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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-27462
RISCORP, Inc.
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(Exact name of registrant as specified in its charter)
Florida 65-0335150
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1390 Main Street, Sarasota, Florida 34236-5642
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 951-2022
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether 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
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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. [ ]
The aggregate market value of shares of the registrant's common stock held by
non-affiliates of the registrant as of May 6, 1997, was $37,368,452.
The number of shares of the registrant's common stock issued and outstanding as
of May 6, 1997 was 36,077,778, consisting of 11,743,335 shares of Class A
Common Stock and 24,334,443 shares of Class B Common Stock.
Documents Incorporated by Reference: None
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RISCORP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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Description Page
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PART I
Item 1. Business
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote
of Security Holders 16
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 18
Item 8. Financial Statements and Supplementary
Data 18
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers
of the Registrant 19
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain
Beneficial Owners and Management 25
Item 13. Certain Relationships and Related
Transactions 27
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K 31
Signatures 39
</TABLE>
RISCORP (R) is a registered service mark of the Company. The Company has
applied for registration of First Call(SM), however no assurance can be
given that such application will be granted.
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Introductory Note: This Form 10-K does not contain the financial related
information, including financial statements, constituting Items 6, 7, 8, 9, and
14(a) 1 and 2 of Form 10-K. RISCORP, Inc. intends to file these Items as soon
as possible.
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements,
particularly with respect to Risk Factors, Legal Proceedings and the
Liquidity and Capital Resources section of Management's Discussion and Analysis
of Financial Condition and Results of Operation. Additional written or oral
forward-looking statements may be made by Riscorp, Inc. (the "Company") from
time to time, in the filings with Securities and Exchange Commission or
otherwise. Such forward-looking statements are within the meaning of that
term in Sections 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Such
statements may include, but not be limited to, projections of revenues, income,
losses, cash flows, capital expenditures, plans for future operations,
financing needs or plans relating to products or services of the Company,
estimates concerning the effects of litigation or other disputes, as well as
assumptions regarding any of the foregoing.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted. Future events and
actual results could differ materially from those set forth in or underlying
the forward-looking statements. Many factors could contribute to such
differences and include, among others, the ability of the Company to obtain and
retain necessary regulatory approvals, to win acceptance in local markets, to
complete acquisitions and to effectively manage such growth, if any; the actual
outcome of pending litigation or investigations; the impact on the Company of
current and future federal and state regulation of health care reform
legislation, including changes in the availability of recoveries from the
Florida Special Disability Trust Fund ("SDTF"); changes in the mandated
accounting treatment of SDTF recoverables; the failure of the SDTF to pay the
Company's reimbursement requests, discontinuation of the SDTF, the Company's
limited operating history, and direct loss and claims experience; the lack of a
letter rating from A.M. Best Company, Inc. for the Company's subsidiaries; the
impact of such ratings; the Company's need for additional capital to meet state
regulatory requirements and for other purposes and the ability of the Company
to generate sufficient capital in a timely fashion, the possible negative
impact on the Company of the termination of quota share or excess of loss
reinsurance agreements or the failure of such reinsurers to meet their
obligations under such agreements (see "Reinsurance" for information concerning
reinsurance); the highly competitive nature of the managed care workers'
compensation insurance market; the limited nature of the Company's line of
insurance products; the negative impact on the Company if Florida were to
permit competition based on price in workers' compensation insurance; general
economic conditions in Florida, North Carolina and Alabama, in particular, or
the United States generally; the Company's ability to continue and expand its
relationships with independent insurance agencies which market its products and
the other factors mentioned elsewhere in this report.
OVERVIEW
The Company and its subsidiaries (collectively, the "Company") offers a
full continuum of managed care products and services designed to lower the
overall costs of workers' compensation claims, while providing quality,
cost-effective care to injured employees. The Company's managed care approach
is focused on providing prompt medical intervention, integrating claims
management and customer service, and directing care of injured employees
through a managed care provider network. In addition, the Company encourages
employers to make a strong commitment to the adoption of workplace safety and
return-to-work programs designed to reduce the likelihood and cost of
employment related injuries and illnesses. As of December 31, 1996, the
Company provided managed care workers' compensation services to approximately
33,000 employers, principally in Florida and the southeastern United States.
The Company's managed care approach begins with the implementation of its
First Call service, an early intervention system which provides employers with a
toll-free, 24-hour hotline to report claims and to seek medical attention for
injured employees. This service encourages immediate reporting of claims and
allows the Company to direct injured workers to appropriate medical providers
within the Company's contracted network, creating a cost-effective methodology
of dealing with claims promptly after they occur. The Company's case managers
monitor each case and use the Company's information systems to apply utilization
review and quality assurance techniques to achieve appropriate, quality medical
treatment at an affordable price.
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INDUSTRY
Workers' compensation benefits are mandated and regulated by individual
states, and most states require employers to provide medical benefits and wage
replacement to individuals injured at work, regardless of fault. Virtually all
employers in the United States are required either to purchase workers'
compensation insurance from a private insurance carrier, a state sponsored
assigned risk pool, a self-insured fund (an entity that allows employers to
pool their liabilities for obtaining workers' compensation coverage, subject to
assessment), or, if permitted by their state, to be self-insured. Workers'
compensation laws generally require two kinds of benefits for injured
employees: (i) medical benefits that include expenses related to diagnosis and
treatment of the injury, as well as rehabilitation, if necessary, and (ii)
payments that consist of temporary wage replacement or permanent disability
payments.
The Company expects that employers will continue to seek and implement
strategies and programs to reduce costs of workers' compensation. The Company
believes that, unlike the overall health care insurance market, to date there
has not been significant penetration of managed care in the workers'
compensation industry. The Company believes that traditional insurers have not
effectively controlled the cost of workers' compensation insurance because they
have focused on claims processing rather than on an integrated approach that
applies managed care techniques to control costs through the delivery of
quality, appropriate, and timely medical care.
THE COMPANY'S MANAGED CARE APPROACH
The Company stresses an integrated approach to managed care workers'
compensation which involves the employer, employee, and care providers in a
cooperative effort that focuses on cost-effective quality care. This approach
combines loss prevention to promote safety in the workplace and manage risk;
immediate medical intervention to control costs and manage the appropriateness,
timeliness, and quality of care for injured workers; comprehensive case and
utilization management to minimize litigation; and comprehensive medical care
management through a provider network to establish treatment protocols,
clinical paths, and outcome measurements.
STRATEGY
The Company's strategy is to utilize managed care techniques to provide
timely, high quality, and cost-effective care to injured employees, thereby
lowering overall costs. The Company's strategy includes the following
elements:
- Provide Prompt Medical Intervention. The Company
believes immediate medical intervention is the catalyst for
controlling medical costs, promptly returning injured employees
to work, and minimizing litigation expenses. To accomplish
this, in 1994 the Company created its First Call service, a
seven-day-a-week, 24-hour, toll-free injury reporting and
medical referral service. Each call is received by a
customer service representative, who completes the
legally-required notice of injury for the employer and, if the
call meets certain criteria, forwards it to a nurse, who
immediately directs the injured worker to an appropriate
facility or provider for treatment. This process delivers
responsive, personalized service that helps control costs by
directing care through the provider network selected by the
Company; minimizes expensive, unnecessary emergency room
visits; with the intent that the injured employee receives the
proper care for the injury in a timely manner. The Company
believes the significant level of customer participation in
First Call reflects a high level of customer satisfaction. As
of December 31, 1996, more than 98% of the Company's Florida
claims were being reported through First Call. The Company
introduced First Call in North Carolina and Oklahoma in
February and September 1995, respectively, and in seven
additional states in 1996. First Call participation and
reporting percentages vary significantly during the first year
of implementation due to the need to educate both agents and
policyholders. Typically, participation levels off after
twelve to eighteen months after initial implementation.
- Manage Care, Rather Than Process Claims. Once notified of a
workplace injury, the Company's medical case management unit
directs high quality, appropriate medical care focused on the
ultimate outcome of returning the injured employee to work as
soon as possible. The Company's process combines injury
prevention, wellness, and early intervention once an injury
occurs. The Company manages and coordinates: health care
providers through contracted networks, treatment protocols,
outcome measurements, and utilization review; employers
through workplace safety and return-to-work programs; and
injured employees through frequent and early communications,
and the timely provision of high-quality medical care.
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- Direct Care Through Integrated Networks of Quality Health Care
Providers. The Company believes that directing medical
care through a network of credentialed health care providers
is a vital part of any comprehensive managed care program.
The Company's in-house medical director establishes treatment
protocols, clinical paths, and outcome measurements designed
to ensure consistency in the treatment of various injuries and
illnesses. Although not all states permit the Company to
require injured employees to utilize Company-recommended
facilities, the Company's easy-to-use claims reporting process
is generally successful in directing injured workers to
Company-recommended facilities and allows the Company to begin
managing care immediately. In addition, treatments are
reviewed by the Company's utilization management and assurance
personnel in an effort to provide appropriate treatment in a
cost-effective manner. This review process is intended to
facilitate an accurate diagnosis, establish optimal courses of
treatment, and determine when returning to work is
appropriate, the ultimate goal of the Company's managed care
approach.
- Utilize Information Technology to Improve Communications and
Service. The Company believes that sophisticated operating
and communications systems can proactively meet its
customers' needs and promote more efficient management of
claims. For example, the Company has established interactive
communications links with its larger agencies to facilitate
processing applications. The Company's interactive
communications systems also extend to its policyholders
through on-line access to billing, claims, and other
information. These systems are intended to enable the Company
to provide a high level of service to claimants, file claims
promptly, and address the needs of both its agencies and
customers.
- Expand Through Internally Generated Growth. During 1996, the
Company executed a number of transactions to expand
geographically and to build its premium base. The Company is
not currently targeting significant new expansions; however,
it will examine new opportunies as appropriate, consistent
with capital resources. The Company expects internal growth to
result from expanding relationships with independent insurance
agencies and by enhancing its workers' compensation program
through the development of new products and services.
OPERATIONS
The Company's integrated strategy for quality care and cost control
employs an operating process intended to provide the opportunity for immediate
medical intervention, integrated claims and medical management. The Company's
approach directs care through a managed care provider network that follows
common treatment protocols, clinical paths, and outcome measurements. The
Company's approach enlists health care providers, employers, and employees in
the common goal of rapid return-to-work in as cost-efficient and care-effective
manner as possible. Individual components of the process include:
Prompt Medical Intervention
Managing a claim from the earliest possible time is critical to
minimizing its ultimate cost. A 1994 industry study indicates that claims
reported between 11 and 20 days after the date of injury cost an average of 29%
more than claims reported 1 to 10 days after the date of injury, and that the
difference escalated to an average of an additional 48% if the claim was
reported more than 30 days after the injury occurred. To provide early
intervention in the claims process, the Company encourages prompt notification
of all injuries from the employer. To achieve prompt reporting, the Company
created its First Call service, a seven day-a-week, 24-hour, toll-free injury
reporting and medical referral service, in 1994. As of December 31, 1996, 98%
of the Company's Florida claims were being reported through First Call, with
over 81% of the Company's Florida claims reported within the first 10 days
following the injury.
Under First Call, each call is received by a customer service
representative who takes basic information needed to fill out the
legally-required notice of injury for the insured and immediately updates the
Company's claims records. If the call meets certain criteria, the call is then
transferred to a nurse, who uses an electronic mapping system to direct the
injured worker to an appropriate facility for treatment. The nurse can
pinpoint approved providers in the vicinity, provide the party reporting the
claim with directions to the facility, and make an appointment for the injured
employee to receive care. Employers in Florida are permitted to direct injured
employees to a closed panel of physicians. Although workers' compensation laws
in other states may not require injured employees to go to facilities
recommended by the Company's nurses, through its ease of use, this service is
generally successful in directing injured workers to a Company-recommended
facility and directing the appropriate level of care. While individuals who
need immediate care receive it, this process minimizes expensive, unnecessary
emergency room visits.
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In cases of serious or complex injury, the Company provides
comprehensive field case management to direct the ongoing medical care of the
injured employees, as well as the social and economic issues facing the
employees and their families.
Integrated Claims Management and Customer Service
Once the injured employee's care has been initiated, the claim is
managed by the Company's Case Management Unit, a group of interdisciplinary
teams that incorporate all facets of claims management.
Nurses coordinate and manage medical aspects of the claim,
including initial triage procedures to direct the appropriate level of
care; authorize additional appointments at appropriate facilities to
speed the claimant's recovery; monitor progress against treatment
protocols, clinical paths, and outcome measurements; and maintain
ongoing communications with the Company's medical director to report
any complications or unusual provider treatment patterns. Nurses also
coordinate the injured employee's return to light duty work with his
employer.
Claims Adjusters work closely with the nurses to co-manage
each case. The claims adjusters determine whether an injured employee
is eligible for benefits and what benefits should apply; conduct
ongoing contact with the employee and the employer to assess the
employee's progress in conjunction with the field case manager and
nurses; help prevent litigation and manage any litigation that may
arise; and assess the potential for settlement to close the case faster
and less expensively, if appropriate.
Field Case Managers work with the claims adjusters and nurses
to coordinate light duty and return-to-work programs for injured
employees; help manage the social and economic issues arising from
serious or complex injury; provide vocational rehabilitation counseling
and services; and work closely with injured employees, their families,
and their employers to provide a personal level of service.
Medical Claims Technicians assist the claims adjusters and the
nurses by managing most of the routine administrative aspects of the
case.
Claims and Medical Assistants provide support to each team.
These team members are responsible for data entry, filing, making
appointments for the employee at the nurse's direction, and other
support functions.
Also supporting the teams are the Company's recovery unit, which
pursues recovery of funds available to reimburse employers and carriers for
medical costs and wage losses exacerbated by prior injuries and pursues
subrogation in third-party liability cases; and the Company's medical director
for especially complex cases or unusual circumstances. In addition, the
Company's loss prevention personnel work with the claims management teams to
help investigate the cause of accidents and to help employers follow
recommendations designed to prevent similar incidents.
The Case Management Unit is authorized and encouraged to expedite
management of claims so that injured workers can receive prompt attention and
the claims can be resolved as quickly as practicable. One component of this
approach is the Company's efforts to manage the cost of the claim and control
possible litigation by promptly and courteously resolving inquiries and
problems raised by claimants and their families.
The Case Management Unit's objectives are to manage the entire claim,
not just specific components. This is in contrast to traditional workers'
compensation insurance companies, which the Company believes tend to classify
claims as either medical only (i.e., not eligible for lost wages benefits) or
lost time (i.e., encompasses both medical and lost wages benefits), rather than
focus on measurable outcomes such as return to work. The Company believes that
under this traditional approach, medical only claims are typically handled by
less skilled employees than lost time claims, with an emphasis on paying
providers' bills as they are received. One disadvantage is that what starts as
a medical only claim (e.g., a pulled back muscle) can turn into a more severe
problem (i.e., complications that lead to lost time). Under the Company's team
approach, every claim is classified according to medical severity and
complexity, regardless of whether it begins as medical only or lost time.
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The Company's Case Management Unit also conducts fee schedule and
medical bill reviews to help ensure it has been billed appropriately for the
approved services and to prevent over-utilization of medical services. A
software program is used to detect variances from agreed-upon fee schedules,
unbundling of charges, and unnecessary or unrelated charges. In addition, Case
Management Unit nurses review large or complex bills for additional items that
do not fall within the Company's payment guidelines.
Provider Network
The Company believes effective medical management depends largely upon
selection of a quality group of health care providers and ongoing oversight by
management of this network. In Florida, the Company has established a network
of healthcare providers and facilities who have agreed to provide quality
patient care in exchange for a negotiated fee structure. Outside Florida, the
Company has a contractual relationship with a network consisting of health care
providers and facilities who have agreed to provide quality patient care in
exchange for a negotiated fee structure. In either case, the networks developed
or selected by the Company provide employees with a wide range of physician
choices, in order to improve employee satisfaction and to provide an attractive
product. Currently, approximately 3,500 physicians, with a wide range of
specialties, 146 hospitals and 408 other health care providers participate in
the Florida network. The Florida network has received approval from the Agency
for Health Care Administration (the "AHCA") to operate as a Workers Compensation
Managed Care Arrangements ("WCMCA") in 53 Florida counties accounting for over
99% of the Company's premium distribution. AHCA approval denotes sufficient
provider scope, access and capacity to operate in a managed care environment
under Florida workers' compensation laws. Outside Florida, approximately 20,100
physicians, 438 hospitals, and 2,487 other health care providers participate in
the Company's network. When entering a market, the Company seeks to enter into
strategic relationships with existing medical delivery systems as well as to
contract directly with individual providers in developing networks. The use of
the network is coordinated by the Company's in-house medical director, who
establishes treatment protocols, clinical paths, and outcome measurements
designed to establish consistency concerning the treatment of various injuries
and illnesses. The Company's Case Management Unit also conducts a comprehensive
utilization management program to ascertain that appropriate treatment is being
delivered, including pre-certification, concurrent review, in-house medical
staff review, fee schedule review, and medical bill review.
Pre-certification techniques determine the medical necessity and
appropriateness of treatment before it is provided to the injured worker. The
Company's nurses and its medical director work with the patient's health care
providers to develop a treatment plan geared toward maximum medical improvement
of the injured employee in the shortest time possible. Once the treatment plan
is established, concurrent review is implemented by periodic follow-ups to
assess the injured worker's progress.
To maintain the continuing quality of the provider network, the
Company's medical director performs peer reviews on an ongoing basis, with
particular emphasis on cases in which the Case Management Unit has alerted the
medical director of complications or significant variations from the
agreed-upon treatment plan guidelines.
Relationship With Employers
The Company encourages employers to make a strong commitment to the
adoption of its managed care approach and safety programs, in effect
establishing a cooperative effort in both controlling risk and delivering
managed care. The Company's underwriting criteria strongly encourage the
implementation of return-to-work, light duty, and drug-free workplace policies.
The Company works closely with employers to initiate and implement a
number of programs designed to decrease the risk of employment related injuries
and illnesses. The Company's loss prevention personnel conduct periodic on-site
reviews to ascertain compliance with return-to-work, light duty, and drug-free
workplace programs, as well as to evaluate overall safety conditions. Although
there are some instances in which the Company declines to underwrite a risk, the
Company believes that, in many cases, certain questionable risks can be
underwritten if the customer makes a strong commitment to the adoption of the
Company's safety program and managed care approach. The Company assists
customers in designing safety programs and is especially active with programs
for its large accounts. In some cases, the Company has requested that a
customer employ a full-time safety compliance officer which in some instances
has resulted in premium savings. While this has increased the customer's
short-term expense, generally the Company and its customers find the extra cost
is more than offset by its long-term premium savings. The Company also
communicates with employers, and provides interactive, on-line customer access
to billing, claims, and other information.
The Company also can tailor workers' compensation programs for its
customers' specific financial and risk management needs. These custom-designed
plans can also include a variety of payment, collateral, and loss control
options.
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Litigation Management
The Company, through early intervention, seeks to limit the number of
disputes with injured employees. The Company believes in the prompt settlement
of meritorious claims; however, it will aggressively defend against
non-meritorious claims. The current regulatory environment in Florida allows an
insurer to settle both indemnity and medical benefits on both past and future
claims. The Company attempts to resolve cases prior to litigation and, if
litigation ensues, aggressively seeks to settle reasonable claims. As of
December 31, 1996, the Company had closed approximately 97% of its pre-1994
reported claims, 92% of its 1994 reported claims, 81% of its 1995 reported
claims, and 50% of its 1996 reported claims.
PROGRAMS AND PRODUCTS
Workers' Compensation Managed Care Products
The Company's products and rating plans encompass a variety of options
designed to fit the needs of a wide selection of employers. The most basic
product is a guaranteed cost contract, where the premium is set in advance and
changes are made only when changes occur in policyholder operations or payrolls.
The premium for these policies is based on state approved rates, which vary
depending upon the type of work performed by each employee and the general
business of the insured. Employers large enough to qualify, typically over
$5,000 in annual premium, will have their premiums based on their loss
experience as determined over a three year period. This loss experience is
adjusted by the type of business and associated risks. In Florida,
policyholders can also qualify for one or more premium credits (5% and 2%) by
agreeing to comply with a drug-free workplace, and/or safe workplace policies.
Policyholders who wish to assume a certain amount of financial risk may elect a
deductible that makes them responsible for the first portion of any claim ($250
to $75,000). In exchange for the deductible election the employer receives a
premium reduction. The Company also offers several loss sensitive plans
(retrospective rating plans and dividend plans) which determine the final
premium paid for the current policy period based largely on the insured's losses
during that same period.
For the year ended December 31, 1996, the following were the
percentages of the Company's standard premiums in-force attributable to its
managed care workers' compensation products:
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Guaranteed cost (including various modifications) 71%
Retrospective rating 22
Dividend plans 2
Deductible plans 5
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100%
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Workers' Compensation Management Services
The Company provides fee-based workers' compensation insurance
management services to self-insurance funds and governmental risk sharing pools
performing all the services of an insurance carrier except assuming the
underwriting risk. The Company generally requires that it be given complete
managerial control over the self-insurance fund's operations, and that it be
entitled to share in cost savings it generates in addition to its base
fees. During 1996, the Company converted five self-insurance funds to at-risk
business and terminated certain contracts with third parties. As of December
31, 1996, the Company is providing these services to five entities
(representing approximately 2,900 employers) with standard premiums in-force
under management of approximately $85 million. The largest contracts are North
Carolina Commerce Fund (NCCF), Governmental Risk Insurance Trust ("GRIT") in
Florida and North Carolina, and The Oklahoma Restaurant Group Self Insurance
Association.
RISCORP Managed Care Services
The Company provides integrated administrative and managed care
services for self-insured employers. These services include workers'
compensation claims administration, provider networks, medical case management,
utilization management, medical bill review, loss prevention programs,
occupational health programs, and telephonic reporting and early intervention
through First Call. The programs and services can be packaged to receive
approval under Florida
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workers' compensation managed care laws. The Company provides such services on
a negotiated fee-for-service basis including risk sharing provisions which are
based on performance. Typical clients are larger businesses and governmental
entities. At December 31, 1996, approximately 30 employers are under managed
care contracts with the Company.
Workers' Compensation Managed Care Arrangements ("WCMCAs")
Prior to 1997, Florida law authorized workers' compensation insurers
to offer employers up to a 10% premium discount in exchange for their
participation in exclusive panel medical provider programs known as WCMCA's.
Effective January 1, 1997, Florida law mandates workers' compensation insurers
to provide all medical care through WCMCAs. Under these arrangements, the
Company is allowed to direct injured employees to a provider network in which
employees must participate or face possible denial of medical cost coverage.
WCMCAs have been in place on a voluntary basis in the state of Florida since
1994 and the Company had achieved a high level of voluntary WCMCA participation
with over 50% of its premiums joining prior to 1997. The Company currently
provides these programs to employers in counties covering approximately 99% of
its premium base and awaits approval of expansion filings for the remaining
counties.
The Company and one of its affiliates have developed a provider
network which now covers the entire state of Florida. The network includes over
3,597 physicians and 554 hospital and ancillary facilities. The Company
believes its ability to obtain discounted medical fees, manage utilization, and
track medical outcomes for providers participating in its network enhances its
ability to manage claims.
The Company also maintains an arrangement with Humana Health Plans,
Inc., ("Humana"), 9 health maintenance organization ("HMO") whereby certain of
the Company's medical claim costs are fixed for the first three years of each
claim. The agreement provides the Company with access to Humana's health care
provider networks in Florida. The agreement commenced July 30, 1995 and was
renewed for one year upon its anniversary. Injured individuals are covered for
three years following any accident occurring within the policy period of any
policy entered into during the term of the agreement. The agreement may be
terminated by either party upon 90 days notice. The Company had a similar
arrangement with RISCORP Health Plans, Inc. ("RHP"), an affiliated company,
until the arrangement was terminated effective May 1, 1996. Injured individuals
are covered for three years following any accident occurring within the policy
period of any policy entered into during the term of the agreement. To the
extent that Humana or RHP is unable to meet its contractural obligations under
these arrangements, the Company will be liable for any claims and claim
settlement expenses under these ceded arrangements.
RECENT JOINT VENTURE AND ACQUISITIONS
General
The Company has experienced rapid growth in its revenues, the number of
its employees, and the scope of its operations. This growth has resulted in,
and is expected to continue to create, new and increased responsibilities for
management personnel, as well as additional demands on the Company's operating
and financial systems. The Company's business and future growth will depend on
the efforts of key management personnel and the Company's ability to attract
and retain qualified management personnel. The Company's continued growth, if
any, also will require it to recruit qualified persons, to enhance its
managerial systems for its operations, and to successfully integrate new
employees and systems into its existing operations. If the Company is unable to
continue to manage growth effectively, the Company's business, financial
condition, or results of operations could be materially and adversely affected.
See "Business -- Strategy."
Future growth of the Company's operations depends, in part, on its ability
to expand its continuum of managed care workers' compensation products and other
services in markets where it is currently conducting business and to enter
markets in additional states. To achieve this, the Company must obtain
regulatory approvals, win acceptance in the local market, adapt its procedures
to each state's regulatory system (which differs materially from state to state)
and expand its network of independent insurance agencies. The time required to
obtain regulatory approvals varies from state to state, and there can be no
assurance that the Company will obtain such approvals in each state it may seek
to enter. See "Business -- Regulation."
The Company has pursued, and will continue to pursue, growth opportunities
through internal development and acquisitions of complementary enterprises both
within Florida and in other states. The Company is unable to predict
whether or when any prospective acquisition candidate will become available or
the likelihood that any acquisition will be completed. The Company competes for
acquisition and expansion opportunities with many entities that have
substantially greater resources. In addition, acquisitions may involve
difficulties in the retention of personnel, diversion of management's
attention, unexpected legal liabilities, and tax and accounting issues. Certain
acquisitions made by the Company in 1996 were accomplished in part by the use
of the Company's Class A Common Stock. In light of the decline in the price of
the Company's stock, the use of such stock for acquisitions is less attractive
to the Company as well as to stockholders of possible acquisition candidates.
Acquisitions by means of cash will depend upon the Company's capital resources.
There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions, integrate
acquired businesses into its operations, or expand into new markets. Once
integrated, acquisitions may not achieve comparable levels of revenues,
profitability, or productivity as the existing business of the Company or
otherwise perform as expected. The occurrence of any of these events could have
a material adverse effect on the Company's business, financial condition, or
results of operations. See "Business -- Strategy."
Joint Venture Arrangement with Blue Cross and Blue Shield of Illinois
In January 1996, the Company entered into a joint venture arrangement
with Health Care Service Corporation, doing business as Blue Cross and Blue
Shield of Illinois ("HCSC"), to establish Third Coast Holding Company ("Third
Coast"). Third Coast then formed an Illinois domestic stock insurance company
(the "Insurance Company") to underwrite and sell managed care workers'
compensation insurance in Illinois, as well as a third-party administrator
corporation (the "Administrator") to provide administrative services to the
Insurance Company and third parties.
Under the terms of the arrangement, HCSC and the Company each holds 50%
of the outstanding common stock of Third Coast. HCSC contributed $10 million to
capitalize the Insurance Company. The Company contributed no financial capital
to the venture, but contributed a non-exclusive license for the use of its
expertise, systems, and intellectual property to enable the Insurance Company to
underwrite and sell workers' compensation insurance in Illinois. In addition,
HCSC agreed to initially loan the Insurance Company up to $10 million. To
maintain sufficient capitalization levels, HCSC agreed to provide additional
surplus loans to the Insurance Company in a maximum aggregate of $20 million, if
certain other conditions are met.
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Acquisition of CompSource
In March 1996, the Company purchased all of the stock of CompSource, Inc.
and Insura, Inc. (collectively, "CompSource") in exchange for approximately
$12.2 million in cash and 112,582 shares of the Company's Class A
Common Stock. CompSource is a workers' compensation management services company
offering its services in North Carolina managing a self-insurance fund with
approximately $37 million of standard premiums in-force in March 1996. Cost in
excess of net assets of businesses acquired of approximately $12.5 million was
recorded as a result of this acquisition. Pursuant to a redemption agreement
entered into as part of this transaction, the former shareholders of CompSource
elected to have the Company repurchase the 112,582 shares at a purchase price
of $18.653 per share in March, 1997 and the Company repurchased all 112,582
shares from the former shareholders for $2.1 million in accordance with the
terms of the redemption agreement.
Acquisition of Atlas
In March 1996, the Company completed its acquisition of Atlas Insurance
Company ("Atlas") in Missouri for approximately $5.3 million in cash. Atlas has
insurance licenses in 19 states. In addition, the acquisition gives the Company
excess and surplus lines licenses in five additional states. Cost in excess of
net assets of business acquired of approximately $2.6 million was recorded as a
result of this acquisition. Following the acquisition, Atlas was renamed RISCORP
National Insurance Company ("RNIC").
Acquisition of NARM
In June 1996, RNIC acquired the assets and assumed all of the liabilities
of the National Alliance for Risk Management Fund ("NARM"), a North
Carolina workers' compensation self-insurance fund with approximately $53
million of standard premiums in-force in June 1996. The acquisition was
accomplished by means of a loss portfolio transfer and assumption reinsurance
agreement. NARM's assets and liabilities totaled approximately $46.0 million
and $44.5 million, respectively, at the date of acquisition. Net assets in
excess of cost of business acquired of approximately $1.5 million was recorded
as a result of this transaction.
Acquisition of OSAA
In September 1996, RNIC acquired the assets and assumed all of the claim
liabilities of the Occupational Safety Association of Alabama ("OSAA"),
an Alabama workers' compensation self-insurance fund with approximately $45
million of standard premiums in-force at the acquisition date. In connection
with the initial transfer, the Company assumed net insurance liabilities of
$49.7 million and a like amount of investments and other assets. The
acquisition was accomplished by means of a loss portfolio transfer and
assumption reinsurance agreement whereby OSAA made an initial transfer of
certain investment securities.
Acquisition of IAA and Risk Inspection
In September 1996 the Company acquired all of the stock of Independent
Association Administrators, Inc., ("IAA") and Risk Inspection Services and
Consulting, Inc., ("Risk Inspection"). IAA, a workers' compensation management
services company offering its services in Alabama, was acquired with 790,336
shares of Class A RISCORP common stock (then valued at $10.9 million). Risk
Inspection was purchased for approximately $600,000 in cash. Cost in excess of
net assets of businesses acquired of approximately $11.4 million was recorded in
conjunction with these acquisitions. Pursuant to the acquisition agreement for
IAA, if the former IAA shareholders or their successors own all of such Class A
Common Stock on September 17, 1998, the Company is obligated to issue additional
shares of the Company's Class A Common Stock in an amount sufficient to make the
value of all shares of the Company's Class A Common Stock held by the former
IAA shareholders equal to an aggregate fair market value of $10.9 million as of
that date. However, in no event will the number of additional shares issued to
the former IAA shareholders exceed 790,336 shares.
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Acquisition of Virginia Funds
In October 1996, RNIC acquired the assets and assumed all of the
liabilities of three Virginia self-insurance funds (the "Virginia Funds")
consisting of NARM Manufacturers Group Self Insurance Association of Virginia,
NARM Services Group Self Insurance Association of Virginia and NARM Mercantile
Group Self Insurance Association of Virginia. At the date of acquisition, the
Virginia Funds had approximately $5.9 million of standard premiums in-force.
Assets acquired and liabilities assumed by RNIC totaled $4.5 million and
$4.8 million, respectively, at the date of acquisition. The acquisition was
accomplished by means of a loss portfolio transfer and assumption reinsurance
agreement.
SALES AND MARKETING
The Company's workers' compensation products and services are sold
exclusively by independent insurance agencies. Currently, the Company has
approximately 1,100 agencies in nine states to sell its products, of
which approximately 393 are in Florida. These independent agencies are viewed
by the Company as important to its success. The Company views its agencies as
customers and strives to respond quickly and proactively to agency inquiries.
The Company seeks to write all of an agency's workers' compensation business
that fits within its underwriting guidelines, and seeks to be the provider of
choice for workers' compensation insurance to all of its agencies. Through
"The RISCORP Connection," an internet data interchange system, the Company's
Florida agents and certain qualifying policyholders are able to communicate
with the Company via e-mail and are given system access to perform claims and
billing inquiries. The Company also utilizes a number of promotional media,
including advertising in publications and at trade fairs, to support the
efforts of its independent agencies.
The Company's top ten agencies accounted for approximately 22% of the
Company's direct premiums earned for the year ended December 31, 1996, with the
top independent insurance agency accounting for approximately 6%. The Company
provides a number of incentives to its agencies and conducts sales promotions
throughout the year. The Company focuses on agencies that write more than $1
million in annual premiums. These agencies are eligible for additional
commissions which, depending on premium retention percentages, vest over
periods ranging from three to five years providing a continuing commitment to
the Company. Agencies writing over $100,000 in annual earned premium are
eligible to receive an additional bonus based on the profitability of their
book of business. All of the Company's agencies are eligible to receive a
quality incentive bonus based on the historical loss results of new accounts
which they write with the Company. The Company believes it pays competitive
sales commissions. In some states, the Company also administers self-insurance
funds where commission rates are set by the fund and typically vary from state
to state. These agencies are not obligated to promote the Company's products
and services and may sell competitors' insurance products. As a result, the
Company's business depends in part on the marketing effort of these agencies
and on the Company's ability to continue to offer workers' compensation
insurance products and services that meet the requirements of these agencies
and their customers. In addition, if the Company expands into additional
states, it must establish a network of independent agencies in such states if
it is to successfully market its products. Failure of these independent
insurance agencies to market the Company's products and services successfully
could have a material adverse effect on the Company's business, financial
condition, or results of operations.
CUSTOMERS
The Company insured over 31,000 employers as of December 31, 1996 with
an average annual direct premium of approximately $11,400. Approximately 83%
of the policies scheduled to expire in 1996 were renewed by the Company's
customers, while approximately 88% of the policies scheduled to expire in 1995
were renewed by the Company's customers.
The Company generally requests that its agencies target customers who
comply with a return-to-work program, a drug-free workplace, who are proactive
in seeking to minimize injuries in the workplace, and who are financially
strong or, for certain policy types, are willing to provide adequate security
for payment. The Company does not target any particular industry and believes
that its policies are issued to a diversified mix of employers. Through
underwriting selectivity, cooperation with employers in establishing sound
safety programs, prompt resolution of claims, and application of managed care
techniques, the Company believes it is able to capitalize on the opportunity
presented by the large number of employers that have been forced into
relatively high cost, state-sponsored risk pools, who are willing to conform to
the Company's underwriting standards. However, the Company generally does not
insure certain employers which it considers to be high risk, including nuclear
facilities operators, asbestos removers, and certain other high-risk employers.
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Additionally, the Company rendered workers' compensation insurance
services to five self-insurance funds, representing approximately 2,900
employers. In this capacity, the Company administered standard premiums
in-force of approximately $85 million at December 31, 1996.
The Company has also developed certain programs and procedures for
associations and related employer groups. The Company provides full
administration and insurance services for GRIT which provides coverage for
over 250 governmental entities in Florida and North Carolina. The Company is
also under contract to provide claims, loss prevention, underwriting and
marketing services to certain hospitality association sponsored self insurance
trusts, including the Oklahoma Restaurant Group Self Insurance Association.
Although the Company expanded its operations into additional
states in 1996, approximately 67% of its 1996 revenues and 93% of its revenues
during 1995 were derived from products and services offered to customers
located in Florida. Accordingly, the Company could be materially adversely
affected by economic downturns, significant unemployment, and other conditions
that may occur from time to time in Florida, which may not significantly affect
its more geographically diversified competitors.
INFORMATION TECHNOLOGY AND COMMUNICATIONS SYSTEMS
The Company uses its information systems as an integral part in
providing its managed care products and has made substantial ongoing investment
in improving its operating systems. Customer service is enhanced by
integrating the information about claims, billing, and claims management in its
operating information systems.
The Company's claims information systems enable the Company to
implement its strategy of early intervention. All of its claims personnel are
able to access information allowing a prompt response to claimant inquiries.
The systems enable First Call to operate effectively, with important claims
information being processed quickly. The systems also enable the Company's
independent agencies and underwriting personnel to promptly process
applications for workers' compensation insurance. The Company's information
systems provide employers and agencies with interactive, on-line access to
billing and claims information, as well as enabling the Company to operate an
effective utilization review program.
The Company adheres to an open architecture philosophy, integrating
various systems and hardware platforms to meet its needs. When practicable,
the Company purchases commercially available software. When commercial systems
do not meet the standards for customer service, the Company's staff of
approximately 70 information services personnel build and support the Company's
internally developed systems and supplement commercially purchased products.
The Company has completed development and is in the process of rolling out new
claims processing software which allows claims personnel to gain faster access
to key data, maintain better control over follow-ups, and automate current
manual administrative functions. In addition, the Company has developed and is
in the process of implementing the use of imaging to reduce paper flow, provide
faster access to data, and further automate its processes. The Company is also
an active participant in the Internet, providing general company information
and easy access to agents and clients to claims and billing information. The
Company is also developing a new client services system to enhance service
levels.
EMPLOYEES
The Company had approximately 870 full-time employees at December 31,
1996. Of the Company's employees, approximately 180 work in the Company's
administrative and financial functions and 690 provide services to the
Company's customers. None of the Company's employees is subject to collective
bargaining agreements. The Company believes that its employee relations are
satisfactory.
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REINSURANCE
Through reinsurance, the Company shares the risks and benefits of the
workers' compensation insurance that it assumes. The Company has in effect
specific "excess of loss" policies under which it pays its reinsurer a
percentage of gross premiums earned and the reinsurer agrees to assume all
risks relating to claims over $500,000 on a per occurrence basis (for
occurrences prior to January 1, 1996, the retention was $350,000 per
occurrence). Continental Casualty Co. currently participates in this excess
of loss program. Continental Casualty Co. is rated A (Excellent) by A.M. Best.
The Company maintains a Quota Share Reinsurance agreement for the
workers' compensation insurance it underwrites in Florida with American
Re-Insurance Company ("Am Re"), under which the Company cedes to Am Re
50 % of the direct workers' compensation premium written and losses incurred in
Florida on and after January 1, 1995. Am Re pays a ceding commission to the
Company based on its Florida workers' compensation loss ratio, subject to
certain adjustments and limits. Am Re is rated A+ (Superior) by A.M. Best.
Effective October 1, 1996, the Company entered into a Quota Share
Reinsurance agreement for the workers' compensation insurance it underwrites in
RNIC in states other than Florida with three reinsurers: Chartwell Reinsurance
Company (rated A by A.M. Best), Trenwick America Reinsurance Corporation (rated
A+ by A.M. Best) and Swiss Reinsurance America Corporation (rated A by A.M.
Best). The Quota Share Reinsurance agreement provides for the Company to cede
to the reinsurers 65% of its direct workers' compensation premiums written
and losses incurred on and after October 1, 1996. The reinsurers pay the
Company a ceding commission based on RNIC's loss ratio, subject to certain
adjustments and limits. The Quota Share Reinsurance agreement was amended
effective January 1, 1997 to reduce the ceded percentage to 60%.
In 1996, the Company had direct written premiums of $3.9 million and
$1.5 million of group health, and property and casualty insurance, respectively.
This business is reinsured with reinsurers rated by A.M. Best as A or better.
The Company retains a maximum amount of $150,000 per person per year for the
group health and $250,000 per occurrence and per risk for the commercial
casualty and commercial property.
These Quota Share Reinsurance agreements allow the Company to write,
within regulatory guidelines, a larger number of policies than it could
otherwise. In the event that the Quota Share Reinsurance agreements are
terminated for any reason, the Company could be required to increase its
capital substantially or reduce its level of workers' compensation premiums,
unless it is able to establish another Quota Share Reinsurance arrangement.
This could result in material adverse consequences to the Company's business
and growth prospects. There is no assurance that Quota Share Reinsurance will
continue to be available to the Company for its workers' compensation business.
The Company also has excess of loss policies ("Excess Reinsurance") under which
a group of reinsurers agrees to pay all claims and claims expenses over a
specific dollar amount per incident. The Company regularly performs internal
reviews of the financial strength of its reinsurers. However, if a reinsurer is
unable to meet any of its obligations to the Company under the reinsurance
agreements, the Company would be responsible for the payment of all claims and
claim settlement expenses which the Company has ceded to such reinsurer. Any
such failure on the part of the Company's reinsurers could have a material
adverse effect on the Company's business, financial condition or results of
operations.
A.M. BEST RATINGS OF INSURANCE SUBSIDIARIES
The limited operating history, pending litigation and other factors have
affected the ability of the Company's insurance subsidiaries to obtain favorable
A.M. Best and comparable ratings. A.M. Best ratings are based on a comparative
analysis of the financial condition and operating performance of insurance
companies as determined by their publicly available reports and meetings with
the entity's officers. A.M. Best ratings are based upon factors of concern to
insureds and are not directed toward the protection of investors. Furthermore,
A.M. Best ratings are not ratings of the company or any of its securities. In
assigning ratings, companies may fall within one of three Best rating groupings:
Best Ratings, Financial Performance Ratings or Not Rated.
Letter Ratings
Letter ratings include Secure Ratings, which consist of Superior
(A++, A+), Excellent (A, A-) and Very Good (B++, B+). A.M. Best also provides
Vulnerable Ratings, which consist of Fair (B, B-), Marginal (C++, C+), Weak (C,
C-), Poor (D), Under Regulatory Supervision (E), In Liquidation (F) and Rating
Suspended (S).
The Company was assigned an initial A.M. Best Letter Rating of C (Weak)
on May 12, 1997. This rating is under review with negative implications pending
resolution of certain substantial uncertainties, including various legal
issues, any material Form 10-K disclosures, and potential regulatory actions
emanating from the ongoing state exams. See "Legal Proceedings" and
"Business - Regulation".
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Not Rated
Companies not assigned either Best's Ratings or Financial Performance
Ratings are assigned to one of several Not Rated (NR) Categories. The NR
category identifies the primary reason a rating opinion was not assigned.
RNIC (formerly Atlas Insurance Company) had its B+ rating removed and
was given an A.M. Best's "Not Rated" classification of NR-2 (Insufficient
Operating Experience) following the purchase of Atlas by the Company in March
1996 and the discontinuance of its prior business, which effectively treated
RNIC as a start-up operation for rating purposes.
COMPETITION
The market to provide managed care workers' compensation insurance and
services is highly competitive. The Company's competitors include, among
others, insurance companies, specialized provider groups, in-house benefits
administrators, state insurance pools, and other significant providers of
health care and insurance services. A number of the Company's current and
potential competitors are significantly larger, with greater financial and
operating resources than the Company and can offer their services nationwide.
After a period of absence from the market, traditional national insurance
companies have re-entered the Florida workers' compensation insurance market,
thereby increasing competition in the Company's principal market segment. In
addition, the Company faces significant competition in its newer markets,
particularly North Carolina, Alabama and Oklahoma. The Company does not offer
the full line of insurance products which is offered by some of its
competitors. There can be no assurance that the Company will be able to
compete effectively in the future.
Competitive factors in the workers' compensation insurance field include
premium rates (in some states other than Florida), A.M. Best ratings, level of
service, level of capitalization, quality of provider network, the ability to
reduce loss ratios, and the ability to reduce claims expense. The Company
believes that its products are competitively priced with those of its main
competitors in the standard market. In addition, the Company believes its
premium rates are typically lower than those for customers assigned to the state
sponsored risk pools, allowing the Company to provide a viable alternative for
employers in such pools. The Company also believes that its level of service
and its ability to reduce claims are strong competitive factors that have
enabled it to retain existing customers and attract new customers.
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REGULATION
General
Managed health care programs are subject to various laws and
regulations. Both the nature and degree of applicable government regulation
vary greatly depending upon the specific activities involved. Generally,
parties that actually provide or arrange for the provision of managed care
workers' compensation programs, assume financial risk related to the provision
of those programs, or undertake direct responsibility for making payment or
payment decisions for those services, and are subject to a number of complex
regulatory schemes that govern many aspects of their conduct and operations.
The managed health care field is a rapidly expanding and changing industry; it
is possible that the applicable regulatory frameworks will expand to have an
even greater impact upon the conduct and operation of the Company's business.
The Company's business is subject to state-by-state regulation of
workers' compensation insurance (which in some instances includes rate
regulation and mandatory fee schedules) and workers' compensation insurance
management services. These regulations are primarily intended to protect
covered employees and policyholders, not worker's compensation insurance
companies or their shareholders. Under the workers' compensation system,
employer insurance or self-funded coverage is governed by individual laws in
each of the fifty states and by certain federal laws. Changes in individual
state regulation of workers' compensation or managed health care may create a
greater or lesser demand for some or all of the Company's services, or require
the Company to develop new or modified services in order to meet the needs of
the marketplace and compete effectively and may have a material adverse effect
on the Company's business, results of operations or financial condition. In
addition, many states limit the maximum amount of dividends and other
distributions and loans that may be made in any year by insurance companies.
This restricts the amount of distributions that may be made by the Company's
insurance company subsidiaries.
There is no assurance that the Company will seek approvals from state
regulatory authorities to pay dividends or make distributions or that, if
sought, such approvals will be obtained. This may limit the amount of
distributions that may be made by the Company's insurance company subsidiaries
and may decrease amounts of capital available to the Company for expansion
opportunities and other purposes. In addition, the Company is required to
contribute to state-established guaranty funds or associations that pay claims
of insolvent insurers. As a result, the Company's financial performance could
be materially adversely affected by mandatory assessments from such funds over
which the Company has no control.
Numerous proposals have been debated in Congress and in several state
legislatures and administrative agencies regarding health care
legislation intended to control the cost and availability of health care
services including managed care programs. It is not possible to determine what
health care or managed care reform legislation will be adopted by Congress, any
state legislature, or administrative agency or if and when any such reforms
will be adopted and implemented. In such event, there can be no assurance that
the Company will be able to adjust effectively to any regulatory changes made
by future health care reforms and remain profitable. The Company is unable to
predict accurately the nature and effect, if any, that the adoption of health
care legislation or regulations or changing interpretations at the federal or
state level would have upon the Company.
Except for certain statutorily prescribed credits, Florida currently does
not permit competition on the basis of price in workers' compensation insurance.
This approach is followed in relatively few other states. If Florida were to
permit premium rates to be established with less regulatory intervention, the
Company's business, financial condition, or results of operations could be
materially and adversely affected.
The Company may from time to time need additional capital surplus to meet
certain state regulatory requirements. In particular, the Company anticipates
that its insurance subsidiaries will require capital to meet current statutory
surplus needs and any additional funding requirements that may arise
periodically. From time to time, the Company may be required to increase the
capital surplus of its insurance subsidiaries to remain in compliance with
state regulatory requirements. The Company expects that additional capital will
be required by regulatory authorities for the Company to expand as an insurance
carrier into additional states or undertake other contingency plans. If the
Company is unable to generate sufficient capital, either internally or from
outside sources, it could be required to reduce its growth or to delay or
abandon plans to expand into additional states or acquire other Companies, and
to undertake contingency plans to preserve or generate capital. Although the
Company has met its capital needs in the past, there can be no assurance that
capital will continue to be available when needed or, if available, will be on
terms acceptable to the Company. The Company's Board of Directors has created a
Strategic Alternatives Committee to consider capital needs and to evaluate
strategic alternatives.
Premium Rate Restrictions
State regulations governing the workers' compensation system and
insurance business in general impose restrictions and limitations on the
Company's business operations that are not imposed on unregulated businesses.
Among other matters, state laws regulate not only the kind of workers'
compensation benefits that must be paid to injured workers, but also the
premium rates that may be charged by the Company to insure employers for those
liabilities. As a consequence, the Company's ability to pay insured workers'
compensation claims out of the premium revenue generated from the sale of such
insurance is dependent on the level of premium rates permitted by state laws.
In this regard, it is significant that the state regulatory agency regulating
workers' compensation benefits may not be the same agency that regulates
workers' compensation insurance premium rates.
In October 1996, the Florida Insurance Commissioner ordered workers'
compensation providers to reduce rates by an average of 11.2% effective January
1, 1997. In addition, the 10% managed care credit which had been in place on a
voluntary basis since 1994 was phased out effective January 1, 1997. As of
December 31, 1996, over 50% of the Company's premiums were receiving the 10%
managed care credit.
The State of North Carolina approved a 13.7% rate decrease effective
April 1, 1997, although it is not mandatory for companies to adopt the decrease.
The state legislatures and the federal government have considered and
continue to consider a number of cost containment and health care reform
proposals and managed care reform proposals.
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Financial and Investment Restrictions
Insurance company operations are subject to financial restrictions that
are not imposed on other businesses. State laws require insurance companies to
maintain minimum surplus balances and place limits on the amount of insurance a
company may write based on the amount of the company's surplus. These
limitations restrict the rate at which the Company's insurance company
operations can grow. The Company's 1996 unaudited statutory filings indicate
that, as of December 31, 1996, its insurance subsidiaries met applicable state
minimum capital and surplus requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
State laws also require insurance companies to establish reserves for
payment of policyholder liabilities and impose restrictions on the kinds of
assets in which insurance companies may invest. These restrictions may require
the Company to invest its insurance subsidiaries' assets more conservatively
than if they were not subject to the state law restrictions and may prevent
the Company from obtaining as high a return on these assets than it might
otherwise be able to realize.
Participation in State Guaranty Funds
Every state has established one or more insurance guaranty funds or
associations that are charged by state law to pay claims of policyholders
insured by a company that becomes insolvent. All insurance companies must
participate in the guaranty associations in the states where they do business
and are assessable for the associations' operating costs, including the cost of
paying policyholder claims of an insolvent insurer. The Company's financial
performance could be adversely affected by guaranty association assessments as
a consequence of the insolvency of other insurers over which the Company has no
control.
Statutory Accounting and Solvency Regulation
State regulation of insurance company financial transactions and
financial condition are based on statutory accounting principles ("SAP"). SAP
differ in a number of ways from generally accepted accounting principles
("GAAP") which govern the financial reporting of most other businesses. In
general, SAP financial statements are more conservative than GAAP financial
statements, reflecting lower asset values, higher liability values, and lower
equity.
State insurance regulators closely monitor the financial condition of
insurance companies reflected in SAP financial statements and can impose
financial and operating restrictions on an insurance company including: 1)
transfer or disposition of assets; 2) withdrawal of funds from bank accounts;
3) extension of credit or making loans; and, 4) investment of funds.
The Florida Department of Insurance has completed a financial
examination of RISCORP Insurance Company ("RIC"), one of the Company's
insurance subsidiaries for 1995 and issued a final examination report for that
period. The report identified a number of items discovered upon examination and
required a reduction of RIC's statutory surplus as of December 31, 1995 from
$31,117,099 to $4,961,478. The report concludes that as of December 31, 1995
RIC failed to meet the minimum capital and surplus requirements by $12,481,345.
The report noted that the Company made a capital infusion of $31,100,000 into
RIC in 1996. Accordingly, as of December 31, 1996, the surplus of RIC exceeded
the minimum capital and surplus requirements.
The Florida Department of Insurance and the Missouri Department of
Insurance are currently conducting a financial examination of two of the
Company's insurance subsidiaries which may result in adjustments to the
statutory financial statements of the insurance subsidiaries for 1996.
Healthcare and Managed Care Laws and Reform Proposals
The Company's medical provider networks are subject to various federal
and state laws and regulations, including AHCA qualification requirements for
the Company's WCMCA in Florida. There are a number of managed care reform
proposals before federal and state law making and regulatory bodies. The
Company expects that its business operations and products will be impacted by
these.
SDTF
Florida operates the SDTF that reimburses Florida employers and
carriers for excess workers' compensation benefits paid to employees when an
employee is injured on the job and the injury to the physically disabled worker
merges with, aggravates, or accelerates a preexisting impairment. The SDTF is
managed by the State of Florida and is funded through assessments against
insurers and self-insurers providing workers' compensation coverage in Florida.
The SDTF has not prefunded its claims liability and no reserves currently exist
to satisfy future claims. Under Florida law, the SDTF is currently scheduled
to expire in the year 2000, unless it is re-created by the Florida legislature.
In the event of termination of the SDTF, the Company believes remaining
reimbursement obligations of the SDTF would become general obligations of the
State of Florida or would otherwise be enforceable, although there is no
assurance that a reviewing court would adopt that view. The SDTF is currently
undergoing legislative review. Under a recent bill passed by the Florida
legislature, and submitted to the Governor, the SDTF law would be amended so
that claims arising from accidents occurring on or after January 1, 1998 would
not be accepted for reimbursement by the SDTF. The bill states the SDTF will
be liable for reimbursement for subsequent injuries that occur prior to January
1, 1998, and that assessments are to continue for funding purposes.
In addition, the Florida Department of Insurance is participating with
the Florida Legislature in the review of current and proposed statutory
accounting treatments of SDTF projected recoveries, and with respect to how an
insurer may include such estimated recoveries in its admitted asset and loss
reserve calculations in statutory financial statements. Under the bill referred
to above, the anticipated SDTF recoveries that an insurer could take into
account when computing loss reserves in its statutory financial statements would
be limited to recoveries for which a claim has been accepted for payment.
Credit for all other anticipated recoveries would be capped at the total SDTF
recovery amount used by the insurer in 1996 and this capped amount would be
phased out over a five year period, commencing with statutory financial
statements filed in the year 2000 (20% per year reduction of 1996 capped
amount).
While it is not possible to predict the outcome of this or any other
legislative or regulatory proposals affecting the SDTF, changes in the SDTF's
operations or funding which decrease the availability of recoveries or increase
assessments payable by the Company, or the discontinuation of the SDTF, could
have a material adverse effect on the Company's business, financial condition,
or results of operations.
Subject to The legislation set forth above, the SDTF recoverable
recorded on the Company's balance sheet is an actuarial estimate of the amount
the Company can expect to recover from the SDTF on eligible claims. The
Company has a dedicated claims unit that handles the tracking, submission and
collection process with the SDTF. In the event that there are adverse
developments in SDTF collection experience, the recorded recoverable balance
will accordingly be adjusted.
With respect to collection patterns, the SDTF reviews reimbursement
requests on a claim by claim basis, with actual collection payments tied to
the paid loss development over a claim's life. The payments are not made
ratably or in any other predictable pattern. A prior actuarial review of the
SDTF indicated the average time frame for collection of a claim made to the
SDTF is 6 to 8 years. The Company's SDTF recoverable balance has experienced
rapid growth since 1992, when it stood at $15 million. Due to this recent
growth, the Company is early in the normal collection cycle for the majority
its SDTF claims.
14
<PAGE> 17
ITEM 2. PROPERTIES
The Company owns its headquarters building in Sarasota, Florida, which
contains approximately 112,000 square feet of space, as well as an adjacent
parking facility. The Company leases an aggregate of approximately 66,000
square feet of space at ten other locations in seven states, including Florida,
under terms expiring through January 2002. The Company incurred rent expense of
$1.3 million for the year ended December 31, 1996. Additionally, the Company
has continuing commitments through July 1998 of approximately $70,000 related
to two locations in which offices were closed during 1996.
15
<PAGE> 18
ITEM 3. LEGAL PROCEEDINGS
On April 2, 1996, the Company and several officers, directors and
employees were named as defendants in a purported class action filed in the
United States District Court for the Southern District of Florida. The suit
claims the Company violated the Racketeer Influenced and Corrupt Organizations
Act ("RICO"), breached fiduciary duties and was negligent in the Company's
acquisition of Commerce Mutual Insurance Company ("CMIC") in 1995. The suit
seeks compensatory and punitive damages and equitable relief and treble damages
for the RICO counts. The named plaintiffs, Vero Cricket Shop, Inc., Vero
Cricket Shop Too, Inc. and Falls Company of Longboat Key, Inc., claim to be
former policyholders of CMIC and claim to represent others similarly situated.
The Company has moved to dismiss the complaint and to strike the punitive
damage claims. The Company intends to vigorously defend this action; however,
there can be no assurance that it will prevail in the litigation.
Between November 20, 1996 and January 31, 1997, nine shareholder class
action lawsuits were filed against the Company and three of its executive
officers in the United States District Court for the Middle District of Florida.
Each of the lawsuits purports to represent the same class of shareholders, that
is, purchasers of the Company's Class A common stock between February 28, 1996
and November 14, 1996. Two non-officer members of the board of directors have
been named as defendants in one of the suits. One or more of the Company's
underwriters for the Company's initial public offering have been named as
defendants in eight of the suits. All the lawsuits allege that the named
defendants issued, caused to be issued or participated in the issuance of the
Company's Registration Statement and Prospectus of February 28, 1996, and that
the Prospectus contained false and misleading statements of material fact and
omissions, in violation of sections 11 and 15 of the Securities Act of 1933.
Eight of the nine suits also allege that the named defendants engaged in a
scheme to defraud purchasers of the Company's stock by purposely or recklessly
making false statements of material facts about the Company, its financial
situation and its financial prospects, and by omitting material information
about those subjects, in violations of the Securities Exchange Act of 1934. One
lawsuit alleges violation of section 12(2) of the Securities Act of 1933. The
complaints seek unspecified compensatory damages. The Company moved to
consolidate the complaints and for the filing of one consolidated complaint. On
March 11, 1997, the motion for consolidation was granted and the consolidated
complaint was filed on April 10, 1997. The Company intends to vigorously
defend these consolidated actions; however, there can be no assurance that it
will prevail in the litigation.
The Company and a number of officers, directors and employees have been
served with subpoenas requesting information for a federal grand jury
investigation in the Northern District of Florida. The Company is cooperating in
the investigation, which it understands is a broad examination related to
political candidates and political campaign contributions. The Company
understands that a number of other parties unrelated to the Company also have
been served with subpoenas.
No provision has been made in the Company's financial statements for
the above matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock ($.01 par value) is traded on the
NASDAQ Stock Market's National Market under the symbol "RISC". As of December
31, 1996, the number of record holders of Class A Common Stock was 153.
Trading of the Company's Class A Common Stock commenced with its initial public
offering on February 29, 1996, at a price per share of $19. The following table
sets forth the high and low closing sales prices for the Company's common stock
for each full quarterly period since the initial public offering.
<TABLE>
<CAPTION>
Per Share Sales Price of Common Stock
-------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter First Quater
1996 1996 1996 1996 1997
------------- -------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
High 21 1/2 23 7/8 19 1/4 18 3/4 4
Low 19 15 10 3/4 3 3/8 1 13/16
</TABLE>
On May 6, 1997, the closing sale price of the Company's Class A Common Stock
was $3.1875. No dividends have been declared or paid since the Company's initial
public offering and it is not anticipated that dividends will be paid in the
foreseeable future.
17
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA.
To be filed pursuant to Rule 12b-25 on Form 10K/A.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
To be filed pursuant to Rule 12b-25 on Form 10K/A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
To be filed pursuant to Rule 12b-25 on Form 10K/A.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
To be filed pursuant to Rule 12b-25 on Form 10K/A.
18
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information as of May 1, 1997, concerning
the Company's executive officers, continuing directors, and nominees for
director.
<TABLE>
<CAPTION>
Year First
Became a
Name Position(s) Age Director
---- ----------- --- --------
<S> <C> <C> <C>
William D. Griffin Chairman of the Board, Chief Executive 48 1988
Officer and Director
James A. Malone President, Chief Operating Officer and 35 1994
Director
Steven J. Berling Senior Vice President - Managed Care Services 48
Thomas S. Hall Senior Vice President - Business Development 36
Richard A. Halloy Senior Vice President and Director 35 1996
Fred A. Hunt Senior Vice President - Risk & Insurance 45
Solutions
Senior Vice President, General Counsel and 44
Secretary
L. Scott Merritt Senior Vice President, Chief Investment 48 1996
Officer, Treasurer and Director
Richard B. Franz Senior Vice President and Chief Financial 46
Officer
Walter E. Riehemann Vice President, Secretary and Acting 30
General Counsel
Seddon Goode, Jr. Director 65 1996
George E. Greene, III Director 61 1995
Walter L. Revell Director and Vice Chairman 62 1995
</TABLE>
WILLIAM D. GRIFFIN is the Founder of the Company, and has been its Chairman and
Chief Executive Officer since its inception in 1988. Mr. Griffin was a member
of the Florida Governor's Task Force on Workers' Compensation in 1988, and
served as chairman of the Marketplace, Conduct Standards, and Statistics
Committee of the Governor's Oversight Board in 1990. Mr. Griffin also served on
the Board of Directors of the Florida Workers' Compensation Joint Underwriting
Association, Inc. from 1993 to 1994.
JAMES A. MALONE has served as President of the Company since 1993. Mr. Malone
joined the Company in 1990 as Vice President of Operations, and was named
Senior Vice President and Chief Operating Officer in 1991. Prior to joining
the Company, Mr. Malone was Director of Risk Management for Kentucky Fried
Chicken, Inc., a subsidiary of PepsiCo, Inc., from April 1990 to November 1990.
Mr. Malone served as Manager of Risk Financing for Batus, Inc. from 1988 to
1990. Mr. Malone holds the professional designations of Chartered Property and
Casualty Underwriter as well as Associate in Risk Management.
STEVEN J. BERLING has served as Senior Vice President and President of the
Company's Managed Care Services Group since December, 1995. Mr. Berling was
President of the Management Services Division from September, 1994 to December,
1995. Prior to joining RISCORP, Mr. Berling was Vice President at VHA of
Florida from June, 1993 to September, 1994. Mr. Berling was Vice President of
Administrative Services at Sharp Health Care from 1987 - 1993, where he served
in various capacities as a hospital administrator.
THOMAS S. HALL has served as Senior Vice President-Corporate Development of the
Company since October 1995. Mr. Hall was the Company's Senior Vice President
and President of RISCORP U.S. Group from 1992 to 1995. Mr. Hall served as
President and Chief Executive Officer of Chautauqua Airlines (d/b/a U. S. Air
Express) from 1990 to 1992.
19
<PAGE> 22
RICHARD A. HALLOY has served as Senior Vice President, Chief Financial Officer
and Director of the Company since June, 1996. Mr. Halloy has served in a
number of senior management positions for RISCORP and its affiliates since
joining RISCORP in February 1994. Prior to joining the Company, Mr. Halloy
was President of Halloy & Company from 1990 until February 1994. Mr. Halloy
began his career with Arthur Andersen & Company.
FRED A. HUNT has served as Senior Vice President and President of the company's
Risk & Insurance Solutions Group since October 1995. Mr. Hunt was the
Company's Senior Vice President and President of P&C Services Division from
1994 to 1995. Mr. Hunt served in various capacities with Liberty Mutual
Insurance Company from 1973 to 1993, most recently as Vice President and
Manager of Underwriting Operations.
L. SCOTT MERRITT has served as Senior Vice President and Chief Investment
Officer of the Company since January 1995 and as Treasurer and a director
since November 1996. Mr. Merritt has been President of his own firm, Merritt
& Company in Sarasota, Florida from 1993 to the present. From 1990 to 1993,
Mr. Merritt was employed by the Company as investment manager. His previous
experience also includes extensive investment and other financial positions
with Bay Future, Merrill Lynch and Smith Barney.
RICHARD B. FRANZ, II was appointed Senior Vice President and Chief Financial
Officer of the Company in May, 1997. Prior to joining the Company, Mr. Franz
served as Senior Vice President, Treasurer and Chief Financial Officer of
Western Reserve Life Assurance Company (1987 to 1997), and Treasurer and
Principal Financial Officer for the IDEX Group of Mutual Funds and the WRL
Series Fund (1987 to 1997). His previous experience includes service as Vice
President, Controller and Chief Accounting Officer for American Heritage Life
Insurance Companies, Inc.; Controller of Harvest Insurance Companies, Inc.; and
in various positions with Deloitte & Touche and National Standard Life Insurance
Company.
WALTER E. RIEHEMANN has served in various capacities with the Company since
August 1995, most recently as Vice President, Secretary and Acting General
Counsel. Prior to that time, Mr. Riehemann was associated with the law firms
of Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia (1993 to 1995), Long,
Aldridge & Norman, Atlanta, Georgia (1993), and Jones, Day, Reaves & Pogue,
Dallas, Texas (1990 to 1993).
SEDDON GOODE, JR. was elected a director of the Company in November 1996. Mr.
Goode has served as President and Director of University Research Park, Inc.
since 1981. From 1977 to 1984, Mr. Goode served as Chairman of First Charlotte
Corporation. From 1968 to 1977, Mr. Goode served as Senior Vice President,
Chief Financial Officer and Director of Interstate Securities Corporation. Mr.
Goode is also a director of Trion, Inc.
GEORGE E. GREENE III was elected a director of the Company in November 1995.
Mr. Greene served as Executive Director of No Casinos, Inc., a non-profit
organization to keep casino gambling illegal in Florida, in 1994. Mr. Greene is
also a private consultant. Mr. Greene served in various management positions
with Florida Power Corporation, and other subsidiaries of Florida Progress
Corporation from 1962 to 1993, most recently as Senior Vice President of Florida
Power Corporation from 1983 to 1993. Mr. Greene retired from Florida Power
Corp. on January 1, 1994.
WALTER L. REVELL was elected a director of the Company in November 1995 and
Vice Chairman of the Board in November 1996. Mr. Revell has been Chairman and
Chief Executive Officer of H. J. Ross Associates, Inc., a consulting
engineering, architectural and planning firm, since 1991; Chairman and Chief
Executive Officer of Revell Investments International, Inc. since 1984 and was
President and Chief Executive Officer of Post, Buckley, Schuh & Jernigan, Inc.,
a consulting engineering, architectural, and planning firm, from 1975 to 1983.
Mr. Revell is also a director of St. Joe Corporation and Dycom Industries, Inc.
MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES
During 1996, the Company's Board of Directors held nine meetings. Each
incumbent director attended at least 75% of the total number of Board meetings
and meetings of committees of which he is a member.
The Company's Board of Directors has a Compensation Committee, an Audit
Committee, an Investment Committee, and a Stock Option Committee. The
Compensation Committee consists of Messrs. Goode, Greene and Revell. The
Compensation Committee recommends to the Board both base salary levels and
bonuses for the Chief Executive Officer and reviews the compensation levels of
the other executive officers of the Company. See "Board Compensation Committee
Report on Executive Compensation." The Compensation Committee also reviews and
makes recommendations with respect to the Company's existing and proposed
compensation plans. The Compensation Committee met two times during 1996.
The members of the Audit Committee are Messrs. Goode, Greene and
Revell. The duties of the Audit Committee, which met four times during 1996,
are to recommend to the Board of Directors the selection of independent
certified public accountants, to meet with the Company's independent certified
public accountants to review the scope and results of the audit, and to
consider various accounting and auditing matters related to the Company,
including its system of internal controls and financial management practices.
The members of the Investment Committee, which met one time during
1996, are Messrs. Greene, Revell, and Merritt. The duties of the Investment
Committee are to review and monitor the investment portfolio of the Company.
The Company's Stock Option Committee consists of Messrs. Goode, Greene
and Revell. The Stock Option Committee is responsible for administering the
Company's 1995 Non-qualified Stock Option Plan. The Stock Option Committee met
one time in 1996.
The Company does not have a nominating committee. This function is
performed by the Board of Directors.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid $40,000
annually plus $1,000 for each Board meeting attended, and $1,000 for each day
of committee meetings attended if such meeting day occurs on a day other than
that of a scheduled meeting of the Board of Directors. In addition, the Company
reserved 10,000 shares of Common Stock for future issuance upon the exercise of
stock options that may be granted to such non-employee directors. During 1996,
Messrs. Greene and Revell were granted options to purchase 1,000 shares each of
the Company's Class A common stock at an exercise price of $19.000 per share.
During 1996, Mr. Goode was granted options to purchase 1,000 shares of the
Company's Class A common stock at an exercise price of $4.44 per share. These
options vest 25% per year beginning two years from the option grant date. All
directors receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with meetings of the Board of Directors. No director who is an
employee of the Company receives separate compensation for services rendered as
a director.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the common stock of the Company, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors, and ten percent shareholders are required by the SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such reports received by
it, and written representations from certain reporting persons that no SEC
Forms 3, 4, or 5 were required to be filed by those persons, the Company
believes that during 1996, its officers, directors and ten percent beneficial
owners timely complied with all applicable filing requirements, except for the
following: Thomas E. Danson, Paul DiFrancesco, Richard A. Halloy and William D.
Griffin each filed a Form 4 late.
20
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation received by the Company's
Chief Executive Officer and the four highest paid executive officers for
services rendered to the Company in 1994, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------
Other Securities
Name Annual Under- All Other
and Compen- lying Compen-
Principal sation Options sation
Position Year Salary($)(1) Bonus($)(2) ($) (#) ($)(3)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William D. Griffin 1996 751,416 907,241 18,907(2) A 17,547(5)
Chairman and Chief 1995 720,000 5,609,583 46,571(3) A 13,685(5)
Executive Officer 1994 720,000 4,173,304 53,838(4) A 16,567(5)
James A. Malone 1996 327,500 0 0 0 35,098(6)
President and Chief Operating 1995 300,000 255,904 0 150,770 33,876(6)
Officer 1994 245,000 317,149 0 929,550 33,906(6)
Thomas S. Hall 1996 223,750 44,750 0 20,000 33,291(7)
Senior Vice President- 1995 205,000 20,695 0 73,303 34,652(7)
Business Development 1994 153,500 278,966 0 132,991 34,000(7)
Fred A. Hunt 1996 200,000 20,000 0 20,000 12,573(8)
Senior Vice President-Risk 1995 163,165 93,615 0 73,153 4,543(9)
Insurance Solutions 1994 101,935 54,290 0 132,991 35,000(10)
Steven J. Berling 1996 208,333 52,083 0 20,000 3,831(11)
Senior Vice President- 1995 190,306 34,594 0 72,632 734(12)
Managed Care Services 1994 54,808 7,811 0 55,381 0
</TABLE>
(1) Includes amounts deferred by the executive pursuant to the Company's
401(k) plan and the Company's cafeteria plan.
(2) Includes (i) a $4,591 automobile usage allowance and (ii) a $14,316
aircraft usage allowance. For a further description of the terms of Mr.
Griffin's employment agreement, see "Employment Agreements."
(3) Includes (i) a $13,936 automobile usage allowance and (ii) a $32,635
aircraft usage allowance.
(4) Includes (i) a $13,000 automobile usage allowance and (ii) a $40,838
aircraft usage allowance.
(5) Includes (i) $9,103, $7,709 and $8,394 cash surrender value of life
insurance policies in effect in 1996, 1995 and 1994, respectively and (ii)
$7,574, $5,976 and $8,713 in annual fees for a country club membership in
1996, 1995 and 1994, respectively. Also includes $870 group term life
insurance premiums in 1996.
(6) Includes (i) $30,117, $30,000 and $30,000 in allocations to the
participant's account in the Company's defined contribution plan in 1996,
1995 and 1994, respectively and (ii) $4,651, $3,876 and $3,906 in annual
fees for country club membership in 1996, 1995 and 1994, respectively.
Also includes $330 group term life insurance premiums in 1996.
(7) Includes (i) $30,117, $30,000 and $30,000 in allocations to the
participant's account in the Company's defined contribution plan in 1996,
1995 and 1994, respectively and (ii) $2,943, $4,652 and $4,000 in annual
fees for country club membership in 1996, 1995 and 1994, respectively.
Also includes $231 group term life insurance premiums in 1996.
(8) Includes (i) $5,988 in allocations to the participant's account in the
Company's defined contribution plan, (ii) $6,063 in annual fees for
country club membership, and (iii) $522 for group term life insurance
premiums.
(9) Represents $4,543 in annual fees for country club membership.
(10) Relocation Reimbursement.
(11) Represents a $3,274 allocation to the participant's account in the
Company's defined contribution account and $557 for group term life
insurance.
(12) Represents annual fees for country club membership.
21
<PAGE> 24
OPTION GRANTS IN 1996
No stock options were granted to Mr. Griffin or Mr. Malone in 1996.
Messrs. Hall, Hunt and Berling each received options to acquire 20,000 shares
of Class A common stock at an exercise price of $4.50 per share during 1996.
The options vest at the rate of 25% per year beginning on the second
anniversary of the date of grant.
