million and $2.6 million in assessments for the Company's share of California
Fair Plan losses. The underwriting loss also included losses of approximately
$1 million related to the 1991 Oakland, California fire.
<PAGE> 67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent auditors on
any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, or any reportable events.
PART III
--------
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information in response to Item 10 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1996 Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to Item 11 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1996 Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to Item 12 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1996 Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to Item 13 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1996 Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K.
<PAGE> 68
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED WITH THIS REPORT
(1) FINANCIAL STATEMENTS. PAGE
The following consolidated financial statements of the ----
Company are filed as part of this report:
(i) Report of independent accountants;.................. 40
(ii) Consolidated balance sheets-December 31, 1995 & 1994; 41
(iii) Consolidated statements of operations--Years ended
December 31, 1995, 1994 and 1993;................... 43
(iv) Consolidated statement of changes in stockholders'
equity--Years ended December 31, 1995, 1994 and 1993; 44
(v) Consolidated statements of cash flows--Years ended
December 31, 1995, 1994 and 1993;................... 45
(vi) Notes to consolidated financial statements.......... 47
(2) SCHEDULES
The following financial statement schedule required to be filed by
Item 8 and by paragraph (d) of Item 14 of Form 10-K is submitted
as a separate section of this report.
Schedule I - Condensed Financial Information of Registrant.... 73
Schedules II, III, IV, and VI have been omitted as all required
data is included in the Notes to Consolidated Financial
Statements.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE> 69
(3) EXHIBITS REQUIRED.
The following exhibits required by Item 601 of Regulation S-K and
by paragraph (c) of Item 14 of Form 10-K are listed by number
corresponding to the Exhibit Table of Item 601 of Regulation S-K.
3 Articles of Incorporation and the By-Laws as amended in the
fiscal year ended December 31, 1994.
4 A Specimen Common Stock Certificate is incorporated herein
by reference from the Registrant's Form 10-K for the fiscal
year ended December 31, 1985, in which it was included as an
exhibit.
10 The contracts listed below as 10(a) and 10(b) are
incorporated herein by reference from the Registrant's Form
10-K for the fiscal year ended December 31, 1985, and 10(c)
through 10(g) are amended or added for the fiscal year ended
December 31, 1987, 10(h) and 10(i) are for the fiscal year
ended December 31, 1988, 10(j) and 10(k) are for the fiscal
year ended December 31, 1989, 10(l) is amended for the
fiscal year ended December 31, 1990, 10(m) is amended for
the fiscal year ended December 31, 1995, 10(n) is amended
for the fiscal year ended December 31, 1996, 10(o) and 10(p)
are incorporated herein by reference from the Registrant's
Form 8-K dated October 5, 1994, 10(q) is incorporated herein
by reference from the Registrant's Form 10-K for the fiscal
year ended December 31, 1994, 10(r) is amended for the
fiscal year ended December 31, 1995, 10(s) and 10(t) are
incorporated herein by reference from the Registrant's
Form 10-Q dated November 13, 1994, 10(u) and 10(v) are
incorporated herein by reference from the Registrant's
Form 10-K for the fiscal year ended December 31, 1994, 10(w)
is amended for the fiscal year ended December 31, 1995, and
10(x) is incorporated herein by reference from the
Registrant's Form S-8 dated July 26, 1995.
10(a) First Amended Employment Agreement and
Retirement Agreement between the Company and
Louis W. Foster.
10(b) Life Insurance Agreement for key officers.
10(c) 20th Century Industries Restricted Shares Plan,
as amended.
10(d) Restricted Shares Agreement.
10(e) Split Dollar Insurance Agreement between the
Company and Stanley M. Burke, as trustee of the
1983 Foster Insurance Trust.
<PAGE> 70
10(f) Property Reinsurance Agreement No. 7288 between
the Company and General Reinsurance Corporation.
10(g) Note payable with Bank of America.
10(h) 20th Century Industries supplemental executive
retirement plan, as amended.
10(i) Amendment and restatement of 20th Century
Industries pension plan.
10(j) Software system agreement between the Company
and Management Science America, Inc.
10(k) Employment contract for a key officer.
10(l) 20th Century Industries Savings and Security
Plan, as amended.
10(m) Property Catastrophe Reinsurance Agreement No.
P3341-1 and 2 between 20th Century Insurance
Company and/or 21st Century Casualty Company and
Guy Carpenter and Company, Inc., a reinsurance
intermediary, as amended.
10(n) PELP Reinsurance Contract, as amended.
10(o) Letter of intent between the Company and
American International Group, Inc.
10(p) Stock Option Agreement between the Company and
American International Group, Inc.
10(q) Property Catastrophe Excess of Loss Reinsurance
Agreement between 20th Century Insurance Company
and/or 21st Century Casualty Company and
National Indemnity Company.
10(r) Credit Agreement between the Company, Union Bank
and The First National Bank of Chicago, as
amended.
10(s) Investment and Strategic Alliance Agreement
between the Company and American International
Group, Inc.
10(t) Amendment and Waiver between the Company, Union
Bank and The First National Bank of Chicago.
10(u) Amendment No. 2 and Waiver between the Company,
Union Bank and The First National Bank of
Chicago.
10(v) Amendment No. 1 to Investment and Strategic
Alliance Agreement between the Company and
American Internal Group, Inc.
<PAGE> 71
10(w) Quota Share Reinsurance Agreement between 20th
Century Insurance Company and American
International Insurance Company and 21st Century
Casualty Company and American International
Insurance Company, as amended.
10(x) 20th Century Industries Stock Option Plan for
eligible employees and nonemployee directors.
11 Computation of Earnings Per Common Share.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
28 Information from reports furnished to state insurance
regulatory authorities.
28(a) 20th Century Insurance Company
28(b) 21st Century Casualty Company
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed for the three months ended
December 31, 1995.
<PAGE> 72
<TABLE>
SCHEDULE I
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
ASSETS
DECEMBER 31,
------------------------------
1995 1994
---- ----
(Amounts in thousands, except share data)
<S> <C> <C>
Cash $ 8,699 $ 31,283
Accrued interest income - 499
Prepaid loan fees 7,794 6,520
Other current assets 1,485 1,701
Accounts receivable from subsidiaries 868 4,050
Investment in non-consolidated insurance
subsidiaries at equity 624,574 442,871
Other assets 14,068 12,371
-------- --------
$657,488 $499,295
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable to subsidiaries $ 322 $ 3,705
Accounts payable and accrued expenses 15,581 17,646
Bank loan payable 175,000 160,000
-------- --------
Total liabilities 190,903 181,351
-------- --------
Stockholders' equity:
Capital Stock
Preferred stock, par value $1.00 per share;
authorized 500,000 shares, none issued
Series A convertible preferred stock,
stated value $1,000 per share, authorized
376,126 shares, outstanding 224,950 in
1995 224,950 200,000
Common stock, without par value; author-
ized 110,000,000 shares, outstanding
51,493,406 in 1995 and 51,472,471 in
1994 69,805 69,340
Common stock warrants 16,000 16,000
Unrealized investment gains (losses) of
insurance subsidiaries - net 33,508 (39,777)
Retained earnings 122,322 72,381
-------- --------
Total stockholders' equity 466,585 317,944
-------- --------
$657,488 $499,295
======== ========
See note to condensed financial statements.
</TABLE>
<PAGE> 73
<TABLE>
SCHEDULE I
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands, except per share data)
REVENUES
<S> <C> <C> <C>
Interest $ 1,390 $ 1,139 $ 2
Other 1,269 - -
--------- --------- --------
Total 2,659 1,139 2
EXPENSES
Loan interest and fees 15,897 8,348 -
General and administrative 544 685 644
--------- --------- --------
Total 16,441 9,033 644
Loss before income tax refund (13,782) (7,894) (642)
Refund of income taxes (4,994) (2,763) (225)
--------- --------- --------
Net loss before equity in net
income of insurance subsidiaries (8,788) (5,131) (417)
Net income (loss) of non-consolidated
insurance subsidiaries 78,418 (492,889) 112,972
--------- --------- --------
NET INCOME (LOSS) $ 69,630 $(498,020) $112,555
========= ========= ========
EARNINGS (LOSS) PER COMMON SHARE
Primary $ .88 $ (9.69) $ 2.19
========= ========= ========
Fully diluted $ .88 $ (9.69)
========= =========
See note to condensed financial statements.
</TABLE>
<PAGE> 74
<TABLE>
SCHEDULE I
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 69,630 $(498,020) $ 112,555
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Net (income) loss of non-consolidated
insurance subsidiaries (78,418) 492,889 (112,972)
Reimbursement of depreciation and
amortization by non-consolidated
subsidiaries 572 550 586
Loss on sale of fixed assets 72 42 138
Effects of common stock issued
under restricted shares plan 465 492 417
Dividends received from non-consolidated
insurance subsidiaries - 16,471 33,120
Change in other assets, other
liabilities, and accrued
income taxes (4,116) (43,006) 17,285
--------- -------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ (11,795) $(30,582) $ 51,129
</TABLE>
<PAGE> 75
<TABLE>
SCHEDULE I
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(Continued)
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
(Amounts in thousands)
INVESTING ACTIVITIES:
<S> <C> <C> <C>
Capital contributed to 21st Century
Casualty Company $ - $ (40,841) $(17,500)
Capital contributed to 20th Century
Insurance Company (30,000) (256,612) -
Purchase of equipment (1,472) (478) (946)
Proceeds from sale of equipment 306 144 291
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (31,166) (297,787) (18,155)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 20,000 200,000 -
Proceeds from issuance of stock warrants - 16,000 -
Proceeds from bank loan 15,000 160,000 -
Dividends paid (14,623) (16,471) (32,926)
--------- --------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 20,377 (359,529) (32,926)
--------- --------- --------
Net increase (decrease) in cash (22,584) 31,160 48
Cash, beginning of year 31,283 123 75
--------- --------- --------
Cash, end of year $ 8,699 $ 31,283 $ 123
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid for interest was $12,636,000, $7,277,000 and $-0- for the years ended
December 31, 1995, 1994 and 1993, respectively.
See note to condensed financial statements.
</TABLE>
<PAGE> 76
SCHEDULE I
20TH CENTURY INDUSTRIES (PARENT COMPANY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
20th Century Industries and Subsidiaries.
<PAGE> 77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
(Registrant)
Date: March 27, 1996 By: William L. Mellick
-------------- -------------------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated on the 27th of
March, 1996.
SIGNATURE TITLE
--------- -----
President and Chief Executive Officer
William L. Mellick (Principal Executive Officer)
- - ------------------------------
Senior Vice President
and Chief Financial Officer
Robert B. Tschudy (Principal Financial Officer)
- - ------------------------------
Treasurer and Assistant Secretary
Margaret Chang (Principal Accounting Officer)
- - ------------------------------
<PAGE> 78
SIGNATURE TITLE
--------- -----
John B. Denault Chairman of the Board
- - -----------------------------
William L. Mellick Chief Executive Officer and Director
- - ------------------------------
Stanley M. Burke Director
- - -----------------------------
John B. Denault III Director
- - ------------------------------
Louis W. Foster Director
- - ------------------------------
R. Scott Foster, M.D. Director
- - ------------------------------
<PAGE> 79
GUY CARPENTER
Guy Carpenter & Company, Inc.
4 Embarcadero Center, San Francisco, Ca. 94111
Telephone: (415) 981-8900, Telex: 34-295
Page 1 of 5
No. 3341-00-0001-00-95-03-01-00
San Francisco, August 17, 1995
20th Century Insurance Company
6301 Owensmouth
Woodland Hills, California 91367
Gentlemen:
We are in receipt of confirmation that the following Reinsurance has
been effected for your account:
REASSURED 20th Century Insurance Company
21st Century Casualty Company
Woodland Hills, California
COVER Property Catastrophe Cover applying to all business
underwritten and classified by the Reassured as Homeowners'
(Section 1), Condominium Owners' (Section 1), Dwelling Fire,
Inland Marine, and Auto Physical Damage.
LIMIT $2,500,000 ultimate net loss each occurrence excess
$7,500,000 ultimate net loss each occurrence.
Reassured to retain at minimum 10% of limit hereon, net and
unreinsured.
DEFINITION OF
OCCURRENCE Any one disaster, accident or loss or series of disasters,
accidents or losses arising out of one event, subject to
maximum 168 consecutive hours in any one occurrence within
the area of one province, territory or state and provinces,
territories and states contiguous thereto and to one
another, except for:
72 Hours Clauses - Tornado, cyclone, hurricane, wind-
storm and hail.
- Riot, riot attending a strike,
civil commotion, vandalism and
malicious mischief.
No Reinstatement in the same event for Wind
This document is intended for use as evidence that reinsurance described above
has been effected against which reinsurers contract will be duly issued.
Immediate advice must be given of any discrepancies, inaccuracies or necessary
changes.
<PAGE> 80
Page 2 of 5
3341-00-0001-00-95-03-01-00
GUY CARPENTER
As respects the 168 Hour Clauses only one such 168
consecutive hours shall apply in respect of one event.
No loss caused by Perils as covered under the 72 hour
clauses may be included in any recovery made under the 168
hour provisions.
DURATION Losses occurring during the twelve-month period effective
12:01 a.m., P.D.T. July 1, 1995.
TERRITORY As original.
RATE Annual Minimum Premium $500,000.
Annual Deposit Premium $625,000 payable quarterly in advance
in four equal installments of $156,250.
Adjustable at 1.07% of Gross Net Earned Premium Income for
Homeowners' (Section 1), Condominium Owners' (Section 1),
Dwelling Fire, and Inland Marine, for the period.
PROFIT
COMMISSION If this contract remains in effect for a continuous two year
period from July 1, 1995 and the premiums paid exceed the
claims incurred under this Contract, then the Company will
be entitled to a "Return Premium" (RP). The "Return
Premium" shall be equal to the greater of zero or 20% of the
"Profit Balance" under the contract for the two year period.
The "Profit Balance" is equal to 80% the total premiums,
including reinstatement premiums paid during the two year
period, less claims incurred during the period.
At that date that such a Return Premium is agreed by both
parties and the return payment is made by the Reinsurer to
the Company this shall constitute the commutation of this
Contract and such payment once effected shall be regarded as
a full and final release of the Reinsurer from all liability
hereunder.
Should the Reinsurer decline to offer a renewal at similar
terms as expiring, in relation to the exposure presented,
then the Return Premium provision shall be calculated in the
years actually reinsured subject to the above mentioned
conditions.
REINSTATEMENT One annual reinstatement at additional premium 100% as to
time and pro rata as to amount.
<PAGE> 81
Page 3 of 5
3341-00-0001-00-95-03-01-00
GUY CARPENTER
Simultaneous settlement of reinstatement premium on paid
losses.
EXCLUSIONS See attached Exclusion List.
NON ADMITTED
REINSURERS Agree to provide clean, irrevocable and unconditional
letters of Credit as respects outstanding loss reserves,
IBNR and LAE.
GENERAL
CONDITIONS Ultimate Net Loss Clause - Reassured to have benefit of
underlying catastrophe excess
of loss reinsurance, recoveries
under which shall inure to its
sole benefit.
Net Retained Lines Clause
Service of Suit Clause
Indemnification and Errors and Omissions Clause
Extended Expiration Clause
Guy Carpenter Intermediary Clause
* * *
<PAGE> 82
Page 4 of 5
3341-00-0001-00-95-03-01-00
GUY CARPENTER
Guy Carpenter & Company, Inc.
4 Embarcadero Center, San Francisco, Ca. 94111
Telephone: (415) 981-8900, Telex: 34-295
FOREIGN REINSURER
- - -----------------
Renaissance Reinsurance Company (Bermuda) 90.00%
GUY CARPENTER & COMPANY, INC.
Timothy J. Brophy
Senior Vice President
Each reinsurer subscribing the coverage evidenced by this cover note and named
in it has bound itself only for its own part and not one for any other and
only for is proportion of the total coverage evidenced by this cover note.
<PAGE> 83
Page 5 of 5
3341-00-0001-00-95-03-01-00
GUY CARPENTER
20TH CENTURY INSURANCE COMPANY
FIRST PROPERTY CATASTROPHE COVER
--------------------------------
EXCLUSION LIST
--------------
1. Nuclear Incident Exclusion Clauses - Physical Damage - Reinsurance.
2. Flood and/or Earthquake when written alone.
3. Mortgage Impairment Business.
4. Pools, Associations and Syndicates in accordance with the Pools,
Associations and Syndicates Exclusion Clause.
5. All reinsurance assumed other than facultative.
6. War risk, bombardment, invasion, insurrection, rebellion, revolution,
military or usurped power, or confiscation by order of any government or
public authority, as excluded under a standard policy containing a
standard War Exclusion Clause.
7. Insolvency Funds Exclusion Clause.
8. Third Party Bodily Injury or Death Liability, Third Party Personal Injury
Liability, Third Party Property Damage Liability and Medical Payments
insurance. However, nothing herein contained shall be construed as
excluding liability for damage to property in an insured's care, custody
or control for which the insured may be liable.
9. Excluding Loss/or Damage/or Costs/or Expenses arising from Seepage and/or
Pollution and/or Contamination, other than Contamination from Smoke
Damage. Nevertheless, this exclusion does not preclude any payment of
the cost of the removal of debris of property damaged by a loss otherwise
covered hereunder but subject always to a limit of 25% of the Reassured's
property loss under the original policy.
10. Special Programs as declared by the Reassured.
11. Extra Contractual Obligations and Exess of Original Policy Limits -
wording to be agreed.
<PAGE> 84
GUY CARPENTER
Guy Carpenter & Company, Inc.
4 Embarcadero Center, San Francisco, Ca. 94111
Telephone: (415) 981-8900, Telex: 34-295
Page 1 of 8
No. 3341-00-0001-00-95-03-02-00
San Francisco, August 17, 1995
20th Century Insurance Company
6301 Owensmouth
Woodland Hills, California 91367
Gentlemen:
We are in receipt of confirmation that the following reinsurance has
been effected for your account:
REASSURED 20th Century Insurance Company
21st Century Casualty Company
Woodland Hills, California
COVER Property Catastrophe Cover applying to all business
underwritten and classified by the Reassured as Homeowners'
(Section 1), Condominium Owners' (Section 1), Dwelling Fire,
Inland Marine, and Auto Physical Damage.
LIMIT $90,000,000 ultimate net loss each occurrence excess
$10,000,000 ultimate net loss each occurrence.
Reassured to retain at minimum 5% of limit hereon, net and
unreinsured.
DEFINITION OF
OCCURRENCE Any one disaster, accident or loss or series of disasters,
accidents or losses arising out of one event, subject to
maximum 168 consecutive hours in any one occurrence within
the area of one province, territory or state and provinces,
territories and states contiguous thereto and to one
another, except for:
72 Hours Clauses - Tornado, cyclone, hurricane, wind-
storm and hail.
- Riot, riot attending a strike,
civil commotion, vandalism and
malicious mischief.
This document is intended for use as evidence that reinsurance described above
has been effected against which reinsurers contract will be duly issued.
Immediate advice must be given of any discrepancies, inaccuracies or necessary
changes.
<PAGE> 85
GUY CARPENTER
Page 2 of 8
3341-00-0001-00-95-03-02-00
No Reinstatement in the same event for Wind
As respects the 168 Hour Clauses only one such 168
consecutive hours shall apply in respect of one event.
No loss caused by Perils as covered under the 72 hour
clauses may be included in any recovery made under the 168
hour provisions.
DURATION Losses occurring during the twelve-month period effective
12:01 a.m., P.D.T. July 1, 1995.
TERRITORY As original.
RATE Annual Minimum Premium $10,440,000.
Annual Deposit Premium $13,050,000 payable quarterly in
advance in four equal installments of $3,262,500.
Adjustable at 22.32% of Gross Net Earned Premium Income for
Homeowners' (Section 1), Condominium Owners' (Section 1),
Dwelling Fire, and Inland Marine, for the period.
REINSTATEMENT One annual reinstatement at additional premium 100% as to
time and pro rata as to amount.
Simultaneous settlement of reinstatement premium on paid
losses.
EXCLUSIONS See attached Exclusion List.
NON ADMITTED
REINSURERS Agree to provide clean, irrevocable and unconditional
letters of Credit as respects outstanding loss reserves,
IBNR and LAE.
GENERAL
CONDITIONS Ultimate Net Loss Clause - Reassured to have benefit of
underlying catastrophe excess
of loss re insuranc e,
recoveries under which shall
inure to its sole benefit.
<PAGE> 86
GUY CARPENTER
Page 3 of 8
3341-00-0001-00-95-03-02-00
Net Retained Lines Clause
Service of Suit Clause
Several Liability Notice (LSW 1001)
Indemnification and Errors and Omissions Clause
Extended Expiration Clause
Guy Carpenter Intermediary Clause
INFORMATION: No Earthquake Shock Endorsement in effect after August 30th,
1995
* * *
<PAGE> 87
GUY CARPENTER
Page 4 of 8
3341-00-0001-00-95-03-02-00
DOMESTIC REINSURERS:
- - -------------------
Allmerica Re. 0.1112%
Fester, Fothergill and Hartung on behalf of: 0.2565%
Folksamerica Reinsurance Company
Folksamerica Reinsurance Company 0.5000%
Frankona America Reinsurance Company 0.3611%
Hartford Reinsurance Management Company on behalf of: 0.1944%
Hartford Fire Insurance Company
The Mercantile and General Reinsurance Company of America 0.3231%
Nationwide Mutual Insurance Company 0.7518%
Prudential Reinsurance Company 1.3889%
Shelter Reinsurance Company 0.1944%
Sydney Reinsurance Corporation 0.5258%
The Toa-Re Insurance Company of America 0.2344%
Thru The Mercantile and General Reinsurance Company of America
Transatlantic Reinsurance Company 3.2157%
United Fire and Casualty Company 0.0863%
USF Re. Insurance Company 0.1944%
Vesta Fire Insurance Corporation 4.4444%
Zenith Insurance Company 0.1000%
-------
12.8824%
========
Each reinsurer subscribing the coverage evidenced by this cover note and named
in it has bound itself only for its own part and not one for any other and
only for is proportion of the total coverage evidenced by this cover note.
<PAGE> 88
GUY CARPENTER
Page 5 of 8
3341-00-0001-00-95-03-02-00
FOREIGN REINSURERS (Other than London Market Reinsurers):
- - --------------------------------------------------------
Carpenter Bowring (Australia) Ltd. on behalf of: 1.1850%
REAC
Carpenter Bowring (Bermuda) Ltd. on behalf of: 7.7778%
Mid Ocean Re
Central Reinsurance Corporation (Republic of China) 0.0556%
Centre Cat Limited (Bermuda) 9.4800%
Copenhagen Reinsurance Company Ltd. - (Denmark) 0.5777%
Global Capital Reinsurance Ltd. (Bermuda) 3.8889%
International Property Catastrophe Reinsurance Company Ltd.
(Bermuda) 5.8047%
LaSalle Re. Limited (Bermuda) 2.4042%
Nissan Fire & Marine Insurance Company Limited (Japan) 0.2222%
Renaissance Reinsurance Company (Bermuda) 11.1111%
Sirius International Insurance Corporation (Sweden) 0.1333%
Tempest Re. (Bermuda) 13.1559%
UFREAS:
- - ------
AXA Reassurance (France) 4.4445%
Compagnie Transcontinentale de Reassurances - (France) 0.2924%
Corifrance (France) 0.1667%
La Reunion Francaise 1.1112%
-------
Par Societe Parisienne de Souscription (France)
61.8112%
========
Each reinsurer subscribing the coverage evidenced by this cover note and named
in it has bound itself only for its own part and not one for any other and
only for is proportion of the total coverage evidenced by this cover note.
<PAGE> 89
GUY CARPENTER
Page 6 of 8
3341-00-0001-00-95-03-02-00
LONDON COMPANIES
- - -----------------
CNA International Reinsurance Company Limited 0.8052%
London, England
The Copenhagen Reinsurance Company (U.K.) Limited
London, England 0.2818%
Liberty Mutual Insurance Company (U.K.) Limited 0.8053%
London, England
QBE International Insurance Limited 1.1918%
London, England
Sphere Drake Insurance (UK) 0.2684%
London, England
St. Paul Reinsurance Company Limited 0.5369%
London, England
Zurich Reinsurance (UK) Limited 0.8053%
-------
London, England
4.6947
======
Part of 20.3064
Part of 100.0000%
Federal Excise Tax is not applicable.
Each reinsurer subscribing the coverage evidenced by this cover note and named
in it has bound itself only for its own part and not one for any other and
only for is proportion of the total coverage evidenced by this cover note.
<PAGE> 90
GUY CARPENTER
Page 7 of 8
3341-00-0001-00-95-03-02-00
LLOYD'S UNDERWRITERS
- - --------------------
15.6117%
Part of 20.3064%
Part of 100.0000%
Syndicate Syndicate No. Syndicate Syndicate
--------- ------------- --------- ---------
No.
---
0.9395% HGJ 205 0.5369% DFB 183
0.8053% JHV 376 0.1879% PWH 382
0.4027% RAE 219 0.4026% AMU 529
1.3421% WEH 362 0.5369% SAM 727
1.6105% KJC 40 0.1610% MVH 1093
0.2014% AER 33 0.4687% RGB 490
0.2013% SEB 1165 0.0682% RGB 2490
0.4698% HRD 1028 0.1073% CFP 314
0.0536% PJG 79 0.2416% COX 590
0.2684% NMT 1174 0.1342% PTZ 1095
0.2684% TMH 625 0.0537% MEW 1069
0.0537% GLR 55 0.0601% JPB 322
2.6843% SJC 1003 0.0204% FRA 2322
0.2684% BFC 780 0.1074% JEM 1141
0.4778% GSC 958 0.1074% DJN 1096
0.0483% GCG 179 1.2079% IAM 672
0.5369% SVH 1007 0.0859% BER 539
0.1342% MED 609 0.0215% COT 538
0.0671% BAR 990 0.2684% GNR 570
GUY CARPENTER & COMPANY, INC.
Timothy J. Brophy
Senior Vice President
Each reinsurer subscribing the coverage evidenced by this cover note and named
in it has bound itself only for its own part and not one for any other and
only for is proportion of the total coverage evidenced by this cover note.
<PAGE> 91
GUY CARPENTER
Page 8 of 8
3341-00-0001-00-95-03-02-00
20TH CENTURY INSURANCE COMPANY
FIRST PROPERTY CATASTROPHE COVER
--------------------------------
EXCLUSION LIST
--------------
1. Nuclear Incident Exclusion Clauses - Physical Damage - Reinsurance.
2. Flood and/or Earthquake when written alone.
3. Mortgage Impairment Business.
4. Pools, Associations and Syndicates in accordance with the Pools,
Associations and Syndicates Exclusion Clause.
5. All reinsurance assumed other than facultative.
6. War risk, bombardment, invasion, insurrection, rebellion, revolution,
military or usurped power, or confiscation by order of any government or
public authority, as excluded under a standard policy containing a
standard War Exclusion Clause.
7. Insolvency Funds Exclusion Clause.
8. Third Party Bodily Injury or Death Liability, Third Party Personal Injury
Liability, Third Party Property Damage Liability and Medical Payments
insurance. However, nothing herein contained shall be construed as
excluding liability for damage to property in an insured's care, custody
or control for which the insured may be liable.
9. Excluding Loss/or Damage/or Costs/or Expenses arising from Seepage and/or
Pollution and/or Contamination, other than Contamination from Smoke
Damage. Nevertheless, this exclusion does not preclude any pay-ment of
the cost of the removal of debris of property damaged by a loss otherwise
covered hereunder but subject always to a limit of 25% of the Reassured's
property loss under the original policy.
10. Special Programs as declared by the Reassured.
11. Extra Contractual Obligations and Exess of Original Policy Limits -
wording to be agreed.
<PAGE> 92
GUY CARPENTER
Guy Carpenter & Company, Inc.
4 Embarcadero Center, San Francisco, Ca. 94111
Telephone: (415) 981-8900, Telex: 34-295
Endorsement No. 1
No. 3341-00-0001-00-95-03-02-00
San Francisco, August 17, 1995
20th Century Insurance Company
6301 Owensmouth
Woodland Hills, California 91367
Gentlemen:
It is hereby understood and agreed that, effective 12:01 a.m., P.D.T.
August 1, 1995, the undersigned Reinsurer's participation will be amended for
the term August 1, 1995 to July 1, 1996 as follows:
Centre Cat Limited (Bermuda) 7.4800%
Furthermore, for the period July 1, 1995 to August 1, 1995, Centre Cat
Limited will receive pro-rata reinsurance premium in the amount of $103,095.00
in consideration for coverage during that period.
Tempest Re. (Bermuda) 9.1559%
Furthermore, for the period July 1, 1995 to August 1, 1995, Tempest Re.
will receive pro-rata reinsurance premium in the amount of $143,070.41 in
consideration for coverage during that period.
International Property Catastrophe Reinsurance Company Ltd. 11.8047%
All other terms and conditions remain unchanged.
GUY CARPENTER & COMPANY, INC.
Timothy J. Brophy
Senior Vice President
This document is intended for use as evidence that reinsurance described above
has been effected against which reinsurers contract will be duly issued.
Immediate advice must be given of any discrepancies, inaccuracies or necessary
changes.
<PAGE> 93
GUY CARPENTER
Guy Carpenter & Company, Inc.
4 Embarcadero Center, San Francisco, Ca. 94111
Telephone: (415) 981-8900, Telex: 34-295
Page 1 of 6
No. 3341-00-0002-00-96-03-00-00
San Francisco, January 19, 1996
20th Century Insurance Company
6301 Owensmouth
Woodland Hills, California 91367
Gentlemen:
We are in receipt of confirmation that the following reinsurance has
been effected for your account:
REASSURED 20th Century Insurance Company
21st Century Casualty Company
Woodland Hills, California
TREATY 60% QUOTA SHARE TREATY applying to all business classified
by the Reassured as Personal Excess Liability Policy
(P.E.L.P.).