<TABLE>
<CAPTION>
Potential Realizable Value
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- ---------------------------------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C>
William D. Griffin 0 0 0 N/A 0 0
James a. Malone 0 0 0 N/A 0 0
Thomas S. Hall 20,000 3% $4.50 11/18/2008 $73,800 $207,000
Fred A. Hunt 20,000 3% $4.50 11/18/2008 $73,800 $207,000
Steven J. Berling 20,000 3% $4.50 11/18/2008 $73,800 $207,000
</TABLE>
22
<PAGE> 25
AGGREGATE OPTION EXERCISES IN 1996 AND DECEMBER 31, 1996 OPTION VALUES
The following table shows information concerning options exercised during
1996 and options held by the officers shown in the Summary Compensation Table
at the end of 1996.
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal Fiscal Year-
Year-End(#) End($)(1)
Shares Acquired Exercisable(E)/ Exercisable(E)/
Name on Exercise(#) Value Realized($) Unexercisable(U) Unexercisable(U)
- ---- --------------- ----------------- -------------------- ----------------
<S> <C> <C> <C> <C>
William D. Griffin 0 0 0 0
James A. Malone 0 0 524,175(E)/ $1,129,795(E)/
556,145(U) $8,134(U)
Thomas S. Hall 0 0 38,766(E)/ $775(E)/
209,600(U) $2,326(U)
Fred A. Hunt 0 0 33,228(E)/ $665(E)/
192,836(U) $1,994(U)
Steven J. Berling 0 0 13,845(E)/ $277(E)/
134,168(U) $831(U)
</TABLE>
(1) Based on the closing market price on December 31, 1996 of $3.63 per
share.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Option Plan") provides for the grant
of stock options to eligible employees and consultants of the Company. The
Option Plan is intended to provide participants with an opportunity to increase
their stock ownership in the Company and to give them an additional incentive
to promote the financial success of the Company. Pursuant to the Option Plan,
the Company may grant nonqualified stock options to employees (including
officers and directors who are employees) and consultants. William D. Griffin,
an officer and director of the Company, is not eligible to participate in the
Option Plan. A total of 3,118,832 shares of Class A common stock has been
reserved for issuance under the Option Plan. As of December 31, 1996, the
Company had granted stock options covering 3,078,779 shares of Class A common
stock to various employees (including options to purchase 1,927,542 shares
issued to executive officers) at exercise prices ranging from $0.72 to $23.04.
Each exercise price was determined to be not less than the fair market value of
the Class A common stock on the date of grant, except for grants to James A.
Malone to purchase 287,314 shares on October 10, 1994 and 2,604 shares on March
24, 1995. In November 1996, the Stock Option Committee amended the exercise
price on all options with an exercise price greater than $4.50 per share to
$4.50 per share, the fair market value of the Class A common stock on the date
of the amendment. As of December 31, 1996, the exercise prices range from
$0.72 to $4.50.
The Stock Option Committee is authorized to administer the Option Plan,
including selection of employees and consultants of the Company to whom options
may be granted. The Stock Option Committee also determines the number of
shares, the exercise price, the terms, any conditions on exercise and other
terms of each option. There is no limit on the term of the options. Options
granted under the Option Plan generally vest over a period of five years. The
option price is payable in full upon exercise, and payment may be made in cash,
by delivery of shares of Class A common stock (valued at fair market value at
the time of exercise), or by such other consideration as the Stock Option
Committee may approve at the time of grant.
23
<PAGE> 26
The options are non-transferable other than by will or by the laws of
descent and distribution and must be exercised by the optionee during the
period of his employment with the Company or within a specified period
following termination of employment. The Option Plan may be amended at any
time by the Board of Directors, although certain amendments require shareholder
approval. The Option Plan terminates in November 2005.
The Company's board of directors adopted an additional stock option plan
in March 1997 (the "1997 Plan"). A total of 750,000 shares of Class A Common
Stock has been reserved for issuance under the 1997 Plan. The terms of the 1997
Plan are substantially similar to those of the Option Plan. The 1997 Plan will
be submitted to the Company's Shareholders for approval.
COMPENSATION ARRANGEMENTS UPON RESIGNATION, RETIREMENT OR OTHER TERMINATION;
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Malone,
Hall, Hunt, and Berling, providing for base salaries of $330,000, $225,000,
$200,000 and $210,000, respectively. These employment agreements have a term
of one year (which automatically renews for successive one year periods unless
terminated) and allow the employee to participate in the Company's employee
benefit plans. Under the employment agreements, the Company may terminate the
employee at any time. If the employee's employment is terminated by the
Company for other than "Cause" (as defined in the employment agreements), or
the employee voluntarily terminates his employment for "Good Reason" due to a
material modification, without the employee's written consent, of his duties,
compensation or scope of responsibilities, then the Company must pay the
employee an amount equal to one year of the employee's base salary in effect on
the effective date of termination, payable without interest in twelve equal
monthly installments. During the twelve months, following the date the
employee is terminated for other than Cause, the employee may not compete with
the Company. If the Company terminates the Employee for other than "Cause" or
the Employee voluntarily terminates his employment for Good Reason (a) within 2
years of a "Change of Control" (as defined in the employment agreements) or (b)
within 180 days of a "Potential Change of Control" (as defined in the
employment agreements), then the Company must pay the Employee an amount equal
to three times the employee's base salary in effect on the effective date of
termination, payable in a lump sum. In the event the employee is terminated
after a change of control, the non-compete period is two years. If the
employee voluntarily terminates his employment for other than Good Reason, or
his employment terminates due to disability, or if the Company terminates the
employee's employment for Cause, then the Company will pay the employee a lump
sum payment equal to the portion of his base salary accrued through the date
his employment terminates.
In accordance with his employment agreement, in effect prior to the
Company's initial public offering, Mr. Griffin's compensation includes an
annual base salary of $750,000, quarterly incentives of up to $750,000 per year
based on premiums written and revenues earned, and an annual bonus to be
determined in the discretion of the Board of Directors. This employment
agreement will extend until the earlier of the fifth anniversary of a change of
control of the Company or Mr. Griffin's 65th birthday. Mr. Griffin's
compensation rate is subject to annual adjustment by the Board of Directors.
The employment agreement contains a covenant prohibiting competition in the
workers' compensation insurance or services fields in the United States which
continues for a period of two years after the termination of his employment
with the Company. The employment agreement provides that if Mr. Griffin is
terminated by the Company after a change of control of the Company, he will be
entitled to receive within 14 days of his termination date, a lump sum
termination payment equal to his total taxable compensation during the three
most recent calendar years, plus an amount equal to his annual salary for the
year in which termination occurs, subject to the parachute limitations set
forth in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended.
In addition, the employment agreement provides for a separate registration
rights agreement, which grants to Mr. Griffin certain rights related to shares
of the Company's Class B common stock beneficially owned by him. Under the
employment agreement, the Company has also granted Mr. Griffin the right to use
certain intellectual property owned by the Company bearing the name Griffin or
any derivation thereof and the griffin design owned by the Company.
24
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1997 information as to the
Company's Common Stock beneficially owned by: (i) each director of the
Company, (ii) each executive officer named in the Summary Compensation Table,
(iii) all directors and executive officers of the Company as a group, and (iv)
any person who is known by the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership(2)
--------------------------------------------
Class A Common Class B Common
-------------- --------------
Name and Address of Beneficial Owner(1) Number Percent Number Percent
- --------------------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
William D. Griffin(3) -- * 22,176,052 91%
James A. Malone(4) 526,389 4% -- *
Steven J. Berling(5) 13,938 * -- *
Thomas S. Hall(6) 39,027 * -- *
Richard A. Halloy(7) 4,488 * -- *
Fred A. Hunt(8) 33,451 * -- *
L. Scott Merritt(9)(10) 13,938 * 2,158,391 9%
George E. Greene, III(11) 200 * -- *
Walter L. Revell(12) -- * -- *
Seddon Goode, Jr.(13) -- * -- *
All directors and officers as a group 631,431 5% 24,334,443 100%
(10 persons)(14)
</TABLE>
- ---------------
*Less than 1%
(1) The business address for Messrs. Griffin, Malone, Merritt, Halloy,
Greene, Revell, Goode, Hall, Hunt and Berling is 1390 Main Street,
Sarasota, Florida 34236.
(2) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission Rules, includes shares as to
which a person has or shares voting power and/or investment power. The
Company has been informed that all shares shown are held of record with
sole voting and investment power, except as otherwise indicated.
(3) Mr. Griffins shares are Class B common stock and are beneficially owned by
Mr. Griffin through one corporation and two limited partnerships.
(4) Represents shares of Class A common stock subject to options that are
currently exercisable. Mr. Malone also has options to acquire 553,931
additional shares of Class A common stock that are not exercisable within
60 days.
(5) Represents shares of Class A common stock subject to options that are
currently exercisable. Mr. Berling also has options to acquire 134,075
shares of Class A common stock that are not exercisable within 60 days.
(6) Represents shares of Class A common stock subject to options that are
currently exercisable. Mr. Hall also has options to acquire 209,339
shares of Class A common stock that are not exercisable within 60 days.
25
<PAGE> 28
(7) Represents 1,700 shares of Class A common stock owned directly and 2,788
shares of Class A common stock subject to options that are currently
exercisable. Mr. Halloy also has options to acquire 133,363 shares of
Class A common stock that are not exercisable within 60 days.
(8) Represents shares of Class A common stock subject to options that are
currently exercisable. Mr. Hunt also has options to acquire 192,613
shares of Class A common stock that are not exercisable within 60 days.
(9) Includes 13,938 shares of Class A common stock subject to options held by
Mr. Merritt that are currently exercisable. Mr. Merritt also has options
to acquire 89,536 shares of Class A common stock that are not exercisable
within 60 days.
(10) Mr. Merritt holds 2,158,391 shares of Class B common stock as trustee of
certain irrevocable trusts created by Mr. Griffin for the benefit of his
children. Mr. Griffin disclaims beneficial ownership of those shares.
(11) Mr. Greene owns 200 shares of Class A common stock directly and has
options to acquire 8,500 shares of Class A common stock that are not
exercisable within 60 days.
(12) Mr. Revell has options to acquire 8,500 shares of Class A common stock
that are not exercisable within 60 days.
(13) Mr. Goode has options to acquire 8,500 shares of Class A common stock
that are not exercisable within 60 days.
(14) Includes shares subject to options held by all directors and executive
officers that are exercisable within 60 days.
26
<PAGE> 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the initial public offering of the Company in February, 1996,
the Company and its predecessor and subsidiary entities were wholly-owned by
William D. Griffin and trusts for the benefit of his children and certain loans
and other business transactions between the Company, Mr. Griffin and entities
owned or controlled by him were structured for reasons related to family
business and estate planning. Mr. Griffin is an officer and a director of all
entities. Business transactions with Mr. Griffin or other officers or
directors must now be approved by a majority of outside directors and are made
on less favorable to the Company than could be obtained from unrelated third
parties.
Prior to the consummation of the initial public offering, the Company
completed a reorganization of its existing corporate structure with the result
that RISCORP, Inc. became a holding company with several direct and indirect
subsidiaries (the "Reorganization"). Prior to the Reorganization, William D.
Griffin was the sole beneficial shareholder of the common stock of the Company.
Through a series of transactions that met the requirements of Section 351 of
the Internal Revenue Code of 1986, as amended, several entities previously
owned by Mr. Griffin became subsidiaries of the Company. In addition, RISCORP
of North Carolina ("RONC"), which was owned by three trusts for the benefit of
Mr. Griffin's children, became a wholly-owned subsidiary of the Company through
a share exchange merger.
RONC was an S Corporation prior to the Reorganization and declared in-kind
dividends in an amount equal to substantially all of its estimated
undistributed S Corporation earnings through the date of the Reorganization,
with a value in the amount of $1.4 million.
TRANSACTIONS TERMINATED DURING 1996
Loans Made by the Company. The Company was the lender pursuant to five
revolving credit agreements, either with William D. Griffin or with certain
entities controlled by Mr. Griffin: (i) a $1 million line of credit in favor
of Custodial Engineers, Inc. ("CEI"), bearing interest at the prime rate of
First Union plus one percent; (ii) a $1.0 million line of credit in favor of
CMI Aviation Services, Inc. ("CMI"), bearing interest at the prime rate of
First Union plus one percent; (iii) a $200,000 line of credit in favor of Five
Points Properties, Inc. ("FPP"), bearing interest at the prime rate of First
Union plus one percent; (iv) a $100,000 line of credit in favor of Millennium
Health Services Limited ("MHSL"), bearing interest at the prime rate of
NationsBank of Florida, N.A. ("NationsBank"); and (v) a $2.0 million line of
credit in favor of Mr. Griffin individually, bearing interest at the prime rate
of First Union plus one percent. As of December 31, 1995, approximately $0,
$833,000, $350,000, $31,000, and $1.3 million, respectively, were outstanding
under these lines of credit including accrued interest.
On June 30, 1993, the Company loaned FPP $2.5 million with Mr. Griffin
acting individually as guarantor. On April 29, 1994, Mr. Griffin assumed the
repayment of this debt and FPP was released from any liability thereunder. The
loan had a maturity date of February 28, 1997. The aggregate amount
outstanding under this loan including accrued interest, as of December 31,
1995, was approximately $2.9 million with interest accruing at the prime rate
of First Union plus one percent.
On January 24, 1994, NationsBank loaned Mr. Griffin $9.0 million with the
Company acting as guarantor. On January 3, 1995, the Company was released as
guarantor.
On July 1, 1994, the Company loaned RISCORP Health Plans, Inc. ("RHP")
$2.0 million. Mr. Griffin owns approximately 95% of the stock of RHP. The
loan had a maturity date of July 1, 2001 with interest accruing at prime rate
plus 1%. The aggregate principal amount outstanding under this loan as of
December 31, 1995, was approximately $2.2 million.
On July 3, 1995, RONC loaned $3.1 million to JoFoKe Investments, Inc., a
Florida corporation controlled by Mr. Griffin. The loan had a maturity date of
June 30, 1996. The aggregate principal amount outstanding under this loan, as
of December 31, 1995, was approximately $1.7 million. This loan accrued
interest at SouthTrust Bank's prime rate plus 1.5% per annum.
27
<PAGE> 30
Mr. Griffin repaid all of the above listed indebtedness in March 1996,
with the exception of the loan to RHP, which was repaid in September 1996. The
Company does not intend to make loans to Mr. Griffin or other directors or
their family members, or entities under their control.
Loan Made to the Company. On December 15, 1995, the RISCORP Group Holding
Company, Limited Partnership ("RGHLP") loaned $1.0 million to the Company in
connection with the acquisition of CompSource, Inc. RGHLP is a limited
partnership controlled by Mr. Griffin. The loan accrued interest at LIBOR plus
3% per annum and had a maturity date of April 1, 1996. This loan was repaid in
March 1996.
Services Provided to the Company. The Company entered into certain lease
agreements in 1993 and 1994 with CMI Aviation Services, Inc. ("CMI"), whereby
the Company leased two aircraft. In September 1995, the parties terminated one
of the lease agreements. The remaining lease required a minimum monthly rental
amount of $34,000, on a bare plane basis. This lease was amended in May 1996
due to acquisition of a new plane by CMI. The amended lease provided for a
minimum monthly rental amount of $50,000. Effective July 1, 1996, the lease
agreement with CMI was amended again to provide that the Company would pay no
minimum monthly rental, but would pay $900 per hour for the actual use of the
plane. The aggregate amounts paid by the Company to CMI in the fiscal year
ending December 31, 1996 was $223,350. Gryphus Development Group ("GDG"), a
corporation owned by Mr. Griffin, provides all other services related to the
aircraft (e.g., salaries of the pilots and the rest of the flight crews, hangar
fees, and other operating costs related to the aircraft). Prior to May 1996,
the Company paid GDG $60,000 a month for its services, which the Company
believed would be GDG's approximate cost. Due to the acquisition of the new
plane by CMI in May 1996, the agreement with GDG was amended to provide for
payments of $96,000 per month for the services related to the aircraft.
Effective July 1, 1996, the agreement with GDG was amended again to provide
that the Company would pay no minimum monthly amount, but would pay $2,500 per
hour for the actual services performed by GDG. The arrangements between the
Company and CMI and GDG related to the plane lease and the aircraft related
services were terminated completely effective March 31, 1996.
Prior to September 1996, Mr. Griffin controlled CEI, a building custodial
and maintenance service company. The Company has contracted with CEI to
provide custodial and maintenance services to the Company's headquarters in
Sarasota, Florida. The aggregate amount paid by the Company to CEI in the
fiscal year ending December 31, 1996 was $455,851. In September 1996, Mr.
Griffin disposed of his entire interest in CEI.
The Company previously contracted with GDG to provide facilities services
to the Company's Sarasota office, and this contract was terminated in 1996. In
1996, the Company paid approximately $20,000 for such services.
On November 1, 1995, the Company entered into six computer equipment and
software leases with Gryphus Financial Services, Inc. ("GFS"), a company
controlled by Mr. Griffin. Five of the equipment leases are for a term of 36
months and one equipment lease is for a term of 24 months. The aggregate
annual payments under the equipment leases during 1996 was approximately
$100,000. These leases were sold by GFS to an unrelated financial institution
during 1996.
Services Provided by the Company. The Company previously provided
management, staff, systems, and other support services to MHSL, in which Mr.
Griffin held a 95% ownership interest. Under a management agreement and other
contractual arrangements, the Company charged approximately $7,500 per month
for rendering these services. The contractual arrangements commenced in
November 1994. The aggregate amount charged for 1996 was $77,974. In November
1996, Mr. Griffin sold his interest in MHSL and the Company ceased providing
any services and support to MHSL.
Workers' Compensation Managed Care Arrangement. During 1996, the Company
and RHP were parties to a workers' compensation managed care contract under
which RHP provided medical services and assumed risk for medical claims under
the WCMCA offered by the Company. During 1996, the Company paid RHP
approximately $17.0 million under this arrangement. This arrangement was
terminated effective as of May 1, 1996 but continues to apply to policies with
an inception date before May 1, 1996.
28
<PAGE> 31
TRANSACTIONS CONTINUING THROUGH 1996
Services Provided to the Company. In 1994, Mr. Griffin began leasing
parking facilities to the Company at its Sarasota office. Lease payments under
this arrangement were approximately $24,000 per month. During 1996, the
Company paid $317,458 under this lease. In February 1997, the lease agreement
was amended to reduce the monthly rental to $16,960 per month.
Mango Excess Insurance Agency, Inc., a Florida corporation ("Mango"), a
company owned and controlled by Mr. Griffin, acts as a reinsurance broker to
the Company in obtaining reinsurance for the Company's insurance subsidiaries,
and some of its self-insured clients. The commission payable to Mango and the
other terms and conditions of this relationship do not exceed industry
standards for such arrangements. In 1996, the Company paid Mango commissions
of $0.8 million.
Services Provided by the Company. On January 1, 1996, the Company entered
into a Bilateral Administrative Services Cost Sharing Agreement with RISCORP
Health Plans, Inc. ("RHP"), a company owned and controlled by Mr. Griffin.
This agreement is intended to ensure that costs shared by the two companies
will be fairly allocated between them. The Company and its affiliates provide
facilities, financial, legal, human resource, communications, information
systems, marketing, claims, technical and other administrative and management
support to RHP. RHP provides certain client services, medical provider
management, credentialing and utilization management to the Company for its
health indemnity products. The Company has agreed not to compete with RHP in
the development or marketing of an HMO or other managed care health plan
product and RHP has agreed not to compete with the Company in offering workers'
compensation insurance services. The two companies will reimburse one another
for the actual costs of providing the personnel services and other support, and
sharing the other resources required by the agreement. The agreement is for a
term of five years and can be renewed for an additional five year term, but is
also terminable at will by 180-days notice by either party. During 1996, the
Company received a net amount of $410,158 from RHP under this agreement.
Effective as of January 1, 1996, the Company entered into an
Administrative Services Cost Sharing Agreement with GDG. This agreement is
intended to ensure that costs incurred by the Company on behalf of GDG are
reimbursed to the Company. The Company and its affiliates provide facilities,
financial, legal, human resource, communications, information systems,
marketing, claims, technical and other administrative and management support to
GDG. GDG will reimburse the Company for the actual costs of providing the
personnel services and other support. The agreement is for a term of five
years and can be renewed for an additional five year term, but is also
terminable at will by 180-days notice by either party. During 1996, the
Company received $86,363 from GDG under this agreement.
Strategic Alliance with RHP. The Company and RHP have collaborated in the
bidding for participation in Florida's 24-Hour Managed Care Pilot Program.
During the period of the pilot program and thereafter, if the venture is
successful, the Company and RHP will be joint venturers in a partnership or
other contractual arrangement. Under the arrangement, each partner will
receive fees based upon the services performed or relative risk assumed by
them. Prior to implementation of this program, this arrangement will be
reviewed and approved by the Company's outside directors to assure that it is
fair to the Company and consistent with the industry standards.
Investment Services. The Company provides administrative services to
Merritt & Company. During 1996, the Company received approximately $86,276 for
those services. The sole shareholder of Merritt & Company is L. Scott Merritt,
an officer and Director and the trustee for certain trusts which will own more
than 5% of the Class B Common Stock. Mr. Merritt became employed by the
Company on January 1, 1995. Merritt & Company continues to provide investment
services to two customers of the Company.
License Arrangement. RHP pays a fee of 0.5% of all RHP revenues to the
Company for the right to use the RISCORP named and related trade designs and
logos. During 1996, the Company received $50,826 as a license fee from RHP.
29
<PAGE> 32
The Company and RHP share contractual rights to a medical provider network
utilized by both the Company and RHP in delivering provider services. In
addition, Comprehensive Care Systems, Inc., 100% of the stock of which is owned
by Mr. Griffin, also has the right to access provider services under the
network upon payment of a commercially reasonable access charge to RHP and the
Company, as determined by the outside directors. The contract for the provider
network provides that the Company shall continue to have unrestricted access to
the network on terms and conditions at least equal to any other use of the
network. The cost of developing and maintaining the provider network is
prorated between RHP and the Company on a member usage basis. During 1996, RHP
paid the Company $139,016 under this arrangement for costs incurred by the
Company attributable to RHP.
30
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List the following documents filed as part of this report:
1. All Financial Statements.
To be filed pursuant to Rule 12b-25 on Form 10K/A
2. Financial Statment Schedules
To be filed pursuant to Rule 12b-25 on Form 10K/A
3. Exhibits
Set forth in paragraph (c) below.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
fourth quarter of 1996.
(c) Exhibits
The following are filed as exhibits to this report:
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
3.1 -Amended and Restated Articles of Incorporation.** (Incorporated herein by
reference to Exhibit 3.1 to RISCORP's Amendment No. 4 to Form S-1, as of
February 28, 1996, Commissions File Number 33-99760)
3.2 -Bylaws.** (Incorporated herein by reference to Exhibit 3.2 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
4.1 -Form of Common Stock Certificate.** (Incorporated herein by reference to Exhibit 4.1
to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
10.1 -$28,000,000 Credit Agreement, dated as of December 16, 1994, by and between First Union
National Bank of North Carolina and the Company (f/k/a RISCORP Group Holdings, Inc.),
as amended by a First Amendment to Credit Agreement, dated as of December 30,
1994, and as amended by a Second Amendment to Credit Agreement, dated as of
June 1, 1995.** (Incorporated herein by reference to Exhibit 10.1 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.2 -Amended and Restated Note Purchase Agreement, dated as of January 1, 1995, by and between
American Re-Insurance Company and the Company.** (Incorporated herein by reference to
Exhibit 10.2 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.3 -$2,400,000 Term Note, dated November 9, 1994, delivered by RISCORP Acquisition, Inc. to
Governmental Risk Insurance Trust.** (Incorporated herein by reference to Exhibit 10.3 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.4 -$2,000,000 Surplus Note, dated July 1, 1994, executed and delivered by RISCORP Health Plans,
Inc. to RISCORP Property and Casualty Insurance Company, Inc. (f/k/a Florida Interstate
Insurance Company).** (Incorporated herein by reference to Exhibit 10.4 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.5 -Amended and Restated Loan Agreement, dated as of November 1, 1995, by and between JoFoKe
Investments, Inc. and RISCORP of North Carolina, Inc.** (Incorporated herein by reference
to Exhibit 10.5 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.6 -$100,000 Revolving Credit Agreement, dated as of January 1, 1993, by and among Custodial
Engineers, Inc., as borrower, William D. Griffin, as guarantor, and RISCORP Management
Services, Inc., as lender, as amended by a Modification Agreement, dated as of June 30,
1994.** (Incorporated herein by reference to Exhibit 10.6 to RISCORP's Amendment No. 4 to
Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.7 -$1,000,000 Revolving Credit Agreement, dated as of January 1, 1993, by and among CMI Aviation
Services, Inc. (f/k/a Cocky McGriffiri, Inc.) as borrower, William D. Griffin, as guarantor,
and RISCORP Management Services, Inc., as lender, as amended by a Modification Agreement,
dated as of June 30, 1994.** (Incorporated herein by reference to Exhibit 10.7 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.8 -$100,000 Revolving Credit Agreement, dated as of July 1, 1993, by and between Five Points
Properties, Inc., as borrower, William D. Griffin, as guarantor, and RISCORP Management
Services, Inc., as lender, as amended by a Modification Agreement, dated as of June 30,
1994.** (Incorporated herein by reference to Exhibit 10.8 to RISCORP's Amendment No. 4 to
Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.9 -$100,000 Revolving Credit Agreement, dated as of November 30, 1994, by and between Millennium
Health Services, Limited, as borrower, and RISCORP Management Services, Inc., as lender.**
(Incorporated herein by reference to Exhibit 10.9 to RISCORP's Amendment No. 4 to Form S-1,
as of February 28, 1996, Commissions File Number 33-99760)
10.10 -$2,000,000 Revolving Credit Agreement, dated as of January 1, 1993, by and among the Company
(f/k/a Petty Cash Properties, Inc.), as borrower, William D. Griffin, as guarantor, and
RISCORP Management Services, Inc., as lender. as amended by a Modification Agreement, dated
as of June 30, 1994.** (Incorporated herein by reference to Exhibit 10.10 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.11 -$2,000,000 Revolving Credit Agreement, dated as of January 1, 1993, by and between William D.
Griffin, as borrower, and RISCORP Management Services, Inc., as lender, as amended by a
Modification Agreement, dated as of June 30, 1994.** (Incorporated herein by reference to
Exhibit 10.11 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.12 -Loan Agreement, dated as of January 25, 1994, by and among NationsBank of Florida, N.A.,
William D. Griffin, RISCORP Management Services, Inc., RISCORP of Florida, Inc.,
Specialized Risk Administrators, Inc., Petty Cash Properties, Inc., Five Points Properties,
Inc., and Sarasota International Risk and Insurance Services, Inc., as amended by a Loan
Agreement, dated January 3, 1995, by and among NationsBank of Florida, N.A., William D.
Griffin and Five Points Properties, Inc.** (Incorporated herein by reference to Exhibit
10.12 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions
File Number 33-99760)
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
10.13 -$2,500,000 Loan Assumption Agreement, dated April 29, 1994, by and among Five Point
Properties, Inc., as borrower, William D. Griffin, as guarantor, and RISCORP Management
Services, Inc., as lender.** (Incorporated herein by reference to Exhibit 10.13 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number
33-99760)
10.14 -$2,400,000 Promissory Note, dated November 9, 1994, executed and delivered by RISCORP
Acquisitions, Inc. and Self Insurors Service Bureau, Inc. to W. Gerald Fiser, as modified
by the Settlement Agreement, dated May 1, 1995, by and among W. Gerald Fiser, Self
Insurors Service Bureau, Inc., RISCORP Acquisitions, Inc., and RISCORP Group Holdings, L.P.;
Stock Purchase Agreement, dated as of November 4, 1994, by and between RISCORP Acquisitions,
Inc., Self Insurors Service Bureau, Inc. and W. Gerald Fiser, Stock Pledge Agreement, dated
as of November 9, 1994, by and between RISCORP Acquisitions, Inc., and W. Gerald Fiser,
Security Agreement, dated as of November 9, 1994, by and between Self Insurors, Service
Bureau, Inc. and W. Gerald Fiser, Guarantee Agreement, dated as of November 9, 1994, by and
between RISCORP Group Holdings, L.P., and W. Gerald Fiser, Security Coordinating Agreement,
dated November 9, 1994 by and among, W. Gerald Fiser, RISCORP Acquisitions, Inc., RISCORP
Group Holdings, L.P., and Self Insurors Service Bureau, Inc.** (Incorporated herein by
reference to Exhibit 10.14 to RISCORP's Amendment No. 4 to Form S-1, as of February 28,
1996, Commissions File Number 33-99760)
10.15 -Form of Agency Agreement by and between the independent insurance agents and the Company's
workers' compensation insurance subsidiaries.** (Incorporated herein by reference to
Exhibit 10.15 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.16 -Florida Workers' Compensation Managed Care Agreement, dated July 30, 1995, by and among
RISCORP Insurance Company, Inc., RISCORP Management Services, Inc., Sarasota International
Risk and Insurance Services, Inc., and Humana Medical Plan, Inc.** (Incorporated herein by
reference to Exhibit 10.16 to RISCORP's Amendment No. 4 to Form S-1, as of February 28,
1996, Commissions File Number 33-99760)
10.17 -Florida Workers' Compensation Managed Care Agreement, dated July 30, 1995, by and among
RISCORP Property and Casualty Insurance Company, Inc., RISCORP Management Services, Inc.,
Sarasota International Risk and Insurance Services, Inc., and Humana Medical Plan, Inc.**
(Incorporated herein by reference to Exhibit 10.17 to RISCORP's Amendment No. 4 to Form
S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.18 -Florida Workers' Compensation Managed Care Agreement, dated January 1, 1995, by and among
RISCORP Insurance Company, Inc., RISCORP Property and Casualty Insurance Company, Inc. and
RISCORP Health Plans, Inc.** (Incorporated herein by reference to Exhibit 10.18 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.19 -Aircraft Lease, dated February 12, 1993, by and between RISCORP Management Services, Inc. and
CMI Aviation Services.** (Incorporated herein by reference to Exhibit 10.19 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.20 -Aircraft Lease, dated December 24, 1994, by and between RISCORP Management Services, Inc. and
CMI Aviation Services.** (Incorporated herein by reference to Exhibit 10.20 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
10.21 -Split Dollar Agreement, dated as of June 1, 1995, by and among RISCORP Management Services,
Inc., William D. Griffin, and L. Scott Merritt, as trustee, for payment of premiums
for split-dollar life insurance.** (Incorporated herein by reference to Exhibit 10.21 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.22 -Split Dollar Agreement, dated as of July 1, 1994, by and among RISCORP Management Services,
Inc., William D. Griffin, and L. Scott Merritt, as trustee for payment of premiums for
split-dollar life insurance.'* (Incorporated herein by reference to Exhibit 10.22 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.23 -Pooling Agreement, dated as of January 1, 1995, by and between RISCORP Insurance Company, Inc.
and RISCORP Property and Casualty Insurance Company, Inc.** (Incorporated herein by
reference to Exhibit 10.23 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.24 -Workers' Compensation Quota Share Re-Insurance Agreement, dated as of December 27, 1994,
by and among American Re-Insurance Company, RISCORP Insurance Company, Inc., and RISCORP
Property and Casualty Insurance Company, Inc.+ (Incorporated herein by reference to Exhibit
10.24 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.25 -Workers' Compensation Excess of Loss Reinsurance Agreement, dated January 1, 1995, by and among
RISCORP Insurance Company, Inc., RISCORP Property and Casualty Insurance Company, Inc.,
Signet Star Reinsurance Company, Republic Western Insurance Company, and TIG Reinsurance
Company, as reinsurers.+** (Incorporated herein by reference to Exhibit 10.25 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.26 -Workers' Compensation Excess of Loss Reinsurance Agreement, dated September 29, 1995, by and
among RISCORP Insurance Company, Inc., RISCORP Property and Casualty Insurance Company,
Inc., and Continental Casualty Company, as reinsurers** (Incorporated herein by reference to
Exhibit 10.26 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions
File Number 33-99760)
10.27 -Aggregate Net Excess of Loss Reinsurance Agreement, dated December 6, 1993, by and between
Governmental Risk Insurance Trust and RISCORP Property and Casualty Insurance Company, Inc.,
as reinsurers** (Incorporated herein by reference to Exhibit 10.27 to RISCORP's Amendment
No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.28 -Aggregate Excess of Loss Reinsurance Agreement, effective as of October 1, 1993, by and between
RISCORP Property and Casualty Insurance Company, Inc. and Centre Reinsurance Company of New
York, as reinsurers** (Incorporated herein by reference to Exhibit 10.28 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.29 -RISCORP, Inc. Stock Option Plan.** (Incorporated herein by reference to Exhibit 10.29 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
10.30 -Form of RISCORP, Inc. Stock Option Agreement.** (Incorporated herein by reference to
Exhibit 10.30 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.31 -Employment and Severance Agreement, dated as of January 1, 1995, by and between RISCORP
Management Services, Inc. and William D. Griffin.** (Incorporated herein by reference to
Exhibit 10.31 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions
File Number 33-99760)
10.32 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services,
Inc. and James A- Malone.** (Incorporated herein by reference to Exhibit 10.32 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.33 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services,
Inc. and Edward Hammel.** (Incorporated herein by reference to Exhibit 10.33 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.34 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services,
Inc. and Thomas Hall.** (Incorporated herein by reference to Exhibit 10.34 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.35 -Employment Agreement, dated as of October 10, 1995, by and between RISCORP Management Services,
Inc. and Fred Hunt.** (Incorporated herein by reference to Exhibit 10.35 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.36 -Agreement, dated September 16, 1993, by and between RISCORP Insurance Company, Inc. and the
Florida Chamber of Commerce, Inc.** (Incorporated herein by reference to Exhibit 10.36 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.37 -$5,000,000 Letter of Credit issued by NationsBank, N.A. in favor of Florida Chamber of
Commerce, Inc., currently outstanding in the amount of $3,000,000.** (Incorporated herein by
reference to Exhibit 10.37 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.38 -Service Company Agreement, dated July 1, 1995, by and between Governmental Risk Insurance Trust
and RISCORP Insurance Services. Inc.** (Incorporated herein by reference to Exhibit 10.38 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.39 -Service Agent Contract of National Alliance for Risk Management Group Self Insurers' Fund,
dated as of September 15, 1993, by and between the Trustees of National Alliance
for Risk Management Group Self Insurers' Fund and RISCORP of North Carolina, Inc.**
(Incorporated herein by reference to Exhibit 10.39 to RISCORP's Amendment No. 4 to Form S-1,
as of February 28, 1996, Commissions File Number 33-99760)
10.40 -Maintenance Service Agreement, dated May 1, 1995, by and between Custodial Engineers, Inc. and
RISCORP Property and Casualty Insurance Company, Inc.** (Incorporated herein by reference to
Exhibit 10.40 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions
File Number 33-99760)
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
10.41 -Custodial Service Agreement, dated May 1, 1995, by and between Custodial Engineers, Inc. and
RISCORP Property and Casualty Insurance Company, Inc. **(Incorporated herein by reference to
Exhibit 10.41 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions
File Number 33-99760)
10.42 -Parking Lease Agreement, dated February 15, 1994, by and between RISCORP Management Services,
Inc. and William D. Griffin.** (Incorporated herein by reference to Exhibit 10.42 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.43 -Lease Nos. GFS 1 186, GFS 1 187, GFS 1 188, Form of GFS 1 189, GFS 1 190, and GFS 1 191, each
dated November 1, 1995, by and between Gryphus Financial Services, Inc. and the Company.**
(Incorporated herein by reference to Exhibit 10.43 to RISCORP's Amendment No. 4 to Form S-1,
as of February 28, 1996, Commissions File Number 33-99760)
10.44 -Management Agreement of Millennium Health Services, Limited, dated as of November 1, 1994, by
and between RISCORP Management Services, Inc. and Millennium Health Services, Limited.**
(Incorporated herein by reference to Exhibit 10.44 to RISCORP's Amendment No. 4 to Form S-1,
as of February 28, 1996, Commissions File Number 33-99760)
10.45 -Management Subcontract for Millennium Health Services, Limited, dated as of November 1, 1994,
by and between Millennium Health Services, Limited and RISCORP Management Services, Inc.**
(Incorporated herein by reference to Exhibit 10.45 to RISCORP's Amendment No. 4 to Form S-1,
as of February 28, 1996, Commissions File Number 33-99760)
10.46 -Management Agreement of Millennium Health Services of Sarasota, Limited, dated as of November 1,
1994, by and between Millennium Health Services, Limited and Millennium Health Services of
Sarasota, Limited.** (Incorporated herein by reference to Exhibit 10.46 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.47 -Financial Advisor/Manager Contract, dated September 13, 1993, between Florida Interstate
Insurance Co. and Merritt & Company.** (Incorporated herein by reference to Exhibit 10.47 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.48 -Form of Stock Redemption Agreement relating to the acquisition of the stock of CompSource, Inc.
and Insura, Inc.** (Incorporated herein by reference to Exhibit 10.48 to RISCORP's Amendment
No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.49 -Form of Aircraft and Related Services Agreement between RISCORP Management Services, Inc. and
GRYPHUS Development Group dated January 1, 1996.** (Incorporated herein by reference to
Exhibit 10.49 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions
File Number 33-99760)
10.50 -Form of Restated and Amended Administrative Services Agreement between RISCORP Management
Services, Inc., and RISCORP Health Plans, Inc. dated January 1, 1996.** (Incorporated herein
by reference to Exhibit 10.50 to RISCORP's Amendment No. 4 to Form S-1, as of February 28,
1996, Commissions File Number 33-99760)
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
10.51 -Form of Memorandum of Understanding (concerning RHP's health insurance administrative
services) between RISCORP Health Plans, Inc. and RISCORP Management Services, Inc.' dated
January 1, 1996.** (Incorporated herein by reference to Exhibit 10.51 to RISCORP's
Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.52 -Form of RISCORP Controlled Affiliate License Agreement between RISCORP, Inc. and RISCORP
Management Services, Inc. (as licenser) and RISCORP Health Plans, Inc. (as licensee).
(Incorporated herein by reference to Exhibit 10.52 to RISCORP's Amendment No. 4 to Form S-1,
as of February 28, 1996, Commissions File Number 33-99760)
10.53 -Form of Amendment to Florida's Worker's Compensation Managed Care Agreement among RISCORP
Property & Casualty Company, RISCORP Insurance Company and RISCORP Health Plans, Inc. dated
January 1, 1996.** (Incorporated herein by reference to Exhibit 10.53 to RISCORP's Amendment
No. 4 to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.54 -Form of Acknowledgment of Provider Rights Ownership and Cost Allocation Agreement among RISCORP
Management Services, Inc., RISCORP Managed Care Solutions, Inc. and RISCORP Health Plans,
Inc. dated January 1, 1996.1* (Incorporated herein by reference to Exhibit 10.54 to
RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions File
Number 33-99760)
10.55 -Form of Provider Network Access Agreement among RISCORP Management Services, Inc., RISCORP
Health Plans, Inc. and Comprehensive Care Systems, Inc.** (Incorporated herein by reference
to Exhibit 10.55 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.56 -Form of Memorandum of Understanding between RISCORP Health Plans, Inc. and RISCORP Insurance
Company.** (Incorporated herein by reference to Exhibit 10.56 to RISCORP's Amendment No. 4
to Form S-1, as of February 28, 1996, Commissions File Number 33-99760)
10.57 -Form of Registration Rights Agreement dated as of February 1, 1996, by and among RISCORP, Inc.,
RISCORP Management Services, Inc. and William D. Griffin.** (Incorporated herein by
reference to Exhibit 10.57 to RISCORP's Amendment No. 4 to Form S-1, as of February 28,
1996, Commissions File Number 33-99760)
10.58 -Third Amendment to Credit Agreement, dated as of November 30, 1995, by and between RISCORP
Group Holdings, Inc. and First Union National Bank of North Carolina.** (Incorporated herein
by reference to Exhibit 10.58 to RISCORP's Amendment No. 4 to Form S-1, as of February 28,
1996, Commissions File Number 33-99760)
10.59 -Consent Agreement and Fourth Amendment to Credit Agreement, dated as of January 2, 1996, by and
between RISCORP Group Holdings, Inc. and First Union of North Carolina.** (Incorporated
herein by reference to Exhibit 10.59 to RISCORP's Amendment No. 4 to Form S-1, as of
February 28, 1996, Commissions File Number 33-99760)
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
---------- -----------
<S> <C>
10.60 -Form of Bilateral Administrative Services Costs Sharing Agreement by and between RISCORP
Management Services, Inc. and RISCORP Health Plans, Inc.** (Incorporated herein by reference
to Exhibit 10.60 to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
Commissions File Number 33-99760)
10.61 -Agreement of Purchase and Sale of Stock, dated as of December 15, 1995, by and among
CompSource Acquisition, Inc., James K. Secunda, Bruce A. Flachs, the James K. and Debra W.
Secunda Charitable Remainder Unitrust Number One, the James K. and Debra W. Secunda
Charitable Remainder Unitrust Number Two and the Bruce Flachs Charitable Remainder Unitrust
(more commonly referred to as the CompSource stock purchase agreement).** (Incorporated
herein by reference to Exhibit 10.61 to RISCORP's Amendment No. 4 to Form S-1, as of
February 28, 1996, Commissions File Number 33-99760)
10.62 -Agreement of Purchase and Sale of Stock, dated as of January 10, 1996, by and among Atlas
Insurance Company, RISCORP of Florida, Inc., Atlas Financial Corporation and Haas
Wilkerson-Wohlberg, Inc.** (Incorporated herein by reference to Exhibit 10.62
to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996, Commissions
File Number 33-99760)
10.63 -Form of First Amendment to Bilateral Administrative Services Costs Sharing Agreement by and
between RISCORP Management Services, Inc. and RISCORP Health Plans, Inc.** (Incorporated
herein by reference to Exhibit 10.63 to RISCORP's Amendment No. 4 to Form S-1, as of
February 28, 1996, Commissions File Number 33-99760)
10.64 -Amendment to Agreement of Purchase and Sale of Stock, dated as of December 15, 1995, by and
among CompSource Acquisition, Inc., James K. Secunda, Bruce A. Flachs, the James K. and
Debra W. Secunda Charitable Remainder Unitrust Number One, the James K. and Debra W.
Secunda Charitable Remainder Unitrust Number Two and the Bruce Flachs Charitable Remainder
Unitrust (more commonly referred to as the CompSource stock purchase agreement).
(Incorporated herein by reference to Exhibit 10.64 to RISCORP's Amendment No. 4 to Form S-1,
as of February 28, 1996, Commissions File Number 33-99760)
10.65 -Employment Agreement with James A. Malone dated March 25, 1997.
10.66 -Employment Agreement with Thomas S. Hall dated January 6, 1997.
10.67 -Employment Agreement with Steven J. Berling dated January 6, 1997.
10.68 -Employment Agreement with Fred A. Hunt, dated January 6, 1997.
10.69 -Credit Agreement among the Company and Nationsbank N.A. (South) dated October 15, 1996
10.70 -Reinsurance Agreement between RISCORP National Insurance Company and G.J. Sullivan Co.
Reinsurance dated February 4, 1997.
10.71 -Underwriting Management Agreement dated September 1, 1996 between RISCORP Management Services
and Virginia Survey Company, Inc.
10.72 -Loss Portfolio Transfer Agreement between RISCORP National Insurance Company and Occupational
Safety Association of Alabama Workmen's Compensation Fund.
10.73 -Agreement and Plan of Merger by and among RISCORP, Inc., RISCORP-IAA, Inc., Independent
Association Administrators Incorporated, and The Stockholders of Independent Association
Administrators Incorporated
10.74 -Policy and Loss Portfolio Transfer Assumption Reinsurance Agreement between RISCORP National
Insurance Company and National Alliance for Risk Management Group Self-Insurance Fund
10.75 -Stock Purchase Agreement by and Between RISCORP, Inc. and Thomas Albrecht, Peter Norman and Hugh
D. Langdale, Jr.
10.76 -Workers Compensation Quota Share Retrocessional Treaty Agreement with Chartwell Reinsurance
Company.
10.77 -Loss Portfolio Transfer Assumption Reinsurance Agreement between NARM Mercantile Group Self
Insurance Association of Virginia and RISCORP National Insurance Company.
10.78 -Loss Portfolio Transfer Assumption Reinsurance Agreement between NARM Services' Group Self
Insurance Association of Virginia and RISCORP National Insurance Company.
10.79 -Loss Portfolio Transfer Assumption Reinsurance Agreement between NARM Manufacturers Group Self
Insurance Association of Virginia and RISCORP National Insurance Company.
21.1 -List of Subsidiaries of the Registrant. ** (Incorporated herein by reference to Exhibit 21.1 to
Riscorp's Amendment No. 4 to Form S-1, as of February 28, 1996 Commission File Number
33-99760)
27 -Financial Data Schedule (for SEC use only).
28.1 -Information from Reports Furnished to State Insurance Regulatory Authorities.** (Incorporated
herein by reference to Exhibit 28.1 1.1 to RISCORP's Amendment No. 4 to Form S-1, as of
February 28, 1996, Commission File Number 33-99760)
</TABLE>
** Previously filed.
+ Confidential treatment granted pursuant to Rule 406 of the Securities
Act of 1933.
38
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sarasota,
State of Florida, on the 9th day of May, 1997.
RISCORP, INC.
By: /s/ William D. Griffin
-----------------------------------
William D. Griffin
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- -------- ----- ----
/s/William D. Griffin Chairman of the Board, Chief May 9, 1997
- ------------------------- Executive Officer and Director
William D. Griffin (principal executive officer)
/s/James A. Malone President, Chief Operating Officer May 9, 1997
- ------------------------- and Director
James A. Malone
/s/Richard A. Halloy Senior Vice President, May 9, 1997
- ------------------------- and Director
Richard A. Halloy
/s/L. Scott Merritt Senior Vice President, Chief May 9, 1997
- ------------------------- Investment Officer and Treasurer
L. Scott Merritt
/s/Ramin Taraz Senior Vice President, Finance May 9, 1997
- ------------------------- and Principal Accounting Officer
Ramin Taraz (principal accounting officer)
/s/Richard B. Franz, II Senior Vice President, and May 9, 1997
- ------------------------- Chief Financial Officer
Richard B. Franz, II (principal financial officer)
/s/Seddon Goode Director May 9, 1997
- -------------------------
Seddon Goode
/s/George E. Greene III Director May 9, 1997
- -------------------------
George E. Greene III
/s/Walter L. Revell Director and Vice Chairman May 9, 1997
- -------------------------
Walter L. Revell
39
<PAGE> 1
EXHIBIT 10.65
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into and is effective as of the
25th day of March, 1997, ("Effective Date"), by and between JAMES A. MALONE
(the "Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation,
for itself and on behalf of RISCORP, Inc., a Florida corporation, and its
subsidiaries (collectively referred to as "RISCORP").
W I T N E S S E T H:
WHEREAS, RISCORP engages in the business of managed care workers
compensation insurance and related businesses; and
WHEREAS, RISCORP desires to continue to employ the Employee and to
enter into an agreement embodying the terms of such employment, and the
Employee desires to continue such employment provided certain additional terms
and conditions are added to his former employment agreement, and both parties
desire to enter into this new employment agreement to include such additional
terms and conditions; and
WHEREAS, both parties acknowledge the respective advantages, benefits,
and other valuable considerations to be realized by then by virtue of such a
relationship;
THEREFORE, in light of the foregoing and in consideration of the
mutual promises and covenants contained herein, the parties agree as follows:
1. EMPLOYMENT.
(a) As of the Effective Date, the Employee shall continue
to serve as President and Chief Operating Officer. The Employee shall continue
to have such duties and responsibilities as are consistent with such position
or as may be set forth from time to time by RISCORP in a written job
description or list of duties.
(b) The Employee, so long as he is employed hereunder,
shall devote his full time to the services required of him hereunder, except as
otherwise agreed, and for paid personal time of four (4) weeks during the
12-month period following the Effective Date (which shall accrue ratably
beginning as of the first day of such 12-month period), to be used for vacation
and absences due to sickness, personal injury or other disability.
2. TERM. The term of the Employee's employment under this
Agreement shall be for a term of one (1) year from the Effective Date and shall
automatically renew thereafter for successive one (1) year periods unless
terminated as hereinafter provided (the "Term of this Agreement").
1
<PAGE> 2
3. COMPENSATION.
(a) Base Salary. Except as otherwise provided in Section
7 hereof, RISCORP shall pay the Employee as annual base salary during the Term
of this Agreement, in equal installments no less frequently than monthly, an
amount equal to salary~, which may be increased from time to time by RISCORP
during the Term of this Agreement (the "Base Salary").
(b) Bonus. During the Term of this Agreement, the
Employee shall be entitled to participate in such bonus plans or programs which
cover the Employee as RISCORP may implement from time to time.
(c) Options. During the term of this Agreement the
employee shall be entitled to continue participating in the RISCORP, Inc. 1995
Non-Qualified Stock Option Plan and any successor option plans or other
programs relating to any type of ownership or equivalent interests in RISCORP,
Inc., any of its subsidiaries, or any successor entity(ies), which covers other
employees of such entities, as RISCORP, Inc. or such other entities may
implement from time to time, or which may be substituted for the existing
option plan. The Employee's participation shall be in accordance with the
terms and conditions of such plan(s).
4. BENEFITS. During the Term of this Agreement, the Employee
shall be entitled to participate in or receive benefits under any employee
benefit plan (other than any bonus plan that may not be available to RISCORP
employees generally), arrangement or perquisite made available by RISCORP now
or in the future to its similarly situated executive employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans, arrangements and perquisites.
5. DUTIES OF THE EMPLOYEE.
(a) The Employee is employed by RISCORP in an executive
or professional capacity, and shall be subject to the direction and control of
the Board of Directors of RISCORP, or such officers of RISCORP designated by
its Board of Directors from time to time. Subject to such direction and
control, the Employee shall provide all of the services generally associated
with and inherent in and consistent with any office to which he is appointed by
RISCORP.
(b) The Employee shall perform such other and further
services as may reasonably be required by RISCORP, including carrying out all
of the policies and directives of RISCORP.
(c) The Employee shall well and faithfully serve RISCORP
in the capacities as aforesaid, and shall at all times devote his full time,
best efforts, skills, attention and energies to performance of the duties
hereunder to the utmost of the Employee's ability, and shall do and
2
<PAGE> 3
perform all such services, acts, and things connected therewith as are
reasonably required and as RISCORP (through its Board and/or designated
officers) shall from time to time direct. The Employee shall not become
engaged or involved in any activities or matters which may adversely affect or
reflect discredit on RISCORP or its respective business, or conflict with his
services to RISCORP. Nothing contained herein shall be construed to limit or
restrict the passive investment or passive business activities of the Employee
that do not interfere with his obligations hereunder.
6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood
and agreed that the Employee will serve in a fiduciary capacity to RISCORP and,
as such, will comply with the standards applicable to fiduciaries, and will
also comply with the integrity code and other policies and standards applicable
to similarly situated employees of RISCORP.
7. TERMINATION.
(a) Either the Employee or RISCORP may at any time
terminate the Employee's employment under this Agreement.
(b)(1) If the Employee's employment is terminated by RISCORP
for other than Cause, as hereinafter defined, or the Employee voluntarily
terminates his employment for Good Reason, as hereinafter defined, then RISCORP
shall pay to the Employee an amount equal to one (1) year of the Employee's
Base Salary ($330,000), or the Employee's Base Salary which is in effect on the
effective date of termination, payable without interest in twelve (12) equal
monthly installments commencing within thirty (30) days of the date of
termination.
(b)(2) Notwithstanding anything in subsection (b)(1) to the
contrary, if the Employee's employment is terminated within two (2) years
following a Change of Control (i) by RISCORP other than for Cause, death or
disability, or (ii) by the Employee for Good Reason, then the following shall
apply:
(i) Within five (5) days of the Employee's
termination, the Employee shall be entitled to receive an amount equal to three
(3) times his Base Salary. Such total amount shall be paid in a lump sum
within such five (5) day period or in equal monthly installments, at the
election of the Employee (which shall be made within such five (5) day period).
(ii) The Employee shall be entitled to receive
outplacement services from Drake, Beam & Morin or a comparable agency
acceptable to the Employee until the earlier of twelve (12) months from the
date of termination, or until the Employee secures a other employment.
(iii) It is the intention of RISCORP and the
Employee that no portion to or for the benefit of the Employee under any form
of compensation agreement or plan, be deemed to be an "excess parachute
payment" as defined in Section 280G of the Internal Revenue
3
<PAGE> 4
Code of 1986, as amended (the "Code"). Accordingly, if the payments under this
Section 7(b)(2) would create an excess parachute payment, it is agreed that the
amounts to be received hereunder and any other payments to or for the benefit
of the Employee in the nature of compensation ("Total Payments") shall be
reduced to equal one dollar less than the 280G Limit, as hereinafter defined.
Within 60 days of the Employee's termination hereunder, the Employee and
RISCORP shall obtain the opinion of such legal counsel and/or certified public
accountants as the Employee and RISCORP may mutually agree upon, which sets
forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the
Code and (B) the present value of aggregate Total Payments and (C) the extent,
if any, to which the Total Payments must be reduced to avid any excess
parachute payment. In the event that the provisions of Sections 280G and 4999
of the Code or any successor provisions are repealed without a successor
provision, this Subsection (iv) shall be of no further force and effect.
(c) If, during the Term of this Agreement a Potential Change of
Control, as defined herein, occurs, and the Employee's employment is terminated
within a period of 120 days before or after the occurrence of such Potential
Change of Control (A) by RISCORP other than for Cause, death or disability, or
(B) by the Employee for Good Reason, then for purposes of this Agreement, a
Change of Control shall be deemed to have occurred during the term of this
Agreement and the termination of the Employee's employment shall be deemed to
have occurred following the Change of Control and the Employee shall
nonetheless be entitled to the termination benefits provided in Section 7(b)(2)
above.
(d) Except to the extent the Change of Control and Potential Change
of Control provisions set forth above would apply, in the event the Employee
voluntarily terminates his employment for other than Good Reason, resigns,
dies, or his employment terminates due to disability, or if RISCORP terminates
the Employee's employment for Cause, then RISCORP shall pay to the Employee,
within thirty (30) days of the date of such termination, a lump sum payment
equal to the portion of his Base Salary accrued through the date his employment
terminates.
(e) It is agreed that upon and after termination of Employee's
employment under this Agreement, neither RISCORP nor the Employee will
disparage each other, nor will any public announcements, public statements or
press releases be issued concerning the departure of the Employee unless such
statement is issued jointly and by mutual agreement.
(f) For purposes of this Agreement, the term "Cause" means any of
the following:
(i) the willful failure by the Employee
substantially to perform his duties hereunder, the Employee's substantial
neglect of his duties hereunder or the material breach of any other provision
of this Agreement by the Employee;
(ii) any act of fraud, misappropriation,
dishonesty or embezzlement, any immoral act, any act of insubordination or
similar conduct, as determined by RISCORP; or
4
<PAGE> 5
(iii) conviction of the Employee for a felony, any
crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the
conviction of the Employee for a misdemeanor, excluding traffic violations.
(g) For purposes of this Agreement, the term "Change of Control"
means any of the following events: (i) a dissolution, liquidation, merger,
consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii)
sale or transfer (other than as security for corporate obligations) of at least
a majority of the assets of RISCORP, Inc. in one or more related transactions;
(iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving
more than 50% of the issued and outstanding stock (initially determined as of
September 30, 1996, and irrespective of whether such percentage change is based
on voting or economic interests and irrespective of whether the ownership shift
occurs as the result of the issuance of new securities by RISCORP, Inc. or its
subsidiaries; provided that sales of the public float stock in the ordinary
course shall be disregarded for this purpose) in a single transaction or in a
series of related transactions (for this purpose any stock options, {excluding
employee stock options granted to existing employees of RISCORP, Inc.},
warrants, debentures or other securities or agreements which are convertible
into stock of RISCORP, Inc. or its subsidiaries, and which are issued by
RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised
on the date of its issuance to the fullest extent possible and for the maximum
number of shares permitted thereunder); (iv) any transaction of the kind
described in subsection (g)(iii) involving stock (or the stock equivalents
described therein) of RISCORP Management Services, Inc., or any insurance
company or operating subsidiary of RISCORP, Inc.); or (v) individuals who
constitute the Board of Directors of RISCORP, Inc. on December 15, 1996
("Incumbent Board") have ceased for any reason to constitute at least a
majority thereof; provided, however, that any person becoming a director
subsequent to December 15, 1996 whose election or nomination for election by
RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters
(3/4) of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of RISCORP in which such person is
named as a nominee for director without objection to such nomination) shall be,
for purposes of this Agreement, considered as though such person were a member
of the Incumbent Board.
(h) For purposes of this Agreement, the term "Good Reason" means
material modification of the Employee's compensation or the nature of the
Employee's duties or the scope of the Employee's responsibilities are
materially modified without the Employees' prior written consent.
(i) For purposes of this Agreement, a "Potential Change of
Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary
or an affiliate controlled by the same shareholders controlling RISCORP, Inc.
enters into an agreement, the consummation of which would result in the
occurrence of a Change of Control or (ii) the Board of Directors of RISCORP,
Inc. or a subsidiary adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change of Control has occurred.
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(j) For purposes of this Agreement, the term "280G Limit" means
the maximum amount which the Employee may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G(a) of the Code
or any successor provision (currently three times the base amount of the
Employee, as defined in Section 280G(b)(3) of the Code).
(k) Notwithstanding any provision to the contrary in this Section
7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or
7(c) of this Agreement, and the Employee enters into "Competition with the
Company," as defined in Section 8 hereof, at any time within the twenty-four
(24) months following such termination, then: (i) RISCORP shall have no
further obligation to make installment payments to the Employee if so elected,
and (ii) the Employee shall be obligated to repay all amounts received under
Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section
7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for
the non- competition covenant contained in Section 8(h) of the Agreement and
shall not be deemed "parachute payments" within the meaning of Section 280G of
the Code.
8. CONFIDENTIALITY AND NON-COMPETITION.
In consideration of the Employee's employment with RISCORP, Employee
agrees to the following:
(a) The Employee will not use or disclose to others at
any time, either during or after employment with RISCORP, any Trade Secrets or
other Confidential Information, as hereinafter defined, about RISCORP's
business or any of RISCORP's proprietary rights, except as required in the
ordinary course of performing employment duties of RISCORP.
(i) As used in this Agreement, Trade Secrets
include, but are not limited to,
(A) Trademarks;
(B) Trade names;
(C) Copyrights;
(D) Information services system
products, whether they are
particular to RISCORP or derivative
to licensed products acquired or
used by RISCORP;
(E) Employee lists;
(F) Product and project information;
(G) Policyholder, customer and account
lists;
(H) Agents lists and agreements;
(I) Societies and associations lists;
(J) Vendor and provider lists or
agreements;
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(K) Physician and medical personnel
lists, medical facilities lists,
medical facilities lists; ambulatory
care center lists, clinics or
laboratory lists; and
(L) Business and marketing plans or
reports.
(ii) As used in this Agreement, Confidential
Information includes, but is not limited to that information designated as
confidential, proprietary or privileged in RISCORP'S Integrity Code,
confidentiality policies and other human resource materials.
(b) Upon termination of his employment, the Employee will
deliver to RISCORP all copies of all documents or papers (including diskettes
or other medium for electronic storage of information) relating to RISCORP's
business or such Trade Secrets or Confidential Information that are in the
Employee's possession or under the Employee's control, without making copies or
summaries of any such material.
(c) Any inventions, proprietary information, or
discoveries, whether or not patentable or copyrightable, resulting from any
work the Employee does (alone or with others) as an employee of RISCORP shall
be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive
property. The Employee hereby assigns to RISCORP any rights the Employee may
have or acquire in such property and shall sign and deliver at any time any
instruments confirming the exclusive ownership by RISCORP. All inventions,
proprietary information, or discoveries that belonged to the Employee before
being employed by RISCORP, and which the Employee wants to exempt from this
Agreement, if any, are listed in an attached schedule.
(d) During the Term of this Agreement, the Employee shall
not engage in "Competition with the Company", as defined herein. For purposes
of this Agreement, "Competition with the Company" means the direct or indirect,
on the Employee's own behalf or in the service or on behalf of others as
principal, partner, officer, director, managerial employee or shareholder
(other than as owner of less than five percent (5%) of the outstanding voting
securities of any entity whose voting securities are traded or quoted on a
national securities market) entering into or engaging in any aspect or form of
business, within the State of Florida or in any other state in which RISCORP
maintains an office and is then doing business, relating to workers'
compensation insurance (either public or private), government fund insurance,
or any form of self-insurance (either public or private) or participate in any
business that is in competition in any manner whatsoever with the business of
RISCORP. During the Employee's employment with RISCORP, the Employee will
report in writing to the Vice President of Human Resources the Employee's
knowledge, regardless of the manner in which that knowledge is obtained, of the
misuse or disclosure of Confidential Information by any other RISCORP employee.
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(e) If the Employee is unsure whether certain information
is Confidential Information under the terms of this Agreement, the Employee
will request clarification in writing from the Vice President of Human
Resources.
(f) The Employee acknowledges that upon termination of
the Employee's employment with RISCORP, the Employee shall inform any
subsequent employers of the existence of all the terms and conditions included
in Section 8 of this Agreement.
(g) Upon termination of the Employee's employment, the
Employee shall not, directly or indirectly, on the Employee's own behalf or in
the service or on behalf of others as principal, partner, officer, director,
managerial employee or shareholder (other than as owner of less than five
percent (5%) of the outstanding voting securities of any entity whose voting
securities are traded or quoted on a national securities market) solicit or
conduct any form of business activity with, whether for present or future
monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of
this Agreement, "Customer" means any person, entity or groups of persons or
entities that in any way broker, purchase or consume any service or product of
RISCORP as of the date of the termination of the Employee's employment and
within a period of one (1) year prior to said date of termination.
(h) Upon termination of the Employee's employment, and
for a period of twenty-four (24) continuous months thereafter, the Employee
shall not engage in Competition with the Company.
(i) The Employee recognizes that RISCORP has made
substantial investments of time and money to recruit, hire and train its other
employees. Therefore, the Employee shall not, either during the Term of this
Agreement and for a period of twelve (12) continuous months after the date of
termination of the Employee's employment hereunder, recruit or hire any other
employee of RISCORP, or encourage any other employee to terminate his
employment with RISCORP.
(j) The Employee acknowledges and agrees that if his
business activity or association with any partnership or corporation is
enjoined in accordance with the time and geographic limitations described
above, that it will not affect the public health, safety or welfare of the
community covered by the restrictive covenant. This covenant on the part of
the Employee shall be construed as an agreement.
(k) The existence of any claim or cause of action of the
Employee against RISCORP arising out of the other Sections of this Agreement or
otherwise shall not constitute a defense to the enforcement by RISCORP of this
covenant or be construed as a basis for not enforcing the covenants contained
in this Section 8.
(l) It is agreed by the parties hereto that if any
portion of the above covenant not-to-compete is held to be unreasonable,
arbitrary, against public policy, or for any other
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<PAGE> 9
reason unenforceable, the covenant herein shall be considered diminishable both
as to time and geographic area; and each month for the specified period shall
be deemed a separate period of time, and the covenant not-to-compete shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court determines
the specified time period or the specified geographic area to be unreasonable,
arbitrary or against public policy, a lesser period or geographic area which is
determined to be reasonable, nonarbitrary and not against public policy shall
be enforced against the Employee.
(m) The Employee acknowledges that a violation of the
terms of this Section 8, including without limitation, a violation of any of
Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP,
and the remedy at law will be inadequate. Accordingly, the Employee hereby
consents to RISCORP's entering of an injunction to enforce this covenant, in
addition to any other rights and remedies RISCORP may have, at law or in
equity. Further, the Employee hereby waives the necessity of the posting of a
bond in the event RISCORP seeks a temporary injunction.
(n) In the event that RISCORP, or its successors in
interest make application to a court of competent jurisdiction for injunctive
relief, the twenty-six (24) month period of time specified in Section 8(h)
shall be tolled for a period of time from the commencement of the acts by the
Employee which create the claim for injunctive relief, and terminating with the
date of final adjudication of the claim for injunctive relief, if granted.
(o) It is further agreed that all of the above-described
covenants contained in this Section 8 and all provisions relating thereto shall
survive the termination of this Agreement.
9. ARBITRATION. The Employee and RISCORP agree that any dispute
or disagreement arising under this Agreement, any dispute or disagreement
regarding the interpretation or application of the language contained in this
Agreement, or any dispute or disagreement concerning the employment
relationship between the Employee and RISCORP or the termination thereof, will
be subject to final and binding arbitration conducted under the Employment
Rules and Procedures of the American Arbitration Association. Whichever party
desires to invoke this paragraph must do so by providing written notice by U.S.
Mail certified, return receipt requested, to the other party at the last known
residential address of the Employee, or at the principal business address of
RISCORP, respectively, within thirty (30) days of the occurrence of the
incident about which there is a dispute or disagreement, or within thirty (30)
days of the termination of employment, whichever is applicable. The parties
agree to request a panel of five (5) arbitrators, and to engage in respective
strikes until one (1) arbitrator remains. The expenses of the arbitration,
including the arbitrator's fee, will be shared equally between the Employee and
RISCORP.
10. WAIVER OF BREACH. It is agreed that failure on the part of
one party to this Agreement to seek to enforce the Agreement as to a specific
breach will not constitute a waiver
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<PAGE> 10
by that party of its or his right to enforce the Agreement as to similar or
other breaches of the Agreement thereafter.
11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be
altered, modified or amended except by a written instrument signed by each of
the parties hereto. RISCORP shall take whatever additional actions that may be
necessary or appropriate to carry out its obligations under this Agreement to
permit the Employee to enforce his rights and benefits hereunder, including any
actions required under applicable law, obtaining resolutions of its Board of
Directors or shareholders authorizing this Agreement, or, where it may be
required by any agreements or any other commitments to which RISCORP or its
subsidiaries may be a party, gaining any required consent from the other
parties thereto.
12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor
any of the rights or obligations hereunder may be assigned or delegated by the
Employee; provided, however, that this Agreement and all rights and benefits of
the Employee hereunder shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, estate, executors,
administrators, heirs and beneficiaries. All amounts payable to the Employee
under this Agreement if the Employee had lived shall be paid, in the event of
the Employee's death, to such beneficiary(ies) as the Employee specifies in
writing from time to time, or if none, to the Employee's successor trustee
under his revocable living trust agreement, or if such trust is not then
existing, then to the personal representative of his estate.
If RISCORP sells, assigns or transfers a majority of its business and
assets to any person, or if RISCORP merges into or consolidates or otherwise
combines with any person which is a continuing or successor entity, or if a
Change of Control occurs, then RISCORP shall assign all of its right, title and
interest in this Agreement as of the date of such event to the acquiring or
successor business entity, and such entity shall assume and perform all of the
terms, conditions and provisions imposed by this Agreement upon RISCORP. In
case of such assignment by RISCORP and of assumption and agreement by such
entity, all further rights as well as all other obligations of RISCORP under
this Agreement thenceforth shall cease and terminate and thereafter the
expression "RISCORP" wherever used herein shall be deemed to mean such entity.
RISCORP will take whatever actions are necessary to assure that such acquiring
or successor entity expressly assumes the obligations of RISCORP to Employee
under this Agreement and will cause such successor entity to evidence the
assumption of such obligations in an agreement satisfactory to the Employee.
13. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of the Employee by
RISCORP. There are no restrictions,
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agreements, promises, warranties, covenants or undertakings other than those
expressly set forth herein. This Agreement supersedes and terminates all prior
agreements, arrangements and understandings between the parties, whether oral
or written, with respect to the employment of the Employee by RISCORP.
15. NOTICES. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Employee to:
James A. Malone
625 Freeling Drive
Sarasota, FL 34242
If to RISCORP to:
RISCORP MANAGEMENT SERVICES, INC.
1390 Main Street
Sarasota, Florida 34230
Attention: President
or to such other address as the Employee or RISCORP shall designate in writing
in accordance with this Section 15, except that notices regarding changes in
address shall be effective only upon receipt.
16. HEADINGS. Headings to sections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
17. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida without reference to the principles of conflict of
laws. The parties hereto consent to the jurisdiction of the federal and state
courts of the State of Florida in connection with any claim or controversy
arising out of or connected with this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RISCORP MANAGEMENT SERVICES, INC.
By:
----------------------------------
Title: Chairman of the Board and CEO
------------------------------
-------------------------------------
Employee
JAMES A. MALONE
-------------------------------------
(Print Name)
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Exhibit 10.66
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into and is effective as of the 6th
day of January, 1997, ("Effective Date"), by and between THOMAS S. HALL (the
"Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation, for
itself and on behalf of RISCORP, Inc., a Florida corporation, and its
subsidiaries (collectively referred to as "RISCORP").
W I T N E S S E T H:
WHEREAS, RISCORP engages in the business of managed care workers
compensation insurance and related businesses; and
WHEREAS, RISCORP desires to continue to employ the Employee and to
enter into an agreement embodying the terms of such employment, and the
Employee desires to continue such employment provided certain additional terms
and conditions are added to his former employment agreement, and both parties
desire to enter into this new employment agreement to include such additional
terms and conditions; and
WHEREAS, both parties acknowledge the respective advantages, benefits,
and other valuable considerations to be realized by then by virtue of such a
relationship;
THEREFORE, in light of the foregoing and in consideration of the
mutual promises and covenants contained herein, the parties agree as follows:
1. EMPLOYMENT.
(a) As of the Effective Date, the Employee shall continue
to serve as Senior Vice President - Corporate Development. The Employee shall
continue to have such duties and responsibilities as are consistent with such
position or as may be set forth from time to time by RISCORP in a written job
description or list of duties.
(b) The Employee, so long as he is employed hereunder,
shall devote his full time to the services required of him hereunder, except as
otherwise agreed, and for paid personal time of four (4) weeks during the
12-month period following the Effective Date (which shall accrue ratably
beginning as of the first day of such 12-month period), to be used for vacation
and absences due to sickness, personal injury or other disability.
2. TERM. The term of the Employee's employment under this
Agreement shall be for a term of one (1) year from the Effective Date and shall
automatically renew thereafter for successive one (1) year periods unless
terminated as hereinafter provided (the "Term of this Agreement").
<PAGE> 2
3. COMPENSATION.
(a) Base Salary. Except as otherwise provided in Section
7 hereof, RISCORP shall pay the Employee as annual base salary during the Term
of this Agreement, in equal installments no less frequently than monthly, an
amount equal to $225,000 which may be increased from time to time by RISCORP
during the Term of this Agreement (the "Base Salary").
(b) Bonus. During the Term of this Agreement, the
Employee shall be entitled to participate in such bonus plans or programs which
cover the Employee as RISCORP may implement from time to time.
(c) Options. During the term of this Agreement the
employee shall be entitled to continue participating in the RISCORP, Inc. 1995
Non-Qualified Stock Option Plan and any successor option plans or other
programs relating to any type of ownership or equivalent interests in RISCORP,
Inc., any of its subsidiaries, or any successor entity(ies), which covers other
employees of such entities, as RISCORP, Inc. or such other entities may
implement from time to time, or which may be substituted for the existing
option plan. The Employee's participation shall be in accordance with the
terms and conditions of such plan(s).
4. BENEFITS. During the Term of this Agreement, the Employee
shall be entitled to participate in or receive benefits under any employee
benefit plan (other than any bonus plan that may not be available to RISCORP
employees generally), arrangement or perquisite made available by RISCORP now
or in the future to its similarly situated executive employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans, arrangements and perquisites.
5. DUTIES OF THE EMPLOYEE.
(a) The Employee is employed by RISCORP in an executive
or professional capacity, and shall be subject to the direction and control of
the Board of Directors of RISCORP, or such officers of RISCORP designated by
its Board of Directors from time to time. Subject to such direction and
control, the Employee shall provide all of the services generally associated
with and inherent in and consistent with any office to which he is appointed by
RISCORP.