LIMIT 60% Quota Share of a maximum of $1,000,000 CSL any one risk.
(Maximum cession $600,000 CSL any one risk).
The Reassured shall be the sole judge of what constitutes
one risk.
TERRITORY This reinsurance shall apply wherever the Reassured's
policies apply.
RETENTION 40% Quota Share subject only to Contingency Reinsurance.
Recoveries under which shall inure to the Reassured's sole
benefit.
PERIOD Continuous and to apply to new, renewal and reunderwritten
policies incepting on and after 12:01 A.M., Pacific Standard
Time January 1, 1996.
<PAGE> 94
GUY CARPENTER
Page 2 of 6
3341-00-0002-00-96-03-00-00
CANCELLATION At 12:01 A.M,. Pacific Standard Time of any January 1
following 90 days' notice. In the event of cancellation,
the Reassured shall have the option of terminating
Reinsurers' liability in force at cancellation date with
return by Reinsurers of the unearned premium portfolio, or
of continuing Reinsurers' liability until the first
anniversary date following cancellation.
Irrespective of the cancellation option chosen by the
Reassured, Reinsurers will remain liable for losses
occurring on risks in force at cancellation which for any
reason the Reassured is unable to cancel but in no event
shall Reinsurers liability continue for more than three
years from cancellation date.
PREMIUM AND
COMMISSION Gross original rates as allocated by the Reassured less
22.5% commission.
ACCOUNTS Quarterly within 45 days of close of quarter with settlement
within 60 days of close of quarter.
CASH LOSSES $100,000
WARRANTY Reassured shall use only their Policy.
EXCLUSIONS As per attached Exclusion List.
LOSS ADJUSTMENT &
LEGAL EXPENSES Pro rated and in proportion to each party's share of loss
and in addition to limit hereof, except where the limit of
the Reassured's policy includes defense costs as part of the
limit.
STATISTICAL
REPORTS Quarterly reports of unearned premiums and outstanding
losses.
NON-ADMITTED
REINSURERS Agree to provide clean, irrevocable and unconditional
Letters of Credit as respects outstanding loss reserves,
IBNR, LAE and unearned premiums.
<PAGE> 95
GUY CARPENTER
Page 3 of 6
3341-00-0002-00-96-03-00-00
CLAUSES Extended Expiration Clause
Original Conditions Clause
Extra Contractual Obligations Clause (Combined contractual
and extra contractual loss not to exceed the limit of this
Reinsurance).
Excess of Policy Limits Clause
Access to Records Clause
Errors and Omissions Clause
Tax/Federal Excise Tax Statutory Amount
Service of Suit Clause
Arbitration Clause
Insolvency Clause
Guy Carpenter Intermediary Clause
<PAGE> 96
GUY CARPENTER
Page 4 of 6
3341-00-0002-00-96-03-00-00
REINSURERS
- - ----------
The Mercantile and General Reinsurance Company of America 15.0%
SCOR Reinsurance Company 15.0%
Underwriters Reinsurance Company 30.0%
-----
60.0%
=====
GUY CARPENTER & COMPANY, INC.
Timothy J. Brophy
Senior Vice President
<PAGE> 97
GUY CARPENTER
Page 5 of 6
3341-00-0002-00-96-03-00-00
20TH CENTURY INSURANCE COMPANY
PERSONAL EXCESS LIABILITY QUOTA SHARE TREATY
--------------------------------------------
EXCLUSION LIST
--------------
This Contract does not apply to and specifically excludes the following:
1. Perils and clauses which are excluded in the Reassureds Personal
Excess Liability Policy (P.E.L.P.).
2. Assumed Reinsurance except Agency Reinsurance.
3. Nuclear Incident Exclusion Clause.
4. War risks, bombardment, invasion, insurrection, rebellion,
revolution, military or usurped power, and confiscation by order of
any government or civil authority, as excluded under a standard
policy containing a standard war exclusion clause.
5. Accident and Health Insurance.
6. Losses arising out of seepage and pollution as per original
exclusions. However, this exclusion shall not apply when the
Reassured includes its seepage and pollution exclusion on a policy
and the judicial entity having legal jurisdiction invalidates the
Reassured's exclusion, thereby obligating the Reassured for liability
for seepage and pollution when such liability was intended to be
excluded from coverage by the Reassured's seepage and pollution
exclusion.
7. All liability of the Company arising, by contract, operation of law,
or otherwise, from its participation or membership, whether voluntary
or involuntary, in any insolvency fund. "Insolvency Fund" includes
any guaranty fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed;
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which is
otherwise deemed unable to meet any claim, debt, charge, fee, or
other obligation in whole or in part.
<PAGE> 98
GUY CARPENTER
Page 6 of 6
3341-00-0002-00-96-03-00-00
LOSSES AND LOSS ADJUSTMENT EXPENSES
-----------------------------------
As provided in the Original Conditions and Liability of Reinsurer
Article, the Company shall settle all losses, and such settlements shall be
unconditionally binding upon the Reinsurer in proportion to its participation.
In addition to the limit hereunder, as shown in the Limit Article,
the Reinsurer shall be liable for its pro rata share of all loss adjustment
expenses, as defined herein, incurred by the Company in connection with the
settlement of, resistance to and negotiations concerning claims and losses.
Notwithstanding the foregoing, if the Company's policy includes defense costs
as part of the policy limit, such defense costs shall be included with the
loss (if any) in making up the recovery from the Reinsurer, up to the limit of
this Agreement.
The term "loss adjustment expenses" shall mean court costs, interest
upon awards and judgments, allocated expenses for investigation and
adjustment, and all allocated legal expenses paid by the Company which shall
include all legal expense and costs associated with any declaratory judgment
actions brought to determine the Company's defense and/or indemnification
obligations arising under policies ceded to this Agreement. The Reinsurer
shall not, however, be required to contribute to the salary charges of any
officials or permanent employees of the Company except in the case of field
claim adjusters or staff attorneys, and then only when the time spent by any
adjuster or staff attorney is definitely allocated to a specific claim or
loss.
The Reinsurer shall be credited with its proportionate share of
salvage or recovery made by the Company on account of claims and settlement
involving reinsurance hereunder. The Company hereby agrees to enforce its
rights to salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer and to prosecute all claims arising out of such
rights. All salvages, recoveries or payments recovered or received subsequent
to a loss settlement under this Agreement shall be applied as if recovered or
received prior to the aforesaid settlement, and all necessary adjustment shall
be made by the parties hereto.
The amounts due from the Reinsurer shall be charged in the quarterly
accounts. If the amount due from the Reinsurer in respect of any one loss
exceeds its percentage of $100,000 the Reinsurer shall upon demand forthwith
remit the amount due. The Reinsurer reserves the right to reduce such amount
by the amount of any balances under this Agreement which may be due to the
Reinsurer in current account.
<PAGE> 99
[EXECUTION COPY]
- - ------------------------------------------------------------------------------
$225,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
20TH CENTURY INDUSTRIES,
as Borrower
UNION BANK,
as Agent and as Lender
THE FIRST NATIONAL BANK OF CHICAGO,
as Documentary Agent and as Lender
THE BANK OF NEW YORK, FLEET NATIONAL BANK OF CONNECTICUT and
THE CHASE MANHATTAN BANK, N.A.
as Co-Agents and as Lenders
FIRST UNION BANK OF NORTH CAROLINA,
as Lead Manager and as Lender
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
DATED AS OF
December 7, 1995
- - ------------------------------------------------------------------------------
<PAGE> 100
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
THE CREDITS. . . . . . . . . . . . . . . . . . . . . . . . 15
2.1. Advances. . . . . . . . . . . . . . . . . . . . . . . 15
2.2. Ratable Loans . . . . . . . . . . . . . . . . . . . . 15
2.3. Types of Advances . . . . . . . . . . . . . . . . . . 15
2.4. Commitment Fee; Reductions in Aggregate Revolving
Credit Commitment; Amendment Fee. . . . . . . . . . . 16
2.5. Minimum Amount of Each Advance. . . . . . . . . . . . 16
2.6. Optional Principal Payments . . . . . . . . . . . . . 16
2.7. Mandatory Commitment Reductions and Prepayments. . . 16
2.8. Method of Selecting Types and Interest Periods
for New Advances . . . . . . . . . . . . . . . . . . 18
2.9. Conversion and Continuation of Outstanding Advances. 18
2.10. Changes in Interest Rate, etc. . . . . . . . . . 19
2.11. Rates Applicable After Default . . . . . . . . . 19
2.12. Method of Payment. . . . . . . . . . . . . . . . 19
2.13. Notes; Telephonic Notices. . . . . . . . . . . . 20
2.14. Interest Payment Dates; Interest and Fee Basis . 20
2.15. Notification of Advances, Interest Rates,
Prepayments and Commitment Reductions . . . . . 20
2.16. Lending Installations. . . . . . . . . . . . . . 20
2.17. Non-Receipt of Funds by the Agent. . . . . . . . 21
2.18. Taxes. . . . . . . . . . . . . . . . . . . . . . 21
2.19. Agents' Fees . . . . . . . . . . . . . . . . . . 22
ARTICLE III
CHANGE IN CIRCUMSTANCES. . . . . . . . . . . . . . . . . . 22
3.1. Yield Protection. . . . . . . . . . . . . . . . . . . 22
3.2. Changes in Capital Adequacy Regulations . . . . . . . 23
3.3. Availability of Types of Advances . . . . . . . . . . 23
3.4. Funding Indemnification . . . . . . . . . . . . . . . 24
3.5. Lender Statements; Survival of Indemnity. . . . . . . 24
<PAGE> 101
ARTICLE IV
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . 24
4.1. Effectiveness of this Agreement and the Initial
Loans Hereunder . . . . . . . . . . . . . . . . . . . 24
4.2. Each Future Advance . . . . . . . . . . . . . . . . . 26
ARTICLE V
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 26
5.1. Corporate Existence and Standing. . . . . . . . . . . 26
5.2. Authorization and Validity. . . . . . . . . . . . . . 26
5.3. Compliance with Laws and Contracts. . . . . . . . . . 27
5.4. Governmental Consents . . . . . . . . . . . . . . . . 27
5.5. Financial Statements. . . . . . . . . . . . . . . . . 27
5.6. Material Adverse Change . . . . . . . . . . . . . . . 28
5.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8. Litigation and Contingent Obligations . . . . . . . . 28
5.9. Capitalization. . . . . . . . . . . . . . . . . . . . 28
5.10. ERISA. . . . . . . . . . . . . . . . . . . . . . 29
5.11. Defaults . . . . . . . . . . . . . . . . . . . . 29
5.12. Federal Reserve Regulations. . . . . . . . . . . 29
5.13. Investment Company . . . . . . . . . . . . . . . 29
5.14. Certain Fees . . . . . . . . . . . . . . . . . . 29
5.15. Solvency . . . . . . . . . . . . . . . . . . . . 30
5.16. Ownership of Properties. . . . . . . . . . . . . 30
5.17. Employee Controversies . . . . . . . . . . . . . 30
5.18. Material Agreements. . . . . . . . . . . . . . . 30
5.19. Environmental Laws . . . . . . . . . . . . . . . 30
5.20. Insurance. . . . . . . . . . . . . . . . . . . . 31
5.21. Security . . . . . . . . . . . . . . . . . . . . 31
5.22. Insurance Licenses . . . . . . . . . . . . . . . 31
5.23. Disclosure . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 31
6.1. Financial Reporting . . . . . . . . . . . . . . . . . 32
6.2. Use of Proceeds . . . . . . . . . . . . . . . . . . . 34
6.3. Notice of Default and Other Matters . . . . . . . . . 34
6.4. Conduct of Business . . . . . . . . . . . . . . . . . 34
6.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 34
6.6. Compliance with Laws. . . . . . . . . . . . . . . . . 35
6.7. Maintenance of Properties . . . . . . . . . . . . . . 35
<PAGE> 102
6.8. Inspection. . . . . . . . . . . . . . . . . . . . . . 35
6.9. Capital Stock and Dividends. . . . . . . . . . . . . 35
6.10. Indebtedness . . . . . . . . . . . . . . . . . . 36
6.11. Merger . . . . . . . . . . . . . . . . . . . . . 36
6.12. Sale of Assets . . . . . . . . . . . . . . . . . 36
6.13. Sale and Leaseback . . . . . . . . . . . . . . . 37
6.14. Investments and Purchases. . . . . . . . . . . . 37
6.15. Contingent Obligations . . . . . . . . . . . . . 38
6.16. Liens. . . . . . . . . . . . . . . . . . . . . . 38
6.17. Affiliates . . . . . . . . . . . . . . . . . . . 39
6.18. Environmental Matters. . . . . . . . . . . . . . 39
6.19. Change in Corporate Structure; Fiscal Year . . . 39
6.20. Inconsistent Agreements. . . . . . . . . . . . . 39
6.21. Financial Covenants. . . . . . . . . . . . . . . 40
6.22. Insurance Company Financial Covenants. . . . . . 40
6.22.1. Surplus as Regards Policyholders. . . . . . . . . 40
6.22.2. Operating Leverage. . . . . . . . . . . . . . . . 40
6.22.3. Coverage Ratio. . . . . . . . . . . . . . . . . . 40
6.23. Tax Consolidation. . . . . . . . . . . . . . . . 40
6.24. ERISA Compliance . . . . . . . . . . . . . . . . 41
6.25. No Earthquake Insurance Coverage . . . . . . . . 41
ARTICLE VII
DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES . . . . . . 44
8.1. Acceleration. . . . . . . . . . . . . . . . . . . . . 44
8.2. Amendments. . . . . . . . . . . . . . . . . . . . . . 44
8.3. Preservation of Rights. . . . . . . . . . . . . . . . 45
8.4. Limitation of Rights. . . . . . . . . . . . . . . . . 45
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 45
9.1. Survival of Representations . . . . . . . . . . . . . 45
9.2. Governmental Regulation . . . . . . . . . . . . . . . 45
9.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 46
9.4. Headings. . . . . . . . . . . . . . . . . . . . . . . 46
9.5. Entire Agreement. . . . . . . . . . . . . . . . . . . 46
9.6. Several Obligations; Benefits of this Agreement . . . 46
9.7. Expenses; Indemnification . . . . . . . . . . . . . . 46
<PAGE> 103
9.8. Numbers of Documents. . . . . . . . . . . . . . . . . 46
9.9. Accounting. . . . . . . . . . . . . . . . . . . . . . 46
9.10. Severability of Provisions . . . . . . . . . . . 47
9.11. Non-liability of Lenders . . . . . . . . . . . . 47
9.12. CHOICE OF LAW. . . . . . . . . . . . . . . . . . 47
9.13. NON-EXCLUSIVE CONSENT TO JURISDICTION. . . . . . 47
9.14. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . 47
9.15. Disclosure . . . . . . . . . . . . . . . . . . . 47
9.16. Counterparts . . . . . . . . . . . . . . . . . . 48
9.17. Consent. . . . . . . . . . . . . . . . . . . . . 48
9.18. Effect of Restatement. . . . . . . . . . . . . . 48
9.19. Exiting Lender . . . . . . . . . . . . . . . . . 48
ARTICLE X
THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . 48
10.1. Appointment. . . . . . . . . . . . . . . . . . . 48
10.2. Powers . . . . . . . . . . . . . . . . . . . . . 49
10.3. General Immunity . . . . . . . . . . . . . . . . 49
10.4. No Responsibility for Loans, Recitals, etc.. . . 49
10.5. Action on Instructions of Lenders. . . . . . . . 49
10.6. Employment of Agents and Counsel . . . . . . . . 49
10.7. Reliance on Documents; Counsel . . . . . . . . . 50
10.8. Agent's Reimbursement and Indemnification. . . . 50
10.9. Notice of Default. . . . . . . . . . . . . . . . 50
10.10. Rights as a Lender . . . . . . . . . . . . . . . 50
10.11. Lender Credit Decision . . . . . . . . . . . . . 50
10.12. Successor Agent. . . . . . . . . . . . . . . . . 51
10.13. Documentary Agent. . . . . . . . . . . . . . . . 51
ARTICLE XI
SETOFF; RATABLE PAYMENTS . . . . . . . . . . . . . . . . . 51
11.1. Setoff . . . . . . . . . . . . . . . . . . . . . 51
11.2. Ratable Payments . . . . . . . . . . . . . . . . 52
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS. . . . . 52
12.1. Successors and Assigns . . . . . . . . . . . . . 52
12.2. Participations.. . . . . . . . . . . . . . . . . 52
12.2.1. Permitted Participants; Effect. . . . . 52
12.2.2. Voting Rights . . . . . . . . . . . . . 53
12.2.3. Benefit of Setoff . . . . . . . . . . . 53
<PAGE> 104
12.3. Assignments. . . . . . . . . . . . . . . . . . . 53
12.3.1. Permitted Assignments . . . . . . . . . 53
12.3.2. Effect; Effective Date. . . . . . . . . 53
12.4. Dissemination of Information . . . . . . . . . . 54
12.5. Tax Treatment. . . . . . . . . . . . . . . . . . 54
ARTICLE XIII
NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 54
13.1. Giving Notice. . . . . . . . . . . . . . . . . . 54
13.2. Change of Address. . . . . . . . . . . . . . . . 54
<PAGE> 105
EXHIBITS
--------
Exhibit A (Section 1) Note
Exhibit B (Section 1) Pledge Amendment
Exhibit C (Section 6.1(g)) Quarterly Compliance Certificate
Exhibit D (Section 6.1(h)) Monthly Compliance Certificate
Exhibit E (Section 12.3.1) Assignment Agreement
SCHEDULES
---------
Schedule 2.1 - Loans and Repayments
Schedule 5.7 - Taxes
Schedule 5.8 - Litigation and Material Contingent Obligations
Schedule 5.9 - Capitalization
Schedule 5.10 - ERISA
Schedule 5.16 - Owned and Leased Properties
Schedule 5.22 - License Jurisdictions
Schedule 6.10 - Indebtedness
Schedule 6.14 - Investments
Schedule 6.16 - Liens
<PAGE> 106
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement, dated as of December 7, 1995,
is by and among 20TH CENTURY INDUSTRIES, a California corporation, the
Lenders, UNION BANK, individually and as Agent, and THE FIRST NATIONAL BANK OF
CHICAGO, individually and as Documentary Agent.
R E C I T A L S:
----------------
A. The Borrower, the Agents and certain financial institutions (the
"Existing Lenders") have entered into that certain Credit Agreement dated as
----------------
of June 30, 1994, as amended by amendments dated as of October 17, 1994,
December 31, 1994 and April 10, 1995 (as so amended, the "Prior Credit
------------
Agreement") pursuant to which the Existing Lenders agreed to make revolving
- - ---------
loans to the Borrower under a revolving credit facility, subject to certain
restrictions set forth therein, in an aggregate principal amount not to exceed
$175,000,000 at any one time outstanding.
B. The Borrower has requested that the Prior Credit Agreement be
amended and restated in order to increase the size of such revolving credit
facility to $225,000,000 and to make certain other changes to the Prior Credit
Agreement.
C. The Borrower, the Agents and the Existing Lenders desire to amend
and restate the Prior Credit Agreement to, among other things, accomplish such
amendments.
D. The Lenders which are not Existing Lenders wish to become parties
hereto.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Borrower, the Lenders
and the Agents hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Advance" means a borrowing pursuant to Section 2.1 consisting of the
-------
aggregate amount of the several Loans made on the same Borrowing Date by the
Lenders to the Borrower of the same Type and, in the case of Eurodollar
Advances, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10%
or more of any class of voting securities (or other ownership interests) of
the controlled Person or possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies of the controlled
Person, whether through ownership of stock, by contract or otherwise.
<PAGE> 107
"Agent" means Union Bank in its capacity as agent for the Lenders
-----
pursuant to Article X, and not in its individual capacity as a Lender, and any
successor Agent appointed pursuant to Article X.
"Agents" means, collectively, the Agent and the Documentary Agent.
------
"Aggregate Revolving Credit Commitment" means the aggregate of the
----------------------------------------
Revolving Credit Commitments of all the Lenders hereunder.
"Agreement" means this Amended and Restated Credit Agreement, as it may
---------
be amended, supplemented, restated or otherwise modified and in effect from
time to time.
"Agreement Accounting Principles" means generally accepted accounting
---------------------------------
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.5
-----------
(but only to the extent that such financial statements were prepared in
accordance with said generally accepted accounting principles); provided,
however, that for purposes of all computations required to be made with
respect to compliance by the Borrower with Section 6.9 or 6.21, such term
------------ ----
shall mean generally accepted accounting principles as in effect on the date
hereof, applied in a manner consistent with that used in preparing the
financial statements referred to in Section 5.5 (but only to the extent that
------------
such financial statements were prepared in accordance with said generally
accepted accounting principles).
"AIG" means American International Group, Inc., a Delaware corporation.
---
"AIG Agreement" means that certain Investment and Strategic Alliance
--------------
Agreement dated as of October 17, 1994 between AIG and the Borrower.
"Alternate Base Rate" or "ABR" means, for any day, a rate of interest per
------------------- ---
annum equal to the higher of (a) the Prime Rate for such day, and (b) the sum
of the Federal Funds Effective Rate for such day plus 1/2% per annum.
"Annual Statement" means the annual statutory financial statement of any
----------------
Insurance Subsidiary required to be filed with the insurance commissioner (or
similar authority) of its jurisdiction of incorporation, which statement shall
be in the form required by such Insurance Subsidiary's jurisdiction of
incorporation or, if no specific form is so required, in the form of financial
statements recommended by the NAIC to be used for filing annual statutory
financial statements and shall contain the type of information recommended by
the NAIC to be disclosed therein, together with all exhibits or schedules
filed therewith.
"Applicable ABR Margin" means, subject to the following two sentences of
---------------------
this definition, for any period, the applicable of the following percentages:
(a) 0% unless a different rate specified below is applicable;
<PAGE> 108
(b) .25% at any time the aggregate principal balance of outstanding
Loans exceeds $175 million unless a different rate specified
below is applicable; and
(c) 0% at any time the Unassigned Funds are positive as of the end
of the most recently ended calendar month.
The Applicable ABR Margin shall be adjusted, to the extent required by (a) or
(b) above, upon the date on which the triggering change in the aggregate
principal Loan balance occurs. The Applicable ABR Margin shall be adjusted,
to the extent required by (c) above, monthly as of the tenth day after the
required delivery date for the certificate executed by the chief financial
officer of the Borrower and delivered in accordance with Section 6.1(h);
---------------
provided, that if such certificate, together with the financial statements to
- - ---------
which such certificate relates, are not delivered by such tenth day of any
month, then the Applicable ABR Margin for such month shall be determined
pursuant to (a) or (b) above, as applicable.
"Applicable Eurodollar Margin" means, subject to the following two
------------------------------
sentences of this definition, for any period, the applicable of the following
percentages:
(a) 1.00% unless a different rate specified below is applicable;
(b) 1.25% at any time the aggregate principal balance of
outstanding Loans exceeds $175 million unless a different rate
specified below is applicable;
(c) 1.00% at any time the Unassigned Funds are positive as of the
end of the most recently ended calendar month unless a
different rate specified below is applicable; and
(d) .75% at any time (i) the Unassigned Funds are positive and (ii)
the ratio of the Aggregate Revolving Credit Commitment to the
Consolidated Surplus as Regards Policyholders of the Insurance
Subsidiaries is .50:1.00 or less, in each case as of the end of
the most recently ended calendar month.
The Applicable Eurodollar Margin shall be adjusted, to the extent required by
(a) or (b) above, upon the date on which the triggering change in aggregate
principal Loan balance occurs. The Applicable Eurodollar Margin shall be
adjusted, to the extent required by (c) or (d) above, monthly as of the tenth
day after the required delivery date for the certificate executed by the chief
financial officer of the Borrower and delivered in accordance with Section
-------
6.1(h); provided, that if such certificate, together with the financial
- - ------- ---------
statements to which such certificate relates, are not delivered by such tenth
day of any month, then the Applicable Eurodollar Margin for such month shall
be determined pursuant to (a) or (b) above, as applicable.
"Article" means an article of this Agreement unless another document is
-------
specifically referenced.
<PAGE> 109
"Authorized Officer" means any of the chief executive officer, president
------------------
or chief financial officer of the Borrower, acting singly.
"Bankruptcy Code" means Title 11, United States Code, sections 1 et.seq.,
---------------
as the same may be amended from time to time, and any successor thereto or
replacement therefor which may be hereafter enacted.
"Borrower" means 20th Century Industries, a California corporation, and
--------
its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
--------------
"Borrowing Notice" is defined in Section 2.8.
----------------
"Business Day" means (a) with respect to any borrowing, payment or rate
------------
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago, Los Angeles and New York for the
conduct of substantially all of their commercial lending activities and on
which dealings in United States dollars are carried on in the London interbank
market, and (b) for all other purposes, a day (other than a Saturday or
Sunday) on which banks generally are open in Chicago, Los Angeles and New York
for the conduct of substantially all of their commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such
------------------
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
-------------------------------
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change" is defined in Section 3.2.
------ ------------
"Change in Control" means (a) the acquisition by any Person, or two or
-----------------
more Persons acting in concert, including without limitation any acquisition
effected by means of any transaction contemplated by Section 6.11, of
-------------
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of 20% or more
of the outstanding shares of voting stock of the Borrower, (b) during any
period of 25 consecutive calendar months, commencing on the date of this
Agreement, the ceasing of those individuals (the "Continuing Directors") who
(i) were directors of the Borrower on the first day of such period or (ii)
subsequently became directors of the Borrower and whose initial election or
initial nomination for election subsequent to that date was approved by a
majority of the Continuing Directors then on the board of directors of the
Borrower, to constitute a majority of the board of directors of the Borrower
or (c) the Borrower shall cease to own beneficially and of record, free and
clear of all Liens (other than the Lien of the Pledge Agreement), or voting
agreements, restrictions or trusts of any kind 100% of the outstanding shares
of capital stock of each Insurance Subsidiary.
<PAGE> 110
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
----
otherwise modified from time to time.
"Combined Statutory Basis" means, with respect to any two or more of the
------------------------
Insurance Subsidiaries at any time, the financial results achieved by
combining the then most recent Annual Statements or Quarterly Statements of
such Insurance Subsidiaries (or any one or more parts thereof), after
eliminating therefrom the amount and the effect (including, without
limitation, any effect on Surplus as Regards Policyholders) of any
investments, liabilities, expenses, income or other items appearing in such
Annual Statements or Quarterly Statements which may have arisen out of any one
or more transactions by and among any of such Insurance Subsidiaries.
"Commitment" means, for each Lender, the obligation of such Lender to
----------
make Loans not exceeding the amount set forth opposite its signature below, as
such amount may be modified from time to time pursuant to the terms hereof.
"Condemnation" is defined in Section 7.8.
------------ ------------
"Consolidated" or "consolidated", when used in connection with any
------------ ------------
calculation, means a calculation to be determined on a consolidated basis for
the Borrower and its Subsidiaries in accordance with Agreement Accounting
Principles.
"Contingent Obligation" of a Person means any agreement, undertaking or
---------------------
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes
or is contingently liable upon, the obligation or liability of any other
Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person, or otherwise assures any creditor of
such other Person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract or application for a
Letter of Credit.
"Controlled Group" means all members of a controlled group of
-----------------
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of its Subsidiaries,
are treated as a single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.9.
------------------------------ -----------
"Coverage Ratio" is defined in Section 6.22.3.
-------------- --------------
"Debt Securities" means obligations for money borrowed evidenced by
----------------
notes, bonds, debentures or other similar instruments.
"Default" means an event described in Article VII.
------- -----------
"Department" is defined in Section 8.4.
---------- -----------
<PAGE> 111
"Documentary Agent" means First Chicago in its capacity as documentary
-----------------
agent for the Lenders hereunder.
"Environmental Laws" is defined in Section 5.19.
------------------ ------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurodollar Advance" means an Advance which bears interest at a
-------------------
Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
---------------------
the relevant Interest Period, the rate determined by the Agent to be the
arithmetic average of the rates reported to the Agent by each Reference Bank
as the rate at which deposits in U.S. dollars are offered by such Reference
Bank to first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, in the approximate amount of such Reference Bank's relevant
Eurodollar Advance and having a maturity approximately equal to such Interest
Period. If any Reference Bank fails to provide such quotation to the Agent,
then the Agent shall determine the Eurodollar Base Rate on the basis of the
quotations of the remaining Reference Bank(s).
"Eurodollar Loan" means, with respect to a Lender, such Lender's portion
---------------
of any Eurodollar Advance.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
---------------
relevant Interest Period, the sum of (a) the quotient of (i) the Eurodollar
Base Rate applicable to such Interest Period, divided by (ii) one minus the
Reserve Requirement (expressed as a decimal) applicable to such Interest
Period, plus (b) the Applicable Eurodollar Margin. The Eurodollar Rate shall
be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a
multiple.
"Existing Lenders" is defined in the recitals to this Agreement.
----------------
"Facility Termination Date" means April 1, 2001.
-------------------------
"Federal Funds Effective Rate" means, for any day, an interest rate per
-----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations at approximately 10
a.m. (Los Angeles time) on such day on such transactions received by the Agent
from three Federal funds brokers of recognized standing selected by the Agent
in its sole discretion.
"Financial Statements" is defined in Section 5.5.
-------------------- -----------
<PAGE> 112
"First Chicago" means The First National Bank of Chicago in its
--------------
individual capacity, and its successors.
"Floating Rate" means, for any day, a rate per annum equal to (a) the
-------------
Alternate Base Rate for such day, plus (b) the Applicable ABR Margin, in each
case changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
-----------------------
Floating Rate.
"Governmental Authority" means any nation or government, any state or
-----------------------
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government including, without limitation, any board of insurance, insurance
department or insurance commissioner.
"Hazardous Materials" is defined in Section 5.19.
------------------- ------------
"Indebtedness" of a Person means such Person's (a) obligations for
------------
borrowed money, (b) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary
course of such Person's business payable on terms customary in the trade), (c)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from Property now or hereafter owned or acquired by
such Person, (d) obligations which are evidenced by notes, acceptances, or
other instruments, (e) Capitalized Lease Obligations, (f) Rate Hedging
Obligations, (g) Contingent Obligations, (h) obligations pursuant to or in
respect of a Letter of Credit and (i) repurchase obligations or liabilities
with respect to Accounts or notes receivable sold by such Person.
"Insurance Subsidiaries" means 20th Century, 21st Century and any other
----------------------
Subsidiary in the insurance business which is approved as an "Insurance
Subsidiary" by the Required Lenders.
"Interest Period" means, with respect to a Eurodollar Advance, a period
---------------
of one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on (but
exclude) the day which corresponds numerically to such date one, two, three or
six months thereafter; provided, however, that if there is no such numerically
-------- -------
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day; provided, however, that if said next succeeding
-------- -------
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than commission,
----------
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable
arising in the ordinary course of business on terms customary in the trade),
deposit account or contribution of capital by such Person to any other Person
or any
<PAGE> 113
investment in, or purchase or other acquisition of, the stock, partnership
interests, notes, debentures or other securities of any other Person made by
such Person.
"Lenders" means the lending institutions listed on the signature pages of
-------
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
--------------------
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
------------------
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"License" means any license, certificate of authority, permit or other
-------
authorization which is required to be obtained from any Governmental Authority
in connection with the operation, ownership or transaction of insurance
business.
"Lien" means any security interest, lien (statutory or other), mortgage,
----
pledge, hypothecation, assignment, deposit arrangement, encumbrance or
preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever (including, without limitation, the interest
of a vendor or lessor under any conditional sale, Capitalized Lease or other
title retention agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
----
Advance and "Loans" means, with respect to the Lenders, the aggregate of all
-----
Advances.
"Loan Documents" means this Agreement, the Notes, the Pledge Agreement,
--------------
the Pledge Amendment and the other documents and agreements contemplated
hereby and executed by the Borrower in favor of the Agent or any Lender.
"Margin Stock" has the meaning assigned to that term under Regulation U.
------------
"Material Adverse Effect" means a material adverse effect on (a) the
-------------------------
business, Property, condition (financial or other), performance, results of
operations, or prospects of the Borrower and its Subsidiaries taken as a
whole, (b) the ability of the Borrower or any Subsidiary to perform its
obligations under the Loan Documents, or (c) the validity or enforceability of
any of the Loan Documents or the rights or remedies of the Agent or the
Lenders thereunder.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
-------------------
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party and to which more than one employer
is obligated to make contributions.
"NAIC" means the National Association of Insurance Commissioners or any
----
successor thereto, or in lieu thereof, any other association, agency or other
organization performing advisory, coordination or other like functions among
insurance departments, insurance commissions and
<PAGE> 114
similar Governmental Authorities of the various states of the United States of
America toward the promotion of uniformity in the practices of such Governmen-
tal Authorities.
"Net Income" means, for any computation period, with respect to the
-----------
Borrower on a consolidated basis with its Subsidiaries, cumulative net income
earned during such period in accordance with Agreement Accounting Principles.
"Net Written Premium" means, with respect to any Insurance Subsidiary,
--------------------
the net written premiums thereof for the relevant period ("Underwriting and
Investment" statement, page 9, part 2B, column 4, line 32).
"Net Worth" means at any date the consolidated stockholders equity of the
---------
Borrower and its consolidated Subsidiaries determined in accordance with
Agreement Accounting Principles, but excluding the effects of FASB 115.
"Non-Excluded Taxes" is defined in Section 2.18(a).
------------------ ---------------
"Note" means a promissory note in substantially the form of Exhibit A
---- ---------
hereto, with appropriate insertions, duly executed and delivered to the Agent
by the Borrower and payable to the order of a Lender in the amount of its
Revolving Credit Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
-------------------- --------------
"Obligations" means all unpaid principal of and accrued and unpaid
-----------
interest on the Notes, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the
Lenders or to any Lender, the Agent, the Documentary Agent or any indemnified
party hereunder arising under any of the Loan Documents and any Rate Hedging
Obligations of the Borrower relating to the Loans and owing to any Lender.
"Participants" is defined in Section 12.2.1.
------------ --------------
"Payment Date" means the first day of each January, April, July and
-------------
October.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
thereto.
"Person" means any natural person, corporation, firm, joint venture,
------
partnership, association, enterprise, trust or other entity or organization,
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" means an employee pension benefit plan, as defined in Section 3(2)
----
of ERISA, as to which the Borrower or any member of the Controlled Group may
have any liability.
"Pledge Agreement" means that certain Stock Pledge Agreement dated as of
----------------
June 30, 1994 by the Borrower in favor of the Agent for the benefit of the
Lenders, as the same is being amended
<PAGE> 115
as of the date hereof and as the same may be further amended, supplemented,
restated or otherwise modified from time to time.
"Pledge Amendment" means that certain amendment to the Pledge Agreement,
----------------
dated as of the date hereof and in substantially the form of Exhibit B.
---------
"Preferred Stock" means the Series A convertible preferred stock, par
----------------
value $1.00 per share, of the Borrower having the preferences set forth on the
certificate of determination attached as Exhibit A to the AIG Agreement.
"Prime Rate" means a rate per annum equal to the prime rate of interest
----------
announced by Union Bank from time to time, changing when and as said prime
rate changes. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate of interest actually charged to any
customer. Union Bank may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.
"Prior Credit Agreement" is defined in the recitals to this Agreement.
----------------------
"Property" of a Person means any and all property, whether real,
--------
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"pro-rata" means, when used with respect to a Lender, and any described
--------
aggregate or total amount, an amount equal to such Lender's pro-rata share or
portion based on its percentage of the Aggregate Revolving Credit Commitment
or if the Aggregate Revolving Credit Commitment has been terminated, its
percentage of the aggregate principal amount of outstanding Advances.
"Purchase" means any transaction, or any series of related transactions,
--------
consummated on or after the date of this Agreement, by which the Borrower or
any of its Subsidiaries (a) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise, or (b) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election
of directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of
the outstanding partnership interests of a partnership.
"Purchasers" is defined in Section 12.3.1.
---------- --------------
"Quarterly Statement" means the quarterly statutory financial statement
-------------------
of any Insurance Subsidiary required to be filed with the insurance
commissioner (or similar authority) of its jurisdiction of incorporation,
which statement shall be in the form required by such Insurance Subsidiary's
jurisdiction of incorporation or, if no specific form is so required, in the
form of financial statements recommended by NAIC to be used for filing
quarterly statutory financial statements and shall contain the type of
information recommended by NAIC to be disclosed therein, together with all
exhibits or schedules filed therewith.
<PAGE> 116
"Rate Hedging Obligations" of a Person means any and all obligations of
------------------------
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions
and modifications thereof and substitutions therefor), under (a) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or cross-
currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (b) any and all
cancellations, buybacks, reversals, terminations or assignments of any of the
foregoing.
"Reference Banks" means First Chicago and Union Bank. In the event
----------------
either of such institutions shall cease to be a Lender, then "Reference Banks"
shall mean the institution which remains a Lender together with the additional
institution, if any, designated as a Reference Bank by the Borrower and the
remaining Reference Bank.
"Regulation D" means Regulation D of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and any successor
thereto or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to depositary
institutions.
"Regulation G" means Regulation G of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to the extension of credit by Persons other than banks,
brokers and dealers for the purpose of purchasing or carrying margin stocks
applicable to such Persons.
"Regulation T" means Regulation T of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and shall include any
successor or other regulation or official interpretation of such Board of
Governors relating to the extension of credit by securities brokers and
dealers for the purpose of purchasing or carrying margin stocks applicable to
such Persons.
"Regulation U" means Regulation U of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing or
carrying margin stocks applicable to such Persons.
"Regulation X" means Regulation X of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to the extension of credit by the specified lenders for the
purpose of purchasing or carrying margin stocks applicable to such Persons.
"Release" is defined in the Comprehensive Environmental Response,
-------
Compensation and Liability Act, as amended, 42 U.S.C. 39601 et.seq.
------
<PAGE> 117
"Reportable Event" means a reportable event as defined in Section 4043 of
----------------
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, that a failure to meet the minimum
--------
funding standard of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least 66-2/3%
----------------
of the Aggregate Revolving Credit Commitment or, if the Aggregate Revolving
Credit Commitment has been terminated, Lenders in the aggregate holding at
least 66-2/3% of the aggregate unpaid principal amount of the outstanding
Loans.
"Reserve Requirement" means, with respect to an Interest Period, the
--------------------
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed upon any Lender under Regulation
D on Eurocurrency liabilities.
"Revolving Credit Commitment" means, for each Lender, the obligation of
---------------------------
such Lender to make Loans to the Borrower pursuant to Section 2.1 in an
-----------
aggregate amount at any one time outstanding not exceeding the amount set
forth opposite its name under the heading "Revolving Credit Commitment" on the
signature page hereto, as such amount may be modified or reduced from time to
time pursuant to the terms of this Agreement.
"Risk-Based Capital Guidelines" is defined in Section 3.2.
----------------------------- -----------
"SAP" means, with respect to any Insurance Subsidiary, the statutory
---
accounting practices prescribed or permitted by the insurance commissioner (or
other similar authority) as in effect from time to time in the jurisdiction of
incorporation of such Insurance Subsidiary for the preparation of annual
statements and other financial reports by insurance companies of the same type
as such Insurance Subsidiary; provided, however, that for purposes of
computations required to be made with respect to compliance by the Borrower
with Section 6.22, such term shall mean the statutory accounting practices
-------------
prescribed or permitted by the insurance commissioner (or other similar
authority) as of the date hereof in the jurisdiction of incorporation of such
Insurance Subsidiary for the preparation of annual statements and other
financial reports by insurance companies of the same type as such Insurance
Subsidiary.
"Section" means a numbered section of this Agreement, unless another
-------
document is specifically referenced.
"Single Employer Plan" means a Plan subject to Title IV of ERISA
----------------------
maintained by the Borrower or any member of the Controlled Group for employees
of the Borrower or any member of the Controlled Group, other than a
Multiemployer Plan.
"Solvent" means, when used with respect to a Person, that (a) the fair
-------
saleable value of the assets of such Person is in excess of the total amount
of the present value of its liabilities (including for purposes of this
definition all liabilities (including
<PAGE> 118
loss reserves as determined by the Borrower), whether or not reflected on a
balance sheet prepared in accordance with Agreement Accounting Principles and
whether direct or indirect, fixed or contingent, secured or unsecured,
disputed or undisputed), (b) such Person is able to pay its debts or
obligations in the ordinary course as they mature and (c) such Person does not
have unreasonably small capital to carry out its business as conducted and as
proposed to be conducted. "Solvency" shall have a correlative meaning.
"Statutory Net Income" means the after-tax statutory net income of the
---------------------
Borrower's Insurance Subsidiaries for the relevant period (calculated in the
manner set forth in the "Statement of Income", page 4, line 16 of the Annual
Statement).
"Subsidiary" of a Person means (a) any corporation more than 50% of the
----------
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or
more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (b) any partnership, association, joint venture or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled. Unless
otherwise expressly provided, all references herein to a "Subsidiary" shall
mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
-------------------
and its Subsidiaries, Property which (a) represents more than 5% of the
consolidated assets of the Borrower and its Subsidiaries, as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as
at the end of the quarter next preceding the date on which such determination
is made, or (b) is responsible for more than 5% of the consolidated net sales
or of the consolidated net income of the Borrower and its Subsidiaries for the
12-month period ending as of the end of the quarter next preceding the date of
determination.
"Surplus as Regards Policyholders" means, with respect to any Insurance
---------------------------------
Subsidiary at any time, the "capital stock" of such Insurance Subsidiary at
such time, as determined in accordance with SAP ("Liabilities, Surplus and
Other Funds" statement, page 3, line 25 of the Annual Statement).
"20th Century" means 20th Century Insurance Company, a California
-------------
corporation, and its successors and assigns.
"21st Century" means 21st Century Casualty Company, a California
-------------
corporation, and its successors and assigns.
"Termination Event" means, with respect to a Plan which is subject to
-----------------
Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of the Borrower
or any other member of the Controlled Group from such Plan during a plan year
in which the Borrower or any other member of the Controlled Group was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed
such under Section 4068(f) of ERISA, (c) the termination of such Plan, the
filing of a notice of intent to terminate such Plan or the treatment of an
amendment of such Plan as a termination under Section 4041 of ERISA, (d) the
institution by the PBGC of proceedings to terminate such Plan
<PAGE> 119
or (e) any event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or appointment of a trustee
to administer, such Plan.
"Transferee" is defined in Section 12.4.
---------- ------------
"Type" means, with respect to any Advance, its nature as a Floating Rate
----
Advance or Eurodollar Advance.
"UCC" means the New York Uniform Commercial Code as amended or modified
---
and in effect from time to time.
"Unassigned Funds" means the "unassigned funds (surplus)" of 20th Century
----------------
calculated in the manner set forth in the "Liabilities, Surplus and Other
Funds" statement, page 3, line 24C of the Annual Statement.
"Unfunded Liability" means the amount (if any) by which the present value
------------------
of all vested and unvested accrued benefits under a Single Employer Plan
exceeds the fair market value of assets allocable to such benefits, all
determined as of the then most recent valuation date for such Plan using the
actuarial assumptions as in effect for 1993 for each Plan.
"Unmatured Default" means an event which but for the lapse of time or the
-----------------
giving of notice, or both, would constitute a Default.
"Union Bank" means Union Bank in its individual capacity, and its
-----------
successors.
"Warrants" means the Series A warrants to purchase common stock of the
--------
Borrower having the terms and conditions set forth on Exhibit B to the AIG
Agreement.
"Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of the
-----------------------
outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (b) any partnership, association, joint
venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. The words "herein," "hereof"
and words of similar import as used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision in this Agreement.
References to "Articles," "Sections," "subsections," "paragraphs," "Exhibits"
and "Schedules" in this Agreement shall refer to Sections, subsections,
paragraphs, Exhibits and Schedules of this Agreement unless otherwise
expressly provided; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such persons; and all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations.
<PAGE> 120
References herein to particular columns, lines or sections of any
Person's Annual Statement shall be deemed, where appropriate, to be references
to the corresponding column, line or section of such Person's Quarterly
Statement, or if no such corresponding column, line or section exists or if
any report form changes, then to the corresponding item referenced thereby.
ARTICLE II
THE CREDITS
-----------
2.1. Advances. (a) From and including the date hereof to but not
--------
including the Facility Termination Date, each Lender severally (and not
jointly) agrees, on the terms and conditions set forth in this Agreement, to
make Advances to the Borrower from time to time in amounts not to exceed in
the aggregate at any one time outstanding the amount of its Revolving Credit
Commitment existing at such time. Subject to the terms of this Agreement, the
Borrower may borrow, repay and reborrow Advances at any time prior to the
Facility Termination Date.
(b) The Borrower hereby agrees that if at any time the aggregate
balance of the Loans exceeds the Aggregate Revolving Credit Commitment, the
Borrower shall repay immediately its then outstanding Loans in such amount as
may be necessary to eliminate such excess.
(c) The Borrower's obligation to pay the principal of, and interest
on, the Loans shall be evidenced by the Notes. Although the Notes shall be
dated the date hereof, interest in respect thereof shall be payable only for
the periods during which the Loans evidenced thereby are outstanding and,
although the stated amount of each Note shall be equal to the applicable
Lender's Revolving Credit Commitment, each Note shall be enforceable, with
respect to the Borrower's obligation to pay the principal amount thereof, only
to the extent of the unpaid principal amount of the Loans at the time
evidenced thereby.
(d) Each Advance included in the Loans shall mature, and the
principal amount thereof and the unpaid accrued interest thereon shall be due
and payable, on the Facility Termination Date.
(e) Notwithstanding the requirements of Sections 2.2 and 2.12 that
------------ ----
all Loans be made, and all payments be applied, ratably among the Lenders,
subject to the satisfaction of the conditions specified in Sections 4.1 and
------------
4.2, on the date hereof the Lenders specified on Schedule 2.1 shall make Loans
- - --- ------------
in the amounts specified on such Schedule 2.1 and the aggregate proceeds
------------
thereof shall be applied as specified on such Schedule 2.1 so that, after
------------
giving effect to such Loans and application of proceeds, the aggregate
outstanding Loans shall be allocated ratably among the Lenders as specified on
such Schedule.
2.2. Ratable Loans. Each Advance hereunder shall consist of Loans made
-------------
from the several Lenders ratably in proportion to the ratio that their
respective Revolving Credit Commitments bear to the Aggregate Revolving Credit
Commitment.
<PAGE> 121
2.3. Types of Advances. The Advances may be Floating Rate Advances or
------------------
Eurodollar Advances, or a combination thereof, as selected by the Borrower in
accordance with Sections 2.8 and 2.9.
2.4. Commitment Fee; Reductions in Aggregate Revolving Credit Commitment;
---------------------------------------------------------------------
Amendment Fee. (a) The Borrower agrees to pay to the Agent for the account
- - -------------
of each Lender a commitment fee of one half of one percent (.50%) per annum on
the daily unborrowed portion of such Lender's Revolving Credit Commitment from
the date hereof to and including the Facility Termination Date, payable in
arrears on each Payment Date hereafter and on the Facility Termination Date;
provided, however, that for any calendar month for which the Applicable
Eurodollar Margin is determined pursuant to subpart (c) or (d) of the
definition thereof, then such commitment fee shall be computed at the rate of
.375% per annum. All accrued commitment fees shall be payable on the
effective date of any termination of the obligations of the Lenders to make
Loans hereunder.
(b) The Borrower may permanently reduce the Aggregate Revolving
Credit Commitment in whole, or in part ratably among the Lenders in a minimum
aggregate amount of $1,000,000 or any integral multiple of $1,000,000 excess
thereof, upon at least five (5) Business Days' written notice to the Agent,
which notice shall specify the amount of any such reduction; provided,
--------
however, that the amount of the Aggregate Revolving Credit Commitment may not
- - -------
be reduced below the aggregate principal amount of the outstanding Advances.
Such reductions shall be in addition to reductions occurring pursuant to
Section 2.7.
- - -----------
(c) On the date hereof, the Borrower shall pay to the Agent for the
account of each Existing Lender which is also a Lender hereunder an amendment
fee of one half of one percent (.50%) of such Existing Lender's commitment
under the Prior Credit Agreement (i.e. such lender's pro rata share of the
aggregate revolving credit commitment of $175,000,000 under the Prior Credit
Agreement).
2.5. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in
------------------------------
the minimum amount of $1,000,000 (and in integral multiples of $1,000,000 if
in excess thereof), and each Floating Rate Advance shall be in the minimum
amount of $1,000,000 (and in integral multiples of $1,000,000 if in excess
thereof); provided, however, that (a) any Floating Rate Advance may be in the
amount of the unused Aggregate Revolving Credit Commitment and (b) in no event
shall more than eight (8) Eurodollar Advances be permitted to be outstanding
at any time.
2.6. Optional Principal Payments. The Borrower may from time to time
----------------------------
pay, without penalty or premium, all outstanding Floating Rate Advances, or,
in a minimum aggregate amount of $1,000,000 or any integral multiple of
$1,000,000 in excess thereof, any portion of the outstanding Floating Rate
Advances upon at least three (3) Business Days' prior notice to the Agent.
Subject to Section 3.4 and upon like notice, a Eurodollar Advance may be paid
-----------
prior to the last day of the applicable Interest Period.
<PAGE> 122
2.7. Mandatory Commitment Reductions and Prepayments. (a) The Aggregate
-----------------------------------------------
Revolving Credit Commitment shall be automatically and permanently reduced by
the following amounts on the following dates:
Date Reduction Amount
---- ----------------
April 1, 1996 5,625,000
July 1, 1996 5,625,000
October 1, 1996 11,250,000
January 1, 1997 11,250,000
April 1, 1997 11,250,000
July 1, 1997 11,250,000
October 1, 1997 11,250,000
January 1, 1998 11,250,000
April 1, 1998 11,250,000
July 1, 1998 11,250,000
October 1, 1998 11,250,000
January 1, 1999 11,250,000
April 1, 1999 11,250,000
July 1, 1999 11,250,000
October 1, 1999 11,250,000
January 1, 2000 11,250,000
April 1, 2000 11,250,000
July 1, 2000 11,250,000
October 1, 2000 11,250,000
January 1, 2001 11,250,000
April 1, 2001 11,250,000
-----------
Aggregate Reductions $225,000,000
(b) The Aggregate Revolving Credit Commitment shall also be
automatically and permanently reduced on the date of the Borrower's or any
Subsidiary's receipt thereof in the amount of 50% of the net proceeds to the
Borrower or such Subsidiary of sales of equity securities (excluding surplus
contributions to Insurance Subsidiaries). Contemporaneously with any
automatic reductions in the Aggregate Revolving Credit Commitment pursuant to
this Section 2.7(b), the Borrower shall prepay the Loans in an amount equal to
--------------
the lesser of (A) the outstanding principal amount of Loans and (B) the amount
of such reduction; provided, however, that no such prepayment shall be
-------- -------
required if, at such time, the Borrower could satisfy the conditions set forth
in Section 4.2(b) for the reborrowing thereof. The preceding sentence shall
--------------
not affect the obligations of the Borrower under Section 2.1(b).
--------------
(c) Mandatory commitment reductions under this Section 2.7 shall be
-----------
cumulative and in addition to reductions occurring pursuant to Section 2.4(b).
--------------
Any mandatory commitment reductions under Section 2.7(b) or voluntary
---------------
commitment reduction pursuant to Section 2.4(b)
---------------
<PAGE> 123
shall be applied to the mandatory commitment reductions required to be made
pursuant to Section 2.7(a) in the following order:
--------------
(i) 50% of such commitment reduction shall be applied in the
inverse order of the dates specified for reduction in Section
-------
2.7(a); and
------
(ii) 50% of such commitment reduction shall be applied to the
remaining commitment reductions specified in Section 2.7(a)
--------------
on a pro-rata basis.
(d) Any reduction in the Aggregate Revolving Credit Commitment
pursuant to this Section 2.7 or otherwise shall ratably reduce the Revolving
-----------
Credit Commitment of each Lender.
2.8. Method of Selecting Types and Interest Periods for New Advances.
--------------------------------------------------------------------
The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable to each Advance from time
to time. The Borrower shall give the Agent irrevocable notice (a "Borrowing
---------
Notice") not later than 10:00 a.m. (Los Angeles time) at least one (1)
- - ------
Business Day before the Borrowing Date of each Floating Rate Advance and at
least three (3) Business Days before the Borrowing Date for each Eurodollar
Advance, specifying:
(a) the Borrowing Date, which shall be a Business Day, of such
Advance;
(b) the aggregate amount of such Advance;
(c) the Type of Advance selected; and
(d) in the case of each Eurodollar Advance, the Interest Period
applicable thereto, which shall end on or prior to the Facility
Termination Date.
Not later than noon (Los Angeles time) on each Borrowing Date, each Lender
shall make available its Loan or Loans, in funds immediately available in Los
Angeles, to the Agent at its address specified pursuant to Article XIII. The
------------
Agent will make the funds so received from the Lenders available to the
Borrower at the Agent's aforesaid address not later than 2:00 p.m. (Los
Angeles time).
2.9 Conversion and Continuation of Outstanding Advances. Floating Rate
-----------------------------------------------------
Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances. Each
Eurodollar Advance shall continue as a Eurodollar Advance until the end of the
then applicable Interest Period therefor, at which time such Eurodollar
Advance shall be automatically converted into a Floating Rate Advance unless
the Borrower shall have given the Agent a Conversion/Continuation Notice
requesting that, at the end of such Interest Period, such Eurodollar Advance
continue as a Eurodollar Advance for the same or another Interest Period.
Subject to the terms of Section 2.5, the Borrower may elect from time to time
-----------
to convert all or any part of an Advance of any Type into any other Type or
Types of Advances; provided, however, that any conversion of any Eurodollar
-------- -------
Advance shall be made on, and only on, the last day of the Interest Period
applicable thereto. The Borrower shall give the Agent irrevocable notice (a
"Conversion/
- - ------------
<PAGE> 124
Continuation Notice") of each conversion of a Floating Rate Advance or
- - --------------------
Eurodollar Advance or continuation of a Eurodollar Advance not later than
10:00 a.m. (Los Angeles time) at least one (1) Business Day, in the case of a
conversion into a Floating Rate Advance, or at least three (3) Business Days,
in the case of a conversion into or continuation of a Eurodollar Advance,
prior to the date of the requested conversion or continuation, specifying:
(a) the requested date, which shall be a Business Day, of such
conversion or continuation;
(b) the aggregate amount and Type of the Advance which is to be
converted or continued; and
(c) the amount and Type(s) of Advance(s) into or as to which such
Advance is to be converted or continued and, in the case of a conversion
into or continuation of a Eurodollar Advance, the duration of the Interest
Period applicable thereto, which shall end on or prior to the Facility
Termination Date.
The conversion or continuation of any Advance shall not be deemed to be the
making of an Advance for purposes of Section 4.2.
-----------
2.10. Changes in Interest Rate, etc. Each Floating Rate Advance
---------------------------------
shall bear interest at the Floating Rate from and including the date of such
Advance or the date on which such Advance was converted into a Floating Rate
Advance to (but not including) the date on which such Floating Rate Advance is
paid or converted to a Eurodollar Advance. Changes in the rate of interest on
that portion of any Advance maintained as a Floating Rate Advance will take
effect simultaneously with each change in the Alternate Base Rate. Each
Eurodollar Advance shall bear interest from and including the first day of the
Interest Period applicable thereto to, but not including, the last day of such
Interest Period at the interest rate determined as applicable to such
Eurodollar Advance. No Interest Period may end after the Facility Termination
Date.
2.11. Rates Applicable After Default. Notwithstanding anything to
---------------------------------
the contrary contained in Section 2.8 or 2.9, no Advance may be made as,
----------- ---
converted into or continued as a Eurodollar Advance (except with the consent
of the Agents and the Required Lenders) when any Default or Unmatured Default
has occurred and is continuing. During the continuance of a Default the
Required Lenders may, at their option, by notice to the Borrower (which notice
may be revoked at the option of the Required Lenders notwithstanding any
provision of Section 8.2 requiring unanimous consent of the Lenders to changes
-----------
in interest rates), declare that each Eurodollar Advance and Floating Rate
Advance shall bear interest (for the remainder of the applicable Interest
Period in the case of Eurodollar Advances) at a rate per annum equal to the
Alternate Base Rate plus two percent (2%) per annum.
2.12. Method of Payment. All payments of the Obligations hereunder
-----------------
shall be made, without setoff, deduction or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article XIII, or at any other Lending Installation of the Agent specified in
- - ------------
writing by the Agent to the Borrower, by noon (Los Angeles time) on the date
when due and shall
<PAGE> 125
be applied ratably by the Agent among the Lenders. Each payment delivered to
the Agent for the account of any Lender shall be delivered promptly by the
Agent to such Lender in the same type of funds that the Agent received at such
Lender's address specified pursuant to Article XIII or at any Lending
Installation specified in a notice received by the Agent from such Lender.
The Agent is hereby authorized to charge the account of the Borrower
maintained with Union Bank for each payment of principal, interest and fees
as it becomes due hereunder.
2.13. Notes; Telephonic Notices. Each Lender is hereby authorized to
-------------------------
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note; provided, however, that neither the failure to
-------- -------
so record nor any error in such recordation shall affect the Borrower's
obligations hereunder or under such Note. The Borrower hereby authorizes the
Lenders and the Agent to extend, convert or continue Advances, effect
selections of Types of Advances and to transfer funds based on telephonic
notices made by any person or persons the Agent or any Lender in good faith
believes to be acting on behalf of the Borrower. The Borrower agrees to
deliver promptly to the Agent a written confirmation, if such confirmation is
requested by the Agent or any Lender, of each telephonic notice signed by an
Authorized Officer. If the written confirmation differs in any material
respect from the action taken by the Agent and the Lenders, the records of the
Agent and the Lenders shall govern absent manifest error.
2.14. Interest Payment Dates; Interest and Fee Basis. Interest
----------------------------------------------------
accrued on each Floating Rate Advance shall be payable on each Payment Date,
commencing October 1, 1994, on any date on which a Floating Rate Advance is
prepaid, whether due to acceleration or otherwise, and at maturity. Interest
accrued on that portion of the outstanding principal amount of any Floating
Rate Advance converted into a Eurodollar Advance on a day other than a Payment
Date shall be payable on the date of conversion. Interest accrued on each
Eurodollar Advance shall be payable on the last day of its applicable Interest
Period, on any date on which the Eurodollar Advance is prepaid, whether by
acceleration or otherwise, and at maturity. Interest accrued on each
Eurodollar Advance having an Interest Period longer than three months shall
also be payable on the last day of each three-month interval during such
Interest Period. Interest and commitment fees shall be calculated for actual
days elapsed on the basis of a 360-day year. Interest shall be deemed paid on
a date if payment is received prior to noon (Los Angeles time) on such date at
the place of payment. If any payment of principal of or interest on an
Advance shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.15. Notification of Advances, Interest Rates, Prepayments and
----------------------------------------------------------------
Commitment Reductions. Promptly after receipt thereof, the Agent will notify
- - ---------------------
each Lender of the contents of each Aggregate Revolving Credit Commitment
reduction notice, Borrowing Notice, Conversion/Continuation Notice, and
repayment notice received by it hereunder. The Agent will notify each Lender
of the interest rate applicable to each Eurodollar Advance promptly upon
determination of such interest rate and will give each Lender prompt notice of
each change in the Alternate Base Rate. Each Reference Bank agrees to furnish
timely information for the purpose of determining the Eurodollar Rate.