(b) The Employee shall perform such other and further
services as may reasonably be required by RISCORP, including carrying out all
of the policies and directives of RISCORP.
(c) The Employee shall well and faithfully serve RISCORP
in the capacities as aforesaid, and shall at all times devote his full time,
best efforts, skills, attention and energies to performance of the duties
hereunder to the utmost of the Employee's ability, and shall do and
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<PAGE> 3
perform all such services, acts, and things connected therewith as are
reasonably required and as RISCORP (through its Board and/or designated
officers) shall from time to time direct. The Employee shall not become
engaged or involved in any activities or matters which may adversely affect or
reflect discredit on RISCORP or its respective business, or conflict with his
services to RISCORP. Nothing contained herein shall be construed to limit or
restrict the passive investment or passive business activities of the Employee
that do not interfere with his obligations hereunder.
6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood
and agreed that the Employee will serve in a fiduciary capacity to RISCORP and,
as such, will comply with the standards applicable to fiduciaries, and will
also comply with the integrity code and other policies and standards applicable
to similarly situated employees of RISCORP.
7. TERMINATION.
(a) Either the Employee or RISCORP may at any time
terminate the Employee's employment under this Agreement.
(b)(1) If the Employee's employment is terminated by RISCORP
for other than Cause, as hereinafter defined, or the Employee voluntarily
terminates his employment for Good Reason, as hereinafter defined, then RISCORP
shall pay to the Employee an amount equal to one (1) year of the Employee's
Base Salary $225,000 or the Employee's Base Salary which is in effect on the
effective date of termination, payable without interest in twelve (12) equal
monthly installments commencing within thirty (30) days of the date of
termination.
(b)(2) Notwithstanding anything in subsection (b)(1) to the
contrary, if the Employee's employment is terminated within two (2) years
following a Change of Control (i) by RISCORP other than for Cause, death or
disability, or (ii) by the Employee for Good Reason, then the following shall
apply:
(i) Within five (5) days of the Employee's
termination, the Employee shall be entitled to receive an amount equal to three
(3) times his Base Salary. Such total amount shall be paid in a lump sum
within such five (5) day period or in equal monthly installments, at the
election of the Employee (which shall be made within such five (5) day period).
(ii) The Employee shall be entitled to receive
outplacement services from Drake, Beam & Morin or a comparable agency
acceptable to the Employee until the earlier of twelve (12) months from the
date of termination, or until the Employee secures a other employment.
(iii) It is the intention of RISCORP and the
Employee that no portion to or for the benefit of the Employee under any form
of compensation agreement or plan, be deemed to be an "excess parachute
payment" as defined in Section 280G of the Internal Revenue
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<PAGE> 4
Code of 1986, as amended (the "Code"). Accordingly, if the payments under this
Section 7(b)(2) would create an excess parachute payment, it is agreed that the
amounts to be received hereunder and any other payments to or for the benefit
of the Employee in the nature of compensation ("Total Payments") shall be
reduced to equal one dollar less than the 280G Limit, as hereinafter defined.
Within 60 days of the Employee's termination hereunder, the Employee and
RISCORP shall obtain the opinion of such legal counsel and/or certified public
accountants as the Employee and RISCORP may mutually agree upon, which sets
forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the
Code and (B) the present value of aggregate Total Payments and (C) the extent,
if any, to which the Total Payments must be reduced to avid any excess
parachute payment. In the event that the provisions of Sections 280G and 4999
of the Code or any successor provisions are repealed without a successor
provision, this Subsection (iv) shall be of no further force and effect.
(c) If, during the Term of this Agreement a Potential Change of
Control, as defined herein, occurs, and the Employee's employment is terminated
within a period of 120 days before or after the occurrence of such Potential
Change of Control (A) by RISCORP other than for Cause, death or disability, or
(B) by the Employee for Good Reason, then for purposes of this Agreement, a
Change of Control shall be deemed to have occurred during the term of this
Agreement and the termination of the Employee's employment shall be deemed to
have occurred following the Change of Control and the Employee shall
nonetheless be entitled to the termination benefits provided in Section 7(b)(2)
above.
(d) Except to the extent the Change of Control and Potential Change
of Control provisions set forth above would apply, in the event the Employee
voluntarily terminates his employment for other than Good Reason, resigns,
dies, or his employment terminates due to disability, or if RISCORP terminates
the Employee's employment for Cause, then RISCORP shall pay to the Employee,
within thirty (30) days of the date of such termination, a lump sum payment
equal to the portion of his Base Salary accrued through the date his employment
terminates.
(e) It is agreed that upon and after termination of Employee's
employment under this Agreement, neither RISCORP nor the Employee will
disparage each other, nor will any public announcements, public statements or
press releases be issued concerning the departure of the Employee unless such
statement is issued jointly and by mutual agreement.
(f) For purposes of this Agreement, the term "Cause" means any of
the following:
(i) the willful failure by the Employee
substantially to perform his duties hereunder, the Employee's substantial
neglect of his duties hereunder or the material breach of any other provision
of this Agreement by the Employee;
(ii) any act of fraud, misappropriation,
dishonesty or embezzlement, any immoral act, any act of insubordination or
similar conduct, as determined by RISCORP; or
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(iii) conviction of the Employee for a felony, any
crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the
conviction of the Employee for a misdemeanor, excluding traffic violations.
(g) For purposes of this Agreement, the term "Change of Control"
means any of the following events: (i) a dissolution, liquidation, merger,
consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii)
sale or transfer (other than as security for corporate obligations) of at least
a majority of the assets of RISCORP, Inc. in one or more related transactions;
(iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving
more than 50% of the issued and outstanding stock (initially determined as of
September 30, 1996, and irrespective of whether such percentage change is based
on voting or economic interests and irrespective of whether the ownership shift
occurs as the result of the issuance of new securities by RISCORP, Inc. or its
subsidiaries; provided that sales of the public float stock in the ordinary
course shall be disregarded for this purpose) in a single transaction or in a
series of related transactions (for this purpose any stock options, {excluding
employee stock options granted to existing employees of RISCORP, Inc.},
warrants, debentures or other securities or agreements which are convertible
into stock of RISCORP, Inc. or its subsidiaries, and which are issued by
RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised
on the date of its issuance to the fullest extent possible and for the maximum
number of shares permitted thereunder); (iv) any transaction of the kind
described in subsection (g)(iii) involving stock (or the stock equivalents
described therein) of RISCORP Management Services, Inc., or any insurance
company or operating subsidiary of RISCORP, Inc.); or (v) individuals who
constitute the Board of Directors of RISCORP, Inc. on December 15, 1996
("Incumbent Board") have ceased for any reason to constitute at least a
majority thereof; provided, however, that any person becoming a director
subsequent to December 15, 1996 whose election or nomination for election by
RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters
(3/4) of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of RISCORP in which such person is
named as a nominee for director without objection to such nomination) shall be,
for purposes of this Agreement, considered as though such person were a member
of the Incumbent Board.
(h) For purposes of this Agreement, the term "Good Reason" means
material modification of the Employee's compensation or the nature of the
Employee's duties or the scope of the Employee's responsibilities are
materially modified without the Employees' prior written consent.
(i) For purposes of this Agreement, a "Potential Change of
Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary
or an affiliate controlled by the same shareholders controlling RISCORP, Inc.
enters into an agreement, the consummation of which would result in the
occurrence of a Change of Control or (ii) the Board of Directors of RISCORP,
Inc. or a subsidiary adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change of Control has occurred.
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(j) For purposes of this Agreement, the term "280G Limit" means
the maximum amount which the Employee may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G(a) of the Code
or any successor provision (currently three times the base amount of the
Employee, as defined in Section 280G(b)(3) of the Code).
(k) Notwithstanding any provision to the contrary in this Section
7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or
7(c) of this Agreement, and the Employee enters into "Competition with the
Company," as defined in Section 8 hereof, at any time within the twenty-four
(24) months following such termination, then: (i) RISCORP shall have no
further obligation to make installment payments to the Employee if so elected,
and (ii) the Employee shall be obligated to repay all amounts received under
Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section
7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for
the non- competition covenant contained in Section 8(h) of the Agreement and
shall not be deemed "parachute payments" within the meaning of Section 280G of
the Code.
8. CONFIDENTIALITY AND NON-COMPETITION.
In consideration of the Employee's employment with RISCORP, Employee
agrees to the following:
(a) The Employee will not use or disclose to others at
any time, either during or after employment with RISCORP, any Trade Secrets or
other Confidential Information, as hereinafter defined, about RISCORP's
business or any of RISCORP's proprietary rights, except as required in the
ordinary course of performing employment duties of RISCORP.
(i) As used in this Agreement, Trade Secrets include, but are not limited
to,
(A) Trademarks;
(B) Trade names;
(C) Copyrights;
(D) Information services system
products, whether they are
particular to RISCORP or derivative
to licensed products acquired or
used by RISCORP;
(E) Employee lists;
(F) Product and project information;
(G) Policyholder, customer and account
lists;
(H) Agents lists and agreements;
(I) Societies and associations lists;
(J) Vendor and provider lists or
agreements;
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(K) Physician and medical personnel
lists, medical facilities lists,
medical facilities lists; ambulatory
care center lists, clinics or
laboratory lists; and
(L) Business and marketing plans or
reports.
(ii) As used in this Agreement, Confidential
Information includes, but is not limited to that information designated as
confidential, proprietary or privileged in RISCORP'S Integrity Code,
confidentiality policies and other human resource materials.
(b) Upon termination of his employment, the Employee will
deliver to RISCORP all copies of all documents or papers (including diskettes
or other medium for electronic storage of information) relating to RISCORP's
business or such Trade Secrets or Confidential Information that are in the
Employee's possession or under the Employee's control, without making copies or
summaries of any such material.
(c) Any inventions, proprietary information, or
discoveries, whether or not patentable or copyrightable, resulting from any
work the Employee does (alone or with others) as an employee of RISCORP shall
be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive
property. The Employee hereby assigns to RISCORP any rights the Employee may
have or acquire in such property and shall sign and deliver at any time any
instruments confirming the exclusive ownership by RISCORP. All inventions,
proprietary information, or discoveries that belonged to the Employee before
being employed by RISCORP, and which the Employee wants to exempt from this
Agreement, if any, are listed in an attached schedule.
(d) During the Term of this Agreement, the Employee shall
not engage in "Competition with the Company", as defined herein. For purposes
of this Agreement, "Competition with the Company" means the direct or indirect,
on the Employee's own behalf or in the service or on behalf of others as
principal, partner, officer, director, managerial employee or shareholder
(other than as owner of less than five percent (5%) of the outstanding voting
securities of any entity whose voting securities are traded or quoted on a
national securities market) entering into or engaging in any aspect or form of
business, within the State of Florida or in any other state in which RISCORP
maintains an office and is then doing business, relating to workers'
compensation insurance (either public or private), government fund insurance,
or any form of self-insurance (either public or private) or participate in any
business that is in competition in any manner whatsoever with the business of
RISCORP. During the Employee's employment with RISCORP, the Employee will
report in writing to the Vice President of Human Resources the Employee's
knowledge, regardless of the manner in which that knowledge is obtained, of the
misuse or disclosure of Confidential Information by any other RISCORP employee.
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(e) If the Employee is unsure whether certain information
is Confidential Information under the terms of this Agreement, the Employee
will request clarification in writing from the Vice President of Human
Resources.
(f) The Employee acknowledges that upon termination of
the Employee's employment with RISCORP, the Employee shall inform any
subsequent employers of the existence of all the terms and conditions included
in Section 8 of this Agreement.
(g) Upon termination of the Employee's employment, the
Employee shall not, directly or indirectly, on the Employee's own behalf or in
the service or on behalf of others as principal, partner, officer, director,
managerial employee or shareholder (other than as owner of less than five
percent (5%) of the outstanding voting securities of any entity whose voting
securities are traded or quoted on a national securities market) solicit or
conduct any form of business activity with, whether for present or future
monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of
this Agreement, "Customer" means any person, entity or groups of persons or
entities that in any way broker, purchase or consume any service or product of
RISCORP as of the date of the termination of the Employee's employment and
within a period of one (1) year prior to said date of termination.
(h) Upon termination of the Employee's employment, and
for a period of twenty-four (24) continuous months thereafter, the Employee
shall not engage in Competition with the Company.
(i) The Employee recognizes that RISCORP has made
substantial investments of time and money to recruit, hire and train its other
employees. Therefore, the Employee shall not, either during the Term of this
Agreement and for a period of twelve (12) continuous months after the date of
termination of the Employee's employment hereunder, recruit or hire any other
employee of RISCORP, or encourage any other employee to terminate his
employment with RISCORP.
(j) The Employee acknowledges and agrees that if his
business activity or association with any partnership or corporation is
enjoined in accordance with the time and geographic limitations described
above, that it will not affect the public health, safety or welfare of the
community covered by the restrictive covenant. This covenant on the part of
the Employee shall be construed as an agreement.
(k) The existence of any claim or cause of action of the
Employee against RISCORP arising out of the other Sections of this Agreement or
otherwise shall not constitute a defense to the enforcement by RISCORP of this
covenant or be construed as a basis for not enforcing the covenants contained
in this Section 8.
(l) It is agreed by the parties hereto that if any
portion of the above covenant not-to-compete is held to be unreasonable,
arbitrary, against public policy, or for any other
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<PAGE> 9
reason unenforceable, the covenant herein shall be considered diminishable both
as to time and geographic area; and each month for the specified period shall
be deemed a separate period of time, and the covenant not-to-compete shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court determines
the specified time period or the specified geographic area to be unreasonable,
arbitrary or against public policy, a lesser period or geographic area which is
determined to be reasonable, nonarbitrary and not against public policy shall
be enforced against the Employee.
(m) The Employee acknowledges that a violation of the
terms of this Section 8, including without limitation, a violation of any of
Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP,
and the remedy at law will be inadequate. Accordingly, the Employee hereby
consents to RISCORP's entering of an injunction to enforce this covenant, in
addition to any other rights and remedies RISCORP may have, at law or in
equity. Further, the Employee hereby waives the necessity of the posting of a
bond in the event RISCORP seeks a temporary injunction.
(n) In the event that RISCORP, or its successors in
interest make application to a court of competent jurisdiction for injunctive
relief, the twenty-six (24) month period of time specified in Section 8(h)
shall be tolled for a period of time from the commencement of the acts by the
Employee which create the claim for injunctive relief, and terminating with the
date of final adjudication of the claim for injunctive relief, if granted.
(o) It is further agreed that all of the above-described
covenants contained in this Section 8 and all provisions relating thereto shall
survive the termination of this Agreement.
9. ARBITRATION. The Employee and RISCORP agree that any dispute
or disagreement arising under this Agreement, any dispute or disagreement
regarding the interpretation or application of the language contained in this
Agreement, or any dispute or disagreement concerning the employment
relationship between the Employee and RISCORP or the termination thereof, will
be subject to final and binding arbitration conducted under the Employment
Rules and Procedures of the American Arbitration Association. Whichever party
desires to invoke this paragraph must do so by providing written notice by U.S.
Mail certified, return receipt requested, to the other party at the last known
residential address of the Employee, or at the principal business address of
RISCORP, respectively, within thirty (30) days of the occurrence of the
incident about which there is a dispute or disagreement, or within thirty (30)
days of the termination of employment, whichever is applicable. The parties
agree to request a panel of five (5) arbitrators, and to engage in respective
strikes until one (1) arbitrator remains. The expenses of the arbitration,
including the arbitrator's fee, will be shared equally between the Employee and
RISCORP.
10. WAIVER OF BREACH. It is agreed that failure on the part of
one party to this Agreement to seek to enforce the Agreement as to a specific
breach will not constitute a waiver
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<PAGE> 10
by that party of its or his right to enforce the Agreement as to similar or
other breaches of the Agreement thereafter.
11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be
altered, modified or amended except by a written instrument signed by each of
the parties hereto. RISCORP shall take whatever additional actions that may be
necessary or appropriate to carry out its obligations under this Agreement to
permit the Employee to enforce his rights and benefits hereunder, including any
actions required under applicable law, obtaining resolutions of its Board of
Directors or shareholders authorizing this Agreement, or, where it may be
required by any agreements or any other commitments to which RISCORP or its
subsidiaries may be a party, gaining any required consent from the other
parties thereto.
12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor
any of the rights or obligations hereunder may be assigned or delegated by the
Employee; provided, however, that this Agreement and all rights and benefits of
the Employee hereunder shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, estate, executors,
administrators, heirs and beneficiaries. All amounts payable to the Employee
under this Agreement if the Employee had lived shall be paid, in the event of
the Employee's death, to such beneficiary(ies) as the Employee specifies in
writing from time to time, or if none, to the Employee's successor trustee
under his revocable living trust agreement, or if such trust is not then
existing, then to the personal representative of his estate.
If RISCORP sells, assigns or transfers a majority of its business and
assets to any person, or if RISCORP merges into or consolidates or otherwise
combines with any person which is a continuing or successor entity, or if a
Change of Control occurs, then RISCORP shall assign all of its right, title and
interest in this Agreement as of the date of such event to the acquiring or
successor business entity, and such entity shall assume and perform all of the
terms, conditions and provisions imposed by this Agreement upon RISCORP. In
case of such assignment by RISCORP and of assumption and agreement by such
entity, all further rights as well as all other obligations of RISCORP under
this Agreement thenceforth shall cease and terminate and thereafter the
expression "RISCORP" wherever used herein shall be deemed to mean such entity.
RISCORP will take whatever actions are necessary to assure that such acquiring
or successor entity expressly assumes the obligations of RISCORP to Employee
under this Agreement and will cause such successor entity to evidence the
assumption of such obligations in an agreement satisfactory to the Employee.
13. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of the Employee by
RISCORP. There are no restrictions,
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agreements, promises, warranties, covenants or undertakings other than those
expressly set forth herein. This Agreement supersedes and terminates all prior
agreements, arrangements and understandings between the parties, whether oral
or written, with respect to the employment of the Employee by RISCORP.
15. NOTICES. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Employee to:
Thomas S. Hall
7698 Albert Tillinghast Drive
Sarasota, FL 34240
If to RISCORP to:
RISCORP MANAGEMENT SERVICES, INC.
1390 Main Street
Sarasota, Florida 34230
Attention: President
or to such other address as the Employee or RISCORP shall designate in writing
in accordance with this Section 15, except that notices regarding changes in
address shall be effective only upon receipt.
16. HEADINGS. Headings to sections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
17. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida without reference to the principles of conflict of
laws. The parties hereto consent to the jurisdiction of the federal and state
courts of the State of Florida in connection with any claim or controversy
arising out of or connected with this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RISCORP MANAGEMENT SERVICES, INC.
By:
----------------------------------
Title: Chairman of the Board and CEO
------------------------------
-------------------------------------
Employee
THOMAS S. HALL
-------------------------------------
(Print Name)
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<PAGE> 1
EXHIBIT 10.67
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into and is effective as of the 6th
day of January, 1997, ("Effective Date"), by and between STEVEN J. BERLING (the
"Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation, for
itself and on behalf of RISCORP, Inc., a Florida corporation, and its
subsidiaries (collectively referred to as "RISCORP").
W I T N E S S E T H:
WHEREAS, RISCORP engages in the business of managed care workers
compensation insurance and related businesses; and
WHEREAS, RISCORP desires to continue to employ the Employee and to
enter into an agreement embodying the terms of such employment, and the
Employee desires to continue such employment provided certain additional terms
and conditions are added to his former employment agreement, and both parties
desire to enter into this new employment agreement to include such additional
terms and conditions; and
WHEREAS, both parties acknowledge the respective advantages, benefits,
and other valuable considerations to be realized by then by virtue of such a
relationship;
THEREFORE, in light of the foregoing and in consideration of the
mutual promises and covenants contained herein, the parties agree as follows:
1. EMPLOYMENT.
(a) As of the Effective Date, the Employee shall continue
to serve as President Health Services Group. The Employee shall continue to
have such duties and responsibilities as are consistent with such position or
as may be set forth from time to time by RISCORP in a written job description
or list of duties.
(b) The Employee, so long as he is employed hereunder,
shall devote his full time to the services required of him hereunder, except as
otherwise agreed, and for paid personal time of four (4) weeks during the
12-month period following the Effective Date (which shall accrue ratably
beginning as of the first day of such 12-month period), to be used for vacation
and absences due to sickness, personal injury or other disability.
2. TERM. The term of the Employee's employment under this
Agreement shall be for a term of one (1) year from the Effective Date and shall
automatically renew thereafter for successive one (1) year periods unless
terminated as hereinafter provided (the "Term of this Agreement").
<PAGE> 2
3. COMPENSATION.
(a) Base Salary. Except as otherwise provided in Section
7 hereof, RISCORP shall pay the Employee as annual base salary during the Term
of this Agreement, in equal installments no less frequently than monthly, an
amount equal to salary~, which may be increased from time to time by RISCORP
during the Term of this Agreement (the "Base Salary").
(b) Bonus. During the Term of this Agreement, the
Employee shall be entitled to participate in such bonus plans or programs which
cover the Employee as RISCORP may implement from time to time.
(c) Options. During the term of this Agreement the
employee shall be entitled to continue participating in the RISCORP, Inc. 1995
Non-Qualified Stock Option Plan and any successor option plans or other
programs relating to any type of ownership or equivalent interests in RISCORP,
Inc., any of its subsidiaries, or any successor entity(ies), which covers other
employees of such entities, as RISCORP, Inc. or such other entities may
implement from time to time, or which may be substituted for the existing
option plan. The Employee's participation shall be in accordance with the
terms and conditions of such plan(s).
4. BENEFITS. During the Term of this Agreement, the Employee
shall be entitled to participate in or receive benefits under any employee
benefit plan (other than any bonus plan that may not be available to RISCORP
employees generally), arrangement or perquisite made available by RISCORP now
or in the future to its similarly situated executive employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans, arrangements and perquisites.
5. DUTIES OF THE EMPLOYEE.
(a) The Employee is employed by RISCORP in an executive
or professional capacity, and shall be subject to the direction and control of
the Board of Directors of RISCORP, or such officers of RISCORP designated by
its Board of Directors from time to time. Subject to such direction and
control, the Employee shall provide all of the services generally associated
with and inherent in and consistent with any office to which he is appointed by
RISCORP.
(b) The Employee shall perform such other and further
services as may reasonably be required by RISCORP, including carrying out all
of the policies and directives of RISCORP.
(c) The Employee shall well and faithfully serve RISCORP
in the capacities as aforesaid, and shall at all times devote his full time,
best efforts, skills, attention and energies to performance of the duties
hereunder to the utmost of the Employee's ability, and shall do and
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<PAGE> 3
perform all such services, acts, and things connected therewith as are
reasonably required and as RISCORP (through its Board and/or designated
officers) shall from time to time direct. The Employee shall not become
engaged or involved in any activities or matters which may adversely affect or
reflect discredit on RISCORP or its respective business, or conflict with his
services to RISCORP. Nothing contained herein shall be construed to limit or
restrict the passive investment or passive business activities of the Employee
that do not interfere with his obligations hereunder.
6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood
and agreed that the Employee will serve in a fiduciary capacity to RISCORP and,
as such, will comply with the standards applicable to fiduciaries, and will
also comply with the integrity code and other policies and standards applicable
to similarly situated employees of RISCORP.
7. TERMINATION.
(a) Either the Employee or RISCORP may at any time
terminate the Employee's employment under this Agreement.
(b)(1) If the Employee's employment is terminated by RISCORP
for other than Cause, as hereinafter defined, or the Employee voluntarily
terminates his employment for Good Reason, as hereinafter defined, then RISCORP
shall pay to the Employee an amount equal to one (1) year of the Employee's
Base Salary (salary~), or the Employee's Base Salary which is in effect on the
effective date of termination, payable without interest in twelve (12) equal
monthly installments commencing within thirty (30) days of the date of
termination.
(b)(2) Notwithstanding anything in subsection (b)(1) to the
contrary, if the Employee's employment is terminated within two (2) years
following a Change of Control (i) by RISCORP other than for Cause, death or
disability, or (ii) by the Employee for Good Reason, then the following shall
apply:
(i) Within five (5) days of the Employee's
termination, the Employee shall be entitled to receive an amount equal to three
(3) times his Base Salary. Such total amount shall be paid in a lump sum
within such five (5) day period or in equal monthly installments, at the
election of the Employee (which shall be made within such five (5) day period).
(ii) The Employee shall be entitled to receive
outplacement services from Drake, Beam & Morin or a comparable agency
acceptable to the Employee until the earlier of twelve (12) months from the
date of termination, or until the Employee secures a other employment.
(iii) It is the intention of RISCORP and the
Employee that no portion to or for the benefit of the Employee under any form
of compensation agreement or plan, be deemed to be an "excess parachute
payment" as defined in Section 280G of the Internal Revenue
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Code of 1986, as amended (the "Code"). Accordingly, if the payments under this
Section 7(b)(2) would create an excess parachute payment, it is agreed that the
amounts to be received hereunder and any other payments to or for the benefit
of the Employee in the nature of compensation ("Total Payments") shall be
reduced to equal one dollar less than the 280G Limit, as hereinafter defined.
Within 60 days of the Employee's termination hereunder, the Employee and
RISCORP shall obtain the opinion of such legal counsel and/or certified public
accountants as the Employee and RISCORP may mutually agree upon, which sets
forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the
Code and (B) the present value of aggregate Total Payments and (C) the extent,
if any, to which the Total Payments must be reduced to avid any excess
parachute payment. In the event that the provisions of Sections 280G and 4999
of the Code or any successor provisions are repealed without a successor
provision, this Subsection (iv) shall be of no further force and effect.
(c) If, during the Term of this Agreement a Potential Change of
Control, as defined herein, occurs, and the Employee's employment is terminated
within a period of 120 days before or after the occurrence of such Potential
Change of Control (A) by RISCORP other than for Cause, death or disability, or
(B) by the Employee for Good Reason, then for purposes of this Agreement, a
Change of Control shall be deemed to have occurred during the term of this
Agreement and the termination of the Employee's employment shall be deemed to
have occurred following the Change of Control and the Employee shall
nonetheless be entitled to the termination benefits provided in Section 7(b)(2)
above.
(d) Except to the extent the Change of Control and Potential Change
of Control provisions set forth above would apply, in the event the Employee
voluntarily terminates his employment for other than Good Reason, resigns,
dies, or his employment terminates due to disability, or if RISCORP terminates
the Employee's employment for Cause, then RISCORP shall pay to the Employee,
within thirty (30) days of the date of such termination, a lump sum payment
equal to the portion of his Base Salary accrued through the date his employment
terminates.
(e) It is agreed that upon and after termination of Employee's
employment under this Agreement, neither RISCORP nor the Employee will
disparage each other, nor will any public announcements, public statements or
press releases be issued concerning the departure of the Employee unless such
statement is issued jointly and by mutual agreement.
(f) For purposes of this Agreement, the term "Cause" means any of
the following:
(i) the willful failure by the Employee
substantially to perform his duties hereunder, the Employee's substantial
neglect of his duties hereunder or the material breach of any other provision
of this Agreement by the Employee;
(ii) any act of fraud, misappropriation,
dishonesty or embezzlement, any immoral act, any act of insubordination or
similar conduct, as determined by RISCORP; or
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(iii) conviction of the Employee for a felony, any
crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the
conviction of the Employee for a misdemeanor, excluding traffic violations.
(g) For purposes of this Agreement, the term "Change of Control"
means any of the following events: (i) a dissolution, liquidation, merger,
consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii)
sale or transfer (other than as security for corporate obligations) of at least
a majority of the assets of RISCORP, Inc. in one or more related transactions;
(iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving
more than 50% of the issued and outstanding stock (initially determined as of
September 30, 1996, and irrespective of whether such percentage change is based
on voting or economic interests and irrespective of whether the ownership shift
occurs as the result of the issuance of new securities by RISCORP, Inc. or its
subsidiaries; provided that sales of the public float stock in the ordinary
course shall be disregarded for this purpose) in a single transaction or in a
series of related transactions (for this purpose any stock options, {excluding
employee stock options granted to existing employees of RISCORP, Inc.},
warrants, debentures or other securities or agreements which are convertible
into stock of RISCORP, Inc. or its subsidiaries, and which are issued by
RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised
on the date of its issuance to the fullest extent possible and for the maximum
number of shares permitted thereunder); (iv) any transaction of the kind
described in subsection (g)(iii) involving stock (or the stock equivalents
described therein) of RISCORP Management Services, Inc., or any insurance
company or operating subsidiary of RISCORP, Inc.); or (v) individuals who
constitute the Board of Directors of RISCORP, Inc. on December 15, 1996
("Incumbent Board") have ceased for any reason to constitute at least a
majority thereof; provided, however, that any person becoming a director
subsequent to December 15, 1996 whose election or nomination for election by
RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters
(3/4) of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of RISCORP in which such person is
named as a nominee for director without objection to such nomination) shall be,
for purposes of this Agreement, considered as though such person were a member
of the Incumbent Board.
(h) For purposes of this Agreement, the term "Good Reason" means
material modification of the Employee's compensation or the nature of the
Employee's duties or the scope of the Employee's responsibilities are
materially modified without the Employees' prior written consent.
(i) For purposes of this Agreement, a "Potential Change of
Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary
or an affiliate controlled by the same shareholders controlling RISCORP, Inc.
enters into an agreement, the consummation of which would result in the
occurrence of a Change of Control or (ii) the Board of Directors of RISCORP,
Inc. or a subsidiary adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change of Control has occurred.
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(j) For purposes of this Agreement, the term "280G Limit" means
the maximum amount which the Employee may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G(a) of the Code
or any successor provision (currently three times the base amount of the
Employee, as defined in Section 280G(b)(3) of the Code).
(k) Notwithstanding any provision to the contrary in this Section
7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or
7(c) of this Agreement, and the Employee enters into "Competition with the
Company," as defined in Section 8 hereof, at any time within the twenty-four
(24) months following such termination, then: (i) RISCORP shall have no
further obligation to make installment payments to the Employee if so elected,
and (ii) the Employee shall be obligated to repay all amounts received under
Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section
7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for
the non-competition covenant contained in Section 8(h) of the Agreement and
shall not be deemed "parachute payments" within the meaning of Section 280G of
the Code.
8. CONFIDENTIALITY AND NON-COMPETITION.
In consideration of the Employee's employment with RISCORP, Employee
agrees to the following:
(a) The Employee will not use or disclose to others at
any time, either during or after employment with RISCORP, any Trade Secrets or
other Confidential Information, as hereinafter defined, about RISCORP's
business or any of RISCORP's proprietary rights, except as required in the
ordinary course of performing employment duties of RISCORP.
(i) As used in this Agreement, Trade Secrets
include, but are not limited to,
(A) Trademarks;
(B) Trade names;
(C) Copyrights;
(D) Information services system
products, whether they are
particular to RISCORP or derivative
to licensed products acquired or
used by RISCORP;
(E) Employee lists;
(F) Product and project information;
(G) Policyholder, customer and account
lists;
(H) Agents lists and agreements;
(I) Societies and associations lists;
(J) Vendor and provider lists or
agreements;
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(K) Physician and medical personnel
lists, medical facilities lists,
medical facilities lists; ambulatory
care center lists, clinics or
laboratory lists; and
(L) Business and marketing plans or
reports.
(ii) As used in this Agreement, Confidential
Information includes, but is not limited to that information designated as
confidential, proprietary or privileged in RISCORP'S Integrity Code,
confidentiality policies and other human resource materials.
(b) Upon termination of his employment, the Employee will
deliver to RISCORP all copies of all documents or papers (including diskettes
or other medium for electronic storage of information) relating to RISCORP's
business or such Trade Secrets or Confidential Information that are in the
Employee's possession or under the Employee's control, without making copies or
summaries of any such material.
(c) Any inventions, proprietary information, or
discoveries, whether or not patentable or copyrightable, resulting from any
work the Employee does (alone or with others) as an employee of RISCORP shall
be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive
property. The Employee hereby assigns to RISCORP any rights the Employee may
have or acquire in such property and shall sign and deliver at any time any
instruments confirming the exclusive ownership by RISCORP. All inventions,
proprietary information, or discoveries that belonged to the Employee before
being employed by RISCORP, and which the Employee wants to exempt from this
Agreement, if any, are listed in an attached schedule.
(d) During the Term of this Agreement, the Employee shall
not engage in "Competition with the Company", as defined herein. For purposes
of this Agreement, "Competition with the Company" means the direct or indirect,
on the Employee's own behalf or in the service or on behalf of others as
principal, partner, officer, director, managerial employee or shareholder
(other than as owner of less than five percent (5%) of the outstanding voting
securities of any entity whose voting securities are traded or quoted on a
national securities market) entering into or engaging in any aspect or form of
business, within the State of Florida or in any other state in which RISCORP
maintains an office and is then doing business, relating to workers'
compensation insurance (either public or private), government fund insurance,
or any form of self-insurance (either public or private) or participate in any
business that is in competition in any manner whatsoever with the business of
RISCORP. During the Employee's employment with RISCORP, the Employee will
report in writing to the Vice President of Human Resources the Employee's
knowledge, regardless of the manner in which that knowledge is obtained, of the
misuse or disclosure of Confidential Information by any other RISCORP employee.
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(e) If the Employee is unsure whether certain information
is Confidential Information under the terms of this Agreement, the Employee
will request clarification in writing from the Vice President of Human
Resources.
(f) The Employee acknowledges that upon termination of
the Employee's employment with RISCORP, the Employee shall inform any
subsequent employers of the existence of all the terms and conditions included
in Section 8 of this Agreement.
(g) Upon termination of the Employee's employment, the
Employee shall not, directly or indirectly, on the Employee's own behalf or in
the service or on behalf of others as principal, partner, officer, director,
managerial employee or shareholder (other than as owner of less than five
percent (5%) of the outstanding voting securities of any entity whose voting
securities are traded or quoted on a national securities market) solicit or
conduct any form of business activity with, whether for present or future
monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of
this Agreement, "Customer" means any person, entity or groups of persons or
entities that in any way broker, purchase or consume any service or product of
RISCORP as of the date of the termination of the Employee's employment and
within a period of one (1) year prior to said date of termination.
(h) Upon termination of the Employee's employment, and
for a period of twenty-four (24) continuous months thereafter, the Employee
shall not engage in Competition with the Company.
(i) The Employee recognizes that RISCORP has made
substantial investments of time and money to recruit, hire and train its other
employees. Therefore, the Employee shall not, either during the Term of this
Agreement and for a period of twelve (12) continuous months after the date of
termination of the Employee's employment hereunder, recruit or hire any other
employee of RISCORP, or encourage any other employee to terminate his
employment with RISCORP.
(j) The Employee acknowledges and agrees that if his
business activity or association with any partnership or corporation is
enjoined in accordance with the time and geographic limitations described
above, that it will not affect the public health, safety or welfare of the
community covered by the restrictive covenant. This covenant on the part of
the Employee shall be construed as an agreement.
(k) The existence of any claim or cause of action of the
Employee against RISCORP arising out of the other Sections of this Agreement or
otherwise shall not constitute a defense to the enforcement by RISCORP of this
covenant or be construed as a basis for not enforcing the covenants contained
in this Section 8.
(l) It is agreed by the parties hereto that if any
portion of the above covenant not-to-compete is held to be unreasonable,
arbitrary, against public policy, or for any other
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<PAGE> 9
reason unenforceable, the covenant herein shall be considered diminishable both
as to time and geographic area; and each month for the specified period shall
be deemed a separate period of time, and the covenant not-to-compete shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court determines
the specified time period or the specified geographic area to be unreasonable,
arbitrary or against public policy, a lesser period or geographic area which is
determined to be reasonable, nonarbitrary and not against public policy shall
be enforced against the Employee.
(m) The Employee acknowledges that a violation of the
terms of this Section 8, including without limitation, a violation of any of
Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP,
and the remedy at law will be inadequate. Accordingly, the Employee hereby
consents to RISCORP's entering of an injunction to enforce this covenant, in
addition to any other rights and remedies RISCORP may have, at law or in
equity. Further, the Employee hereby waives the necessity of the posting of a
bond in the event RISCORP seeks a temporary injunction.
(n) In the event that RISCORP, or its successors in
interest make application to a court of competent jurisdiction for injunctive
relief, the twenty-six (24) month period of time specified in Section 8(h)
shall be tolled for a period of time from the commencement of the acts by the
Employee which create the claim for injunctive relief, and terminating with the
date of final adjudication of the claim for injunctive relief, if granted.
(o) It is further agreed that all of the above-described
covenants contained in this Section 8 and all provisions relating thereto shall
survive the termination of this Agreement.
9. ARBITRATION. The Employee and RISCORP agree that any dispute
or disagreement arising under this Agreement, any dispute or disagreement
regarding the interpretation or application of the language contained in this
Agreement, or any dispute or disagreement concerning the employment
relationship between the Employee and RISCORP or the termination thereof, will
be subject to final and binding arbitration conducted under the Employment
Rules and Procedures of the American Arbitration Association. Whichever party
desires to invoke this paragraph must do so by providing written notice by U.S.
Mail certified, return receipt requested, to the other party at the last known
residential address of the Employee, or at the principal business address of
RISCORP, respectively, within thirty (30) days of the occurrence of the
incident about which there is a dispute or disagreement, or within thirty (30)
days of the termination of employment, whichever is applicable. The parties
agree to request a panel of five (5) arbitrators, and to engage in respective
strikes until one (1) arbitrator remains. The expenses of the arbitration,
including the arbitrator's fee, will be shared equally between the Employee and
RISCORP.
10. WAIVER OF BREACH. It is agreed that failure on the part of
one party to this Agreement to seek to enforce the Agreement as to a specific
breach will not constitute a waiver
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<PAGE> 10
by that party of its or his right to enforce the Agreement as to similar or
other breaches of the Agreement thereafter.
11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be
altered, modified or amended except by a written instrument signed by each of
the parties hereto. RISCORP shall take whatever additional actions that may be
necessary or appropriate to carry out its obligations under this Agreement to
permit the Employee to enforce his rights and benefits hereunder, including any
actions required under applicable law, obtaining resolutions of its Board of
Directors or shareholders authorizing this Agreement, or, where it may be
required by any agreements or any other commitments to which RISCORP or its
subsidiaries may be a party, gaining any required consent from the other
parties thereto.
12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor
any of the rights or obligations hereunder may be assigned or delegated by the
Employee; provided, however, that this Agreement and all rights and benefits of
the Employee hereunder shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, estate, executors,
administrators, heirs and beneficiaries. All amounts payable to the Employee
under this Agreement if the Employee had lived shall be paid, in the event of
the Employee's death, to such beneficiary(ies) as the Employee specifies in
writing from time to time, or if none, to the Employee's successor trustee
under his revocable living trust agreement, or if such trust is not then
existing, then to the personal representative of his estate.
If RISCORP sells, assigns or transfers a majority of its business and
assets to any person, or if RISCORP merges into or consolidates or otherwise
combines with any person which is a continuing or successor entity, or if a
Change of Control occurs, then RISCORP shall assign all of its right, title and
interest in this Agreement as of the date of such event to the acquiring or
successor business entity, and such entity shall assume and perform all of the
terms, conditions and provisions imposed by this Agreement upon RISCORP. In
case of such assignment by RISCORP and of assumption and agreement by such
entity, all further rights as well as all other obligations of RISCORP under
this Agreement thenceforth shall cease and terminate and thereafter the
expression "RISCORP" wherever used herein shall be deemed to mean such entity.
RISCORP will take whatever actions are necessary to assure that such acquiring
or successor entity expressly assumes the obligations of RISCORP to Employee
under this Agreement and will cause such successor entity to evidence the
assumption of such obligations in an agreement satisfactory to the Employee.
13. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of the Employee by
RISCORP. There are no restrictions,
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agreements, promises, warranties, covenants or undertakings other than those
expressly set forth herein. This Agreement supersedes and terminates all prior
agreements, arrangements and understandings between the parties, whether oral
or written, with respect to the employment of the Employee by RISCORP.
15. NOTICES. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Employee to:
Steven J. Berling
531 Putting Green
Longboat Key, FL 34228
If to RISCORP to:
RISCORP MANAGEMENT SERVICES, INC.
1390 Main Street
Sarasota, Florida 34230
Attention: President
or to such other address as the Employee or RISCORP shall designate in writing
in accordance with this Section 15, except that notices regarding changes in
address shall be effective only upon receipt.
16. HEADINGS. Headings to sections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
17. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida without reference to the principles of conflict of
laws. The parties hereto consent to the jurisdiction of the federal and state
courts of the State of Florida in connection with any claim or controversy
arising out of or connected with this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RISCORP MANAGEMENT SERVICES, INC.
By:
---------------------------------
Title: Chairman of the Board and CEO
-----------------------------
____________________________________
Employee
STEVEN J. BERLING
------------------------------------
(Print Name)
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Exhibit 10.68
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into and is effective as of the 6TH
day of January, 1997, ("Effective Date"), by and between FRED A. HUNT (the
"Employee") and RISCORP MANAGEMENT SERVICES, INC., a Florida corporation, for
itself and on behalf of RISCORP, Inc., a Florida corporation, and its
subsidiaries (collectively referred to as "RISCORP").
W I T N E S S E T H:
WHEREAS, RISCORP engages in the business of managed care workers
compensation insurance and related businesses; and
WHEREAS, RISCORP desires to continue to employ the Employee and to
enter into an agreement embodying the terms of such employment, and the
Employee desires to continue such employment provided certain additional terms
and conditions are added to his former employment agreement, and both parties
desire to enter into this new employment agreement to include such additional
terms and conditions; and
WHEREAS, both parties acknowledge the respective advantages, benefits,
and other valuable considerations to be realized by then by virtue of such a
relationship;
THEREFORE, in light of the foregoing and in consideration of the
mutual promises and covenants contained herein, the parties agree as follows:
1. EMPLOYMENT.
(a) As of the Effective Date, the Employee shall continue
to serve as Senior Vice President and President Risk & Insurance Solutions
Group. The Employee shall continue to have such duties and responsibilities as
are consistent with such position or as may be set forth from time to time by
RISCORP in a written job description or list of duties.
(b) The Employee, so long as he is employed hereunder,
shall devote his full time to the services required of him hereunder, except as
otherwise agreed, and for paid personal time of four (4) weeks during the
12-month period following the Effective Date (which shall accrue ratably
beginning as of the first day of such 12-month period), to be used for vacation
and absences due to sickness, personal injury or other disability.
2. TERM. The term of the Employee's employment under this
Agreement shall be for a term of one (1) year from the Effective Date and shall
automatically renew thereafter for successive one (1) year periods unless
terminated as hereinafter provided (the "Term of this Agreement").
<PAGE> 2
3. COMPENSATION.
(a) Base Salary. Except as otherwise provided in Section
7 hereof, RISCORP shall pay the Employee as annual base salary during the Term
of this Agreement, in equal installments no less frequently than monthly, an
amount equal to $200,000, which may be increased from time to time by RISCORP
during the Term of this Agreement (the "Base Salary").
(b) Bonus. During the Term of this Agreement, the
Employee shall be entitled to participate in such bonus plans or programs which
cover the Employee as RISCORP may implement from time to time.
(c) Options. During the term of this Agreement the
employee shall be entitled to continue participating in the RISCORP, Inc. 1995
Non-Qualified Stock Option Plan and any successor option plans or other
programs relating to any type of ownership or equivalent interests in RISCORP,
Inc., any of its subsidiaries, or any successor entity(ies), which covers other
employees of such entities, as RISCORP, Inc. or such other entities may
implement from time to time, or which may be substituted for the existing
option plan. The Employee's participation shall be in accordance with the
terms and conditions of such plan(s).
4. BENEFITS. During the Term of this Agreement, the Employee
shall be entitled to participate in or receive benefits under any employee
benefit plan (other than any bonus plan that may not be available to RISCORP
employees generally), arrangement or perquisite made available by RISCORP now
or in the future to its similarly situated executive employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans, arrangements and perquisites.
5. DUTIES OF THE EMPLOYEE.
(a) The Employee is employed by RISCORP in an executive
or professional capacity, and shall be subject to the direction and control of
the Board of Directors of RISCORP, or such officers of RISCORP designated by
its Board of Directors from time to time. Subject to such direction and
control, the Employee shall provide all of the services generally associated
with and inherent in and consistent with any office to which he is appointed by
RISCORP.
(b) The Employee shall perform such other and further
services as may reasonably be required by RISCORP, including carrying out all
of the policies and directives of RISCORP.
(c) The Employee shall well and faithfully serve RISCORP
in the capacities as aforesaid, and shall at all times devote his full time,
best efforts, skills, attention and energies to performance of the duties
hereunder to the utmost of the Employee's ability, and shall do and
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<PAGE> 3
perform all such services, acts, and things connected therewith as are
reasonably required and as RISCORP (through its Board and/or designated
officers) shall from time to time direct. The Employee shall not become
engaged or involved in any activities or matters which may adversely affect or
reflect discredit on RISCORP or its respective business, or conflict with his
services to RISCORP. Nothing contained herein shall be construed to limit or
restrict the passive investment or passive business activities of the Employee
that do not interfere with his obligations hereunder.
6. FIDUCIARY RELATIONSHIP AND OTHER STANDARDS. It is understood
and agreed that the Employee will serve in a fiduciary capacity to RISCORP and,
as such, will comply with the standards applicable to fiduciaries, and will
also comply with the integrity code and other policies and standards applicable
to similarly situated employees of RISCORP.
7. TERMINATION.
(a) Either the Employee or RISCORP may at any time
terminate the Employee's employment under this Agreement.
(b)(1) If the Employee's employment is terminated by RISCORP
for other than Cause, as hereinafter defined, or the Employee voluntarily
terminates his employment for Good Reason, as hereinafter defined, then RISCORP
shall pay to the Employee an amount equal to one (1) year of the Employee's
Base Salary ($200,000), or the Employee's Base Salary which is in effect on the
effective date of termination, payable without interest in twelve (12) equal
monthly installments commencing within thirty (30) days of the date of
termination.
(b)(2) Notwithstanding anything in subsection (b)(1) to the
contrary, if the Employee's employment is terminated within two (2) years
following a Change of Control (i) by RISCORP other than for Cause, death or
disability, or (ii) by the Employee for Good Reason, then the following shall
apply:
(i) Within five (5) days of the Employee's
termination, the Employee shall be entitled to receive an amount equal to three
(3) times his Base Salary. Such total amount shall be paid in a lump sum
within such five (5) day period or in equal monthly installments, at the
election of the Employee (which shall be made within such five (5) day period).
(ii) The Employee shall be entitled to receive
outplacement services from Drake, Beam & Morin or a comparable agency
acceptable to the Employee until the earlier of twelve (12) months from the
date of termination, or until the Employee secures a other employment.
(iii) It is the intention of RISCORP and the
Employee that no portion to or for the benefit of the Employee under any form
of compensation agreement or plan, be deemed to be an "excess parachute
payment" as defined in Section 280G of the Internal Revenue
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<PAGE> 4
Code of 1986, as amended (the "Code"). Accordingly, if the payments under this
Section 7(b)(2) would create an excess parachute payment, it is agreed that the
amounts to be received hereunder and any other payments to or for the benefit
of the Employee in the nature of compensation ("Total Payments") shall be
reduced to equal one dollar less than the 280G Limit, as hereinafter defined.
Within 60 days of the Employee's termination hereunder, the Employee and
RISCORP shall obtain the opinion of such legal counsel and/or certified public
accountants as the Employee and RISCORP may mutually agree upon, which sets
forth (A) the employee's base amount, as defined in Section 280G(b)(3) of the
Code and (B) the present value of aggregate Total Payments and (C) the extent,
if any, to which the Total Payments must be reduced to avid any excess
parachute payment. In the event that the provisions of Sections 280G and 4999
of the Code or any successor provisions are repealed without a successor
provision, this Subsection (iv) shall be of no further force and effect.
(c) If, during the Term of this Agreement a Potential Change of
Control, as defined herein, occurs, and the Employee's employment is terminated
within a period of 120 days before or after the occurrence of such Potential
Change of Control (A) by RISCORP other than for Cause, death or disability, or
(B) by the Employee for Good Reason, then for purposes of this Agreement, a
Change of Control shall be deemed to have occurred during the term of this
Agreement and the termination of the Employee's employment shall be deemed to
have occurred following the Change of Control and the Employee shall
nonetheless be entitled to the termination benefits provided in Section 7(b)(2)
above.
(d) Except to the extent the Change of Control and Potential Change
of Control provisions set forth above would apply, in the event the Employee
voluntarily terminates his employment for other than Good Reason, resigns,
dies, or his employment terminates due to disability, or if RISCORP terminates
the Employee's employment for Cause, then RISCORP shall pay to the Employee,
within thirty (30) days of the date of such termination, a lump sum payment
equal to the portion of his Base Salary accrued through the date his employment
terminates.
(e) It is agreed that upon and after termination of Employee's
employment under this Agreement, neither RISCORP nor the Employee will
disparage each other, nor will any public announcements, public statements or
press releases be issued concerning the departure of the Employee unless such
statement is issued jointly and by mutual agreement.
(f) For purposes of this Agreement, the term "Cause" means any of
the following:
(i) the willful failure by the Employee
substantially to perform his duties hereunder, the Employee's substantial
neglect of his duties hereunder or the material breach of any other provision
of this Agreement by the Employee;
(ii) any act of fraud, misappropriation,
dishonesty or embezzlement, any immoral act, any act of insubordination or
similar conduct, as determined by RISCORP; or
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<PAGE> 5
(iii) conviction of the Employee for a felony, any
crime involving moral turpitude or, solely for purposes of Section 7(b)(2), the
conviction of the Employee for a misdemeanor, excluding traffic violations.
(g) For purposes of this Agreement, the term "Change of Control"
means any of the following events: (i) a dissolution, liquidation, merger,
consolidation, share exchange, or other reorganization of RISCORP, Inc. (ii)
sale or transfer (other than as security for corporate obligations) of at least
a majority of the assets of RISCORP, Inc. in one or more related transactions;
(iii) any sale, transfer or ownership shift of RISCORP, Inc. stock involving
more than 50% of the issued and outstanding stock (initially determined as of
September 30, 1996, and irrespective of whether such percentage change is based
on voting or economic interests and irrespective of whether the ownership shift
occurs as the result of the issuance of new securities by RISCORP, Inc. or its
subsidiaries; provided that sales of the public float stock in the ordinary
course shall be disregarded for this purpose) in a single transaction or in a
series of related transactions (for this purpose any stock options, {excluding
employee stock options granted to existing employees of RISCORP, Inc.},
warrants, debentures or other securities or agreements which are convertible
into stock of RISCORP, Inc. or its subsidiaries, and which are issued by
RISCORP, Inc., its subsidiaries or its shareholders, shall be deemed exercised
on the date of its issuance to the fullest extent possible and for the maximum
number of shares permitted thereunder); (iv) any transaction of the kind
described in subsection (g)(iii) involving stock (or the stock equivalents
described therein) of RISCORP Management Services, Inc., or any insurance
company or operating subsidiary of RISCORP, Inc.); or (v) individuals who
constitute the Board of Directors of RISCORP, Inc. on December 15, 1996
("Incumbent Board") have ceased for any reason to constitute at least a
majority thereof; provided, however, that any person becoming a director
subsequent to December 15, 1996 whose election or nomination for election by
RISCORP Inc.'s shareholders, was approved by a vote of at least three-quarters
(3/4) of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of RISCORP in which such person is
named as a nominee for director without objection to such nomination) shall be,
for purposes of this Agreement, considered as though such person were a member
of the Incumbent Board.
(h) For purposes of this Agreement, the term "Good Reason" means
material modification of the Employee's compensation or the nature of the
Employee's duties or the scope of the Employee's responsibilities are
materially modified without the Employees' prior written consent.
(i) For purposes of this Agreement, a "Potential Change of
Control" shall be deemed to have occurred if (i) RISCORP Inc. or a subsidiary
or an affiliate controlled by the same shareholders controlling RISCORP, Inc.
enters into an agreement, the consummation of which would result in the
occurrence of a Change of Control or (ii) the Board of Directors of RISCORP,
Inc. or a subsidiary adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change of Control has occurred.
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<PAGE> 6
(j) For purposes of this Agreement, the term "280G Limit" means
the maximum amount which the Employee may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G(a) of the Code
or any successor provision (currently three times the base amount of the
Employee, as defined in Section 280G(b)(3) of the Code).
(k) Notwithstanding any provision to the contrary in this Section
7, if the Employee's employment is terminated under Section 7(b)(1), 7(b)(2) or
7(c) of this Agreement, and the Employee enters into "Competition with the
Company," as defined in Section 8 hereof, at any time within the twenty-four
(24) months following such termination, then: (i) RISCORP shall have no
further obligation to make installment payments to the Employee if so elected,
and (ii) the Employee shall be obligated to repay all amounts received under
Section 7(b)(1), 7(b)(2) or 7(c) to RISCORP. Amounts payable under Section
7(b)(1), 7(b)(2) of 7(c) of this Agreement shall be deemed to be payments for
the non- competition covenant contained in Section 8(h) of the Agreement and
shall not be deemed "parachute payments" within the meaning of Section 280G of
the Code.
8. CONFIDENTIALITY AND NON-COMPETITION.
In consideration of the Employee's employment with RISCORP, Employee
agrees to the following:
(a) The Employee will not use or disclose to others at
any time, either during or after employment with RISCORP, any Trade Secrets or
other Confidential Information, as hereinafter defined, about RISCORP's
business or any of RISCORP's proprietary rights, except as required in the
ordinary course of performing employment duties of RISCORP.
(i) As used in this Agreement, Trade Secrets include, but are not limited
to,
(A) Trademarks;
(B) Trade names;
(C) Copyrights;
(D) Information services system
products, whether they are
particular to RISCORP or derivative
to licensed products acquired or
used by RISCORP;
(E) Employee lists;
(F) Product and project information;
(G) Policyholder, customer and account
lists;
(H) Agents lists and agreements;
(I) Societies and associations lists;
(J) Vendor and provider lists or
agreements;
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(K) Physician and medical personnel
lists, medical facilities lists,
medical facilities lists; ambulatory
care center lists, clinics or
laboratory lists; and
(L) Business and marketing plans or
reports.
(ii) As used in this Agreement, Confidential
Information includes, but is not limited to that information designated as
confidential, proprietary or privileged in RISCORP'S Integrity Code,
confidentiality policies and other human resource materials.
(b) Upon termination of his employment, the Employee will
deliver to RISCORP all copies of all documents or papers (including diskettes
or other medium for electronic storage of information) relating to RISCORP's
business or such Trade Secrets or Confidential Information that are in the
Employee's possession or under the Employee's control, without making copies or
summaries of any such material.
(c) Any inventions, proprietary information, or
discoveries, whether or not patentable or copyrightable, resulting from any
work the Employee does (alone or with others) as an employee of RISCORP shall
be promptly disclosed to RISCORP and shall be and remain RISCORP's exclusive
property. The Employee hereby assigns to RISCORP any rights the Employee may
have or acquire in such property and shall sign and deliver at any time any
instruments confirming the exclusive ownership by RISCORP. All inventions,
proprietary information, or discoveries that belonged to the Employee before
being employed by RISCORP, and which the Employee wants to exempt from this
Agreement, if any, are listed in an attached schedule.
(d) During the Term of this Agreement, the Employee shall
not engage in "Competition with the Company", as defined herein. For purposes
of this Agreement, "Competition with the Company" means the direct or indirect,
on the Employee's own behalf or in the service or on behalf of others as
principal, partner, officer, director, managerial employee or shareholder
(other than as owner of less than five percent (5%) of the outstanding voting
securities of any entity whose voting securities are traded or quoted on a
national securities market) entering into or engaging in any aspect or form of
business, within the State of Florida or in any other state in which RISCORP
maintains an office and is then doing business, relating to workers'
compensation insurance (either public or private), government fund insurance,
or any form of self-insurance (either public or private) or participate in any
business that is in competition in any manner whatsoever with the business of
RISCORP. During the Employee's employment with RISCORP, the Employee will
report in writing to the Vice President of Human Resources the Employee's
knowledge, regardless of the manner in which that knowledge is obtained, of the
misuse or disclosure of Confidential Information by any other RISCORP employee.
7
<PAGE> 8
(e) If the Employee is unsure whether certain information
is Confidential Information under the terms of this Agreement, the Employee
will request clarification in writing from the Vice President of Human
Resources.
(f) The Employee acknowledges that upon termination of
the Employee's employment with RISCORP, the Employee shall inform any
subsequent employers of the existence of all the terms and conditions included
in Section 8 of this Agreement.
(g) Upon termination of the Employee's employment, the
Employee shall not, directly or indirectly, on the Employee's own behalf or in
the service or on behalf of others as principal, partner, officer, director,
managerial employee or shareholder (other than as owner of less than five
percent (5%) of the outstanding voting securities of any entity whose voting
securities are traded or quoted on a national securities market) solicit or
conduct any form of business activity with, whether for present or future
monetary gain, any "Customer" of RISCORP, as defined herein. For purposes of
this Agreement, "Customer" means any person, entity or groups of persons or
entities that in any way broker, purchase or consume any service or product of
RISCORP as of the date of the termination of the Employee's employment and
within a period of one (1) year prior to said date of termination.
(h) Upon termination of the Employee's employment, and
for a period of twenty-four (24) continuous months thereafter, the Employee
shall not engage in Competition with the Company.
(i) The Employee recognizes that RISCORP has made
substantial investments of time and money to recruit, hire and train its other
employees. Therefore, the Employee shall not, either during the Term of this
Agreement and for a period of twelve (12) continuous months after the date of
termination of the Employee's employment hereunder, recruit or hire any other
employee of RISCORP, or encourage any other employee to terminate his
employment with RISCORP.
(j) The Employee acknowledges and agrees that if his
business activity or association with any partnership or corporation is
enjoined in accordance with the time and geographic limitations described
above, that it will not affect the public health, safety or welfare of the
community covered by the restrictive covenant. This covenant on the part of
the Employee shall be construed as an agreement.
(k) The existence of any claim or cause of action of the
Employee against RISCORP arising out of the other Sections of this Agreement or
otherwise shall not constitute a defense to the enforcement by RISCORP of this
covenant or be construed as a basis for not enforcing the covenants contained
in this Section 8.
(l) It is agreed by the parties hereto that if any
portion of the above covenant not-to-compete is held to be unreasonable,
arbitrary, against public policy, or for any other
8
<PAGE> 9
reason unenforceable, the covenant herein shall be considered diminishable both
as to time and geographic area; and each month for the specified period shall
be deemed a separate period of time, and the covenant not-to-compete shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court determines
the specified time period or the specified geographic area to be unreasonable,
arbitrary or against public policy, a lesser period or geographic area which is
determined to be reasonable, nonarbitrary and not against public policy shall
be enforced against the Employee.
(m) The Employee acknowledges that a violation of the
terms of this Section 8, including without limitation, a violation of any of
Subsections 8(a) through 8(i) above, shall cause irreparable injury to RISCORP,
and the remedy at law will be inadequate. Accordingly, the Employee hereby
consents to RISCORP's entering of an injunction to enforce this covenant, in
addition to any other rights and remedies RISCORP may have, at law or in
equity. Further, the Employee hereby waives the necessity of the posting of a
bond in the event RISCORP seeks a temporary injunction.
(n) In the event that RISCORP, or its successors in
interest make application to a court of competent jurisdiction for injunctive
relief, the twenty-six (24) month period of time specified in Section 8(h)
shall be tolled for a period of time from the commencement of the acts by the
Employee which create the claim for injunctive relief, and terminating with the
date of final adjudication of the claim for injunctive relief, if granted.
(o) It is further agreed that all of the above-described
covenants contained in this Section 8 and all provisions relating thereto shall
survive the termination of this Agreement.
9. ARBITRATION. The Employee and RISCORP agree that any dispute
or disagreement arising under this Agreement, any dispute or disagreement
regarding the interpretation or application of the language contained in this
Agreement, or any dispute or disagreement concerning the employment
relationship between the Employee and RISCORP or the termination thereof, will
be subject to final and binding arbitration conducted under the Employment
Rules and Procedures of the American Arbitration Association. Whichever party
desires to invoke this paragraph must do so by providing written notice by U.S.
Mail certified, return receipt requested, to the other party at the last known
residential address of the Employee, or at the principal business address of
RISCORP, respectively, within thirty (30) days of the occurrence of the
incident about which there is a dispute or disagreement, or within thirty (30)
days of the termination of employment, whichever is applicable. The parties
agree to request a panel of five (5) arbitrators, and to engage in respective
strikes until one (1) arbitrator remains. The expenses of the arbitration,
including the arbitrator's fee, will be shared equally between the Employee and
RISCORP.
10. WAIVER OF BREACH. It is agreed that failure on the part of
one party to this Agreement to seek to enforce the Agreement as to a specific
breach will not constitute a waiver
9
<PAGE> 10
by that party of its or his right to enforce the Agreement as to similar or
other breaches of the Agreement thereafter.
11. AMENDMENTS; FURTHER ACTIONS. This Agreement may not be
altered, modified or amended except by a written instrument signed by each of
the parties hereto. RISCORP shall take whatever additional actions that may be
necessary or appropriate to carry out its obligations under this Agreement to
permit the Employee to enforce his rights and benefits hereunder, including any
actions required under applicable law, obtaining resolutions of its Board of
Directors or shareholders authorizing this Agreement, or, where it may be
required by any agreements or any other commitments to which RISCORP or its
subsidiaries may be a party, gaining any required consent from the other
parties thereto.
12. ASSIGNMENT; SURVIVAL OF RIGHTS. Neither this Agreement nor
any of the rights or obligations hereunder may be assigned or delegated by the
Employee; provided, however, that this Agreement and all rights and benefits of
the Employee hereunder shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, estate, executors,
administrators, heirs and beneficiaries. All amounts payable to the Employee
under this Agreement if the Employee had lived shall be paid, in the event of
the Employee's death, to such beneficiary(ies) as the Employee specifies in
writing from time to time, or if none, to the Employee's successor trustee
under his revocable living trust agreement, or if such trust is not then
existing, then to the personal representative of his estate.
If RISCORP sells, assigns or transfers a majority of its business and
assets to any person, or if RISCORP merges into or consolidates or otherwise
combines with any person which is a continuing or successor entity, or if a
Change of Control occurs, then RISCORP shall assign all of its right, title and
interest in this Agreement as of the date of such event to the acquiring or
successor business entity, and such entity shall assume and perform all of the
terms, conditions and provisions imposed by this Agreement upon RISCORP. In
case of such assignment by RISCORP and of assumption and agreement by such
entity, all further rights as well as all other obligations of RISCORP under
this Agreement thenceforth shall cease and terminate and thereafter the
expression "RISCORP" wherever used herein shall be deemed to mean such entity.
RISCORP will take whatever actions are necessary to assure that such acquiring
or successor entity expressly assumes the obligations of RISCORP to Employee
under this Agreement and will cause such successor entity to evidence the
assumption of such obligations in an agreement satisfactory to the Employee.
13. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of the Employee by
RISCORP. There are no restrictions,
10
<PAGE> 11
agreements, promises, warranties, covenants or undertakings other than those
expressly set forth herein. This Agreement supersedes and terminates all prior
agreements, arrangements and understandings between the parties, whether oral
or written, with respect to the employment of the Employee by RISCORP.
15. NOTICES. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Employee to:
Fred A. Hunt
7580 Alister MacKenzie Drive
Sarasota, FL 34240
If to RISCORP to:
RISCORP MANAGEMENT SERVICES, INC.
1390 Main Street
Sarasota, Florida 34230
Attention: President
or to such other address as the Employee or RISCORP shall designate in writing
in accordance with this Section 15, except that notices regarding changes in
address shall be effective only upon receipt.
16. HEADINGS. Headings to sections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
17. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida without reference to the principles of conflict of
laws. The parties hereto consent to the jurisdiction of the federal and state
courts of the State of Florida in connection with any claim or controversy
arising out of or connected with this Agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RISCORP MANAGEMENT SERVICES, INC.
By:
-----------------------------------
Title: Chairman of the Board and CEO
-------------------------------
______________________________________
Employee
FRED A. HUNT
--------------------------------------
(Print Name)
<PAGE> 1
EXHIBIT 10.69
[Execution Copy]
CREDIT AGREEMENT
Dated as of October 15, 1996
among
RISCORP, INC.,
as Borrower,
THE SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO
AND
NATIONSBANK, N.A. (SOUTH),
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS............................................ 1
1.2 Definitions............................................ 1
1.2 Computation of Time Periods............................ 25
1.3 Accounting Terms....................................... 25
SECTION 2 CREDIT FACILITIES ..................................... 26
2.1 Revolving Loans ....................................... 26
2.2 Term Loan ............................................. 27
2.3 Interest .............................................. 28
2.4 Committed Notes ....................................... 29
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES ........ 29
3.1 Default Rate .......................................... 29
3.2 Extension and Conversion............................... 29
3.3 Prepayments ........................................... 30
3.4 Termination and Reduction of Revolving Committed
Amount................................................. 31
3.5 Fees .................................................. 31
3.6 Capital Adequacy ...................................... 32
3.7 Inability To Determine Interest Rate .................. 32
3.8 Illegality ............................................ 32
3.9 Requirements of Law ................................... 33
3.10 Taxes ................................................. 34
3.11 Indemnity ............................................. 36
3.12 Pro Rata Treatment .................................... 37
3.13 Sharing of Payments ................................... 38
3.14 Payments, Computations, Etc. .......................... 38
3.15 Evidence of Debt ...................................... 40
SECTION 4 GUARANTY .............................................. 41
4.1 The Guarantee ......................................... 41
4.2 Obligations Unconditional ............................. 41
4.3 Reinstatement ......................................... 42
4.4 Remedies .............................................. 43
4.5 Rights of Contribution ................................ 43
4.6 Continuing Guarantee .................................. 44
SECTION 5 CONDITIONS ............................................ 44
5.1 Closing Conditions .................................... 44
5.2 Conditions to all Extensions of Credit ................ 45
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6 REPRESENTATIONS AND WARRANTIES ........................ 46
6.1 Financial Condition ................................... 46
6.2 No Change; Dividends .................................. 47
6.3 Organization; Existence; Compliance with Law .......... 47
6.4 Power; Authorization; Enforceable Obligations ......... 47
6.5 No Legal Bar .......................................... 48
6.6 No Material Litigation ................................ 48
6.7 No Default ............................................ 48
6.8 Ownership of Property; Liens .......................... 48
6.9 No Burdensome Restrictions ............................ 49
6.10 Taxes ................................................. 49
6.11 ERISA ................................................. 49
6.12 Governmental Regulations, Etc. ........................ 50
6.13 Subsidiaries .......................................... 52
6.14 Purpose of Loans ...................................... 52
6.15 Environmental Matters ................................. 52
6.16 Insurance Policies .................................... 53
SECTION 7 AFFIRMATIVE COVENANTS ................................. 53
7.1 Information Covenants ................................. 53
7.2 Preservation of Existence and Franchises .............. 57
7.3 Books and Records ..................................... 57
7.4 Compliance with Law ................................... 57
7.5 Payment of Taxes and Other Indebtedness ............... 57
7.6 Insurance/Reinsurance ................................. 57
7.7 Maintenance of Property ............................... 58
7.8 Performance of Obligations ............................ 58
7.9 Use of Proceeds ....................................... 58
7.10 Audits/Inspections .................................... 58
7.11 Financial Covenants ................................... 58
7.12 Additional Credit Parties ............................. 59
7.13 Ownership of Subsidiaries ............................. 60
7.14 Dividends ............................................. 60
SECTION 8 NEGATIVE COVENANTS .................................... 60
8.1 Indebtedness .......................................... 61
8.2 Liens ................................................. 62
8.3 Nature of Business .................................... 62
8.4 Consolidation, Merger, Sale or Purchase of
Assets, etc. .......................................... 62
8.5 Advances, Investments, Loans, etc. .................... 63
8.6 Restricted Payments ................................... 63
8.7 Prepayments of Indebtedness, etc. ..................... 63
8.8 Transactions with Affiliates .......................... 64
8.9 Fiscal Year ........................................... 64
8.10 Limitation on Restrictions on Subsidiary
Dividends and Other Distributions, etc. ............. 64
8.11 Issuance of Stock ..................................... 64
8.12 Sale Leasebacks ....................................... 64
8.13 Settlements ........................................... 65
8.14 No Further Negative Pledges ........................... 65
8.15 No Foreign Subsidiaries ............................... 65
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 9 EVENTS OF DEFAULT ..................................... 65
9.1 Events of Default ..................................... 65
9.2 Acceleration; Remedies ................................ 68
SECTION 10 AGENCY PROVISIONS ..................................... 69
10.1 Appointment ........................................... 69
10.2 Delegation of Duties .................................. 70
10.3 Exculpatory Provisions ................................ 70
10.4 Reliance on Communications ............................ 70
10.5 Notice of Default ..................................... 71
10.6 Non-Reliance on Agent and Other Lenders ............... 71
10.7 Indemnification ....................................... 72
10.8 Agent in its Individual Capacity ...................... 72
10.9 Successor Agent ....................................... 72
SECTION 11 MISCELLANEOUS ......................................... 73
11.1 Notices ............................................... 73
11.2 Right of Set-Off ...................................... 74
11.3 Benefit of Agreement .................................. 74
11.4 No Waiver; Remedies Cumulative ........................ 77
11.5 Payment of Expenses, etc. ............................. 78
11.6 Amendments, Waivers and Consents ...................... 78
11.7 Counterparts .......................................... 79
11.8 Headings .............................................. 79
11.9 Survival .............................................. 79
11.10 Governing Law; Submission to Jurisdiction;
Venue ............................................... 79
11.11 Severability .......................................... 80
11.12 Entirety .............................................. 80
11.13 Binding Effect; Termination ........................... 81
11.14 Confidentiality ....................................... 81
11.15 Source of Funds ....................................... 81
</TABLE>
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1.1A Existing Affiliate Contracts
Schedule 1.1B Investments
Schedule 1.1C Liens
Schedule 2.1(a) Lenders
Schedule 2.1(b)(i) Form of Notice of Borrowing
Schedule 2.4 Form of Committed Note
Schedule 3.2 Form of Notice of Extension/Conversion
Schedule 5.1(e) Form of Legal Opinion
Schedule 6.1(a) Financial Statement Disclosures
Schedule 6.4 Required Consents, Authorizations, Notices
and Filings
Schedule 6.6 Litigation
Schedule 6.13 Subsidiaries
Schedule 7.1(c) Form of Officer's Compliance Certificate
Schedule 7.12 Form of Joinder Agreement
Schedule 8.1 Indebtedness
Schedule 11.3(b) Form of Assignment and Acceptance
</TABLE>
- iii -
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of October 15, 1996 (the "Credit
Agreement"), is by and among RISCORP, INC., a Florida corporation (the
"Borrower"), the subsidiaries of the Borrower identified on the signature pages
hereto and such other subsidiaries as may from time to time become a party
hereto (the "Guarantors"), the several lenders identified on the signature pages
hereto and such other lenders as may from time to time become a party hereto
(the "Lenders") and NATIONSBANK, N.A. (SOUTH), as agent for the Lenders (in such
capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a $50,000,000
credit facility for the purposes hereinafter set forth;
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions. As used in this Credit Agreement, the following terms
shall have the meanings specified below unless the context otherwise requires:
"Actuarial Report" shall mean an actuarial review and valuation
statement of an Insurance Subsidiary's loss and loss adjustment expense
reserve positions as of December 31 of any fiscal year (or such other date
requested by the Agent), with respect to the insurance business in force,
and covering such other subjects as are customary in actuarial reviews and
reasonably requested by the Agent, prepared by an independent actuarial
firm reasonably acceptable to the Agent in accordance with reasonable
actuarial assumptions and procedures, not inconsistent with the assumptions
and procedures previously employed, and accompanied by a report prepared by
such actuarial firm reviewing the adequacy of loss reserves of each
Insurance Subsidiary (which firm shall be provided access to or copies of
all reserves analyses and valuations relating to the insurance business of
each such Insurance Subsidiary) together with its opinion affirming the
adequacy of such loss reserves.