<PAGE> 126
2.16. Lending Installations. Each Lender may book its Loans at any
---------------------
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to
any such Lending Installation and the Notes shall be deemed held by each
Lender for the benefit of such Lending Installation. Each Lender may, by
written or telex notice to the Agent and the Borrower, designate a Lending
Installation through which Loans will be made by it and for whose account Loan
payments are to be made.
2.17. Non-Receipt of Funds by the Agent. Unless the Borrower or a
-----------------------------------
Lender, as the case may be, notifies the Agent prior to the date on which it
is scheduled to make payment to the Agent of (a) in the case of a Lender, the
proceeds of a Loan, or (b) in the case of the Borrower, a payment of
principal, interest or fees to the Agent for the account of the Lenders, that
it does not intend to make such payment, the Agent may assume that such
payment has been made. The Agent may, but shall not be obligated to, make the
amount of such payment available to the intended recipient in reliance upon
such assumption. If the Borrower has not in fact made such payment to the
Agent, the Lenders shall, on demand by the Agent, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to the Federal Funds Effective Rate for such day. If any Lender has not
in fact made such payment to the Agent, such Lender or the Borrower shall, on
demand by the Agent, repay to the Agent the amount so made available together
with interest thereon in respect of each day during the period commencing on
the date such amount was so made available by the Agent until the date the
Agent recovers such amount at a rate per annum equal to (a) in the case of
payment by a Lender, the Federal Funds Effective Rate for such day, or (b) in
the case of payment by the Borrower, the interest rate applicable to the
relevant Loan.
2.18. Taxes. (a) Any payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchises taxes or any
other tax based upon any income imposed on an Agent or any Lender by any
jurisdiction in which such Agent or such Lender is incorporated or has its
principal place of business. If any such non-excluded taxes, levies, imposts,
duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are
------------------
required to be withheld from any amounts payable to an Agent or any Lender
hereunder, the amounts so payable to such Agent or such Lender shall be
increased to the extent necessary to yield to such Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in or pursuant to this
Agreement; provided, however, that the Borrower shall not be required to
-------- -------
increase any such amounts payable to any Lender that is not organized under
the laws of the U.S. or a state thereof if such Lender fails to comply with
the requirements of paragraph (b) of this Section 2.18. Whenever any Non-
------------
Excluded Taxes are payable by the Borrower, as promptly as practicable
thereafter the Borrower shall send to such Agent for its own account or for
the account of such Lender, as the case may be, a certified copy of an
original official receipt received by the Borrower showing payment thereof.
If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence, the Borrower shall indemnify
the Agents
<PAGE> 127
and the Lenders for any incremental taxes, interest or penalties that may
become payable by any Agent or any Lender as a result of any such failure.
The agreements in this Section 2.18 shall survive the termination of this
------------
Agreement and the payment of all other amounts payable hereunder.
(b) At least five Business Days prior to the first date on which
interest or fees are payable hereunder for the account of any Lender, each
Lender that is not incorporated under the laws of the United States of
America, or a state thereof, agrees that it will deliver to each of the
Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender
is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each
Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to
each of the Borrower and the Agent two additional copies of such form (or a
successor form) on or before the date that such form expires (currently, three
successive calendar years for Form 1001 and one calendar year for Form 4224)
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent forms so delivered by it, and such amendments thereto or
extensions or renewals thereof as may be reasonably requested by the Borrower
or the Agent, in each case certifying that such Lender is entitled to receive
payments under this Agreement and the Notes without deduction or withholding
of any United States federal income taxes, unless an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender
advises the Borrower and the Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax.
2.19. Agents' Fees. The Borrower shall pay to the Agents those fees,
------------
in addition to the commitment fees referenced in Section 2.4(a), in the
--------------
amounts and at the times separately agreed to between the Agents and the
Borrower.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1. Yield Protection. If, after the date hereof, the adoption of, or
----------------
any change in, any law or any governmental or quasi-governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law), or any interpretation thereof, or the compliance of any Lender
therewith,
(a) subjects any Lender or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due from the Borrower
(excluding taxation of the overall net income of any Lender or applicable
Lending Installation imposed by the jurisdiction in which such Lender or
Lending Installation is incorporated or has its principal place of business),
or changes the basis of taxation of principal, interest or any other payments
to any Lender or Lending
<PAGE> 128
Installation in respect of its Eurodollar Loans or other amounts due it
hereunder in respect thereof, or
(b) imposes or increases or deems applicable in connection with its
Eurodollar Loans any reserve, assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by, any Lender or any applicable Lending Installation (other
than reserves and assessments taken into account in determining the interest
rate applicable to Eurodollar Advances), or
(c) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of making,
funding or maintaining loans or reduces any amount receivable by any Lender or
any applicable Lending Installation in connection with Eurodollar Loans, or
requires any Lender or any applicable Lending Installation to make any payment
calculated by reference to the amount of Eurodollar Loans held, or interest
thereon received by it, by an amount deemed material by such Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or resulting in an
amount received which such Lender determines is attributable to making,
funding and maintaining its Eurodollar Loans and its Commitment in respect
thereof.
3.2. Changes in Capital Adequacy Regulations. If a Lender determines the
---------------------------------------
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased
capital which such Lender determines is attributable to this Agreement, its
Loans or its obligation to make Loans hereunder (after taking into account
such Lender's policies as to capital adequacy). "Change" means (a) any change
------
after the date of this Agreement in the Risk-Based Capital Guidelines, or (b)
any adoption of or change in any other law, governmental or quasi-governmental
rule, regulation, policy, guideline, interpretation, or directive (whether or
not having the force of law) after the date of this Agreement which affects
the amount of capital required or expected to be maintained by any Lender or
any Lending Installation or any corporation controlling any Lender. "Risk-
-----
Based Capital Guidelines" means (a) the risk-based capital guidelines in
- - --------------------------
effect in the United States on the date of this Agreement, including
transition rules, and (b) the corresponding capital regulations promulgated by
regulatory authorities outside the United States implementing the July 1988
report of the Basle Committee on Banking Regulation and Supervisory Practices
entitled "International Convergence of Capital Measurements and Capital
Standards," including transition rules, and any amendments to such regulations
adopted prior to the date of this Agreement.
3.3. Availability of Types of Advances. If any Lender determines that
-----------------------------------
maintenance of its Eurodollar Advances at a suitable Lending Installation
would violate any applicable law, rule, regulation, or directive, whether or
not having the force of law, or if the Required Lenders determine that (a)
deposits of a type and maturity appropriate to match fund Eurodollar Advances
are not available, or (b) the interest rate applicable to a Type of Advance
does not accurately or fairly reflect
<PAGE> 129
the cost of making or maintaining such Advance, then the Agent shall suspend
the availability of the affected Type of Advance and require any Eurodollar
Advances of the affected Type to be repaid.
3.4. Funding Indemnification. If any payment of a Eurodollar Advance
------------------------
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, the Borrower will indemnify the Agent and each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain the Eurodollar Advance.
3.5. Lender Statements; Survival of Indemnity. To the extent reasonably
------------------------------------------
possible, each Lender shall designate an alternate Lending Installation with
respect to its Eurodollar Advances to reduce any liability of the Borrower to
such Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a
---------------------
Type of Advance under Section 3.3, so long as such designation is not
------------
disadvantageous to such Lender. Each Lender shall deliver a written statement
of such Lender to the Borrower (with a copy to the Agent) as to the amount
due, if any, under Section 3.1, 3.2 or 3.4. Such written statement shall set
-----------------------
forth in reasonable detail the calculations upon which such Lender determined
such amount and shall be final, conclusive and binding on the Borrower in the
absence of manifest error. Determination of amounts payable under such
Sections in connection with a Eurodollar Advances shall be calculated as
though each Lender funded its Eurodollar Loans through the purchase of a
deposit of the type and maturity corresponding to the deposit used as a
reference in determining the Eurodollar Rate applicable to such Loan, whether
in fact that is the case or not. Unless otherwise provided herein, the amount
specified in the written statement of any Lender shall be payable on demand
after receipt by the Borrower of the written statement. The obligations of
the Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the
---------------------------
Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Effectiveness of this Agreement and the Initial Loans Hereunder.
--------------------------------------------------------------------
The amendments to the Prior Credit Agreement embodied in this Agreement shall
not be effective (in which case the Prior Credit Agreement shall remain in
full force and effect) and the Lenders shall have no obligation to make Loans
hereunder unless and until the Borrower has furnished the following to the
Agents with sufficient copies for the Lenders and the other conditions set
forth below have been satisfied, in each case on or before December 31, 1995:
(a) Charter Documents. Copies of the certificate of incorporation
-----------------
of the Borrower, together with all amendments, and a certificate of good
standing, both certified by the appropriate governmental officer in its
jurisdiction of incorporation.
<PAGE> 130
(b) By-Laws and Resolutions. Copies, certified by the Secretary or
-----------------------
Assistant Secretary of the Borrower, of its by-laws and of its Board of
Directors' resolutions authorizing the execution, delivery and performance of
the Loan Documents to which the Borrower is a party.
(c) Secretary's Certificate. An incumbency certificate, executed
-----------------------
by the Secretary or Assistant Secretary of the Borrower, which shall identify
by name and title and bear the signature of the officers of the Borrower
authorized to sign the Loan Documents and to make borrowings hereunder, upon
which certificate the Agent and the Lenders shall be entitled to rely until
informed of any change in writing by the Borrower.
(d) Officer's Certificate. A certificate, dated as of the date
----------------------
hereof, signed by an Authorized Officer of the Borrower, in form and substance
satisfactory to the Agent, to the effect that: (i) as of the date hereof (both
before and after giving effect to the making of the Loans hereunder) no
Default or Unmatured Default has occurred and is continuing; (ii) (A) no
injunction or temporary restraining order which would prohibit the making of
the Loans, and (B) no litigation (other than litigation disclosed on Schedule
--------
5.8) which could reasonably be expected to have a Material Adverse Effect, is
- - ---
pending, issued or, to the best of such Person's knowledge, threatened; and
(iii) the Borrower and Subsidiaries have satisfied, or are in compliance with,
all regulatory capital or other financial requirements or demands imposed upon
them.
(e) Legal Opinions. Written opinions of Gibson Dunn & Crutcher,
--------------
counsel to the Borrower, and John R. Bollington, the general counsel of the
Borrower, in each case addressed to the Agents and the Lenders in form and
substance acceptable to the Agents.
(f) Notes. Promissory notes payable to the order of each of the
-----
Lenders duly executed by the Borrower (upon receipt of which each Existing
Lender will surrender its note delivered under the Prior Credit Agreement for
cancellation).
(g) Other Loan Documents. Originals of this Agreement executed by
--------------------
each of the Borrower, the Agents and each Lender and fully executed originals
of the Pledge Amendment, both of which shall be in full force and effect,
together with all schedules, exhibits, certificates, instruments, opinions,
documents and financial statements required to be delivered pursuant hereto
and thereto.
(h) Payment of Certain Amounts. The Borrower shall have paid the
---------------------------
Agent for the ratable account of the Existing Lenders all interest and
commitment fees accrued through the date hereof pursuant to the Prior Credit
Agreement.
(i) Reinsurance. Evidence satisfactory to the Required Lenders
-----------
that the Borrower and its Insurance Subsidiaries have obtained reinsurance of
risks insured by the Insurance Subsidiaries in amounts and on terms
substantially comparable to those in effect on July 1, 1995.
(j) Legislation. No legislation shall have been enacted or be
-----------
pending which, in the Required Lenders' judgment, adversely affects the
Lenders' interests to a material extent.
<PAGE> 131
(k) Regulatory Approvals. Receipt of any required approvals from
--------------------
the Insurance Department of the State of California and exemptions with
respect to the Loan Documents and the transactions contemplated thereby and
all other required regulatory approvals.
(l) Other. Such other documents as the Agents, any Lender or their
-----
counsel may have reasonably requested.
4.2. Each Future Advance. The Lenders shall not be required to make any
-------------------
Advance unless on the applicable Borrowing Date:
(a) There exists no Default or Unmatured Default and none would
result from such Advance;
(b) The representations and warranties contained in Article V and
---------
in the other Loan Documents are true and correct as of such Borrowing Date
except for changes in the Schedules hereto (submitted to the Agent and each
Lender in writing by the Borrower) reflecting transactions permitted by this
Agreement; and
(c) A Borrowing Notice shall have been properly submitted.
Each Borrowing Notice with respect to each such Advance shall constitute
a representation and warranty by the Borrower that the conditions contained in
Section 4.2 have been satisfied. Any Lender may require a duly completed
- - -----------
compliance certificate in substantially the form of Exhibit C as a condition
---------
to making an Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Lenders that:
5.1. Corporate Existence and Standing. Each of the Borrower and each
---------------------------------
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and is
duly qualified and in good standing as a foreign corporation and is duly
authorized to conduct its business in each jurisdiction in which its business
is conducted or proposed to be conducted where the absence of such
authorization would have a Material Adverse Effect.
5.2. Authorization and Validity. The Borrower has all requisite power
--------------------------
and authority (corporate and otherwise) and legal right to execute and deliver
(or file, as the case may be) each of the Loan Documents to which it is a
party and to perform its obligations thereunder. The execution and delivery
(or filing, as the case may be) by the Borrower of the Loan Documents to which
it is a party and the performance of its obligations thereunder have been duly
authorized by proper corporate proceedings and the Loan Documents constitute
legal, valid and binding
<PAGE> 132
obligations of the Borrower enforceable against the Borrower in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
5.3. Compliance with Laws and Contracts. The Borrower and its
---------------------------------------
Subsidiaries have complied in all material respects with all applicable
statutes, rules, regulations, orders and restrictions of any domestic or
foreign government or any instrumentality or agency thereof, having
jurisdiction over the conduct of their respective businesses or the ownership
of their respective properties, except for compliance with Proposition 103 and
except where the failure to so comply could not reasonably be expected to have
a Material Adverse Effect. Neither the execution and delivery by the Borrower
and each Subsidiary of the Loan Documents to which it is a party, the
application of the proceeds of the Loans, or any other transaction
contemplated in the Loan Documents, nor compliance with the provisions of the
Loan Documents, will, or at the relevant time did, (a) violate any law, rule,
regulation (including Regulation G, T, U or X), order, writ, judgment,
injunction, decree or award binding on the Borrower or any Subsidiary or the
Borrower's or any Subsidiary's charter, articles or certificate of
incorporation or by-laws, (b) violate the provisions of or require the
approval or consent of any party to any indenture, instrument or agreement to
which the Borrower or any Subsidiary is a party or is subject, or by which it,
or its property, is bound, or conflict with or constitute a default
thereunder, or result in the creation or imposition of any Lien (other than
Liens permitted by the Loan Documents) in, of or on the property of the
Borrower or any Subsidiary pursuant to the terms of any such indenture,
instrument or agreement, or (c) require any consent of the stockholders of any
Person, except for any violation of, or failure to obtain an approval or
consent required under, any such indenture, instrument or agreement that could
not reasonably be expected to have a Material Adverse Effect.
5.4. Governmental Consents. No order, consent, approval, qualification,
---------------------
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of, any court, governmental
or public body or authority, or any subdivision thereof, any securities
exchange or any other Person is or at the relevant time was required to
authorize, or is or at the relevant time was required in connection with the
execution, delivery, consummation or performance of, or the legality,
validity, binding effect or enforceability of, any of the Loan Documents, the
application of the proceeds of the Loans or the consummation of any
transaction contemplated in the Loan Documents.
5.5. Financial Statements. The Borrower has heretofore furnished to
---------------------
each of the Lenders (a) the December 31, 1994 audited consolidated financial
statements of the Borrower and its Subsidiaries, (b) the unaudited
consolidated financial statements of the Borrower and its Subsidiaries through
September 30, 1995, (c) the December 31, 1994 Annual Statements of the
Insurance Subsidiaries, and (d) the September 30, 1995 Quarterly Statements of
the Insurance Subsidiaries (collectively, the "Financial Statements"). Each
--------------------
of the Financial Statements was prepared in accordance with Agreement
Accounting Principles or SAP, as applicable, and fairly presents the
consolidated financial condition and operations of the Borrower and its
Subsidiaries at such dates and the consolidated results of their operations
for the respective periods then ended (except, in the case of such unaudited
statements, for normal year-end audit adjustments); provided, however, that
-------- -------
<PAGE> 133
the financial statements referred to in subsections (c) and (d) above are not
prepared on a consolidated basis.
5.6. Material Adverse Change. No material adverse change in the
-------------------------
business, Property, condition (financial or otherwise), performance, prospects
or results of operations of the Borrower and its Subsidiaries has occurred
since September 30, 1995.
5.7. Taxes. Except as set forth on Schedule 5.7, (a) the Borrower and
----- -------------
its Subsidiaries have filed or caused to be filed on a timely basis and in
correct form all United States federal and applicable foreign, state and local
tax returns and all other tax returns which are required to be filed and have
paid all taxes due pursuant to said returns or pursuant to any assessment
received by the Borrower or any Subsidiary, except such taxes, if any, as are
being contested in good faith and as to which adequate reserves have been
provided in accordance with Agreement Accounting Principles and as to which no
Lien exists, (b) there are no pending audits or investigations regarding the
Borrower's or its Subsidiaries' federal, foreign, state or local tax returns
and (c) no tax liens have been filed and no claims are being asserted with
respect to any such taxes which could reasonably be expected to have a
Material Adverse Effect. The charges, accruals and reserves on the books of
the Borrower and its Subsidiaries in respect of any taxes or other
governmental charges are in accordance with Agreement Accounting Principles.
5.8. Litigation and Contingent Obligations. Except as set forth on
----------------------------------------
Schedule 5.8, there is no litigation, arbitration, proceeding, inquiry or
- - -------------
governmental investigation (including, without limitation, by the Federal
Trade Commission) pending or, to the knowledge of any of their officers,
threatened against or affecting the Borrower or any Subsidiary or any of their
respective Properties which could reasonably be expected to have a Material
Adverse Effect or to prevent, enjoin or unduly delay the making of the Loans
or Advances under this Agreement. As of the date hereof neither the Borrower
nor any Subsidiary has any material contingent obligations except as set forth
on Schedule 5.8.
------------
5.9. Capitalization. Schedule 5.9 contains (a) an accurate description
-------------- ------------
of the Borrower's capitalization and (b) an accurate list of all of the
existing Subsidiaries, in each case as of the date of this Agreement, setting
forth their respective jurisdictions of incorporation and the percentage of
their capital stock owned by the Borrower or other Subsidiaries. All of the
issued and outstanding shares of capital stock of the Borrower and of each
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable, and all such shares of each Subsidiary are free and clear of
all Liens, other than the Liens created by the Loan Documents. No authorized
but unissued or treasury shares of capital stock of any Subsidiary are subject
to any option, warrant, right to call or commitment of any kind or character.
Except as set forth on Schedule 5.9, no Subsidiary has any outstanding stock
-------------
or securities convertible into or exchangeable for any shares of its capital
stock, or any right issued to any Person (either preemptive or other) to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to any of its capital
stock or any stock or securities convertible into or exchangeable for any of
its capital stock other than as expressly set forth in the certificate or
articles of incorporation of such Subsidiary. Neither the Borrower nor any
Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or
<PAGE> 134
otherwise acquire or retire any shares of its capital stock or any convertible
securities, rights or options of the type described in the preceding sentence
except as otherwise set forth on Schedule 5.9.
------------
5.10. ERISA. Except as disclosed on Schedule 5.10, as of the date hereof
----- -------------
(a) neither the Borrower nor any other member of the Controlled Group
maintains any Single Employer Plans, and no Single Employer Plan has any
Unfunded Liability and (b) neither the Borrower nor any other member of the
Controlled Group maintains, or is obligated to contribute to, any
Multiemployer Plan or has incurred, or is reasonably expected to incur, any
withdrawal liability to any Multiemployer Plan. Each Plan complies in all
material respects with all applicable requirements of law and regulations.
Neither the Borrower nor any member of the Controlled Group has, with respect
to any Plan, failed to make any contribution or pay any amount required under
Section 412 of the Code or Section 302 of ERISA or the terms of such Plan.
There are no pending or, to the knowledge of the Borrower, threatened claims,
actions, investigations or lawsuits against any Plan, any fiduciary thereof,
or the Borrower or any member of the Controlled Group with respect to a Plan.
The Borrower has not engaged in any prohibited transaction (as defined in
Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan
which would subject the Borrower to any material liability. Within the last
five years neither the Borrower nor any member of the Controlled Group has
engaged in a transaction which resulted in a Single Employer Plan with an
Unfunded Liability being transferred out of the Controlled Group. No
Termination Event has occurred or is reasonably expected to occur with respect
to any Plan which is subject to Title IV of ERISA.
5.11. Defaults. No Default or Unmatured Default has occurred and is
--------
continuing.
5.12. Federal Reserve Regulations. Neither the Borrower nor any
-----------------------------
Subsidiary is engaged, directly or indirectly, principally, or as one of its
important activities, in the business of extending, or arranging for the
extension of, credit for the purpose of purchasing or carrying Margin Stock.
No part of the proceeds of any Loan will be used in a manner which would
violate, or result in a violation of, Regulation G, Regulation T, Regulation U
or Regulation X. Neither the making of any Advance hereunder, the use of the
proceeds thereof, nor any other aspect of the financing contemplated hereby,
will violate or be inconsistent with the provisions of Regulation G,
Regulation T, Regulation U or Regulation X. Following the application of the
proceeds of the Loans, less than 25% of the value (as determined by any
reasonable method) of the assets of the Borrower and its Subsidiaries which
are subject to any limitation on sale, pledge, or other restriction hereunder
taken as a whole have been, and will continue to be, represented by Margin
Stock.
5.13. Investment Company. Neither the Borrower nor any Subsidiary is, or
------------------
after giving effect to any Advance will be, an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.14. Certain Fees. No broker's or finder's fee or commission was, is or
------------
will be payable by the Borrower or any Subsidiary with respect to any of the
transactions contemplated by this Agreement. The Borrower hereby agrees to
indemnify the Agents and the Lenders against and agrees that it will hold each
of them harmless from any claim, demand or liability for broker's or finder's
fees or commissions alleged to have been incurred by the Borrower in
connection with any
<PAGE> 135
of the transactions contemplated by this Agreement and any expenses
(including, without limitation, attorneys' fees and time charges of attorneys
for the Agents or any Lender, which attorneys may be employees of the Agents
or any Lender) arising in connection with any such claim, demand or liability.
5.15. Solvency. As of the date hereof, after giving effect to the
--------
consummation of the transactions contemplated by the Loan Documents and the
payment of all fees, costs and expenses payable by the Borrower with respect
to the transactions contemplated by the Loan Documents, each of the Borrower
and each Subsidiary is Solvent.
5.16. Ownership of Properties. Except as set forth on Schedule 5.16, as
----------------------- --------------
of the date hereof the Borrower and its Subsidiaries have a subsisting
leasehold interest in or good and marketable title, free of all Liens, other
than those permitted by Section 6.16 or by any of the other Loan Documents,
------------
to, all of the properties and assets reflected in the Financial Statements as
being owned by it, except for assets sold, transferred or otherwise disposed
of in the ordinary course of business since the date thereof. To the
knowledge of the Borrower, there are no actual, threatened or alleged defaults
with respect to any leases of real property under which the Borrower or any
Subsidiary is lessee or lessor which could reasonably be expected to have a
Material Adverse Effect. The Borrower and its Subsidiaries own or possess
rights to use all licenses, patents, patent applications, copyrights, service
marks, trademarks and trade names necessary to continue to conduct their
business as heretofore conducted, and no such license, patent, service mark or
trademark has been declared invalid, been limited by order of any court or by
agreement or is the subject of any infringement, interference or similar
proceeding or challenge, except for proceedings and challenges which could not
reasonably be expected to have a Material Adverse Effect.
5.17. Employee Controversies. There are no strikes, work stoppages or
----------------------
controversies pending or threatened between the Borrower or any Subsidiary and
any of its employees, other than employee grievances arising in the ordinary
course of business, which, in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
5.18. Material Agreements. Neither the Borrower nor any Subsidiary is a
-------------------
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect. The AIG
Agreement is in full force and effect and has not been amended or modified
except as disclosed to the Lenders. No party is in material breach thereof.
5.19. Environmental Laws. There are no claims, investigations,
--------------------
litigation, administrative proceedings, notices, requests for information,
whether pending or threatened, or judgments or orders asserting violations of
applicable federal, state and local environmental, health and safety statutes,
regulations, ordinances, codes, rules, orders, decrees, directives and
standards ("Environmental Laws") or relating to any toxic or hazardous waste,
------------------
substance or chemical or any pollutant, contaminant, chemical or other
substance defined or regulated pursuant to any
<PAGE> 136
Environmental Law, including, without limitation, asbestos, petroleum, crude
oil or any fraction thereof ("Hazardous Materials") asserted against the
--------------------
Borrower or any of its Subsidiaries which could reasonably be expected to have
a Material Adverse Effect.
5.20. Insurance. The Borrower and its Subsidiaries maintain with
---------
financially sound and reputable insurance companies insurance on their
Property in such amounts and covering such risks as is consistent with sound
business practice.
5.21. Security. The Pledge Agreement is effective to create and give the
--------
Agent, for the benefit of the Lenders, as security for the repayment of the
obligations secured thereby, a legal, valid, perfected and enforceable first
priority Lien upon and security interest in the capital stock pledged thereby.
5.22. Insurance Licenses. Schedule 5.22 attached hereto lists all of the
------------------ -------------
jurisdictions in which any Insurance Subsidiary holds active Licenses and is
authorized to transact property and casualty insurance business. Except as
set forth on Schedule 5.22, no such License is the subject of a proceeding for
-------------
suspension or revocation, there is no sustainable basis for such suspension or
revocation, and to the Borrower's knowledge no such suspension or revocation
has been threatened by any Governmental Authority. Schedule 5.22 also
-------------
indicates the line or lines of insurance in which each such Insurance
Subsidiary is permitted to engage with respect to each License therein listed.
5.23. Disclosure. None of the (a) information, exhibits or reports
----------
furnished or to be furnished in writing by the Borrower or any Subsidiary to
the Agent, the Documentary Agent or any Lender in connection with the
negotiation of the Loan Documents, or (b) representations or warranties of the
Borrower contained in this Agreement, the other Loan Documents or any other
document, certificate or written statement furnished to the Agent, the
Documentary Agent or the Lenders by or on behalf of the Borrower or any
Subsidiary for use in connection with the transactions contemplated by this
Agreement, as the case may be, when considered as a whole, contained, contains
or will contain any untrue statement of a material fact or omitted, omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made. There is no fact known to the Borrower on the date
hereof (other than matters of a general economic nature) that has had or could
reasonably be expected to have a Material Adverse Effect and that has not been
disclosed herein or in such other documents, certificates and statements
furnished to the Lenders for use in connection with the transactions
contemplated by this Agreement.
ARTICLE VI
COVENANTS
---------
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
<PAGE> 137
6.1. Financial Reporting. The Borrower will maintain, for itself and
-------------------
each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles or SAP (as
applicable), consistently applied, and furnish to the Agent on behalf of the
Lenders:
(a) As soon as practicable and in any event within 90 days after
the close of each of its fiscal years, an unqualified auditor's opinion of
independent certified public accountants, acceptable to the Lenders, prepared
in accordance with generally accepted accounting principles on a consolidated
basis for itself and its Subsidiaries, including a balance sheet as of the end
of such period, related profit and loss and reconciliation of surplus
statements, and a statement of cash flows, accompanied by (i) any letter
prepared by said accountants regarding reportable conditions with respect to
Borrower, (ii) a statement of said accountants that, in the course of the
examination necessary for their audit opinion, they have obtained no knowledge
of any financial or accounting Default or Unmatured Default, or if, in the
opinion of such accountants, any such Default or Unmatured Default shall
exist, stating the nature and status thereof, (iii) a statement of such
accountants identifying any variations between generally accepted accounting
principles in effect on the date hereof and the generally accepted accounting
principles utilized in the preparation of such financial statements and (iv)
an acknowledgment from said accountants that the Lenders intend to use such
financial statements as part of their monitoring of the credit extended
hereunder and authorizing such use
(b) As soon as practicable and in any event within sixty (60) days
after the close of the first three quarterly periods of each of its fiscal
years, for itself and its Subsidiaries, a consolidated unaudited balance sheet
as at the close of each such period and consolidated profit and loss and
reconciliation of surplus statements and a statement of cash flows for the
period from the beginning of such fiscal year to the end of such quarter, all
prepared in accordance with generally accepted accounting principles for
interim financial information on a consolidated basis and certified by its
chief financial officer.
(c) (i) Upon the earlier of (A) fifteen (15) days after the
regulatory filing date or (B) seventy-five (75) days after the close of each
fiscal year of each Insurance Subsidiary, copies of the Annual Statement of
each of the Insurance Subsidiaries, certified by the president, secretary and
treasurer for each such Insurance Subsidiary and prepared on the NAIC annual
statement blanks (or such other form as shall be required by the jurisdiction
of incorporation of each such Insurance Subsidiary), all such statements to be
prepared in accordance with SAP consistently applied throughout the periods
reflected therein and (ii) by June 1 of each year a certification of such
Annual Statement by independent certified public accountants reasonably
acceptable to the Agent if so required by any Governmental Authority.
(d) Upon the earlier of (i) five (5) days after the regulatory
filing date or (ii) sixty (60) days after the close of each of the first three
fiscal quarters of each Fiscal Year of each Insurance Subsidiary, copies of
the Quarterly Statement of each of the Insurance Subsidiaries, certified by
the president, secretary and treasurer of each such Insurance Subsidiary and
prepared on the NAIC quarterly statement blanks (or such other form as shall
be required by the jurisdiction
<PAGE> 138
of incorporation of each such Insurance Subsidiary), all such statements to be
prepared in accordance with SAP consistently applied through the period
reflected therein.
(e) Promptly and in any event within ten days after learning
thereof, notification of any changes after the date hereof in the rating given
by A.M. Best & Co. in respect of any Insurance Subsidiary.
(f) As soon as available, but in any event not later than the last
Business Day in February of each year, a copy of the projections of the
Borrower and its Subsidiaries for the next fiscal year.
(g) Together with the financial statements required by clauses (a)
------------
and (b) above, a compliance certificate in substantially the form of Exhibit C
- - ------- ---------
signed by its chief financial officer showing the calculations necessary to
determine compliance with this Agreement and stating that no Default or
Unmatured Default exists, or if any Default or Unmatured Default exists,
stating the nature and status thereof.
(h) Within 20 days after the end of each calendar month, a
certificate in substantially the form of Exhibit D signed by its chief
----------
financial officer.
(i) (i) By March 1 of each calendar year, an actuarial opinion
from a qualified actuary (who may be an employee of the Borrower or an
Insurance Subsidiary), the form of which opinion shall be in compliance with
all applicable insurance laws and regulations and all applicable published
actuarial standards, opining as to the amount and the reasonableness of the
loss and loss adjustment expense reserves of each Insurance Subsidiary as of
the preceding December 31 and (ii) within 20 days after receipt thereof, a
copy of any such opinion from time to time prepared by an independent
actuarial firm.
(j) Within 270 days after the close of each fiscal year, a
statement of the Unfunded Liabilities of each Single Employer Plan, certified
as correct by an actuary enrolled under ERISA.
(k) As soon as possible and in any event within 10 days after the
Borrower knows that any Termination Event has occurred with respect to any
Plan, a statement, signed by the chief financial officer of the Borrower,
describing said Termination Event and the action which the Borrower proposes
to take with respect thereto.
(l) As soon as possible and in any event within 10 days after
receipt by the Borrower, (i) a copy of any notice, claim, complaint or order
from any Governmental Authority to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a result of the release by
the Borrower, any of its Subsidiaries, or any other Person of any Hazardous
Materials into the environment or requiring that action be taken to respond to
or clean up a Release of Hazardous Materials into the environment, (ii) a copy
of any notice, complaint or citation from any Governmental Authority alleging
any violation of any Environmental Law or environmental permit or
authorization by the Borrower or any of its Subsidiaries and (iii) notice of
the
<PAGE> 139
commencement of any litigation against the Borrower or its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect.
(m) Promptly upon the furnishing thereof to the shareholders of
the Borrower, copies of all financial statements, reports and proxy statements
so furnished.
(n) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports which the
Borrower or any of its Subsidiaries files with the Securities and Exchange
Commission.
(o) Such other information (including non-financial information)
as the Agent or any Lender may from time to time reasonably request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary
---------------
to, use the proceeds of the Advances to meet the general corporate needs of
the Borrower and its Subsidiaries. The Borrower will not, nor will it permit
any Subsidiary to, use any of the proceeds of the Advances to purchase or
carry any Margin Stock.
6.3. Notice of Default and Other Matters. The Borrower will, and will
------------------------------------
cause each Subsidiary to, give prompt notice in writing to the Lenders of (a)
the occurrence of any Default or Unmatured Default, together with a written
explanation of the nature and status thereof; (b) the occurrence of any other
development, financial or otherwise, relating specifically to the Borrower or
any of its Subsidiaries (and not of a general economic or political nature)
which could reasonably be expected to have a Material Adverse Effect; (c) the
receipt of any notice from any Governmental Authority of the expiration
without renewal, revocation or suspension of, or the institution of any
proceedings to revoke or suspend, any License now or hereafter held by any
Insurance Subsidiary which is required to conduct insurance business in
compliance with all applicable laws and regulations; (d) the receipt of any
notice from any Governmental Authority of the institution of any disciplinary
proceedings against or in respect of any Insurance Subsidiary, or the issuance
of any order, the taking of any action or any request for an extraordinary
audit for cause by any Governmental Authority which, if adversely determined,
could have a Material Adverse Effect; or (e) any judicial or administrative
order limiting or controlling the insurance business of any Insurance
Subsidiary (and not the insurance industry generally) which has been issued or
adopted and which has had, or is reasonably expected to have, a material
adverse effect on the operations of the insurance businesses conducted by the
Insurance Subsidiaries, taken as a whole.
6.4. Conduct of Business. The Borrower will, and will cause each
---------------------
Subsidiary to, (a) carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted; (b) do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and maintain all requisite authority to conduct its business in
each jurisdiction in which its business is conducted where the absence of such
authorization may not reasonably be expected to have a Material Adverse
Effect; and (c) do all things necessary to renew, extend and continue in
effect all Licenses which may at any time and from time to time be necessary
for any Insurance Subsidiary to operate its insurance business in compliance
with all applicable laws and regulations.
<PAGE> 140
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, timely
-----
file complete and correct United States federal and applicable foreign, state
and local tax returns required by applicable law and pay when due all taxes,
assessments and governmental charges and levies upon it or its income, profits
or Property, except those which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside in accordance with Agreement Accounting Principles.
6.6. Compliance with Laws. The Borrower will, and will cause each
----------------------
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject, the
failure to comply with which could reasonably be expected to have a Material
Adverse Effect. The Borrower shall timely file any reports with respect to
the execution and consummation of this Agreement and the other Loan Documents
that may be required by the California Insurance Code or otherwise.
6.7. Maintenance of Properties. The Borrower will, and will cause each
-------------------------
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
Property material to its business in good repair, working order and condition,
and make all necessary and proper repairs, renewals and replacements to such
material Property so that its business carried on in connection therewith may
be properly conducted at all times.
6.8. Inspection. The Borrower will, and will cause each Subsidiary to,
----------
permit the Agent and the Lenders, by their respective representatives and
agents, to inspect any of the Property, corporate books and financial records
of the Borrower and each Subsidiary, to examine and make copies of the books
of accounts and other financial records of the Borrower and each Subsidiary,
and to discuss the affairs, finances and accounts of the Borrower and each
Subsidiary with, and to be advised as to the same by, their respective
officers at such reasonable times and intervals as the Lenders may designate.
The Borrower will keep or cause to be kept, and cause each Subsidiary to keep
or cause to be kept, appropriate records and books of account in which
complete entries are to be made reflecting its and their business and
financial transactions, such entries to be made in accordance with Agreement
Accounting Principles consistently applied.
6.9. Capital Stock and Dividends. The Borrower will not, nor will it
----------------------------
permit any Subsidiary to, (a) issue any preferred stock or other equity
securities of any kind (other than (i) common stock, (ii) options or warrants
to acquire common stock, (iii) Preferred Stock issued pursuant to or as
contemplated by the AIG Agreement, (iv) payment in kind Preferred Stock
dividends thereon and (v) preferred stock having no sinking fund payments or
mandatory redemptions or payments prior to July 30, 2001) or (b) declare or
pay any dividends or make any distributions on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or otherwise
acquire or retire any of its capital stock (each a "Restricted Payment") at
any time outstanding, except that (i) any Subsidiary may declare and pay
dividends or make distributions to the Borrower, (ii) so long as no Default or
Unmatured Default is pending before or after giving effect to the declaration
or payment of such dividends or repurchase or redemption of such stock, (A)
the Borrower may pay cash dividends on the Preferred Stock, (B) after June 30,
1996 and on or prior to December 31, 1996, the Borrower may declare and pay
cash dividends on its capital stock so long as at the time of and after giving
effect to such Restricted Payment, the
<PAGE> 141
Adjusted Earned Surplus (as defined below) is positive and any such common
stock dividends do not exceed $17,000,000 in the aggregate, and (C) from and
after January 1, 1997, the Borrower may make Restricted Payments. For
purposes hereof, "Adjusted Earned Surplus" means, at any time, (1) the
Unassigned Funds plus (2) the aggregate amount of cash dividends theretofore
paid by 20th Century to the Borrower during calendar year 1996 minus (3) the
aggregate of all interest and Restricted Payments (including the proposed
Restricted Payment) paid by the Borrower during calendar year 1996 and minus
(4) the amount of all principal payments in respect of the Loans made by the
Borrower in calendar year 1996 pursuant to Section 2.1(b) in connection with
--------------
mandatory reductions of the Aggregate Revolving Credit Commitment required
pursuant to subsection 2.7(a). Solely in determining whether a Default or
-----------------
Unmatured Default is pending for purposes of Section 6.9(b)(ii), the
-------------------
denominator of the Coverage Ratio as of the most recently ended fiscal quarter
shall be calculated by adding thereto the amount of the proposed Restricted
Payment. At least five Business Days prior to any such Restricted Payment,
the Borrower shall provide the Agents a written computation reflecting
compliance with the Coverage Ratio requirement as set forth above with respect
thereto.
6.10. Indebtedness. The Borrower will not, nor will it permit any
------------
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) the Loans and the other Obligations;
(b) Indebtedness existing on the date hereof and described in
Schedule 6.10;
- - -------------
(c) Indebtedness issued, incurred or assumed in an aggregate
amount not to exceed $50,000,000 in principal amount at any time outstanding,
which Indebtedness (i) is unsecured and subordinated to the Obligations on
terms reasonably satisfactory to the Required Lenders, (ii) has a maturity
date after July 30, 2001, and no scheduled principal payments or redemptions
prior to such date, (iii) is at or below a market rate of interest at the time
incurred, and (iv) has financial and other covenants and defaults reasonably
satisfactory to the Required Lenders;
(d) Capitalized Lease Obligations not exceeding $5,000,000 in the
aggregate at any time outstanding provided that each agreement evidencing such
obligations contains no cross default provisions except to other leases by the
same lessors;
(e) Indebtedness not exceeding $2,000,000 in the aggregate at any
time outstanding incurred in respect of the purchase price of office
equipment;
(f) Rate Hedging Obligations in respect of the Obligations; and
(g) any intercompany loans made by the Borrower to any Insurance
Subsidiary or made by any Insurance Subsidiary to the Borrower for the purpose
of repaying all or any portion of the Obligations if such loan is repayable on
demand.
<PAGE> 142
6.11. Merger. The Borrower will not, nor will it permit any Subsidiary
------
to, merge or consolidate with or into any other Person, except that a
Subsidiary may merge into the Borrower or any Wholly-Owned Subsidiary of the
Borrower.
6.12. Sale of Assets. The Borrower will not, nor will it permit any
---------------
Subsidiary to, lease, sell, transfer or otherwise dispose of its Property, to
any other Person (a) except for sales of Investments in the ordinary course of
business and transfers of Property constituting Investments permitted by
Section 6.14 and (b) except for leases, sales, transfers or other dispositions
- - ------------
of its Property that, together with all other Property of the Borrower and its
Subsidiaries previously leased, sold or otherwise disposed of as permitted by
this Section 6.12 since the date hereof do not constitute a Substantial
-------------
Portion of the Property of the Borrower and its Subsidiaries.
6.13. Sale and Leaseback. The Borrower will not, nor will it permit any
------------------
Subsidiary to, sell or transfer any of its Property in order to concurrently
or subsequently lease as lessee such or similar Property.
6.14. Investments and Purchases.
-------------------------
(a) The Borrower will not, nor will it permit any Subsidiary which
is not an Insurance Subsidiary to, make or suffer to exist any Investments
(including, without limitation, loans and advances to or for the account of,
and other Investments in, Subsidiaries), or commitments therefor, or to create
any Subsidiary or to become or remain a partner in any partnership or joint
venture, or to make any Purchases of any Person, except:
(i) Short-term obligations of, or fully guaranteed by, the
United States of America;
(ii) Commercial paper rated A-l or better by Standard and
Poor's Rating Group, a division of the McGraw-Hill Companies, or P-l or
better by Moody's Investors Service, Inc.;
(iii) Demand deposit accounts maintained in the ordinary
course of business;
(iv) Certificates of deposit issued by and time deposits with
commercial banks (whether domestic or foreign) having capital and surplus
in excess of $100,000,000;
(v) Existing Investments in Subsidiaries and other
Investments in existence on the date hereof and described in Schedule
--------
6.14;
----
(vi) Investments in 20th Century and 21st Century; and
(vii) Investments in any joint venture or strategic alliance
with AIG or its Affiliates as contemplated under the AIG Agreement;
provided that such Investments shall
<PAGE> 143
not exceed in the aggregate (together with Investments made pursuant to
Section 6.14(b)(iii)) $15,000,000 prior to January 1, 1998.
--------------------
(b) The Borrower will not permit any Insurance Subsidiary to make
or suffer to exist any Investments (including without limitation, loans and
advances to or for the account of, and other Investments in, Subsidiaries), or
commitments therefor, or to create any Subsidiary or to become or remain a
partner in any partnership or joint venture, or to make any Purchase of any
Person, except:
(i) Investments rated NAIC-2 or better;
(ii) other investments (excluding Investments in Affiliates
of the Borrower) amounting to no greater than 2% of the consolidated
Investments of the Insurance Subsidiaries; and
(iii) Investments in connection with any joint venture or
strategic alliance with AIG or its Affiliates as contemplated under the
AIG Agreement; provided that such Investments shall not exceed in the
aggregate (together with Investments made pursuant to Section
-------
6.14(a)(vii)) $15,000,000 prior to January 1, 1998.
------------
6.15. Contingent Obligations. The Borrower will not, nor will it permit
----------------------
any Subsidiary to, make or suffer to exist any Contingent Obligation
(including, without limitation, any Contingent Obligation with respect to the
obligations of a Subsidiary), except by endorsement of instruments for deposit
or collection in the ordinary course of business.
6.16. Liens. The Borrower will not, nor will it permit any Subsidiary
-----
to, create, incur, or suffer to exist any Lien in, of or on the Property of
the Borrower or any of its Subsidiaries, except:
(a) Liens for taxes, assessments or governmental charges or levies
on its Property if the same shall not at the time be delinquent or thereafter
can be paid without penalty, or are being contested in good faith and by
appropriate proceedings and for which adequate reserves in accordance with
generally accepted principles of accounting shall have been set aside on its
books;
(b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its books;
(c) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation;
(d) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a
<PAGE> 144
similar character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in the business of
the Borrower or the Subsidiaries;
(e) Liens existing on the date hereof and described in Schedule
--------
6.16;
- - ----
(f) Liens in favor of the Agent or the Lenders granted pursuant to
the Pledge Agreement;
(g) Deposits made by any Insurance Subsidiary with the insurance
regulatory authority in its jurisdiction of incorporation or other statutory
liens or liens or claims imposed or required by applicable insurance law or
regulation against the assets of any Insurance Subsidiary, in each case in
favor of all policyholders of such Insurance Subsidiary and in the ordinary
course of such Insurance Subsidiary's business; and
(h) Liens securing Indebtedness permitted by Section 6.10(e),
----------------
which Liens are created at the time of acquisition or completion of
construction of such property or within 30 days thereafter, or are existing on
such property at the time of acquisition thereof (and not incurred in
anticipation thereof); provided, however, that such Liens do not at any time
-------- -------
encumber any property other than the property financed by such Indebtedness
secured by any such Lien and shall at no time exceed 100% of the original
purchase price of such property.
6.17. Affiliates. The Borrower will not, and will not permit any
----------
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower
or such Subsidiary than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction. This Section shall not prohibit dividends
or distributions permitted by Section 6.9 or Investments permitted by Section
----------- -------
6.14.
- - ----
6.18. Environmental Matters. The Borrower shall and shall cause each of
---------------------
its Subsidiaries to (a) at all times comply with all applicable Environmental
Laws except where non-compliance could not reasonably be expected to have a
Material Adverse Effect and (b) promptly take any and all necessary remedial
actions in response to the presence, storage, use, disposal, transportation or
Release of any Hazardous Materials on, under or about any real property owned,
leased or operated by the Borrower or any of its Subsidiaries.
6.19. Change in Corporate Structure; Fiscal Year. The Borrower shall
-----------------------------------------------
not, nor shall it permit any Subsidiary to, (a) permit any amendment or
modification to be made to its certificate or articles of incorporation or by-
laws which is materially adverse to the interests of the Lenders (provided
that the Borrower shall notify the Agent of any other amendment or
modification thereto as soon as practicable thereafter) or (b) change its
fiscal year to end on any date other than December 31 of each year.
<PAGE> 145
6.20. Inconsistent Agreements. The Borrower shall not, nor shall it
------------------------
permit any Subsidiary to, enter into any indenture, agreement, instrument or
other arrangement which (a) directly or indirectly prohibits or restrains, or
has the effect of prohibiting or restraining, or imposes materially adverse
conditions upon, the incurrence of the Obligations, the granting of Liens
pursuant to the Loan Documents, or the amending of the Loan Documents or (b)
contains any provision which would be violated or breached by the making of
Advances or by the performance by the Borrower or any Subsidiary of any of its
obligations under any Loan Document.
6.21. Financial Covenants. Subject to normal year-end and closing audit
-------------------
adjustments for calculations or determinations made in accordance with
Agreement Accounting Principles prior to the end of their fiscal year, the
Borrower on a consolidated basis with its Subsidiaries shall:
6.21.1 Minimum Net Worth. At all times after the date hereof,
------------------
maintain a minimum consolidated Net Worth of not less than the sum of (a)
$350,000,000 plus (b) 50% of the consolidated Net Income, if positive, of the
Borrower and its Subsidiaries for each fiscal quarter ending on or after
December 31, 1995 plus (c) 50% of the net proceeds to the Borrower or its
Subsidiaries of sales of equity securities (excluding surplus contributions to
Insurance Companies).
6.22. Insurance Company Financial Covenants. Subject to normal year-end
-------------------------------------
and closing audit adjustments for calculations or determinations made in
accordance with SAP prior to the end of a Fiscal Year, the Borrower shall
cause its Consolidated Insurance Subsidiaries to:
6.22.1. Surplus as Regards Policyholders. As of the end of each
---------------------------------
calendar quarter from and including December 31, 1995, maintain an aggregate
Surplus as Regards Policyholders of at least the sum of (a) $250,000,000 plus
(b) 25% of the Borrower's consolidated Statutory Net Income, if positive, for
each fiscal quarter ending on or after December 31, 1995.
6.22.2. Operating Leverage. As of the end of each calendar
-------------------
quarter from and including December 31, 1995, maintain a ratio for the four
calendar quarters then ended of (a) Net Written Premiums to (b) aggregate
Surplus as Regards Policyholders of less than or equal to the ratios set forth
below opposite the following periods:
Period Ratio
the date hereof to 6/30/96 3.50 to 1.00
7/1/96 and thereafter 3.25 to 1.00
6.22.3. Coverage Ratio. As of the end of each fiscal quarter of
--------------
the Borrower from and including December 31, 1995 maintain a ratio (the
"Coverage Ratio") of (a) consolidated Statutory Net Income of the Insurance
Subsidiaries for the most recent four fiscal quarters then ended to (b) the
sum of (i) the amount of principal and interest paid during the four fiscal
quarters then ended on all Indebtedness of the Borrower (other than repayments
of principal on the Loans pursuant to Sections 2.6 and 2.7(b)) and (ii) the
amount of cash dividends paid on its capital stock, and all amounts expended
to redeem or repurchase its capital stock, during the four fiscal quarters
then ended of not less than 1.50 to 1.00.
<PAGE> 146
6.23. Tax Consolidation. The Borrower will not and will not permit any
-----------------
of its Subsidiaries to (a) file or consent to the filing of any consolidated,
combined or unitary income tax return with any Person other than the Borrower
and its Subsidiaries, (b) enter into a tax sharing agreement or similar
arrangement or (c) amend any existing tax sharing agreement in a manner
materially adverse to the Borrower.
6.24. ERISA Compliance.
----------------
With respect to any Plan, neither the Borrower nor any Subsidiary shall:
(a) engage in any "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) for which a civil
penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975
of the Code in excess of $1,000,000 could be imposed;
(b) incur any "accumulated funding deficiency" (as such term is
defined in Section 302 of ERISA) in excess of $1,000,000, whether or not
waived, or permit any Unfunded Liability to exceed $6,000,000;
(c) permit the occurrence of any Termination Event which could
result in a liability to the Borrower or any other member of the Controlled
Group in excess of $1,000,000;
(d) be an "employer" (as such term is defined in Section 3(5) of
ERISA) required to contribute to any Multiemployer Plan or a "substantial
employer" (as such term in defined in Section 4001(a)(2) of ERISA) required to
contribute to any Multiemployer Plan; or
(e) permit the establishment or amendment of any Plan or fail to
comply with the applicable provisions of ERISA and the Code with respect to
any Plan which could result in liability to the Borrower or any other member
of the Controlled Group which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
6.25. No Earthquake Insurance Coverage. Neither the Borrower nor its
-----------------------------------
Insurance Subsidiaries shall issue or have outstanding policies providing
earthquake coverage except as the Required Lenders may otherwise agree.
ARTICLE VII
DEFAULTS
--------
The occurrence of any one or more of the following events shall
constitute a Default:
7.1. Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries to the Lenders or the Agent under
or in connection with this Agreement, any Loan, or any certificate or
information delivered in connection with this Agreement
<PAGE> 147
or any other Loan Document shall be false in any material respect on the date
as of which made or deemed made.
7.2. Nonpayment of (a) principal of any Note when due, or (b) interest
upon any Note or any commitment fee or other fee or obligations under any of
the Loan Documents within five days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of any
of Section 6.2, Section 6.3(a), Sections 6.9 through 6.17 or Section 6.19
------------ --------------- --------------------------------------------
through 6.25.
- - ------------
7.4. The breach by the Borrower (other than a breach which constitutes a
Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of
------------------------
this Agreement which is not remedied within twenty (20) days after written
notice from the Agent or any Lender.
7.5. The default by the Borrower or any of its Subsidiaries in the
performance of any term, provision or condition contained in any agreement or
agreements under which any Indebtedness aggregating in excess of $5,000,000
was created or is governed, or the occurrence of any other event or existence
of any other condition, the effect of any of which is to cause, or to permit
the holder or holders of such Indebtedness to cause, such Indebtedness to
become due prior to its stated maturity; or any such Indebtedness of the
Borrower or any of its Subsidiaries shall be declared to be due and payable or
required to be prepaid (other than by a regularly scheduled payment) prior to
the stated maturity thereof or shall not be paid on the maturity date thereof.
7.6. The Borrower or any of its Subsidiaries shall (a) have an order for
relief entered with respect to it under the Federal bankruptcy laws as now or
hereafter in effect, (b) make an assignment for the benefit of creditors, (c)
apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
Substantial Portion of its Property, (d) institute any proceeding seeking an
order for relief under the Federal bankruptcy laws as now or hereafter in
effect or seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment
or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors or fail to file an answer or
other pleading denying the material allegations of any such proceeding filed
against it, (e) take any corporate action to authorize or effect any of the
foregoing actions set forth in this Section 7.6, (f) fail to contest in good
-----------
faith any appointment or proceeding described in Section 7.7 or (g) become
----------
unable, not pay, or admit in writing its inability to pay, its debts generally
as they become due.
7.7. Without the application, approval or consent of the Borrower or any
of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in Section
-------
7.6(d) shall be instituted against the Borrower or any of its Subsidiaries and
- - ------
such appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of thirty consecutive days.
<PAGE> 148
7.8. Any court, government or governmental agency shall condemn, seize
or otherwise appropriate, or take custody or control of (each a
"Condemnation"), all or any portion of the Property of the Borrower and its
------------
Subsidiaries which, when taken together with all other Property of the
Borrower and its Subsidiaries so condemned, seized, appropriated, or taken
custody or control of, during the twelve-month period ending with the month in
which any such Condemnation occurs, constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within thirty
days to pay, bond or otherwise discharge any judgment or order for the payment
of money in excess of $500,000 (or multiple judgments or orders for the
payment of an aggregate amount in excess of $1,000,000), which is not stayed
on appeal or otherwise being appropriately contested in good faith.
7.10. Any Change in Control shall occur.
7.11. The occurrence of any "default", as defined in any Loan Document
(other than this Agreement or the Notes) or the breach of any of the terms or
provisions of any Loan Document (other than this Agreement or the Notes),
which default or breach continues beyond any period of grace therein provided.
7.12. The Pledge Agreement shall for any reason fail to create a valid
and perfected first priority security interest in any collateral purported to
be covered thereby, except as permitted by the terms of the Pledge Agreement
or the Pledge Agreement shall fail to remain in full force or effect or any
action shall be taken by the Borrower or any Subsidiary to discontinue or to
assert the invalidity or unenforceability of the Pledge Agreement.
7.13. The Borrower or any Insurance Subsidiary shall become subject to
any conservation, liquidation, cease and desist order or similar order,
directive or mandate issued by any Governmental Authority which is not stayed
within ten (10) days other than cease and desist orders which could not
reasonably be expected to have a Material Adverse Effect.
7.14. Any License of any Insurance Subsidiary held by such Insurance
Subsidiary on the date hereof or acquired by such Insurance Subsidiary
thereafter, the loss of which would have, in the reasonable judgment of the
Required Lenders, a Material Adverse Effect (a) shall be revoked by the state
which shall have issued such License, or any action (administrative or
judicial) to revoke such License shall have been commenced against such
Insurance Subsidiary and shall not have been dismissed within 30 days of the
commencement thereof, (b) shall be suspended by such state for a period in
excess of 30 days or (c) shall not be reissued or renewed by such state upon
the expiration thereof following application for such reissuance or renewal by
such Insurance Subsidiary.
7.15. Any Insurance Subsidiary shall be fined in an amount in excess of
$1,000,000 in any single instance by, or at the request of, any state
insurance regulatory agency as a result of the violation by such Insurance
Subsidiary of such state's applicable insurance laws or the regulations
promulgated in connection therewith; provided, however, that the imposition of
-------- -------
any such fine shall not constitute a Default if (a) the Agent receives notice
of such fine within five (5) Business Days of its imposition, and (b) (i) the
Borrower provides the Agent within five (5) Business Days of the
<PAGE> 149
imposition of such fine with evidence reasonably satisfactory to the Agent
that the cause of such fine has been corrected or (ii) neither such fine nor
the circumstances leading to its imposition would have a Material Adverse
Effect.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration. If any Default described in Section 7.6 or 7.7
------------ ----------- ---
occurs with respect to the Borrower, the obligations of the Lenders to make
Loans hereunder shall automatically terminate and the Obligations shall
immediately become due and payable without any election or action on the part
of the Agent or any Lender and without presentment, demand, protest or notice
of any kind, all of which the Borrower hereby expressly waives. If any other
Default occurs, the Required Lenders (or the Agent with the consent of the
Required Lenders) may terminate or suspend the obligations of the Lenders to
make Loans hereunder, or declare the Obligations to be due and payable, or
both, whereupon (in the event of declaration) the Obligations shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which the Borrower hereby expressly waives.
If, within ten Business Days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Loans
hereunder as a result of any Default (other than any Default as described in
Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or
- - ----------- ---
decree for the payment of the Obligations due shall have been obtained or
entered, the Required Lenders (in their sole discretion) shall so direct, the
Agent shall, by notice to the Borrower, rescind and annul such acceleration
and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
---------- ------------
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for
the purpose of adding or modifying any provisions to the Loan Documents or
changing in any manner the rights of the Lenders or the Borrower hereunder or
waiving any Default; provided, however, that no such supplemental agreement
-------- -------
shall, without the consent of each Lender:
(a) Extend the final maturity of any Loan or Note or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest or fees thereon;
(b) Reduce the percentage specified in the definition of Required
Lenders;
(c) Reduce the amount or extend the payment date for the mandatory
payments or reductions required under Section 2.1(b) or 2.7(b) or increase the
------------------------
amount of the Commitment of any Lender hereunder;
(d) Extend the Facility Termination Date;
<PAGE> 150
(e) Amend this Section 8.2;
-----------
(f) Release all or substantially all of the Collateral under and
as defined in the Pledge Agreement; or
(g) Permit any assignment by the Borrower of its Obligations or
its rights hereunder (other than an assignment by operation of law pursuant to
a merger of the Borrower permitted hereby).
No amendment of any provision of this Agreement relating to the Agent or the
Documentary Agent shall be effective without the written consent of the Agent
or the Documentary Agent, as applicable. The Agent may waive payment of the
fee required under Section 12.3.2 without obtaining the consent of any other
--------------
party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or the
----------------------
Agent to exercise any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Default or Unmatured Default or an
acquiescence therein, and the making of a Loan notwithstanding the existence
of a Default or Unmatured Default or the inability of the Borrower to satisfy
the conditions precedent to such Loan shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude any other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Lenders required pursuant to Section 8.2, and then only to the
-----------
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
8.4. Limitation of Rights. Notwithstanding any other term or
----------------------
condition contained herein or in the Pledge Agreement, so long as the Borrower
controls, within the meaning of California Insurance Code Section 1215, an
insurance company domiciled or commercially domiciled in the State of
California and subject to regulation by the California Department of Insurance
(the "Department"), the Lenders shall not vote or sell the Pledged Stock (as
----------
defined in the Pledge Agreement) or exercise direct or indirect control over
the direction of the management and policies of 20th Century or 21st Century
without first filing with the Department a statement, and obtaining from the
Department an approval, in accordance with the requirements of California
Insurance Code Section 1215.2.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1. Survival of Representations. All representations and warranties of
---------------------------
the Borrower contained in this Agreement or of the Borrower or any Subsidiary
contained in any other Loan Document shall survive delivery of the Notes and
the making of the Loans herein contemplated.