-1-
<PAGE> 6
"Additional Credit Party" means each Person that becomes a Guarantor
after the Closing Date by execution of a Joinder Agreement.
"Affiliate" means, with respect to any Person, any other Person (i)
directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person or (ii) directly or indirectly
owning or holding five percent (5%) or more of the equity interest in such
Person. For purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agency Services Address" means NationsBank, N.A., NC1-001-15-04, 101
North Tryon Street, Charlotte, North Carolina 28255, Attn: Agency Services,
or such other address as may be identified by written notice from the Agent
to the Borrower.
"Agent" shall have the meaning assigned to such term in the heading
hereof, together with any successors or assigns.
"Agent's Fee Letter" means that certain letter agreement, dated as of
October 11, 1996, between the Agent and the Borrower, as amended, modified,
supplemented or replaced from time to time.
"Agent's Fees" shall have the meaning assigned to such term in Section
3.5(b).
"Annual Statement" means, with respect to any Insurance Subsidiary,
such Insurance Subsidiary's annual statement to the insurance regulatory
authorities of its domiciliary state, as the same may be amended from time
to time.
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Eurodollar Loan, the
appropriate applicable percentage corresponding to the Consolidated Funded
Debt Coverage Ratio in effect as of the most recent Calculation Date:
-2-
<PAGE> 7
<TABLE>
<CAPTION>
=========================================================================
Applicable
Consolidated Percentage
Funded Debt for
Coverage Eurodollar
Pricing Level Ratio Loans
- -------------------------------------------------------------------------
<S> <C> <C>
I Greater than 1.75%
1.75
- -------------------------------------------------------------------------
II Greater than 1.50%
1.25 but less
than or equal
to 1.75
- -------------------------------------------------------------------------
III Greater than 1.25%
1.00 but less
than or equal
to 1.25
- -------------------------------------------------------------------------
IV Greater than 1.00%
0.75 but less
than or equal
to 1.00
- -------------------------------------------------------------------------
V Less than or 0.75%
equal to 0.75
=========================================================================
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly on
the date (each a "Calculation Date") five Business Days after the date by
which the Borrower is required to provide the officer's certificate in
accordance with the provisions of Section 7.1(c); provided, however that
(i) the initial Applicable Percentages shall be based on Pricing Level II
(as shown above) and shall remain at Pricing Level II until the first
Calculation Date subsequent to the Closing Date and, thereafter, the
Pricing Level shall be determined by the then current Consolidated Funded
Debt Coverage Ratio, and (ii) if the Borrower fails to provide the
officer's certificate to the Agency Services Address as required by Section
7.1(c), the Applicable Percentage from such Calculation Date shall be based
on Pricing Level I until such time as an appropriate officer's certificate
is provided, whereupon the Pricing Level shall be determined by the then
current Consolidated Funded Debt Coverage Ratio. Each Applicable Percentage
shall be effective from one Calculation Date until the next Calculation
Date. Any adjustment in the Applicable Percentages shall be applicable to
all existing Loans as well as any new Loans made or issued.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
"Bankruptcy Event" means, with to any Person, the occurrence of any of
the following with respect to such
-3-
<PAGE> 8
Person: (i) a court or governmental agency having jurisdiction in the
premises shall enter a decree or order for relief in respect of such Person
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
ordering the winding up or liquidation of its affairs; or (ii) there shall
be commenced against such Person an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
any case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or for
the winding up or liquidation of its affairs, and such involuntary case or
other case, proceeding or other action shall remain undismissed,
undischarged or unbonded for a period of sixty (60) consecutive days; or
(iii) such Person shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under
any such law, or consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of such Person or for any substantial part of its
Property or make any general assignment for the benefit of creditors; or
(iv) such Person shall be unable to, or shall admit in writing its
inability to, pay its debts generally as they become due.
"Base Rate" means, for any day, the rate per annum (rounded upwards,
if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the
greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%
or (b) the Prime Rate in effect on such day. If for any reason the
Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable after due inquiry to ascertain the
Federal Funds Rate for any reason, including the inability or failure of
the Agent to obtain sufficient quotations in accordance with the terms
hereof, the Base Rate shall be determined without regard to clause (a) of
the first sentence of this definition until the circumstances giving rise
to such inability no longer exist. Any change in the Base Rate due to a
change in the Prime Rate or the Federal Funds Rate shall be effective on
the effective date of such change in the Prime Rate or the Federal Funds
Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
together with any permitted successors and assigns.
-4-
<PAGE> 9
"Borrower's Obligations" means, without duplication, (i) all of the
obligations of the Borrower to the Lenders and the Agent, whenever arising,
under this Credit Agreement, the Notes or any of the other Credit Documents
and (ii) all liabilities and obligations, whenever arising, owing from the
Borrower to any Lender, or any Affiliate of a Lender, arising under any
Hedging Agreement.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina or Sarasota, Florida
are authorized or required by law to close, except that, when used in
connection with a Eurodollar Loan, such day shall also be a day on which
dealings between banks are carried on in U.S. dollar deposits in London,
England, Charlotte, North Carolina and New York, New York.
"Calculation Date" has the meaning set forth in the definition of
Applicable Percentage.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee which,
in accordance with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person.
"Change of Control" means the occurrence of any of the following
events: (i) William D. Griffin shall fail to have beneficial ownership,
directly or indirectly, of at least 51% of the of the combined voting power
of all Voting Stock of the Borrower, (ii) excluding William D. Griffin, any
Person or two or more Persons acting in concert shall have acquired
beneficial ownership, directly or indirectly, of, or shall have acquired by
contract or otherwise, or shall have entered into a contract or arrangement
that, upon consummation, will result in its or their acquisition of,
control over, Voting Stock of the Borrower (or other securities convertible
into such Voting Stock) representing 35% or more of the combined voting
power of all Voting Stock of the Borrower, (iii) the shareholders of the
Borrower shall approve any plan or proposal for the liquidation or
dissolution of the Borrower, or (iv) during any period of up to 24
consecutive months, commencing after the Closing Date, individuals who at
the beginning of such 24 month period were directors of the Borrower
(together with any new director whose election by the Borrower's Board of
Directors or whose nomination for election by the Borrower's shareholders
was approved by a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors of the Borrower
then in office. As used herein, "beneficial ownership" shall have the
meaning provided in Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934.
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<PAGE> 10
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto, as interpreted by the rules and regulations issued
thereunder, in each case as in effect from time to time. References to
sections of the Code shall be construed also to refer to any successor
sections.
"Commitment" means with respect to each Lender, the Revolving
Commitment of such Lender and the Term Loan Commitment of such Lender.
"Commitment Percentage" means, for any Lender, the percentage
identified as its Commitment Percentage on Schedule 2.1(a), as such
percentage may be modified in connection with any assignment made in
accordance with the provisions of Section 11.3.
"Committed Note" means a promissory note of the Borrower in favor of a
Lender delivered pursuant to Section 2.4 and evidencing the Loans of such
Lender, as such promissory note may be amended, modified, restated or
replaced from time to time.
"Consolidated Capital Expenditures" means, for any period, all capital
expenditures of the Borrower and its Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Capitalization" means, at any time, the sum of (i)
Consolidated Net Worth at such time plus (ii) Consolidated Funded
Indebtedness at such time.
"Consolidated Cash Restricted Payments" means, for any period, all
cash Restricted Payments made by the Borrower and any of its Subsidiaries
(other than any such Restricted Payments made to the Borrower or a
Subsidiary) for such period.
"Consolidated EBITDA" means, for any period, the sum of (a)
Consolidated Net Income for such period plus (b) an amount which, in
the determination of Consolidated Net Income for such period, has been
deducted for (i) Consolidated Interest Expense for such period, (ii)
Consolidated Tax Expense for such period, (iii) consolidated depreciation
and amortization expense of the Borrower and its Subsidiaries for such
period and (iv) all other non-cash expenses of the Borrower and its
Subsidiaries for such period less (c) to the extent included in
Consolidated Net Income, amortization of negative goodwill, all as
determined in accordance with GAAP.
"Consolidated Current Maturities Coverage Ratio" means, as of the last
day of any fiscal quarter of the Borrower, the ratio of (a) (i)
Consolidated EBITDA for the four-quarter period ended as of such date minus
(ii) Consolidated Capital Expenditures for the four-quarter period ended as
of such date
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<PAGE> 11
minus (iii) Consolidated Tax Expense for the four-quarter period ended as
of such date minus (iv) Consolidated Cash Restricted Payments for the
four-quarter period ended as of such date minus (v) all non-cash gains and
other items taken into account in determining Consolidated EBITDA for the
four-quarter period ended as of such date to (b) Consolidated Scheduled
Funded Indebtedness Payments as of such date.
"Consolidated Funded Debt Coverage Ratio" means, as of the last day of
any fiscal quarter of the Borrower, the ratio of (i) Consolidated Funded
Indebtedness as of such date to (ii) Consolidated EBITDA for the four
fiscal-quarter period ended as of such date.
"Consolidated Funded Indebtedness" means, at any time, the outstanding
principal amount of all Funded Indebtedness, without duplication, of the
Borrower and its Subsidiaries at such time.
"Consolidated Interest Expense" means, for any period, all interest
expense of the Borrower and its Subsidiaries for such period, as determined
in accordance with GAAP.
"Consolidated Leverage Ratio" means, as of the last day of any fiscal
quarter of the Borrower, the ratio of (i) Consolidated Funded Indebtedness
as of such date to (ii) Consolidated Capitalization as of such date.
"Consolidated Net Income" means, for any period, net income after
taxes for such period for the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date, total shareholders'
equity of the Borrower and its Subsidiaries as of such date, as determined
in accordance with GAAP, excluding the effect of FASB 115.
"Consolidated Net Written Premiums" means, as of the last day of any
fiscal year, with respect to the Insurance Subsidiaries, the sum of the
total amount of premiums written after deducting or adding premiums on
business ceded to or assumed from others (as shown on line 32, column 4,
Part 2B of page 9 of the Annual Statement for such date) by the Insurance
Subsidiaries on a consolidated basis in accordance with SAP.
"Consolidated Net Written Premiums to Statutory Surplus Ratio" means,
as of the last day of any fiscal year, the ratio of (i) Consolidated Net
Written Premiums as of such date to (ii) Consolidated Statutory Surplus as
of such date.
"Consolidated Scheduled Funded Indebtedness Payments" means, as of the
last day of any fiscal quarter of the Borrower, the scheduled payments of
principal on Funded Indebtedness for the Borrower and its Subsidiaries for
the
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<PAGE> 12
twelve month period ending on such date. With respect to the Revolving
Loans, Consolidated Scheduled Funded Indebtedness Payments shall be deemed
to be (i) as of the last day of any fiscal quarter ending on or before
September 30, 1997, one fifth (1/5) of the average daily outstanding
principal balance on the Revolving Loans during the immediately preceding
fiscal quarter and (ii) as of the last day of any fiscal quarter ending
after October 1, 1997 and on or before the Conversion Date, one-quarter
(1/4) of the average daily outstanding principal balance on the Revolving
Loans during the immediately preceding fiscal quarter.
"Consolidated Statutory Surplus" means, as of any date, with respect
to the Insurance Subsidiaries, the aggregate amount (without duplication)
of policyholders' surplus (as shown on line 25 in column 1 on page 3 of
such Person's most recent SAP Statement) of the Insurance Subsidiaries on a
consolidated basis in accordance with SAP, or an amount determined in a
consistent manner for any date other than one as of which a SAP Statement
is prepared.
"Consolidated Tax Expense" means, for any period, all income tax
expense of the Borrower and its Subsidiaries for such period, as determined
in accordance with GAAP.
"Conversion Date" means September 30, 1998.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, each Joinder Agreement, the Agent's Fee Letter, and
all other related agreements and documents issued or delivered hereunder or
thereunder or pursuant hereto or thereto.
"Credit Party" means any of the Borrower and the Guarantors.
"Default" means any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Delivered Annual Statements" means (i) with respect to RISCORP
Insurance, that certain Annual Statement, as filed with the appropriate
Governmental Authorities of its state of domicile, for the fiscal
year ending December 31, 1995, (ii) with respect to RISCORP Property, those
certain Annual Statements, as filed with the appropriate Governmental
Authorities of its state of domicile, for the fiscal years ending December
31, 1995 and December 31, 1994 and (iii) with respect to RISCORP National
Insurance, those certain Annual Statements, as filed with the appropriate
Governmental Authorities of its state of domicile, for the fiscal years
ending December 31, 1995, December 31, 1994 and December 31, 1993.
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<PAGE> 13
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
"Environmental Laws" means any and all lawful and applicable Federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or other governmental restrictions relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, as interpreted by the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" means an entity which is under common control with
any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is
a member of a group which includes the Borrower and which is treated as a
single employer under Sections 414(b), (c), (m), or (o) of the Code.
"Eurodollar Loan" means any Loan bearing interest at a rate determined
by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate determined pursuant to
the following formula:
Eurodollar Rate = Interbank Offered Rate
-----------------------------------
1 Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is defined in Regulation D (or against any other category of
liabilities that includes deposits by reference to which the interest rate
of Eurodollar
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<PAGE> 14
Loans is determined), whether or not Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time. Eurodollar
Loans shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of credits
for proration, exceptions or offsets that may be available from time to
time to a Lender. The Eurodollar Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurodollar Reserve
Percentage.
"Event of Default" means such term as defined in Section 9.1.
"Existing Affiliate Contracts" means those certain agreements
identified on Schedule 1.1A attached hereto, as such agreements exist as of
the Closing Date.
"Fees" means all fees payable pursuant to Section 3.5.
"Federal Funds Rate" means, for any day, the rate of interest per
annum (rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day,
provided that (A) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day and (B) if no such rate is so published on such next preceding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to the Agent on such day on such transactions as determined by the
Agent.
"Funded Indebtedness" means, with respect to any Person, without
duplication, (i) all Indebtedness of such Person for borrowed money, (ii)
all purchase money Indebtedness of such Person, including without
limitation the principal portion of all obligations of such Person under
Capital Leases, (iii) all Guaranty Obligations of such Person with respect
to Funded Indebtedness of another Person, (iv) the maximum available amount
of all standby letters of credit or acceptances issued or created for the
account of such Person, (v) all Funded Indebtedness of another Person
secured by a Lien on any Property of such Person, whether or not such
Funded Indebtedness has been assumed, and (vi) the principal balance
outstanding under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product to
which such Person is a party, where such transaction is considered borrowed
money indebtedness for tax purposes but is classified as an operating lease
in accordance with GAAP. The Funded Indebtedness of any Person shall
include the Funded Indebtedness of any partnership or joint venture in
which such Person is, a general partner or joint venturer.
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<PAGE> 15
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis and subject to the terms of Section
1.3 hereof.
"Governmental Authority" means any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantor" means each of those Persons identified as a "Guarantor" on
the signature pages hereto, and each Additional Credit Party which may
hereafter execute a Joinder Agreement, together with their successors and
permitted assigns.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or intended to guarantee any Indebtedness of any
other Person in any manner, whether direct or indirect, and including
without limitation any obligation, whether or not contingent, (i) to
purchase any such Indebtedness or any Property constituting security
therefor, (ii) to advance or provide funds or other support for the payment
or purchase of any such Indebtedness or to maintain working capital,
solvency or other balance sheet condition of such other Person (including
without limitation keep well agreements, maintenance agreements, comfort
letters or similar agreements or arrangements) for the benefit of any
holder of Indebtedness of such other Person, (iii) to lease or purchase
Property, securities or services primarily for the purpose of assuring the
holder of such Indebtedness, or (iv) to otherwise assure or hold harmless
the holder of such Indebtedness against loss in respect thereof. The amount
of any Guaranty Obligation hereunder shall (subject to any limitations set
forth therein) be deemed to be an amount equal to the outstanding principal
amount (or maximum principal amount, if larger) of the Indebtedness in
respect of which such Guaranty Obligation is made.
"Hedging Agreements" means any interest rate protection agreement
between the Borrower and any Lender, or any Affiliate of a Lender, entered
into in order to manage existing or anticipated interest rate risks
associated with the obligations of the Borrower to the Lenders and the
Agent under this Credit Agreement, the Notes or any of the other Credit
Documents.
"Home Office Building" means, collectively, (i) the office building
occupied by the Borrower and its Subsidiaries, (ii) the realty upon which
such building is located, at 1390 Main Street, Sarasota, Florida, and (iii)
the parking area dedicated to such office building, all of which is owned
by RISCORP Insurance.
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<PAGE> 16
"Indebtedness" of any Person means (i) all obligations of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, or upon which interest payments
are customarily made, (iii) all obligations of such Person under
conditional sale or other title retention agreements relating to Property
purchased by such Person (other than customary reservations or retentions
of title under agreements with suppliers entered into in the ordinary
course of business), (v) all obligations of such Person issued or assumed
as the deferred purchase price of Property or services purchased by such
Person (other than trade debt incurred in the ordinary course of business
and due within six months of the incurrence thereof) which would appear as
liabilities on a balance sheet of such Person, (v) all obligations of such
Person under take-or-pay or similar arrangements or under commodities
agreements, (vi) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the proceeds of
production from, Property owned or acquired by such Person, whether or not
the obligations secured thereby have been assumed, (vii) all Guaranty
Obligations of such Person, (viii) the principal portion of all obligations
of such Person under Capital Leases, (ix) all obligations of such Person in
respect of interest rate protection agreements, foreign currency exchange
agreements, commodity purchase or option agreements or other interest or
exchange rate or commodity price hedging agreements (including, but not
limited to, the Hedging Agreements) (it being understood that the amount of
Indebtedness under any agreement described in this subclause (ix), as of
any date, shall be deemed to be equal to the termination value payable by
such Person if such agreement were terminated on such date), (x) the
maximum amount of all standby letters of credit issued or bankers'
acceptances facilities created for the account of such Person and, without
duplication, all drafts drawn thereunder (to the extent unreimbursed), and
(xi) the principal balance outstanding under any synthetic lease, tax
retention operating lease, off balance sheet loan or similar off-balance
sheet financing product to which such Person is a party, where such
transaction is considered borrowed money indebtedness for tax purposes but
is classified as an operating lease in accordance with GAAP; provided that
Indebtedness shall not include (i) obligations with respect to insurance
policies, annuities, guaranteed investment contracts and similar products
underwritten by, or Reinsurance Agreements or Retrocession Agreements
(including, without limitation, cut-through endorsements related thereto)
entered into by, any Insurance Subsidiary in the ordinary course of its
business and (ii) obligations with respect to Surplus Relief Reinsurance
ceded by the Borrower or any Insurance Subsidiary. The Indebtedness of any
Person shall include the Indebtedness of any partnership or joint venture
in which such Person is a general partner or a joint venturer.
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<PAGE> 17
"Insurance Subsidiary" means RISCORP Insurance, RISCORP Property,
RISCORP National Insurance and all other Wholly Owned Subsidiaries of the
Borrower licensed to engage in the business of property and casualty
insurance.
"Interbank Offered Rate" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal
to the rate of interest, determined by the Agent on the basis of the
offered rates for deposits in dollars for a period of time corresponding to
such Interest Period (and commencing on the first day of such Interest
Period), appearing on Telerate Page 3750 (or, if, for any reason, Telerate
Page 3750 is not available, the Reuters Screen LIBO Page) as of
approximately 11:00 A.M. (London time) two (2) Business Days before the
first day of such Interest Period. As used herein, "Telerate Page 3750"
means the display designated as page 3750 by Dow Jones Telerate, Inc. (or
such other page as may replace such page on that service for the purpose of
displaying the British Bankers Association London interbank offered rates)
and "Reuters Screen LIBO Page" means the display designated as page "LIBO"
on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks).
"Intercompany Indebtedness" means any Indebtedness of a Credit Party
which (i) is owing to any other Credit Party and (ii) by its terms is
specifically subordinated in right of payment to the prior payment of the
obligations of the Credit Parties under this Credit Agreement and the other
Credit Documents on terms and conditions reasonably satisfactory to the
Required Lenders.
"Interest Payment Date" means, (i) as to any Base Rate Loan, the last
day of each March, June, September and December, the date of repayment of
principal of such Loan, the Conversion Date and the Termination Date and
(ii) as to any Eurodollar Loan, the last day of each Interest Period for
such Loan, the date of repayment of principal of such Loan, the Conversion
Date and on the Termination Date, and in addition where the applicable
Interest Period is more than 3 months, then also on the date 3 months from
the beginning of the Interest Period, and each 3 months thereafter. If an
Interest Payment Date falls on a date which is not a Business Day, such
Interest Payment Date shall be deemed to be the next succeeding Business
Day, except that in the case of Eurodollar Loans where the next succeeding
Business Day falls in the next succeeding calendar month, then on the next
preceding Business Day.
"Interest Period" means, as to any Eurodollar Loan, a period of one,
two or three month's duration, as the Borrower may elect, commencing in
each case, on the date of the
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<PAGE> 18
borrowing (including conversions, extensions and renewals); provided,
however, (A) if any Interest Period would end on a day which is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day (except that in the case of Eurodollar Loans where the next
succeeding Business Day falls in the next succeeding calendar month, then
on the next preceding Business Day), (B) with respect to any Revolving
Loan, no Interest Period shall extend beyond the Conversion Date, (C) with
respect to the Term Loan, no Interest Period shall extend beyond the
Termination Date, (D) with regard to any Eurodollar Loan constituting a
portion of the Term Loan, no Interest Period shall extend beyond any
principal amortization payment date unless the portion of the Term Loan
comprised of Base Rate Loans together with the portion of the Term Loan
comprised of Eurodollar Loans with Interest Periods expiring prior to the
date such principal amortization payment is due, is at least equal to the
amount of such principal amortization payment due on such date, and (E)
where an Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period is to
end, such Interest Period shall end on the last day of such calendar month.
"Investment", in any Person, means any loan or advance to such Person,
any purchase or other acquisition of any capital stock, warrants, rights,
options, obligations or other securities of, or equity interest in, such
Person, any capital contribution to such Person or any other investment in
such Person, including, without limitation, any Guaranty Obligation
incurred for the benefit of such Person.
"Investment Grade Securities" means (i) U.S. Government Obligations;
(ii) any certificate of deposit, maturing not more than 365 days after the
date of acquisition, issued by, or time deposit of, a commercial banking
institution that has combined capital and surplus of not less than
$100,000,000 or its equivalent in foreign currency, whose debt is rated at
the time as of which any investment there is made, of A (or higher)
according to Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's"), or Al (or higher) by IBCA Ltd., or if none of
S&P, Moody's and IBCA Ltd. shall then exist, the equivalent of such rating
by any other nationally recognized securities rating agency; (iii)
commercial paper, maturing not more than 270 days after the date of
acquisition, issued by a corporation (other than an Affiliate or Subsidiary
of the Company) with a rating, at the time as of which any investment
therein is made, of A1 (or higher) according to S&P or "P-1" (or higher)
according to Moody's, or if neither of S&P and Moody's shall then exist,
the equivalent of such rating by any other nationally recognized securities
rating agency; (iv) any bankers' acceptances or any money market deposit
accounts, in each case, issued or offered by any commercial bank having
capital and surplus in excess of $100,000,000 or its equivalent in foreign
currency, whose debt is rated at the time as of which
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<PAGE> 19
any investment there is made, of "A" (or higher) according to S&P or Moodys
or "A1" (or higher) by IBCA Ltd., or if none of S&P, Moody's and IBCA Ltd.
shall then exist, the equivalent of such rating by any other nationally
recognized securities rating agency; (v) any other debt securities or debt
instruments with a rating of BBB- or higher by S&P, Baa-3 or higher by
Moody's, Class (2) or higher by NAIC or the equivalent of such rating by
S&P, Moody's or NAIC, or if none of S&P, Moody's and NAIC shall then exist,
the equivalent of such rating by any other nationally recognized securities
rating agency; (vi) preferred stock with a rating of BBB- or higher by S&P,
Baa-3 or higher by Moody's, Class (2) or higher by NAIC or the equivalent
of such rating by S&P, Moody's or NAIC, or if none of S&P, Moody's and NAIC
shall then exist, the equivalent of such rating by any other nationally
recognized securities rating agency, provided that such preferred stock is
mandatorily redeemable and required to be treated as a debt instrument in
accordance with GAAP and (vii) any fund investing exclusively in
investments of the types described in clauses (i) through (vi) above. For
this purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely payment
of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended), as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt; provided that (except
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from any
amount received by the custodian in respect of the U.S. Government
Obligation evidenced by such depository receipt.
"IRIS Tests" shall mean the ratios and other financial measurements
developed by the NAIC under its Insurance Regulatory Information System or,
in lieu thereof, any successor thereto, replacement thereof, substitute
therefor or other substantially similar guidelines intended to measure the
financial performance of companies in the property and casualty insurance
industry, as the same shall be in effect from time to time.
"Joinder Agreement" means a Joinder Agreement substantially in the
form of Schedule 7.12 hereto, executed and delivered by an Additional
Credit Party in accordance with the provisions of Section 7.12.
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<PAGE> 20
Lenders" means each of the Persons identified as a "Lender" on the
signature pages hereto, and each Person which may become a Lender by way of
assignment in accordance with the terms hereof, together with their
successors and permitted assigns.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien (statutory or otherwise),
preference, priority or charge of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the
Uniform Commercial Code as adopted and in effect in the relevant
jurisdiction or other similar recording or notice statute, and any lease in
the nature thereof).
"Loan" or "Loans" means the Revolving Loans and/or the Term Loan (or a
portion of any Revolving Loan or Term Loan bearing interest at the Base
Rate or the Eurodollar Rate and referred to as a Base Rate Loan or a
Eurodollar Loan), individually or collectively, as appropriate.
"Management Agreements" means, collectively, (i) that certain
Management Agreement, dated as of January 1, 1995, by and between RISCORP
Insurance and the Borrower, (ii) that certain Management Agreement, dated
as of January 1, 1995, by and between RISCORP Property and the Borrower,
(iii) that certain Management and Services Agreement, dated as of June 13,
1996, by and between RISCORP National Insurance and the Borrower, and (iv)
any agreements assigning the rights and/or obligations of the Borrower
under the Management Agreements to RISCORP Management, each as may be
amended or modified from time to time hereafter by the parties thereto.
"Material Adverse Effect" means a material adverse effect on (i) the
condition (financial or otherwise), operations, business, assets,
liabilities or prospects of the Borrower or any of its Subsidiaries, (ii)
the ability of any Credit Party to perform any material obligation under
the Credit Documents to which it is a party or (iii) the material rights
and remedies of the Lenders under the Credit Documents.
"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Laws, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Sections 3(37) or 4001(a)(3) of ERISA.
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<PAGE> 21
"Multiple Employer Plan" means a Plan which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate and at least one employer
other than the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate are contributing sponsors.
"NAIC" means the National Association of Insurance Commissioners and
any successor thereof.
"NationsBank" means NationsBank, N.A. (South) and its successors.
"Non-Excluded Taxes" means such term as is defined in Section 3.10.
"Non-Guarantor Subsidiary" means any Non-Insurance Subsidiary which is
not a Guarantor.
"Non-Insurance Subsidiary" means any Subsidiary of the Borrower which
is not an Insurance Subsidiary.
"Note" or "Notes" means any Committed Note.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Schedule 2.1(b)(i), as required by Section
2.1(b)(i) or Section 2.2(b).
"Notice of Extension/Conversion" means the written notice of extension
or conversion in substantially the form of Schedule 3.2, as required by
Section 3.2.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed) which
is not a Capital Lease other than any such lease in which that Person is
the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Investments" means any of the following: (i) cash; (ii)
Investment Grade Securities; (iii) Investments in non-Investment Grade
Securities so long as (a) the fair saleable value of All non-Investment
Grade Securities held by the Insurance Subsidiaries does not exceed 10% of
the consolidated Total Invested Assets of the Insurance Subsidiaries and
(b) the fair saleable value of all non-Investment Grade Securities held by
the Borrower and its Subsidiaries (including Insurance Subsidiaries) does
not exceed 10% of the aggregate fair saleable value of all securities held
by the Borrower and its Subsidiaries (including the Insurance Subsidiaries)
on a consolidated basis; (iv) advances or loans to directors, officers,
employees, agents, customers of suppliers (A) made in the ordinary course
of business and consistent with the past
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<PAGE> 22
practices of the Credit Parties or (B) to the extent not permitted by the
foregoing subclause (A), that do not exceed $2,000,000 in the aggregate at
any one time outstanding; (v) Investments in any Credit Party; (vi)
Intercompany Indebtedness permitted by Section 8.1(c); (vii) Investments in
a Non-Guarantor Subsidiary, provided that such Investments do not exceed
$500,000 in the aggregate at any one time outstanding; (viii) accounts
receivable created, acquired or made by the Borrower or any of its
Subsidiaries in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (ix) Investments
consisting of stock, obligations, securities or other property received by
the Borrower or any of its Subsidiaries in settlement of accounts
receivable (created in the ordinary course of business) from bankrupt
obligors; (x) repurchase agreements entered into by a Person with a
commercial banking institution (including any of the Lenders) or recognized
securities dealer having capital and surplus in excess of $100,000,000 for
direct obligations issued by or fully guaranteed by the United States of
America in which such Person shall have a perfected first priority security
interest (subject to no other Liens) and having, on the date of purchase
thereof, a fair market value of at least 100% of the amount of the
repurchase obligations; (xi) the Home Office Building; (xii) Investments of
the Borrower in any Insurance Subsidiary, provided that no Default or Event
of Default exists hereunder or would occur as a result thereof; (xiii)
other Investments existing as of the Closing Date and set forth in Schedule
1.1B; (xiv) Guaranty Obligations permitted by Section 8.1; (xv)
acquisitions permitted by Section 8.4(d); and (xvi) transactions permitted
by Section 8.8.
"Permitted Liens" means:
(i) Liens in favor of the Agent on behalf of the Lenders;
(ii) Liens (other than Liens created or imposed under ERISA) for
taxes, assessments or governmental charges or levies not yet due or
Liens for taxes being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the Property subject to
any such Lien is not yet subject to foreclosure, sale or loss on
account thereof);
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens
imposed by law or pursuant to customary reservations or retentions of
title arising in the ordinary course of business, provided that such
Liens secure only amounts not yet due and payable or, if due and
payable, are unfiled and no other action has been taken to enforce the
same or are being contested in good faith by appropriate proceedings
for which adequate
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reserves determined in accordance with GAAP have been established (and
as to which the Property subject to any such Lien is not yet subject
to foreclosure, sale or loss on account thereof);
(iv) Liens (other than Liens created or imposed under ERISA)
incurred or deposits made by the Borrower and its Subsidiaries in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, bids,
leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(v) Liens in connection with attachments or judgments
(including judgment or appeal bonds) provided that the judgments
secured shall, within 30 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall have
been discharged within 30 days after the expiration of any such stay;
(vi) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other
similar charges or encumbrances not, in any material respect,
impairing the use of the encumbered Property for its intended
purposes;
(vii) Liens on Property securing purchase money Indebtedness
(including Capital Leases) to the extent permitted under Section
8.1(f)(i), provided that (i) the Indebtedness secured by such Liens
does not exceed the purchase price of the assets financed and (ii) any
such Lien attaches to such Property concurrently with or within 90
days after the acquisition thereof;
(viii) Liens arising under escrows, trusts, custodianships,
separate accounts, funds withheld procedures, and similar deposits,
arrangements or agreements established with respect to insurance
policies, annuities, guaranteed investment contracts and similar
products underwritten by, or Reinsurance Agreements entered into by,
the Borrower or any Insurance Subsidiary in the ordinary course of
business;
(ix) deposits with insurance regulatory authorities;
(x) Liens on assets at the time such assets are acquired by
the Borrower or any Subsidiary; provided that such Liens are not
created in contemplation of such acquisition;
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<PAGE> 24
(xi) normal and customary rights of setoff upon deposits of
cash in favor of banks or other depository institutions; and
(xii) Liens existing as of the Closing Date and set forth on
Schedule 1.1C; provided that no such Lien shall at any time be
extended to or cover any Property other than the Property subject
thereto on the Closing Date.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section 3(3) of
ERISA) which is covered by ERISA and with respect to which the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate is (or, if such plan
were terminated at such time, would under Section 4069 of ERISA be deemed
to be) an "employer" within the meaning of Section 3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by NationsBank as its prime rate in effect at its
principal office in Charlotte, North Carolina, with each change in the
Prime Rate being effective on the date such change is publicly announced as
effective (it being understood and agreed that the Prime Rate is a
reference rate used by NationsBank in determining interest rates on certain
loans and is not intended to be the lowest rate of interest charged on any
extension of credit by NationsBank to any debtor).
"Pro Forma Basis" means, with respect to any transaction, that such
transaction shall be deemed to have occurred as of the first day of the
four fiscal-quarter period ending as of the most recent fiscal quarter end
preceding the date of such transaction with respect to which the Agent and
the Lenders have received the officer's certificate in accordance with the
provisions of Section 7.1(c). As used herein, "transaction" means (i) any
incurrence, assumption or retirement of Indebtedness as referred to in
Section 8.1(f)(i), (ii) any acquisition of capital stock or securities or
any purchase, lease or other acquisition of Property as referred to in
Section 8.4(d), (iii) any Restricted Payment as referred to in Section
8.6(d) or (iv) any settlement as referred to in Section 8.13. With respect
to any transaction of the type described in clause (i) above regarding
Indebtedness which has a floating or formula rate, the implied rate of
interest for such Indebtedness for the applicable period for purposes of
this definition shall be determined by utilizing the rate which is or would
be in effect with respect to such Indebtedness as at the relevant date of
determination.
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<PAGE> 25
Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Quarterly Statement" means, with respect to any Insurance Subsidiary,
such Insurance Subsidiary's quarterly statement to the insurance regulatory
authorities of its domiciliary state, as the same may be amended from time
to time.
"Register" shall have the meaning given such term in Section 11.3(c).
"Regulation G, T, U, or X" means Regulation G, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor to all or a portion thereof.
"Reinsurance Agreements" shall mean any agreement, contract, treaty,
certificate or other arrangement whereby an Insurance Subsidiary agrees to
transfer, cede or retrocede to another insurer or reinsurer all or part of
the liability assumed by such an Insurance Subsidiary under a policy or
policies of insurance issued by such an Insurance Subsidiary.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment (including the abandonment or discarding of barrels,
containers and other closed receptacles containing any Materials of
Environmental Concern).
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the post-event notice
requirement is waived under subsections .13, .14, .18, .19, or .20 of PBGC
Reg. Section 2615.
"Required Lenders" means, at any time, Lenders which are then in
compliance with their obligations hereunder (as determined by the Agent)
and holding in the aggregate at least 51% of (i) the Revolving Commitments
or (ii) if the Revolving Commitments have been terminated, the outstanding
Loans.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its material property
is subject.
"Restricted Payment" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of the
Borrower or any of its Subsidiaries, now or hereafter outstanding, (ii) any
redemption, retirement,
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<PAGE> 26
sinking fund or similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of stock of the Borrower or
any of its Subsidiaries, now or hereafter outstanding and (iii) any payment
made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of stock of the
Borrower or any of its Subsidiaries, now or hereafter outstanding.
"Retrocession Agreement" means any agreement, contract, treaty or
other arrangement (other than Surplus Relief Reinsurance) whereby any
insurer cedes or assumes reinsurance to or from other insurers.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Commitment Percentage of the Revolving
Committed Amount, to make Revolving Loans in accordance with the provisions
of Section 2.1(a).
"Revolving Committed Amount" shall have the meaning assigned to such
term in Section 2.1(a).
"Revolving Loans" shall have the meaning assigned to such term in
Section 2.1(a).
"RISCORP Insurance" means RISCORP Insurance Company, a Florida stock
insurance company.
"RISCORP Management" means RISCORP Management Services, Inc., a
Florida corporation.
"RISCORP National Insurance" means RISCORP National Insurance Company
(f/k/a Atlas Insurance Company), a Missouri corporation.
"RISCORP Property" means RISCORP Property & Casualty Insurance
Company, a Florida corporation.
"Risk Based Capital Act" means the Risk Based Capital Model Act and
the rules, regulations and procedures prescribed from time to time by the
NAIC with respect thereto, in each case as amended, modified or
supplemented from time to time by the NAIC.
"SAP" means, with respect to any Insurance Subsidiary, the accounting
practices prescribed or permitted by the insurance commissioner (or other
similar authority) in the jurisdiction of domicile of such insurance
company for the preparation of Annual Statements, Quarterly Statements and
other financial reports by insurance corporations of the same type as such
Insurance Subsidiary, as applied on a consistent basis and subject to the
terms of Section 1.3 hereof.
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<PAGE> 27
"SAP Statement" means an Annual Statement or a Quarterly Statement.
"Single Employer Plan" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
Solvent" or "Solvency" means, with respect to any Person as of a
particular date, that on such date (i) such Person is able to realize upon
its assets and pay its debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business, (ii)
such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature in their ordinary course, (iii) such Person is not
engaged in a business or a transaction, and is not about to engage in a
business or a transaction, for which such Person's Property would
constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is engaged or is
to engage, (iv) the fair value of the Property of such Person is greater
than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person and (v) the present fair saleable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount which, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be
expected to become an actual or matured liability.
"Subordinated Debt Agreement" shall mean that certain Note Purchase
Agreement, dated as of January 1, 1995 (as amended by that certain Consent,
Waiver and First Amendment to Amended and Restated Note Purchase Agreement,
dated as of February 26, 1996, and as further amended by that certain
Second Amendment to Amended and Restated Note Purchase Agreement, dated as
October 15, 1996) between the Borrower and American Re-Insurance Company,
providing for the incurrence by the Borrower of the Subordinated Debt, as
may be hereafter amended, supplemented, renewed or replaced from time to
time as permitted by Section 8.7(a) hereof.
"Subordinated Indebtedness" shall mean the indebtedness owed by the
Borrower to American Re-Insurance Company, pursuant to the Subordinated
Debt Agreement.
"Subsidiary" means, as to any Person, (a) any corporation more than
50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or
classes of such corporation shall have or might have voting power by reason
of the
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happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries, and (b) any partnership, association,
joint venture or other entity in which such Person directly or indirectly
through Subsidiaries has more than 50% equity interest at any time.
"Surplus Relief Reinsurance" means any transaction in which any
Insurance Subsidiary cedes business under a Reinsurance Agreement that
would be considered a "financing type" Reinsurance Agreement as determined
by the independent certified public accountants of the Borrower in
accordance with principles published by the Financial Accounting Standards
Board (including, but not limited to FASB 113 and EITF #93-6).
"Term Loan" shall have the meaning assigned to such term in Section
2.2(a).
"Term Loan Commitment" means, with respect to each Lender, the
commitment of such Lender to make its portion of the Term Loan in a
principal amount equal to such Lender's Commitment Percentage of the Term
Loan Committed Amount.
"Term Loan Committed Amount" shall have the meaning assigned to such
term in Section 2.2(a).
"Termination Date" means September 30, 2001.
"Termination Event" means (i) with respect to any Plan, the occurrence
of a Reportable Event or the substantial cessation of operations (within
the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or the
termination of a Multiple Employer Plan; (iii) the distribution of a notice
of intent to terminate or the actual termination of a Plan pursuant to
Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings
to terminate or the actual termination of a Plan by the PBGC under Section
4042 of ERISA; (v) any event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan; or (vi) the complete or partial withdrawal
of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from
a Multiemployer Plan.
"Total Invested Assets" means, with respect to any Insurance
Subsidiary, the amount set forth on line 8(a) in column 1 on page 2 of
such Insurance Subsidiary's most recent SAP Statement.
"Unused Fee" shall have the meaning assigned to such term in Section
3.5(a).
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"Unused Fee Calculation Period" shall have the meaning assigned to
such term in Section 3.5(a).
"Unused Revolving Committed Amount" means, for any period, the amount
by which (a) the then applicable Revolving Committed Amount exceeds (b) the
daily average sum for such period of the outstanding aggregate principal
amount of all Revolving Loans.
"Voting Stock" means, with respect to any Person, capital stock issued
by such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to
vote has been suspended by the happening of such a contingency.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of
whose Voting Stock or other equity interests is at the time owned by such
Person directly or indirectly through other Wholly Owned Subsidiaries.
1.2 Computation of Time Periods. For purposes of computation of periods of
time hereunder, the word "from" means "from and including" and the words "to"
and "until" each mean "to but excluding."
1.3 Accounting Terms.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered
to the Lenders hereunder shall be prepared, (i) with respect to the
Borrower and its consolidated Subsidiaries, in accordance with GAAP applied
on a consistent basis and (ii) with respect to the Insurance Subsidiaries,
in accordance with SAP applied on a consistent basis. All calculations made
for the purposes of determining compliance with this Credit Agreement shall
(except as otherwise expressly provided herein) be made by application of
GAAP or SAP, as appropriate, applied on a basis consistent with the most
recent annual or quarterly financial statements delivered pursuant to
Section 6.1 hereof (or, prior to the delivery of the first financial
statements pursuant to Section 6.1 hereof, consistent with the financial
statements as at December 31, 1995); provided, however, if (a) a Borrower
shall object to determining such compliance on such basis at the time of
delivery of such financial statements due to any change in GAAP, SAP or the
rules promulgated with respect thereto or (b) the Agent or the Required
Lenders shall so object in writing within 30 days after delivery of such
financial statements, then such calculations shall be made on a basis
consistent with the most recent financial statements delivered by such
Borrower to the Lenders as to which no such objection shall have been made.
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(b) All references to line items in any column and on any page of an
Insurance Subsidiary's SAP Statement are deemed to be references to the
equivalent item in the event that the form of such Person's SAP Statement
is amended.
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Revolving Commitment. Subject to the terms and conditions hereof
and in reliance upon the representations and warranties set forth herein,
each Lender severally agrees to make available to the Borrower such
Lender's Commitment Percentage of revolving credit loans requested by the
Borrower in Dollars ("Revolving Loans") from time to time from the Closing
Date until the Conversion Date, or such earlier date as the Revolving
Commitments shall have been terminated as provided herein for the purposes
hereinafter set forth; provided, however, that the sum of the aggregate
principal amount of outstanding Revolving Loans shall not exceed FIFTY
MILLION DOLLARS ($50,000,000) (as such aggregate maximum amount may be
reduced from time to time as provided in Section 3.4, the "Revolving
Committed Amount"); provided, further, (i) with regard to each Lender
individually, such Lender's outstanding Revolving Loans shall not exceed
such Lender's Commitment Percentage of the Revolving Committed Amount, and
(ii) with regard to the Lenders collectively, the aggregate principal
amount of outstanding Revolving Loans shall not exceed the Revolving
Committed Amount. Revolving Loans may consist of Base Rate Loans or
Eurodollar Loans, or a combination thereof, as the Borrower may request,
and may be repaid and reborrowed in accordance with the provisions hereof;
provided, however, that, prior to the Conversion Date, no more than 8
Eurodollar Loans shall be outstanding hereunder at any time. For purposes
hereof, Eurodollar Loans with different Interest Periods shall be
considered as separate Eurodollar Loans, even if they begin on the same
date, although borrowings, extensions and conversions may, in accordance
with the provisions hereof, be combined at the end of existing Interest
Periods to constitute a new Eurodollar Loan with a single Interest Period.
Revolving Loans hereunder may be repaid and reborrowed in accordance with
the provisions hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a Revolving
Loan borrowing by written notice (or telephone notice promptly
confirmed in writing) to the Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day prior to the date
of the requested borrowing in the case of Base Rate Loans,
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and on the third Business Day prior to the date of the requested
borrowing in the case of Eurodollar Loans. Each such request for
borrowing shall be irrevocable and shall specify (A) that a Revolving
Loan is requested, (B) the date of the requested borrowing (which
shall be a Business Day), (C) the aggregate principal amount to be
borrowed, and (D) whether the borrowing shall be comprised of Base
Rate Loans, Eurodollar Loans or a combination thereof, and if
Eurodollar Loans are requested, the Interest Period(s) therefor. If
the Borrower shall fail to specify in any such Notice of Borrowing
(I) an applicable Interest Period in the case of a Eurodollar Loan,
then such notice shall be deemed to be a request for an Interest
Period of one month, or (II) the type of Revolving Loan requested,
then such notice shall be deemed to be a request for a Base Rate Loan
hereunder. The Agent shall give notice to each affected Lender
promptly upon receipt of each Notice of Borrowing pursuant to this
Section 2.1(b)(i), the contents thereof and each such Lender's share
of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that
is a Revolving Loan shall be in a minimum aggregate principal amount
of $1,000,000 and integral multiples of $100,000 in excess thereof (or
the remaining amount of the Revolving Committed Amount, if less).
(iii) Advances. Each Lender will make its Commitment Percentage
of each Revolving Loan borrowing available to the Agent for the
account of the Borrower as specified in Section 3.14(a), or in such
other manner as the Agent may specify in writing, by 1:00 P.M.
(Charlotte, North Carolina time) on the date specified in the
applicable Notice of Borrowing in Dollars and in funds immediately
available to the Agent. Such borrowing will then be made available to
the Borrower by the Agent by crediting the account of the Borrower on
the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by
the Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be
due and payable in full on the Conversion Date.
2.2 Term Loan.
(a) Term Commitment. Subject to and upon the terms and conditions and
relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make available to the Borrower
on the Conversion Date such Lender's Commitment Percentage of a term loan
in Dollars (the "Term Loan") in the aggregate principal amount equal to the
outstanding principal balance on the Revolving
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Loans as of such date (the "Term Loan Committed Amount"). The Term Loan may
consist of Base Rate Loans or Eurodollar Loans, or a combination thereof,
as the Borrower may request; provided, however, that, on and after the
Conversion Date, no more than 3 Eurodollar Loans shall be outstanding
hereunder at any time. For purposes hereof, Eurodollar Loans with different
Interest Periods shall be considered as separate Eurodollar Loans, even if
they begin on the same date, although borrowings, extensions and
conversions may, in accordance with the provisions hereof, be combined at
the end of existing Interest Periods to constitute a new Eurodollar Loan
with a single Interest Period. Amounts repaid on the Term Loan may not be
reborrowed.
(b) Borrowing Procedures. The Borrower shall submit an appropriate
Notice of Borrowing to the Agent not later than 11:00 A.M. (Charlotte, N.C.
time) on the Conversion Date, with respect to the portion of the Term Loan
initially consisting of a Base Rate Loan, or on the third Business Day
prior to the Conversion Date, with respect to the portion of the Term Loan
initially consisting of one or more Eurodollar Loans, which Notice of
Borrowing shall be irrevocable and shall specify (i) that the funding of a
Term Loan is requested and (ii) whether the funding of the Term Loan shall
be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof,
and if Eurodollar Loans are requested, the Interest Period(s) therefor. If
the Borrower shall fail to deliver such Notice of Borrowing to the Agent by
11:00 A.M. (Charlotte, N.C. time) on the third Business Day prior to the
Conversion Date, then the full amount of the Term Loan shall be disbursed
on the Conversion Date as a Base Rate Loan. Each Lender shall make its
Commitment Percentage of the Term Loan available to the Agent for the
account of the Borrower at the office of the Agent specified in Section
11.1, or at such other office as the Agent may designate in writing, by
1:00 P.M. (Charlotte, North Carolina time) on the Conversion Date in
Dollars and in funds immediately available to the Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is
part of the Term Loan shall be in an aggregate principal amount that is not
less than $1,000,000 and integral multiples of $100,000 (or the then
remaining principal balance of the Term Loan, if less).
(d) Repayment of Term Loan. The principal amount of the Term Loan
shall be repaid in twelve (12) equal and consecutive quarterly
installments, such installments being (i) in an amount equal to one-twelfth
(1/12) of the outstanding balance of the Term Loan as of the Conversion
Date and (ii) due and payable as of the last day of each March, June,
September and December (beginning on December 31, 1998 and ending on the
Termination Date).
2.3 Interest. Subject to the provisions of Section 3.1, all Loans shall
bear interest at a per annum rate equal to:
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(a) Base Rate Loans. During such periods as Loans shall be comprised
in whole or in part of Base Rate Loans, such Base Rate Loans shall bear
interest at a per annum rate equal to the Base Rate;
(b) Eurodollar Loans. During such periods as Loans shall be comprised
in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear
interest at a per annum rate equal to the Eurodollar Rate plus the
Applicable Percentage.
Interest on Loans shall be payable in arrears on each applicable Interest
Payment Date (or at such other times as may be specified herein).
2.4 Committed Notes. The Loans made by each Lender shall be evidenced by a
duly executed promissory note of the Borrower to such Lender in an original
principal amount equal to such Lender's Commitment Percentage of the Revolving
Committed Amount and in substantially the form of Schedule 2.4.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 Default Rate. Upon the occurrence, and during the continuance, of an
Event of Default, the principal of and, to the extent permitted by law, interest
on the Loans and any other amounts owing hereunder or under the other Credit
Documents shall bear interest, payable on demand, at a per annum rate 3% greater
than the rate which would otherwise be applicable (or if no rate is applicable,
whether in respect of interest, fees or other amounts, then 3% greater than the
Base Rate).
3.2 Extension and Conversion. Subject to the terms of Section 5.2, the
Borrower shall have the option, on any Business Day, to extend existing Loans
into a subsequent permissible Interest Period or to convert Loans into Loans of
another interest rate type; provided, however, that (i) except as provided in
Section 3.8, Eurodollar Loans may be converted into Base Rate Loans only on the
last day of the Interest Period applicable thereto, (ii) Eurodollar Loans may be
extended, and Base Rate Loans may be converted into Eurodollar Loans, only if no
Default or Event of Default is in existence on the date of extension or
conversion, (iii) Loans extended as, or converted into, Eurodollar Loans shall
be subject to the terms of the definition of "Interest Period" set forth in
Section 1.1 and shall be in such minimum amounts as provided in, with respect to
Revolving Loans, Section 2.1(b)(ii) or, with respect to the Term Loan, 2.2(c),
(iv) prior to the Conversion Date, no more than 8 Eurodollar Loans shall be
outstanding hereunder at any time and, on and after the Conversion Date, no more
than 3 Eurodollar Loans shall be outstanding hereunder at any time (it being
understood that, for purposes hereof, Eurodollar Loans with different Interest
Periods shall be considered as separate Eurodollar Loans, even if they begin on
the
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same date, although borrowings, extensions and conversions may, in accordance
with the provisions hereof, be combined at the end of existing Interest Periods
to constitute a new Eurodollar Loan with a single Interest Period), and (v) any
request for extension or conversion of a Eurodollar Loan which shall fail to
specify an Interest Period shall be deemed to be a request for an Interest
Period of one month. Each such extension or conversion shall be effected by the
Borrower by giving a Notice of Extension/Conversion (or telephone notice
promptly confirmed in writing) to the Agent prior to 11:00 A.M. (Charlotte,
North Carolina time) on the Business Day of, in the case of the conversion of a
Eurodollar Loan into a Base Rate Loan, and on the third Business Day prior to,
in the case of the extension of a Eurodollar Loan as, or conversion of a Base
Rate Loan into, a Eurodollar Loan, the date of the proposed extension or
conversion, specifying the date of the proposed extension or conversion, the
Loans to be so extended or converted, the types of Loans into which such Loans
are to be converted and, if appropriate, the applicable Interest Periods with
respect thereto. Each request for extension or conversion shall be irrevocable
and shall constitute a representation and warranty by the Borrower of the
matters specified in subsections (ii), (iii), (iv), (v) and (vi) of Section 5.2.
In the event the Borrower fails to request extension or conversion of any
Eurodollar Loan in accordance with this Section, or any such conversion or
extension is not permitted or required by this Section, then such Eurodollar
Loan shall be automatically converted into a Base Rate Loan at the end of the
Interest Period applicable thereto. The Agent shall give each Lender notice as
promptly as practicable of any such proposed extension or conversion affecting
any Loan.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay
Loans in whole or in part from time to time, subject to Section 3.11, but
otherwise without premium or penalty; provided, however, that (i)
Eurodollar Loans may only be prepaid on three Business Days' prior written
notice to the Agent and specifying the applicable Loans to be prepaid; (ii)
any prepayment of Eurodollar Loans will be subject to Section 3.11; and
(iii) each such partial prepayment of Loans shall be in a minimum principal
amount of $1,000,000. Subject to the foregoing terms, amounts prepaid under
this Section 3.3(a) shall be applied as the Borrower may elect.
(b) Mandatory Prepayments. If at any time, the sum of the aggregate
principal amount of outstanding Revolving Loans shall exceed the Revolving
Committed Amount, the Borrower promises to prepay immediately the
outstanding principal balance on the Revolving Loans in an amount
sufficient to eliminate such excess.
(c) General. All prepayments made pursuant to this Section 3.3 shall
(i) be subject to Section 3.11 and (ii) unless the Borrower shall specify
otherwise, be applied first to Base Rate Loans, if any, and then to
Eurodollar Loans in
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direct order of Interest Period maturities. All prepayments of the
Term Loan pursuant to this Section 3.3 shall be applied to principal
installments thereof in inverse order of maturity. Amount prepaid on
the Revolving Loans may be reborrowed in accordance with the
provisions hereof. Amounts prepaid on the Term Loan may not be
reborrowed.
3.4 Termination and Reduction of Revolving Committed Amount.
(a) Voluntary Reductions. The Borrower may from time to time
permanently reduce or terminate the Revolving Committed Amount in whole or
in part (in minimum aggregate amounts of $3,000,000 or in integral
multiples of $1,000,000 in excess thereof (or, if less, the full remaining
amount of the then applicable Revolving Committed Amount)) upon five
Business Days' prior written notice to the Agent; provided, however, no
such termination or reduction shall be made which would cause the aggregate
principal amount of outstanding Revolving Loans to exceed the Revolving
Committed Amount unless, concurrently with such termination or reduction,
the Revolving Loans are repaid to the extent necessary to eliminate such
excess. The Commitments of the Lenders shall automatically terminate on (i)
with respect to the Revolving Commitments, the Conversion Date and (ii)
with respect to the Term Loan Commitments, the Termination Date. The Agent
shall promptly notify each affected Lender of receipt by the Agent of any
notice from the Borrower pursuant to this Section 3.4(a).
(b) Termination. The Revolving Commitments of the Lenders shall
automatically terminate on the Conversion Date.
(c) General. The Borrower shall pay to the Agent for the account of
the Lenders in accordance with the terms of Section 3.5(a), on the date of
each termination or reduction of the Revolving Committed Amount, the Unused
Fee accrued through the date of such termination or reduction on the amount
of the Revolving Committed Amount so terminated or reduced.
3.5 Fees.
(a) Unused Fee. In consideration of the Revolving Commitments of
the Lenders hereunder, the Borrower agrees to pay to the Agent for the
account of each Lender a fee (the "Unused Feel") on the Unused
Revolving Committed Amount computed at a per annum rate of 0.25% for
each day during the applicable Unused Fee Calculation Period
(hereinafter defined). The Unused Fee shall commence to accrue on the
Closing Date and shall be due and payable in arrears on the last
business day of each March, June, September and December (and any date
that the Revolving Committed Amount is reduced as provided in Section
3.4 (a) and the Conversion Date) for the immediately preceding quarter
(or portion thereof) (each such quarter or portion thereof for which
the Unused Fee is payable hereunder being, herein referred to as an
"Unused Fee Calculation Period"), beginning with the first of such
dates to occur after the Closing Date.
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(b) Administrative Fees. The Borrower agrees to pay to the Agent,
for its own account, the fees referred to in the Agent's Fee Letter
(collectively, the "Agent's Fees").
3.6 Capital Adequacy. If any Lender has determined, after the date
hereof, that the adoption or the becoming effective of, or any change in,
or any change by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof in the
interpretation or administration of, any applicable law, rule or regulation
regarding capital adequacy, or compliance by such Lender with any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital or
assets as a consequence of its commitments or obligations hereunder to a
level below that which such Lender could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy), then, upon notice
from such Lender to the Borrower, the Borrower shall be obligated to pay to
such Lender such additional amount or amounts as will compensate such
Lender for such reduction. Each determination by any such Lender of amounts
owing under this Section shall, absent manifest error, be conclusive and
binding on the parties hereto.
3.7 Inability To Determine Interest Rate. If prior to the first day of
any Interest Period, the Agent shall have determined (which determination
shall be conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means
do not exist for ascertaining the Eurodollar Rate for such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower
and the Lenders as soon as practicable thereafter. If such notice is given
(a) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Base Rate Loans and (b) any Loans that
were to have been converted on the first day of such Interest Period to or
continued as Eurodollar Loans shall be converted to or continued as Base
Rate Loans. Until such notice has been withdrawn by the Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower
have the right to convert Base Rate Loans to Eurodollar Loans.
3.8 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the
interpretation or application thereof occurring after the Closing Date
shall make it unlawful for any Lender to make or maintain Eurodollar
Loans as contemplated by this Credit Agreement, (a) such Lender shall
promptly give written notice of such circumstances to the Borrower and the
Agent (which notice shall be withdrawn whenever such circumstances no
longer exist), (b) the commitment of such Lender hereunder to make
Eurodollar Loans, continue Eurodollar Loans as such and convert a Base
Rate Loan to Eurodollar Loans shall forthwith be canceled and, until such
time as it shall no longer be unlawful for such Lender to make or maintain
Eurodollar Loans, such Lender shall then have a commitment
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only to make a Base Rate Loan when a Eurodollar Loan is requested and (c)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of
the then current Interest Periods with respect to such Loans or within such
earlier period as required by law. If any such conversion of a Eurodollar
Loan occurs on a day which is not the last day of the then current Interest
Period with respect thereto, the Borrower shall pay to such Lender such
amounts, if any, as may be required pursuant to Section 3.11.
3.9 Requirements of Law. If, after the date hereof, the adoption of or
any change in any Requirement of Law or in the interpretation or
application thereof applicable to any Lender, or compliance by any Lender
with any request or directive (whether or not having the force of law) from
any central bank or other Governmental Authority, in each case made
subsequent to the Closing Date (or, if later, the date on which such Lender
becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever
with respect to any Eurodollar Loans made by it or its obligation to
make Eurodollar Loans, or change the basis of taxation of payments to
such Lender in respect thereof (except for (i) Non-Excluded Taxes
covered by Section 3.10 (including Non-Excluded Taxes imposed solely
by reason of any failure of such Lender to comply with its obligations
under Section 3.10(b)) and (ii) changes in taxes measured by or
imposed upon the overall net income, or franchise tax (imposed in lieu
of such net income tax), of such Lender or its applicable lending
office, branch, or any affiliate thereof));
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances,
loans or other extensions of credit by, or any other acquisition of
funds by, any office of such Lender which is not otherwise included in
the determination of the Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding
any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or to reduce any amount
receivable hereunder in respect thereof, then, in any such case, upon notice to
the Borrower from such Lender, through the Agent, in accordance herewith, the
Borrower shall be obligated to promptly pay such Lender, upon its demand, any
additional amounts necessary to compensate such Lender for such increased cost
or reduce any amount receivable, provided that, in any such case, the Borrower
may elect to convert the Eurodollar Loans made by such Lender hereunder to Base
Rate Loans by giving the Agent at least one Business Day's notice of such
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election, in which case the Borrower shall promptly pay to such Lender, upon
demand, without duplication, such amounts, if any, as may be required pursuant
to Section 3.11. If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall provide prompt notice thereof to the
Borrower, through the Agent, certifying (x) that one of the events described in
this paragraph (a) has occurred and describing in reasonable detail the nature
of such event, (y) as to the increased cost or reduced amount resulting from
such event and (z) as to the additional amount demanded by such Lender and a
reasonably detailed explanation of the calculation thereof. Such a certificate
as to any additional amounts payable pursuant to this subsection submitted by
such Lender, through the Agent, to the Borrower shall be conclusive and binding
on the parties hereto in the absence of manifest error. This covenant shall
survive the termination of this Credit Agreement and the payment of the Loans
and all other amounts payable hereunder.
3.10 Taxes.
(a) Except as provided below in this subsection, all payments made by
the Borrower under this Credit Agreement and any Notes 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 court, or
governmental body, agency or other official, excluding taxes measured by or
imposed upon the overall net income of any Lender or its applicable lending
office, or any branch or affiliate thereof, and all franchise taxes, branch
taxes, taxes on doing business or taxes on the overall capital or net worth
of any Lender or its applicable lending office, or any branch or affiliate
thereof, in each case imposed in lieu of net income taxes, imposed: (i) by
the jurisdiction under the laws of which such Lender, applicable lending
office, branch or affiliate is organized or is located, or in which its
principal executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof; or (ii) by
reason of any connection between the jurisdiction imposing such tax and
such Lender, applicable lending office, branch or affiliate other than a
connection arising solely from such Lender having executed, delivered or
performed its obligations, or received payment under or enforced, this
Credit Agreement or any Notes. 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 the Agent
or any Lender hereunder or under any Notes, (A) the amounts so payable to
the Agent or such Lender shall be increased to the extent necessary to
yield to the 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 this Credit Agreement and any Notes, provided,
however, that the Borrower shall be entitled to deduct and
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withhold any Non-Excluded Taxes and shall not be required to increase any
such amounts payable to any Lender that is not organized under the laws of
the United States of America or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) of this subsection whenever
any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as
possible thereafter the Borrower shall send to the 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 Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Agent or any Lender as
a result of any such failure. The agreements in this subsection shall
survive the termination of this Credit Agreement and the payment of the
Loans and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(X) (i) on or before the date of any payment by the Borrower
under this Credit Agreement or Notes to such Lender, deliver to the
Borrower and the Agent (A) two (2) duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or successor
applicable form, as the case may be, certifying that it is entitled to
receive payments under this Credit Agreement and any Notes without
deduction or withholding of any United States federal income taxes and
(B) an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be, certifying that it is entitled to
an exemption from United States backup withholding tax;
(ii) deliver to the Borrower and the Agent two (2) further
copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the
Borrower or the Agent; or
(Y) in the case of any such Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Internal Revenue Code,(i) represent
to the Borrower (for the benefit of the Borrower and the Agent) that it is
not a bank within the meaning of Section 881(c)(3)(A) of the Internal
Revenue Code, (ii) agree to furnish to the Borrower on or before the date
of any payment by the Borrower, with a copy to the Agent two (2) accurate
and complete original signed copies of
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Internal Revenue Service Form W-8, or successor applicable form certifying
to such Lender's legal entitlement at the date of such certificate to an
exemption from U.S. withholding tax under the provisions of Section 881(c)
of the Internal Revenue Code with respect to payments to be made under this
Credit Agreement and any Notes (and to deliver to the Borrower and the
Agent two (2) further copies of such form on or before the date it expires
or becomes obsolete and after the occurrence of any event requiring a
change in the most recently provided form and, if necessary, obtain any
extensions of time reasonably requested by the Borrower or the Agent for
filing and completing such forms), and (iii) agree, to the extent legally
entitled to do so, upon reasonable request by the Borrower, to provide to
the Borrower (for the benefit of the Borrower and the Agent) such other
forms as may be reasonably required in order to establish the legal
entitlement of such Lender to an exemption from withholding with respect to
payments under this Credit Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has
occurred after the date such Person becomes a Lender hereunder 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 so advises the Borrower and the Agent. Each Person that shall become
a Lender or a participant of a Lender pursuant to subsection 11.3 shall,
upon the effectiveness of the related transfer, be required to provide all
of the forms certifications and statements required pursuant to this
subsection, provided that in the case of a participant of a Lender the
obligations of such participant of a Lender pursuant to this subsection (b)
shall be determined as if the participant of a Lender were a Lender except
that such participant of a Lender shall furnish all such required forms,
certifications and statements to the Lender from which the related
participation shall have been purchased.
(c) In connection with this transaction there may or may not be due
certain documentary stamp taxes and/or intangible taxes imposed by the
State of Florida (the "Florida Taxes"). In addition to (and not in
limitation of) the indemnification with respect to tax liabilities set
forth above, the Borrower agrees to indemnify the Agent and each Lender,
their directors, officers, agents and employees from and against any and
all liability, damage, loss, cost, expense or reasonable attorney fees
which may accrue to or be sustained by the Agent, a Lender or their
directors, officers, agents or employees on account of or arising from any
claim or action raised by, filed or brought by or in the name of any
Florida governmental or administrative department with respect to
nonpayment of the Florida Taxes against the Agent, a Lender, or any of
their directors, officers, agents or employees.
3.11 Indemnity. The Borrower promises to indemnify each Lender and to hold
each Lender harmless from an loss
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which such Lender may sustain or incur (other than through such Lender's gross
negligence or willful misconduct) as a consequence of (a) default by the
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the same in accordance
with the provisions of this Credit Agreement, (b) default by the Borrower in
making any prepayment of a Eurodollar Loan after the Borrower has given a notice
thereof in accordance with the provisions of this Credit Agreement or (c) the
making of a prepayment of Eurodollar Loans on a day which is not the last day of
an Interest Period with respect thereto. With respect to Eurodollar Loans, such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Eurodollar
Loans provided for herein (excluding, however, the Applicable Percentage
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank Eurodollar market. The covenants of the Borrower set
forth in this Section 3.11 shall survive the termination of this Credit
Agreement and the payment of the Loans and all other amounts payable hereunder.
3.12 Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) Loans. Each Revolving Loan, each payment or prepayment of
principal of any Revolving Loan, each payment of interest on the Revolving
Loans, each payment of Unused Fees, each reduction of the Revolving
Committed Amount and each conversion or extension of any Revolving Loan,
shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans.
(b) Advances. Unless the Agent shall have been notified in writing by
any Lender prior to a borrowing that such Lender will not make the amount
that would constitute its ratable share of such borrowing available to the
Agent, the Agent may assume that such Lender is making such amount
available to the Agent, and the Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Agent by such Lender within the time
period specified therefor hereunder, such Lender shall pay to the Agent, on
demand, such amount with interest thereon at a rate equal to the Federal
Funds Rate for the period until such Lender makes such amount immediately
available to the Agent. A certificate of the Agent submitted to any Lender
with respect to any amounts owing under this
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subsection shall be conclusive in the absence of manifest error.
3.13 Sharing of Payments. The Lenders agree among themselves that, in the
event that any Lender shall obtain payment in respect of any Loan or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim, received by such
Lender under any applicable bankruptcy, insolvency or other similar law or
otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a participation in such Loans and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this Credit
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each Lender which shall have shared the benefit of
such payment shall, by repurchase of a participation theretofore sold, return
its share of that benefit (together with its share of any accrued interest
payable with respect thereto) to each Lender whose payment shall have been
rescinded or otherwise restored. The Borrower agrees that any Lender so
purchasing such a participation may, to the fullest extent permitted by law,
exercise all rights of payment, including setoff, banker's lien or counterclaim,
with respect to such participation as fully as if such Lender were a holder of
such Loan or other obligation in the amount of such participation. Except as
otherwise expressly provided in this Credit Agreement, if any Lender or the
Agent shall fail to remit to the Agent or any other Lender an amount payable by
such Lender or the Agent to the Agent or such other Lender pursuant to this
Credit Agreement on the date when such amount is due, such payments shall be
made together with interest thereon for each date from the date such amount is
due until the date such amount is paid to the Agent or such other Lender at a
rate per annum equal to the Federal Funds Rate. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim
in lieu of a setoff to which this Section 3.13 applies, such Lender shall, to
the extent practicable, exercise its rights in respect of such secured claim in
a manner consistent with the rights of the Lenders under this Section 3.13 to
share in the benefits of any recovery on such secured claim.
3.14 Payments, Computations, Etc.
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Agent in dollars in immediately available funds,
without offset, deduction counterclaim or withholding of any find, at the
Agent's office specified in Schedule 2.1(a) not later than 2:00 P.M. (Charlotte,
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North Carolina time) on the date when due. Payments received after such time
shall be deemed to have been received on the next succeeding Business Day. The
Agent may (but shall not be obligated to) debit the amount of any such payment
which is not made by such time to any ordinary deposit account of the Borrower
maintained with the Agent (with notice to the Borrower). The Borrower shall, at
the time it makes any payment under this Credit Agreement, specify to the Agent
the Loans, Fees, interest or other amounts payable by the Borrower hereunder to
which such payment is to be applied (and in the event that it fails so to
specify, or if such application would be inconsistent with the terms hereof, the
Agent shall distribute such payment to the Lenders in such manner as the Agent
may determine to be appropriate in respect of obligations owing by the Borrower
hereunder, subject to the terms of Section 3.12 (a)). The Agent will distribute
such payments to such Lenders, if any such payment is received prior to 12:00
Noon (Charlotte, North Carolina time) on a Business Day in like funds as
received prior to the end of such Business Day and otherwise the Agent will
distribute such payment to such Lenders on the next succeeding Business Day.
Whenever any payment hereunder shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day (subject to accrual of interest and Fees for the period of such
extension), except that in the case of Eurodollar Loans, if the extension would
cause the payment to be made in the next following calendar month, then such
payment shall instead be made on the next preceding Business Day. Except as
expressly provided otherwise herein, all computations of interest and fees shall
be made on the basis of actual number of days elapsed over a year of 360 days,
except with respect to computation of interest on Base Rate Loans which (unless
the Base Rate is determined by reference to the Federal Funds Rate) shall be
calculated based on a year of 365 or 366 days, as appropriate. Interest shall
accrue from and include the date of borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Credit Agreement to the contrary, after the occurrence
and during the continuance of an Event of Default, all amounts collected or
received by the Agent or any Lender on account of the Borrower's Obligations or
any other amounts outstanding under any of the Credit Documents shall be paid
over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys, fees) of the
Agent in connection with enforcing the rights of the Lenders under the
Credit Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys, fees) of each
of the Lenders in connection with enforcing its rights under the Credit
Documents or otherwise
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with respect to the Borrower's Obligations owing to such Lender;
FOURTH, to the payment of all of the Borrower's obligations consisting
of accrued fees and interest, FIFTH, to the payment of the outstanding
principal amount of the Borrower's Obligations;
SIXTH, to all other Borrower's obligations and other obligations which
shall have become due and payable under the Credit Documents or otherwise
and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding Loans
held by such Lender bears to the aggregate then outstanding Loans) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and
"SIXTH" above.
3.15 Evidence of Debt. (a) Each Lender shall maintain an account or
accounts evidencing each Loan made by such Lender to the Borrower from time to
time, including the amounts of principal and interest payable and paid to such
Lender from time to time under this Credit Agreement. Each Lender will make
reasonable efforts to maintain the accuracy of its account or accounts and to
promptly update its account or accounts from time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section 11.3 (c)
hereof, and a subaccount for each Lender, in which Register and subaccounts
(taken together) shall be recorded (i) the amount, type and Interest Period of
each such Loan hereunder, (ii) the amount of any principal or interest due and
payable or to become due and payable to each Lender hereunder and (iii) the
amount of any sum received by the Agent hereunder from or for the account of the
Borrower and each Lender's share thereof. The Agent will make reasonable efforts
to maintain the accuracy of the subaccounts referred to in the preceding
sentence and to promptly update such subaccounts from time to time, as
necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.15 (and, if consistent
with the entries of the Agent, subsection (a)) shall be prima facie evidence of
the existence and amounts of the obligations of the Borrower therein recorded;
provided, however, that the failure of any Lender or the Agent to maintain any
such account, such Register or such subaccount, as applicable, or any error
therein, shall not in any manner affect the obligation
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of the Borrower to repay the Loans made by such Lender in accordance with the
terms hereof.
SECTION 4
GUARANTY
4.1 The Guarantee. Each of the Guarantors hereby jointly and severally
guarantees to each Lender, each Affiliate of a Lender that enters into a Hedging
Agreement and the Agent as hereinafter provided the prompt payment of the
Borrower's obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration or otherwise) strictly in accordance with
the terms thereof. The Guarantors hereby further agree that if any of the
Borrower's Obligations are not paid in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise), the
Guarantors will jointly and severally, promptly pay the same, without any demand
or notice whatsoever, and that in the case of any extension of time of payment
or renewal of any of the Borrower's Obligations, the same will be promptly paid
in full when due (whether at extended maturity, as a mandatory prepayment, by
acceleration or otherwise) in accordance with the terms of such extension or
renewal.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of each Guarantor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
4.2 Obligations Unconditional. The obligations of the Guarantors under
Section 4.1 hereof are joint and several, absolute and unconditional,
irrespective of the value, genuineness, validity, regularity or enforceability
of any of the Credit Documents or Hedging Agreements, or any other agreement or
instrument referred to therein, or any substitution, release or exchange of any
other guarantee of or security for any of the Borrower's Obligations, and, to
the fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent of this
Section 4.2 that the obligations of the Guarantors hereunder shall be absolute
and unconditional under any and all circumstances. Each Guarantor agrees that
such Guarantor shall have no right of subrogation, indemnity, reimbursement or
contribution against the Borrower or any other Guarantor of the Borrower's
Obligations for amounts paid under this Guaranty until such time as the Lenders
(and any Affiliates of Lenders entering into Hedging Agreements) have been paid
in full, all Commitments under the Credit Agreement have been terminated and no
Person or Governmental Authority shall
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have any right to request any return or reimbursement of funds from the Lenders
in connection with monies received under the Credit Documents or Hedging
Agreements. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Guarantor hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to any Guarantor,
the time for any performance of or compliance with any of the Borrower's
Obligations shall be extended, or such performance or compliance shall be
waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(iii) the maturity of any of the Borrower's Obligations shall be
accelerated, or any of the Borrower's Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreements or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Borrower's Obligations or
any security therefor shall be released or exchanged in whole or in part or
otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Agent or any Lender or
Lenders as security for any of the Borrower's Obligations shall fail to
attach or be perfected; or
(v) any of the Borrower's Obligations shall be determined to be void
or voidable (including, without limitation, for the benefit of any creditor
of any Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit
Documents, any Hedging Agreements or any other agreement or instrument referred
to in the Credit Documents or Hedging Agreements or against any other Person
under any other guarantee of, or security for, any of the Borrower's
Obligations.
4.3 Reinstatement. The obligations of the Guarantors under this Section
4 shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of any Person in respect of the Borrower's obligations
is rescinded or must be otherwise restored by any holder of any of the
Borrower's obligations, whether as a result of any proceedings in bankruptcy
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or reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 Remedies. The Guarantors agree that, to the fullest extent
permitted by law, as between the Guarantors, on the one hand, and. the Agent and
the Lenders, on the other hand, the Borrower's Obligations may be declared to be
forthwith due and payable as provided in Section 9.2 hereof (and shall be deemed
to have become automatically due and payable in the circumstances provided in
said Section 9.2) for purposes of Section 4.1 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing the
Borrower's Obligations from becoming automatically due and payable) as against
any other Person and that, in the event of such declaration (or the Borrower's
Obligations being deemed to have become automatically due and payable), the
Borrower's Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of said
Section 4.1.
4.5 Rights of Contribution. The Guarantors hereby agree, as among
themselves, that if any Guarantor shall become an Excess Funding Guarantor (as
defined below), each other Guarantor shall, on demand of such Excess Funding
Guarantor (but subject to the succeeding provisions of this Section 4.5), pay to
such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share
(as defined below and determined, for this purpose, without reference to the
properties, assets, liabilities and debts of such Excess Funding Guarantor) of
such Excess Payment (as defined below). The payment obligation of any Guarantor
to any Excess Funding Guarantor under this Section 4.5 shall be subordinate and
subject in right of payment to the prior payment in full of the obligations of
such Guarantor under the other provisions of this Section 4, and such Excess
Funding Guarantor shall not exercise any right or remedy with respect to such
excess until payment and satisfaction in full of all of such obligations. For
purposes hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any
obligations arising under the other provisions of this Section 4 (hereafter, the
"Guaranteed Obligations"), a Guarantor that has paid an amount in excess of its
Pro Rata Share of the Guaranteed obligations; (ii) "Excess Payment" shall mean,
in respect of any Guaranteed Obligations, the Amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guaranteed obligations; and
(iii) "Pro Rata Share", for the purposes of this Section 4.5, shall mean, for
any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which
the aggregate present fair saleable value of all of its assets and properties
exceeds the amount of all debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured, and unliquidated liabilities, but excluding
the obligations of such Guarantor hereunder) to (b)
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the amount by which the aggregate present fair saleable value of all assets and
other properties of the Borrower and all of the Guarantors exceeds the amount of
all of the debts and liabilities (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of the Borrower and
the Guarantors hereunder) of the Borrower and all of the Guarantors, all as of
the Closing Date (if any Guarantor becomes a party hereto subsequent to the
Closing Date, then for the purposes of this Section 4.5 such subsequent
Guarantor shall be deemed to have been a Guarantor as of the Closing Date and
the information pertaining to, and only pertaining to, such Guarantor as of the
date such Guarantor became a Guarantor shall be deemed true as of the Closing
Date).
4.6 Continuing Guarantee. The guarantee in this Section 4 is a continuing
guarantee, and shall apply to all Borrower's obligations whenever arising.
SECTION 5
CONDITIONS
5.1 Closing Conditions. The obligation of the Lenders to enter into this
Credit Agreement and to make the initial Loans, whichever shall occur first,
shall be subject to satisfaction of the following conditions (in form and
substance acceptable to the Lenders):
(a) The Agent shall have received original counterparts of this Credit
Agreement executed by each. of the parties hereto;
(b) The Agent shall have received an appropriate original Committed
Note for each Lender, executed by the Borrower;
(c) The Agent shall have received all documents it may reasonably
request relating to the existence and good standing of each of the Credit
Parties, the corporate or other necessary authority for and the validity of
the Credit Documents, and any other matters relevant thereto, all in form
and substance reasonably satisfactory to the Agent;
(d) The Agent shall have received a certificate executed by the chief
financial officer of the Borrower as of the Closing Date stating that
immediately after giving effect to this Credit Agreement and the other
Credit Documents, (i) the Borrower on a consolidated basis is Solvent (ii)
no Default or Event of Default exists and (iii) the representations and
warranties set forth in Section 6 are true and correct in all material
respects;
(e) The Agent shall have received a legal opinion of Holland & Knight,
counsel for the Credit Parties, dated as of
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the Closing Date and substantially in the form of Schedule 5.1(e)
(f) No material adverse change shall have occurred since December 31,
1995 in the condition (financial or otherwise), business, management or
prospects of the Borrower and its Subsidiaries taken as a whole;
(g) The Agent shall have received copies of insurance policies or
certificates of insurance of the Credit Parties evidencing liability and
casualty insurance meeting the requirements of the Credit Documents;
(h) The Agent shall have received a copy, certified by an officer of
the Borrower as true and complete, of the Subordinated Debt Agreement,
together with any amendments thereto;
(i) The Agent shall have received, for its own account and for the
accounts of the Lenders, all fees and expenses required by this Credit
Agreement or any other Credit Document to be paid on or before the Closing
Date; and
(j) The Agent shall have received such other documents, agreements or
information which may be reasonably requested by the Agent.
5.2 Conditions to all Extensions of Credit. The obligations of each Lender
to make, convert or extend any Loan (including the initial Loans) are subject to
satisfaction of the following conditions in addition to satisfaction on the
Closing Date of the conditions set forth in Section 5.1:
(i) The Borrower shall have delivered, an appropriate Notice of
Borrowing or Notice of Extension/Conversion;
(ii) The representations and warranties set forth in Section 6 shall
be, subject to the limitations set forth therein, true and correct in all
material respects as of such date (except for those which expressly relate
to an earlier date);
(iii) There shall not have been commenced against the Borrower or any
Guarantor an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or any case, proceeding or
other action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or for the winding up or
liquidation of its affairs, and such involuntary case or other case,
proceeding or other action shall remain undismissed, undischarged or
unbonded;
(iv) No Default or Event of Default shall exist and be continuing
either prior to or after giving effect thereto;
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(v) No material adverse change shall have occurred since December 31,
1995 in the condition (financial or otherwise), business, management or
prospects of the Borrower and its Subsidiaries taken as a whole; and
(vi) Immediately after giving effect to the making of such Loan (and
the application of the proceeds thereof), the sum of the aggregate
principal amount of outstanding Revolving Loans shall not exceed the
Revolving Committed Amount.
The delivery of each Notice of Borrowing and each Notice of Extension/Conversion
shall constitute a representation and warranty by the Borrower of the
correctness of the matters specified in subsections (ii), (iii), (iv), (v) and
(vi) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agent and each Lender that:
6.1 Financial Condition. (a) The audited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as of December 31, 1995 and the
audited consolidated statements of earnings and statements of cash flows for the
years ended December 31, 1995 and December 31, 1994 have heretofore been
furnished to each Lender. Such financial statements (including the notes
thereto)(i) have been audited by KPMG Peat Marwick, (ii) have been prepared in
accordance with GAAP consistently, applied throughout the periods covered
thereby and (iii) present fairly (on the basis disclosed in the footnotes to
such financial statements) the consolidated financial condition, results of
operations and cash flows of the Borrower and its consolidated Subsidiaries as
of such date and for such periods. The unaudited interim balance sheets of the
Borrower and its consolidated Subsidiaries as at the end of, and the related
unaudited interim statements of earnings and of cash flows for, each fiscal
quarterly period ended after December 31, 1995 and prior to the Closing Date
have heretofore been furnished to each Lender. Such interim financial statements
for each such quarterly period, (i) have been prepared in accordance with GAAP
consistently applied throughout the periods covered thereby and (ii) present
fairly (on the basis disclosed in the footnotes to such financial statements)
the consolidated financial condition, results of operations and cash flows of
the Borrower and its consolidated Subsidiaries as of such date and for such
periods. During the period from December 31, 1995 to and including the Closing
Date, except as disclosed on Schedule 6.1(a), there has been no sale, transfer
or other disposition by the Borrower or any of its Subsidiaries of any material
part of the business or property of the Borrower and its consolidated
Subsidiaries, taken as a whole, and no purchase or other acquisition by, any of
them of any business or property (including any capital stock of any other
person) material in relation to the consolidated financial
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condition of the Borrower and its consolidated Subsidiaries, taken as a whole,
in each case, which, is not reflected in the foregoing financial statements or
in the notes thereto and has not otherwise been disclosed in writing to the
Lenders on or prior to the Closing Date.
(b) The Delivered Annual Statements, including, without limitation, the
provisions made therein for reserves, policy and contract claims, copies of
which have heretofore been delivered to each Lender, have been prepared in
accordance with SAP applied on a consistent basis (except as otherwise disclosed
to the Lenders). The Quarterly Statements of each of the Insurance Subsidiaries,
including, without limitation, the provisions made therein for reserves, policy
and contract claims, as filed with the appropriate Governmental Authorities of
its state of domicile, for the fiscal quarters ending March 31, 1996 and June
30, 1996, copies of which have heretofore been delivered to each Lender, have
been prepared in accordance with SAP applied on a consistent basis (except as
otherwise disclosed to the Lenders). All SAP Statements which have heretofore
been delivered to the Lenders fairly present the financial condition, the
results of operations, changes in equity and changes in financial position of
the Insurance Subsidiaries as of and for the respective dates and period
indicated therein.
6.2 No Change; Dividends. Since December 31, 1995, (a) there has been no
development or event relating to or affecting the Borrower or any of its
Subsidiaries which has had or would be reasonably expected to have a Material
Adverse Effect and (b) except as permitted under this Credit Agreement, no
dividends or other distributions have been declared, paid or made upon the
capital stock or other equity interest in the Borrower or any of its
Subsidiaries nor, except to the extent permitted under this Credit Agreement,
has any of the capital stock or other equity interest in the Borrower or any of
its Subsidiaries been redeemed, retired, purchased or otherwise acquired for
value by such Person.
6.3 Organization; Existence; Compliance with Law. Each of the Borrower and
its Subsidiaries (a) is a corporation duly organized, validly existing and is in
good standing under the laws of the jurisdiction of its incorporation or
organization, (b) has the corporate or other necessary power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign entity and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, and (d) is in compliance
with all material Requirements of Law.
6.4 Power; Authorization; Enforceable Obligations. Each of the Credit
Parties has the corporate or other necessary power and authority, and the legal
right, to make, deliver and perform the Credit Documents to which it is a party,
and in the case of the Borrower, to borrow hereunder, and has taken all
necessary corporate action to authorize the borrowings on the terms and
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conditions of this Credit Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of the Credit Documents to which such Credit Party is a party,
except for consents, authorizations, notices and filings described in Schedule
6.4, all of which have been obtained or made or have the status described in
such Schedule 6.4. This Credit Agreement has been, and each other Credit
Document to which any Credit Party is a party will be, duly executed and
delivered on behalf of the Credit Parties. This Credit Agreement constitutes,
and each other Credit Document to which any Credit Party is a party when
executed and delivered will constitute, a legal, valid and binding obligation of
such Credit Party enforceable against such party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
6.5 No Legal Bar. The execution, delivery and performance of the Credit
Documents by the Credit Parties, the borrowings hereunder and the use of the
proceeds thereof (a) will not violate any Requirement of Law or contractual
obligation of the Borrower or any of its Subsidiaries in any respect that would
reasonably be expected to have a Material Adverse Effect, (b) will not violate
any provision of the Subordinated Debt Agreement, (c) will not result in, or
require, the creation or imposition of any Lien on any of the properties or
revenues of any of the Borrower or any of its Subsidiaries pursuant to any such
Requirement of Law or contractual obligation, and (d) will not violate or
conflict with any provision of any Credit Party's articles of incorporation or
by-laws.
6.6 No Material Litigation. Except as disclosed and described in Schedule
6.6 attached hereto, no litigation investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the best knowledge of the
Credit Parties, threatened by or against the Borrower or any of its Subsidiaries
or against any of their respective properties or revenues which (a) relates to
any of the Credit Documents or any of the transactions contemplated hereby or
thereby or (b) would be reasonably expected to have a Material Adverse Effect.
6.7 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of their contractual obligations in any
respect which would be reasonably expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
6.8 Ownership of Property: Liens. Each of the Borrower and its Subsidiaries
has good record and marketable title in fee simple
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to, or a valid leasehold interest in, all its material real property, and good
title to, or a valid leasehold interest in, all its other material property, and
none of such property is subject to any Lien, except for Permitted Liens.
6.9 No Burdensome Restrictions. Except as previously disclosed in writing
to the Lenders on or prior to the Closing Date, no Requirement of Law or
contractual obligation of the Borrower or any of its Subsidiaries would be
reasonably expected to have a Material Adverse Effect.
6.10 Taxes. Each of the Borrower and its Subsidiaries has filed or caused
to be filed all United States federal income tax returns and all other material
tax returns which, to the best knowledge of the Credit Parties, are required to
be filed and has paid (a) all taxes shown to be due and payable on said returns
or (b) all taxes shown to be due and payable on any assessments of which it has
received notice made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than any (i), taxes, fees or other charges with respect to
which the failure to pay, in the aggregate, would not have a Material Adverse
Effect or (ii) taxes, fees or other charges the amount or validity of which are
currently being contested and with respect to which reserves in conformity with
GAAP have been provided on the books of such Person), and no tax Lien has been
filed, and, to the best knowledge of the Credit Parties, no claim is being
asserted, with respect to any such tax, fee or other charge.
6.11 ERISA. Except as would not result in a Material Adverse Effect:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no Termination Event has occurred,
and, to the best knowledge of the Credit Parties, no event or condition has
occurred or exists as a result of which any Termination Event could reasonably
be expected to occur, with respect to any Plan; (ii) no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and Section 412 of
the Code, whether or not waived, has occurred with respect to any Plan; (iii)
each Plan has been maintained, operated, and funded in compliance with its own
terms and in material compliance with the provisions of ERISA, the Code, and any
other applicable federal or state laws; and (iv) no lien in favor of the PBGC or
a Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" under all
Single Employer Plans (determined within the meaning of Section 401(a)(2) of the
Code, utilizing the actuarial assumptions used to fund such Plans), whether or
not vested, did not, as of the last annual valuation date prior to the date on
which this representation is made or deemed made, exceed the current value of
the assets of all such Plans.
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(c) Neither the Borrower, any of the Subsidiaries of the Borrower nor any
ERISA Affiliate has incurred, or, to the best knowledge of the Credit Parties,
could be reasonably expected to incur, any withdrawal liability under ERISA to
any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower, any of
the Subsidiaries of the Borrower nor any ERISA Affiliate would become subject to
any withdrawal liability under ERISA if the Borrower, any of the Subsidiaries of
the Borrower or any ERISA Affiliate were to withdraw completely from all
Multiemployer Plans and Multiple Employer Plans as of the valuation date most
closely preceding the date on which this representation is made or deemed made.
Neither the Borrower, any of the Subsidiaries of the Borrower nor any ERISA
Affiliate has received any notification that any Multiemployer Plan is in
reorganization (within the meaning of Section 4241 of ERISA), is insolvent
(within the meaning of Section 4245 of ERISA), or has been terminated (within
the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best
knowledge of the Credit Parties, reasonably expected to be in reorganization,
insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) or breach of fiduciary responsibility has occurred
with respect to a Plan which has subjected or may subject the Borrower, any of
the Subsidiaries of the Borrower or any ERISA Affiliate to any liability under
Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which the Borrower, any of
the Subsidiaries of the Borrower or any ERISA Affiliate has agreed or is
required to indemnify any person against any such liability.
(e) The present value (determined using actuarial and other assumptions
which are reasonable with respect to the benefits provided and the employees
participating) of the liability of the Borrower, each Subsidiary of the Borrower
and each ERISA Affiliate for post-retirement welfare benefits to be provided to
their current and former employees under Plans which are welfare benefit plans
(as defined in Section 3(1) of ERISA), net of all assets under all such Plans
allocable to such benefits, are reflected on the Financial Statements in
accordance with FAS 106.
6.12 Governmental Regulations, Etc.
(a) No part of the proceeds of the Loans will be used, directly or
indirectly, for the purpose of purchasing or carrying any "margin stock"
within the meaning of Regulation G or Regulation U, or for the purpose of
purchasing or carrying or trading in any securities. If requested by any
Lender or the Agent, the Borrower will furnish to the Agent and each Lender
a statement to the foregoing effect in conformity with the requirements of
FR Form U-1 referred to in said Regulation U. No indebtedness being reduced
or retired out of the proceeds of the Loans was or will be incurred for the
purpose of purchasing or carrying any margin stock within the meaning of
Regulation U or any "margin security" within
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the meaning of Regulation T. "Margin stock" within the meanings of
Regulation U does not constitute more than 25% of the value of the
consolidated assets of the Borrower and its Subsidiaries. None of the
transactions contemplated by this Credit Agreement (including, without
limitation, the direct or indirect use of the proceeds of the Loans) will
violate or result in a violation of the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, or regulations issued
pursuant thereto, or Regulation G, T, U or X.
(b) Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act or the Investment Company Act of 1940, each as amended.
In addition, neither the Borrower nor any of its Subsidiaries (other than
RISCORP Asset management, Inc.) is (i) an "investment company" registered
or required to be registered under the Investment Company Act of 1940, as
amended, and is not controlled by such a company, or (ii) a "holding
company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary" of a "holding
company", within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(c) The Insurance Subsidiaries have filed all reports, statements,
documents, registrations, filings, or submissions required to be filed with
any Governmental Authority with respect to which the failure to so file
will individually or in the aggregate have a material adverse effect on the
condition (financial or otherwise), operations, business, assets,
liabilities or prospects of any Insurance Subsidiary, or except as
otherwise agreed to by the applicable Governmental Authority. All such
filings complied with applicable law in all material respects when filed,
and no material deficiencies have been asserted by any Governmental
Authority with respect to such filings or submissions.
(d) No director, executive officer or principal shareholder of the
Borrower or any of its Subsidiaries is a director, executive officer or
principal shareholder of any Lender. For the purposes hereof the terms
"director", "executive officer" and "principal shareholder" (when used with
reference to any Lender) have the respective meanings assigned thereto in
Regulation 0 issued by the Board of Governors of the Federal Reserve
System.
(e) Each of the Borrower and its Subsidiaries has obtained all
material licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its respective Property and to the conduct of
its business.
(f) Neither the Borrower nor any of its Subsidiaries is in violation
of any applicable statute, regulation or ordinance of the United States of
America, or of any state, city, town, municipality, count or an other
Jurisdiction or
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of any agency thereof (including without limitation, environmental laws and
regulations), which violation could reasonably be expected to have a
Material Adverse Effect.
(g) Each of the Borrower and its Subsidiaries is current with all
material reports and documents, if any, required to be filed with any state
or federal securities commission or similar agency and is in full
compliance in all material respects with all applicable rules and
regulations of such commissions.
6.13 Subsidiaries. Schedule 6.13 sets forth all the Subsidiaries of the
Borrower at the Closing Date, the jurisdiction of their incorporation and the
direct or indirect ownership interest of the Borrower therein.
6.14 Purpose of Loans. The proceeds of the Revolving Loans hereunder shall
be used solely by the Borrower for the working capital and general corporate
purposes of the Borrower and its Wholly Owned Subsidiaries (other than RISCORP
Asset Management, Inc.). The proceeds of the Term Loan shall be used solely by
the Borrower to repay in full the Revolving Loans.
6.15 Environmental Matters.
(a) Each of the facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") and all operations at the
Properties are in compliance with all applicable Environmental Laws, and there
is no violation of any Environmental Law with respect to the Properties or the
businesses operated by the Borrower or any of its Subsidiaries (the
"Businesses"), and there are no conditions relating to the Businesses or
Properties that could give rise to liability under any applicable Environmental
Laws.
(b) None of the Properties contains, or has previously contained, any
Materials of Environmental Concern at, on or under the Properties in amounts or
concentrations that constitute or constituted a violation of, or could give rise
to liability under, Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has received any
written or verbal notice of, or inquiry from any Governmental Authority
regarding, any violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the Businesses, nor
does the Borrower or any of its Subsidiaries have knowledge or reason to believe
that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties, or generated, treated, stored or disposed of
at, on or under any of the Properties or any other location, in each case by or
on behalf of
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the Borrower or any of its Subsidiaries in violation of, or in a manner that
would be reasonably likely to give rise to liability under, any applicable
Environmental Law.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the best knowledge of any Credit Party, threatened, under any
Environmental Law to which the Borrower or any of its Subsidiaries is or will be
named as a party, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect to
the Borrower or any of its Subsidiaries, the Properties or the Businesses.
(f) There has been no release or, threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations (including, without limitation, disposal) of the Borrower or any
of its Subsidiaries in connection with the Properties or otherwise in connection
with the Businesses, in violation of or in amounts or in a manner that could
give rise to liability under Environmental Laws.
6.16 Insurance Policies. All insurance policies or contracts,
including, without limitation, annuities issued or assumed by the Insurance
Subsidiaries and now in force, are, to the extent required under applicable law,
on forms approved by the insurance regulatory authority of the state or
jurisdiction where issued or have been filed with and not objected to by such
authority within the period provided for objection except where the issuance of
such policies or contracts without such approval or expiration of the period for
objection will not, individually or in the aggregate, have a Material Adverse
Effect. All policy or annuity dividends and benefits payable by the Insurance
Subsidiaries have in all material respects been paid in accordance with the
terms of the policies and annuities under which they arose, except for such
dividends or other benefits for which such Insurance Subsidiary reasonably
believes there is a reasonable basis to contest payment.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
7.1 Information Covenants. The Borrower will furnish, or cause to be
furnished, to the Agent:
(a) Annual Financial Statements.
(i) As soon as available, and in any event within 120 days after the
close of each fiscal year of the Borrower and
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its Subsidiaries, a consolidated balance sheet and income statement of the
Borrower and its Subsidiaries, as of the end of such fiscal year, together
with related consolidated statements of operations, retained earnings,
changes in stockholders' equity and cash flows for such fiscal year,
setting forth in comparative form consolidated figures for the preceding
fiscal year, all such financial information described above to be in
reasonable form and detail and audited by independent certified public
accountants of recognized national standing reasonably acceptable to the
Agent and whose opinion shall be to the effect that such financial
statements have been prepared in accordance with GAAP (except for changes
with which such accountants concur) and shall not be limited as to the
scope of the audit or qualified as to the status of the Borrower and its
Subsidiaries as a going concern.
(ii) As soon as available, and in any event within 120 days (or, if
later, as required by applicable law) after the close of each fiscal year
of an Insurance Subsidiary, the most recent SAP Statement of such Insurance
Subsidiary, as audited in accordance with applicable law and accompanied by
a certificate of a knowledgeable officer of such Insurance Subsidiary to
the effect that such SAP Statement fairly presents in all material respects
the financial condition of such Insurance Subsidiary and has been prepared
in accordance with SAP.
(b) Quarterly Financial Statements.
(i) As soon as available, and in any event within 45 days after the
close of each fiscal quarter of the Borrower and its Subsidiaries (other
than the fourth fiscal quarter, in which case 120 days after the end
thereof) a consolidated and consolidating balance sheet and income
statement of the Borrower and its Subsidiaries, as of the end of such
fiscal quarter, together with related consolidated statements of
operations, retained earnings and cash flows for such fiscal quarter in
each case setting forth in comparative form consolidated figures for the
corresponding period of the preceding fiscal year, all such financial
information described above to be in reasonable form and detail and
reasonably acceptable to the Agent, and accompanied by a certificate of the
chief financial officer of the Borrower to the effect that such quarterly
financial statements fairly present in all material respects the financial
condition of the Borrower and its Subsidiaries and have been prepared in
accordance with GAAP, subject to changes resulting from audit and normal
year-end audit adjustments.
(ii) As soon as available, and in any event within 45 days after the
close of each fiscal quarter of an Insurance Subsidiary (other than the
fourth fiscal quarter, in which case 120 days after the end thereof), the
most recent SAP Statement of such Insurance Subsidiary, in each case
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accompanied by a certificate of a knowledgeable officer of such Insurance
Subsidiary to the effect that such SAP Statement fairly presents in all
material respects the financial condition of such Insurance Subsidiary and
has been prepared in accordance with SAP.
(c) Officer's Certificate. At the time of delivery of the financial
statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate
of the chief financial officer of the Borrower; substantially in the form
of Schedule 7.1(c), (i) demonstrating compliance with the financial
covenants contained in Section 7.11 by calculation thereof as of the end of
each such fiscal period and (ii) stating that no Default or Event of
Default exists, or if any Default or Event of Default does exist,
specifying the nature and extent thereof and what action the Borrower
proposes to take with respect thereto.
(d) Actuarial Report. Within the period for delivery of the annual
financial statements provided in Section 7.1(a)(ii), an Actuarial Report
prepared by an independent actuary reasonably acceptable to the Agent and
certified as to such Insurance Subsidiary's reserve position as of such
fiscal year end by such independent actuary.
(e) IRIS Test Results. As soon as received after the end of each
Fiscal Year of each Insurance Subsidiary, a copy of the final report to
such Insurance Subsidiary from the NAIC as to such Insurance Subsidiary's
status under the IRIS Tests.
(f) Auditor's Reports. Promptly upon receipt thereof, a copy of any
other report or "management letter" submitted by independent accountants to
the Borrower or any of its Subsidiaries in connection with any annual,
interim or special audit of the books of such Person.
(g) Reports. Promptly upon transmission or receipt thereof, (a)
copies of any filings and registrations with, and reports to or from, the
Securities and Exchange Commission, or any successor agency, and copies of
all financial statements, proxy statements, notices and reports as the
Borrower or any of its Subsidiaries shall send to its shareholders or to a
holder of any Indebtedness owed by the Borrower or any of its Subsidiaries
in its capacity as such a holder, (b) copies of any reports on examination
or similar reports, financial examination reports or market conduct
examination reports by a Governmental Authority with respect to any
Insurance Subsidiary relating to such Insurance Subsidiary's insurance
business, (c) copies of all Insurance Holding Company Systems Act filings
and (d) upon the request of the Agent, all reports and written information
to and from the United States Environmental Protection Agency, or any state
or local agency responsible for environmental matters, the United States
Occupational Health and Safety Administration, or any state or local agency
responsible for health and safety matters, or any
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successor agencies or authorities concerning environmental, health or
safety matters.
(h) Notices. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Agent immediately of (a) the occurrence of an event
or condition consisting of a Default or Event of Default, specifying the
nature and existence thereof and what action the Credit Parties propose to
take with respect thereto, and (b) the occurrence of any of the following
with respect to the Borrower or any of its Subsidiaries (i) the pendency or
commencement of any litigation, arbitral or governmental proceeding against
such Person which if adversely determined is likely to have a Material
Adverse Effect, (ii) the institution of any proceedings against such Person
with respect to, or the receipt of notice by such Person of potential
liability or responsibility for violation, or alleged violation of any
federal, state or local law, rule or regulation, including but not limited
to, Environmental Laws, the violation of which would likely have a Material
Adverse Effect, or (iii) any notice or determination concerning the
imposition of any withdrawal liability by a Multiemployer Plan against such
Person or any ERISA Affiliate, the determination that a Multiemployer Plan
is, or is expected to be, in reorganization within the meaning of Title IV
of ERISA or the termination of any Plan.
(i) ERISA. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Agent promptly (and in any event within five business
days) of: (i) of any event or condition, including, but not limited to, any
Reportable Event, that constitutes, or might reasonably lead to, a
Termination Event; (ii) with respect to any Multiemployer Plan, the receipt
of notice as prescribed in ERISA or otherwise of any withdrawal liability
assessed against the Borrower or any of its ERISA Affiliates, or of a
determination that any Multiemployer Plan is in reorganization or insolvent
(both within the meaning of Title IV of ERISA); (iii) the failure to make
full payment on or before the due date (including extensions) thereof of
all amounts which the Borrower, any of the Subsidiaries of the Borrower or
any ERISA Affiliate is required to contribute to each Plan pursuant to its
terms and as required to meet the minimum funding standard set forth in
ERISA and the Code with respect thereto; or (iv) any change in the funding
status of any Plan that could have a Material Adverse Effect; together,
with a description of any such event or condition or a copy of any such
notice and a statement by the chief financial officer of the Borrower
briefly setting forth the details regarding such event, condition, or
notice, and the action, if any, which has been or is being taken or is
proposed to be taken by the Credit Parties with respect thereto. Promptly
upon request, the Borrower shall furnish the Agent and the Lenders with
such additional information concerning any Plan as may be reasonably
requested, including, but not limited to, copies of
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each annual report/return (Form 5500 series), as well as all
schedules and attachments thereto required to be filed with the
Department of Labor and/or the Internal Revenue Service pursuant to
ERISA and the Code, respectively, for each "plan year, (within the
meaning of Section 3(39) of ERISA).
(j) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of the Borrower or any of its Subsidiaries as the
Agent or the Required Lenders may reasonably request.
7.2 Preservation of Existence and Franchises. The Borrower will, and
will cause each of its Subsidiaries to, do all things necessary to preserve
and keep in full force and effect its existence, rights, franchises and
authority, except (a) as a result of or in connection with a dissolution,
merger or disposition of a Subsidiary permitted by Section 8.4(a), Section
8.4(b) or Section 8.4(c) or (b) as would not, in the reasonable opinion of
the Agent, result in a Material Adverse Effect.
7.3 Books and Records. The Borrower will, and will cause each of its
Subsidiaries to, keep complete and accurate books and records of its
transactions in accordance with good accounting practices on the basis of
GAAP and, with respect to any Insurance Subsidiary, SAP (including the
establishment and maintenance of appropriate reserves).
7.4 Compliance with Law. The Borrower will, and will cause each of its
Subsidiaries to, comply with all laws, rules, regulations and orders, and
all applicable restrictions imposed by all Governmental Authorities,
applicable to it and its property if noncompliance with any such law, rule,
regulation, order or restriction would have a Material Adverse Effect.
7.5 Payment of Taxes and Other Indebtedness. Except as otherwise
provided pursuant to the terms of the definition of "Permitted Liens" set
forth in Section 1.1, the Borrower will, and will cause each of its
Subsidiaries to, pay and discharge (i) all taxes, assessments and
governmental charges for levies imposed upon it, or upon its income or
profits, or upon any of its properties, before they shall become
delinquent, (ii) all lawful claims (including claims for labor, materials
and supplies) which, if unpaid, might give rise to a Lien upon any of its
properties, and (iii) except as prohibited hereunder, all of its other
Indebtedness as it shall become due.
7.6 Insurance/Reinsurance.
(a) The Borrower will, and will cause each of its Subsidiaries
to, at all times maintain in full force and effect insurance
(including worker's compensation insurance, liability insurance,
casualty insurance and business interruption insurance) in such
amounts, covering such risks
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and liabilities and with such deductibles or self-insurance retentions
as are in accordance with normal industry practice.
(b) The Borrower will cause each of its Insurance Subsidiaries to
maintain, at all time and in accordance with normal industry practice,
Reinsurance Agreements that are with reinsurers rated "A-" or better
by A.M. Best & Company, Inc., provided that up to $3,000,000 in
Reinsurance Agreements may be with reinsurers that are rated less than
"A-" but no worse than "B" by A.M. Best & Company, Inc.
7.7 maintenance of Property. The Borrower will, and will cause each
of its Subsidiaries to, maintain and preserve its properties and equipment
material to the conduct of its business in good repair, working order and
condition, normal wear and tear and casualty and condemnation excepted, and
will make, or cause to be made, in such properties and equipment from time to
time all repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto as may be needed or proper, to the extent and in the
manner customary for companies in similar businesses.
7.8 Performance of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, perform in all material respects all of its
obligations under the terms of all material agreements, indentures, mortgages,
security agreements or other debt instruments (including, without limitation,
the Subordinated Debt Agreement) to which it is a party or by which it is bound.
7.9 Use of Proceeds. The Borrower will use the proceeds of the
Loans solely for the purposes set forth in Section 6.14.
7.10 Audits/Inspections. Upon reasonable notice and during normal
business hours, the Borrower will, and will cause each of its Subsidiaries to,
permit representatives appointed by the Agent, including, without limitation,
independent accountants, agents, attorneys, and appraisers to visit and inspect
its property, including its books and records, its accounts receivable and
inventory, its facilities and its other business assets, and to make
photocopies or photographs thereof and to write down and record any information
such representative obtains and shall permit the Agent or its representatives
to investigate and verify the accuracy of information provided to the Lenders
and to discuss all such matters with the officers, employees and
representatives of such Person, all (unless an Event of Default shall have
occurred and be continuing) at the Lenders' sole cost and expense.
7.11 Financial Covenants.
(a) Consolidated Leverage Ratio. As of the last day of each
fiscal quarter, the Borrower shall cause the Consolidated
Leverage Ratio to be no greater than 0.45 to 1.00.
(b) Consolidated Current Maturities Coverage Ratio. The
Borrower shall cause the Consolidated Current Maturities
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Coverage Ratio as of the last day of each fiscal quarter to be at least:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Each fiscal quarter end
occurring from the Closing
Date through and including
September 30, 1997 1.2 to 1.0
Each fiscal quarter end
occurring from October 1, 1997
through and including September
30, 1998 1.5 to 1.0
Each fiscal quarter end
occurring from October 1,
1998 and thereafter 1.2 to 1.0
</TABLE>
(c) Consolidated Net Written Premiums to Statutory Surplus Ratio. The
Borrower shall cause the Consolidated Net Written Premiums to Statutory
Surplus Ratio to be no greater than 3.0 to 1.0 as of the last day of each
fiscal year of its Insurance Subsidiaries.
(d) Risk Based Capital.
(i) The Borrower shall cause each Insurance Subsidiary to
maintain a ratio, as of the last day of each fiscal year, of (A) Total
Adjusted Capital (as defined in the Risk-Based Capital Act or in the
rules and procedures prescribed from time to time by the NAIC with
respect thereto) to (B) the Company Action Level RBC (as defined in
the Risk-Based Capital Act or in the rules and procedures prescribed
from time to time by the NAIC with respect thereto) of at least one
hundred twenty-five percent (125%).
(ii) Notwithstanding the subsection (i) hereof, the Borrower
shall cause those Insurance Subsidiaries representing 75%, in the
aggregate, of Consolidated Net Written Premiums to maintain a
consolidated ratio, as of the last day of each fiscal year, of (A)
Total Adjusted Capital (as defined in the Risk-Based Capital Act or in
the rules and procedures prescribed from time to time by the NAIC with
respect thereto) to (B) the Company Action Level RBC (as defined in
the Risk-Based Capital Act or in the rules and procedures prescribed
from time to time by the NAIC with respect thereto) of at least one
hundred fifty-percent (150%).
7.12 Additional Credit Parties. At any time that the Non-Guarantor
Subsidiaries shall at any time have total assets equal to or greater than
$500,000, in any instance, or $2,000,000, collectively, then the Borrower will
promptly notify the Agent
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thereof, and promptly cause one or more Non-Guarantor Subsidiaries to
become a "Guarantor" hereunder by
(A) execution of a Joinder Agreement in substantially the same
form as Schedule 7.12 attached hereto;
(B) delivery of such other documentation as the Agent may
reasonably request, including, without limitation, certified
resolutions and other organizational and authorizing documents of such
Person and favorable opinions of counsel to such Person (which shall
cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above), all in form,
content and scope reasonably satisfactory to the Agent,
such that immediately after the joinder of such Subsidiary or Subsidiaries,
the remaining Non-Guarantor Subsidiaries shall not have total assets equal
to or greater than $500,000, in any instance, or $2,000,000, collectively.
7.13 Ownership of Subsidiaries. Except to the extent otherwise
provided in Section 8.4 (b) and Section 8.11, the Borrower shall, directly
or indirectly, own at all times 100% of the capital stock of each of its
Subsidiaries.
7.14 Dividends. The Borrower shall (a) cause each of its Subsidiaries
from time to time to pay cash dividends or make other distributions or
payments in cash (directly or, through other Subsidiaries of the Borrower,
indirectly) to the Borrower in amounts that, taken together, are sufficient
to permit the Borrower to (i) pay all principal of and any accrued interest
in respect of the Loans and all other indebtedness or obligations of any
and every kind owing by the Borrower to the Agent and/or any of the Lenders
hereunder as the same shall become due and payable (whether at stated
maturity, by mandatory prepayment, by acceleration or otherwise) and (ii)
pay for all capital expenditures made by the Borrower, (b) cause each of
its Insurance Subsidiaries to make payments in accordance with the terms of
the Management Agreements, and (c) cause each of its Insurance Subsidiaries
to request on a timely basis regulatory approval to the extent necessary
for such Subsidiary to pay such dividends or make such distributions or
payments.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding, and until all of the
Commitments hereunder shall have terminated:
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8.1 Indebtedness. The Borrower will not, nor will it permit any of its
Subsidiaries to, contract, create, incur, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(b) Indebtedness of the Borrower and any of its Subsidiaries set
forth in Schedule 8.1 (and renewals, refinancings and extensions
thereof on terms, and conditions no less favorable to such Person than
such existing Indebtedness);
(c) Intercompany Indebtedness incurred in the ordinary course of
business and consistent with the past practices of the Credit Parties
or for cash management purposes;
(d) obligations of the Borrower in respect of any interest rate
protection agreement or foreign currency exchange agreement
(including, but not limited to, the Hedging Agreements) entered into
in order to manage existing or anticipated interest rate or exchange
rate risks and not for speculative purposes; provided that, so long as
any Subordinated Indebtedness shall remain outstanding, Indebtedness
permitted under this Section 8.1(d) may only be incurred to the extent
allowed under Section 8.8(a)(i)(C) of the Subordinated Debt Agreement;
(e) Subordinated Indebtedness; and
(f) in addition to the Indebtedness otherwise permitted by this
Section 8.1,
(i) other Indebtedness hereafter incurred by the Borrower
provided that (A) the loan documentation with respect to such
Indebtedness shall not contain covenants or default provisions
relating to the Borrower that are more restrictive than the
covenants and default provisions contained in the Credit
Documents, (B) on the date of incurrence of such Indebtedness
after giving effect on a Pro Forma Basis to the incurrence of
such Indebtedness and to the concurrent retirement of any other
Indebtedness, if any, of the Borrower or any of its Subsidiaries,
no Default or Event of Default would exist hereunder and (C) so
long as any Subordinated Indebtedness shall remain outstanding,
Indebtedness permitted under subsection (f)(i) may only be
incurred to the extent allowed under Section 8.8 (b) of the
Subordinated Debt Agreement; and
(ii) Guaranty obligations of any Subsidiary of the Borrower
that is a Guarantor with respect to any Indebtedness of the
Borrower permitted under this Section 8.1(f).
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8.2 Liens. The Borrower will not, nor will it permit any of its
Subsidiaries to, contract, create, incur, assume or permit to exist any
Lien with respect to any of their Property, whether now owned or after
acquired, except for Permitted Liens.
8.3 Nature of Business. The Borrower will, and will cause its
Subsidiaries to, remain principally engaged in the property and casualty
insurance business and such business activities incidental or related
thereto and will not engage in (i) writing lines of insurance for which it
does not currently hold all necessary licenses or (ii) any line of business
in which they are not currently engaged to such an extent that the business
of the Borrower and its Subsidiaries taken as a whole would be
fundamentally different in nature from the business of the Borrower and its
Subsidiaries on the Closing Date.
8.4 Consolidation, Merger, Sale or Purchase of Assets, etc. The
Borrower will not, nor will it permit any of its Subsidiaries to:
(a) except in connection with a disposition of assets permitted
by the terms of subsection (c) below, dissolve, liquidate or wind up
their affairs;
(b) enter into any transaction of merger or consolidation;
provided, however, that, so long as no Default or Event of Default
would be directly or indirectly caused as a result thereof, (i) the
Borrower may merge or consolidate with any of its Subsidiaries
provided that the Borrower is the surviving corporation; (ii) any
Subsidiary of the Borrower may merge or consolidate with any other
Subsidiary of the Borrower, provided after giving effect to such
merger or consolidation, no Default or Event of Default would exist
hereunder;
(c) sell, lease, transfer or otherwise dispose of any Property
other than (i) the sale of assets pursuant to Reinsurance Agreements
entered into in the ordinary course of business, (ii) the sale or
disposition of machinery and equipment no longer used or useful in the
conduct of such Person's business, and (iii) the sale of assets to the
Borrower or any Subsidiary of the Borrower, provided that after giving
effect to such sale or other disposition, no Default or Event of
Default would exist hereunder;
(d) except as otherwise permitted by Section 8.4(b), acquire all
or any portion of the capital stock or securities of any other Person
or purchase, lease or otherwise acquire (in a single transaction or a
series of related transactions) all or any substantial part of the
Property of any other Person, unless (i) such Person is engaged in a
business or businesses substantially similar to any business currently
conducted by the Borrower or any of its Subsidiaries, (ii) such
acquisition is approved by the board of directors of such Person,
(iii) after giving effect on a Pro Forma Basis to any such
acquisition:(including but not limited to any
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Indebtedness to be incurred or assumed by the Borrower or any of its
Subsidiaries in connection therewith), no Default or Event of Default
would exist hereunder and (iv) so long as any Subordinated Indebtedness
shall remain outstanding, acquisitions permitted under this Section
8.4(d) may only be undertaken to the extent allowed under Section 8.11
of the Subordinated Debt Agreement.
8.5 Advances, Investments, Loans, etc.. The Borrower will not, nor
will it permit any of its Subsidiaries to, acquire, make or permit to exist
any Investments other than Permitted Investments.
8.6 Restricted Payments. The Borrower will not, nor will it permit any
of its Subsidiaries to, directly or indirectly, declare, order, make or set
apart any sum for or pay any Restricted Payment, except (a) to make
dividends payable solely in the same class of capital stock of such Person,
(b) to make dividends or other distributions payable to the Borrower
(directly or indirectly through Subsidiaries of the Borrower), (c) the
Subsidiaries of RISCORP Management may make dividends or other
distributions payable to RISCORP Management (directly or indirectly through
Subsidiaries of RISCORP Management) and (d) the Borrower may make
Restricted Payments if (i) the Subordinated Indebtedness shall have been
repaid in full, (ii) the Subordinated Debt Agreement shall have been
terminated and (iii) after giving effect on a Pro Forma Basis to such
Restricted Payment (including but not limited to any Indebtedness to be
incurred or assumed by the Borrower or any of its Subsidiaries in
connection therewith), no Default or Event of Default would exist
hereunder.
8.7 Prepayments of Indebtedness, etc.. The Borrower will not, nor will
it permit any of its Subsidiaries to, (i) after the issuance thereof,amend
or modify (or permit the amendment or modification of) any of the terms of
any Indebtedness (including, without limitation, the Subordinated
Indebtedness) if such amendment or modification would add or change any
terms in a manner adverse to the issuer of such Indebtedness, or shorten
the final maturity or average life to maturity or require any payment to be
made sooner than originally scheduled or increase the interest rate
applicable thereto or change any subordination provision thereof, or (ii)
(A) if any Default or Event of Default has occurred and is continuing or
would be directly or indirectly caused as a result thereof, make (or give
any notice with respect thereto) any voluntary or optional payment, any
prepayment or any redemption or acquisition for value of (including without
limitation, by way of depositing money or securities with the trustee with
respect thereto before due for the purpose of paying when due), refund,
refinance or exchange of any other Indebtedness (other than Subordinated
Indebtedness) or (B) make (or give any notice with respect thereto) any
voluntary or optional payment, any prepayment or any redemption or
acquisition for value of (including without limitation, by way of
depositing money or securities with the trustee with respect thereto before
due for the purpose of paying when due); refund; refinance or exchange of
any Subordinated Indebtedness, provided that the Borrower may use cash
proceeds
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received from the issuance of common stock to prepay the Subordinated
indebtedness or (C) amend, modify or change its articles of incorporation
(or corporate charter or other similar organizational document) or bylaws
(or other similar document where such change would have a Material Adverse
Effect.
8.8 Transactions with Affiliates. The Borrower will not, nor will it
permit any of its Subsidiaries to, enter into any transaction (or series of
related transactions) directly or indirectly with or for the benefit of any
Affiliate of the Borrower (other than a Subsidiary) or any officer or
director of any Affiliate unless (a) such transaction (or series of related
transactions) is in the ordinary course of business on terms that are no
less favorable to the Borrower or such Subsidiary, as the case may be, than
the Borrower or any such Subsidiary would obtain in a comparable
transaction (or series of related transactions) with a Person not an
Affiliate, (b) such transaction (or series of related transactions) is
approved by the Board of Director's of the Borrower, and (c) with respect
to any transaction (or series of related transactions) involving aggregate
payments or commitments in excess of $7,000,000, the Borrower receives an
opinion from a nationally recognized investment banking firm, or other
nationally or regionally recognized appraisal firm, that such transaction
(or series of "related transactions) is fair to the Borrower or such
Subsidiary, as the case may be, from a financial point of view. The
restrictions contained in the foregoing sentence shall not apply to any
payments made under the Existing Affiliate Contracts.
8.9 Fiscal Year. The Borrower will not, nor will it permit any of its
Subsidiaries to, change its fiscal year.
8.10 Limitation on Restrictions on Subsidiary Dividends and other
Distributions, etc.. The Borrower will not, nor will it permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause, incur,
assume, suffer or permit to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Person to
(a) pay dividends or make any other distribution on any of such Person's
capital stock, (b) subject to subordination provisions, pay any
Indebtedness owed to the Borrower or any other Credit Party, (c) make loans
or advances to any other Credit Party or (d) transfer any of its Property
to any other Credit Party, except for encumbrances or restrictions existing
under or by reason of (i) customary non-assignment provisions in any lease
governing a leasehold interest, (ii) the Subordinated Debt Agreement, as in
existence on the date hereof, and (iii) this Credit Agreement and the other
Credit Documents.
8.11 Issuance of Stock. The Borrower will not, nor will it permit any
of its Subsidiaries to, issue, sell or otherwise dispose of any shares of
capital stock of any Subsidiary of the Borrower (including by way of sales
of treasury, stock) or any options or warrants to purchase, or securities
convertible into, capital stock of any Subsidiary of a Borrower.
8.12 Sale Leasebacks. The Borrower will not, nor will it permit any of
its Subsidiaries to, directly or indirectly, become.
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or remain liable as lessee or as guarantor or other surety with respect to
any lease, whether an Operating Lease or a Capital Lease, of any Property
(whether real or personal or mixed), whether now owned or hereafter
acquired, (i) which such Person has sold or transferred or is to sell or
transfer to any other Person other than a Credit Party or (ii) which such
Person intends to use for substantially the same purpose as any other
Property which has been sold or is to be sold or transferred by such Person
to any other Person in connection with such lease.
8.13 Settlements. The Borrower will not, nor will it permit any of its
Subsidiaries to, enter into any binding settlement agreement with respect
to any litigation, investigation or proceeding, whether pending or
threatened, by or against the Borrower or any of its Subsidiaries, unless
after giving effect on a Pro Forma Basis to any such settlement (including
but not limited to any payment made or any Indebtedness to be incurred or
assumed by the Borrower or any of its Subsidiaries in connection
therewith), no Default or Event of Default would exist hereunder.
8.14 No Further Negative Pledges. Except with respect to prohibitions
against other encumbrances on specific Property encumbered to secure
payment of particular Indebtedness (which Indebtedness relates solely to
such specific Property, and improvements and accretions thereto and is
otherwise permitted hereby), the Borrower will not, nor will it permit any
of its Subsidiaries to, enter into, assume or become subject to any
agreement prohibiting or otherwise restricting the creation or assumption
of any Lien upon its properties or assets, whether now owned or hereafter
acquired, or requiring the grant of any security for such obligation if
security is given for some other obligation.
8.15 No Foreign Subsidiaries. Neither the Borrower nor any of its
Subsidiaries will create, acquire or permit to exist any direct or indirect
Subsidiary of such Person which is not incorporated or organized under the
laws of any State of the United States or the District of Columbia.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default. An Event of Default shall exist upon the
occurrence of any of the following specified events (each an "Event of
Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of any of
the Loans, or
(ii) default, and such defaults shall continue for five (5) or
more Business Days, in the payment when due of any interest on the
Loans or of any
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Fees or other amounts owing hereunder, under any of the other Credit
Documents or in connection herewith or therewith; or
(b) Representations Any representation, warranty or statement
made or deemed to be made by any Credit Party herein, in any of the
other Credit Documents, or in any statement or certificate delivered
or required to be delivered pursuant here to or thereto shall prove
untrue in any material respect on the date as of which it was deemed
to have been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any
term, covenant or agreement contained in Sections 7.2, 7.9, 7.11,
7.12 or 8.1 through 8.15, inclusive, or
(ii) default in the due performance or observance by it of
any term, covenant or agreement (other than those referred to in
subsections (a), (b) or (c) (i) of this Section 9.1) contained in
this Credit Agreement and such default shall continue unremedied
for a period of at least 45 days after the earlier of a
responsible officer of a Credit Party becoming aware of such
default or notice thereof by the Agent; or
(d) Other Credit Documents. (i) Any Credit Party shall default in
the due performance or observance of any term, covenant or agreement
in any of the other Credit Documents (subject to applicable grace or
cure periods, if any), or (ii) except as the result of or in
connection with a dissolution, merger or disposition of a Subsidiary
permitted by Section 8.4 (a), Section 8.4 (b) or Section 8.4 (c), any
Credit Document shall fail to be in. full force and effect or to give
the Agent and/or the Lenders the Liens, rights, powers and privileges
purported to be,created thereby; or
(e) Guaranties. Except as the result of or in connection with a
Dissolution, merger or disposition of a Subsidiary permitted by
Section 8.4 (a), Section 8.4 (b) or Section 8.4(c), the guaranty given
by any Guarantor hereunder (including any Additional Credit Party) or
any provision thereof shall cease to be in full force and effect, or
any Guarantor (including any Additional Credit Party) hereunder or any
Person acting by or on behalf of such Guarantor shall deny or
disaffirm such Guarantor's obligations under such guaranty, or any
Guarantor shall default in the due performance or observance of any
term, covenant or agreement on its part to be performed or observed
pursuant to any guaranty or
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(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with
respect to the Borrower or any of its Subsidiaries; or
(g) Insurance Regulatory Orders. There shall occur any seizure,
vesting, or intervention by or under the authority of any Governmental
Authority by which (i) the management of any Insurance Subsidiary is
displaced, or (ii) the authority of any Insurance Subsidiary is
displaced, or is curtailed, in any materially adverse manner; or
(h) Defaults under Other Agreements.
(i) The Borrower or any of its Subsidiaries shall default in
the performance or observance (beyond the applicable grace period
with respect thereto, if any) of any obligation or condition of
the Subordinated Debt Agreement; or
(ii) The Borrower or any of its Subsidiaries shall default.,
in any materially adverse manner, in the performance or
observance (beyond the applicable grace period with respect
thereto, if any) of any obligation or condition of any contract
or lease; or
(iii) With respect to any Indebtedness (other than
Indebtedness outstanding under this Credit Agreement) in excess
of $1,000,000 in the aggregate for the Borrower and its
Subsidiaries taken as a whole, (A) the Borrower or any of its
Subsidiaries shall (1) default in any payment (beyond the
applicable grace period with respect thereto, if any) with
respect to any such Indebtedness, or (2) the occurrence and
continuance of a default in the observance or performance
relating to such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other
event or condition shall occur or condition exist, the effect of
which default or other event or condition is to cause, or permit,
the holder or holders of such Indebtedness (or trustee or agent
on behalf of such holders) to cause (determined without regard to
whether any notice or lapse of time is required), any such
Indebtedness to become due prior to its stated maturity; or (B)
any such Indebtedness shall be declared due and payable, or
required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof; or
(i) Subordinated Indebtedness.
(i) The violation by any party to the Subordinated Debt
Agreement of any provision of Section 10 thereof, or the ceasing
of such agreement to be in full force and effect; or
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(ii) The Borrower shall make any payments of principal in
respect of the Subordinated Indebtedness prior to the repayment
in full of the Loans, other than as permitted under Section 8.7;
or
(j) Judgments. One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving an aggregate
liability in excess of $2,000,000 (or, if less and so long as the
Subordinated Indebtedness shall remain outstanding, the aggregate
amount of judgment liabilities permitted under Section 11.1(j) of the
Subordinated Debt Agreement) and any such judgments or decrees shall
not (i) have been vacated, discharged or stayed or bonded pending
appeal within 45 days from the entry therefor (ii) have been paid or
fully covered by insurance provided by a carrier who has acknowledged
coverage; or
(k) ERISA. Any of the following events or conditions, if such
event or condition could have a Material Adverse Effect: (1) any
"accumulated funding deficiency," as such term is defined in Section
302 of ERISA and Section 412 of the Code, whether or not waived, shall
exist with respect to any Plan, or any lien shall arise on the assets
of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate
in favor of the PBGC or a Plan; (2) a Termination Event shall occur
with respect to a Single Employer Plan, which is, in the reasonable
opinion of the Agent, likely to result in the termination of such Plan
for purposes of Title IV of ERISA; (3) a Termination Event shall occur
with respect to a Multiemployer Plan or Multiple Employer Plan, which
is, in the reasonable opinion of the Agent, likely to result in (i)
the termination of such Plan for purposes of Title IV of ERISA, or
(ii) the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate incurring any liability in connection with a withdrawal
from, reorganization of (within the meaning of Section 4241 of ERISA),
or insolvency or (within the meaning of Section 4245 of ERISA) such
Plan; or (4) any prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility shall occur which may subject the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate to any liability
under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of
the Code, or under any agreement or other instrument pursuant to which
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate
has agreed or is required to indemnify any person against any such
liability; or
(1) Ownership. There shall occur a Change of Control.
9.2 Acceleration; Remedies. Upon the occurrence of an Event of
Default, and at any time thereafter unless and until such Event of Default
has been waived by the Required Lenders or cured to the
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satisfaction of the Required Lenders (pursuant to the voting procedures in
Section 11.6), the Agent shall, upon the request and direction of the
Required Lenders, by written notice to the Credit Parties take any of the
following actions:
(i) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(ii) Acceleration. Declare the unpaid principal of and any
accrued interest in respect of all Loans and any and all other
indebtedness or obligations of any and every kind owing by the
Borrower to the Agent and/or any of the Lenders hereunder to be due
whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
(iii) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents and all
rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.1(f) shall occur, then the Commitments shall automatically
terminate and all Loans all accrued interest in respect thereof, all
accrued and unpaid fees and other indebtedness or obligations owing to the
Agent and/or any of the Lenders hereunder automatically shall immediately
become due and payable without the giving of any notice or other action by
the Agent or the Lenders.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment. Each Lender hereby designates and appoints
NationsBank, N.A. (South) as administrative agent (in such capacity as
Agent hereunder, the "Agent") of such Lender to act as specified herein and
the other Credit Documents, and each such Lender hereby authorizes the
Agent as the agent for such Lender, to take such action on its behalf under
the provisions of this Credit Agreement and the other Credit Documents and
to exercise such powers and perform such duties as are expressly delegated
by the terms hereof and of the other Credit Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere herein and in the other Credit
Documents, the Agent shall not have any duties or responsibilities, except
those expressly set forth herein And therein, or any fiduciary relationship
with any Lender, and no implied covenants, obligations or liabilities
functions, responsibilities, duties, shall be read into this Credit
Agreement or any of the other Credit Documents, or shall otherwise exist
against the Agent. The provisions of this Section are solely for the
benefit of the Agent and the Lenders and none of the, Credit Parties shall
have any rights as a third party beneficiary of the provisions hereof. In
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performing its functions and duties under this Credit Agreement and the
other Credit Documents, the Agent shall act solely as agent of the Lenders
and does not assume and shall not be deemed to have assumed any obligation
or relationship of agency or trust with or for any Credit Party or any of
their respective Affiliates.
10.2 Delegation of Duties. The Agent may execute any of their
respective duties hereunder or under the other Credit Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions. The Agent and its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall not be (i) liable
for any action lawfully taken or omitted to be taken by it or such Person
under or in connection herewith or in connection with any of the other
Credit Documents (except for its or such Person's own gross negligence
or willful misconduct), or (ii) responsible in any manner to any of the
Lenders for any recitals, statements, representations or warranties made
by any of the Credit Parties contained herein or in any of the other
Credit Documents or in any certificate, report, document, financial
statement or other written or oral statement referred to or provided for
in, or received by the Agent under or in connection herewith or in
connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any
failure of any Credit Party to perform its obligations hereunder or
thereunder. The Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectability or
sufficiency of this Credit Agreement, or any of the other Credit Documents
or for any representations, warranties, recitals or statements made herein
or therein or made by the Borrower or any Credit Party in any written or
oral statement or in any financial or other statements, instruments,
reports, certificates or any other documents in connection herewith or
therewith furnished or made by the Agent to the Lenders or by or on behalf
of the Credit Parties to the Agent or any Lender or be required to
ascertain or inquire as to the performance or observance of any of the
terms, conditions, provisions, covenants or agreements contained herein or
therein or as to the use of the proceeds of the Loans or of the existence
or possible existence of any Default or Event of Default or to inspect the
properties, books or records of the Credit Parties or any of their
respective Affiliates.
10.4 Reliance on Communications. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation,
counsel to any of the Credit Parties, independent accountants and other
experts
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selected by the Agent with reasonable care). The Agent may deem and treat
the Lenders as the owner of their respective interests hereunder for all
purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Agent in accordance with Section
11.3(b) hereof. The Agent shall be fully justified in failing or refusing
to take any action under this Credit Agreement or under any of the other
Credit Documents unless it shall first receive such advice or concurrence
of the Required Lenders as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder or under any
of the other Credit Documents in accordance with a request of the Required
Lenders (or to the extent specifically provided in Section 11.6, all the
Lenders) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders (including their successors
and assigns).
10.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or a Credit
Party referring to the Credit Document, describing such Default or Event of
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. The Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the
Required Lenders.
10.6 Non-Reliance on Agent an Lenders. Each Lender expressly
acknowledges that each of the Agent and its officers, directors, employees,
agents, attorneys-in-fact or affiliates has not made any representations or
warranties to it and that no act by the Agent or any affiliate thereof
hereinafter taken, including any review of the affairs of any Credit Party
or any of their respective Affiliates, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender
represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial
and other conditions, prospects and creditworthiness of the Borrower, the
other Credit Parties or their respective Affiliates and made its own
decision to make its Loans hereunder and enter into this Credit Agreement.
Each Lender also represents 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 analysis, appraisals and decisions in taking or not taking
action under this Credit Agreement, and to make such investigation as it
deems necessary to inform itself as to the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of
the Borrower, the Parties and their respective Affiliates. Except for
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notices, reports and other documents expressly required to be furnished to
the Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial or other
conditions, prospects or creditworthiness of the Borrower, the other Credit
Parties or any of their respective Affiliates which may come into the
possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates.
10.7 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to
their respective Commitments (or if the Commitments have expired or been
terminated, in accordance with the respective principal amounts of
outstanding Loans of the Lenders), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at
any time (including without limitation at any time following the final
payment of all of the obligations of the Borrower hereunder and under the
other Credit Documents) be imposed on, incurred by or asserted against the
Agent in its capacity as such in any way relating to or arising out of this
Credit Agreement or the other Credit Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided that no Lender
shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the gross negligence or willful
misconduct of the Agent. If any indemnity furnished to the Agent for any
purpose shall, in the opinion of the Agent, be insufficient or become
impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional
indemnity is furnished. The agreements in this Section shall survive the
repayment of the Loans and other obligations under the Credit Documents and
the termination of the Commitments hereunder.
10.8 Agent in its Individual Capacity. The Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower, its Subsidiaries or their respective Affiliates
as though the Agent were not the Agent hereunder. With respect to the Loans
made by and all obligations of the Borrower hereunder and under the other
Credit Documents, the Agent shall have the same rights and powers under,
this Credit Agreement as any Lender and may exercise the same as though it
were not the Agent, and the terms "Lender" and "Lenders" shall include the
Agent in its individual capacity.
10.9 Successor Agent. The Agent may, at any time resign upon 20 days'
written notice to the Lenders, and be removed with or without cause by the
Required Lenders upon 30 days written notice to the Agent. Upon any such
resignation or removal, the Required Lenders shall have the right to
appoint a successor Agent. If no
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successor Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the notice of
resignation or notice of removal, as appropriate, then the retiring Agent
shall select a successor Agent provided such successor is a Lender
hereunder or a commercial bank organized under the laws of the United
States of America or of any State thereof and has a combined capital and
surplus of at least $400,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations as Agent, as appropriate, under this Credit
Agreement and the other Credit Documents and the provisions of this Section
10.9 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Credit Agreement.
SECTION 11
MISCELLANEOUS
11.1 Notices. Except as otherwise expressly provided herein, all
notices and other communications shall have been duly given and shall be
effective (i) when delivered, (ii) when transmitted via telecopy (or other
facsimile device) to the number set out below, (iii) the day following the
day on which the same has been delivered prepaid to a reputable national
overnight air courier service, or (iv) the third Business Day following the
day on which the same is sent by certified or registered mail, postage
prepaid, in each case to the respective parties at the address, in the case
of the Borrower, Guarantors and the Agent, set forth below, and, in the
case of the Lenders, set forth on Schedule 2.1(a), or at such other address
as such party may specify by written notice to the other parties hereto:
if to the Borrower or the Guarantors:
RISCORP, Inc.
1390 Main Street
Sarasota, Florida 34236-5642
Attn: Chief Financial Officer
Telephone: (941) 951-2022
Telecopy: (941) 951-1495
with a copy to:
Brown, Clark & Walters
Sarasota City Center, Suite 1100
1819 Main Street
Sarasota, Florida 34236
Attn: Daryl Brown, Esq.
Telephone: (941) 957-3800
Telecopy: (941) 957-3888
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if to the Agent:
NationsBank, N.A. (South)
Independence center, 15th Floor
NCl-001-15-04
101 N. Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-8958
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N.A. (South)
1605 Main Street, Suite 101
FL4-237-01-04
Sarasota, Florida 34236-5847
Attn: Mark A. McDonell
Telephone: (941) 952-2741
Telecopy: (941) 952-2853
11.2 Right of Set-Off. In Addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Lender is
authorized at any time and from time to time, without presentment, demand,
protest or other notice of any kind (all of which rights being hereby expressly
waived), to set off and to appropriate and apply any and all deposits (general
or special) and any other indebtedness at any time held or owing by such Lender
(including, without limitation branches, agencies or Affiliates of such Lender
wherever located) to or for the credit or the account of any Credit Party
against obligations and liabilities of such Person to such Lender hereunder,
under the Notes, the other Credit Documents or otherwise, irrespective of
whether such Lender shall have made any demand hereunder and although such
obligations, liabilities or claims, or any of them, may be contingent or
unmatured, and any such set-off shall be deemed to have been made immediately
upon the occurrence of an Event of Default even though such charge is made or
entered on the books of such Lender subsequent thereto. Any Person purchasing a.
participation in the Loans and Commitments hereunder pursuant to Section 3.13 or
Section 11.3(d) may exercise all rights of set-off with respect to its
participation interest as fully as if such Person were a Lender hereunder.
11.3 Benefit of Agreement.
(a) Generally This Credit Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; Provided that none of
the Credit Parties may assign or transfer any of its interests without
prior written consent of the Lenders; provided further that the rights
of each Lender to transfer, assign or grant participations in its
rights and/or obligations hereunder shall be limited as set forth in
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this Section 11.3, Provided however that nothing herein shall prevent
or prohibit any Lender from (i) pledging its Loans hereunder to a
Federal Reserve Bank in support of borrowings made by such Lender from
such Federal Reserve Bank, or (ii) granting assignments or selling
participations in such Lender's Loans and/or Commitments hereunder to
its parent company and/or to any Affiliate or Subsidiary of such
Lender.
(b) Assignments. Each Lender may assign all or a portion of its
rights and obligations hereunder, pursuant to an assignment agreement
substantially in the form of Schedule 11.3(b), to (i) any Lender or
any Affiliate or Subsidiary of a Lender, or (ii) any other commercial
bank, financial institution or "accredited investor" (as defined in
Regulation D of the Securities and Exchange Commission) reasonably
acceptable to the Agent and, so long as no Default or Event of Default
has occurred and is continuing, the Borrower; Provided that (i) any
such assignment (other than any assignment to an existing Lender)
shall be in a minimum aggregate amount of $5,000,000 (or, if less, the
remaining amount of the Commitment being assigned by such Lender) of
the Commitments and in integral multiples of $1,000,000 above such
amount and (ii) each such assignment shall be of a constant, not
varying, percentage of all such Lender's rights and obligations under
this Credit Agreement. Any assignment hereunder shall be effective
upon delivery by the assigning Lender to the Agent of written notice
of the assignment together with a transfer fee of $3,500 payable to
the Agent for its own account from and after the later of W the
effective date specified in the applicable assignment agreement and
(ii) the date of recording of such assignment in the Register pursuant
to the terms of subsection (c) below. The assigning Lender will give
prompt notice to the Agent and the Borrower of any such assignment.
Upon the effectiveness of any such assignment (and after notice to,
and (to the extent required pursuant to the terms hereof), with the
consent of, the Borrower as provided herein), the assignee shall
become a "Lender" for all purposes of this Credit Agreement and the
other Credit Documents and, to the extent of such assignment, the
assigning Lender shall be relieved of its obligations hereunder to the
extent of the Loans and Commitment components being assigned. Along
such lines the Borrower agrees that upon notice of any such assignment
and surrender of the appropriate Note or Notes, it will promptly
provide to the assigning Lender and to the assignee separate
promissory notes in the amount of their respective interests
substantially in the form of the original Note (but with notation
thereon that it is given in substitution for and replacement of the
original Note or any replacement notes thereof). By executing and
delivering an assignment agreement in accordance with this Section
11.3(b), the assigning Lender thereunder and the assignee thereunder
shall be deemed to confirm to and agree with each other and the other
parties hereto as follows: (i) such assigning Lender, warrants that it
is the legal and beneficial owner of the interest being assigned
thereby free and clear of an adverse
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claim; (ii) except as set forth in clause (i) above, such assigning
Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement,
any of the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this
Credit Agreement, any of the other Credit Documents or any other
instrument or document furnished pursuant hereto or thereto or the
financial condition of any Credit Party or any of their respective
Affiliates or the performance or observance by any Credit Party of any
of its obligations under this Credit Agreement, any of the other
Credit Documents or any other instrument or document furnished
pursuant hereto or thereto; (iii) such assignee represents and
warrants that it is legally authorized to enter into such assignment
agreement; (iv) such assignee confirms that it has received a copy of
this Credit Agreement, the other Credit Documents and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such assignment agreement;
(v) such assignee will independently and without reliance upon the
Agent, such assigning Lender 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 Credit Agreement and the other Credit Documents;
(vi) such assignee appoints and authorizes the Agent to take such
action on its behalf and to exercise such powers under this Credit
Agreement or any other Credit Document as are delegated to the Agent
by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all the obligations which
by the terms of this Credit Agreement and the other Credit Documents
are required to be performed by it as a Lender. Notwithstanding the
provisions of Section 11.5, each assigning Lender shall pay any and
all fees and expenses incurred in connection with any assignments made
by it pursuant to this Section 11.3(b).
(c) Maintenance of Register. The Agent shall maintain at one of
its offices in Charlotte, North Carolina a copy of each Lender
assignment agreement delivered to it in accordance with the terms of
subsection (b) above and a register for the recordation of the
identity of the principal amount, type and Interest Period of each
Loan outstanding hereunder, the names, addresses and the Commitments
of the Lenders pursuant to the terms hereof from time to time (the
"Register"). The Agent will make reasonable efforts to maintain the
accuracy of the Register and to promptly update the Register from time
to time as necessary. The entries in the Register shall be conclusive
in the absence of manifest error and the Borrower, the Agent and the
Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of
this Credit Agreement. The Register shall be available for inspection
by the Borrower
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<PAGE> 81
and each Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Participations. Each Lender may sell, transfer, grant or
assign participations in all or any part of such Lender's interests
and obligations hereunder; provided that (i) such selling Lender shall
remain a "Lender" for all purposes under this Credit Agreement (such
selling Lender's obligations under the Credit Documents remaining
unchanged) and the participant shall not constitute a Lender
hereunder, (ii) no such participant shall have, or be granted, rights
to approve any amendment or waiver relating to this Credit Agreement
or the other Credit Documents except to the extent any such amendment
or waiver would (A) reduce the principal" of or rate of interest on or
Fees in respect of any Loans in which the participant is
participating, (B) postpone the date fixed for any payment of
principal (including extension of the Conversion Date, the Termination
Date or the date of any mandatory prepayment), interest or Fees in
which the participant is participating, or (C) except as expressly
provided in the Credit Documents, release any Guarantor from its
guaranty obligations hereunder, and (iii) sub-participations by the
participant (except to an affiliate, parent company or affiliate of a
parent company of the participant) shall be prohibited. In the case of
any such participation, the participant shall not have any rights
under this Credit Agreement or the other Credit Documents (the
participant's rights against the selling Lender in respect of such
participation to be those set forth in the participation agreement
with such Lender creating such participation) and all amounts payable
by the Borrower hereunder shall be determined as if such Lender had
not sold such participation, provided, however, that such participant
shall be entitled to receive additional amounts under Sections 3.6,
3.9, 3.10 and 3.11 on the same basis as if it were a Lender.
11.4 No Waiver; Remedies Cumulative. No failure or delay on the part
of the Agent or any Lender in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing
between the Agent or any Lender and any of the Credit Parties shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive, of any rights or remedies
which the Agent or any Lender would otherwise have. No notice to or demand
on any Credit Party in any case shall entitle the Borrower or: any other
Credit, Party to any other, or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Agent or the
Lenders to any other or further action in any circumstances without notice
or demand.