<PAGE> 151
9.2. Governmental Regulation. Anything contained in this Agreement to
-----------------------
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Taxes. Any stamp, documentary or similar taxes or charges payable
-----
or ruled payable by any governmental authority in respect of the Loan
Documents shall be paid by the Borrower, together with interest and penalties,
if any.
9.4. Headings. Section headings in the Loan Documents are for
--------
convenience of reference only, and shall not govern the interpretation of any
of the provisions of the Loan Documents.
9.5. Entire Agreement. The Loan Documents embody the entire agreement
----------------
and understanding among the Borrower, the Agent and the Lenders and supersede
all prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof other than the fee letters
executed from time to time by the Borrower in favor of First Chicago and Union
Bank.
9.6. Several Obligations; Benefits of this Agreement. The respective
-------------------------------------------------
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any
of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
9.7. Expenses; Indemnification. The Borrower shall reimburse the Agents
-------------------------
for any costs and out-of-pocket expenses (including reasonable attorneys' fees
and time charges of attorneys for the Agents) paid or incurred by such Agent
in connection with the preparation, negotiation, execution, delivery, review,
amendment, modification, and administration of the Loan Documents. The
Borrower also agrees to reimburse the Agents and the Lenders for any costs,
internal charges and out-of-pocket expenses (including reasonable attorneys'
fees and time charges of attorneys for the Agents and the Lenders) paid or
incurred by such Agent or any Lender in connection with the collection and
enforcement of the Loan Documents. The Borrower further agrees to indemnify
the Agents and each Lender, their directors, officers and employees against
all losses, claims, damages, penalties, judgments, liabilities and expenses
(including, without limitation, all expenses of litigation or preparation
therefor whether or not any Agent or any Lender is a party thereto) which any
of them may pay or incur arising out of or relating to this Agreement, the
other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Loan
hereunder except to the extent that they arise out of the gross negligence or
willful misconduct of the party seeking indemnification. The obligations of
the Borrower under Section 5.14, this Section 9.7 and Section 9.1 of the
------------- -----------
Pledge Agreement shall survive the termination of this Agreement.
9.8. Numbers of Documents. Except as otherwise specified herein or for
--------------------
documents delivered by fax, all statements, notices, closing documents, and
requests hereunder by the Borrower
<PAGE> 152
shall be furnished to the Agent with sufficient counterparts so that the Agent
may, and the Agent shall, furnish one to each of the Lenders.
9.9. Accounting. Except as provided to the contrary herein, all
----------
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.10. Severability of Provisions. Any provision in any Loan Document
----------------------------
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are
declared to be severable.
9.11. Non-liability of Lenders. The relationship between the Borrower
-------------------------
and the Lenders and the Agents shall be solely that of borrower and lender.
Neither the Agents nor any Lender shall have any fiduciary responsibilities to
the Borrower. Neither the Agents nor any Lender undertakes any responsibility
to the Borrower to review or inform the Borrower of any matter in connection
with any phase of the Borrower's business or operations. Neither the Agents
nor any Lender shall have any liability with respect to, and the Borrower
hereby waives, releases and agrees not to sue for, any special, indirect or
consequential damages suffered by the Borrower in connection with, arising out
of, or in any way related to, the Loan Documents or the transactions
contemplated thereby.
9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
-------------
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE
STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.
9.13. NON-EXCLUSIVE CONSENT TO JURISDICTION. THE BORROWER, THE AGENTS
--------------------------------------
AND EACH LENDER HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF
ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND
THE BORROWER, THE AGENTS AND EACH LENDER HEREBY IRREVOCABLY AGREE THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER
HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A
COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT
THE RIGHT OF THE AGENTS OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENTS AND EACH LENDER
---------------------
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
<PAGE> 153
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH, ANY LOAN
DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.15. Disclosure. The Borrower and each Lender hereby (a) acknowledge
----------
and agree that the Agents and/or their Affiliates from time to time may hold
other investments in, make other loans to or have other relationships with the
Borrower, including, without limitation, in connection with any interest rate
hedging instruments or agreements or swap transactions, and (b) waive any
liability of each Agent or such Affiliate to the Borrower or any Lender,
respectively, arising out of or resulting from such investments, loans or
relationships other than liabilities arising out of the gross negligence or
willful misconduct of the Agents or their Affiliates.
9.16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by
the Borrower, the Agents and the Lenders and each party has notified the Agent
by telex or telephone that it has taken such action.
9.17. Consent. Each of the Existing Lenders signatory hereto consents to
-------
the Agents' execution of the Pledge Amendment.
9.18. Effect of Restatement. This Agreement shall, except as otherwise
---------------------
expressly set forth herein, supersede the Prior Credit Agreement from and
after the effective date hereof with respect to the transactions hereunder and
with respect to the loans outstanding under the Prior Credit Agreement as of
such effective date. The parties hereto acknowledge and agree, however, that
(i) this Agreement and all other Loan Documents executed and delivered
herewith do not constitute a novation, payment and reborrowing or termination
of the Obligations under the Prior Credit Agreement and the other Loan
Documents as in effect prior to such effective date, (ii) such Obligations are
in all respects continuing with only the terms being modified as provided in
this Agreement and the other Loan Documents, (iii) the liens and security
interests in favor of the Agent for the benefit of the Lenders securing
payment of such Obligations are in all respects continuing and in full force
and effect with respect to all Obligations and (iv) all references in the
other Loan Documents to the Prior Agreement shall be deemed to refer without
further amendment to this Agreement.
9.19. Exiting Lender. Upon the effectiveness of this Agreement and the
--------------
payment to Bank One Texas, N.A. (the "Exiting Lender") of the Obligations due
it, the Commitment of the Exiting Lender shall be reduced to zero and it shall
cease to have any rights or duties as a Lender hereunder. The Exiting
Lender's execution hereof shall be deemed to evidence only (a) its agreement
with the preceding sentence and (b) its consent, solely in its capacity as an
Existing Lender under the Prior Credit Agreement, to the amendments of the
Prior Credit Agreement embodied herein.
<PAGE> 154
ARTICLE X
THE AGENT
---------
10.1. Appointment. Union Bank is hereby appointed Agent hereunder and
-----------
under each other Loan Document, and each of the Lenders authorizes the Agent
to act as the agent of such Lender. The Agent agrees to act as such upon the
express conditions contained in this Article X. The Agent shall not have a
fiduciary relationship in respect of the Borrower or any Lender by reason of
this Agreement.
10.2. Powers. The Agent shall have and may exercise such powers under
------
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to
the Lenders, to take any action thereunder, except any action specifically
provided by the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
-----------------
officers, agents or employees shall be liable to the Borrower or any Lender
for any action taken or omitted to be taken by it or them hereunder or under
any other Loan Document or in connection herewith or therewith except for its
or their own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor
--------------------------------------------
any of its directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify (a) any statement,
warranty or representation made in connection with any Loan Document or any
borrowing hereunder, (b) the performance or observance of any of the covenants
or agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to
each Lender; (c) the satisfaction of any condition specified in Article IV,
----------
except receipt of items required to be delivered to the Agent and not waived
at closing; or (d) the validity, effectiveness, sufficiency or enforceability
or genuineness of any Loan Document or any other instrument or writing
furnished in connection therewith. The Agent shall have no duty to disclose
to the Lenders information that is not required to be furnished by the
Borrower to the Agent at such time, but is voluntarily furnished by the
Borrower to the Agent (either in its capacity as Agent or in its individual
capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all cases be
---------------------------------
fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders (or all Lenders, as applicable), and such instructions and
any action taken or failure to act pursuant thereto shall be binding on all of
the Lenders and on all holders of Notes. The Agent shall be fully justified
in failing or refusing to take any action hereunder and under any other Loan
Document unless it shall first be indemnified to its satisfaction by the
Lenders pro rata against any and all liability, cost and expense that it may
incur by reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of its
--------------------------------
duties as Agent hereunder and under any other Loan Document by or through
employees, agents and
<PAGE> 155
attorneys-in-fact and shall not be answerable to the Lenders, except as to
money or securities received by it or its authorized agents, for the default
or misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Agent shall be entitled to advice of counsel concerning
all matters pertaining to the agency hereby created and its duties hereunder
and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to
-------------------------------
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect of
legal matters, upon the opinion of counsel selected by the Agent, which
counsel may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
------------------------------------------
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to
their Commitments immediately prior to such termination) (a) for any amounts
not reimbursed by the Borrower for which the Agent is entitled to
reimbursement by the Borrower under the Loan Documents, (b) for any other
expenses incurred by the Agent on behalf of the Lenders, in connection with
the preparation, execution, delivery, administration and enforcement of the
Loan Documents, and (c) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of the Loan Documents
or any other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of any
such other documents; provided, however, that no Lender shall be liable for
-------- -------
any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent. The obligations of the Lenders under this
Section 10.8 shall survive payment of the Obligations and termination of this
- - ------------
Agreement.
10.9. Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Default or Unmatured Default hereunder
unless the Agent has received written notice from a Lender or the Borrower
referring to this Agreement describing such Default or Unmatured Default and
stating that such notice is a "notice of default". In the event that the
Agent receives such a notice, the Agent shall give prompt notice thereof to
the Lenders.
10.10. Rights as a Lender. In the event the Agent is a Lender, the
------------------
Agent shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is
a Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Agent, in its individual capacity, is not obligated to remain a Lender.
<PAGE> 156
10.11. Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
10.12. Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of
its intention to resign. Upon any such resignation, the Required Lenders
shall have the right to appoint, on behalf of the Lenders, a successor Agent.
If no successor Agent shall have been so appointed by the Required Lenders and
shall have accepted such appointment within thirty days after the resigning
Agent's giving notice of its intention to resign, then the resigning Agent may
appoint, on behalf of the Lenders, a successor Agent. If the Agent has
resigned and no successor Agent has been appointed, the Lenders may perform
all the duties of the Agent hereunder and the Borrower shall make all payments
in respect of the Obligations to the applicable Lender and for all other
purposes shall deal directly with the Lenders. No successor Agent shall be
deemed to be appointed hereunder until such successor Agent has accepted the
appointment. Any such successor Agent shall be a commercial bank having
capital and retained earnings of at least $50,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the resigning Agent. Upon the effectiveness of the
resignation of the Agent, the resigning Agent shall be discharged from its
duties and obligations hereunder and under the other Loan Documents. After
the effectiveness of the resignation of an Agent, the provisions of this
Article X shall continue in effect for the benefit of such Agent in respect of
- - ---------
any actions taken or omitted to be taken by it while it was acting as the
Agent hereunder and under the other Loan Documents.
10.13. Documentary Agent. The Documentary Agent shall not have any
-----------------
right, power, obligation, liability, responsibility or duty under this
Agreement other than in connection with (i) the initial syndication of the
Loans and Commitments hereunder and (ii) the preparation, negotiation and
execution of the Loan Documents and any subsequent waivers, supplements,
amendments or other modifications thereto. The Agent agrees to act jointly
with the Documentary Agent in the preparation, negotiation and execution of
any future waiver, supplement, amendment or other modification to any Loan
Document. All provisions of this Article X with respect to the Agent shall be
---------
applicable to the Documentary Agent in connection with its activities pursuant
to this Section. None of the Lenders identified on the cover page of this
Agreement as a "Co-Agent" shall have any right, power, obligation, liability,
responsibility or duty under this Agreement or any other Loan Document other
than those applicable to all Lenders as such.
<PAGE> 157
ARTICLE XI
SETOFF; RATABLE PAYMENTS
------------------------
11.1. Setoff. In addition to, and without limitation of, any rights of
------
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default or Unmatured Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or
not collected or available) and any other Indebtedness at any time held or
owing by any Lender to or for the credit or account of the Borrower may be
offset and applied toward the payment of the Obligations owing to such Lender.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
----------------
has payment made to it upon its Loans (other than payments received pursuant
to Section 3.1, 3.2 or 3.4) in a greater proportion than its pro-rata share of
-----------------------
such Loans, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender
will hold its ratable proportion of Loans. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or
otherwise, receives collateral or other protection for its Obligations or such
amounts which may be subject to setoff, such Lender agrees, promptly upon
demand, to take such action necessary such that all Lenders share in the
benefits of such collateral ratably in proportion to their Loans. In case any
such payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made. If an amount to be set off is to be applied to
Indebtedness of the Borrower to a Lender, other than Indebtedness evidenced by
any of the Notes held by such Lender, such amount shall be applied ratably to
such other Indebtedness and to the Indebtedness evidenced by such Notes.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
12.1. Successors and Assigns. The terms and provisions of the Loan
------------------------
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lenders and their respective successors and assigns, except that (a) the
Borrower shall not have the right to assign its rights or obligations under
the Loan Documents without the consent of all Lenders, and (b) any assignment
by any Lender must be made in compliance with Section 12.3. Notwithstanding
------------
clause (b) of this Section, any Lender may at any time, without the consent of
- - ----------
the Borrower or the Agents, assign all or any portion of its rights under this
Agreement and its Notes to a Federal Reserve Bank; provided, however, that no
-------- -------
such assignment to a Federal Reserve Bank shall release the transferor Lender
from its obligations hereunder. The Agent may treat the payee of any Note as
the owner thereof for all purposes hereof unless and until such payee complies
with Section 12.3 in the case of an assignment thereof or, in the case of any
------------
other transfer, a written notice of such transfer is filed with the Agent.
Any assignee or transferee of a Note agrees by acceptance thereof to be bound
by all the terms and provisions of the Loan Documents. Any request, authority
or consent of any Person, who at the time of making such request or giving
such authority or consent is the holder of any Note, shall be
<PAGE> 158
conclusive and binding on any subsequent holder, transferee or assignee of
such Note or of any Note or Notes issued in exchange therefor.
12.2. Participations.
--------------
12.2.1. Permitted Participants; Effect. Any Lender may, in the
-------------------------------
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more banks or other entities ("Participants")
------------
participating interests in any Loan owing to such Lender, the Note held by
such Lender, the Commitment of such Lender or any other interest of such
Lender under the Loan Documents; provided, however, that any sale of a
-------- -------
participation to an insurance company or a company known by such Lender to
control or be controlled by or be under common control with an insurance
company shall require the prior written consent of the Borrower, which consent
shall not be unreasonably withheld. In the event of any such sale by a Lender
of participating interests to a Participant, such Lender's obligations under
the Loan Documents shall remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, such Lender shall remain the holder of any such Note for all
purposes under the Loan Documents, all amounts payable by the Borrower under
this Agreement shall be determined as if such Lender had not sold such
participating interests, and the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights
and obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
-------------
approve, without the consent of any Participant, any amendment, modification
or waiver of any provision of the Loan Documents other than any amendment,
modification or waiver which effects any of the modifications referenced in
clauses (a) through (g) of Section 8.2 and which the Lender and Participant
-----------
agree shall require approval of the Participant.
12.2.3. Benefit of Setoff. The Borrower agrees that each
-------------------
Participant shall be deemed to have the right of setoff provided in Section
-------
11.1 in respect of its participating interest in amounts owing under the Loan
- - ----
Documents to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under the Loan Documents; provided, that
each Lender shall retain the right of setoff provided in Section 11.1 with
------------
respect to the amount of participating interests sold to each Participant.
The Lenders agree to share with each Participant, and each Participant, by
exercising the right of setoff provided in Section 11.1, agrees to share with
------------
each Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 11.2 as if each
------------
Participant were a Lender.
12.3. Assignments.
-----------
12.3.1. Permitted Assignments. Any Lender may, in the ordinary
---------------------
course of its business and in accordance with applicable law, at any time
assign to one or more banks or other entities ("Purchasers") all or any part
----------
of its rights and obligations under the Loan Documents; provided, however,
-------- -------
that in the case of an assignment to an entity which is not a Lender or an
Affiliate of a Lender, such assignment shall be in a minimum amount of
$5,000,000 and shall require the prior written consent of the Borrower, such
consent not to be unreasonably withheld.
<PAGE> 159
Such assignment shall be substantially in the form of Exhibit E or in such
---------
other form as may be agreed to by the parties thereto.
12.3.2. Effect; Effective Date. Upon (a) delivery to the Agents
----------------------
of a notice of assignment, substantially in the form attached as Exhibit I to
Exhibit E (a "Notice of Assignment"), together with any consents required by
- - --------- ---------------------
Section 12.3.1, and (b) payment of a $2,000 fee to the Agent for processing
- - --------------
such assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. On and after the effective date of
such assignment, (a) such Purchaser shall for all purposes be a Lender party
to this Agreement and any other Loan Document executed by the Lenders and
shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and (b)
the transferor Lender shall be released with respect to the percentage of the
Aggregate Revolving Credit Commitment and Loans assigned to such Purchaser
without any further consent or action by the Borrower, the Lenders or the
Agent. Upon the consummation of any assignment to a Purchaser pursuant to
this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall
--------------
make appropriate arrangements so that a replacement Note is issued to such
transferor Lender and a new Note or, as appropriate, a replacement Note, is
issued to such Purchaser, in each case in principal amounts reflecting their
Revolving Credit Commitment, as adjusted pursuant to such assignment.
12.4. Dissemination of Information. The Borrower authorizes each Lender
----------------------------
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and
----------
any prospective Transferee, subject to the Borrower's consent (not to be
unreasonably withheld) to such Transferee if such consent is required under
Section 12.2.1 or 12.3.1, any and all information in such Lender's possession
- - -------------- ------
concerning the creditworthiness of the Borrower and its Subsidiaries.
12.5. Tax Treatment. If any interest in any Loan Document is transferred
-------------
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to
comply with the provisions of Section 2.18.
------------
ARTICLE XIII
NOTICES
-------
13.1. Giving Notice. Except as otherwise permitted by Section 2.15 with
------------- ------------
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing, by facsimile, first class U.S. mail or overnight courier and
addressed or delivered to such party at its address set forth below its
signature hereto or at such other address as may be designated by such party
in a notice to the other parties. Any notice, if mailed and properly
addressed with first class postage prepaid, return receipt requested, shall be
deemed given three (3) Business Days after deposit in the U.S. mail; any
notice, if transmitted by facsimile, shall be deemed given when transmitted;
and any notice given by overnight courier shall be deemed given when received
by the addressee.
<PAGE> 160
13.2. Change of Address. The Borrower, the Agents and any Lender may
------------------
each change the address for service of notice upon it by a notice in writing
to the other parties hereto.
[Signature pages follow]
<PAGE> 161
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agents have
executed this Agreement as of the date first above written.
20TH CENTURY INDUSTRIES
By: William L. Mellick
Title: President & Chief Executive Officer
6301 Owensmouth Avenue
Woodland Hills, California 91367
Attention: William L. Mellick,
President and Chief Executive Officer
Telephone: (818) 704-3393
Telecopy: (818) 704-6223
<PAGE> 162
Commitments
-----------
$32,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Documentary Agent
By: Paul T. Schultz
Title: Vice President
One First National Plaza
Chicago, Illinois 60670
Attention: Paul T. Schultz
Telephone: (312) 732-7074
Telecopy: (312) 732-4033
<PAGE> 163
Commitments
-----------
$32,000,000 UNION BANK, individually and as Agent
By: Robert C. Dawson
Title: Vice President
445 Figueroa Street
Los Angeles, California 90071
Attention: Robert C. Dawson
Telephone: (213) 236-4249
Telecopy: (213) 629-5328
<PAGE> 164
Commitments
-----------
$29,000,000 THE BANK OF NEW YORK
By: Christine M. Herrick
Title:
One Wall Street
New York, New York 10286
Attention: Christine M. Herrick
Telephone: (212) 635-7853
Telecopy: (212) 809-9520
<PAGE> 165
Commitments
-----------
$0 BANK ONE TEXAS, N.A.
By: D. Keith Thompson
Title: Assistant Vice President
1717 Main Street, 4th Floor
Dallas, Texas 75201
Attention: D. Keith Thompson
Telephone: (214) 290-2303
Telecopy: (214) 290-2332
<PAGE> 166
Commitments
-----------
$25,000,000 FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: Bill A. Shirley
Title: Vice President
One First Union Center TW19
Charlotte, North Carolina 28288
Attention: Tammy F. Anderson
Telephone: (704) 374-6928
Telecopy: (704) 383-9144
<PAGE> 167
Commitments
-----------
$19,000,000 SANWA BANK CALIFORNIA
By: John C. Hyche
Title: Vice President
Sanwa Bank Plaza, 8th Floor
601 South Figueroa Street
Los Angeles, California 90017
Attention: John Hyche
Telephone: (213) 896-7543
Telecopy: (213) 896-7282
<PAGE> 168
Commitments
-----------
$29,000,000 FLEET NATIONAL BANK OF CONNECTICUT
By: James H. Steane II
Title: Senior Vice President
777 Main Street, MSN 250
Hartford, Connecticut 06115
Attention: James H. Steane II
Telephone: (203) 986-2810
Telecopy: (203) 986-1264
<PAGE> 169
Commitments
-----------
$8,000,000 BANK OF AMERICA
By: Gary R. Pett
Title: Senior Vice President
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Colleen Mullins
Telephone: (312) 828-8206
Telecopy: (312) 828-4203
<PAGE> 170
Commitments
-----------
$11,000,000 CREDIT LYONNAIS CAYMAN ISLANDS BRANCH
By: William J. Fischer
Title:
Three Embarcadero Center, Suite 1640
San Francisco, California 94111
Attention: Ed Leong
Telephone: (415) 956-7002
Telecopy: (415) 956-7008
<PAGE> 171
Commitments
-----------
$11,000,000 WELLS FARGO BANK, N.A.
By: Richard H. Palmer
Title: Vice President
333 South Grand Avenue, 12th Floor
Los Angeles, California 90071
Attention: Richard Palmer
Telephone: (213) 253-6137
Telecopy: (213) 617-7620
<PAGE> 172
Commitments
-----------
$29,000,000 THE CHASE MANHATTAN BANK, N.A.
By:
Title:
One Chase Manhattan Plaza, 4th Floor
New York, New York 10081
Attention: Jill D. Schildkraut
Telephone: (212) 552-7757
Telecopy: (212) 552-1999
Total:
$225,000,000
============
Document Number: 0055902.11CREDIT.AGR
12-6-95/06:20pm
<PAGE> 173
EXHIBIT A
---------
FORM OF
PROMISSORY NOTE
$________________ December 7, 1995
FOR VALUE RECEIVED, the undersigned, 20TH CENTURY INDUSTRIES, a
California corporation ("Borrower"), unconditionally promises to pay to the
--------
order of _____________________ ("Lender"), at the main office of Union Bank in
------
Los Angeles, California, in lawful money of the United States of America and
in immediately available funds, the principal amount of ___________________
DOLLARS ($__________), or, if less, the aggregate unpaid principal amount of
all Advances made by the Lender to the undersigned pursuant to Article II of
the Credit Agreement (as defined below). The principal amount of each Advance
evidenced hereby shall be payable as set forth in the Credit Agreement
hereinafter referred to, with any outstanding principal amount of the Advances
made by the Lender being payable on the Facility Termination Date. Borrower
further agrees to pay interest on the unpaid principal amount hereof in like
money from time to time from the date hereof at the rates and on the dates
specified in the Credit Agreement. The Lender is authorized to record the
date and amount of each Advance and the date and amount of each principal
payment hereunder on the schedule annexed hereto and made a part hereof (or on
a continuation thereof which shall be attached hereto and made a part hereof)
or otherwise on the records of the Lender, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so
----- -----
recorded; provided, however, that the failure of the Lender to make such
-------- -------
recordation (or any error in such recordation) shall not affect the
obligations of Borrower hereunder or under the Credit Agreement.
This Promissory Note is one of the Notes referred to in the Amended and
Restated Credit Agreement dated as of December 7, 1995 (as amended,
supplemented, restated or otherwise modified from time to time, the "Credit
------
Agreement") among Borrower, The First National Bank of Chicago, as Documentary
- - ---------
Agent, Union Bank, as Agent, and the Lenders named therein, and is subject to
the provisions thereof, and reference is hereby made for a statement of the
terms and conditions governing this Promissory Note, including the terms and
conditions under which this Promissory Note may be prepaid or its maturity
accelerated. Capitalized terms defined in the Credit Agreement are used
herein with their defined meanings unless otherwise defined herein.
Upon the occurrence of any one or more of the Defaults specified in the
Credit Agreement all amounts then remaining unpaid on this Promissory Note may
become, or may be declared to be, immediately due and payable as provided in
the Credit Agreement.
All parties now and hereafter liable with respect to this Promissory
Note, whether maker, principal, surety, guarantor, endorser or otherwise,
hereby waive presentment, demand, protest and all other notices of any kind.
<PAGE> 174
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
20TH CENTURY INDUSTRIES
By:_______________________________
Print:____________________________
Title:____________________________
Document Number: 0058224.06
12-7-95/10:23am
<PAGE> 175
Schedule to the Promissory Note
-------------------------------
REVOLVING CREDIT
LOANS AND PAYMENTS OF PRINCIPAL
-------------------------------
Amount Amount of Unpaid Notation
Date of Advances Principal Repaid Principal Balance Made By
- - ---- ----------- ---------------- ----------------- --------
<PAGE> 176
EXHIBIT B
---------
AMMENDMENT OF PLEDGE AGREEMENT
------------------------------
This Amendment, dated as of December 7, 1995, is by and between 20TH
CENTURY INDUSTRIES, a California corporation (the "Borrower"), and UNION BANK,
as agent for the Lenders (as defined below).
R E C I T A L S:
---------------
A. Reference is made to that certain Amended and Restated Credit
Agreement dated as of the date hereof among the Borrower, Union Bank, as Agent
and as lender, The First National Bank of Chicago, as Documentary Agent and as
lender, and the other financial institutions party thereto (the "Credit
Agreement"). Each capitalized term used but not otherwise defined herein
shall have the meaning ascribed to it by the Credit Agreement.
B. The Borrower and Union Bank, as Agent, entered into a certain
Pledge Agreement dated as of June 30, 1994 (the "Pledge Agreement") pursuant
to which the stock of 20th Century and 21st Century was pledged to secure the
Obligations.
C.The Borrower and the Agent, acting with the consent of the Lenders,
wish to amend the Pledge Agreement.
NOW, THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendment of Pledge Agreement.
-----------------------------
(a) The definition of "Credit Agreement" in Section 1 of the
Pledge Agreement is hereby amended in its entirety to read as follows:
"'Credit Agreement' means that certain Credit Agreement
-----------------
dated as of June 30, 1994 among the Company, the Lenders, the
Agent and the Documentary Agent, as amended and restated on
December 7, 1995 and as it may be further amended, supplemented,
restated or otherwise modified from time to time."
(b) A new definition is added to Section 1 of the Pledge
Agreement in appropriate alphabetical order as follows:
"'Default Rate' means the rate prescribed by the second
-------------
sentence of Section 2.11 of the Credit Agreement."
(c) The definition of "Pledged Stock" in Section 1 of the Pledge
Agreement is hereby amended in its entirety to read as follows:
<PAGE> 177
"'Pledged Stock' means all of the outstanding shares of
--------------
capital stock of 20th Century and 21st Century."
(d) Section 5.1 is hereby amended by deleting the last sentence
thereof in its entirety and inserting the following:
"The Company will hold in trust for the Agents and the
Lenders upon receipt and immediately thereafter deliver to the
Agent such additional shares and any other instrument evidencing
or constituting Collateral (except, prior to the occurrence of
an Unmatured Default or a Default, ordinary cash dividends, if
any, paid with respect to the Pledged Stock and the Stock Rights
and permitted by the Credit Agreement); provided, however, that
-------- -------
the Company may direct the application of dividends received
during an Unmatured Default to specified principal and interest
payments under the Credit Agreement."
(e) Section 9.6 is hereby amended by adding the words "or
obligations" after the words "its rights" in line 5 of such Section.
(f) Section 9.13 is hereby amended in its entirety to read as
follows:
"9.13. CHOICE OF LAW. THIS PLEDGE AGREEMENT SHALL BE
---------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, WITHOUT REGARD TO
CONFLICT OF LAWS PROVISIONS, OF THE STATE OF NEW YORK, BUT GIVING
EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS."
(g) Schedule A to the Pledge Agreement is amended in its
entirety to read as set forth on Schedule A hereto.
2. Representations and Warranties. The Borrower hereby remakes
------------------------------
and affirms as of the date hereof the representations and warranties set forth
in Section 4 of the Pledge Agreement.
3. Affirmation of Pledge. The Borrower hereby reaffirms its
----------------------
pledge of the Collateral to the Agent pursuant to the Pledge Agreement to
secure the Obligations and acknowledges that the Agent holds the Pledged Stock
and related stock powers for the benefit of the Agents and all the Lenders to
secure the Obligations.
4. Effect. Except as specifically amended above, the Pledge
------
Agreement shall remain in full force and effect and is hereby in all respects,
ratified and confirmed. From and after the date hereof, each reference in the
Pledge Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of similar import shall mean and be a reference to the Pledge Agreement as
amended hereby.
<PAGE> 178
5. This Amendment shall be governed by and construed in
accordance with the internal laws (as opposed to conflicts of laws provisions)
of the State of New York but giving effect to federal laws applicable to
national banks.
6. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but
all such counterparts shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment of Pledge
Agreement as of the day and year first written above.