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<PAGE> 82
11.5 Payment of Expenses, etc. The Borrower agrees to: (i) pay all
reasonable out-of-pocket costs and expenses (A) of the Agent in connection
with the negotiation, preparation, execution and delivery and
administration of this Credit Agreement and the other Credit Documents and
the documents and instruments referred to therein (including, without
limitation, the reasonable fees and expenses of Moore & Van Allen, PLLC,
special counsel to the Agent) and any amendment, waiver or consent relating
hereto and thereto including, but not limited to, any such amendments,
waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Credit
Parties under this Credit Agreement and (B) of the Agent and the Lenders in
connection with enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, in
connection with any such enforcement, the reasonable fees and disbursements
of counsel for the Agent and each of the Lenders); (ii) pay and hold each
of the Lenders harmless from and against any and all present and future
stamp and other similar taxes with respect to the foregoing matters and
save each of the Lenders harmless from and against any and all liabilities
with respect to or resulting from any delay or omission (other than to the
extent attributable to such Lender) to pay such taxes; and (iii) indemnify
each Lender, its officers, directors, employees, representatives and agents
from and hold each of them harmless against any and all losses,
liabilities, claims, damages or expenses incurred by any of them as a
result of, or arising out of, or in any way related to, or by reason of (A)
any investigation, litigation or other proceeding (whether or not any
Lender is a party thereto) related to the entering into and/or performance
of any Credit Document or the use of proceeds of any Loans (including other
extensions of credit) hereunder or the consummation of any other
transactions contemplated in any Credit Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding or
(B) the presence or Release of any Materials of Environmental Concern at,
under or from any Property owned, operated or leased by the Borrower or any
of its Subsidiaries, or the failure by the Borrower or any of its
Subsidiaries to comply with any Environmental Law (but excluding, in the
case of either of clause (A) or (B) above, any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of gross
negligence or willful misconduct on the part of the Person to be
indemnified).
11.6 Amendments, Waivers and Consents. Neither this Credit Agreement
nor any other Credit Document nor any of the terms hereof or thereof may be
amended, changed, waived, discharged or terminated unless such amendment,
change, waiver, discharge or termination is in Writing entered into by, or
approved in writing by, the Required Lenders and the Borrower, provided
that no such amendment, change, waiver, discharge or termination shall,
without the consent of each Lender:
(i) extend the final maturity of any Loan, or any portion
thereof;
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<PAGE> 83
(ii) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any
post-default increase in interest rates) on any Loan or fees
hereunder;
(iii) reduce the principal amount on any Loan, or increase the
Commitments of the Lenders over the amount thereof in effect (it being
understood and agreed that a waiver of any Default or Event of Default
or of a mandatory reduction in the total commitments shall not
constitute a change in the terms of any Commitment of any Lender);
(iv) except as the result of or in connection with a dissolution,
merger or disposition of a Subsidiary permitted by Section 8.4(a),
Section 8.4(b) or Section 8.4(c), release all or substantially all of
the Guarantors from the guaranty obligations hereunder;
(v) amend, modify or waive any provision of this Section 11.6 or
Section 3.6, 3.10, 3.11, 3.12, 3.13, 5.1, 5.2, 9.1(a), 11.2., 11.3,
11.5 or 11.9;
(vi) reduce any percentage specified in, or otherwise modify, the
definition of "Required Lenders;" or
(vii) consent to the assignment or transfer by the Borrower (or
any Guarantor) of any of its rights and obligations under (or in
respect of) the Credit Documents to which it is a party.
No provision of Section 10 may be amended without the consent of the
Agent.
11.7 Counterparts. This Credit Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Credit Agreement to produce
or account for more than one such counterpart.
11.8 Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning
or construction of any provision of this Credit Agreement.
11.9 Survival. All indemnities set forth herein, including, without
limitation, in Section 3.9, 3.11, 10.7 or 11.5 shall survive the execution
and delivery of this Credit Agreement, the making of the Loans, the
repayment of the Loans and other obligations under the Credit Documents and
the termination of the Commitments hereunder, and all representations and
warranties made by the Credit Parties herein shall survive delivery of the
Notes and the making of the Loans hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue.
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<PAGE> 84
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA. Any legal
action or proceeding with respect to this Credit Agreement or any
other Credit Document may be brought in the courts of the State
of Florida in Sarasota County, or of the United, States for the
Middle District of Florida, and, by execution and delivery of
this Credit Agreement, each of the Credit Parties hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the nonexclusive jurisdiction of
such courts. Each of the Credit Parties further irrevocably
consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail,
postage prepaid, to it at the address set out for notices
pursuant to Section 11.1, such service to become effective three
(3) days after such mailing. Nothing herein shall affect the
right of the Agent to serve process in any other manner permitted
by law or to commence legal proceedings or to otherwise proceed
against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any
objection which it may now or hereafter have to the laying of
venue of any of the aforesaid actions or proceedings arising out
of or in connection with this Credit Agreement or any other
Credit Document brought in the courts referred to in
subsection (a) hereof and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such
action or proceeding brought in any such court has been brought
in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE
LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF RELATING TO THIS CREDIT AGREEMENT,
ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
11.11 Severability. if any provision of any of the Credit Documents is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid
or unenforceable provisions.
11.12 Entirety. This Credit Agreement together with the other Credit
Documents represent the entire agreement of the parties hereto and thereto,
and supersede all prior agreements and understandings, oral or written, if
any, including any commitment letters or correspondence relating to the
Credit Documents or the transactions contemplated herein and therein.
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<PAGE> 85
11.13 Binding Effect; Termination. (a) This Credit Agreement shall
become effective at such time on or after the Closing Date when it shall
have been executed by the Borrower, the Guarantors and the Agent, and the
Agent shall have received copies hereof (telefaxed or otherwise) which,
when taken together, bear the signatures of each Lender, and thereafter
this Credit Agreement shall be binding upon and inure to the benefit of the
Borrower, the Guarantors, the Agent and each Lender and their respective
successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans or any
other amounts payable hereunder or under any of the other Credit Documents
shall remain outstanding and until all of the Commitments hereunder shall
have expired or been terminated.
11.14 Confidentiality. The Agent and the Lenders agree to keep
confidential (and to cause their respective affiliates, officers,
directors, employees, agents and representatives to keep confidential) all
information, materials and documents furnished to the Agent or any such
Lender by or on behalf of any Credit Party (whether before or after the
Closing Date) which relates to the Borrower or any of its Subsidiaries (the
"Information"). Notwithstanding the foregoing, the Agent and each Lender
shall be permitted to disclose Information (i) to its affiliates, officers,
directors, employees, agents and representatives in connection with its
participation in any of the transactions evidenced by this Credit Agreement
or any other Credit Documents or the administration of this Credit
Agreement or any other Credit Documents; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal
process, or requested by any Governmental Authority; (iii) to the extent
such Information (A) becomes publicly available other than as a result of a
breach of this Credit Agreement or any agreement entered into pursuant to
clause (iv) below, (B) becomes available to the Agent or such Lender on a
non-confidential basis from a source other than o Credit Party or (C) was
available to the Agent or such Lender on o non-confidential basis prior to
its disclosure to the Agent or such Lender by a Credit Party; (iv) to any
assignee or participant (or prospective assignee or participant) so long as
such assignee or participant (or prospective assignee or participant) first
specifically agrees in a writing furnished to and for the benefit of the
Credit Parties to be bound by the terms of this Section 11.14; or (v) to
the extent that the Borrower shall have consented in writing to such
disclosure. Nothing set forth in this Section 11.14 shall obligate the
Agent or any Lender to return any materials furnished by the Credit
Parties.
11.15 Source of Funds. Each of the Lenders hereby represents and
warrants to the Borrower that at least one of the following statements is
an accurate representation as to the source of funds to be used by such
Lender in connection with the financing hereunder:
(a) no part of such funds constitutes assets allocated to any
separate. account maintained by such Lender in
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which any employee benefit plan (or its related trust) has any
interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such
Lender has disclosed to the Borrower the name of each employee benefit
plan whose assets in such account exceed 10% of the total assets of
such account as of the date of, such purchase (and, for purposes of
this subsection (b), all employee benefit plans maintained by the same
employer or employee organization are deemed to be a single plan); or
(c) such funds constitute assets of one or more specific benefit plans
which such Lender has identified in writing to the Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
11.16 Conflict. To the extent that there is a conflict or
inconsistency between any provision hereof, on the one hand, and any
provision of any Credit Document, on the other hand, this Credit Agreement
shall control.
(Signature Page to Follow]
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<PAGE> 87
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: RISCORP, INC.,
a Florida corporation
By: /s/ Anthony Tang
--------------------------------
Name: Anthony Tang
Title: Vice President of Treasury
S-1
<PAGE> 88
GUARANTORS: RISCORP ACQUISITION, INC.,
a Florida corporation
RISCORP OF FLORIDA, INC.,
a Florida corporation
RISCORP SERVICES, INC.,
a Florida corporation
RISCORP MANAGEMENT SERVICES, INC.,
a Florida corporation
RISCORP WEST, INC.,
an Oklahoma corporation
RISCORP OF VIRGINIA, INC.,
a Virginia corporation
RISCORP OF NORTH CAROLINA, INC.,
a North Carolina corporation
RISCORP INSURANCE SERVICES, INC.,
a Florida corporation
RISCORP MANAGED CARE SERVICES, INC.,
a Florida corporation
RISCORP OF ILLINOIS, INC.,
an Illinois corporation
SARASOTA INTERNATIONAL RISK AND INSURANCE
SERVICES, INC., a Florida corporation
SARASOTA CLAIMS AND INSURANCE SERVICES
CORPORATION, a Florida corporation
COMPSOURCE ACQUISITION, INC.,
a Florida corporation
COMPSOURCE, INC.,
a North Carolina corporation
INDEPENDENT ASSOCIATION ADMINISTRATORS
INCORPORATED, a Florida corporation
By: /s/ Anthony Tang
---------------------------------------
Name: Anthony Tang
Title: Vice President of Treasury of
each of the above Guarantors
S-2
<PAGE> 89
LENDERS: NATIONSBANK, N.A. (SOUTH),
individually in its capacity as a
Lender and in its capacity as Agent
By /s/ Mark A. McDonell
-----------------------------------------
Name: Mark A. McDonell
Title: Senior Vice President
SOUTHTRUST BANK OF ASSOCIATION
By Anthony D. Nigro
----------------------------------------
Name: Anthony D. Nigro
Title: Assistant Vice President
S-3
<PAGE> 1
EXHIBIT 10.70
[G.J. SULLIVAN CO. REINSURANCE LETTERHEAD]
February 4, 1997
Mr. Stephen C. Rece
Senior Vice President
RISCORP
1390 Main Street, 7th Floor
Sarasota, Florida 34236
Re: RISCORP NATIONAL INSURANCE COMPANY
WORKERS' COMPENSATION QUOTA SHARE
OCTOBER 1, 1996 REINSURANCE AGREEMENT
Dear Steve:
Enclosed are two sets of our final Covernote on the captioned
reinsurance which amends the following items from the original version you
received:
1. Reinsurance Coverage: Paragraph C -We amended the treatment of UEP at
12/31/96, so that it will be reassumed by RNIC at 12:01 a.m. January 1,
1997 at 65% and simultaneously receded to the Reinsurer at 60%. Also, we
went ahead and noted the 60% cession from January 1, 1997 - June 30, 1997.
Should the percentage of cession change at July 1, 1997 or October 1,
1997, we'll need to transfer the UEP at the end of the quarter to the new
cession percentage.
2. Other Provisions: The Alternate Payee Article has been renamed Additional
Reinsured Article. In view of Missouri Insolvency Law, Chartwell's legal
staff felt the Additional Reinsured language more clearly puts the issuer
of the Assumption Liability Endorsements (ALEs) in the Company's place in
the event RNIC became insolvent.
3. General Conditions: We've added an Interlocking Clause which is applicable
only in the event you choose to run-off the liability from one Agreement
Year and have a separate treaty for new and renewal business the following
year. Under this scenario, should multiple policies from different
Agreement Years be involved in one occurrence, you would pro rate both
policies' involvement in the occurrence to determine the percentage each
claim bears to meeting the $500,000 occurrence limit under the Quota
Share. This obviously does not apply if you roll the inforce business
into the next Agreement Year.
<PAGE> 2
Please give Laura Hewitt or me a call if you have any questions regarding
these changes. Otherwise, please send back to our office the RNIC Covernotes
issued earlier (dated December 18, 1996, and December 23, 1996) so that there's
less chance for confusion
We ask that you please sign both copies of this Covernote and return one
copy to our office, retaining the other for your records. A copy of the
contract wording is currently being reviewed and should be out to you in the
next week.
Best Regards,
/s/ William M Aleen
---------------------
William M. Allen
Senior Vice President
WMAfjw
Enc.
2
<PAGE> 3
[G.J.SULLIVAN CO. REINSURANCE LETTERHEAD]
RISCORP NATIONAL INSURANCE COMPANY
1390 Main Street Cover Note: R403940196
Sarasota, Florida 34236 January 29, 1997
WORKERS COMPENSATION QUOTA SHARE
We hereby confirm that, in accordance with your instructions, we have effected
the following reinsurance. Please examine this Cover Note (and any attachments
thereto) carefully and advise us immediately if you have any problems or
questions with regard to the Terms or Security.
CEDING COMPANY: RISCORP NATIONAL INSURANCE COMPANY, as managed by RISCORP
and it's subsidiaries or branch offices (hereinafter
referred to as the Company).
CONTRACT: WORKERS COMPENSATION QUOTA SHARE
COMMENCEMENT
AND TERMINATION: A. This treaty shall become effective at 12:01 AM, local
standard time, October 1, 1996, as respects inforce,
new and renewal business, and shall remain inforce
for an unlimited period thereafter, subject to
termination at December 31, 1997, or any December 31
thereafter by either party giving the other party
ninety (90) days advance written notice by registered
mail.
B. In the event of the termination of this Contract, at
the Company's option:
1. The Reinsurer shall remain liable in respect of
all business inforce at the date of termination
until the first anniversary of each policy
following the effective date of termination,
such run-off period not to
<PAGE> 4
exceed 12 months following the date of
termination plus odd time, not to exceed 15
months in all; or
2. The Reinsurer shall be relieved of all liability
hereunder for losses occurring subsequent to the
date of termination of this Contract. The
Reinsurer shall refund to the Company the
unearned reinsurance premium applicable to the
unexpired liability less the ceding commission
allowed by the Reinsurer.
BUSINESS
COVERED: To cover all business written and/or assumed by
RISCORP NATIONAL INSURANCE COMPANY, as underwritten
and managed by RISCORP (and its subsidiaries and/or
branch offices) and classified as: Workers
Compensation and Employers Liability business
domiciled in states other than Florida.
TERRITORY: This applies to losses occurring within the United
States of America, its territories and possessions,
per the territorial limits of the Company's policies.
EXCLUSIONS: per the attached
COVERAGE: The Company shall cede to the Reinsurer and the
Reinsurer shall accept from the Company a quota share
participation of the net retained liability of the
Company, as respects inforce, new and renewal policies
becoming effective October 1, 1996 and during the term
of this contract.
Such quota share participation of the Company's net
retained liability shall be subject to the provisions
set forth below:
A. As respects Workers Compensation and Employers'
Liability business:
It is understood and agreed that the Reinsurer's
limit of liability shall not exceed its pro rate
share of $500,000 (100%) per occurrence. An
2
<PAGE> 5
"occurrence" shall mean each loss, accident or
occurrence or series of losses, accidents or
occurrences arising out of one event, except as
modified by Coverage B below with respect to
Occupational and Other Disease and Cumulative
Trauma which shall be defined by applicable
statutes and regulations.
B. As respects Occupational or Other Disease or
Cumulative Trauma under Workers' Compensation
and Employers Liability business:
It is understood and agreed that the Reinsurer's
limit of liability shall not exceed its pro rate
share of $500,000 (100%) per occurrence.
However, as respects Occupational Disease or
Cumulative Trauma under -- Workers' Compensation
and Employers' Liability policies, a loss for
the purpose of this Contract shall be deemed to
be (Occupational Disease or Cumulative Trauma)
sustained by each employee which shall be deemed
to have occurred at the date upon which the
employee is last exposed to at work conditions
allegedly causing such occupational disease.
Notwithstanding the provisions in paragraphs A
and B above, the maximum liability of the
Reinsurer shall not exceed a 105% pure loss and
loss adjustment expense ratio for each year in
which this Contract remains inforce (determined
by dividing all applicable loss and loss
adjustment expense by applicable Gross Subject
Earned Premium).
C. The Company shall retain a minimum of thirty
five percent (35%) of the Liability hereunder,
however, the Company shall have the option to
purchase underlying protection on its net
account. It is the intention, however, for the
Company to retain 35% of this Contract for the
period October 1, 1996 through December 31,
1996. However, the attendant 65% cession of
Unearned Premium at December 31, 1996 shall
3
<PAGE> 6
be reassumed by the Company at 12:01 am January
1, 1997 and shall be simultaneously receded at
60% to the Reinsurer.
The percentage of cession for January 1, 1997
through June 30, 1997 shall be 60%. The Company
shall have the option to adjust the percentage
of cession in advance quarterly at/for July 1,
1997 and/or October 1, 1997, based on surplus
needs, and such adjustment shall not be greater
than 15%+/- (of 100%) in any one quarter.
PREMIUM: The Company shall cede to the Reinsurer its
proportionate share of the gross subject written
premium on all policies inforce, written or renewed
during the term of this contract.
"Gross subject written premium" as used in this
Contract shall mean the net standard premium written
by the Company times applicable premium volume
discounts, times FILED deviations and/or scheduled
rating (net after premiums paid for inuring
reinsurance), less return premiums and cancellations
on the business subject to this Contract.
CEDING
COMMISSION: Provisional Commission 33%
Commission Slide
78% or higher 27% Minimum
76% or higher but not exceeding 78% 29% less a 1% decrease
for each 1% increase in
the Reinsurer's loss
ratio down to a 27%
commission at A 78% loss
ratio.
70% or higher but not exceeding 76% 32% less a .50%
decrease for each 1%
increase in the
4
<PAGE> 7
Reinsurer's loss ratio
down to a 29%
commission at a 76% loss
ratio.
62% or higher but not exceeding 70% 40% less a 1% decrease
for each 1% increase in
the Reinsurer's loss
ratio down to a 32%
commission at 70% loss
ratio.
62% or lower but not less than 50% 40% plus .75% increase
for each 1% decrease in
the Reinsurer's loss
ratio to a maximum
commission of 49% at a
loss ratio of 50%.
50% or lower 49% Maximum
The ultimate commission shall be adjusted
annually and the loss will include a factor for
IBNR and loss development. Downward commission
adjustments to be calculated and paid
semi-annually. The first upward adjustment will
occur 36 months after the end of each agreement
year and annually thereafter.
It is noted and agreed that the cost of RMLs and
assessments to be paid by the Company are to be
included in the Ceding Commission paid by
Reinsurers.
REPORTS AND
REMITTANCES: The Company shall REMIT monthly reports to the
Reinsurer detailing by year ceded, billed
written premiums, earned premiums, unearned
PREMIUM, paid loss and loss adjustment expense,
outstanding loss and loss adjustment expense, due
within 60 days following the close of the month.
Payment due either party is due 60 days
following the close of the month.
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<PAGE> 8
LOSS AND LOSS
ADJUSTMENT EXPENSE: Allocated Loss Adjustment Expense to be included
in the limit.
OTHER PROVISIONS: Additional Reinsured Article (in the event any
Assumption Liability Endorsements are used).
The net retention of the Company to be
indemnified on those policies with Assumption
Liability Endorsements by the Reinsurer issuing
the actual ALE paper, however the ceded
liability on those policies shall be shared
proportionately by Reinsurers hereunder in the
event of the Company's insolvency.
It is noted that Reinsurers hereunder agree to
proportionately pay any RML or assessment for
which the Additional Reinsured becomes liable to
pay as a result of issuing ALEs.
GENERAL CONDITIONS: The Company shall be the sole judge of what
constitutes one occurrence, or one insured or
contract of insurance or reinsurance. All
business declared hereunder, subject to the same
terms, conditions, warranties, clauses, etc., as
contained in the Company's original policies and
Reinsurers to pay as may be paid by the Company.
Access to Records Article
Arbitration Article
Errors and Omissions Article
Extra Contractual Obligations and Loss in Excess
of Policy Limits Article
Federal Excise Tax (as applicable)
Insolvency Article
Interlocking Article (only applies if the
Company chooses run-off.)
Letters of Credit Article (as applicable)
Reserves and Taxes
Offset Article (This contract only version.)
Service of Suit Article (as applicable)
Underlying Recoveries Article
G.J. Sullivan Intermediary Article
WORDING: To be agreed.
6
<PAGE> 9
<TABLE>
<CAPTION>
EFFECTED WITH: 1995
Participation Best's Rating
------------- -------------
<S> <C> <C>
Chartwell Reinsurance Corporation 50% A/VII
Swiss Reinsurance America Corporation 25% A/Xlg
Trenwick America Reinsurance Corporation 25% A+/VIII
---
Total 100% of cessions hereunder
</TABLE>
G.J. SULLIVAN CO.
/s/ William M. Allen
-------------------------------
William M. Allen
Senior Vice President
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<PAGE> 10
G.J. Sullivan Co. as "Reinsurance Intermediary" does, by your authorized
signature hereto, have your acknowledged authorization to place reinsurance in
accordance with the terms of this Cover Note.
Final determination of each reinsurer, whether for financial reasons or
otherwise, rests solely with the Ceding Insurer, who does hereby release the
Intermediary from responsibility with regard to the acceptance of such
reinsurer(s).
Please indicate your acceptance and approval by signing and returning a copy of
this Cover Note to G.J. Sullivan Co.
ACCEPTED &
APPROVED: /s/ DATE: 2/5/97
------------------------------------------------ ----------------
8
<PAGE> 11
EXCLUSIONS
ATTACHING TO AND FORMING PART OF THE
RISCORP NATIONAL INSURANCE COMPANY
AS MANAGED BY RISCORP
WORKERS COMPENSATION QUOTA SHARE
COVER NOTE #R403940196 - OCTOBER 1, 1996
A. 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
or 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.
B. Roofing (all kinds).
C. Asbestos or PCB Handling.
D. Wrecking or demolition of
buildings, structures or
vessels, but not to exclude
the wrecking or demolition of
buildings not exceeding FIVE
stories in height.
E. Underwater work.
F. Explosives manufacturing,
handling or transporting.
G. Caisson or cofferdam work.
H. Professional athletic teams.
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<PAGE> 12
I. Offshore Drilling.
J. Iron or Steel erecting
operations.
K. Manufacturing production and
refining of petroleum and its
products.
L. Electrical power line
construction and/or maintenance.
M. Risks involving nuclear
facility or nuclear material,
spent fuel or waste as defined
in the Nuclear Incident
Exclusion Clause except for the
use of radioactive isotopes.
N. Operations where the governing
classifications are railroad
class codes.
O. Tunneling operations involving
tunnels over 100 feet in
length (auguring shall not be
considered tunneling).
P. Pools, Associations and
Syndicates.
Q. Financial Guarantee.
Except for exposures, coverages
or charges enumerated under paragraph
A, P & Q, if the Company is
inadvertently bound or unknowingly
exposed (due to error, automatic
provisions of policy coverage, or as
imposed by law) on a risk otherwise
excluded herein, such risk shall be
covered until the Company receives
knowledge thereof, and pending
cancellation of such risk, for a period
of ten days in addition to the time
permitted for cancellation in the
original policy, such total not
exceeding 70 days in all.
Special acceptances agreed by the
Excess Reinsurer (X $500,000) shall be
automatically accepted hereunder.
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<PAGE> 1
Exhibit 10.71
UNDERWRITING MANAGEMENT AGREEMENT - VSCI1996-8
This Agreement, entered into on the 1st day of September, 1996 (the
"Agreement") by and between Virginia Surety Company, Inc., an Illinois
corporation ("Company") and RISCORP Management Services, Inc., a Florida
corporation ("Agent").
PREAMBLES
WHEREAS, the Company desires to appoint Agent as its agent for
performing responsibilities set forth in this Agreement; and
WHEREAS, the Agent desires to perform such responsibilities;
NOW, THEREFORE, the Company and Agent, in consideration of the mutual
promises herein contained and for other good and valuable consideration, the
receipt and sufficiency whereof is hereby acknowledged, agree as follows:
1. APPOINTMENT,
1.1 APPOINTMENT. The Company does hereby nominate, constitute and
appoint Agent as its agent for (i) the soliciting, issuing, underwriting and
servicing of the Company's insurance policies classified in the schedule
attached hereto as Exhibit A (such insurance and any policies, contracts,
binders, endorsements, certificates or agreements of insurance, individually
and collectively, will be referred to as "Policy" or "Policies" hereunder) and
(ii) for the servicing of the Quota Share Reinsurance Agreement (Quota Share),
attached to this Agreement, between the Company and its Quota Share Reinsurer.
1.2 AUTHORITY. Agent is authorized to:
1.2.1 Issue Policies subject to (i) the scope and limits granted in
the schedule attached hereto as Exhibit A; (ii) the terms and conditions
(including exclusions) of any Policies issued, underwritten, or serviced
pursuant to this Agreement; (iii) the execution of the Quota Share between the
Company and its Quota Share Reinsurer before binding any Policies (iv) the
terms and
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<PAGE> 2
conditions of the Quota Share; (v) applicable state insurance laws, rules, and
regulations; (vi) the underwriting policies, rules and guidelines of the Company
as set forth in Exhibit B hereto or as otherwise provided from time to time by
the Company; (vii) the Company's ultimate right to veto the underwriting and
issuing of any Policy by Agent; (viii) the Company's ultimate right to cancel
any Policy subject to applicable governmental regulatory requirements for
cancellation and non-renewal; (ix) the Company's ultimate right to veto the
appointment by Agent of any agent or broker, and the ultimate power of the
Company to cancel any such agency pursuant to Section 1.2.7; (xi) the Company's
right to approve all advertising with respect to the Policies in which Company's
name is used.
1.2.2 Collect, account and receipt for and pay premiums on Policies
Agent writes on behalf of Company in accordance with Sections 1.2.3, 4 And 7,
and, as full compensation, to retain commissions out of premiums so collected in
amounts as specified in the schedule attached hereto as Exhibit A. Agent agrees
that all premiums, including return premiums received by Agent, are Company's
property.
1.2.3 Hold all premiums, including return premiums received by Agent in
a fiduciary capacity for Company in accordance with Section 4.1.14.
1.2.4 Exercise Agent's authority through authorized employees of Agent
or its affiliates.
1.2.5 Represent other companies.
1.2.6 Exercise exclusive and independent control of Agent's time and
conduct.
1.2.7 Appoint agents and producers after assuring that the agent or
producer is lawfully licensed to transact the type of insurance for which he is
appointed and is not serving on
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<PAGE> 3
Company's or Agent's Board of Directors.
1.2.8 Terminate agents and producers.
1.3 PERFORMANCE. Agent hereby accepts the foregoing appointment and
agrees faithfully to perform the duties thereof in a professional manner as an
agent of the Company and to obey promptly such reasonable instructions as it may
receive from time to time from the Company in accordance with this Agreement.
1.4 FAILURE OF PERFORMANCE. If the Agent materially breaches this
Agreement, the Company may, as one remedy but not as an exclusive remedy,
require its own employees or designated representatives to carry out the Agent's
duties hereunder. Agent shall reimburse the Company for the Company's reasonable
expenses, including salaries, incurred for having its employees or
representatives perform such duties, or, at the Company's option, shall pay such
employees or representatives directly. Such reimbursement or direct payments
shall be made by Agent within five (5) days after the Agent's receipt of
invoices of such expenses. For purposes of this Agreement a material breach
shall not have occurred until Agent has received written notice of the grounds
of the breach and has failed to cure the breach within thirty (30) days after
receiving written notice.
2. TERRITORY.
Agent's authority to solicit, issue, underwrite or service Policies
extends only to insureds or prospective insureds located in the states specified
in Exhibit A hereto, subject to the applicable licensing authority of the
Company, the Company having made and received approval of all necessary
regulatory filings and to Agent's obtaining licenses wherever required for
activities conducted by Agent pursuant to this Agreement. Agent hereby agrees to
obtain such licenses and the Company at its sole discretion may revoke Agent's
authority as regards any particular insured or
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<PAGE> 4
prospective insured.
3. REPRESENTATIONS AND WARRANTIES.
3.1 REPRESENTATIONS AND WARRANTIES OF AGENT. On the date hereof, during
the term of this Agreement, and for any period described in Section 10.5.1,
Agent hereby represents and warrants to Company as follows:
3.1.1 LAWS AND LICENSES. Agent has and will comply with all
applicable laws, rules and regulations (including but not limited to providing
current copies of agent's or broker's license to be maintained in Company's
records, request of and proof of agent or broker background reports and Company
appointment of all agents where applicable) and shall, whenever necessary,
obtain and maintain at its own expense all licenses required for it to perform
this Agreement.
3.1.2 NO BREACH. This Agreement is a valid and binding obligation
of Agent. The execution and delivery of this Agreement and the consummation of
the transactions contemplated herein, will not breach or conflict with Agent's
by-laws or Articles of Incorporation, or with any agreement, covenant, or
understanding (oral or written) to which Agent is bound, and will not
adversely affect the application for issuance or the validity of any license of
the Agent.
3.1.3 STATUS. Agent is a duly organized and validly existing
corporation in the State of Florida.
3.1.4 AUTHORIZATION. The execution, delivery, and performance of
this Agreement by Agent has been duly and properly authorized by it.
3.2 REPRESENTATIONS AND WARRANTIES OF COMPANY. On the date hereof,
during the term of this Agreement, and for any period described in Section
10.5, Company hereby represents and warrants to Agent as follows:
4
<PAGE> 5
3.2.1 LAWS AND LICENSES. Company has and will comply with all
applicable laws, rules and regulations and shall, whenever necessary, obtain and
maintain at its own expense all licenses required for it to perform this
agreement.
3.2.2 NO BREACH. This Agreement is a valid and binding obligation
of Company. The execution and delivery of this Agreement and the consummation of
the transactions contemplated herein, will not breach or conflict with Company's
by-laws or Articles of Incorporation, or with any agreement, covenant, or
understanding (oral or written) to which Company is bound, and will not
adversely affect the application for issuance or the validity of any license of
the Company.
3.2.3 STATUS. Company is a duly organized and validly existing
corporation in the State of Illinois.
3.2.4 AUTHORIZATION. The execution, delivery, and performance of
this Agreement by Company has been duly and properly authorized by it.
4. DUTIES AND RESPONSIBILITIES.
4.1 GENERAL. Subject to the Company's supervision and
instructions, Agent agrees to perform the following duties and services in
addition to those otherwise enumerated in this Agreement:
4.1.1 Agent acknowledges that Company intends for each Policy
issued hereunder to be reinsured under the Quota Share. Company hereby approves
payment of reinsurance premiums to and collections from the Quota Share pursuant
to its terms and conditions.
4.1.2 Solicit, underwrite, issue, secure proper countersignatures
when required by applicable laws and service Policies on behalf of the Company.
4.1.3 Cancel Policies issued or underwritten by Agent
5
<PAGE> 6
in accordance with the terms of the Policies and applicable state regulations.
4.1.4 Issue Policies only on forms approved by the Company and
filed with and approved by regulatory authorities wherever such filing and
approval is required, unless such forms are modified with the prior written
consent of the Company.
4.1.5 Investigate and settle claims as provided in Section 5
below and establish reserves for such claims.
4.1.6 Maintain at Agent's expense data processing systems and
equipment, an office or offices and a staff of employees sufficient in number
and qualifications to perform the duties set forth in this Agreement.
4.1.7 Underwrite and issue policies in accordance with the
premium rates and underwriting criteria and guidelines as defined in Exhibit B
hereto (or as may be modified from time to time as agreed upon by Company and
agent).
4.1.8 Perform Agent is responsibilities under Section 7 of this
agreement.
4.1.9 Pay to Company a policy-issuing fee of 6% of gross net
written premiums, as defined in the schedule attached hereto as Exhibit A, on
all Policies issued under the terms hereof processed in accordance with Section
7.1. The policy-issuing fee is subject to a minimum monthly payment of $5,000
and minimum annual payment of $120,000. The minimum annual policy-issuing fee
will be balanced against the actual annual policy-issuing fee received by the
Company forty five (45) days after expiration of this Agreement. Any additional
amounts due the Company shall be remitted sixty days after the expiration of
this Agreement. In addition, the Agent shall reimburse the Company for
all taxes, fees, assessments and residual market loads of any kind imposed upon
Company pursuant to any law or regulation as a result of the
6
<PAGE> 7
policies issued under the terms of this Agreement. Taxes, fees, assessments and
residual market loads will be adjusted annually utilizing December 31st figures
until all applicable taxes, fees, assessments or residual market loads have been
paid by the Company.
4.1.10 Pay to Company any fines imposed by regulatory
authorities, taxation authorities, their agents for data collection and advisory
organizations providing loss cost and policy forms due to late filing or poor
quality of data provided by Agent in accordance with Section 7.3.2.
4.1.11 Pay to Company any fines imposed by regulatory authorities
upon Company due to the use of unapproved forms or rates by Agent or due to
other market conduct violations caused by Agent's conduct.
4.1.12 Maintain separately for Company and each other insurer
with which Agent does business, complete and current records and accounts,
including underwriting files, which Agent shall retain in accordance with
Section 8 and any applicable laws.
4.1.13 Refund within sixty (60) days of the end of each calendar
month, return commissions on Policy cancellations or premium reduction, in each
case at the same rate at which such commissions were originally retained.
4.1.14 Hold all monies, including premiums, return premiums and
reinsurance monies received by Agent, in a fiduciary capacity for Company.
Except as otherwise authorized by this Agreement, Agent shall maintain such
monies in a separate and segregated bank account in a bank that is a member of
the Federal Reserve System and is insured by the Federal Deposit Insurance
Corporation. This account shall not be used for any purpose other than payments
to or on behalf of Company. Any investment income produced from this bank
account shall vest and become the property of Agent.
7
<PAGE> 8
4.1.15 Comply with all regulatory requirements including, but not
limited to, the cancellation, nonrenewal, or conditional renewal of policies.
4.1.16 Return upon demand after termination of this Agreement,
all unused Policies, forms, and other property furnished to Agent by Company.
Such items remain the property of Company. Agent shall fully cooperate with and
assist Company in recovering such items from third parties, if any.
5. CLAIM SETTLEMENT AUTHORITY
5.1 CLAIMS. Agent shall investigate, negotiate and settle all policy
claims or losses on behalf of the Company; however, agent shall obtain the prior
approval of the Company before settling any policy claim or loss which is in
excess of One Hundred Thousand Dollars ($100,000.00) gross incurred loss. Agent
shall determine coverage for claims, however, agent shall obtain the prior
written approval of the Company for the handling of claims in which the Company
is named as a defendant or claims in which the agent seeks declaratory relief on
behalf of the Company. All claims or losses shall be reported in monthly
statements pursuant to Section 7 below. In addition, upon receiving notice or
knowledge of any Policy claim or loss in excess of One Hundred Thousand Dollars
($100,000) gross incurred loss; or any loss regardless of incurred dollar amount
involving the following: amputation of a major extremity, brain or spinal cord
injury, multiple deaths, permanent total disability as defined in the Workers'
Compensation act of the applicable State, any second or third degree burn of
50% or more of the body, reopening of any case in which further award might
involve liability of the Quota Share, bad faith claims or suits, demands in
excess of policy limits, actual or alleged violation of law by the Agent or
litigation naming Company as a defendant; Agent shall immediately notify the
Company in writing of
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<PAGE> 9
such claim or loss, provide the amount of the reserve for such claim as
established by Agent, the facts and circumstance of the claim, the Agent's
analysis of the insured's liability for the claim, the Agent's analysis of
damages resulting from the claim, the Agent's analysis of the applicability of
coverage for the claim, and such other information and records concerning such
claim or loss as the Company requests.
5.2 LEGAL COUNSEL AND ALLOCATED CLAIM COST. Whenever Agent shall deem
it prudent to engage legal counsel or loss adjusters to protect the Company's
interest regarding claims or losses, such services shall be provided only by
qualified attorneys-at-law and/or licensed loss adjusters selected by Agent,
who have substantial experience in the handling of claims litigation of the
type involved. Any provision hereof to the contrary notwithstanding, it is
agreed that, with respect to any claim or loss of any amount, Agent shall
promptly furnish Company, or its designee, any additional claim or loss
information requested by the Company with respect to a claim or loss pertaining
to any policy covered by this agreement, and it is further agreed with respect
to any claim or loss of any amount as follows:
a) The Company may defend or assign an attorney of its own choice
to defend or be associated in the defense of any claim or loss
reported to the Company and, in the event an attorney has already
been employed by Agent, the service of such attorney which has
already been employed by Agent shall be terminated by Agent
forthwith and the Agent shall waive any conflict of interest that
may have been created by such attorney's employment by Agent.
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<PAGE> 10
b) in the event that the Company is named as a defendant in any
lawsuit, Agent shall as soon as it has notice or knowledge of such
lawsuit, immediately give written notice thereof to the Company
accompanied by a copy of the complaint and any court papers
related to such lawsuit.
5.3 Unallocated costs, no reimbursement shall be paid by the Company to
Agent for the salaries, office expenses or other expenses incurred by or on
behalf of the Agent (including overhead) in the handling of the Company's claims
or losses. No reimbursement shall be paid by the Company to the Agent for fees
to attorneys, experts and service providers who are employees of, or on
permanent retainers to the Agent, unless Company gives its prior approval for
any such reimbursement.
5.4 Claim fund. Agent agrees to monitor a claims paying checking
account ("Account"), established and funded by the Quota Share Reinsurer, from
which it will pay on behalf of Company all claims and allocated claim costs
under the Policies. Agent agrees to ensure the minimum balance in the Account as
per the Quota Share is maintained.
6. EXPENSES.
6.1 Agent shall pay from its own monies (and not seek reimbursement
from Company for) all commissions to any agents, subagents, brokers and
sub-producers, all inspection fees, expenses of examinations of Agent and other
governmental expenses in connection therewith, all refunds of unearned
commissions owed to Company on canceled policies, all costs to print and
inventory Policy forms, all costs to service claims as stated in Section 5.3
above and all unallocated costs to collect premiums in regard to Policies
issued, underwritten or serviced pursuant to this Agreement.
6.2 In the event Company is notified by a regulatory
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<PAGE> 11
authority of the need of or an independent actuarial, accounting and/or legal
opinion not originally contemplated by this Agreement, Company shall notify
Agent who will in turn reimburse any expense incurred by Company.
7. ACCOUNTING AND REPORTING PROCEDURES.
Agent shall:
7.1 Within thirty (30) days after the end of each month, remit to
Company the policy-issuing fee in accordance with Section 4.1.9. on all Policies
issued under the terms of this Agreement. Agent may not offset balances due to
Company hereunder against balances due Agent under any other contract with
Company.;
7.2 On behalf of the Company supply accounting, underwriting and claim
bordereaux and pay the reinsurance premium to and make collections from the
Quota Share pursuant to its terms and conditions;
7.3 With regard to business placed by Agent with Company hereunder,
furnish to Company in hard copy form:
7.3.1 Within thirty (30) days after the end of each month, a bank
statement and bank reconciliation report for the claims paying checking account
described in Section 5.4 and a report of written, collected, earned and unearned
premiums; losses and loss adjustment expenses paid and outstanding; loss and
loss adjustment expenses incurred; commissions earned by Agent; Quota Share
earned and unearned premiums, commissions and losses (including losses and loss
adjustment expenses paid and outstanding, loss and loss adjustment expenses
incurred) ceded; and such other information as may be reasonably requested by
Company, which information Company shall maintain on file and shall make
available to insurance regulatory authorities for review;
7.3.2 provide detail and summary reports, in a electronic or
printed medium, as are required to meet all reporting
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<PAGE> 12
requirements of state regulatory or taxation authorities, their agents for data
collection, and advisory organizations providing loss cost and policy forms
including but not limited to:
a. within (30) thirty days of the close of the calendar quarter
direct premiums (written and earned); inforce premiums;
policy counts (written and inforce); direct losses and loss
adjustment expenses including salvage and subrogation (paid
and reserve); number of claims open, closed with payment and
closed without payment; as prescribed by state regulatory
authorities.
B. within (30) thirty days of the close of the quarter the direct
written premium, loss and loss adjustment expense including
salvage and subrogation (paid and reserved) transaction data
as prescribed by advisory organizations providing loss cost
and policy forms.
C. the reports of direct premiums (written and earned), losses
and loss adjustment expenses including salvage and subrogation
(paid and reserved) (30) thirty days prior to the prescribed
deadline as required by state regulatory data collection
agents including but not limited to financial calls, unit
statistical data, summary statistical data and detail claim
information for National Council on Compensation Insurance
(NCCI), Insurance Services Office (ISO) and National
Association of Independent Insurers (NAII),
7.4 By the first business day of February of each year, the
Agent shall provide the Company with any information the Company may require in
order to complete its statutory financial statements.
8. BOOKS AND RECORDS.
Agent shall at its own expense keep such books and records as
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<PAGE> 13
may be required by law, rulings, or orders of the insurance departments of the
states having jurisdiction over Agent or Agent's business or over any Policies
or the Quota Share connected with this Agreement and also as reasonably
requested by the Company, and shall make such books and records available for
examination, audit, and copying by the insurance departments of such states and
by the Company, or by their authorized representatives. The Company and the
Quota Share Reinsurer shall have the right to examine and review at any
reasonable time all books, records, files and papers, including, but not by way
of limitation, claim files and underwriting files, maintained and kept by Agent,
which relate to this Agreement, the Policies, or the Quota Share. Agent shall
institute and maintain retention and disposal systems for claim files and
underwriting files in accordance with procedures and requirements as prescribed
by law. All books and records of the Agent shall be maintained at the principal
place of business of Agent and shall be complete, accurate, and up-to-date, and
shall reflect all monies paid or received by Agent and all transactions of Agent
pursuant to this Agreement. Anything to the contrary notwithstanding, all of the
books, records, files and papers maintained and kept by Agent relating to
underwriting and claims matters involving this Agreement or the Policies, shall
be and remain the sole and exclusive property of the Company except that upon
termination of this Agreement, all right, title and interest in and to all
Policy renewals or expirations and all records with respect to renewals or
expirations shall automatically and irrevocably transfer to the vest in Agent.
9. Indemnification.
Agent shall indemnify and hold harmless Company from and against all
losses, damages, costs, expenses, claims or liabilities of any description
suffered by the Company with respect
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<PAGE> 14
to the Agent or any Policies issued or underwritten by Agent, including, without
limitation, any attorney's fees, in connection with or arising out of (i) any
allegations, whether or not such allegations are groundless, that the Agent has
not complied with any laws, rules, or regulations to which it is subject, (ii)
any breach of any warranty or representation of Agent made in this Agreement or
any other breach of this Agreement by Agent, or (iii) any alleged misconduct,
negligence, misrepresentation, or other acts or failures to act of the Agent or
of it officers, directors, employees, agents, subproducers or independent
contractors.
10. TERMINATION OF AGREEMENT,
10.1 Except as specified in sections 10.2 - 10.4 of this Agreement,
this Agreement shall terminate on September 1, 1997.
10.2 This Agreement may be terminated immediately by Company upon
giving written notice to Agent in the event of:
10.2.1 The misappropriation by Agent of any of Company's funds or
property;
10.2.2 The fraud, gross negligence or willful misconduct of
Agent;
10.2.3 An assignment by Agent for the benefit of creditors; the
dissolution or liquidation of Agent; the appointment of a receiver or liquidator
for a substantial part of Agent's property; the institution of bankruptcy,
insolvency or similar proceedings by or against Agent;
10.2.4 Material breach by Agent of any provision of this
Agreement which Agent has failed to cure within thirty (30) days after receiving
written notice for the grounds of the material breach of this Agreement;
10.2.5 Termination of the Quota Share for any reason;
10.2.6 If any law or regulation of the federal, state or
local government of any jurisdiction in which Agent is doing
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<PAGE> 15
business shall render illegal or invalid any transaction contemplated by this
Agreement, any term of this Agreement or the Quota Share, the Agreement may be
terminated insofar as it applies to such jurisdiction by the Company giving
notice to Agent to such effect or by Agent giving notice to the Company to such
effect.
10.2.7 Change in ownership of ten percent (10%) or more of the
outstanding voting stock of Agent, sale, merger or transfer of Agent or change
of any principal officer or director of Agent. Company acknowledges and accepts
that Agent's parent anticipates a public offering to occur during the first
quarter of 1996.
10.2.8 Termination of Wexford Underwriting Managers, Inc. involvement
with Agent's worker's compensation business.
10.3 This Agreement may be terminated by either party by giving at
least ninety (90) days written notice of termination to the other party.
10.4 This Agreement may be terminated at any time by mutual written
agreement.
10.5 Upon termination of this Agreement:
10.5.1 If at any time the Company sends notice of termination to
Agent as provided in Section 10.2 above or the Agreement is otherwise terminated
as provided herein, Agent shall not, with respect to this Agreement, solicit,
underwrite, quote, bind or issue any Policies or renew any existing Policies for
which the inception date or renewal date falls after the effective date of
termination of this Agreement, nor shall Agent cancel and rewrite any existing
Policies to provide for inception or anniversary dates prior to the effective
date of termination of this Agreement. Anniversary dates of Policies shall be
regarded as renewal dates for this purpose, and Agent shall terminate any such
Policies on its next anniversary date after the effective date of
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<PAGE> 16
termination of this Agreement unless instructed otherwise by the Company in
writing. Upon termination of this Agreement, the authority of Agent to
underwrite or issue Policies on behalf of the Company shall also terminate.
10.5.2 Unless otherwise indicated by this Agreement or Company
otherwise notifies Agent in writing, Agent's duties and responsibilities under
this Agreement shall survive termination of this Agreement until such time as
all Policies issued, underwritten or serviced by Agent pursuant to this
Agreement have expired and the Quota Share has expired, and all known losses
thereunder have been paid or settled, have runoff or otherwise have been
disposed of in the judgement of the Company, and all incurred but not reported
loss reserves have been reduced to zero, and any amounts owed to the Company by
others or under the Quota Share in regard to any claims have been collected by
the Company. The only compensation Agent shall receive for its performance of
its duties hereunder (both during and after the term of this Agreement) is set
forth in the Commissions section of Exhibit A.
10.5.3 Agent shall, unless notified in writing to the contrary by
Company:
a. Continue to represent Company for the purpose
of servicing Policies placed by Agent with
Company which are in force on, or renewed at
Company's election, or as required by law,
after the date of termination of this Agreement
and continue to receive its normal compensation
for such services.
B. Issue and countersign appropriate endorsements
on contracts of insurance in force, provided
that without prior written approval of Company,
such endorsement shall not increase
16
<PAGE> 17
or extend Company's liability or extend the
term of any Policy.
C. Collect and receipt for premiums and retain
commissions out of premiums collected as full
compensation.
10.6 Any notice issued pursuant to this Section shall be effective on
the day after it is received by Agent.
11. SUSPENSION OF AGENT'S AUTHORITY.
11.1 Company may, in lieu of terminating this Agreement, by notice to
Agent, immediately suspend Agent's authority to bind new or renewal business
and/or change any existing insurance policy during the pendency of any of the
following events:
11.1.1 Agent is delinquent in payment of any monies due Company;
or
11.1.2 Any dispute exists between Agent and Company regarding the
existence of any of the events listed in Section 10.2
11.1.3 The Quota Share is not executed between Company and its
Quota Share reinsurer.
11.2 Such suspension shall remain in effect until such delinquency is
cured or dispute is resolved and Agent receives written notification from
Company to that effect. If such delinquency is not cured within fifteen (15)
days from the date of receipt of written notification by Agent of such
delinquency, Company may exercise its right to terminate this Agreement under
Section 10.2
11.3 Unless otherwise notified in writing to the contrary by Company,
Agent's obligation under this Agreement shall continue during the suspension of
Agent's authority under this Agreement.
11.4 Any notice of suspension issued pursuant to this Section shall be
effective immediately.
17
<PAGE> 18
12. TRUST AGREEMENT.
On or before September 10, 1996, the Agent, the Company and a qualified
financial institution acting as trustee thereunder shall enter into a trust
deposit agreement under which the Agent shall create a trust account f or the
benefit of the Company and shall deposit the sum of One Million Five Hundred
Thousand Dollars ($1,500,000) into the trust account. Trust account means the
funds and other assets held by the trustee from time to time under the trust
deposit agreement. The trust deposit agreement shall comply with, and the
financial institution acting as trustee thereunder shall be qualified to act as
trustee pursuant to, the applicable laws and regulations of Illinois and New
York, and those of each other applicable jurisdiction.
Assets deposited in the trust account shall consist only of (i) cash
(United States legal tender), (ii) direct obligations of the United States or of
any agency or instrumentality of the United States, or in certificates of
deposit issued by a financial institution organized under the laws of the United
States or any state to the extent guaranteed or insured as to the payment of
principal and interest, or to the payment of principal only, by the United
States or an agency or instrumentality of the United States, provided such
obligation or certificate of deposit shall have a maturity date of ten years or
less from the date of purchase; and (iii) other investments for which the
Company shall first have given its written consent (which may be given subject
to conditions) from among those which are eligible investments for the Company
pursuant to both Article viii of the Illinois Insurance Code and Paragraphs (1),
(2), (3), (8) and (10) of subsection (a) of Section 1404 of the New York
Insurance Law; provided that such investments are issued by an institution that
is not the parent, parent subsidiary, or affiliate of either the Company or the
Agent.
18
<PAGE> 19
Notwithstanding any other provisions of this Agreement, the Company or
its successors interest may draw upon the Trust Fund at any time without
diminution because of insolvency of the Company or of the Reinsurer for one or
more of the following purposes only:
A. To reimburse the Company for unearned premium on policies on
account of cancellations of such policies.
B. Upon 30 days notice to Agent, to pay or to reimburse the
Company for any loss which has not been otherwise paid.
C. To pay any other amounts the Company claims are due under this
Agreement.
The issuing bank will have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
When all known loss reserves have been settled or closed and incurred
but not reported loss reserves are reduced to zero, the Company and the Agent
will mutually agree to terminate the Trust Agreement in its entirety.
13. MISCELLANEOUS.
13.1 This Agreement may be revised by mutual agreement of agent and
Company and such revision shall be evidenced by a written agreement duly
executed by authorized representatives of Agent and Company, which specifies the
effective date thereof.
13.2 Agent shall not commit Company to any expenses or obligations not
specifically provided for herein without the prior written permission of
Company.
13.3 Company shall have the right to oversee and supervise the
operation of this Agreement, including but not limited to the right at all
reasonable times, to have access to and to copy at Company's expense Agent's
books and records as they relate to this Agreement,
19
<PAGE> 20
which rights shall survive the termination or expiration of this Agreement. The
director or commissioner of insurance of any state where Agent issues policies
on behalf of Company shall have at all reasonable times the right of access to
all books and records and bank account of Agent in a form usable by such
official.
13.4 Any provision of this Agreement which conflicts with applicable
law or regulation will be amended to the minimum extent necessary to effectuate
compliance with such law or regulation.
13.5 Agent shall not have authority to represent Company on any
exclusive basis with respect to any policy form, line, class or subclass of
business, unless otherwise authorized in writing by Company.
13.6 Agent shall not have authority to negotiate, place, bind, cancel
or amend reinsurance on behalf of Company.
13.7 The Company is responsible for all filings and reporting
requirements to state insurance regulatory, taxation authorities and advisory
organizations subject to the provisions set forth in Section 4.
13.8 Failure of either party to enforce compliance with any term or
condition of this Agreement shall not constitute a waiver of such term or
condition. No waiver of any breach or default hereunder shall be valid unless in
writing and signed by the party giving such waiver, and no such waiver shall be
deemed a waiver of any subsequent breach or default of the same or similar
nature.
13.9 This Agreement shall be construed in accordance with the laws of
the state of Illinois.
13.10 If any dispute arises between the Company and Agent with
reference to the interpretation, performance, or breach of this Agreement
(whether the dispute arises before or after termination of this Agreement) such
dispute, if not resolved by the parties, must be submitted to nonbinding
mediation. If such
20
<PAGE> 21
dispute is not resolved by nonbinding mediation within sixty (60) days it will
then be submitted to final and binding arbitration.
Arbitration shall be initiated by the delivery of written request of
either party sent certified or registered mail. The arbitration hearings will be
held in the city of the Company's home office or a location agreed upon by the
parties to this Agreement.
The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies or Underwriters at
Lloyd's London not under the control or management of either party to this
agreement and will not have personal or financial interests in the result of the
arbitration. Each party shall appoint its arbitrator, and the two arbitrators
shall choose an umpire before instituting the hearing. If either party fails for
any reason to appoint an arbitrator within thirty (30) days after receipt of
written notice from the other party requesting to do so, the requesting party
may appoint both arbitrators. If the two arbitrators fail to agree in the
selection of an umpire within thirty (30) days of their appointment, each
arbitrator will nominate three individuals, of whom the other will decline two.
The final decision will be made by drawing lots.
The claimant shall submit its initial brief within forty-five (45) days
from appointment of the umpire. The respondent shall submit its brief within
forty-five (45) days thereafter, and the claimant may submit a reply brief
within thirty (30) days after filing of the respondent's brief.
The arbitrators will not be obliged to follow judicial formalities or
the rules of evidence except to the extent required by the law of the State of
Illinois. Further, the arbitrators will interpret this Agreement as an
honorable engagement rather than merely a legal obligation and shall make its
decision considering the custom and practice of the applicable insurance and
reinsurance
21
<PAGE> 22
businesses.
The board shall issue its decision in writing based upon a hearing in
which evidence may be introduced without following strict rules of evidence but
in which cross-examination and rebuttal shall be allowed. The board shall make
its decision within sixty (60) days following the termination of the hearings
unless the parties consent to an extension. The majority decision of the board
shall be final and binding upon all parties to the proceeding. Judgement may be
entered upon the award of the board in any court having jurisdiction.
Punitive damages will not be awarded, the arbitrators may, however, at
their discretion award such other costs and expenses as they deem appropriate,
including but not limited to attorneys' fees, to the extent permitted by law.
Punitive damages will be deemed to include that portion of any award that is
awarded as a multiple of compensatory damages, including an award of double or
treble damages.
The Company and Agent will bear the expense of their own arbitrator and
will jointly and equally bear with the other party the cost of the umpire and
arbitration if such arbitration arises out of any action by Agent in accordance
with and upon the express written direction of the Company in connection with
this Agreement.
13.11 This Agreement may not be directly or indirectly assigned by
either party in whole or in part, nor may Agent appoint a sub managing general
agent.
13.12 During the term of this Agreement, Agent shall obtain and
maintain in full force and effect, at its expense, and if available, fidelity
insurance, errors and omissions insurance, directors and officers insurance, and
general liability insurance in such amounts and on such terms as are reasonably
acceptable to the Company. Agent shall furnish the Company with copies of the
22
<PAGE> 23
certificates of insurance for such insurance, and shall not cancel or amend any
such insurance without the Company's prior written consent.
13.13 Any notice or other communications required or permitted
hereunder shall be sufficiently given if sent by certified or registered mail,
postage prepaid, if to Agent, addressed to RISCORP Management Services, Inc.,
1390 Main Street, Sarasota, Florida, Attention: Stephen C. Rece, Senior Vice
President and if to Company addressed to Virginia Surety Company, Inc., 123
North Wacker Drive, Chicago, Illinois 60606, Attention: Wayne J. Baliga, Vice
President, or such other address as notified by either party to the other.
13.14 Agent is an independent contractor, not an employee of Company,
and nothing in this Agreement shall be construed to create an employer/employee
relationship between Company and Agent.
13.15 The Agent acknowledges and agrees that it will benefit from this
Agreement and that a breach by it of the covenants contained in Sections 1, 2,
4, 5 or 10.5.1 herein would cause the Company irreparable damages that could not
adequately be compensated for only by monetary compensation. Accordingly, it is
understood and agreed that in the event of any such breach or threatened
breach, the Company may apply to a court of competent jurisdiction for, and
shall be entitled to, injunctive relief from such court, without the requirement
of posting a bond, or proof of damages, designed to cure existing breaches and
to prevent a future occurrence or threatened future occurrence of like breaches
on the part of the Agent. It is further understood and agreed that the remedies
and recourses herein provided shall be in addition to, and not in lieu of any
other remedy or recourse which is available to the Company either at law or in
equity in the absence of this Paragraph including without limitation the right
to damages.
23
<PAGE> 24
13.16 The Company nor the Agent shall not disclose material details of
this Agreement and the Policies without the prior consent of the other party.
However, this restriction will not apply to disclosures made by the Company or
The Agent to its agents, producers, shareholders, policyholders, auditors,
accountants, arbitrators, legal counsel, or other third parties as required in
the ordinary course of business, or to disclosures required by arbitration
panels, governmental agencies, regulatory authorities, or courts of law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
RISCORP MANAGEMENT SERVICES, INC.
By:/s/
-----------------------------
Title: Senior Vice President
------------------------
Date: 10/18/96
------------------------
VIRGINIA SURETY COMPANY, INC.
By:/s/ Wayne J. Baliga
-----------------------------
Title: Vice President
------------------------
Date: 9/25/96
------------------------
24
<PAGE> 25
EXHIBIT A
SCHEDULE OF AUTHORITY
Agent is only authorized to accept or bind business, as defined in the
Classification Section below, subject to the Amounts and stipulation indicated
below. Amounts in excess of the authorized limits or classifications must be
referred to Company for review and approval prior to binding.
GROSS NET WRITTEN PREMIUM LIMIT --a maximum of $30,000,000 unless Agent
obtains the prior written consent of the Company. Gross Net Written
Premium shall mean gross written premium of the Company less returned
premium and dividends paid on policies that are written subject to a
loss sensitive dividend plan. For business that is written subject to
an installment billing plan, the premiums shall be considered written
thirty (30) days after the day which they became due to the Company.
POLICY-TERM--not more than one year.
POLICY LIMITS AND COVERAGE CLASSIFICATIONS
COVERAGE LIMIT
Workers Compensation Statutory
Employers Liability Coverages $1,500,000
No other classes of insurance may be written on Company's insurance
policies.
EXCLUDED CLASSES OF BUSINESS
agent shall not issue policies which are excluded under the terms and
conditions of the Quota Share.
COMMISSIONS--the Company will allow the Agent a commission equal to the
commissions provided for in the Quota Share and from such commissions,
Agent shall pay to the Company the policy issuing fee provided for in
Section 4.1.9 of the Underwriting Management Agreement between Company
and Agent.
TERRITORIAL LIMITATIONS-- Agent shall not issue any policy in
<PAGE> 26
any jurisdiction other than the States of Alabama, Georgia, Oklahoma, North
Carolina, Louisiana, Tennessee, Maryland and Virginia. Agent may issue the
Company's policies to ancillary business operations located in other states
provided the primary business operation (at least 60% of account premium) is
located in the states listed above or is insured by RISCORP Property and
Casualty Insurance Company, Riscorp Insurance Company and RISCORP National
Insurance Company. It is further understood that Agent shall not compete on
existing, renewal or prospective accounts written by Muirfield Underwriters,
Ltd., GAN National Insurance Company and Catholic Mutual Group (list of CMG
prospective and existing accounts per attached letter dated October 18, 1995).
Nothing is this Agreement or Exhibit shall be construed to prohibit Agent from
soliciting, issuing, underwriting and servicing any insurance policies for any
policyholder of the above mentioned companies after the termination of this
Agreement.
RATES AND UNDERWRITING- - Agent shall not issue any policy that does not meet
the rate and underwriting guidelines set forth in Exhibit B to the Underwriting
Management Agreement between Company and Agent, as amended from time to time by
Company, and incorporated herein by reference, unless such policy is referred to
Company for review and approval prior to binding.
<PAGE> 1
EXHIBIT 10.72
LOSS PORTFOLIO TRANSFER AGREEMENT
between
OCCUPATIONAL SAFETY ASSOCIATION OF ALABAMA
WORKMEN'S COMPENSATION FUND
(Hereinafter referred to as the "Fund")
and
RISCORP NATIONAL INSURANCE COMPANY
(Hereinafter referred to as the "Insurer")
<PAGE> 2
LOSS PORTFOLIO TRANSFER AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1 - EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - TRANSFER OF COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 3 - PAYMENT OF PREMIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF
DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 5 - NOTICE OF TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 7 - ASSESSMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 8 - DIRECT SUIT AGAINST THE INSURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 9 - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 10 - EXTRA CONTRACTUAL OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 11 - REGULATORY COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 13 - DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 15 - ERRORS OR OMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 16 - ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 17 - HONORABLE UNDERTAKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 18 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
D. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
E. Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
F. Non-waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
G. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
LOSS PORTFOLIO TRANSFER AGREEMENT
(Hereinafter referred to as the "Agreement")
between
OCCUPATIONAL SAFETY ASSOCIATION OF ALABAMA
WORKMEN'S COMPENSATION FUND
(Hereinafter referred to as "Fund")
and
RISCORP NATIONAL INSURANCE COMPANY
(Hereinafter referred to as the "Insurer")
ARTICLE 1 - EFFECTIVE DATE
This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time,
September 1, 1996 (the "Effective Date").
ARTICLE 2 - TRANSFER OF COVERAGE
Upon the Effective Date, the Fund shall transfer to the Insurer (i) the
Contracts of Coverage (as defined below) and the liability to pay all losses,
including loss adjustment expenses, covered by said Contracts of Coverage
issued by the Fund prior to the Effective Date hereof, to all members,
including all existing and incurred but not reported ("IBNR") claims covered by
the Contracts of Coverage and claims in litigation upon the Effective Date
(hereinafter "Transferred Claims") subject to the terms and conditions
contained herein; and (ii) all rights the Fund may have now or in the future
under or with respect to the Contracts of Coverage, including, without
limitation, the right to collect and adjust premiums, adjust and settle claims,
deny coverage, rescind Contracts of Coverage, etc. Once said transfer occurs,
Insurer shall be bound by all the terms and conditions of the Fund's Contracts
of Coverage as if they had been issued by the Insurer. The term "Contracts of
Coverage" shall mean all binders, contracts, certificates and other
obligations, whether oral or written, of workers' compensation coverage issued
by the Fund to its member employers. Nothing contained herein shall alter or
diminish the rights, responsibilities or liability of any service provider
which is not a party hereto, except where such rights, responsibilities or
liabilities are altered or diminished pursuant to the terms of an agreement
between the Fund and such service provider or pursuant to an agreement between
the Insurer and the service provider.
ARTICLE 3 - PAYMENT OF PREMIUM
In consideration for the Insurer's acceptance of the Contracts of Coverage
and attendant liabilities described above, the Fund shall pay a premium (the
"Premium") to the Insurer in accordance with the following terms and
conditions:
<PAGE> 4
A. Upon the Effective Date, the Fund shall transfer to the Insurer
cash and investment securities in an amount equal to the sum of the following:
1. The aggregate amount of escrow deposits held by the Fund
on that date. The escrow deposits are transferred to the Insurer pursuant to
Article V(H)5. of the Bylaws of the Fund, which authorizes the board to use the
Trustees Fund for any purpose it deems appropriate. By execution of this
Agreement, the Trustees of the Fund represent that they are authorized to
transfer the escrow deposits in the manner described herein. Upon transfer,
the escrow deposits will be held as premium deposits by Insurer as a guarantee
of payment of monthly premiums. Such deposits which are attributable to
members who elect not to accept the transfer of their coverage to the Insurer
shall be refunded to such members following a final premium audit.
2. The amount of reserves for losses, including losses
incurred but not yet reported, provided for in the Fund's management report as
of July 31, 1996.
B. Within one hundred twenty days following the Effective Date, a
final actuarial opinion and audit of the Fund shall be conducted by an auditing
and an accounting firm which are acceptable to both the Fund and the Insurer.
Such audit and actuarial opinion shall establish the appropriate level of loss
reserves indicated for the Transferred Claims. Within thirty days of
completion of the audit and actuarial opinion, the Fund shall transfer to the
Insurer investment securities and cash equal to the amount of indicated
reserves, less the amount transferred pursuant to subsection 2 above. In the
event that the amount of loss reserves transferred on the Effective Date
exceeds the reserves indicated by the final audit, the Insurer shall transfer
back to the Fund the difference. The remaining assets of the Fund shall be
distributed to its members or be used to pay the Fund's outstanding liabilities
and obligations not transferred to Insurer hereunder, which shall be limited to
liabilities unrelated to claims under Contracts of Coverage or the
extra-contractual obligations described in Article 10.
C. Prior to the Effective Date, the Fund shall deliver to the
Insurer a schedule of the specific investments and assets which will comprise
the initial transfer described in section A above. Within ninety days
following the Effective Date, the Fund shall deliver to the Insurer a schedule
of the specific investments and assets which will comprise any supplemental
transfer which may be required pursuant to section B above. All investments
shall be listed on such schedules at cost and at fair market value.
D. The Fund currently carries a deferred tax asset which will be
realized after the Effective Date. Said asset shall remain with the Fund, and
shall constitute part of the remaining assets and liabilities which will be
used to discharge the Fund's liabilities not transferred to the Insurer
hereunder, which shall be limited to liabilities unrelated to claims under
Contracts of Coverage or the extra-contractual obligations described in Article
10.
E. With regard to each payment to the Insurer described above, the
Fund shall cooperate in the utmost good faith with the Insurer to determine the
correct amount of such payment and shall expeditiously execute all documents
necessary to effectuate the required transfers. From the Effective Date until
the completion of all of the transactions contemplated
2
<PAGE> 5
hereby, the Fund shall take all reasonable actions to protect and preserve its
assets and investments and to otherwise conduct its business to avoid potential
harm to the Insurer.
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS
A. The parties hereto agree to act in good faith and cooperate with
each other in effecting the transfers provided for in this Agreement. The
parties shall take all actions necessary to assist each other in obtaining all
necessary regulatory approvals or responding to information requests of those
regulatory authorities asserting jurisdiction over the transactions herein
described.
B. Upon demand by, and in accordance with instructions of, the
Insurer, the Fund shall deliver originals or copies of all records and claim
files pertaining to the Transferred Claims and all other files and records
incidental to the Transferred Claims as are necessary for the Insurer to
perform its obligations under this Agreement. The Insurer shall retain all
coverage records, claim files, and other documents received by it from the Fund
as required by applicable law. Upon reasonable notice, each of the Insurer and
the Fund will be entitled to reasonable access to the books and records of the
other party at any reasonable time, but only to the extent such materials
pertain to the business assumed and reinsured under this Agreement. Each party
will pay its own expenses associated with any such review of the books and
records. The Fund will retain as its property its original corporate records,
including, without limitation, articles of incorporation, bylaws, minute books,
and certificate of authority; provided, however, that the Fund shall provide
the Insurer with copies of all such documents upon the effective date hereof.
C. Whenever the Fund receives any payments or communications,
including notices of claims and proofs of loss, pertaining to the Transferred
Claims, it will forward such payments and communications promptly to the
Insurer.
ARTICLE 5 - NOTICE OF TRANSFER
Within ten days prior to the Effective Date, the Fund shall deliver or
cause its agents to deliver to the named insureds under the Contracts of
Coverage an appropriate notice of transfer substantially in the form attached
hereto. Such notice shall be sent to each member by certified mail and to each
agent of record by regular mail. Each notice shall indicate in conspicuous
print that: (1) failing to respond will result in the Contract of Coverage
being transferred to the Insurer; (2) as of a date certain, all payments,
claims and other communications relating to the Contracts of Coverage should be
sent to Insurer, not the Fund; and (3) in the event that a member chooses not
to accept the transfer, the member will receive a notice of cancellation
providing the insured with sixty days to secure replacement coverage, and will
receive a refund of unearned premium and the balance of the member's escrow
deposit, following a final premium audit, and without penalty. The notice
shall permit at least fifteen days to respond thereto. The Insurer will take
all other necessary actions to effect the transfer of the Transferred Claims.
The Fund will cooperate fully with the Insurer in implementing such transfer
and providing notice thereof, including, without limitation, executing any
document reasonably necessary to evidence the completion of the transactions
contemplated by this Agreement.
3
<PAGE> 6
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS
A. From and after the Effective Date, the Insurer will be solely
liable for the payment of Transferred Claims transferred to the Insurer
including, without limitation, the defense, adjustment, settlement, and payment
of all losses and expenses arising under or relating to the Transferred Claims.
However, the Insurer shall not be responsible for the administration of claims
filed prior to the Effective Date, which administration shall be the
responsibility of those service providers who are currently obligated therefor.
Such claims shall be administered as if the Agreement had not been entered
into. Subject to the foregoing, the Fund hereby grants and assigns to the
Insurer full authority to administer such losses, claims, expenses, defenses,
adjustments, settlements, and payments, and such matters will be under the
Insurer's control and within its discretion. The Insurer will bear all
expenses and costs incurred by it in connection with the administration and
disposition of such losses, claims, expenses, defenses, adjustments,
settlements, and payments.
B. The Fund will cause all information and notices regarding the
Transferred Claims actually received by the Fund after the Effective Date to be
promptly reported to the Insurer or the Insurer's designated representative.
The Fund also will undertake any reasonable arrangements deemed necessary by
the Insurer to ensure that all notices received by the Fund after the Effective
Date in connection with the Transferred Claims are promptly delivered to the
Insurer.
C. All losses and similar items regarding the Transferred Claims
that the Insurer determines to be payable will be paid directly and promptly by
the Insurer.
ARTICLE 7 - ASSESSMENTS
In the event that an assessment is made against any present or former
members of the Fund pursuant to Alabama law, the Insurer agrees to pay the full
assessment on behalf of said members. By this undertaking, the Insurer and the
Fund expressly intend to benefit as third party beneficiaries all present and
former members of the Fund, and the Insurer agrees to be subject to suit by any
member as set out in Article 8.
ARTICLE 8 - DIRECT SUIT AGAINST THE INSURER
The Insurer hereby covenants and agrees that it may be sued for its
actions after the Effective Date, in its own name, by insureds under the
Contracts of Coverage.
ARTICLE 9 - INDEMNIFICATION
The Insurer agrees to defend, protect, indemnify and hold harmless the
Fund and its successors or assigns, against any liability, claim, loss or
damage, including punitive damages, arising under or out of any of the
Transferred Claims reinsured hereunder or the transactions contemplated by this
Agreement.
4
<PAGE> 7
ARTICLE 10 - EXTRA CONTRACTUAL OBLIGATIONS
The Insurer shall also be responsible for any Extra Contractual Obligation
losses assessed against the Fund or the Insurer. Such losses are defined as
those liabilities (whether they constitute compensatory, incidental, exemplary
or punitive damages) not covered under any other provision of this Agreement
and which arise from the handling of any Transferred Claim, such liabilities
arising out of, but not limited to, the following: failure to settle within the
coverage limit or by reason of alleged or actual negligence, coverage denial,
fraud or bad faith in rejecting an offer of settlement, in the preparation of
the defense or in the trial of any action against an insured or in the
preparation or prosecution of an appeal consequent upon such action.
Notwithstanding the foregoing, the Insurer shall not be liable for any loss
resulting from a claim relating to the payment of dividends, or claims arising
from the membership relationship of members to the Fund, except claims arising
under the Contracts of Coverage. Nothing contained herein shall alter or
diminish the rights, responsibilities or liability of any service provider
which is not a party hereto, except where such rights, responsibilities or
liabilities are altered or diminished pursuant to the terms of an agreement
between the Fund and such service provider or pursuant to an agreement between
the Insurer and the service provider.
ARTICLE 11 - REGULATORY COMPLIANCE
The Fund and the Insurer have filed a Plan of Assumption and all documents
pertaining thereto with the Department of Industrial Relations of the State of
Alabama, which has concluded that no regulatory approval is required for the
transaction contemplated by this Agreement. Additionally, the Fund and the
Insurer have consulted with the Department of Insurance of the State of
Alabama, which has indicated that it has no regulatory jurisdiction over the
transactions contemplated by the Agreement. However, in the event that any
regulatory agency or other governmental body undertakes to review said
transaction, the Fund and the Insurer shall cooperate in good faith in that
review process and take all steps necessary to satisfy the regulatory agency
involved.
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES
A. In the event of the payment of any loss by the Insurer under
this Agreement, the Insurer shall be subrogated, to the extent of such payment,
to all of the rights of the Fund against any person or entity legally
responsible for the loss. The Insurer is hereby authorized and empowered to
bring any appropriate action in its own name or in the name of the Fund to
enforce such rights.