UNION BANK, as Agent
By:____________________________
Its:___________________________
20TH CENTURY INDUSTRIES
By:____________________________
Its:___________________________
Document Number: 0059101.05
12-7-95/10:23am
<PAGE> 179
<TABLE>
Schedule A to
Pledge Agreement
Pledged Stock
Pledged Stock Jurisdiction No. of No. of Par Value % of Outstanding
Corporation Name of Domicile Stock Certificate Shares Per Share Capital Stock
---------------- ----------- ----------------- ------ --------- -------------
<S> <C> <C> <C> <C> <C>
20th Century Insurance Company California 1 10,000 $300.00 100%
21st Century Casualty Company California 1 1,300 $1,000.00 100%
</TABLE>
<PAGE> 180
EXHIBIT C
FORM OF
COMPLIANCE CERTIFICATE
----------------------
To: The Lenders parties to the
Credit Agreement described below.
This Compliance Certificate is furnished pursuant to that certain
Amended and Restated Credit Agreement dated as of December 7, 1995, among 20th
Century Industries (the "Borrower"), the Lenders party thereto, Union Bank, as
Agent for the Lenders, and The First National Bank of Chicago, as Documentary
Agent for the Lenders (as amended, supplemented, restated or otherwise
modified from time to time, the "Agreement"). Unless otherwise defined
herein, the terms used in this Compliance Certificate have the meanings
ascribed thereto in the Agreement.
THE UNDERSIGNED IN HIS/HER CAPACITY AS AN OFFICER OF THE BORROWER,
HEREBY CERTIFIES THAT:
A. I am the duly elected __________________ of the Borrower;
1. I have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;
2. The examinations described in paragraph 1 did not disclose, and I
have no knowledge of, the existence of any condition or event which
constitutes a Default or Unmatured Default during or at the end of the
accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below; and
3. Schedule I attached hereto sets forth financial data and
computations evidencing the Borrower's compliance with certain covenants of
the Agreement, all of which data and computations are true, complete and
correct.
Described below are the exceptions, if any, to paragraph 2 by listing,
in detail, the nature of the condition or event, the period during which it
has existed and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 181
The foregoing certifications, together with the computations set forth
in Schedule I hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this ________ day of
_____________ , 19___.
____________________________
<PAGE> 182
[SAMPLE]
SCHEDULE "I" TO COMPLIANCE CERTIFICATE
--------------------------------------
Schedule of Compliance as of _________________ With
Provisions of Section 6.14, 6.21 and 6.22 of
the Agreement
6.14. AIG Investments.
- - ---- ---------------
Investments by the Borrower and its Subsidiaries in
any joint venture or strategic alliance with AIG
or its Affiliates as contemplated under the AIG
Agreement $___________
MAXIMUM INVESTMENTS PER COVENANTS $15,000,000
6.14(b)(ii). Investments
- - ----------- -----------
A. Investments (excluding Investments in Affiliates)
not rated NAIC-2 or better. $___________
B. Consolidated Investments of Insurance Subsidiaries $___________
Ratio of A to B ____________
MAXIMUM RATIO: .02 to 1.00
6.21.1. Minimum Net Worth.
- - ------ -----------------
Net Worth (actual) $__________
MINIMUM CONSOLIDATED NET WORTH:
(i) $350,000,000 $__________
+ (ii) Positive Net Income for each fiscal quarter
ending on or after 12/31/95
X .50 $__________
+ (iii) 50% of the net proceeds to the Borrower or its
Subsidiaries of sales of equity securities
(excluding surplus contributions to Insurance
Companies) $__________
<PAGE> 183
SUM of (i), (ii) and (iii) $_________
__________
6.22.1. Surplus as Regards Policyholders.
- - ------ --------------------------------
MINIMUM SURPLUS:
(i) Surplus as Regards Policyholders $_________
MINIMUM SURPLUS AS REGARDS POLICYHOLDERS
PER COVENANT
(i) $250,000,000 $__________
+ (ii) Borrower's aggregate consolidated Statutory Net
Income, if positive, for each fiscal quarter
ending on or after 12/31/95 X .25 $__________
SUM of (i) and (ii)
6.22.2. Operating Leverage.
- - ------ ------------------
(i) Net Written Premiums for preceding
four fiscal quarters $
(ii) Aggregate Surplus as Regards
Policyholders $
Ratio of (i) to (ii) _______:1.0
MAXIMUM RATIOS:
Period Ratio
------ -----
to 6/30/96 3.50 to 1.00
7/01/96 and thereafter 3.25 to 1.00
6.22.3. Coverage Ratio.
- - ------ --------------
<PAGE> 184
A. Consolidated Statutory Net Income of
Insurance Subsidiaries for the four most
recent fiscal quarters then ended $_________
B. (i) Principal and interest paid during the four
fiscal quarters then ended on all
Indebtedness of the Borrower
(other than repayments of principal
on Loans pursuant to sections 2.6 and 2.7(b)) $_________
+ (ii) Cash dividends paid on capital stock and all
repurchases or redemptions of capital stock
during the four most recent fiscal
quarters then ended $_________
SUM of (i) and (ii) $________
Ratio of A to B ______ : 1.0
MINIMUM RATIO: 1.50 to 1.00
Information relating to determination of Applicable Eurodollar Margin and
Applicable ABR Margin:
A. Unassigned Funds are [positive/negative]
B. Ratio of Aggregate Revolving Credit Commitment to Surplus as Regards
Policyholders is
.____ to 1.00.
Document Number: 0058237.06
12-7-95/10:24am
<PAGE> 185
EXHIBIT D
FORM OF
MONTHLY CERTIFICATE
-------------------
To: The Lenders parties to the
Credit Agreement described below.
This Monthly Certificate is furnished pursuant to that certain Amended
and Restated Credit Agreement dated as of December 7, 1995, among 20th Century
Industries (the "Borrower"), the Lenders party thereto, Union Bank, as Agent
--------
for the Lenders, and The First National Bank of Chicago, as Documentary Agent
for the Lenders (as amended, supplemented, restated or otherwise modified from
time to time, the "Agreement"). Unless otherwise defined herein, the terms
---------
used in this Monthly Certificate have the meanings ascribed thereto in the
Agreement.
THE UNDERSIGNED IN HIS/HER CAPACITY AS AN OFFICER OF THE BORROWER,
HEREBY CERTIFIES THAT:
1. I am the duly elected Chief Financial Officer of the Borrower; and
2. Schedule I attached hereto sets forth certain financial data and
----------
computations of 20th Century Insurance Company ("20th Century"), all of which
------------
data and computations are true, complete and correct.
The foregoing certifications, together with the computations set forth
in Schedule I hereto are made and delivered this ________ day of _____________
----------
, 19___.
-----------------------------------
Chief Financial Officer
<PAGE> 186
[SAMPLE]
SCHEDULE "I" TO MONTHLY CERTIFICATE
-----------------------------------
Schedule of Computation with respect to 20th Century
as of ______[date]_______ , _______
Information relating to determination of Applicable Eurodollar Margin and
Applicable ABR Margin:
A. Unassigned Funds as of __________, ____ was [positive/negative]
$________.
B. Ratio of Aggregate Revolving Credit Commitment to Surplus as Regards
Policyholders of 20th Century was ____ to 1.00.
(i) Aggregate Revolving Credit Commitment as of $__________
__________, ____
(ii) Surplus as Regards Policyholders of 20th Century
as of ___________, ____ $__________
(iii) Ratio of (i) to (ii) _____ to 1.00
Document Number: 0062811.04
12-7-95/10:27am
<PAGE> 187
EXHIBIT E
FORM OF
ASSIGNMENT AGREEMENT
--------------------
This Assignment Agreement (this "Assignment Agreement") between
________________(the "Assignor") and __________________ (the "Assignee") is
dated as of _______________ , 19__. The parties hereto agree as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit
----------------------
Agreement (which, as it may be amended, modified, renewed or extended from
time to time is herein called the "Credit Agreement") described in Item 1 of
Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings attributed to them in the
Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns
-------------------------
to the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, an interest in and to the Assignor's rights and obligations under
the Credit Agreement such that after giving effect to such assignment the
Assignee shall have purchased pursuant to this Assignment Agreement the
percentage interest specified in Item 3 of Schedule 1 of all outstanding
rights and obligations under the Credit Agreement relating to the facility
identified on Schedule 1 and the other Loan Documents. The aggregate
Commitment (or Loans, if the applicable Commitment has been terminated)
purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement
--------------
(the "Effective Date") shall be the later of the date specified in Item 5 of
Schedule 1 or two Business Days (or such shorter period agreed to by the
Agent) after a Notice of Assignment substantially in the form of Exhibit "I"
attached hereto has been delivered to the Agent. Such Notice of Assignment
must include any consents required to be delivered to the Agent by Section
12.3.1 of the Credit Agreement. In no event will the Effective Date occur if
the payments required to be made by the Assignee to the Assignor on the
Effective Date under Sections 4 and 5 hereof are not made on the proposed
Effective Date. The Assignor will notify the Assignee of the proposed
Effective Date no later than the Business Day prior to the proposed Effective
Date. As of the Effective Date, (i) the Assignee shall have the rights and
obligations of a Lender under the Loan Documents with respect to the rights
and obligations assigned to the Assignee hereunder and (ii) the Assignor shall
relinquish its rights and be released from its corresponding obligations under
the Loan Documents with respect to the rights and obligations assigned to the
Assignee hereunder except its rights to indemnification by the Borrower under
the Credit Agreement.
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the
---------------------
Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby.
The Assignee shall advance funds directly to the Agent with respect to all
Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. [In consideration for the sale and
assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on the
Effective Date, an amount equal to the principal amount of the portion of all
Floating Rate Advances assigned to the Assignee hereunder and (ii) with
respect to each Eurodollar Loan made by the Assignor and assigned to the
Assignee hereunder which is outstanding
<PAGE> 188
on the Effective Date, (a) on the last day of the Interest Period therefor or
(b) on such earlier date agreed to by the Assignor and the Assignee or (c) on
the date on which any such Eurodollar Loan either becomes due (by acceleration
or otherwise) or is prepaid (the date as described in the foregoing clauses
(a), (b) or (c) being hereinafter referred to as the "Payment Date"), the
Assignee shall pay the Assignor an amount equal to the principal amount of the
portion of such Eurodollar Loan assigned to the Assignee which is outstanding
on the Payment Date. If the Assignor and the Assignee agree that the Payment
Date for such Eurodollar Loan shall be prior to the last day of the Interest
Period therefor, they shall agree on the interest rate applicable to the
portion of such Loan assigned hereunder for the period from the Effective Date
to the end of the existing Interest Period applicable to such Eurodollar
Loan (the "Agreed Interest Rate") and any interest received by the Assignee
in excess of the Agreed Interest Rate shall be remitted to the Assignor. In
the event interest for the period from the Effective Date to but not including
the Payment Date is not paid by the Company with respect to any Eurodollar
Loan sold by the Assignor to the Assignee hereunder, the Assignee shall pay
to the Assignor interest for such period on the portion of such Eurodollar
Loan sold by the Assignor to the Assignee hereunder at the applicable rate
provided by the Credit Agreement. In the event a prepayment of any Eurodollar
Loan which is existing on the Payment Date and assigned by the Assignor to
the Assignee hereunder occurs after the Payment Date but before the end of the
Interest Period applicable to such Eurodollar Loan, the Assignee shall
remit to the Assignor the excess of the prepayment penalty paid with respect
to the portion of such Eurodollar Loan assigned to the Assignee hereunder over
the amount which would have been paid if such prepayment penalty was
calculated based on the Agreed Interest Rate. The Assignee will also promptly
remit to the Assignor (i) any principal payments received from the Agent with
respect to Eurodollar Loans prior to the Payment Date and (ii) any amounts of
interest on Loans and fees received from the Agent which relate to the portion
of the Loans assigned to the Assignee hereunder for periods prior to the
Effective Date, in the case of Floating Rate Advances, or the Payment Date,
in the case of Eurodollar Loans, and not previously paid by the Assignee
to the Assignor.]* In the event that either party hereto receives any payment
to which the other party hereto is entitled under this Assignment Agreement,
then the party receiving such amount shall promptly remit it to the other
party hereto.
*Each Assignor may insert its standard payment provisions in lieu of the
payment terms included in this Exhibit.
[5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the
--------------------------------
Assignor a fee on each day on which a payment of interest or commitment fees
is made under the Credit Agreement with respect to the amounts assigned to the
Assignee hereunder (other than a payment of interest or commitment fees for
the period prior to the Effective Date or, in the case of Eurodollar Loans,
the Payment Date, which the Assignee is obligated to deliver to the Assignor
pursuant to Section 4 hereof). The amount of such fee shall be the difference
between (i) the interest or fee, as applicable, paid with respect to the
amounts assigned to the Assignee hereunder and (ii) the interest or fee, as
applicable, which would have been paid with respect to the amounts assigned to
the Assignee hereunder if each interest rate was of 1% less than the
interest rate paid by the Borrower or if the commitment fee was of 1% less
than the commitment fee paid by the Borrower, as applicable. In addition, the
Assignee agrees to pay % of the recordation fee required to be paid to the
Agent in connection with this Assignment Agreement.]
<PAGE> 189
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
------------------------------------------------------------------
LIABILITY. The Assignor represents and warrants that it is the legal and
- - ---------
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It
is understood and agreed that the assignment and assumption hereunder are made
without recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the Assignor
nor any of its officers, directors, employees, agents or attorneys shall be
responsible for (i) the due execution, legality, validity, enforceability,
genuineness, sufficiency or collectibility of any Loan Document, including
without limitation, documents granting the Assignor and the other Lenders a
security interest in assets of the Borrower or any guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or any guarantor, (iv) the performance of or compliance with any of
the terms or provisions of any of the Loan Documents, (v) inspecting any of
the Property, books or records of the Borrower, (vi) the validity,
enforceability, perfection, priority, condition, value or sufficiency of any
collateral securing or purporting to secure the Loans or (vii) any mistake,
error of judgment, or action taken or omitted to be taken in connection with
the Loans or the Loan Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that
-------------------------------
it has received a copy of the Credit Agreement, together with copies of the
financial statements requested by the Assignee and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement, (ii) agrees that it will,
independently and without reliance upon the Agents, the Assignor or any other
Lender and based on such documents and information at it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking action under the Loan Documents, (iii) appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such
powers under the Loan Documents as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental thereto, (iv)
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender, (v) agrees that its payment instructions and
notice instructions are as set forth in the attachment to Schedule 1, (vi)
confirms that none of the funds, monies, assets or other consideration being
used to make the purchase and assumption hereunder are "plan assets" as
defined under ERISA and that its rights, benefits and interests in and under
the Loan Documents will not be "plan assets" under ERISA, [and (vii) attaches
the forms prescribed by the Internal Revenue Service of the United States
certifying that the Assignee is entitled to receive payments under the Loan
Documents without deduction or withholding of any United States federal income
taxes.*]
*to be inserted if the Assignee is not incorporated under the laws of the
United States, or a state thereof.
8. INDEMNITY. The Assignee agrees to indemnify and hold harmless the
---------
Assignor against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's non-
performance of the obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee
----------------------
shall have the right pursuant to Section 12.3.1 of the Credit Agreement to
assign the rights which are assigned
<PAGE> 190
to the Assignee hereunder to any entity or person, provided that (i) any such
subsequent assignment does not violate any of the terms and conditions of
the Loan Documents or any law, rule, regulation, order, writ, judgment,
injunction or decree and that any consent required under the terms of the
Loan Documents has been obtained and (ii) unless the prior written consent of
the Assignor is obtained, the Assignee is not thereby released from its
obligations to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under [Sections 4, 5 and 8] hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the
-------------------------------------
Aggregate Revolving Credit Commitment occurs between the date of this
Assignment Agreement and the Effective Date, the percentage interest specified
in Item 3 of Schedule 1 shall remain the same, but the dollar amount purchased
shall be recalculated based on the reduced Aggregate Revolving Credit
Commitment.
[11. ENTIRE AGREEMENT. This Assignment Agreement and the attached
-----------------
Notice of Assignment embody the entire agreement and understanding between the
parties hereto and supersede all prior agreements and understandings between
the parties hereto relating to the subject matter hereof.]
12. GOVERNING LAW. This Assignment Agreement shall be governed by the
-------------
internal law, and not the law of conflicts, of the State of New York.
13. NOTICES. Notices shall be given under this Assignment Agreement
-------
in the manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall
be the address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above
written.
[NAME OF ASSIGNOR]
By:___________________________
Title:________________________
________________________
________________________
[NAME OF ASSIGNEE]
By:___________________________
Title:________________________
________________________
________________________
<PAGE> 191
SCHEDULE "1"
TO ASSIGNMENT AGREEMENT
-----------------------
1. Description and Date of Credit Agreement: Amended and Restated Credit
Agreement dated as of December 7, 1995 among 20th Century Industries,
Union Bank as agent and lender, The First National Bank of Chicago, as
documentary agent and lender, and the other lenders party thereto, as
amended from time to time.
2. Date of Assignment Agreement: ____________________________ , 19__
3. Amounts (As of Date of Item 2 above):
a. Total of Commitments
(Loans)** under
Credit Agreement $_________________
b. Assignee's Percentage
of Facility purchased
under the Assignment
Agreement*** ______ %
c. Amount of Assigned Share in
Facility purchased under
the Assignment
Agreement $____________
4. Assignee's Aggregate (Loan
Amount)** Commitment Amount
Purchased Hereunder: $____________
5. Proposed Effective Date:
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By:____________________________ By:____________________________
Title:_________________________ Title:____________________
** If a Commitment has been terminated, insert outstanding Loans in place
of Commitment
*** Percentage taken to 10 decimal places
<PAGE> 192
ATTACHMENT TO SCHEDULE "1" TO ASSIGNMENT AGREEMENT
--------------------------------------------------
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
<PAGE> 193
EXHIBIT "I"
TO ASSIGNMENT AGREEMENT
NOTICE
OF ASSIGNMENT
-------------
_____________ , 19__
To: Union Bank, as Agent
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement")
described in Item 1 of Schedule 1 attached hereto ("Schedule 1").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and delivered
to the Agent pursuant to Section 12.3.2 of the Credit Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of ____________________ , 19___(the "Assignment"),
pursuant to which, among other things, the Assignor has sold, assigned,
delegated and transferred to the Assignee, and the Assignee has
purchased, accepted and assumed from the Assignor, the percentage
interest specified in Item 3 of Schedule 1 of all outstandings, rights
and obligations under the Credit Agreement relating to the facility
identified on Schedule 1 and the other Loan Documents. The Effective
Date (as defined in the Assignment) shall be the later of the date
specified in Item 5 of Schedule 1 or two Business Days (or such shorter
period as agreed to by the Agent) after this Notice of Assignment and
any consents and fees required by Sections 12.3.1 and 12.3.2 of the
Credit Agreement have been delivered to the Agent, provided that the
Effective Date shall not occur if any condition precedent agreed to by
the Assignor and the Assignee has not been satisfied.
4. The Assignor and the Assignee hereby give to the Borrower and the
Agent notice of the assignment and delegation referred to herein. The
Assignor will confer with the Agent before the date specified in Item 5
of Schedule 1 to determine if the Assignment will become effective on
such date pursuant to Section 3 hereof, and will confer with the Agent
to determine the Effective Date pursuant to Section 3 hereof if it
occurs thereafter. The Assignor shall notify the Agent if the
Assignment does not become effective on any proposed Effective Date as a
result of the failure to satisfy the conditions precedent agreed to by
the Assignor and the Assignee. At the request of the Agent, the
Assignor will give the Agent written confirmation of the satisfaction of
the conditions precedent.
<PAGE> 194
5. The Assignor or the Assignee shall pay to the Agent on or before
the Effective Date the processing fee of $2,000 required by Section
12.3.2 of the Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor and
the Assignee request and direct that the Agent prepare and cause the
Borrower to execute and deliver new Notes or, as appropriate,
replacement Notes, to the Assignor and the Assignee. The Assignor and,
if applicable, the Assignee each agree to deliver to the Agent the
original Note received by it from the Borrower upon its receipt of a
new Note in the appropriate amount.
7. The Assignee advises the Agent that notice and payment
instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the
funds, monies, assets or other consideration being used to make the
purchase pursuant to the Assignment are "plan assets" as defined under
ERISA and that its rights, benefits, and interests in and under the Loan
Documents will not be "plan assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent under the
Loan Documents in accordance with the terms thereof. The Assignee
acknowledges that the Agent has no duty to supply information with
respect to the Borrower or the Loan Documents to the Assignee until the
Assignee becomes a party to the Credit Agreement. The Assignee shall,
if the Assignee is not incorporated under the laws of the United States
of America or a state thereof, deliver the forms required by Section
2.18 of the Credit Agreement at least five Business Days prior to the
Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By:_________________________ By:___________________________
Title:______________________ Title:___________________
ACKNOWLEDGED BY UNION BANK, ACKNOWLEDGED AND CONSENTED TO
as Agent BY 20TH CENTURY INDUSTRIES
By:_________________________ By:___________________________
Title:______________________ Title:__________________
<PAGE> 195
[Attach photocopy of Schedule 1 to Assignment]
<PAGE> 196
EXHIBIT "II" TO ASSIGNMENT AGREEMENT
CONSENT AND RELEASE
-------------------
TO: [NAME OF ASSIGNOR]
________________________
________________________
[NAME OF ASSIGNEE]
________________________
________________________
_______________ , 19_____
1. We acknowledge receipt from _______________________ (the
"Assignor") and _______________________ (the "Assignee") of the Notice of
Assignment, dated as of _________________, 19___ (the "Notice"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
attributed to them in the Notice.
2. In consideration of the assumption by the Assignee of the
obligations of the Assignor as referred to in the Notice, the Borrower hereby
(i) irrevocably consents, as required by Section 12.3.1 of the Credit
Agreement, to the assignment and delegation referred to in the Notice and (ii)
as of the Effective Date, irrevocably releases the Assignor from its
obligations to the Borrower, under the Loan Documents to the extent that such
obligations have been assumed by the Assignee. The Borrower and the Agent
agree that, as of the Effective Date, the Borrower shall consider the Assignee
as a "Lender" for all purposes under the Loan Documents to the extent of the
assignment and delegation referred to in the Notice.
UNION BANK, as Agent
By:___________________________
Title:________________________
20TH CENTURY INDUSTRIES
By:___________________________
Title:________________________
0058229.05
<PAGE> 197
<TABLE>
Schedule 2.1
------------
LOANS AND REPAYMENTS
--------------------
Aggregate Loans Principal Repayment Loan Balance After Giving
Outstanding Under Prior Loan to be Made to be Received on Effect to Loans to be Made
Lender or Existing Lender Credit Agreement on Date Hereof the Date Hereof and/or Repaid on the Date Hereof
- - ------------------------- ---------------- -------------- --------------- --------------------------------
<S> <C> <C> <C> <C>
The First National Bank of Chicago $30,000,000 $ --- $5,111,111.11 $24,888,888.89
Union Bank 30,000,000 --- 5,111,111.11 24,888,888.89
Bank One, Texas, N.A. 25,000,000 --- 25,000,000.00 0.00
First Union National Bank 25,000,000 --- 5,555,555.55 19,444,444.45
of North Carolina
Sanwa Bank California 15,000,000 --- 222,222.22 14,777,777.78
Shawmut Bank Connecticut, N.A. 25,000,000 --- 2,444,444.45 22,555,555.55
The Bank of New York 25,000,000 --- 2,444,444.45 22,555,555.55
Bank of America 0 6,222,222.22 --- 6,222,222.22
Credit Lyonnais, San Francisco 0 8,555,555.56 --- 8,555,555.56
Wells Fargo Bank 0 8,555,555.56 --- 8,555,555.56
Chase Manhattan Bank 0 22,555,555.55 --- 22,555,555.55
-------------------- ---------------- ----------------- ------------------------
$175,000,000.00 $45,888,888.89 $45,888,888.89 $175,000,000.00
</TABLE>
<PAGE> 198
Schedule 5.7
TAXES
-----
Federal income tax returns for calendar years 1991 through 1994 are
currently being examined by the Internal Revenue Service ("IRS"). The statute
of limitations for assessment for the calendar year 1991 and 1992 returns has
been extended until December 31, 1996. The statute of limitations for the
1993 and 1994 returns will expire September, 1997 and March, 1998,
respectively.
Prior to this current examination, the latest IRS examination (covering
calendar years 1981 through 1986 and 1988) was concluded in October, 1991 with
a "no change" letter from the IRS District Director.
A deficiency assessment for California Premium Tax for calendar years
1989 and 1990 was issued by the California State Board of Equalization ("SBE")
on October 8, 1993, as follows:
Year Due Date Gross Premiums Rate Tax Interest*
---- -------- -------------- ---- --- ---------
1989 4-1-90 19,992,089 2.37% 473,813 344,187
1990 4-1-91 14,751,589 2.46% 362,889 198,360
Amount Due 836,702 542,547
* Interest to November 30, 1995.
The deficiency arises because the Borrower did not pay premium tax on premiums
which were to be rebated to its policyholders under Proposition 103. The
Department of Insurance contends the Borrower should have paid the premium tax
on those premiums because it did not pay those rebates but only accrued the
liability. The Borrower timely filed a petition of redetermination with the
SBE on November 5, 1993, and has not heard anything further. If the Borrower
loses the appeal it would have to pay additional interest as well as a 10%
penalty of $83,670.
<PAGE> 199
Schedule 5.8
LITIGATION AND MATERIAL CONTINGENT OBLIGATIONS
----------------------------------------------
TITLE CASE NO. DESCRIPTION
- - ----- -------- -----------
The Proposition 103 972727 Per the terms of the
Enforcement Project (the Stipulation and Order entered
"Project") v. Chuck into with the Insurance
Quackenbush; 20th Century Commissioner on January 27
Insurance Co. and 21st and January 28, 1995
Century Casualty Co., Real respectively, the Insurance
Party in Interest Subsidiaries resolved their
Proposition 103 rollback
liabilities. This settlement
was approved by the
Department on August 29,
1995 but challenged by the
Project in this Superior Court
case, filed on September 22,
1995. Evidence has been
presented and we are
awaiting the Court's decision.
<PAGE> 200
Schedule 5.9
CAPITALIZATION
--------------
The consolidated capitalization of 20th Century Industries as of October
31, 1995 is as follows:
Stockholders' Equity (Amount in thousands)
Capital Stock
Preferred Stock par value $1.00
per share, authorized 500,000
shares, none issued.
Series A Convertible Preferred Stock,
stated value $1,000 per share,
authorized 376,126 shares,
outstanding 224,950 shares. $224,950,000
Common stock without par value;
authorized 110,000,000 shares,
outstanding 51,495,636 shares. 69,756,343
Common stock warrants 16,000,000
Unrealized investment gains (losses), net 20,021,248
Retained earnings 111,493,907
------------
Total stockholders' equity $442,221,498
------------
Both Subsidiaries are incorporated in California and owned 100% by 20th
Century Industries. Their capitalization is as follows:
20th Century Insurance Company
------------------------------
Preferred Stock -0-
Common Stock 100,000 shares authorized
10,000 shares outstanding
$300 par value per share
Treasury Shares -0-
<PAGE> 201
21st Century Casualty Company
-----------------------------
Preferred Stock -0-
Common Stock 100,000 shares authorized
1,300 outstanding
$1,000 par value per share
Treasury Shares -0-
<PAGE> 202
Schedule 5.10
ERISA
-----
The Borrower maintains the 20th Century Industries Pension Plan, a
Single Employer Plan, and the Unfunded Liability for such Plan as of December
31, 1994 was not in excess of $5,000,000.
<PAGE> 203
Schedule 5.16
OWNED AND LEASED PROPERTIES
---------------------------
20th Century Industries and its Subsidiaries do not own any real
property. Its leasehold interests are free of all Liens.
<PAGE> 204
Schedule 5.22
LICENSE JURISDICTIONS
---------------------
SUBSIDIARY LICENSE
---------- -------
20th Century Insurance Company California
21st Century Casualty Company California
Each Insurance Subsidiary currently sells personal lines automobile
insurance. Additionally, 20th Century sells personal excess liability
coverage.
20th Century Insurance Company's Certificate of Authority permits the
Insurance Subsidiary to write classes of insurance defined as Fire, Marine,
Surety, Disability, Plate Glass, Liability, Workers' Compensation, Common
Carrier Liability, Boiler and Machinery, Burglary, Credit, Sprinkler, Team and
Vehicle, Automobile, Aircraft and Miscellaneous in the California
Insurance Code.
21st Century Casualty Insurance Company's Certificate of Authority
permits the Insurance Subsidiary to write classes of insurance defined as
Fire, Plate Glass, Liability, Burglary, Sprinkler, Automobile and
Miscellaneous in the California Insurance Code.
<PAGE> 205
Schedule 6.10
INDEBTEDNESS
------------
None
<PAGE> 206
Schedule 6.14
INVESTMENTS
-----------
Borrower's Investments in Subsidiaries and other Investments are as
follows:
Investment Amount
---------- ------
Capital Stock of 20th Century 3,000,000
Capital Stock of 21st Century 1,300,000
Short Term Investments as of 18,471,790
November 28, 1995 in Commercial Paper*
Total 22,771,790
The October 31, 1995 Portfolio Summaries for each Insurance Subsidiary are
attached.
*This amount is included in "Cash and Equivalents" in the Financial Statement.