B. Any payments received by or due to the Fund from any reinsurer of
the Fund which is payable on a Transferred Claim shall become the property of
and be paid to the Insurer. If any payment is received by the Fund which is to
be credited to the Insurer under or with respect to any of the Transferred
Claims, the Fund will immediately endorse (without warranty or recourse) and
deliver to the Insurer such checks, drafts, or money intended as such payment,
and until delivery of such items to the Insurer, the Fund will treat any such
checks, drafts, or money as the property of the Insurer held for the account of
the Insurer. The Insurer and the Fund will each use all commercially
reasonable efforts to cause the transfer and
5
<PAGE> 8
assignment (as of the Effective Date) to the Insurer of all of the Fund's
rights, interests, and obligations under the Fund's reinsurance agreements, if
any, covering the risks, liabilities, and obligations of the Fund under or with
respect to the Transferred Claims, including, without limitation, obtaining any
necessary consents or approvals to such transfer and assignment by the
reinsurers under any such reinsurance agreements effective as of the Effective
Date. Any failure to receive the consents referred to herein will not relieve
or diminish in any manner the Insurer's obligations under this Agreement.
ARTICLE 13 - DIVIDENDS
The Fund has declared and anticipates paying a dividend to its members in
the ordinary course of its business due to favorable loss and expense
development through December 31, 1995. The declaration of this dividend was
approved by the Department of Industrial Relations of the State of Alabama in a
letter dated December 22, 1995. The payment of the Dividend, whether occurring
before or after the Effective Date, shall be considered a payment in the normal
course of the Fund's business, and shall not effect this Agreement other than
to reduce the assets of the Fund available for distribution to the members.
The Fund is solely responsible for the payment of the dividend, and shall hold
the Insurer harmless from any claim that a dividend was wrongfully paid or not
paid or was paid in an incorrect amount or was otherwise improper.
The Fund anticipates that there will be an additional dividend paid based
upon the Fund's 1996 operations. All Fund members in good standing on the
Effective Date will share in said dividend in accordance with the provisions of
section 3(B) hereof.
ARTICLE 14 - TERMINATION OF THE FUND
The Fund and the Insurer contemplate that once the Contracts of Coverage
and the Premium are transferred, and the other business of the Fund is
completed, the Fund will be terminated. Upon such termination, the Fund shall
distribute to its members the remaining assets of the Fund. The Insurer does
not assume any obligation under the provisions of the Fund's Bylaws, and the
obligation to distribute the surplus of the Fund to its members remains solely
the Fund's obligation.
ARTICLE 15 - ERRORS OR OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would otherwise have attached had such delay, error, or omission
not occurred. Regardless, the responsible party will rectify each such delay,
error, or omission as promptly as practicable after discovery.
ARTICLE 16 - ARBITRATION
A. Any dispute or other matter in question between the Fund and the
Insurer arising out of or relating to the formation, interpretation,
performance, or breach of this Agreement, whether such dispute arises before or
after termination of this Agreement, shall be settled by arbitration if the
parties are unable to resolve the dispute through negotiation. Arbitration
shall
6
<PAGE> 9
be initiated by the delivery of a written notice of demand for arbitration by
one party to the other.
B. Each party shall appoint an individual as arbitrator and the two
so appointed shall then appoint a third arbitrator. If either party refuses or
neglects to appoint an arbitrator within sixty days of receipt of a written
notice of demand for arbitration, the other party may appoint the second
arbitrator. If the two arbitrators do not agree on a third arbitrator within
sixty days of their appointment, each of the arbitrators shall nominate three
individuals. Each arbitrator shall then decline two of the nominations
presented by the other arbitrator. The third arbitrator shall then be chosen
from the remaining two nominations by drawing lots. The arbitrators shall be
active or former officers of insurance or reinsurance companies or fund
administrators of self-insurers. The arbitrators shall not have a personal or
financial interest in the result of the arbitration.
C. The arbitration hearings shall be held in Montgomery, Alabama, or
such other place as may be mutually agreed. Each party shall submit its case to
the arbitrators within sixty days of the selection of the third arbitrator or
within such longer period as may be agreed by the arbitrators. The arbitrators
shall not be obliged to follow judicial formalities or the rules of evidence
except to the extent required by governing law, that is, the state law of the
situs of the arbitration as herein agreed; they shall make their decisions
according to the practice of the reinsurance business. The decision rendered
by a majority of the arbitrators shall be final and binding on both parties.
Such decision shall be a condition precedent to any right of legal action
arising out of the arbitrated dispute which either party may have against the
other. Judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
D. Each party shall pay the fee and expenses of its own arbitrator
and attorneys and one-half of the fees and expenses of the third arbitrator.
All other expenses of the arbitration shall be equally divided between the
parties.
E. Except as provided above, arbitration shall be based, insofar as
applicable, upon the Commercial Arbitration Rules of the American Arbitration
Association.
ARTICLE 17 - HONORABLE UNDERTAKING
This Agreement shall be construed as an honorable undertaking between the
parties hereto not to be defeated by technical legal constructions, it being
the intention of this Agreement that the fortunes of the Insurer shall in all
cases follow the fortunes of the Fund.
ARTICLE 18 - GENERAL PROVISIONS
A. Successors and Assigns. This Agreement shall inure to the
benefit of and bind the Fund and its successors and assigns and the Insurer and
its successors and assigns. Neither this Agreement nor any right hereunder nor
any part hereof may be assigned by any party hereto without the prior written
consent of the other party hereto. Prior to any such assignment, the consent
of all necessary regulatory authorities must be obtained.
7
<PAGE> 10
B. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Alabama (without giving effect to
principles of conflicts of laws) applicable to a contract executed and to be
performed in such state.
C. Entire Agreement. This Agreement supersedes all prior
discussions and agreements between, and contains the sole and entire agreement
between the Fund and the Insurer with respect to the subject matter hereof.
D. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all
of which will constitute one and the same instrument.
E. Headings, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to include
each other gender, (b) words using the singular or plural number will also
include the plural or singular number, respectively, (c) the terms "hereof,"
"herein," "hereby," and derivative or similar words will refer to this entire
Agreement, and (d) the conjunction "or" will denote any one or more, or any
combination or all, of the specified items or matters involved in the
respective list.
F. Non-waiver. The failure of either party hereto at any time to
enforce any provision of this Agreement shall not be construed as a waiver of
that provision and shall not effect the right of either party thereafter to
enforce each and every provision of this Agreement in accordance with its
terms.
G. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable, (b)
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as a part of this Agreement, a
legal, valid, and enforceable provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible.
H. Notices. Any notice or communication given pursuant to this
Agreement must be in writing and will be deemed to have been duly given if
mailed (by registered or certified mail, postage prepaid, return receipt
requested), or if transmitted by facsimile, or if delivered by courier, as
follows:
To the Fund:
Occupational Safety Association of Alabama
Workmen's Compensation Fund
c/o Webb & Eley
8
<PAGE> 11
Post Office Box 238
Montgomery, Alabama 36101-0238
Attention: James N. Webb
Phone Number: (334) 262-1850
To the Insurer:
RISCORP National Insurance Company
1390 Main Street
Sarasota, Florida 34237
Attention: James A. Malone
Phone Number: (941) 951-2022
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this paragraph will, whether sent
by mail, facsimile, or courier, be deemed given upon the first business day
after actual delivery to the party to whom such notice or other communication
is sent (as evidenced by the return receipt or shipping invoice signed by a
representative of such party or by the facsimile confirmation). Any party from
time to time may change its address for the purpose of notices to that party by
giving a similar notice specifying a new address, but no such notice will be
deemed to have been given until it is actually received by the party sought to
be charged with the contents thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives this 26th day of August,
1996.
ATTEST: OCCUPATIONAL SAFETY ASSOCIATION
OF ALABAMA WORKMEN'S
COMPENSATION FUND
BY: Charles G. Lawson
- ------------------------------ ------------------------------------
Name: Charles G. Lawson
-----------------------------------
Title: Chairman of Board of Trustees
----------------------------------
ATTEST: RISCORP NATIONAL INSURANCE
COMPANY
James A. Malone
- ------------------------------ -------------------------------------
Name: James A. Malone
-----------------------------------
Title: President
----------------------------------
9
<PAGE> 12
PLAN OF ASSUMPTION
The Occupational Safety Association of Alabama Workmen's Compensation Fund
("the Fund"), organized under the laws of the state of Alabama, will transfer
its contracts of workers' compensation coverage ("Contracts"), assets, and
liabilities on September 1, 1996 ("Effective Date") pursuant to a Loss
Portfolio Transfer Agreement with RISCORP National Insurance Company
("RISCORP"), under the following plan and procedure:
1. RISCORP will insure all Contracts of the Fund in effect as of the
Effective Date under the same terms and conditions through the current
policy year.
2. RISCORP will assume all liability for any potential assessments
for the current Fund year, any prior year, and any contingent liability
related thereto.
3. A final actuarial opinion and Fund audit will be completed for
the period January 1, 1996 through Effective Date, in order to determine
a final balance sheet for the Fund as of the Effective Date. Independent
auditors and actuaries selected must be mutually agreeable to the Fund and
to RISCORP.
4. The Fund will transfer a corresponding amount of cash and cash
equivalents in investment securities to RISCORP to cover the reserves for
losses and escrow deposits.
5. Any prior year dividend approved by the Department of Industrial
Relations shall be distributed to members after the 1995 final premium
audit and escrow account adjustments have been completed. These dividends
will not be a part of the Loss Portfolio Transfer Agreement.
6. The Fund will distribute the remaining assets or surplus as
determined by the actuarial report to its members, and terminate the
Fund in accordance with the bylaws.
7. RISCORP shall assume responsibility for any existing service
contracts and/or third party agreements.
8. This plan of assumption has been approved by the board of
trustees of the Fund in accordance with its bylaws.
9. Attached hereto and made a part hereof is a copy of a Fairness
Opinion by Sterling Capital Advisors, a nationally recognized group of
Financial Advisors.
RISCORP NATIONAL INSURANCE OCCUPATIONAL SAFETY ASSOCIATION
COMPANY OF ALABAMA WORKMEN'S
COMPENSATION FUND
BY: James A. Malone BY: Charles G. Lawson
----------------------- -----------------------------
Its President Its Chairman of Board
------------------ ------------------------
<PAGE> 1
EXHIBIT 10.73
AGREEMENT AND PLAN OF MERGER
by and among
RISCORP, INC.,
RISCORP-IAA, INC.,
INDEPENDENT ASSOCIATION ADMINISTRATORS
INCORPORATED, and
THE STOCKHOLDERS OF INDEPENDENT ASSOCIATION
ADMINISTRATORS INCORPORATED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
ARTICLE I
DEFINITIONS
ARTICLE 11
THE MERGER
<S> <C> <C>
Section 2.1 Effective Time of the Merger ......................................... -7-
Section 2.2 Closing .............................................................. -7-
Section 2.3 Effects of the Merger ................................................ -7-
Section 2.4 Directors and Officers of the Surviving Corporation .................. -8-
ARTICLE III
CONVERSION OF SECURITIES
Section 3.1 Conversion of Capital Stock .......................................... -8-
Section 3.2 Exchange of Certificates ............................................. -9-
Section 3.3 Further Assurances ................................................... -10-
Section 3.4 Stock Price Guarantee ................................................ -10-
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND CERTAIN
AGREEMENTS OF THE STOCKHOLDERS
Section 4.1 Representations and Warranties ....................................... -12-
Section 4.2 Agreement to Vote Shares and Retain Ownership ........................ -13-
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Organization ......................................................... -14-
Section 5.2 Capitalization ....................................................... -14-
Section 5.3 Authority ............................................................ -14-
Section 5.4 Consents and Approvals; No Violations ................................ -15-
Section 5.5 Financial Statements ................................................. -15-
Section 5.6 Absence of Certain Changes ........................................... -16-
Section 5.7 No Undisclosed Liabilities ........................................... -18-
Section 5.8 Employee Benefits .................................................... -18-
Section 5.9 Other Benefit Plans .................................................. -20-
Section 5.10 Litigation ........................................................... -20-
Section 5.11 Compliance with Applicable Law ....................................... -21-
Section 5.12 Vote Required ........................................................ -21-
Section 5.13 Tax Returns and Audits ............................................... -21-
Section 5.14 Material Contracts ................................................... -22-
Section 5.15 Real Property and Leases ............................................. -24-
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
wSection 5.16 Tangible Personal Property ........................................... -24-
Section 5.17 Environmental and Employee Safety Matters ............................ -25-
Section 5.18 Intellectual Property ................................................ -25-
Section 5.19 Insurance Policies ................................................... -27-
Section 5.20 Errors and Omissions ................................................. -27-
Section 5.21 Brokers' Fees ........................................................ -28-
Section 5.22 No Misrepresentations ................................................ -28-
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND NEWCO
Section 6.1 Organization ......................................................... -28-
Section 6.2 Capitalization ....................................................... -28-
Section 6.3 Authority ............................................................ -28-
Section 6.4 Consents and Approvals; No Violations ................................ -29-
Section 6.5 SEC Reports .......................................................... -29-
Section 6.6 Absence of Certain Changes ........................................... -29-
ARTICLE VII
COVENANTS
Section 7.1 Best Efforts; Further Assurances; Cooperation ........................ -29-
Section 7.2 Notices and Consents ................................................. -30-
Section 7.3 Operation of Business ................................................ -30-
Section 7.4 Full Access .......................................................... -31-
Section 7.5 Notice of Developments ............................................... -31-
Section 7.6 Exclusivity .......................................................... -31-
Section 7.7 Insurance and Indemnification ........................................ -32-
Section 7.8 Public Announcements ................................................. -32-
Section 7.9 Expenses ............................................................. -32-
Section 7.10 Antitrust Challenges ................................................. -32-
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Obligations of Each Party .............................. -33-
Section 8.2 Conditions to Obligations of the Parent and Newco .................... -33-
Section 8.3 Conditions to Obligations of the Company ............................. -36-
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
Section 9.1 Survival of Representations, Warranties, and Covenants ............... -37-
Section 9.2 Indemnification ...................................................... -38-
Section 9.3 Manner of Indemnification ............................................ -38-
Section 9.4 Certain Limitations .................................................. -39-
Section 9.5 Notices .............................................................. -39-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 9.6 Expenses ............................................................. -39-
Section 9.7 Other Remedies ....................................................... -39-
ARTICLE X
ESTABLISHMENT OF ESCROW
Section 10.1 Creation ............................................................. -40-
Section 10.2 Disbursement for Claims .............................................. -40-
Section 10.3 Dividends on Escrow Shares; Voting of Escrow Shares .................. -40-
ARTICLE XI
TERMINATION AND ABANDONMENT
Section 11.1 Termination and Abandonment .......................................... -40-
Section 11.2 Specific Performance ................................................. -42-
Section 11.3 Rights and Obligations upon Termination............................... -42-
Section 11.4 Expenses ............................................................. -42-
Section 11.5 Effect of Termination ................................................ -43-
ARTICLE XII
MISCELLANEOUS
Section 12.1 Extension; Waiver .................................................... -43-
Section 12.2 Notices .............................................................. -43-
Section 12.3 Table of Contents; Headings .......................................... -45-
Section 12.4 Variation and Amendment .............................................. -45-
Section 12.5 Severability ......................................................... -45-
Section 12.6 Waiver ............................................................... -45-
Section 12.7 No Third Party Beneficiaries; Assignment ............................. -46-
Section 12.8 Time of the Essence; Computation of Time ............................. -46-
Section 12.9 Counterparts ......................................................... -46-
Section 12.10 Governing Law ........................................................ -46-
Section 12.11 Entire Agreement ..................................................... -47-
</TABLE>
-iii-
<PAGE> 5
EXHIBIT A - Stockholders of Company, Inc. and Conversion of Shares
EXHIBIT B - Escrow Agreement
EXHIBIT C - Registration Rights Agreement
EXHIBIT D - Articles of Merger
EXHIBIT E - Company Financial Statements
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This is an Agreement and Plan of Merger, dated September _, 1996 (this
"Agreement"), by and among RISCORP, Inc., a Florida corporation (the "Parent"),
RISCORPIAA, Inc., an Alabama corporation and a wholly-owned subsidiary of the
Parent ("Newco"), Independent Association Administrators Incorporated, an
Alabama corporation (the "Company"), Thomas Albrecht and Peter Norman,
individually and as the solo stockholders of the Company (the "Stockholders").
BACKGROUND. The Parent, Newco and the Company deem it advisable and in the
best interests of their respective stockholders to consummate the business
combination transaction provided for herein, in which Newco will merge with and
into the Company and the Company will become a wholly-owned subsidiary of the
Parent (the "Merger"). For federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a)
of the internal Revenue Code of 1986, as amended (the "Code").
THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Sec. 1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
"Agreement" has the meaning set forth in the preamble above.
"Ancillary Agreements" means the Escrow Agreement and the Registration
Rights Agreement.
"Articles of Merger" has the meaning set forth in Section 2.1 below.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
<PAGE> 7
"Certificates" has the meaning set forth in Section 3.2(a) below.
"Closing" has the meaning set forth in Section 2.2 below.
"Closing Date" has the meaning set forth in Section 2.2 below.
"Code" has the meaning set forth in the Background section above.
"Company" has the meaning set forth in the preamble above.
"Company Common Stock" means the Common Stock, par value $1.00 per share,
of the Company.
"Company Financial Statements" has the meaning set forth in Section 5.5
below.
"Company Permits" has the meaning set forth in Section 5.12 below.
"Competing Transaction" shall mean any of the following involving the
Company: (i) any merger, consolidation, share exchange, business combination,
or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 15% or more of the assets of the Company,
taken as a whole, in a single transaction or series of transactions; (iii) any
tender offer or exchange offer for 15% or more of the outstanding shares of
capital stock of the Company or the filing of a registration statement under
the Securities Act in connection therewith; (iv) any person having acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 15% or
more of the then outstanding shares of capital stock of the Company; or (v) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
"Confidential information" means any information concerning the business
and affairs of the Company prior to Closing or the Parent subsequent to Closing
that is not already generally available to the public.
"Confidentiality Agreement" means that certain letter confidentiality
agreement between the Parent and the Company dated February 2, 1995.
"Constituent Corporations" has the meaning set forth in Section 2.3 below.
"Controlled Group of Corporations" has the meaning set forth in Code Sec.
1563.
"Conversion Number" has the meaning set forth in Section 3.1(c) below.
-2-
<PAGE> 8
"Effective Time" has the meaning set forth in Section 2.1 below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement that is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement that is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement that is an Employee Pension Benefit Plan (including any
Multiemployer Plan), (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program, or (e) bonus, stock option, severance or termination
pay, stock purchase, stock appreciation right, restricted stock, phantom stock
or other employee benefit plan, program, agreement or arrangement.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(l).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments (and
all agencies thereof) concerning pollution or protection of the environment,
public health and safety, or employee health and safety, including laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water , ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means SouthTrust Bank of Alabama, N.A.
"Escrow Agreement" means the Escrow Agreement in the form attached hereto
as Exhibit B.
"Escrow Fund" means the Escrow Shares, together with certain dividends and
distributions thereon as provided in the Escrow Agreement.
"Escrow Shares" means the shares of Parent Class A Common Stock deposited
into the Escrow Fund by the Parent. With respect to each Stockholder, the
Escrow Shares attributable to such Stockholder shall be a number of shares of
Parent Class A Common Stock equal to five percent of the number of shares of
Parent Class A Common Stock into which such Stockholder's shares of Company
Common Stock are converted pursuant to the Merger, rounded down to the nearest
whole share.
-3-
<PAGE> 9
"Event of Indemnity" has the meaning set forth in Section 9.2 below
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Price" means the arithmetic average of the closing prices for
Parent Class A Common Stock on Nasdaq for the 15 trading days immediately
prior to the third trading day immediately preceding the date of this
Agreement.
"Exhibits" means the Exhibits to this Agreement.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"CAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Entity" means any court, arbitral tribunal, administrative
agency or commission, or other governmental or other regulatory authority or
agency.
"Hazardous Material" has the meaning set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 USC Section
9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of
1986. The term "Hazardous Material" also means any material that contains
asberros, radon, polychlorinated biphenyl PCB's, methylenechloride,
trichloroethylene, trans-dichloroethylene, dioxins, dibenzofurans Urea
formaldehyde foam insulation, explosive or radioactive material, or motor FUEL
OR other petroleum hydrocarbons.
"HSRA" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Indemnifying Stockholders" has the meaning set forth in Section 9.3 below.
"Indemnity Period" has the meaning set forth in Section 9.4 below.
"Intellectual Property" means (a) inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in. connection
therewith, (c) copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions,
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manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) computer
software (including data and related documentation), (g) all other proprietary
rights in any of the foregoing, and (h) all copies and tangible embodiments
thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Loss" means all claims, judgments, damages, penalties, fines, costs,
amounts paid in settlement, liabilities (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), obligations, taxes, losses, expenses, and fees, including
(without limitation) all attorneys' fees and expenses, court costs, and fees
and expenses of expert witnesses, suffered or incurred by a party to this
Agreement arising from a breach by another party of a representation, warranty,
covenant or agreement set forth in this Agreement.
"Material" and "Material Adverse Effect" means any event, change or effect
on or with respect to an entity (or group of entities taken as a whole) which
is materially adverse to the consolidated condition (financial or otherwise),
properties, assets (including intangible assets), liabilities (including
contingent liabilities), business, results of operations or prospects of such
entity (or, if with respect thereto, of such group of entities taken as a
whole).
"Material Contract" has the meaning set forth in Section 5.15 below.
"Merger" has the meaning set forth in the Background section above.
"Merger Consideration" means the shares of Parent Class A Common Stock and
cash in lieu of fractional shares to be issued to the holders of Company Common
Stock in connection with the Merger.
"Most Recent Financial Statements" has the meaning set forth in Section
5.5 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section
5.5 below.
"Most Recent Fiscal Year End" has the meaning set forth in Section
5.5 below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Nasdaq" means the Nasdaq Stock Market's National Market. "Newco" has
the meaning set forth in the preamble above.
"Newco Common Stock" means the common stock, par value $.01 per share,
of Newco.
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"Notice of Claim" has the meaning set forth in Section 9.3 below.
"Parent" has the meaning set forth in the preamble above.
"Parent Class A Common Stock" means the Class A Common Stock, par value
$.01 per share, of the Parent.
"Parent Class B Common Stock" means the Class B Common Stock, par value
$.01 per share, of the Parent.
"Parent Preferred Stock" means the preferred stock of the Parent.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a Governmental Entity.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"Registration Rights Agreement" means the Registration Rights Agreement in
the form attached hereto as Exhibit C.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Schedules" means the schedules to this Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanics", materialmens', and
similar liens arising by operation of law, (b)liens for Taxes not yet due and
payable or for Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (c) purchase money liens and liens securing rental
payments under capital lease arrangements, and (d) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing
of money.
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"Stockholder(s)" has the meaning set forth in the preamble hereof.
"Subsidiary" means any corporation or other entity with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"Surviving Corporation" has the meaning set forth in Section 2.3 below.
"Target Acquisition Price" means $ 10,900,000.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Opinion" has the meaning set forth in Section 8.10 below.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Voting Debt" means any bonds, debentures, notes, or other indebtedness
having the right to vote (or are convertible into securities having the right
to vote).
ARTICLE 11
THE MERGER
SECTION 2.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, the Surviving Corporation shall duly prepare, execute and
acknowledge Articles of Merger in substantially the form attached hereto as
Exhibit D (the "Articles of Merger"), and thereafter deliver the Articles of
Merger to the Secretary of State of the State of Alabama, for filing in
accordance with applicable law, as soon as practicable on or after the Closing
Date (as hereinafter defined). The Merger shall become effective upon the
filing of the Articles of Merger by the Secretary of State of Alabama or at
such time thereafter as is provided in the Articles of Merger (the "Effective
Time").
SECTION 2.2 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at 10:00 a.m. Eastern Time on a date
to be jointly specified by the Parent and Company, which shall be not later
than five business days after satisfaction of the latest to occur of the
conditions set forth in Article VIII (the "Closing
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Date"), at the offices of Rushton, Stakely, Johnston & Garrett, P.A., 184
Commerce Street, Montgomery, Alabama 36104, unless another date or place is
agreed to in writing by the parties hereto.
SECTION 2.3 EFFECTS OF THE MERGER. At the Effective Time (a) the separate
existence of Newco shall cease and Newco shall be merged with and into the
Company (Newco and the Company are sometimes referred to herein as the
"Constituent Corporations" and the Company is sometimes referred to herein as
the "Surviving Corporation"), (b) the Articles of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, and (c) the Bylaws of the Company
as in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation. At and after the Effective Time, the Surviving
Corporation shall possess all the assets, rights, and privileges, and shall be
subject to all the restrictions and liabilities of each of the Constituent
Corporations, all as provided under applicable Alabama law.
SECTION 2.4 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors and officers of the Surviving Corporation, from and after the
Effective Time, shall be the current directors and officers of the Company
until their successors shall have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and Bylaws.
ARTICLE III
CONVERSION OF SECURITIES
SECTION 3.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any further action on the part of any holder
of shares of Company Common Stock and without any further action on the part of
any holder of shares of Newco Common Stock:
(a) Common Stock of Newco. Each issued and outstanding share of Newco
Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock, par value $1.00 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock. Any shares of Company Common Stock
that are owned by the Company as treasury stock shall be cancelled and retired
and shall cease to exist, and no stock of the Parent or other consideration
shall be delivered in exchange therefor. All shares of Parent Class A Common
Stock, if any, owned by the Company shall remain unaffected by the Merger.
(c) Conversion Ratio for Company Common Stock. Subject to Sections 3.2(a)
and 3.2(e), each outstanding share of Company Common Stock (other than shares
to be cancelled in accordance with Section 3.1(b)) shall be converted into the
right
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to receive a number of shares of Parent Class A Common Stock (the "Conversion
Number") equal to (i) the Target Acquisition Price divided by the Exchange
Price, divided by (ii) the total number of issued and outstanding shares of
Company Common Stock.
(d) Cancellation of the Company Common Stock. All shares of Company Common
Stock, when converted in accordance with Section 3.1(c), shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
shares of Parent Class A Common Stock and any cash in lieu of fractional shares
of Parent Class A Common Stock to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 3.2, without
interest.
SECTION 3.2 EXCHANGE OF CERTIFICATES.
(a) Exchange Procedures. On the Closing Date, each Stockholder shall
deliver or cause to be delivered certificates representing the shares of
Company Common Stock (the "Certificates") owned by him, as described in Exhibit
A, accompanied by stock powers duly signed in blank, with signatures guaranteed
by a bank, trust company or member of the New York Stock Exchange and with all
revenue stamps necessary to transfer such shares and the certificates
representing such shares affixed and cancelled and all taxes on such transfer,
if any, fully paid, all at the Stockholder's expense. The Stockholders shall
also deliver or cause to be delivered duly executed copies of the Escrow
Agreement and separate stock transfer powers executed in blank with respect to
the certificates representing Escrow Shares. Each Stockholder shall be required
to cure any deficiencies with respect to the endorsement of his Certificates or
with respect to the stock powers accompanying such Certificates. In exchange
for the Certificates, the Parent shall cause to be issued and delivered to the
Stockholders, on or promptly after the Closing Date, the certificates
representing the number of shares of Parent Class A Common Stock into which
each such Stockholders' shares of Company Common Stock have been converted
pursuant to the Merger, less the Escrow Shares attributable to each
Stockholder, and shall deliver to the Escrow Agent the Escrow Shares. Until
surrendered as contemplated by this Section 3.2, each Certificate shall be
deemed at all times after the Effective Time to represent only the right to
receive upon such surrender the certificates representing shares of Parent
Class A Common Stock and cash in lieu of any fractional shares of Parent Class
A Common Stock as contemplated by this Section 3.2.
(b) No Further Ownership Rights in Company Common Stock. All shares of
Parent Class A Common Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (including any cash
paid pursuant to Section 3.2(b) or 3.2(d)) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company Common
Stock, subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time that may have been declared or made by the
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<PAGE> 15
Company on such shares of Company Common Stock in accordance with the terms of
this Agreement and which remain unpaid at the Effective Time, and there shall
be no further registrations of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article Ill.
(c) No Fractional Shares. No certificate or scrip representing fractional
shares of Parent Class A Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to enjoy any other rights of a stockholder of the
Parent. In lieu of a certificate or scrip representing a fractional share of
Parent Class A Common Stock, the Parent shall pay to each holder that
surrenders a Certificate in accordance with this Section 3.2 and that would
otherwise be entitled, given the Conversion Number, to receive a fractional
share of Parent Class A Common Stock, an amount equal to such fraction
multiplied by the Exchange Price.
(d) Adjustments Because of Changes in Parent Class A Common Stock. If,
between the date of this Agreement and the Effective Time, the outstanding
Parent Class A Common Stock shall be changed into a different number of shares
or a different class by reason of any reclassification, recapitalization,
split-up, combination, exchange of shares or readjustment, or a pro rata stock
dividend thereon shall be distributed as of a date prior to the Effective Time,
or declared with a record date prior to the Effective Time and a distribution
date after the Effective Time, the Conversion Number shall be appropriately
adjusted.
SECTION 3.3 FURTHER ASSURANCES. If at any time after the Effective Time
any further assignments or assurances are necessary or desirable to vest or to
perfect or confirm of record in the Surviving Corporation the title to any
property or rights of either of the Constituent Corporations, or otherwise to
carry out the provisions of this Agreement, the officers and directors of the
Surviving Corporation are hereby authorized and empowered on behalf of the
respective Constituent Corporations, in the name of and on behalf of the
appropriate Constituent Corporation, to execute and deliver any and all things
necessary or proper to vest or to perfect or confirm title to such property or
rights in the Surviving Corporation, and otherwise to carry out the purposes
and provisions of this Agreement.
SECTION 3.4 STOCK PRICE GUARANTEE. In addition to the Merger
Consideration, the Parent shall deliver to the Stockholders, if entitled
thereto under the terms and conditions contained herein, additional shares of
Parent Class A Common Stock as provided below:
(a) Applicability. The Parent's obligation to issue Parent Class A Common
Stock pursuant to this Section shall apply only to the Stockholders, with
respect to the following shares of Parent Class A Common Stock issued in the
Merger (the "Guarantee Shares"):
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<PAGE> 16
(i) As to each Stockholder, the shares of Parent Class A Common Stock
acquired in the Merger and continuously held by such Stockholder from the
Effective Time of the Merger to the date that is two years from the Closing
Date (the "Measurement Date"); and
(ii) As to each Stockholder, shares of Parent Class A Common Stock held by
any of the following transferees of such Stockholder (each a "Permitted
Transferee"), only to the extent such shares of Parent Class A Common Stock
were acquired by a Stockholder in the Merger, transferred to such Permitted
Transferee by such Stockholder, and continuously held by the combination of
such Permitted Transferee and the Stockholder from whom such Permitted
Transferee obtained such shares, from the Effective Time of the Merger to the
Measurement Date:
(1) a Stockholder's spouse, children (including adoptive children),
grandchildren, parents or siblings or a trust for the exclusive benefit of any
of them (each a "Family Member" of a Stockholder);
(2) a bank, financial institution or other lender acting as pledgee
in connection with a bona fide pledge of Shares by a Stockholder;
(3) a grantor trust established by a Stockholder for the exclusive
benefit of a charitable institution that is exempt from tax pursuant to Section
501 (c)(3) of the Internal Revenue Code of 1986, as amended;
(4) a corporation, partnership, limited liability company, business
trust or other entity owned entirely by a Stockholder and/or such Stockholder's
Family Members;
(5) the estate of a Stockholder or any Family Member, or the
executor, administrator or personal representative of the estate of a Family
Member; and
(6) the guardian, conservator, or custodian of a Stockholder or any
Family Member adjudged disabled by a court of competent jurisdiction.
(b) Guarantee. The Parent hereby guarantees that, if the closing price of
Parent Class A Common Stock as reported in the Wall Street Journal on the
Measurement Date (the "Measurement Price") is less than the Exchange Price, the
Parent shall issue to each Stockholder, upon the written request of such
Stockholder delivered to the Parent within 45 days after the Measurement Date,
a number of additional shares of Parent Class A Common Stock having a value
(based on the Measurement Price) equal to the difference between the Exchange
Price and the Measurement Price multiplied by the number of Guarantee Shares
held by such Stockholder and such Stockholder's Permitted Transferees, and cash
in lieu of any fractional shares based on the Exchange Price.
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(c) Notice of Guarantee. Upon receipt of the notice described in Section
3.4(b) above, and prior to the issuance of Guarantee Shares to any Stockholder,
the Parent shall be entitled to receive from such Stockholder such documents,
certificates and other evidence as may be reasonably requested by the Parent to
evidence the fact that the shares purported to be Guarantee Shares satisfy the
requirements set forth in Section 3.4(a) above.
(d) Adjustments to Exchange Price. For purposes of computing the
difference between the Exchange Price and the Measurement Price under Section
3.4(b) hereof, the Exchange Price shall be appropriately adjusted to reflect
any adjustment to the outstanding Parent Class A Common Stock by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares,
pro rata stock dividend, or similar transaction occurring after the Effective
Time of the Merger.
(e) Certain Limitations. The Parent's obligation to issue additional
shares of Parent Class A Common Stock pursuant to this Section 3.4 is subject
to the following limitations:
(i) As to each Stockholder, the maximum number of shares that may be
issued pursuant to this Section 3.4 is a number of shares equal to the total
number of shares of Parent Class A Common Stock (including Escrow Shares)
issued to such Stockholder in the Merger.
(ii) The Parent shall not be obligated to issue any additional shares
of Parent Class A Common Stock to a Stockholder under this Section 3.4 if the
value of additional shares of Parent Class A Common Stock plus cash in lieu of
fractional shares otherwise deliverable to such Stockholder, computed pursuant
to Section 3.4(b), is less than $1,000.00.
(iii) The rights granted to the Stockholders under this Section 3.4
are personal to each Stockholder and are not transferable or assignable. The
Parent shall I have no obligation hereunder to issue additional shares of
Parent Class A Common Stock other than to a Stockholder.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND CERTAIN
AGREEMENTS OF THE STOCKHOLDERS
SECTION 4.1 REPRESENTATIONS AND WARRANTIES. Each Stockholder severally
represents, warrants and agrees as follows:
(a) Such Stockholder is at the date hereof the lawful owner of the shares
of Company Common Stock shown opposite his name in Exhibit A and will on the
Closing Date be the lawful owner of all such shares, in each case free and
clear of all liens,
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encumbrances and claims of every kind other than the obligations of such
Stockholder under this Agreement. All such shares of Company Common Stock have
been validly issued and are outstanding, fully paid and not liable to any
further call or assessment. To the best knowledge of such Stockholder, Exhibit
A includes a complete and accurate list of all the Stockholders of the Company,
and the shares of the Company owned by each. Such Stockholder has full legal
right, power and authority to enter into this Agreement, to make the
representations, warranties and agreements contained herein, to cause the
transactions contemplated hereby to be consummated, and to assign, transfer,
and deliver his shares of Company Common Stock to the Parent in connection with
the consummation of the Merger, and has obtained any requisite approval of any
Governmental Entity having jurisdiction respecting such Stockholder for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby; and the delivery of such shares to the Parent
pursuant to the provisions of this Agreement will transfer valid title thereto,
free and clear of all liens, encumbrances, and claims of every kind.
(b) Such Stockholder has been given access to the business premises of the
Company, the Parent and its respective Subsidiaries, their business, corporate,
and financial books and records for the purposes of examining the foregoing,
questioning their respective directors and officers, and making all other
investigations such Stockholder considered appropriate to determine or verify
the business or condition (financial or otherwise) of the Company, the Parent
and its respective Subsidiaries to evaluate the transactions contemplated by
this Agreement.
(c) The Parent has furnished to such Stockholder copies of its prospectus
dated February 28, 1996 and its quarterly reports on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996, and such Stockholder had the
opportunity to request additional information concerning the business and
affairs of the Parent and the Company.
(d) Such Stockholder has been permitted to ask questions of, and to
receive answers from officers of the Parent and the Company concerning the
business and financial condition of the Parent and the Company, the terms of
the Parent Class A Common Stock to be issued to the Stockholders and the other
provisions of the Merger, and to obtain all additional information such
Stockholder considered necessary to verify the accuracy of the information
received.
(e) Such Stockholder is acquiring shares of Parent Class A Common Stock in
connection with the transactions contemplated hereby solely for his own
account, as principal, for investment purposes and not with a view to, or for
resale in connection with, any distribution or underwriting of any of such
stock, except through underwriters pursuant to an offering registered under the
Securities Act and except as permitted by SEC Rule 144.
(f) Such Stockholder understands that the shares of Parent Class A Common
Stock to be acquired in connection with the Merger have not been registered
under either the Securities Act or any state securities law, that such
Stockholder must hold
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<PAGE> 19
such stock indefinitely unless it is subsequently registered under those laws
or transferred in reliance on an opinion of counsel satisfactory to the Parent
and its counsel that registration under those laws is not required, and that
the certificates representing such stock and any securities issued in exchange
for or in substitution therefor will bear a legend restricting transfer of the
securities.
(g) Except as permitted by applicable SEC rules or by the Registration
Rights Agreement, such Stockholder shall not sell, transfer, pledge or
otherwise dispose of any shares of Parent Class A Common Stock acquired
pursuant to the Merger unless the shares are registered under the Securities
Act and under every applicable state securities law or unless such Stockholder
furnishes an opinion of counsel satisfactory to the Parent and its counsel that
registration under those laws is not required.
(h) Such Stockholder is an Accredited Investor.
SECTION 4.2 AGREEMENT TO VOTE SHARES AND RETAIN OWNERSHIP. Each
Stockholder hereby agrees to vote all shares of Company Common Stock held or
otherwise controlled by such Stockholder in favor of the Merger at the
Stockholders' Meeting (as hereinafter defined). Each Stockholder further agrees
not to transfer any of such Stockholder's shares of Company Common Stock until
such time as this Agreement is terminated or the Merger is consummated, except
to an entity controlled by such Stockholder and with the prior written consent
of the Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Stockholders jointly and severally represent, warrant
and agree as follows:
SECTION 5.1 ORGANIZATION. The Company is a corporation organized, validly
existing, and in active status under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority and all
necessary governmental approvals to own, lease, and operate its properties and
to carry on its business as now being conducted. Schedule 5.1 sets forth for
the Company (a) its name and jurisdiction of incorporation, (b) the number of
shares of authorized capital stock of each class of its capital stock, (c) the
number of issued and outstanding shares of each class of its capital stock, the
names of the holders thereof, and the number of shares held by each such
holder, (d) the number of shares of its capital stock held in treasury, and (e)
its directors and officers. The Company is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the property
owned, leased, or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and be in good standing would not have a Material
Adverse Effect on the Company taken as a whole.
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SECTION 5.2 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists solely of 1,000 shares of Company Common Stock of
which, as of the date hereof, 1,000 shares of Company Common Stock are issued
and outstanding. The issued and outstanding shares of Company Common Stock are
registered in the names and in the respective amounts shown on Exhibit A
hereto. All the outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and nonassessable and free of any preemptive or
similar rights in respect thereof, and no shares are held in the treasury of
the Company. As of the date hereof, no Voting Debt of the Company is issued or
outstanding. As of the date hereof, there are no existing options, warrants,
puts, calls, subscriptions or other rights or other agreements or commitments
of any character relating to the issued or unissued capital stock or Voting
Debt of the Company, or obligating the Company to issue, transfer, or sell or
cause to be issued, transferred, or sold, any shares of capital stock or Voting
Debt of, or other equity interests in, the Company, or securities convertible
into or exchangeable for such shares or equity interests or obligating the
Company to grant, extend, or enter into any such option, warrant, call,
subscription or other right, agreement or commitment. As of the date hereof,
there are no outstanding contractual obligations of the Company to repurchase,
redeem, or otherwise acquire any shares of capital stock of the Company. All of
the outstanding shares of Company Common Stock were issued pursuant to
available exemptions under federal and state securities laws. The Company does
not have any Subsidiaries or own any shares of stock of any other corporation.
SECTION 5.3 AUTHORITY. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (subject to the approval and adoption of this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock). The execution, delivery, and performance of this Agreement and
the consummation of the Merger and of the other transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company, and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than, with respect to the Merger, the approval and adoption
of this Agreement by the holders of a majority of the votes entitled to be cast
by the Stockholders). This Agreement has been duly executed and delivered by
the Company and, assuming this Agreement constitutes a valid and binding
obligation of the Parent and Newco, respectively, constitutes a valid and
binding obligation of the Company, enforceable against the Company and the
Stockholders in accordance with its terms.
SECTION 5.4 CONSENTS AND APPROVALS; NO VIOLATIONS. To the Knowledge of the
Company and the Stockholders, and except as set forth in Schedule 5.4, neither
the execution, delivery, or performance of this Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (a) conflict
with or result in any breach of any provision of the Articles of incorporation
or the Bylaws of the Company, (b) require any filing with, or permit,
authorization, consent, or approval of, any Governmental Entity,
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(c) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation, or acceleration) under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement, or other instrument or obligation to which the
Company is a party or by which any of them or any of their properties or assets
may be bound, or (d) violate any order, writ, injunction, decree, ruling
statute, rule, or regulation applicable to the Company, or any of its
properties or assets.
SECTION 5.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit E are the
following financial statements (collectively the "Company Financial
Statements"): (i) audited consolidated and unaudited consolidating balance
sheets and statements of income, changes in stockholders' equity, and cash flow
as of and for the fiscal years ended December 31, 1992, December 31, 1993,
December 31, 1994, and December 31, 1995, (the "Most Recent Fiscal Year End")
for the Company; and (ii) unaudited consolidated and consolidating balance
sheets and statements of income, changes in stockholders' equity, and cash flow
(the "Most Recent Financial Statements") as of and for the six months elided
June 30, 1996, and the management financial statements of the Company dated
August 31, 1996 (the "Most Recent Fiscal Month End") for the Company,
provided, however, that the Most Recent Financial Statements are subject to
normal year end adjustments and lack footnotes and other presentation items.
The Company Financial Statements (including the Notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete). At the Most Recent
Fiscal Month End, Company owned all assets shown on the Most Recent Financial
Statements, subject to no Security Interests, liens, charges, mortgages, or
other encumbrances except as noted therein. To the Knowledge of the Company and
the Stockholders, all liabilities of the Company are reflected on the books and
records of Company.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
5.6, since the Most Recent Fiscal Year End, no event has occurred which had or
could have a Material Adverse Effect on the Company. Without limiting the
generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and licenses)
either involving payment by the Company of more than $10,000.00 or outside the
Ordinary Course of Business;
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(iii) no party (including the Company) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than
$10,000.00, to which the Company is a party or by which any of them is bound;
(iv) the Company has not imposed or granted any Security Interest
upon any of its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000.00, or outside
the Ordinary Course of Business;
(vi) the Company has not made ANY capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $10,000.00, or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than $ 1
0,000.00, singly or $50,000.00, in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
(ix) the Company has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $10,000.00, or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of
its capital stock;
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital stock
other than dividends paid to the Stockholders in the Ordinary Course of
Business;
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(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(xvii) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary Course
of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) the Company has not received any notice of termination of any
contract, lease or other agreement or suffered any damage, destruction or loss
(whether or not covered by insurance) which, in any case or in the aggregate,
has had a Material Adverse Effect on the assets, operations or prospects of the
Company;
(xxii) the Company has not encountered any labor union organizing
activity, had any actual or threatened employee strikes, work stoppages,
slow-downs or lockouts, or had any material change in its relations with its
employees, agents, customers or suppliers;
(xxiii) the Company has not instituted, settled or agreed to settle
any litigation, action or proceeding before any court or governmental body
relating to the Company or its properties;
(xxiv) the Company has not entered into any transaction, contract or
commitment other than in the Ordinary Course of Business or paid or agreed to
pay any legal, accounting, brokerage, finder's fee, taxes or other finder's
fee, taxes or other expenses
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in connection with, or incurred any severance pay obligations by reason of,
this Agreement or the transactions contemplated hereby;
(xxv) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of Business
involving the Company; and
(xxvi) the Company has not committed to any of the foregoing.
SECTION 5.7 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Company
Financial Statements or in the Schedules to this Agreement, the Company has no
outstanding indebtedness, guaranties, or matter of suretyship, is not a party
to any mortgage, deed of trust, indenture, loan or credit agreement, or similar
instrument or agreement, and is not subject to any claims or liabilities,
accrued, absolute, contingent or otherwise, other than trade or business
obligations incurred in the ordinary course of business since the date of the
Company Financial Statements, in amounts usual and normal both individually and
in the aggregate for its business.
SECTION 5.8 EMPLOYEE BENEFITS.
(a) Schedule 5.8 lists each Employee Benefit Plan that the Company
maintains or to which the Company contributes.
(i) To the Knowledge of the Company and the Stockholders, each such
Employee Benefit Plan (and each related trust, insurance contract, or fund)
complies in form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I
of ERISA and of Code Sec. 4980B have been met with respect to each such
Employee Benefit Plan that is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) that are due have been paid to each
such Employee Benefit Plan that is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date that are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company. All premiums or
other payments for all periods ending on or before the Closing Date have been
paid with respect to each such Employee Benefit Plan that is an Employee
Welfare Benefit Plan.
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(iv) Each such Employee Benefit Plan that is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401
(a) and has received, within the last two years, a favorable determination
letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit Plan
that is an Employee Pension Benefit Plan equals or exceeds the present value of
all vested and nonvested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(vi) The Company has delivered to the Parent correct and complete
copies of the plan documents and summary plan descriptions, the three most
recent Form 5500 Annual Reports, and all related trust agreements, insurance
contracts, and other funding agreements that implement each such Employee
Benefit Plan.
(vii) There are no pending or, to the Knowledge of the Company or the
Stockholders, threatened or expected claims by or on behalf of any such
Employee Benefit Plan, by any employee or beneficiary covered under any such
Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan
(other than routine claims for benefits).
(b) To the Knowledge of the Company and the Stockholders, with respect to
each Employee Benefit Plan that the Company maintains or ever has maintained or
to which any of them contributes, ever has contributed, or ever has been
required to contribute:
(i) No such Employee Benefit Plan that is an Employee Pension
Benefit Plan has been completely or partially terminated or been the subject of
a Reportable Event as to which notices would be required to be filed with the
PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan has been instituted or, to the Knowledge of the Company or the
Stockholders, threatened.
(ii) There have been no Prohibited Transactions with respect to any
such Employee Benefit Plan. No Fiduciary has any liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or, to the Knowledge
of the Company threatened. The Company does not have any Knowledge of any Basis
for any such action, suit, proceeding, hearing, or investigation.
(iii) The Company has not incurred or has any reason to expect that
the Company shall incur, any Liability to the PBGC (other than PBGC premium
payments)
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or otherwise under Title IV of ERISA or under the Code with respect to any such
Employee Benefit Plan that is an Employee Pension Benefit Plan.
(iv) No such Employee Benefit Plan that is an Employee Pension
Benefit Plan has incurred any "accumulated funding deficiency" (as defined in
ERISA Sec. 302 and Code Sec. 412), whether or not waived, as of the last day of
the most recent fiscal year of each such Employee Pension Benefit Plan ended
prior to the Closing Date.
(c) The Company does not contribute to and has never contributed to, or
ever has been required to contribute to any Multiemployer Plan and does not
have liability (including withdrawal Liability) under any Multiemployer Plan.
(d) The Company does not maintain or contribute, or ever has maintained or
contributed, or ever has been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with Code Sec. 4980B).
SECTION 5.9 OTHER BENEFIT PLANS. Except as set forth in Schedule 5.9
and except as provided for in this Agreement, as of the date of this Agreement
the Company is not a party to any oral or written (a) consulting agreement not
terminable on 60 days or less notice involving the payment of more than
$10,000.00 per annum, (b) union or collective bargaining agreement, (c)
agreement with any executive officer or other key employee of the Company the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company of the nature
contemplated by this Agreement, or agreement with respect to any executive
officer of the Company providing any term of employment or compensation
guarantee extending for a period longer than one year and for the payment of in
excess of $10,000.00 per annum, or (d) agreement or plan, including any stock
option plan, stock appreciation right plan, restricted stock plan, or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
SECTION 5.10 LITIGATION. Schedule 5. 10 sets forth each instance in which
the Company (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is a party or, to the Knowledge of the
Company, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits proceedings, hearings, and
investigations set forth in Schedule 5.10 could have a Material Adverse Effect
upon the business, financial condition, operations, results of operations, or
future prospects of the Company. The Company does not have any reason to
believe that any other such action, suit, proceeding, hearing, or investigation
may be brought or threatened against the Company.
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SECTION 5.11 COMPLIANCE WITH APPLICABLE LAW. To the Knowledge of the
Company and the Stockholders, the Company holds all permits, licenses,
variances, exemptions, orders, and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the "Company
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders, and approvals that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company taken as a whole. To
the Knowledge of the Company and the Stockholders, the Company is in compliance
with the terms of the Company Permits, except where the failure so to comply
would not have a Material Adverse Effect on the Company. To the Knowledge of
the Company and the Stockholders, and except as disclosed in Schedule 5.11, the
business of the Company is not being conducted in violation of any law,
ordinance, or regulation of any Governmental Entity, except for possible
violations that individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on the Company. To the Knowledge of the Company and the Stockholders,
and except as set forth in Schedule 5. 1 1, no investigation or review by any
Governmental Entity with respect to tile Company is pending or, to the best
knowledge of the Company, threatened, nor has any Governmental Entity indicated
an intention to conduct the same, other than, in each case, those the outcome
of which, as far as reasonably can be foreseen, in the future will not have a
Material Adverse Effect on the Company.
SECTION 5.12 VOTE REQUIRED. The affirmative vote of Stockholders having a
majority of the votes entitled to be cast by the outstanding shares of Company
Common Stock is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
SECTION 5.13 TAX RETURNS AND AUDITS.
(a) The Company has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all material respects (based
upon advice from the Company's accountants). All Taxes owed by the Company
(whether or not shown on any Tax Return) have been paid. The Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Tax.
(b) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) The Company does not expect any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of the Company either (i) claimed or
raised by any authority in writing or (ii) as to which the Company has
Knowledge based upon personal contact with
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any agent of such authority. Schedule 5.13 lists all federal, state, local, and
foreign income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1991, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Company has delivered to the Parent correct and complete
copies of all federal income Tax Returns, examination reports, and statements
of deficiencies assessed against or agreed to by the Company since December 31,
1991.
(d) The Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Company has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations. The Company has not made any payments, is not
obligated to make any payments, or is not a party to any agreement that under
certain circumstances could obligate it to make any payments not deductible
under Code Sec. 280G. The Company has not been a United States real property
holding corporation within the meaning of Code Sec. 897(c)(2) during the
applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is not a
party to any Tax allocation or sharing agreement. The Company (A) has not been
a member of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Company) or (B) has any
liability for the Taxes of any Person (other than any of the Company ) under
United States Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(f) The unpaid Taxes of the Company (A) did not, as of December 31, 1995,
exceed the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
set forth on the face of the Company's balance sheet as of June 30, 1996
(rather than in any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company in filing its Tax Returns.
SECTION 5.14 MATERIAL CONTRACTS. Schedule 5.14 lists the following
contracts and other agreements to which the Company is a party (each a
"Material Contract"):
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in excess
of $10,000.00 per year;
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services (including insurance,
reinsurance and other risk-sharing agreements), the performance of which shall
extend over a period of more than one year, result in a Material loss to the
Company, or involve consideration in excess of $10,000.00;
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(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation, in excess of $10,000.00 or under which it
has imposed a Security Interest on any of its assets, tangible or intangibleI
(e) any agreement concerning confidentiality or noncompetition;
(f) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other material plan or arrangement for the
benefit of any current or former directors, officers, and employees;
(g) any collective bargaining agreement;
(h) any agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in excess
of $30,000.00 or providing severance benefits;
(i) any agreement under which it has advanced or loaned any amount to any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(j) any agreement under which the consequences of a default or termination
could have a Material Adverse Effect on the Company; or
(k) any other agreement (or group of related agreements) the performance
of which involves consideration in excess of $10,000.00.
The Company has delivered to the Parent a correct and complete copy of each
written agreement listed in Schedule 5.14 (as amended to date) and a written
summary setting forth the terms and conditions of each oral agreement referred
to in Schedule 5.14. With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement shall continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the Merger,
and no event has occurred that with notice or lapse of time would constitute a
breach or default, or permit termination, modification, or acceleration, under
any such agreement; and (C) no party has repudiated any provision of any such
agreement.
SECTION 5.15 REAL PROPERTY AND LEASES. (a) The Company does not own any
real property. Schedule 5.15 lists all parcels of real property leased by the
Company. To the Knowledge of the Company and the Stockholders, with respect to
each parcel of leased real property, the lease or sublease is legal, valid,
binding, and enforceable, and in full force and effect. All facilities owned or
leased have received all approvals of applicable
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Governmental Entities (including licenses and permits) required in
connection with the operation thereof.
(b) Company has delivered to Parent a true and complete copy of every
lease under which Company is a tenant or subtenant (and for each sublease, true
and complete copies of all leases to which the sublease is subject, and each
such Lease is described on Schedule 5.15.
(C) Each lease is in full force and effect and has not been assigned,
modified, supplemented, or amended except as described on Schedule 5.15, and
neither Company nor, to the best of Company's knowledge, the landlord or
sublandlord under any lease is in default under any of the leases, and no
circumstances or state of facts presently exists that, with the giving of
notice or passage of time, or both, would permit the landlord or sublandlord
under any lease to terminate any such lease.
(d) Each lease sets forth the entire agreement between the landlord or
sublandlord and Target, and there are no amendments, oral or written, except as
set forth on Schedule 5.15, and no landlord has the presently exercisable right
to cancel or terminate any lease.
(e) There are no outstanding or unsatisfied obligations of Company to
perform any leasehold improvement or other work or to reimburse or pay for any
such work under any of the leases.
(f) There are no outstanding or unsatisfied obligations of Company for any
leasing commissions under any of the leases.
(g) Company has (without exception) a good , marketable, and insurable
leasehold estate to all Real Property that it leases, free and clear of all
Security Interests.
SECTION 5.16 TANGIBLE PERSONAL PROPERTY.
(a) Ownership. Except as set forth in the Company Financial Statements,
Company is the sole lawful and beneficial owner of its tangible personal
property, other than tangible personal property that Company has the right to
use in its business pursuant to valid and enforceable contracts, free and clear
of all Security Interests, and it has good and marketable title to all such
property.
(b) Depreciation Schedule. Schedule 5.16 is Company's depreciation
schedule, and such schedule sets forth all material tangible personal property
existing on the date hereof.
(c) No Removal of Property. Company has not removed or permitted the
removal of any tangible personal property from its business premises since the
Most Recent Financial Statement except in the Ordinary Course of Business.
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SECTION 5.17 ENVIRONMENTAL AND EMPLOYEE SAFETY MATTERS.
(a) The Company has complied with all Environmental, Health, and Safety
Laws, and no action, suit, proceedings, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against it
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, the Company has obtained and been in compliance with all of
the terms and conditions of all permits, licenses, and other authorizations
that are required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables that are contained in, all Environmental, Health, and
Safety Laws.
(b) The Company does not have any liability (and the Company has not
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Company
giving rise to any Liability) for damage to any site, location, or body of
water (Surface or subsurface), for any illness of or, personal injury to any
employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(c) All properties and equipment used in the business of the Company have
been free of Hazardous Materials.
SECTION 5.18 INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission, all Intellectual Property necessary for
or used in the operation of the business of the Company as presently conducted
and as presently proposed to be conducted. Each item of Intellectual Property
owned or used by the Company immediately prior to the Effective Time shall
remain owned or available for use by the Surviving Corporation on identical
terms and conditions as of the Effective Time. The Company has taken all
necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses.
(b) The Company has not interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of third
parties, and the Company has never received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of the Company
must license or refrain from using any Intellectual Property rights of any
third party). To the Knowledge of the Company, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
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(c) Schedule 5.18(a) identifies each trademark, copyright and patent
registration that has been issued to the Company with respect to any of its
Intellectual Property, identifies each pending trademark, copyright or patent
application or application for registration that the Company has made with
respect to any of its Intellectual Property. Schedule 5.18(b) identifies each
trade name, trademark and service mark (whether or not registered), used by the
Company. Schedule 5.18(c) identifies each license, agreement, or other
permission that any of the Company has granted to any third party with respect
to any of its intellectual Property (together with any exceptions). The Company
has delivered to the Parent correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to the Parent correct and complete copies of
all other written documentation evidencing ownership and prosecution (if
applicable) of each such item.
(d) As to each item of Intellectual Property required to be identified in
Schedule 5.18:
(i) the Company possesses all right, title, and interest in and to
the item, free and clear of any Security Interest, or other restriction other
than a license;
(ii) other than those items required to be identified in Schedule
5.18(c), the Company possesses all right, title, and interest in and to the
item, free and clear of any license;
(iii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iv) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the Company, is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item; and
(v) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other conflict
with respect to the item.
(e) Schedule 5.18(d) identifies each item of intellectual Property that
any third party owns and that the Company uses pursuant to license, sublicense,
agreement, or permission (other than commercially available software for
personal computers). The Company has delivered to the Parent correct and
complete copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of intellectual Property
required to be identified in Schedule 5.18;
(i) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect;
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(ii) the license, sublicense, agreement, or permission shall continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the Merger;
(iii) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred that with notice or default
or permit termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in clauses (i) through (iv) above are true and correct
with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject to
any outstanding injunction, judgment, order, decree, ruling, or charge;
(vii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the Company, is
threatened that challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(viii)the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(f) To the Knowledge of the Company, the Surviving Corporation shall not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted and as presently
proposed to be conducted.
SECTION 5.19 INSURANCE POLICIES. Schedule 5.19 sets forth a complete and
correct list and summary description of all insurance policies held by the
Company with respect to their respective businesses, and true and complete
copies of such policies have been delivered to the Parent. The Company has
complied with all the provisions of such policies, and the policies are in full
force and effect.
SECTION 5.20 ERRORS AND OMISSIONS. Except as disclosed on Schedule 5.20,
the Company has not incurred any liability or taken or failed to take any
action that will result in a liability (whether reported or unreported,
absolute or contingent, liquidated or unliquidated, due or to become due, or
known or unknown) for errors or omissions in the conduct of the business of the
Company, except such liabilities as are covered by insurance. Of those matters
described on Schedule 5.20, the Company has received no notice of any
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activity of any kind with respect to the prosecution of any of such claims
for a period of at least two years prior to and through the date hereof.
SECTION 5.21 BROKERS' FEES. The Company has no liability or obligation to
pay any fees, commissions, or other compensation to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
SECTION 5.22 NO MISREPRESENTATIONS. None of the representations and
warranties of the Company set forth in this Agreement or in the attached
Exhibits and Schedules, notwithstanding any investigation thereof by the
Parent, contains or will contain any untrue statement of a material fact, or
omits or will omit the statement of any material fact necessary to render the
same not misleading, either at the date hereof or at the Closing Date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND NEWCO
The Parent and Newco represent and warrant to the Company and the Majority
Stockholders as follows:
SECTION 6.1 ORGANIZATION. Each of the Parent and Newco is a corporation
organized, validly existing, and in active status under the laws of the
jurisdiction of its incorporation.
SECTION 6.2 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Parent consists solely of 100,000,000 shares of Parent Class A
Common Stock, 100,000,000 shares of Parent Class B Common Stock and 10,000,000
shares of Parent Preferred Stock. As of the date hereof, 1 1,047,582 shares of
Parent Class A Common Stock, 24,334,443 shares of Parent Class B Common Stock,
and no shares of Parent Preferred Stock were issued and outstanding. As of the
date hereof, the authorized capital stock of Newco consists of 10,000 shares of
Newco Common Stock, 1,000 shares of which are issued and outstanding and are
owned by the Parent.
SECTION 6.3 AUTHORITY. The Parent and Newco have the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement, and the consummation of the Merger and the other transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of the Parent and Newco and no other corporate proceeding on
the part of the Parent or Newco is necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by the Parent and Newco, as the case may be, and,
assuming this Agreement constitutes a valid and binding obligation of the
Company and the
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Stockholders, constitutes a valid and binding obligation of each of the Parent
and Newco, as the case may be, enforceable against them in accordance with its
terms.
SECTION 6.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth in
Schedule 6.4, neither the execution, delivery, or performance of this Agreement
by the Parent and Newco, nor the consummation by the Parent and Newco of the
transactions contemplated hereby, nor compliance by the Parent and Newco with
any of the provisions hereof, will (a) conflict with or result in any breach of
any provision of the respective articles or certificate of incorporation or
bylaws of the Parent and Newco, (b) require any filing with, or permit,
authorization, consent, or approval of, any Governmental Entity (except where
the failure to obtain such permits, authorizations, consents, or approvals or
to make such filings would not have a Material Adverse Effect on the Parent
taken as a whole), (c) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, or acceleration) under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
lease, contract, agreement, or other instrument or obligation to which the
Parent is a party or by which it or any of its properties or assets may be
bound, or (d) violate any order, writ, injunction, decree, statute, rule, or
regulation applicable to the Parent, or any of its properties or assets, except
in the case of (c) and (d) for violations, breaches, or defaults that would
not, individually or in the aggregate, have a Material Adverse Effect on the
Parent.
SECTION 6.5 SEC REPORTS. The Parent has filed with the SEC and has
heretofore made available to the Company, true and complete copies of, all
forms, reports, schedules, statements, and other documents required to be filed
by it since January 1, 1996 under the Exchange Act or the Securities Act.
SECTION 6.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Parent
SEC Documents or Schedule 6.6, since December 31, 1995, there have been no
events, changes, or effects having, individually or in the aggregate, a
Material Adverse Effect on the Parent taken as a whole.
ARTICLE VII
COVENANTS
SECTION 7.1 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the
other provisions in this Agreement, the parties hereto shall each use all
reasonable efforts to perform their respective obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper
or advisable under applicable law to satisfy all conditions to the obligations
of the parties under this Agreement and to cause the Merger and the other
transactions contemplated by this Agreement to be carried out promptly in
accordance with the terms hereof and shall cooperate fully with each other and
their respective officers, directors, employees, agents, counsel, accountants
and other designees
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in connection with any steps required to be taken as part of their respective
obligations under this Agreement.
SECTION 7.2 NOTICES AND CONSENTS. The Company will give any notices to
third parties, and will use all reasonable efforts to obtain any third party
consents, that the Parent may request in connection with the matters referred
to in Section 5.4 above.
SECTION 7.3 OPERATION OF BUSINESS. The Company will not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing, the
Company will not, without the written consent of the Parent:
(a) authorize or effect any change in its charter or bylaws;
(b) grant any options, warrants, or other rights to purchase or obtain any
of its capital stock or issue, sell, or otherwise dispose of any of its capital
stock;
(c) declare, set aside, or pay any dividend or distribution with respect
to its capital stock (whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its capital stock, except that Company may pay
policyholder dividends in the Ordinary Course of Business;
(d) issue any note, bond, or other debt security or create, incur, assume,
or guarantee any indebtedness for borrowed money or capitalized lease
obligation outside the Ordinary Course of Business;
(e) impose any Security Interest upon any of its assets outside the
Ordinary Course of Business;
(f) make any capital investment in, make any loan to, or acquire the
securities or assets of, any other Person outside the Ordinary Course of
Business;
(g) make any change in employment terms for any of its directors,
officers, or employees outside the Ordinary Course of Business;
(h) sell, lease, transfer, or dispose of any of its properties or assets,
waive or release any rights or cancel, compromise, release, or assign any
indebtedness owed to it or any claims held by it, except in the Ordinary Course
of Business but in no event shall any such sale, lease, transfer, disposition,
waiver, release, cancellation, compromise, or assignment exceed $10,000.00;
(i) fail to perform in all material respects its obligations under
Material Contracts (except those being contested in good faith) or enter into,
assume, or amend any
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contract or commitment that would be a Material Contract other than contracts
to provide services entered into in the ordinary and usual course of business;
(j) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be cancelled or terminated or any of the coverage thereunder
to lapse, unless the Company makes reasonable efforts to obtain simultaneously
with such termination or cancellation replacement policies providing
substantially the same coverage on commercially reasonable terms and, if so
available, such policies are in full force and effect;
(k) enter into any union, collective bargaining, or similar agreement; or
(1) enter into any agreement to do any of the things described in clauses
(a) through (k) above.
SECTION 7.4 FULL ACCESS. The Company will permit representatives of the
Parent to have full access to all premises, properties, personnel, books,
records (including tax records), contracts, and documents of or pertaining to
the Company. The Parent will treat and hold as such any Confidential
Information it receives from the Company in the course of the reviews
contemplated by this Section, will not use any of the Confidential Information
except in connection with this Agreement, and, if this Agreement is terminated
for any reason whatsoever, agrees to return to the Company all tangible
embodiments (and all copies) thereof that are in its possession. The Company
will request its auditing firm to permit the Parent and its representatives,
including its auditing firm, to review the work papers of the auditing firm of
the Company relating to their examination of the Company Financial Statements.
No investigation by or on behalf of the Parent heretofore or hereafter made
shall affect the representations and warranties of the Company or the
Stockholders.
SECTION 7.5 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the others of any adverse development causing a Material breach of
any of its own representations and warranties in Articles IV, V and VI above.
No disclosure by any party pursuant to this Section, however, shall be deemed
to amend or supplement the Schedules to this Agreement or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
SECTION 7.6 EXCLUSIVITY. From the date hereof until the Effective Time or
until this Agreement is terminated as provided in Article XI, the Company shall
not, directly or indirectly, through any officer, director, agent, stockholder
(including the Stockholders) or otherwise, initiate, solicit or knowingly
encourage (including by way of furnishing nonpublic information or assistance),
or take any other action to facilitate knowingly, any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to,
directly or indirectly, any Competing Transaction, or enter into or maintain or
continue discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction or authorize or permit any of the officers, directors or
employees of the Company or any
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investment banker, financial advisor, attorney, accountant or other
representative retained by the Company to take any such action, and the Company
shall notify the Parent thereof orally (within one business day) and in writing
(as promptly as practicable) of all of the relevant details relating to all
inquiries and proposals which it or any such officer, director, employee,
investment banker, financial advisor, attorney, accountant or other
representative may receive relating to any of such matters and if such inquiry
or proposal is in writing, the Company shall deliver to the Parent a copy of
such inquiry or proposal.
SECTION 7.7 INSURANCE AND INDEMNIFICATION. The Company, as the Surviving
Corporation in the Merger, will observe any indemnification provisions now
existing in the Articles of Incorporation or Bylaws of the Company for the
benefit of any individual who served as a director or officer of the Company at
any time prior to the Effective Time.
SECTION 7.8 PUBLIC ANNOUNCEMENTS. The timing and content of all
announcements regarding any aspect of this Agreement or the Merger to the
financial community, government agencies, employees or the general public shall
be mutually agreed upon in advance unless the Parent is advised by counsel that
any such announcement or other disclosure not mutually agreed upon in advance
is required to be made by law or applicable Nasdaq rules.
SECTION 7.9 EXPENSES. Except as otherwise provided in this Agreement,
whether or not the Merger is consummated, all costs and expenses (including any
brokerage commissions or any finder's or investment banker's fees and including
attorneys' and accountants' fees) incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that the Parent and the Company shall share equally the
costs of any required filings with federal and state regulatory authorities.
SECTION 7.10 ANTITRUST CHALLENGES. The Company and the Parent have not
made a filing pursuant to the HSRA because the size of the transaction
contemplated by this Agreement is less than $15,000,000.00. In the event a suit
is instituted challenging the Merger as violative of the antitrust laws, each
of the Parent and the Company will use all reasonable efforts to defend against
such suit. The Parent and the Company will use all reasonable efforts to take
such action as may be required by any federal or state court of the United
States, in any suit brought by a private party or Governmental Entity
challenging the Merger as violative of the antitrust laws, in order to avoid
the entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order which has the effect of preventing the
consummation of the Merger; however, the Parent shall not be required to agree
to any divestiture by the Parent or the Company, of any shares of capital stock
or of any business, properties or assets of the Parent or the Company, or to
the imposition of any material limitation on the ability of the Parent to
conduct such business or to own or exercise control of such stock, business,
properties or assets.
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ARTICLE VILL
CONDITIONS
SECTION 8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of the Company, the Parent and Newco to effect the Merger shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions:
(a) Company Stockholder Approval. The Stockholders shall have approved and
adopted this Agreement and the Merger in the manner required by the Company's
Articles of Incorporation, Bylaws, and applicable law.
(b) Tax Effect of Merger. The Company and the Parent shall each have
received a written opinion of Holland & Knight, in form reasonably satisfactory
to the Company and the Parent (the "Tax Opinion"), to the effect that the
Merger shall qualify as a reorganization within the meaning of Section 368(a)
of the Code. In connection with the Tax Opinion, Holland & Knight shall be
entitled to make such factual assumptions as it deems necessary, and such
factual assumptions shall be confirmed by certificates executed by each
Stockholder and by responsible officers of the Company and the Parent. Holland
& Knight may also rely on all representations, warranties, covenants and
agreements of the parties contained in this Agreement or any Schedule hereto.
SECTION 8.2 CONDITIONS TO OBLIGATIONS OF THE PARENT AND NEWCO.
Consummation of the Merger is subject to the fulfillment to the satisfaction of
the Parent, prior to or at the Closing, of each of the following conditions:
(a) Consents, Authorizations, etc. All consents, authorizations, orders
and approvals of, and filings and registrations with, any Governmental Entity
(other than the filing of the Articles of Merger with the Secretary of State of
Alabama) which are required for or in connection with the execution and
delivery of this Agreement by the Company and the Stockholders and the
consummation by the Company and the Stockholders of the transactions
contemplated hereby shall have been obtained or made.
(b) Injunction, etc. The consummation of the Merger will not violate the
provisions of any injunction, order, judgment, decree, law or regulation
applicable or effective with respect to the Company, the Parent, Newco or their
respective officers and directors. No suit or proceeding shall have been
instituted by any person, or, to the knowledge of the Parent, shall have been
threatened by any Governmental Entity, which seeks (i) to prohibit, restrict or
delay consummation of the Merger or to limit in any material respect the right
of the Parent to control any material aspect of the business of the Parent or
the Surviving Corporation after the Effective Time, or (ii) to subject the
Parent or the Company or their respective directors or officers to material
liability on the ground that it or they have breached any law or regulation or
otherwise acted improperly in relation to the transactions contemplated by this
Agreement; however, in the case of (ii) above, the Parent shall have made a
good faith determination that a substantial basis exists which
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would support a finding of such liability against the officers and directors of
the Company or the Parent.
(c) Representations and Warranties. The representations and warranties of
the Company and the Stockholders contained in this Agreement shall have been
true and correct in all respects at the date hereof and shall also be true and
correct in all respects at and as of the Effective Time, except for changes
contemplated in this Agreement, with the same force and effect as if made at
and as of the Effective Time, except in either case as such representations and
warranties by their terms relate only to periods of time prior to the Effective
Time, and except as set forth in the Schedules, and the Company and the
Stockholders shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it at or prior to the Effective Time.
(d) Certificate. The Company shall have delivered to the Parent a
certificate, dated as of the Closing Date, of the Chief Executive Officer and
the Chief Financial Officer of the Company to the effect that (i) they are
familiar with the provisions of this Agreement and (ii) to the best of their
Knowledge the conditions specified in Section 8.2(c) have been satisfied. Such
certificate shall also specify the number of issued and outstanding shares of
the Company Common Stock and shall certify that to the best of their Knowledge
there has been no violation by the Company of Sections 7.4 or 7.6 hereof.
(e) Opinion and Confirmation of the Company's Counsel. The Parent and
Newco shall have received an opinion or opinions, dated as of the Closing Date,
of Rushton, Stakely, Johnston & Garrett, counsel to the Stockholders, in form
and substance and with such exceptions and limitations as shall be reasonably
satisfactory to the Parent, substantially to the effect that:
(i) The Company is a corporation duly incorporated, validly existing,
and in good standing under the laws of the State of Alabama, and has the
corporate power and authority to own its properties and assets and to conduct
its business as it is presently conducted.