<PAGE> 207
<TABLE>
PORTFOLIO BY CLASS
20TH CENTURY INSURANCE COMPANY
MAJOR INVESTMENT CLASS ACTUAL MARKET % AT EST. ANN AV RET AV RET
AS OF OCTOBER 31, 1995 COST VALUE MARKET INCOME MARKET COST
---- ----- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVT & AGENCY
INSTRUMENTS 111,707,357 113,530,731 10.1% 7,886,350 6.95% 7.06%
MUNICIPAL BONDS 213,062,337 211,961,208 18.9% 12,171,360 5.74% 5.71%
CORP. NOTES & BONDS 759,970,050 788,940,433 70.3% 56,898,125 7.21% 7.49%
EQUITIES 539,200 1,188,240 0.1% 4,314 0.36% 0.80%
SUB TOTAL LONG TERM
INVESTMENTS 1,085,278,944 1,115,618,702 76,960,149 6.90% 7.09%
SHORT TERM INVESTMENTS 6,788,282 6,788,282 0.6% 357,063 5.26% 5.26%
TOTAL INVESTMENTS 1,092,067,226 1,122,406,984 100.0% 77,317,212 6.89% 7.08%
-------------- ------------- ---------- -----
AMORTIZED VALUE OF BONDS 1,084,319,034
MARKET VALUE OF BONDS 1,114,432,462
--------------
UNREALIZED GAIN OR (LOSS)
ON BONDS 30,113,426
----------
</TABLE>
<PAGE> 208
<TABLE>
PORTFOLIO BY CLASS
21ST CENTURY CASUALTY COMPANY
MAJOR INVESTMENT CLASS ACTUAL MARKET % AT EST. ANN AV RET AV RET
AS OF OCTOBER 31, 1995 COST VALUE MARKET INCOME MARKET COST
---- ----- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVT & AGENCY
INSTRUMENTS 0 0 0.0% 0 0.00% 0.00%
MUNICIPAL BONDS 1,497,885 1,517,020 59.1 81,500 5.37% 5.44%
CORP. NOTES & BONDS 1,017,500 1,036,080 40.4% 80,000 7.72% 7.86%
SUB TOTAL LONG TERM
INVESTMENTS 2,515,365 2,553,100 161,500 6.33% 6.42%
SHORT TERM INVESTMENTS 12,770 12,770 0.5% 672 5.26% 5.26%
TOTAL INVESTMENTS 2,528,155 2,565,870 100.0% 162,172 6.32% 6.41%
----------- ---------- ------- -----
AMORTIZED VALUE OF
BONDS 2,511,732
MARKET VALUE OF BONDS 2,553,100
-----------
UNREALIZED GAIN OR
(LOSS) ON BONDS 41,366
-------
</TABLE>
<PAGE> 209
Schedule 6.16
LIENS
-----
None
<PAGE> 210
QUOTA SHARE REINSURANCE AGREEMENT
between
20TH CENTURY INSURANCE COMPANY
(hereinafter referred to as the "Company")
and
AMERICAN INTERNATIONAL INSURANCE COMPANY
(hereinafter referred to as the "Reinsurer")
****************************************************************
PREAMBLE
- - --------
This Agreement replaces that certain agreement dated December 16, 1994 and
substitutes American International Insurance Company as Reinsurer for New
Hampshire Insurance Company and further incorporates Letter of Credit
provisions, effective as of January 1, 1995.
The Reinsurer hereby agrees to reinsure the Company in respect of the
Company's net liability under all policies, contracts and binders of insurance
(hereafter referred to as "policies") issued during the term of this Agreement
subject to the following terms and conditions:
ARTICLE I
---------
TERM
- - ----
This Agreement shall be effective from 12:01 A.M., pacific standard time,
January 1, 1995 and shall remain continuously in force through December 31,
1999. The Reinsurer has the option to renew this Agreement annually for four
additional years by notifying the Company prior to December 31, 1999 or prior
to the expiration date of any renewal.
ARTICLE II
----------
PARTICIPATION
- - -------------
The Company shall cede and the Reinsurer shall accept 10% of the Company's net
liability for losses on policies incepting during the term of this Agreement.
As consideration, the Reinsurer shall receive a 10% share of the net written
premiums, less ceding commission as described in Article III, generated by
such policies. In the event the Reinsurer elects to renew this Agreement for
annual periods following December 31, 1999 the participation shall be 8% on
the first renewal, 6% on the second renewal, 4% on the third renewal and 2% on
the fourth renewal.
ARTICLE III
-----------
COMMISSION
- - ----------
The Reinsurer shall allow the Company a commission of 10.8% of the ceded
written premium for policies with effective dates from January 1, 1995 and
through December 31, 1995. For policies with effective dates in each
subsequent underwriting year, the commission shall be equal to the rate of the
Company's incurred underwriting expenses (as recorded in the Company's
statutory statement) to net written premium for the prior calendar year.
QS20CNT8/7/95
<PAGE> 211
QUOTA SHARE REINSURANCE AGREEMENT
20TH CENTURY INSURANCE COMPANY/AIIC
Page 2
-----------------------------------
ARTICLE IV
----------
REPORTS AND ACCOUNTS
- - --------------------
The Company shall furnish within forty-five days after the close of each
calendar quarter an account reflecting the following separately for each
underwriting year:
A. Net written premium ceded during the quarter (credited).
B. Commission on the ceded premium (debited).
C. Net paid losses (debited).
D. Net paid adjustment expenses (debited).
E. Net outstanding losses.
F. Net unearned premium.
If the balance of A through D is a credit such amount shall be
remitted with the account. If the balance of A through D is a
debit, the Reinsurer shall remit such amount within 15 days of
receipt of the account. Accounts by line of business shall also
be provided by the Company including the aforementioned
information.
ARTICLE V
---------
DEFINITION
- - ----------
Underwriting year shall mean all policies with effective dates from 12:01
A.M., pacific standard time, January 1st through December 31st of each
calendar year.
Net written premium or net losses or net liability shall mean the gross amount
less deductions for all other reinsurance.
CURRENCY
- - --------
All premium and loss payments hereunder shall be in United States currency.
ARTICLE VI
----------
ACCESS TO RECORDS
- - -----------------
The Reinsurer or its duly appointed representatives shall have free access at
all reasonable times to such books and records of those Divisions, Departments
and Branch Offices of the Company which are directly involved with the subject
matter business of this Agreement as shall reflect premium and loss
transactions of the Company for the purpose of obtaining any and all
information concerning this Agreement or the subject matter hereof. All non-
public information provided in the course of the inspection shall be kept
confidential by the Reinsurer as against third parties.
QS20CNT8/7/95
<PAGE> 212
QUOTA SHARE REINSURANCE AGREEMENT
20TH CENTURY INSURANCE COMPANY/AIIC
Page 3
-----------------------------------
ARTICLE VII
-----------
INSOLVENCY
- - ----------
The portion of any risk or obligation assumed by the Reinsurer, when such
portion is ascertained, shall be payable on demand of the Company at the same
time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer on the basis of the liability of
the Company under the contract or contracts reinsured without diminution
because of the insolvency of the Company. In the event of the insolvency of
the Company, this reinsurance shall be payable directly to the Company, or to
its liquidator, receiver, conservator or statutory successor. Immediately
upon demand, on the basis of the liability of the Company without diminution
because of the insolvency of the Company or because the liquidator, receiver,
conservator or statutory successor of the Company has failed to pay all or a
portion of any claim. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the Company shall give written notice to
the Reinsurer of the pendency of a claim against the Company which would
involve a possible liability on the part of the Reinsurer, indicating the
policy or bond reinsured, within a reasonable time after such claim is filed
in the conservation or liquidation proceeding or in the receivership. It is
further agreed that during the pendency of such claim the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may
deem available to the Company or its liquidator, receiver, conservator, or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the Company as part
of the expense of conservation or liquidation to the extent of a pro rata
share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by the Reinsurer.
ARTICLE VIII
------------
ARBITRATION
- - -----------
A. All disputes or differences arising out of the interpretation of this
Agreement shall be submitted to the decision of two arbitrators, one to
be chosen by each party, and in the event of the arbitrators failing to
agree, to the decision of an umpire to be chosen by the arbitrators.
The arbitrators and umpire shall be disinterested active or retired
executive officials of fire or casualty insurance or reinsurance
companies or Underwriters at Lloyd's, London. If either of the parties
fails to appoint an arbitrator within one month after being required by
the other party in writing to do so, or if the arbitrators fail to
appoint an umpire within one month of a request in writing by either of
them to do so, such arbitrator or umpire, as the case may be, shall at
the request of either party be appointed by a Justice of the Supreme
Court of the State of New York.
B. The arbitration proceeding shall take place in the city in which the
Company's Head Office is located. The applicant shall submit its case
within one month after the appointment of the court of arbitration, and
the respondent shall submit its reply within one month after the receipt
of the claim. The arbitrators and umpire are relieved from all judicial
formality and may abstain from following the strict rules of law. They
shall settle any dispute under the Agreement according to an equitable
rather than a strictly legal interpretation of its terms.
QS20CNT8/7/95
<PAGE> 213
QUOTA SHARE REINSURANCE AGREEMENT
20TH CENTURY INSURANCE COMPANY/AIIC
Page 4
-----------------------------------
C. Their written decision shall be provided to both parties within ninety
days of the close of arbitration and shall be final and not subject to
appeal.
D. Each party shall bear the expenses of his arbitrator and shall jointly
and equally share with the other the expenses of the umpire and of the
arbitration.
E. This Article shall survive the termination of this Agreement.
ARTICLE IX
----------
ERRORS AND OMISSIONS
- - --------------------
Any inadvertent delay, omission or error shall not relieve either party hereto
from any liability which would attach to it hereunder if such delay, omission
or error had not been made, provided such delay, omission or error is
rectified immediately upon discovery.
ARTICLE X
---------
LOSS & LOSS ADJUSTMENT EXPENSE
- - ------------------------------
The Company alone and at its full discretion shall adjust, settle or
compromise all claims and losses. All such adjustments, settlements, and
compromises shall be binding on the Reinsurer in proportion to its
participation. The Company shall likewise at its sole discretion commence,
continue, defend, compromise, settle or withdraw from actions, suits or
proceedings and generally do all such matters and things relating to any claim
or loss as in its judgment may be beneficial or expedient, and all payments
made and costs and expenses incurred in connection therewith or in taking
legal advice therefor shall be shared by the Reinsurer proportionately. The
Reinsurer shall, on the other hand, benefit proportionately from all
reductions of losses by salvage, compromise or otherwise.
ARTICLE XI
----------
EXTRA CONTRACTUAL OBLIGATIONS
- - -----------------------------
This Agreement shall protect the Company where the ultimate net loss includes
any extra contractual obligations. The term "extra contractual obligations"
is defined as those liabilities not covered under any other provision of the
Contract and which arise from the handling of any claim on business covered
hereunder, such liabilities arising because of, but not limited to , the
following: failure by the Company to settle within the policy limit, or by
reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trail of
any action against its insured or reinsured or in the preparation of
prosecution of an appeal consequent upon such action. The Reinsurer's
liability for extra contractual obligations shall not exceed their
participation of the maximum limit of liability on the policy from which the
extra contractual obligation arises.
The date on which any extra contractual obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original disaster
and/or casualty. However, this Article shall not apply where the loss has
been incurred due to fraud or a member of the Board of Directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or
party involved in the presentation, defense or settlement of any claim covered
hereunder.
QS20CNT8/7/95
<PAGE> 214
QUOTA SHARE REINSURANCE AGREEMENT
20TH CENTURY INSURANCE COMPANY/AIIC
Page 5
-----------------------------------
ARTICLE XII
-----------
OFFSET
- - ------
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any undisputed balance or balances, whether on
account of premiums or on account of losses or otherwise, due from such party
to the other party hereto under this Agreement.
ARTICLE XIII
------------
TERMINATION
- - -----------
Either party may terminate this Agreement with thirty days' notice in the
event that:
1. One party should at any time become insolvent, or suffer any
impairment of capital, or file a petition in bankruptcy, or go
into liquidation or rehabilitation, or have a receiver appointed,
or be acquired or controlled by any other insurance company or
organization, or
2. Any law or regulation of any Federal or any State or any Local
Government of any jurisdiction in which the Company is doing
business should render illegal the arrangement made herein, or
3. With the agreement of the other party.
In the event of termination, the Reinsurer shall refund to the Company the
applicable unearned premium minus the ceding commission and shall continue to
remain liable for all losses occurring prior to the date of termination.
However, if this Contract shall terminate while a loss occurrence covered
hereunder is in progress, it is agreed that, subject to the other conditions
of this Contract, the Reinsurer is responsible for its proportion of the
entire loss.
ARTICLE XIV
-----------
TAX
- - ---
In consideration of the terms under which this Agreement is issued, the
Company undertakes not to claim any deduction of the premium hereon when
making tax returns, other than income or Profits Tax returns, to any State or
Territory of the United States or to the District of Columbia.
ARTICLE XV
----------
LETTER OF CREDIT
- - ----------------
The Reinsurer agrees to provide and maintain in place a Letter of Credit,
acceptable to the Company, for the benefit of the Company equal to its share
of assumed liability which shall include unearned premium reserve, calculated
on a monthly pro rata basis, and outstanding loss and loss adjustment reserve,
including incurred but not reported losses calculated on the basis of the
requirement of the California Department of Insurance and/or other applicable
insurance regulatory agencies.
QS20CNT8/7/95
<PAGE> 215
QUOTA SHARE REINSURANCE AGREEMENT
20TH CENTURY INSURANCE COMPANY/AIIC
Page 6
-----------------------------------
The initial Letter of Credit shall be provided written 60 days of the first
accounting report submitted to the Reinsurer by the Company in the amount
specified in the preceding paragraph. Subsequent adjustments, when requested
by the Company, shall be made to the Letter of Credit for any subsequent
accounts within 60 days of the submission of such account.
In the event the Letter of Credit and/or requested adjustments are not
received by the due date the Company may withhold amounts due the Reinsurer
until such Letter of Credit is received.
Notwithstanding any other provisions in this agreement the Company may draw on
this Letter of Credit at any time, however only for one or more of the
following:
1. to reimburse the Company for the Reinsurer's share of premiums
returned to the owners of policies reinsured under the reinsurance
agreement on account of cancellations of such policies,
2. to reimburse the Company for the Reinsurer's share of losses paid
by the Company under the terms and provisions of the policies
reinsured under the reinsurance agreement,
3. to fund an account with the Company in an amount at least equal to
the deduction, for reinsurance ceded, from the Company's
liabilities for policies ceded under the agreement. Such amount
shall include, but not be limited to, amounts for policy reserves,
claims and losses incurred and unearned premium reserves, and
4. to pay any other amounts the Company claims are due under the
reinsurance agreement.
ARTICLE XVI
-----------
COUNTERPARTS
- - ------------
This Agreement may be executed in counterparts, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
20TH CENTURY INSURANCE COMPANY
Date:September 13, 1995. By:William L. Mellick Title:President
------------------ ------------------ ---------
AMERICAN INTERNATIONAL INSURANCE COMPANY
Date: 8/8/95 By: J. Ernst Hansen Title:President
------------------ ------------------ ---------
QS20CNT8/7/95
<PAGE> 216
QUOTA SHARE REINSURANCE AGREEMENT
between
21ST CENTURY CASUALTY COMPANY
(hereinafter referred to as the "Company")
and
AMERICAN INTERNATIONAL INSURANCE COMPANY
(hereinafter referred to as the "Reinsurer")
****************************************************************
PREAMBLE
- - --------
This Agreement replaces that certain agreement dated December 16, 1994 and
substitutes American International Insurance Company as Reinsurer for New
Hampshire Insurance Company and further incorporates Letter of Credit
provisions, effective as of January 1, 1995.
The Reinsurer hereby agrees to reinsure the Company in respect of the
Company's net liability under all policies, contracts and binders of insurance
(hereafter referred to as "policies") issued during the term of this Agreement
subject to the following terms and conditions:
ARTICLE I
---------
TERM
- - ----
This Agreement shall be effective from 12:01 A.M., pacific standard time,
January 1, 1995 and shall remain continuously in force through December 31,
1999. The Reinsurer has the option to renew this Agreement annually for four
additional years by notifying the Company prior to December 31, 1999 or prior
to the expiration date of any renewal.
ARTICLE II
----------
PARTICIPATION
- - -------------
The Company shall cede and the Reinsurer shall accept 10% of the Company's net
liability for losses on policies incepting during the term of this Agreement.
As consideration, the Reinsurer shall receive a 10% share of the net written
premiums, less ceding commission as described in Article III, generated by
such policies. In the event the Reinsurer elects to renew this Agreement for
annual periods following December 31, 1999 the participation shall be 8% on
the first renewal, 6% on the second renewal, 4% on the third renewal and 2% on
the fourth renewal.
ARTICLE III
-----------
COMMISSION
- - ----------
The Reinsurer shall allow the Company a commission of 10.8% of the ceded
written premium for policies with effective dates from January 1, 1995 and
through December 31, 1995. For policies with effective dates in each
subsequent underwriting year, the commission shall be equal to the rate of the
Company's incurred underwriting expenses (as recorded in the Company's
statutory statement) to net written premium for the prior calendar year.
QS21CNT8/7/95
<PAGE> 217
QUOTA SHARE REINSURANCE AGREEMENT
21ST CENTURY CASUALTY COMPANY/AIIC
Page 2
-----------------------------------
ARTICLE IV
----------
REPORTS AND ACCOUNTS
- - --------------------
The Company shall furnish within forty-five days after the close of each
calendar quarter an account reflecting the following separately for each
underwriting year:
A. Net written premium ceded during the quarter (credited).
B. Commission on the ceded premium (debited).
C. Net paid losses (debited).
D. Net paid adjustment expenses (debited).
E. Net outstanding losses.
F. Net unearned premium.
If the balance of A through D is a credit such amount shall be
remitted with the account. If the balance of A through D is a
debit, the Reinsurer shall remit such amount within 15 days of
receipt of the account. Accounts by line of business shall also
be provided by the Company including the aforementioned
information.
ARTICLE V
---------
DEFINITION
- - ----------
Underwriting year shall mean all policies with effective dates from 12:01
A.M., pacific standard time, January 1st through December 31st of each
calendar year.
Net written premium or net losses or net liability shall mean the gross amount
less deductions for all other reinsurance.
CURRENCY
- - --------
All premium and loss payments hereunder shall be in United States currency.
ARTICLE VI
----------
ACCESS TO RECORDS
- - -----------------
The Reinsurer or its duly appointed representatives shall have free access at
all reasonable times to such books and records of those Divisions, Departments
and Branch Offices of the Company which are directly involved with the subject
matter business of this Agreement as shall reflect premium and loss
transactions of the Company for the purpose of obtaining any and all
information concerning this Agreement or the subject matter hereof. All non-
public information provided in the course of the inspection shall be kept
confidential by the Reinsurer as against third parties.
QS21CNT8/7/95
<PAGE> 218
QUOTA SHARE REINSURANCE AGREEMENT
21ST CENTURY CASUALTY COMPANY/AIIC
Page 3
-----------------------------------
ARTICLE VII
-----------
INSOLVENCY
- - ----------
The portion of any risk or obligation assumed by the Reinsurer, when such
portion is ascertained, shall be payable on demand of the Company at the same
time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer on the basis of the liability of
the Company under the contract or contracts reinsured without diminution
because of the insolvency of the Company. In the event of the insolvency of
the Company, this reinsurance shall be payable directly to the Company, or to
its liquidator, receiver, conservator or statutory successor. Immediately
upon demand, on the basis of the liability of the Company without diminution
because of the insolvency of the Company or because the liquidator, receiver,
conservator or statutory successor of the Company has failed to pay all or a
portion of any claim. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the Company shall give written notice to
the Reinsurer of the pendency of a claim against the Company which would
involve a possible liability on the part of the Reinsurer, indicating the
policy or bond reinsured, within a reasonable time after such claim is filed
in the conservation or liquidation proceeding or in the receivership. It is
further agreed that during the pendency of such claim the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may
deem available to the Company or its liquidator, receiver, conservator, or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the Company as part
of the expense of conservation or liquidation to the extent of a pro rata
share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by the Reinsurer.
ARTICLE VIII
------------
ARBITRATION
- - -----------
A. All disputes or differences arising out of the interpretation of this
Agreement shall be submitted to the decision of two arbitrators, one to
be chosen by each party, and in the event of the arbitrators failing to
agree, to the decision of an umpire to be chosen by the arbitrators.
The arbitrators and umpire shall be disinterested active or retired
executive officials of fire or casualty insurance or reinsurance
companies or Underwriters at Lloyd's, London. If either of the parties
fails to appoint an arbitrator within one month after being required by
the other party in writing to do so, or if the arbitrators fail to
appoint an umpire within one month of a request in writing by either of
them to do so, such arbitrator or umpire, as the case may be, shall at
the request of either party be appointed by a Justice of the Supreme
Court of the State of New York.
B. The arbitration proceeding shall take place in the city in which the
Company's Head Office is located. The applicant shall submit its case
within one month after the appointment of the court of arbitration, and
the respondent shall submit its reply within one month after the receipt
of the claim. The arbitrators and umpire are relieved from all judicial
formality and may abstain from following the strict rules of law. They
shall settle any dispute under the Agreement according to an equitable
rather than a strictly legal interpretation of its terms.
QS21CNT8/7/95
<PAGE> 219
QUOTA SHARE REINSURANCE AGREEMENT
21ST CENTURY CASUALTY COMPANY/AIIC
Page 4
-----------------------------------
C. Their written decision shall be provided to both parties within ninety
days of the close of arbitration and shall be final and not subject to
appeal.
D. Each party shall bear the expenses of his arbitrator and shall jointly
and equally share with the other the expenses of the umpire and of the
arbitration.
E. This Article shall survive the termination of this Agreement.
ARTICLE IX
----------
ERRORS AND OMISSIONS
- - --------------------
Any inadvertent delay, omission or error shall not relieve either party hereto
from any liability which would attach to it hereunder if such delay, omission
or error had not been made, provided such delay, omission or error is
rectified immediately upon discovery.
ARTICLE X
---------
LOSS & LOSS ADJUSTMENT EXPENSE
- - ------------------------------
The Company alone and at its full discretion shall adjust, settle or
compromise all claims and losses. All such adjustments, settlements, and
compromises shall be binding on the Reinsurer in proportion to its
participation. The Company shall likewise at its sole discretion commence,
continue, defend, compromise, settle or withdraw from actions, suits or
proceedings and generally do all such matters and things relating to any claim
or loss as in its judgment may be beneficial or expedient, and all payments
made and costs and expenses incurred in connection therewith or in taking
legal advice therefor shall be shared by the Reinsurer proportionately. The
Reinsurer shall, on the other hand, benefit proportionately from all
reductions of losses by salvage, compromise or otherwise.
ARTICLE XI
----------
EXTRA CONTRACTUAL OBLIGATIONS
- - -----------------------------
This Agreement shall protect the Company where the ultimate net loss includes
any extra contractual obligations. The term "extra contractual obligations"
is defined as those liabilities not covered under any other provision of the
Contract and which arise from the handling of any claim on business covered
hereunder, such liabilities arising because of, but not limited to , the
following: failure by the Company to settle within the policy limit, or by
reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trail of
any action against its insured or reinsured or in the preparation of
prosecution of an appeal consequent upon such action. The Reinsurer's
liability for extra contractual obligations shall not exceed their
participation of the maximum limit of liability on the policy from which the
extra contractual obligation arises.
The date on which any extra contractual obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original disaster
and/or casualty. However, this Article shall not apply where the loss has
been incurred due to fraud or a member of the Board of Directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or
party involved in the presentation, defense or settlement of any claim covered
hereunder.
QS21CNT8/7/95
<PAGE> 220
QUOTA SHARE REINSURANCE AGREEMENT
21ST CENTURY CASUALTY COMPANY/AIIC
Page 5
-----------------------------------
ARTICLE XII
-----------
OFFSET
- - ------
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any undisputed balance or balances, whether on
account of premiums or on account of losses or otherwise, due from such party
to the other party hereto under this Agreement.
ARTICLE XIII
------------
TERMINATION
- - -----------
Either party may terminate this Agreement with thirty days' notice in the
event that:
1. One party should at any time become insolvent, or suffer any
impairment of capital, or file a petition in bankruptcy, or go
into liquidation or rehabilitation, or have a receiver appointed,
or be acquired or controlled by any other insurance company or
organization, or
2. Any law or regulation of any Federal or any State or any Local
Government of any jurisdiction in which the Company is doing
business should render illegal the arrangement made herein, or
3. With the agreement of the other party.
In the event of termination, the Reinsurer shall refund to the Company the
applicable unearned premium minus the ceding commission and shall continue to
remain liable for all losses occurring prior to the date of termination.
However, if this Contract shall terminate while a loss occurrence covered
hereunder is in progress, it is agreed that, subject to the other conditions
of this Contract, the Reinsurer is responsible for its proportion of the
entire loss.
ARTICLE XIV
-----------
TAX
- - ---
In consideration of the terms under which this Agreement is issued, the
Company undertakes not to claim any deduction of the premium hereon when
making tax returns, other than income or Profits Tax returns, to any State or
Territory of the United States or to the District of Columbia.
ARTICLE XV
----------
LETTER OF CREDIT
- - ----------------
The Reinsurer agrees to provide and maintain in place a Letter of Credit,
acceptable to the Company, for the benefit of the Company equal to its share
of assumed liability which shall include unearned premium reserve, calculated
on a monthly pro rata basis, and outstanding loss and loss adjustment reserve,
including incurred but not reported losses calculated on the basis of the
requirement of the California Department of Insurance and/or other applicable
insurance regulatory agencies.
QS21CNT8/7/95
<PAGE> 221
QUOTA SHARE REINSURANCE AGREEMENT
21ST CENTURY CASUALTY COMPANY/AIIC
Page 6
-----------------------------------
The initial Letter of Credit shall be provided written 60 days of the first
accounting report submitted to the Reinsurer by the Company in the amount
specified in the preceding paragraph. Subsequent adjustments, when requested
by the Company, shall be made to the Letter of Credit for any subsequent
accounts within 60 days of the submission of such account.
In the event the Letter of Credit and/or requested adjustments are not
received by the due date the Company may withhold amounts due the Reinsurer
until such Letter of Credit is received.
Notwithstanding any other provisions in this agreement the Company may draw on
this Letter of Credit at any time, however only for one or more of the
following:
1. to reimburse the Company for the Reinsurer's share of premiums
returned to the owners of policies reinsured under the reinsurance
agreement on account of cancellations of such policies,
2. to reimburse the Company for the Reinsurer's share of losses paid
by the Company under the terms and provisions of the policies
reinsured under the reinsurance agreement,
3. to fund an account with the Company in an amount at least equal to
the deduction, for reinsurance ceded, from the Company's
liabilities for policies ceded under the agreement. Such amount
shall include, but not be limited to, amounts for policy reserves,
claims and losses incurred and unearned premium reserves, and
4. to pay any other amounts the Company claims are due under the
reinsurance agreement.
ARTICLE XVI
-----------
COUNTERPARTS
- - ------------
This Agreement may be executed in counterparts, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
21ST CENTURY CASUALTY COMPANY
Date:September 13, 1995. By:William L. Mellick Title:President
------------------ ------------------ ---------
AMERICAN INTERNATIONAL INSURANCE COMPANY
Date: 8/8/95 By: J. Ernst Hansen Title:President
------------------ ------------------ ---------
QS21CNT8/7/95
<PAGE> 222
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
EXHIBIT 11: COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
1995 1994
---- ----
(Amounts in thousands, except per share data)
Primary:
<S> <C> <C>
Average shares outstanding 51,440 51,387
Net effect of dilutive stock
warrants and options based
on the modified treasury
stock method using average
market price 5,784 -
---------- ---------
Totals 57,224 51,387
========== =========
Net income (loss) $ 69,630 $(498,020)
Dividends on preferred stock (19,573) -
Net interest expense reduction 317 -
---------- ---------
Net income (loss) applicable
to common stock $ 50,374 $(498,020)
========== =========
Per share amount $ .88 $ (9.69)
========== =========
</TABLE>
<PAGE> 223
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
EXHIBIT 11: COMPUTATION OF EARNINGS PER COMMON SHARE (continued)
<TABLE>
1995 1994
---- ----
(Amounts in thousands, except per share data)
Fully diluted:
<S> <C> <C>
Average shares outstanding 51,440 51,387
Net effect of dilutive stock
warrants and options based
on the modified treasury stock
method using the higher of
average market price or
closing price 8,645 -
Assuming conversion
of convertible
preferred stock 19,240 -
---------- ---------
Totals 79,325 51,387
========== =========
Net income (loss) applicable
to common stock $ 69,630 $(498,020)
========== =========
Per share amount $ .88 $ (9.69)
========== =========
</TABLE>
<PAGE> 224
EXHIBIT 23: CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
20Th Century Industries
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-61355) pertaining to 20th Century Industries Savings and
Security Plan of our report dated February 2, 1996, with respect to the con-
soklidated financial statements and schedules of 20th Century Industries,
included in the Form 10-K for the year ended December 31, 1995.
ERNST & YOUNG LLP
Los Angeles, California
February 2, 1996
<PAGE> 225
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 1125548
<DEBT-CARRYING-VALUE> 1125548
<DEBT-MARKET-VALUE> 1125548
<EQUITIES> 1564
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1127112
<CASH> 50609
<RECOVER-REINSURE> 48314
<DEFERRED-ACQUISITION> 10481
<TOTAL-ASSETS> 1608886
<POLICY-LOSSES> 584834
<UNEARNED-PREMIUMS> 288927
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
224950
<COMMON> 69805
<OTHER-SE> 171830
<TOTAL-LIABILITY-AND-EQUITY> 1608886
963797
<INVESTMENT-INCOME> 81658
<INVESTMENT-GAINS> 10207
<OTHER-INCOME> 0
<BENEFITS> 851602
<UNDERWRITING-AMORTIZATION> 38647
<UNDERWRITING-OTHER> 48311
<INCOME-PRETAX> 101205
<INCOME-TAX> 31575
<INCOME-CONTINUING> 69630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69630
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
<RESERVE-OPEN> 755101
<PROVISION-CURRENT> 891066
<PROVISION-PRIOR> (39464)
<PAYMENTS-CURRENT> 534413
<PAYMENTS-PRIOR> 519969
<RESERVE-CLOSE> 552320
<CUMULATIVE-DEFICIENCY> (39464)
</TABLE>