(ii) The authorized capital stock of the Company consists of 1,000
shares of Company Common Stock. As of the date of such opinion, there are 1,000
shares of Company Common Stock issued and outstanding. The issued and
outstanding shares of Company Common Stock are duly authorized, validly issued,
and fully paid and non-assessable, were issued pursuant to available
exemptions under federal and state securities laws, and are held by the
Stockholders in the amounts set forth on Exhibit A to this Agreement. To the
Knowledge of such counsel, the Company has no commitments to issue or sell any
shares of its capital stock or any securities or obligations convertible into
or exchangeable for, or giving any person any right to subscribe for or acquire
from the Company, any shares of its capital stock, and no securities or
obligations evidencing any such rights are outstanding.
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(iii) The Company and each of the Stockholders each has the power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
be executed by them, and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly adopted by the Board of Directors of the
Company and by the Stockholders. This Agreement and the Ancillary Agreements
have been duly executed and delivered by the Company and the Stockholders and
are valid and binding agreements of the Company and the Stockholders,
enforceable in accordance with their respective terms, subject to: (i)
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting creditors' rights generally; and (ii) general principles of equity,
regardless of whether enforceability is considered in a proceeding in equity or
at law.
(iv) Neither the execution or delivery by the Company of this
Agreement nor the performance of its obligations hereunder will (with the
passage of time or the giving of notice or both): (i) constitute a violation
of, constitute a default or require any payment under, permit a termination of,
or result in the creation or imposition of any security interest, lien or other
encumbrance or adverse claim against, or upon any of the property of, the
Company under (1) any term or provision of the Articles of Incorporation or
Bylaws of the Company, (11) any Material Contract, (111) any permit, judgment,
decree or order of any Governmental Entity that is listed on Schedule 5.4 or
that is known to such counsel or (IV) any applicable law that in the experience
of such counsel is normally applicable to transactions of the kind contemplated
by this Agreement; or (ii) create or cause the acceleration of the maturity of,
any indebtedness, obligation, or liability of the Company that is listed on
Schedule 5.15 or that is known to such counsel.
(v) Except for the filing of the Articles of Merger with the
Secretary of State of Alabama, each consent, authorization, order and approval
of, and filing and registration with, any Governmental Entity required to be
made or obtained by the Company for the execution and delivery of this
Agreement and the other documents and agreements contemplated hereby and the
consummation of the transactions contemplated by this Agreement have been made
or obtained.
(vi) Upon the filing of the Articles of Merger with the Secretary of
State of Alabama, the Merger shall become effective in accordance with Alabama
law.
(f) Certain Antitrust Matters. No proceeding shall be pending or
threatened with respect to the transactions hereunder and no order, decree or
judgment shall have been entered or issued, which, in any such case, would
require any divestiture by the Parent or the Company of any shares of capital
stock or of any business, properties or assets of the Parent or the Company, or
the imposition of any material limitation on the ability of the Parent to
conduct its business or to own or exercise control of such stock, business,
properties or assets.
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(g) Appraisal Rights. Appraisal rights under Alabama law shall not have
been perfected by any holders of the outstanding shares of Company Common
Stock.
(h) Due Diligence Review. The Parent shall be fully satisfied in its sole
discretion with the results of its review of, and its other due diligence
investigations with respect to, the business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, and
condition (financial or otherwise) of the Company.
(i) Employment Agreements. The Parent shall have executed employment
agreements with each of the Stockholders on terms consistent with the Parent's
standard executive employment agreement.
(j) Agreement with Ray Smith. The Parent shall have executed a mutually
acceptable agreement with Ray Smith that contains a non-competition clause
acceptable to the Parent.
(k) Articles of Merger. Company shall execute and deliver to Parent
Articles of Merger in form and substance reasonably acceptable to Parent for
filing with the Secretary of State of Alabama.
(1) Estoppel Certificates. Company shall deliver to Parent an estoppel
certificate of each lessor under each lease of Real Property in form and
substance satisfactory to Parent which describes in the property leased, the
monthly or annual rental, the remaining term of the lease, certifying that
there is not a default under the lease, and confirming that the lease will
continue in full force and effect after the Closing.
(m) 401 K Plan. Company shall have terminated its existing 401(k) benefit
plan.
(n) Additional Certificates, etc. The Company, and the Stockholders shall
have furnished to the Parent such additional certificates, opinions, and other
documents as the Parent may have reasonably requested as to any of the
conditions set forth in Sections 8.1 and 8.2.
SECTION 8.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. Consummation of the
Merger is subject to the fulfillment to the satisfaction of the Company, prior
to or at the Effective Time, of each of the following conditions:
(a) Consents, Authorizations, etc. All consents, authorizations, orders
and approvals of, and filings and registrations with, any Governmental Entity,
(other than the filing of the Articles of Merger with the Secretary of State of
Alabama) which are required for or in connection with the execution and
delivery of this Agreement by the Parent and Newco and the consummation by the
Parent and Newco of the transactions contemplated hereby shall have been
obtained or made.
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(b) Injunction, etc. The consummation of the Merger will not violate the
provisions of any injunction, order, judgment, decree, law, or regulation
applicable or effective with respect to the Company or its officers or
directors.
(c) Representations and Warranties. The representations and warranties of
the Parent and Newco contained in this Agreement shall have been true and
correct in all respects at the date hereof and shall also be true and correct
in all respects at and as of the Effective Time, except for changes
contemplated in this Agreement, with the same force and effect as if made at
and as of the Effective Time or except as such representations and warranties
by their terms relate only to periods of time prior to the Effective Time or
except where the failure of any representation or warranty to be correct would
not have a Material Adverse Effect on the ability of the Parent to consummate
the Merger or would not have a Material Adverse Effect on the Parent, and the
Parent shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it at or prior to the Effective Time.
(d) Parent Shares. The shares of Parent Class A Common Stock issued to the
Stockholders pursuant to the Merger shall, upon consummation of the Merger, be
validly authorized and issued, fully paid, and nonassessable.
(e) Certificate. The Parent shall have delivered to the Company a
certificate, dated as of the Effective Time, of the Chief Executive Officer or
a senior executive officer of the Parent to the effect that (i) he is familiar
with the provisions of this Agreement and (ii) to the best of his Knowledge the
conditions specified in Section 8.3(c) have been satisfied.
(f) Execution of Registration Rights Agreement. The Parent shall have
executed and delivered to the Stockholders the Registration Rights Agreement.
(g) Additional Certificates, etc. The Parent shall have furnished to the
Company such additional certificates, opinions, and other documents as the
Company may have reasonably requested as to any of the conditions set forth in
Sections 8.1 and 8.3.
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. The
representations, warranties, covenants, indemnification provisions, and
agreements of the Parties made or set forth in this Agreement (including the
Exhibits and Schedules hereto), as the same may be modified in any certificate
delivered by the Stockholders or any of them at Closing and approved by the
Parent or in any certificate or document delivered pursuant hereto, shall
survive the execution and delivery of this Agreement, the Closing Date, the
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consummation of the Merger, and any investigation made by the parties and shall
continue in full force and effect thereafter for the period provided in this
Article IX.
SECTION 9.2 INDEMNIFICATION.
(a) Subject to Section 9.4, the Stockholders shall, jointly and severally,
indemnify and hold harmless each Constituent Corporation and the Parent from
and against any Loss that the Constituent Corporations and the Parent, or any
of them or their successors and assigns, for any cause at any time may sustain
or incur as a result of any misrepresentation or breach of any warranty,
covenant, agreement or obligation made by the Company or the Stockholders under
this Agreement, any Ancillary Agreement, or in any Schedule, Exhibit,
certificate or other instrument pursuant hereto, or for any and all Tax
liability that is assessed against the Company with respect to any matter that
arises prior to the Effective Time (in each case, an "Event of Indemnity").
(b) The Constituent Corporations and Parent agree that they will not seek
indemnification against the Stockholders pursuant to this Agreement until the
aggregate amount of Losses suffered by the Constituent Corporations and the
Parent exceed $50,000.00.
SECTION 9.3 MANNER OF INDEMNIFICATION. Upon the occurrence of an Event of
Indemnity, the Parent may, at or at any time after such occurrence, notify the
Stockholder(s) from whom indemnification is sought (the "Indemnifying
Stockholders") and Escrow Agent thereof, stating specifically the obligation(s)
with respect to which the claim is made, the facts giving rise to and alleged
basis for such claim, and the amount of the Loss incurred or that may be
incurred by reason thereof (a "Notice of Claim"). If the Parent makes a demand
for indemnification with respect to an Event of Indemnity for which more than
one Indemnifying Stockholder would be liable under this Agreement, it shall
make such demand against the Indemnifying Stockholders that would be liable for
said Event of Indemnity. Within 30 days after the mailing of such notice, the
Indemnifying Stockholders shall, subject to Section 9.4, either (a) notify the
Escrow Agent and the Parent that they accept the amount of such indemnification
claim as set forth in the Notice of Claim, in whole or in part, and instruct
the Escrow Agent to charge such accepted amount against the Stockholders pro
rata under the Escrow Agreement, or (b) notify the Escrow Agent and the Parent
that they deny or dispute the alleged occurrence of such Event of Indemnity as
asserted in the Notice of Claim by the Parent. If such Event of Indemnity
relates to a claim by a person or persons other than the Parent or a
Constituent Corporation, and the amount of such claim is fully covered by the
foregoing indemnity, as limited by Section 9.4 hereof, the Indemnifying
Stockholders or any of them may elect, within said 30-day period, to defend
against such claim at their expense, in lieu of the Parent or a Constituent
Corporation assuming such defense. If the Indemnifying Stockholders or any of
them elect to assume such defense, they shall retain counsel reasonably
satisfactory to the Parent.
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If within said 30-day period, none Of the Indemnifying Stockholders has,
with respect to an Event of Indemnity, taken the action required to be taken
within said period, the amount set forth in the Parent's Notice of Claim with
respect to such Event of Indemnity shall be deemed to have been accepted by the
Stockholders under this Section 9.3 and shall be charged against the
Stockholders as settled Losses of the Parent pro rata under the Escrow
Agreement.
SECTION 9.4 CERTAIN LIMITATIONS. Except in the case of fraud or willful
concealment, the liability of the Stockholders hereunder shall be limited as
follows:
(a) All liability of the Stockholders under this Article IX shall cease
three years after the Closing Date. However, the liabilities of the
Stockholders hereunder shall continue indefinitely with respect to the
occurrence of Events of Indemnity with respect which the Parent shall have
mailed notice prior to the expiration of the Indemnity Period or with respect
to which there has been any willful concealment by the Stockholders, or either
of them, either before or after the date hereof.
(b) The liability of any particular Stockholder with respect to any Loss
shall be limited to such Stockholder's pro rata share of the Target Acquisition
Price.
SECTION 9.5 NOTICES. The Parent will endeavor to notify the Stockholders
and the Escrow Agent promptly upon the receipt by a responsible officer of the
Parent of knowledge of a state of facts that if not corrected, would in its
judgment constitute an Event of Indemnity hereunder. However, in no event shall
the Parent's failure to notify the Stockholders under this Section 9.5 bar its
right to indemnity pursuant to Section 9.2.
SECTION 9.6 EXPENSES. Any expenses in connection with a claim of Loss
hereunder, including without limitation, investigation or audit expenses,
attorneys' fees, or court costs, shall be borne by the prevailing party in any
dispute; however, upon assumption of the defense of a claim hereunder and the
admission by the assuming Stockholder of liability (subject to Section 9.4) for
the Loss, a Stockholder will not be liable to the Parent for any legal or other
costs and expenses subsequently incurred by the Parent in connection with the
defense.
SECTION 9.7 OTHER REMEDIES. Except for non-monetary equitable relief, from
and after the Closing, the rights set forth in this Article IX shall be the
Parent's sole and exclusive remedy against the Stockholders for any
misrepresentations and any and all breaches of the warranties, covenants,
agreements and obligations contained in or arising out of Article V of this
Agreement. To the extent monetary damages are sought, Parent's remedies under
this Article IX shall be obtained first against the Escrow Fund, and thereafter
against the Stockholders individually. Nothing herein shall prevent the Parent
from asserting or recovering upon a claim based upon allegations of fraud or
other willful breach of an obligation of or with respect to the Stockholders or
the Constituent Corporations in connection with this Agreement or for breach of
any of the covenants that by their terms
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continue in effect after the Closing Date. In the event that any such claim for
fraud or willful breach is asserted, the prevailing party's attorneys fees and
costs shall be paid by the non-prevailing party.
ARTICLE X
ESTABLISHMENT OF ESCROW
SECTION 10.1 CREATION. The Escrow Shares, together with stock powers
executed in blank by each of the Stockholders, shall be delivered by the Parent
to the Escrow Agent. The fees payable to the Escrow Agent for maintaining the
Escrow Fund shall be paid by the Parent. The Escrow Shares shall be maintained
by the Escrow Agent for a period beginning at the Effective Time and ending two
years thereafter and shall be available to satisfy the indemnification rights
of the Parent and the Surviving Corporation set forth in Article IX, pursuant
to the terms of the Escrow Agreement.
SECTION 10.2 DISBURSEMENT FOR CLAIMS. Disbursements from the Escrow Fund
shall be made at the expiration of the Escrow Agreement, subject to the
retention of Escrow Shares as to which claims have not been settled, all in
accordance with the terms of the Escrow Agreement.
SECTION 10.3 DIVIDENDS ON ESCROW SHARES; VOTING OF ESCROW SHARES. The
Stockholders shall retain all ordinary dividends and voting rights concerning
the Escrow Shares, in accordance with the Escrow Agreement.
ARTICLE XI
TERMINATION AND ABANDONMENT
SECTION 11.1 TERMINATION AND ABANDONMENT. This Agreement and the Merger
may be terminated and abandoned at any time prior to the Effective Time:
(a) By mutual action of the Board of Directors of the Parent and the
Company, whether before or after any action by the Stockholders.
(b) By the Parent:
(i) if any event shall have occurred as a result of which any
condition set forth in Section 8.2 is no longer capable of being satisfied; or
(ii) if there has been a breach by the Company of any representation
or warranty contained in this Agreement that would have or would be reasonably
likely to have a Material Adverse Effect on the Company, or there has been a
Material breach of any of the covenants or agreements set forth in this
Agreement on the part of the Company,
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which breach is not curable, or, if curable, is not cured within 30 days after
written notice of such breach is given by the Parent to the Company.
(c) By the Parent if:
(i) The Company (or its Board of Directors) shall have authorized,
recommended, proposed or publicly announced its intention to enter into a
Competing Transaction which has not been consented to in writing by the Parent;
(ii) The Board of Directors of the Company shall have withdrawn or
materially modified its authorization, approval or recommendation to the
holders of the Company Common Stock with respect to the Merger or this
Agreement in a manner adverse to the Parent or shall have failed to make such
favorable recommendation; or
(iii) Any person, entity or "group" (as that term is used in Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
(other than the Parent or any of its affiliates) shall have (A) commenced or
publicly proposed to commence a tender offer or exchange offer for at least 15
percent of the then total outstanding Company Common Stock, (B) acquired more
than 15 percent of the then total outstanding Company Common Stock, or (C)
solicited and received proxies or consents sufficient to permit it to elect
directors nominated by it to a majority of the members of the Company's Board
of Directors or to block approval of the Merger and the transactions
contemplated by this Agreement by the holders of Company Common Stock.
(d) By the Company:
(i) if any event shall have occurred as a result of which any
condition set forth in Section 8.3 is no longer capable of being satisfied.
(ii) if there has been a breach by the Parent or Newco of any
representation or warranty contained in this Agreement which would have or
would be reasonably likely to have a Material Adverse Effect on the ability of
the Parent or Newco to consummate the Merger, or there has been a Material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the Parent or Newco, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by the
Company to the Parent.
(e) By the Parent or the Company if there shall have occurred (i) any
general suspension of, or limitation on, trading in securities generally on
Nasdaq continuing for a period of 15 days, or (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States continuing for a period of 15 days.
(f) By either the Parent or the Company if (i) any event shall have
occurred as a result of which any condition set forth in Section 8.1 is no
longer capable of being
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satisfied or (ii) the Merger shall not have been consummated by November 1,
1996; however, the terminating party shall not have breached in any material
respect its obligations under this Agreement in any manner which proximately
contributed to the failure of any such condition to be satisfied or the failure
to consummate the Merger.
SECTION 11.2 SPECIFIC PERFORMANCE. The parties acknowledge that the
rights of each party to consummate the transactions contemplated hereby are
special, unique, and of extraordinary character, and that, in the event that
any party violates or fails and refuses to perform any covenant made by it
herein the other parties will be without adequate remedy at law. Each party
agrees, therefore, that, in the event that it violates or fails and refuses to
perform any covenant made by it herein, the other parties so long as it or they
are not in breach hereof, may, in addition to any remedies at law, institute
and prosecute an action in a court of competent jurisdiction to enforce
specific performance of such covenant or seek any other equitable relief.
SECTION 11.3 RIGHTS AND OBLIGATIONS UPON TERMINATION. If this Agreement is
terminated and abandoned as provided herein, each party will redeliver all
documents, work papers, and other materials of any party relating to the
transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same, except to the extent
previously delivered to third parties in connection with the transactions
contemplated hereby, and all information received by any party hereto with
respect to the business of any other party shall not at any time be used for
the advantage of, or disclosed to third parties by, such party to the detriment
of the party furnishing such information; however, this Section 11.3 shall not
apply to any documents, work papers, material, or information which is a
matter of public knowledge or which heretofore has been or hereafter is
published in any publication for public distribution or filed as public
information with any Governmental Entity. The Parent shall continue to be bound
by the provisions of the Confidentiality Agreement following termination of
this Agreement.
SECTION 11.4 EXPENSES. The Company and the Parent each acknowledge that
the other has spent, and will be required to spend, substantial time and effort
in examining the business, properties, affairs, financial condition and
prospects of the other and their respective Subsidiaries, and has incurred, and
will continue to incur, substantial fees and expenses in connection with such
examination, the preparation and negotiation of this Agreement and the
accomplishment of the transactions contemplated hereunder, and will be unable
to evaluate similar transactions with other parties due to the limited number
of personnel available for such purpose and the constraints of time. Therefore,
the Company and the Parent agree as follows:
(a) Expenses. If the Parent terminates this Agreement pursuant to Section
11.1(b) by reason of the failure to meet the condition of Section 8.2 due to
the Company's knowing and intentional or grossly negligent misrepresentation or
knowing and intentional or grossly negligent breach of warranty or breach of
any covenant or agreement, or pursuant to Section 11.1(c), then the Company
shall pay the Expenses to the Parent on demand, in
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<PAGE> 49
same day funds. If the Company terminates this Agreement pursuant to Section
11.1(d) by reason of the failure to meet the condition of Section 8.3 due to
the Parent's knowing and intentional or grossly negligent misrepresentation or
knowing and intentional or grossly negligent breach of warranty or breach of
any covenant or agreement, then the Parent shall pay the Expenses to the
Company on demand, in same day funds. For purposes of this Section 11.4,
"Expenses" shall include all reasonable out-of-pocket expenses and fees
(including, without limitation, fees and expenses payable to all investment
banking firms and their respective agents and counsel, and all fees of counsel,
accountants- experts and consultants to the Parent and the Company,
respectively) actually incurred by the Parent or the Company or on their behalf
in connection with the Merger and all transactions contemplated by this
Agreement.
(b) Payment. Any payment required pursuant to this Section 11.4 shall be
made as promptly as practicable, but in no event later than five business days
after termination of this Agreement and shall be made by wire transfer of
immediately available funds to an account designated by the Parent. If either
party is entitled to the Expenses, the other party shall also pay to the other
interest at the rate of 8 1/2% per year on any amounts that are not paid when
due, plus all costs and expenses in connection with or arising out of the
enforcement of the obligation to pay the Expenses or such interest.
(c) Effect of Payment. Except as provided in Section 11.5, upon payment of
the Expenses this Agreement shall terminate with no further liability of the
Company or the Parent at law or equity resulting therefrom.
SECTION 11.5 EFFECT OF TERMINATION. In the event of a termination and
abandonment of this Agreement pursuant to Section 11.1 above, this Agreement
shall forthwith become void and have no further effect, without any liability
on the part of any party hereto or its respective officers, directors or
stockholders, other than the provisions of Section 7.5, 7.9, 7.10, 11.3, 11.4
and this Section 11.5. Notwithstanding the foregoing, nothing contained in this
Section 11.5 shall relieve any party from liability for any breach of this
Agreement, and any such termination shall be without prejudice to the rights of
any party hereto arising out of the willful breach by any other party of any
covenant or agreement contained in this Agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 EXTENSION; WAIVER. At any time prior to the Effective Time,
the Parent and the Company may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the other
contained herein or in any document delivered pursuant hereto by the other, and
(iii) waive compliance with any of the agreements by the other or conditions to
such party's obligations contained herein. Any agreement on the part
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<PAGE> 50
of a party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party.
SECTION 12.2 NOTICES. Every notice, consent, demand, approval, and request
required or permitted by this Agreement will be valid only if it is in writing,
delivered personally or by telecopy, commercial courier, or first class,
postage prepaid certified United States mail, and addressed by the sender to
the party who is the intended recipient at its address set forth below or to
the address most recently designated to the other party by notice given in
accordance with this Section. A validly given notice, consent, demand,
approval, or request will be effective on the earlier of its receipt, if
delivered personally, by telecopy, or by commercial courier, or the third day
after it is postmarked by the United States Postal Service, if it is delivered
by United States mail.
(a) If to the Parent or Newco, to
RISCORP, Inc.
1390 Main Street
Sarasota Florida 34236
Attention: Gregory M. Marks, General Counsel
Telecopy No.: (941) 362-6122
with a copy to
Michael L. Jamieson, Esq.
Holland & Knight
400 N. Ashley Street, Suite 2050
Tampa, FL 33602
Telecopy No.: (813) 229-0134
(b) If to the Company, to
Independent Association Administrators Incorporated
4137 Carmichael Road, Suite 330
Montgomery, Alabama 36106
Attention:
----------------------------------
Telecopy No.: (334) 270-9449
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<PAGE> 51
with a copy to:
Thomas G. Mancuso, Esq.
Rushton, Stakely, Johnston & Garrett 184 Commerce Street
Montgomery, Alabama 36104
Telecopy No.: (334) 262-6277
(C) if to the Stockholders,to
Thomas Albrecht
1410 Meriweather Road
Montgomery, Alabama 36116
Telecopy No.:
------------------------------------------
Peter Norman
Post Office Box 195
Fort Deposit, Alabama 36032
Telecopy No.:
------------------------------------------
SECTION 12.3 TABLE OF CONTENTS; HEADINGS. The Table of Contents and
headings contained herein are for convenience of reference only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
SECTION 12.4 VARIATION AND AMENDMENT. Before or after the approval of this
Agreement by the Stockholders, this Agreement may be varied or amended at any
time without action by the Stockholders by action of the respective Boards of
Directors of the Company and Newco; however, any variance or amendment made
after approval of the Merger by the Stockholders that (i) reduces the Merger
Consideration or changes the form of the Merger Consideration or (ii) changes
any of the terms and conditions of this Agreement if such change would
adversely affect the Stockholders shall be subject to the further approval of
the Stockholders. Any variation, modification or amendment to this Agreement
must be made in writing and executed by each of the parties hereto.
SECTION 12.5 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party hereto. Upon any such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto will
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negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
SECTION 12.6 WAIVER. The failure of any party hereto at any time or times
to require performance of any provision hereof shall in no manner affect the
right to enforce the same. No waiver by any party of any condition, or the
breach of any term, provision, warranty, representation, agreement or covenant
contained in this Agreement or the other agreements contemplated hereby,
whether by conduct or otherwise, in any one or more instances shall be deemed
or construed as a further or continuing waiver of any such condition or breach
or a waiver of any other condition or of the breach of any other term,
provision, warranty, representation, agreement or covenant herein or therein
contained.
SECTION 12.7 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT. This Agreement
shall inure to the benefit of the parties and their respective successors and
permitted assignees. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity, including,
without limitation, employees not a party to this Agreement. Except for
assignments to wholly-owned Subsidiaries (direct or indirect) of the Parent, in
which event the Parent shall remain liable for the performance of this
Agreement, no transfer or assignment (including by operation of law) of this
Agreement or of any rights or obligations under this Agreement may be made by
any party without the prior written consent of the other parties and any
attempted transfer or assignment without that required consent shall be void.
No transfer or assignment by a party of its rights under this Agreement shall
relieve it of any of its obiligations to the other parties under this
Agreement.
SECTION 12.8 TIME OF THE ESSENCE; COMPUTATION OF TIME. Time is of the
essence of each and every provision of this Agreement. Whenever the last day
for the exercise of any right or the discharge of any duty under this Agreement
shall fall upon Saturday, Sunday or a public or legal holiday, the party having
such right or duty shall have until 5:00 p.m. Eastern time on the next
succeeding regular business day to exercise such right or to discharge such
duty.
SECTION 12.9 COUNTERPARTS. This Agreement may be executed by each party
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signatures of all of the
parties. This Agreement may be executed in two or more counterparts, each of
which shall be an original, and each of which shall constitute one and the same
agreement. Any party may deliver an executed copy of this Agreement and of any
documents contemplated hereby by facsimile transmission to another party and
such delivery shall have the same force and effect as any other delivery of a
manually signed copy of this Agreement or of such other documents.
SECTION 12.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without giving
effect to the conflicts of law principles thereof.
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SECTION 12.11 ENTIRE AGREEMENT. This Agreement (with its Exhibits and
Schedules) contains, and is intended as, a complete statement of all the terms
of the arrangements among the parties with respect to the matters provided for,
supersedes any previous agreements and understandings between the parties with
respect to those matters and cannot be changed or terminated orally.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date first written above.
RISCORP, INC.
By: /s/
-----------------------------------------
Title: Senior VP
-----------------------------------------
RISCORP-IAA, INC.
By: /s/
-----------------------------------------
Title Senior V
-----------------------------------------
INDEPENDENT ASSOCIATION
ADMINISTRATORS INCORPORATED
By:/s/
-----------------------------------------
Title:
-----------------------------------------
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<PAGE> 54
THE STOCKHOLDERS
/s/ Thomas Albrecht
--------------------------------------------
Thomas Albrecht
/s/ Peter Norman
--------------------------------------------
Peter Norman
<PAGE> 1
EXHIBIT 10.74
POLICY AND LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
between
NATIONAL ALLIANCE FOR RISK MANAGEMENT
GROUP SELF-INSURERS' FUND
(Hereinafter referred to as "Fund")
and
RISCORP NATIONAL INSURANCE COMPANY
(Hereinafter referred to as the "Reinsurer")
<PAGE> 2
POLICY AND LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
(Hereinafter referred to as the "Agreement")
between
NATIONAL ALLIANCE FOR RISK MANAGEMENT
GROUP SELF-INSURERS' FUND
(Hereinafter referred to as "Fund")
and
RISCORP NATIONAL INSURANCE COMPANY
(Hereinafter referred to as the "Reinsurer")
ARTICLE 1 - BUSINESS COVERED
A. The Reinsurer assumes by assumption reinsurance the Policies and
the liability to pay all losses, including loss adjustment expenses, covered by
Policies issued by the Fund prior to June 14, 1996, to all policyholders,
including all existing and incurred but not reported ("IBNR") claims covered by
the Policies (hereinafter "Reinsured Claims"), subject to the terms and
conditions contained herein.
B. The term "Policies" shall mean all binders, policies, contracts,
certificates and other obligations, whether oral or written, of insurance
issued by the Fund to its member employers. It is understood and agreed that
the Reinsurer is bound by all the terms and conditions of the Fund's Policies
as if the Policies had been issued by the Reinsurer.
C. The Fund hereby transfers to the Reinsurer all rights the Fund
may have now or in the future under or with respect to the Policies, including,
without limitation, the right to collect and adjust premiums, adjust and
settle claims, deny coverage, rescind policies, etc.
ARTICLE 2 - EFFECTIVE DATE
This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time,
June 14, 1996.
ARTICLE 3 - REINSURANCE PREMIUM
The Fund shall pay a premium equal to the sum of all of its assets as of
the Effective Date (as listed on Schedule A attached hereto) to the Reinsurer
in accordance with the following terms and conditions. However, Reinsurer
acknowledges that policyholders of the Fund have the right under North
Carolina law not to accept the transfer of their Policies and/or obligations
under the policies to the Reinsurer, and that the reinsurance premium payable
<PAGE> 3
hereunder will be affected by the number of policyholders who do not accept
the transfer. Prior to the Effective Date, the Fund shall deliver to the
Reinsurer a schedule of the specific investments and assets which the Fund will
use to pay the premium. All investments shall be listed on the schedule at
fair market value. As of the Effective Date, the Fund shall transfer all
scheduled investments and assets to the Reinsurer and shall execute
all documents necessary to effectuate such transfer.
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS
A. The parties hereto agree to act in good faith and cooperate with
each other in effecting the assumption of the Reinsured Claims provided for in
this Agreement. The parties shall take all actions necessary to assist each
other in obtaining all regulatory approvals or responding to information
requests of those insurance regulatory authorities asserting jurisdiction over
the transactions herein described.
B. Upon demand by, and in accordance with instructions of the
Reinsurer, the Fund shall deliver originals or copies of all policy records and
claim files pertaining to the Reinsured Claims and all other files and records
incidental to the Reinsured Claims as are necessary for the Reinsurer to
perform its obligations under this Agreement. The Reinsurer shall retain all
policy records, claim files, and other documents received by it from the Fund
as required by applicable law. Upon reasonable notice, each of the Reinsurer
and the Fund will be entitled to reasonable access to the books and records of
the other party at any reasonable time, but only to the extent such materials
pertain to the business assumed and reinsured under this Agreement. Each party
will pay its own expenses associated with any such review of the books and
records. The Fund will retain as its property its original corporate records,
including, without limitation, articles of incorporation, bylaws, minute books,
and certificate of authority; provided, however, that the Fund shall provide
the Reinsurer with copies of all such documents upon the effective date hereof
C. Whenever the Fund receives any payments or communications,
including notices of claims and proofs of loss, pertaining to the Reinsured
Claims, it will forward such payments and communications promptly to the
Reinsurer.
ARTICLE 5 - NOTICE OF ASSUMPTION
As soon as practicable after the Effective Date, the Fund will deliver
or cause its agents to deliver to the named insureds under the Policies an
appropriate notice of transfer/assumption substantially in the form attached
hereto. The Reinsurer will take all other necessary actions to assume the
Reinsured Claims. The Fund will cooperate fully with the Reinsurer in
implementing such assumption, including, without limitation, executing any
document reasonably necessary to evidence the completion of the transactions
contemplated by this Agreement.
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS
A. From and after the Effective Date, the Reinsurer will be solely
liable for the administration and disposition of all aspects of the Reinsured
Claims assumed by the Reinsurer
2
<PAGE> 4
including, without limitation, the defense, adjustment, settlement, and payment
of all losses and expenses arising under or relating to the Reinsured Claims.
The Fund hereby grants and assigns to the Reinsurer full authority to
administer such losses, claims, expenses, defenses, adjustments, settlements,
and payments, and such matters will be under the Reinsurer's control and within
its discretion. The Reinsurer will bear all expenses and costs incurred by it
in connection with the administration and disposition of such losses, claims,
expenses, defenses, adjustments, settlements, and payments.
B. The Fund will cause all information and notices regarding the
Reinsured Claims actually received by the Fund after the Effective Date to be
promptly reported to the Reinsurers or the Reinsurer's designated
representative. The Fund also will undertake any reasonable arrangements
deemed necessary by the Reinsurer to ensure that all notices received by the
Fund after the Effective Date in connection with the Reinsured Claims are
promptly delivered to the Reinsurer.
C. All losses and similar items regarding the Reinsured Claims that
the Reinsurer determines to be payable will be paid directly and promptly by
the Reinsurer.
ARTICLE 7 - ASSESSMENTS
In the event that an assessment is made against any present or former
policyholders of the Fund pursuant to the North Carolina General Statutes, the
Reinsurer agrees to pay the full assessment on behalf of said policyholders.
By this undertaking, the Reinsurer and the Fund expressly intend to benefit as
third party beneficiaries all present and former policyholders of the Fund, and
the Reinsurer agrees to be subject to suit by any policyholder as set out in
Article 8.
ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER
The Reinsurer hereby covenants and agrees that it may be sued for its
actions after the Effective Date, in its own name, by insureds under the
Policies.
ARTICLE 9 - INDEMNIFICATION
The Reinsurer agrees to defend, protect, indemnify and hold harmless the
Fund and its successors or assigns, against any liability, claim, loss or
damage, including punitive damages, arising under or out of any of the
Reinsured Claims reinsured hereunder or the transactions contemplated by this
Agreement.
ARTICLE 10 - EXTRA CONTRACTUAL OBLIGATIONS
The Reinsurer shall also be responsible for any Extra Contractual
Obligation losses assessed against the Fund or the Reinsurer. Such losses are
defined as those liabilities (whether they constitute compensatory, incidental,
exemplary or punitive damages not covered under any other provision of this
Agreement and which arise from the handling of any Reinsured Claim, such
liabilities arising out of, but not limited to, the following: failure to
settle within
3
<PAGE> 5
the policy limit or by reason of alleged or actual negligence, coverage denial,
fraud or bad check in rejecting an offer of settlement, in the preparation of
the defense or in the trial of any action against an insured or in the
preparation or prosecution of an appeal consequent upon such action.
ARTICLE 11 - REQUIRED REGULATORY APPROVAL
This Agreement remains subject to the approval of the North Carolina
Department of Insurance. The Fund and the Reinsurer shall take all steps
necessary to obtain requisite regulatory approval of this Agreement and the
transaction described herein.
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES
A. In the event of the payment of any loss by the Reinsurer under
this Agreement, the Reinsurer shall be subrogated, to the extent of such
payment, to all of the rights of the Fund against any person or entity legally
responsible for the loss. The Reinsurer is hereby authorized and empowered to
bring any appropriate action in its own name or in the name of the Fund to
enforce such rights.
B. Any payments received by or due to the Fund from any reinsurer of
the Fund which is payable on a Reinsured Claim shall become the property of
and paid to the Reinsurer. If any payment is received by the Fund which is to
be credited to the Reinsurer under or with respect to any of the Reinsured
Claims, the Fund will immediately endorse (without warranty or recourse) and
deliver to the Reinsurer such checks, drafts, or money intended as such
payment, and until delivery of such items to the Reinsurer, the Fund will treat
any such checks, drafts, or money as the property of the Reinsurer held for the
account of the Reinsurer. The Reinsurer and the Fund will each use all
commercially reasonable efforts to cause the transfer and assignment (as of the
Effective Date) to the Reinsurer of all of the Fund's rights, interests, and
obligations under the Fund's reinsurance agreements, if any, covering the
risks, liabilities, and obligations of the Fund under or with respect to the
Reinsured Claims, including, without limitation, obtaining any necessary
consents or approvals to such transfer and assignment by the reinsurers under
any such reinsurance agreements effective as of the Effective Date. Any
failure to receive the consents referred to herein will not relieve or diminish
in any manner the Reinsurer's obligations under this Agreement.
C. The Reinsurer shall be authorized and entitled to file and pursue
the collection of claims against the State of North Carolina, Second Injury
Fund, arising out of or resulting from Reinsured Claims (hereinafter "SIF
Claims"); to pursue the collection of SIF Claims filed by the Fund prior to the
Effective Date; and to collect, receive, and retain any monies paid in
settlement or satisfaction of any SIF Claims filed by either the Reinsurer or
the Fund.
ARTICLE 13 - ERRORS OR OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would otherwise have attached had such delay, error, or omission
not occurred. Regardless, the responsible party will rectify each such delay,
error, or omission as promptly as practicable after discovery.
4
<PAGE> 6
ARTICLE 14 - ARBITRATION
A. Any dispute or other matter in question between the Fund and the
Reinsurer arising out of or relating to the formation, interpretation,
performance, or breach of this Agreement, whether such dispute arises before or
after termination of this Agreement, shall be settled by arbitration if the
parties are unable to resolve the dispute through negotiation. Arbitration
shall be initiated by the delivery of a written notice of demand for
arbitration by one party to the other.
B. Each party shall appoint an individual as arbitrator and the two
so appointed shall then appoint a third arbitrator. If either party refuses or
neglects to appoint an arbitrator within sixty (60) days of receipt of a
written notice of demand for arbitration, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third arbitrator
within sixty (60) days of their appointment, each of the arbitrators shall
nominate three individuals. Each arbitrator shall then decline two of the
nominations presented by the other arbitrator. The third arbitrator shall then
be chosen from the remaining two nominations by drawing lots. The arbitrators
shall be active or former officers of insurance or reinsurance companies; the
arbitrators shall not have a personal or financial interest in the result of
the arbitration.
C. The arbitration hearings shall be held in Charlotte, North
Carolina, or such other place as may be mutually agreed. Each party shall
submit its case to the arbitrators within sixty (60) days of the selection of
the third arbitrator or within such longer period as may be agreed by the
arbitrators. The arbitrators shall not be obliged to follow judicial
formalities or the rules of evidence except to the extent required by governing
law, that is, the state law of the situs of the arbitration as herein agreed;
they shall make their decisions according to the practice of the reinsurance
business. The decision rendered by a majority of the arbitrators shall be
final and binding on both parties. Such decision shall be a condition
precedent to any right of legal action arising out of the arbitrated dispute
which either party may have against the other. Judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
D. Each party shall pay the fee and expenses of its own arbitrator
and attorneys and one-half of the fees and expenses of the third arbitrator.
All other expenses of the arbitration shall be equally divided between the
parties.
E. Except as provided above, arbitration shall be based, insofar as
applicable, upon the Commercial Arbitration Rules of the American Arbitration
Association.
ARTICLE 15 - HONORABLE UNDERTAKING
This Agreement shall be construed as an honorable undertaking between the
parties hereto not to be defeated by technical legal constructions, it being
the intention of this Agreement that the fortunes of the Reinsurer shall in all
cases follow the fortunes of the Fund.
5
<PAGE> 7
ARTICLE 16 - TAX NEUTRALITY
The parties to the Agreement contemplate that as a result of or concurrent
with the transfer of assets and liabilities contemplated hereby, the Fund shall
become entitled to a refund of certain taxes, and that the Reinsurer shall
sustain a corresponding tax liability. Accordingly, and in order to render the
transaction tax-neutral as to such refund, the Fund hereby disavows any right
to collect any tax refund to which it currently is or may become entitled, and
assigns its rights to any such tax refund to the Reinsurer.
ARTICLE 17 - GENERAL PROVISIONS
A. Successors and Assigns. This Agreement shall inure to the
benefit of and bind the Fund and its successors and assigns and the Reinsurer
and its successors and assigns. Neither this Agreement nor any right hereunder
nor any part hereof may be assigned by any party hereto without the prior
written consent of the other party hereto. Prior to any such assignment, the
consent of all necessary regulatory authorities must be obtained.
B. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of North Carolina (without giving
effect to principles of conflicts of laws) applicable to a contract executed
and to be performed in such state.
C. Entire Agreement. This Agreement supersedes all prior
discussions and agreements between, and contains the sole and entire agreement
between the Fund and the Reinsurer with respect to the subject matter hereof.
D. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all
of which will constitute one and the same instrument.
E. Headings, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to
include each other gender, (b) words using the singular or plural number will
also include the plural or singular number, respectively, (c) the terms
"hereof," "herein," "hereby," and derivative or similar words will refer to
this entire Agreement, and (d) the conjunction "or" will denote any one or
more, or any combination or all, of the specified items or matters involved
in the respective list.
F. Non-waiver. The failure of either party hereto at any time to
enforce any provision of this Agreement shall not be construed as a waiver of
that provision and shall not effect the right of either party thereafter to
enforce each and every provision of this Agreement in accordance with its
terms.
G. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable, (b)
this Agreement will be construed and enforced as if such illegal,
6
<PAGE> 8
invalid, or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom, and (d) in lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement, a legal, valid, and enforceable provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible.
H. Notices. Any notice or communication given pursuant to this
Agreement must be in writing and will be deemed to have been duly given if
mailed (by registered or certified mail, postage prepaid, return receipt
requested), or if transmitted by facsimile, or if delivered by courier, as
follows:
To the Fund:
National Alliance for Risk Management
c/o William D. Gardner
President & CEO
Arrowspace Group, LTD.
3796 Vest Mill Road
Winston Salem, North Carolina 27103
Phone Number: (910) 765-5454
To the Reinsurer:
RISCORP National Insurance Company
1390 Main Street
Sarasota, Florida 34237
Attention: James A. Malone
Phone Number: (941) 951-2022
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this paragraph will, whether sent by mail,
facsimile, or courier, be deemed given upon the first business day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a representative
of such party or by the facsimile confirmation). Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
7
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives this 14th day of June, 1996.
ATTEST: NATIONAL ALLIANCE FOR RISK
MANAGEMENT GROUP SELF-INSURERS'
FUND
By: /s/ William D. Gardner
- -------------------------------- -----------------------------------
Name: WILLIAM D. GARDNER
---------------------------------
Title: CHAIRMAN OF TRUSTEES
--------------------------------
ATTEST: RISCORP NATIONAL INSURANCE COMPANY
By: /s/ Edward Hammel
- -------------------------------- -----------------------------------
Name: EDWARD HAMMEL
---------------------------------
Title: Vice President and Treasurer
--------------------------------
8
<PAGE> 10
NOTICE OF TRANSFER
IMPORTANT: THIS NOTICE AFFECTS YOUR CONTRACT RIGHTS. PLEASE READ IT CAREFULLY.
Dissolution of NARM
The Trustees of the National Alliance for Risk Management Group
Self-Insurers' Fund (NARM Fund) have determined that it would be in the best
interest of the policyholders to transfer all assets and liabilities to RISCORP
National Insurance Company (RISCORP National), effective June 14, 1996. After
the effective date of this transfer, the warm Fund will be terminated. As a
member (policyholder) of the NARM Fund, you will neither have any claim
against, or equity in the NARM Fund once it is dissolved.
Transfer of Workers' Compensation Policy and Coverage
RISCORP National Insurance Company has agreed to replace us as your
insurer under your policy of workers' compensation coverage. RISCORP National
Insurance Company's North Carolina office is located at 5832 Farm Pond Lane,
Suite 300, Charlotte, NC 28212.
Included with this "Notice of Transfer" are the audited balance sheets
prepared under generally accepted accounting principles for the NARM Fund as of
December 31, 1994 and December 31, 1995, and Management's Discussion and
Analysis for the corresponding period, RISCORP National Insurance Company's
Statutory Quarterly Balance Sheet as of March 31, 1996, the plan of
capitalization for RISCORP National Insurance Company, and an explanation of
the reason for the transfer. You may obtain additional information concerning
RISCORP National Insurance Company by contacting:
Commissioner James E. Long
Department of Insurance
430 N. Salisbury St.
Raleigh, NC 27603
(919) 733-5633, Extension 243
RISCORP National Insurance Company is licensed to write this coverage in
North Carolina. The Commissioner of Insurance in North Carolina has reviewed
the effect of the transaction, and has approved the transaction.
Your Rights
You may choose to consent to or reject the transfer of your policy and/or
the obligations under your policy to RISCORP National Insurance Company. If
you want your policy transferred, notify us in writing by signing and returning
the enclosed Response Letter in the pre-addressed, postage-paid envelope, or by
writing to us at:
NARM
P.O. Box 25700
Charlotte, NC 28229 or;
Fax: (704) 531-2845
<PAGE> 11
Payment of your premium to RISCORP National Insurance Company will also
constitute acceptance of the transaction.
If you reject the transfer, your policy will be cancelled and you will
have 30 days, until July 18, 1996, to place your coverage with another
insurer without penalty. If we do not receive a written rejection, and if you
do not pay premiums when due, your workers' compensation coverage will be
terminated in accordance with North Carolina law governing cancellation or
non-renewal for non-payment of premiums when due.
Effect of Transfer
If you accept this transfer, RISCORP National Insurance Company will be
your insurer. It will have direct responsibility to you for the payment of all
claims, benefits, and for all other policy obligations.
If you accept this transfer, you should make all premium payments and
claims submissions to RISCORP National Insurance Company, and direct
all questions to RISCORP National Insurance Company.
If you have any further questions about this agreement, you may contact
RISCORP National Insurance Company.
Sincerely,
- ---------------------------------- ----------------------------------
Bruce A. Flachs William D. Gardner
RISCORP National Insurance Company Chairman of the Board of Trustees
5932 Farm Pond Lane NARM
Suite 300 P.O. Box 25700
Charlotte, NC 28212 Charlotte, NC 28229
(800) 200-2667
For your convenience, we have enclosed a pre-addressed postage-paid
envelope and response letter. Please take time now to read the enclosed notice
and complete and return the response letter to us.
<PAGE> 12
EXPLANATION OF THE REASON FOR THE TRANSFER
In October of 1993, the Trustees of the National Alliance for Risk
Management (NARM), established a group self-insurance fund for it's members.
At that time, the fund filled an important need in the marketplace, as many of
the association's members had no other cost-effective alternative to meet their
need for workers' compensation insurance. Many of the insurance carriers had
severely limited their writings in North Carolina leaving few options for many
North Carolina businesses. The NARM group self-insurers' fund, with RISCORP as
it's service company, performed admirably in 1994 and 1995 -- with healthy
growth and strong underwriting performance. At the end of 1995, the NARM Fund
provided insurance to over 2,200 North Carolina businesses.
The marketplace in North Carolina has changed dramatically over the past
six months. Overall improvement in the workers' compensation line
performance has attracted traditional insurance companies back into the North
Carolina marketplace. These companies are aggressively marketing fully-insured
products to the full spectrum of North Carolina businesses. Many of the NARM
members that had so few options for their workers' compensation in 1993, are
finding a range of cost-effective alternatives in the form of fully-insured
products available in the market. Although most of the members are extremely
pleased with the level of claims, loss prevention, and customer service offered
by RISCORP, the elimination of joint and several liability is a key
consideration in their purchasing decision. As some businesses elect to move
to fully-insured Products, there is some risk that the overall health of the
NARM Fund could deteriorate exposing the remaining members to more significant
risk of eventual fund assessment.
In order to anticipate the needs of their members in a changing market, the
trustees of the NARM Fund have decided to develop a method of providing a
fully-insured product to the NARM members while allowing the members to keep
their existing service relationships intact. The trustees have agreed to
transfer the assets and liabilities of the NARM Fund to RISCORP National
Insurance Company for the purpose of eliminating any potential for assessment
of its members. Assessment could occur if the NARM Fund claim liabilities
exceeded its available assets due to unfavorable loss experience, poor
investment performance or the inability of the Fund members to pay premiums
due. By transferring the assets and liabilities of the NARM Fund to RISCORP
National Insurance Company you will receive a fully-insured workers'
compensation policy without the future potential of assessment for the period
of time your coverage was with the NARM Fund.
<PAGE> 13
PLAN OF CAPITALIZATION
As a result of a successful initial public offering of its common shares,
RISCORP. Inc., the ultimate parent of RISCORP National Insurance Company,
raised $126.5 million on February 28, 1996. RISCORP, Inc. currently with a
market capitalization in excess of $800 million, will contribute the necessary
capital to RISCORP National Insurance Company to be in compliance with
requirements set by the Department of Insurance for the State of North Carolina
as set forth below:
- $9 million capital transfer from RISCORP, Inc. to RISCORP National
Insurance Company on June 17, 1996.
- $2.8 million capital transfers from RISCORP, Inc. to RISCORP National
Insurance Company on July 1, 1996, August 1, 1996, and September 1, 1996,
or the next business day thereafter.
Currently RISCORP National Insurance Company has statutory surplus of
approximately $8.4 million as of the effective date of this transfer.
This plan of capitalization will result in RISCORP National Insurance
Company having a statutory surplus of approximately $25.8 million on September
1, 1996.
<PAGE> 14
NATIONAL ALLIANCE FOR RISK MANAGEMENT
GROUP SELF-INSURERS' FUND
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Debt Securities - available-for-Sale $26,514,356 $ 8,312,162
Debt Securities - held-to-maturity 600,000 450,000
----------- -----------
Total investments 27,114,356 8,762,182
Cash and cash equivalents 1,704,747 4,289,979
Premiums receivable, less allowance for uncollectible accounts
of $548,276 in 1995 and $197,273 in 1994 4,299,509 2,348,525
Accrued investment income 403,336 143,751
Reinsurance balances
Loss and loss adjustment expenses receivable 4,809,510 4,448,257
Prepaid reinsurance premiums 87,973 162,469
Federal income taxes receivable 0 142,750
Deferred policy acquisition costs 1,040,279 840,970
Deferred income taxes 1,736,336 864,174
Other assets 93,676 106,692
----------- -----------
Total assets $41,069,722 $22,109,729
=========== ===========
Liabilities and Members' Equity
Loss and loss adjustment expense reserves 29,282,180 14,824,372
Unearned premium 6,874,712 5,480,404
Accrued premium taxes 1,054,063 697,980
Accrued commissions 358,430 306,669
Accrued fees - management company 1,046,382 417,982
Federal income taxes payable 346,481 0
Accrued expenses and other liabilities 328,400 287,720
----------- -----------
Total liabilities 39,290,648 21,995,127
Commitments and contingencies
Members' equity
Retained earnings 1,540,142 165,400
Not unrealized gain (loss) on available-for-sale debt
securities 238,932 50,798
----------- -----------
Total members' equity 1,779,074 114,602
----------- -----------
Total liabilities and members' equity $41,069,722 $22,109,729
=========== ===========
Reconciliation to Statutory Members' Deficit:
Members'
equity (deficit)
----------------
Members' equity as reported in the above GAAP
Balance Sheet $ 1,779,074
Non-admitted assets (287,699)
(1,736,336)
Deferred policy acquisition costs (1,040,279)
Securities valuation adjustment (362,019)
-----------
Statutory members' deficit as reported to state regulatory
authorities (unaudited) $(1,647,259)
===========
</TABLE>
<PAGE> 15
NATIONAL ALLIANCE FOR RISK MANAGEMENT GROUP
SELF-INSURERS' FUND
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 1995
National Alliance for Risk Management Group Self Insurers' Fund (NARM) provides
workers' compensation and employers' liability coverage pursuant to Chapter 97
of the North Carolina General Statutes. NARM began operations on October 1,
1993. NARM's surplus may, at the discretion of the its Board of Trustees and
upon approval by the North Carolina Department of Insurance, be distributed to
its members. Members may also be assessed to cover NARMs deficit should such a
deficit exist.
ASSETS
At December 31, 1995, total assets were $41,069,722. Investments increased from
$8,762,162 at December 31, 1994 to $27,114,356 at December 31,1995, an
increase of 209%. The significant Increase reflects the continued growth in
premium revenue generated by the fund during 1995. The Fund invests primarily
in securities of the U.S. Government; state, local and municipal governments;
and high-quality corporate bonds. The mix of the investment portfolio at
December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
U.S. Treasury Securities/Obligations
of the U.S. Government 19.9% 13.05%
State and municipal obligations 39.3% 86.95%
Corporate Securities 40.8% --
</TABLE>
Cash and cash equivalents at December 31, 1995 and 1994 were $1,704,747 and
$4,289,979, respectively.
Premiums and agent's balances in the course of collection increased from
at December 31, 1994 to $4,299,509 at December 31, 1995, an
increase of 83% Allowance for uncollectible accounts at December 31, 1994 and
1995 consists of $197,273 and $543,276, respectively.
Also included in total assets at December 31, 1995 is a reinsurance receivable
balance of $4,609,510. This amount represents the amounts to be reimbursed to
NARM for payments in excess of the specific reinsurance retention limit.
The deferred income taxes were $1,735,336 and $364.174 at December 31, 1995 and
1994, respectively. The fluctuation in deferred income taxes represents a
101% increase and is reflective of the Fund's increase in loss and loss
adjustment exepense reserves due to the growth in levels of premiums written.
LIABILITIES
The reserves for losses and loss adjustment expenses were $29,282,180 and
$14,824,372 at December 31, 1995 and 1994, respectively. The increase in
reserves for loss and loss adjustment expenses represents a 97.5% increase over
the prior year and is reflective of the continued growth in the fund's premium
base. Reserves for loss and loss adjustment expenses as undiscounted which
represents a conservative approach for financial statement reporting purposes.
Accrued fees - management company were $1,046,382 and $417,982 at December 31,
1995 and 1994, respectively. The increase in accrued fees - management company
is due to a 1995 bonus payable to the management company for NARM
profitability.
Unearned premiums at December 31, 1995 amounted to $6,874.712. This
represented an increase of $1,414,308 or 25.9% over the prior year-end balance
of $5,460,404. The substantial increase in unearned
<PAGE> 16
premiums as well as all other accrued expense/liability accounts from December
31, 1994 to December 31, 1995 again is reflective of the fund's continued
growth.
MEMBER'S EQUITY
At December 31, 1995 NARM had member's equity of $1,779,074 versus $114,602 at
December 31, 1994.
Net Income
Net income for the year ended December 3l, 1995 was $1,374,742. Premiums earned
for the year were $34,972,245 versus $18,688,366 in the prior year, an increase
of $16,283,879 or 87%. Net investment income increased from $277,533 at
December 31, 1994 to $1,090,685 at December 31, 1995, an increase of nearly
393%. This reflects the significant growth in the fund's investment portfolio
during 1995. Other income consists primarily of earned expense constants.
Underwriting expenses at December 31, 1995 and 1994 consisted of losses and loss
expenses incurred and other underwriting expenses of $23,598,055 and
$10,919,132, respectively. For the year ended December 31, 1994, loss and loss
adjustment expenses were $13,341,053 and other underwriting expenses amounted
to $5,585,832. Federal income taxes incurred for the year ended December
3l, 1995 were $1,535,131.
As with the asset and liability growth, the substantial increases in both
revenues and expenses reflects the continued growth of the fund's premium base.
CASH FLOW/LIQUIDITY
The cash cash equivalents were $1,704,747 and $4,289,979 at December 31, 1995
and 1994, respectively. The change in cash and cash equivalents represents
a 60% decrease over the prior year and is reflective of management's policy to
maximize investment return.
SUBSEQUENT EVENT
The NARM Trustees discussed and filed with the Department of Insurance a plan
of dissolution of the Fund and a policy and loss portfolio transfer assumption
reinsurance agreement, which has been approved by the Department of Insurance.
<PAGE> 17
STATEMENT AS OF MARCH 31, 1996 OF THE RISCORP NATIONAL INSURANCE COMPANY
ANALYSIS OF ASSETS
<TABLE>
<CAPTION>
1 2 3
Non-Ledger Including Assets Not Admitted
Excess of Market Including Excess of
Ledger Assets (or Amortized) Book Over Market (or
Over Book Values Amortized) Values
----------------------------------------------------------
<S> <C> <C> <C>
1. Bonds 3,387,579
2. Stocks:
2.1 Preferred stocks 151,253 6,753
2.2 Common stocks 45,425 3,700
3. Mortgage loans on real estate
a. First liens
b. Other than first liens
4. Real estate:
4.1 Properties occupied by the company (less......$0)
encumbrances)
4.2 Other properties (less.......$0 encumbrances)
5. Collateral loans
6.1 Cash on hand and on deposit:
a. Cash in company's office
b. Cash on deposit 5,184,549
6.2 Short-term investments 200,000
7. Other invested assets
8. Aggregate write-ins for invested assets 0 0 0
8A. Subtotals, cash and invested assets (Lines 1 through 8) 8,968,806 3,700 6,753
9. Agents' balances or uncollected premiums (net as to concessions and
dividends):
9.1 Premiums and agents' balances in course of collection (after
deducting ceded reinsurance balances payable of $133,445) 219,980 6,330
9.2 Premiums, agents' balances and installments booked but deferred and
not yet due (after deducting ceded reinsurance balances payable of
$0) (Including $0 earned but unbilled premiums)
9.3 Accrued retrospective premiums (after deducting ceded reinsurance
balances payable of $0_)
10. Funds held by or deposited with reinsured companies
11. Bills receivable, taken for premiums
12. Reinsurance recoverables on loss and loss adjustment expense payments 17,823
13. Federal income tax recoverable
14. Electronic data processing equipment 23,099
15. Interest, dividends and real estate income due and accrued 53,011
16. Receivable from parent, subsidiaries and affiliates
17. Equities and deposits in pools and associations
18. Accounts receivable relating to uninsured accident and health plans
19. Other assets:
19.1 Equipment, furniture and supplies 5,000 5,000
19.2 Bills receivable, not taken for premiums
19.3 Loans on personal security, endorsed or not
20. Aggregate write-ins for other than invested assets 0 0 0
21. TOTALS (Lines 8A through 20) 9,234,709 55,711 18,083
DETAILS OF WRITE-INS
0801.
0802.
0803.
0898. Summary of remaining write-ins for Line 8 from overflow page 0 0 0
0899. TOTALS (Lines 0801 thru 0803 plus 0898)(Line 8 above) 0 0 0
2001.
2002.
2003.
2098. Summary of remaining write-ins for Line 20 from overflow page 0 0 0
2099. TOTALS (Lines 2001 thru 2003 plus 2098)(Line 20 above) 0 0 0
<CAPTION>
4 5
Previous Year Ending
Net Admitted Assets December 31, 1995
(Cols. 1+2-3)
------------------------------------------
<S> <C> <C>
1. Bonds 3,387,579 3,408,743
2. Stocks:
2.1 Preferred stocks 144,500 173,875
2.2 Common stocks 49,125 43,125
3. Mortgage loans on real estate
a. First liens 0
b. Other than first liens 0
4. Real estate:
4.1 Properties occupied by the company (less......$0)
encumbrances) 0
4.2 Other properties (less....$0 encumbrances) 0
5. Collateral loans 0
6.1 Cash on hand and on deposit:
a. Cash in company's office 0
b. Cash on deposit 5,184,549 241,355
6.2 Short-term investments 200,000 238,368
7. Other invested assets 0
8. Aggregate write-ins for invested assets 0 0
8A. Subtotals, cash and invested assets (Lines 1 through 8) (a)8,965,753 4,171,466
9. Agents' balances or uncollected premiums (net as to concessions and
dividends):
9.1 Premiums and agents' balances in course of collection (after
deducting ceded reinsurance balances payable of $133,445) 213,643 242,541
9.2 Premiums, agents' balances and installments booked but deferred and
not yet due (after deducting ceded reinsurance balances payable of
......................$0) (Including...............$0
earned but unbilled premiums) 0 66,591
9.3 Accrued retrospective premiums (after deducting ceded reinsurance
balances payable of .........$0) (Including...........$0) 0
10. Funds held by or deposited with reinsured companies 0
11. Bills receivable, taken for premiums 0
12. Reinsurance recoverables on loss and loss adjustment expense payments 17,823 61,830
13. Federal income tax recoverable 0
14. Electronic data processing equipment 23,099 26,783
15. Interest, dividends and real estate income due and accrued 53,011 65,084
16. Receivable from parent, subsidiaries and affiliates 0
17. Equities and deposits in pools and associations 0
18. Accounts receivable relating to uninsured accident and health plans 0
19. Other assets:
19.1 Equipment, furniture and supplies xx xx
19.2 Bills receivable, not taken for premiums xx xx
19.3 Loans on personal security, endorsed or not xx xx
20. Aggregate write-ins for other than invested assets 0 0
21. TOTALS (Lines 8A through 20) 9,273,336 4,534,295
DETAILS OF WRITE-INS
0801. 0
0802. 0
0803. 0
0898. Summary of remaining write-ins for Line 8 from overflow page 0 0
0899. TOTALS (Lines 0801 thru 0803 plus 0898)(Line 8 above) 0 0
2001. 0
2002. 0
2003. 0
2098. Summary of remaining write-ins for Line 20 from overflow page 0 0
2099. TOTALS (Lines 2001 thru 2003 plus 2098)(Line 20 above) 0 0
</TABLE>
(a) Includes $0 investments in parent, subsidiaries, and affiliates.
<PAGE> 18
STATEMENT AS OF MARCH 31, 1996 OF THE RISCORP NATIONAL INSURANCE COMPANY
LIABILITIES, SURPLUS AND OTHER FUNDS
<TABLE>
<CAPTION>
1 2
Current Previous Year Ending
Period December 31, 1995
<S> <C> <C>
1. Losses (current accident year $63,454) 525,657 723,819
1a. Reinsurance payable on paid loss and loss adjustment expenses
2. Loss adjustment expenses 130,823 170,828
3. Contingent commissions and other similar charges
4. Other expenses (excluding taxes, licenses and fees) 25,175 25,175
5. Taxes, licenses and fees (excluding federal and foreign income taxes) 33,485 40,664
6. Federal and foreign income taxes (excluding deferred taxes)
7. Borrowed money
8. Interest, including $0 on borrowed money
9. Unearned premiums (after deducting ceded reinsurance unearned premiums 910,575 1,011,872
10. Dividends declared and unpaid:
a. Stockholders
b. Policyholders
11. Funds held by company under reinsurance treaties 76,464
12. Amounts withheld or retained by company for account of others
13. Provision for reinsurance
14. Excess of statutory reserves over statement reserves 15,000 15,000
15. Net adjustments in assets and liabilities due to foreign exchange rates
16. Drafts outstanding 1,310 8,790
17. Payable to parent, subsidiaries and affiliates
18. Payable for securities
19. Liability for amounts held under uninsured accident and health plans
20. Aggregate write-ins for liabilities 1,375 410
21. Total liabilities (Lines 1 through 20) 1,544,702 2,073,024
22. Aggregate write-ins for special surplus funds 0 0
23A. Common capital stock 700,000 700,000
23B. Preferred capital stock 500,000 500,000
23C. Aggregate write-ins for other than special surplus funds 0 0
24A. Surplus notes
24B. Gross paid in and contributed surplus 6,150,000 1,150,000
24C. Unassigned funds (surplus) 273,535 211,271
24D. Less treasury stock, at cost
(1) 0 shares common (value included in Line 23A.............$0)
(2) 0 shares preferred (value included in Line 23B..........$0)
25. Surplus as regards policyholders (Lines 22 ro 24C, less 24D) 7,523,635 2,561,271
26. TOTALS 9,273,336 4,634,295
DETAILS OF WRITE-INS
2001. Miscellaneous Liabilities 1,976 410
2002.
2003.
2098. Summary of retaining write-ins for Line 20 from overflow page 0 0
2099. TOTALS (Lines 2001 thru 2003 plus 2098) (Line 20 above) 1,976 410
2201.
2202.
2203.
2298. Summary of remaining write-ins for Line 22 from overflow page 0 0
2299. TOTALS (Lines 2201 thru 2203 plus 2298) (Line 22 above) 0 0
23001.
23002.
23003.
23098. Summary of remaining write-ins for Line 23C from overflow page 0 0
23099. TOTALS (Lines 23001 thru 23098) (Line 23C above) 0 0
</TABLE>
<PAGE> 19
June 14, 1996
RESPONSE LETTER
_____ Yes, I accept the transfer of my policy, and/or the
obligations under my policy, from National Alliance for Risk
Management Group Self-Insurers' Fund (NARM) to RISCORP National
Insurance Company.
_____ No, I reject the proposed transfer of my policy, and/or
the obligations under my policy, from National Alliance for Risk
Management Group Self-Insurer's Fund (NARM) to RISCORP National
Insurance Company, and will place my workers' compensation
coverage with another insurance carrier by July 18, 1996.
- ---------------------- --------------------------------------------------------
Date Signature
Name:
---------------------------------------------------------------------------
Street Address:
-----------------------------------------------------------------
City/State/Zip:
-----------------------------------------------------------------
<PAGE> 20
NOTICE OF TRANSFER
IMPORTANT: THIS NOTICE AFFECTS YOUR CONTRACT RIGHTS. PLEASE READ IT CAREFULLY.
Dissolution of NARM
Your company is a former member of the National Alliance for Risk
Management Group Self-Insurance Fund (NARM Fund), but you no longer have an
active policy. The Trustees of the NARM Fund have determined that it would be
in the best interest of the present as well as past policyholders to transfer
all assets and liabilities to RISCORP National Insurance Company effective
June 14, 1996 through an Assumption Reinsurance Agreement. After the effective
date of this transfer, the NARM Fund will be terminated. As a former member
(policyholder) of the NARM Fund, you will neither have any claim against, or
equity in the NARM Fund.
RISCORP National Insurance Company is licensed to write this coverage in
North Carolina. The Commissioner of Insurance in North Carolina has reviewed
the effect of the transaction, and has approved the transaction.
Claims previously filed with the NARM Fund will be administered by RISCORP
National Insurance Company. If you have questions or desire more information
regarding claims filed with the NARM Fund or the effects of this transaction,
you may contact RISCORP National Insurance Company at the address below, or you
may obtain additional information concerning RISCORP National Insurance Company
by contacting:
Commissioner James E. Long
Department of Insurance
430 N. Salisbury St.
Raleigh, NC 27603
(919) 733-5633, Extension 243
Sincerely,
- ---------------------------------- ----------------------------------
Bruce A. Flachs William D. Gardner
RISCORP National Insurance Company chairman of the board of trustees
5832 FARM POND LANE NARM
Suite 300 P.O. Box 25700
Charlotte, NC 28212 Charlotte, NC 28229
<PAGE> 21
NATIONAL ALLIANCE FOR RISK MANAGEMENT
GROUP SELF-INSURERS' FUND
Balance Sheet
June 15,1996
<TABLE>
<CAPTION>
Assets June 15, 1996
------ -------------
<S> <C>
Debt Securities - available-for-sale 34,140,538
Debt Securities - held-to-maturity 600,000
----------
Total investments 34,740,538
Cash and equivalents 2,014,722
Premiums receivable, less allowance for uncollectible
accounts of $781,014 5,144,556
Accrued investment income 581,814
Reinsurance balances:
Loss and loss adjustment expense reserves 4,307,427
Deferred policy acquisition costs 1,040,279
Deferred income taxes 2,481,347
Other assets 51,073
----------
TOTAL ASSETS 50,361,756
==========
LIABILITIES AND MEMBERS' EQUITY
Loss and loss adjustment expenses 40,112,056
Unearned premium 5,208,748
Accrued premium taxes 714,131
Accrued commissions 121,562
Accrued fees - management company 914,886
Accrued Reinsurance Payable 577,247
Current income taxes payable 1,307,939
Accrued expense and other liabilities 43,771
----------
49,000,340
Members' equity:
Retained earnings 1,583,082
Net unrealized gain(loss) on available-for-sale debt
securities (221,666)
----------
Total members' equity 1,361,416
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY 50,361,756
==========
</TABLE>
NOTE: Statements reflect investments as of May 31, 1996, as no information was
available for the one-half period ended June 15, 1996. All information is
preliminary and for internal use by the Department of Insurance only.
<PAGE> 1
EXHIBIT 10.75
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
RISCORP, INC., and
THOMAS ALBRECHT
PETER NORMAN
HUGH D. LANGDALE, JR.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
PURCHASE AND SALE OF COMPANY SHARES
Section 2.1 Basic Transaction...........................................-6-
Section 2.2 Purchase Price..............................................-6-
Section 2.3 The Closing.................................................-6-
Section 2.4 Deliveries at the Closing...................................-7-
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION
Section 3.1 Representations and Warranties of the Sellers...............-7-
Section 3.2 Representations and Warranties of the Buyer.................-8-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
Section 4.1 Organization................................................-9-
Section 4.2 Capitalization..............................................-9-
Section 4.3 Financial Statements........................................-9-
Section 4.4 Absence of Certain Changes.................................-10-
Section 4.5 No Undisclosed Liabilities.................................-12-
Section 4.6 Employee Benefits..........................................-13-
Section 4.7 Other Benefit Plans........................................-14-
Section 4.8 Litigation.................................................-15-
Section 4.9 Compliance with Applicable Law.............................-15-
Section 4.10 Vote Required..............................................-15-
Section 4.11 Tax Returns and Audits.....................................-16-
Section 4.12 Material Contracts.........................................-17-
Section 4.13 Real Property and Leases...................................-18-
Section 4.14 Tangible Personal Property.................................-18-
Section 4.15 Environmental and Employee Safety Matters..................-19-
Section 4.16 Intellectual Property......................................-19-
Section 4.17 Insurance Policies.........................................-22-
Section 4.18 Errors and Omissions.......................................-22-
Section 4.19 Brokers' Fees..............................................-22-
Section 4.20 No Misrepresentations......................................-22-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V
COVENANTS
Section 5.1 Best Efforts; Further Assurances; Cooperation.............-22-
Section 5.2 Notices and Consents......................................-22-
Section 5.3 Operation of Business.....................................-22-
Section 5.4 Full Access...............................................-24-
Section 5.5 Notice of Developments....................................-24-
Section 5.6 Exclusivity...............................................-24-
Section 5.7 Insurance and Indemnification.............................-24-
Section 5.8 Public Announcements......................................-25-
Section 5.9 Expenses..................................................-25-
Section 5.10 Antitrust Challenges......................................-25-
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Obligations of the Buyer....................-25-
Section 6.2 Conditions to Obligations of the Sellers..................-28-
ARTICLE VII
REMEDIES FOR BREACHES OF THIS AGREEMENT
Section 7.1 Survival of Representations, Warranties, and Covenants....-29-
Section 7.2 Indemnification...........................................-29-
Section 7.3 Manner of Indemnification.................................-30-
Section 7.4 Certain Limitations. .....................................-30-
Section 7.5 Notices...................................................-31-
Section 7.6 Expenses..................................................-31-
Section 7.7 Other Remedies............................................-31-
..........................................................................-31-
ARTICLE VIII
ESTABLISHMENT OF ESCROW
Section 8.1 Creation..................................................-31-
Section 8.2 Disbursement for Claims...................................-31-
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.1 Termination and Abandonment...............................-32-
Section 9.2 Specific Performance......................................-33-
Section 9.3 Rights and Obligations upon Termination...................-33-
Section 9.4 Expenses..................................................-33-
Section 9.5 Effect of Termination.....................................-34-
ARTICLE X
MISCELLANEOUS
Section 10.1 Extension; Waiver.........................................-35-
Section 10.2 Notices...................................................-35-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 10.3 Table of Contents; Headings...............................-36-
Section 10.4 Severability..............................................-36-
Section 10.5 Waiver....................................................-36-
Section 10.6 No Third Party Beneficiaries; Assignment..................-36-
Section 10.7 Time of the Essence; Computation of Time..................-37-
Section 10.8 Counterparts..............................................-37-
Section 10.9 Governing Law.............................................-37-
Section 10.10 Entire Agreement..........................................-37-
</TABLE>
-iii-
<PAGE> 5
EXHIBIT A - Ownership of Company Shares
EXHIBIT B - Company Financial Statements
EXHIBIT C - Escrow Agreement
-iv-
<PAGE> 6
STOCK PURCHASE AGREEMENT
This is a Stock Purchase Agreement, dated September 17, 1996 (this
"Agreement"), by and between RISCORP, Inc., a Florida corporation (the "Buyer"),
and Thomas Albrecht, Peter Norman and Hugh D. Langdale, Jr. (individually, a
"Seller" and collectively, the "Sellers").
BACKGROUND. The Sellers in the aggregate own all of the outstanding
capital stock of Risk Inspection Services and Consulting, Inc. an Alabama
corporation (the "Company"). This Agreement contemplates a transaction in which
the Buyer will purchase from the Sellers and the Sellers will sell to the Buyer
all of the outstanding capital stock of the Company in return for cash.
THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504(a) or any similar group defined under a similar provision of
state, local, or foreign law.
"Agreement" has the meaning set forth in the preamble above.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preamble hereof.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
"Code" has the meaning set forth in the Background section above.
"Company" has the meaning set forth in the preamble above.
<PAGE> 7
"Company Common Stock" means the Common Stock, par value $1.00 per
share, of the Company.
"Company Financial Statements" has the meaning set forth in Section 5.5
below.
"Company Permits" has the meaning set forth in Section 5.12 below.
"Company Shares" means the shares of stock of the Company that are
owned by the Sellers as set forth in Exhibit "A" attached hereto.
"Competing Transaction" shall mean any of the following involving the
Company: (i) any merger, consolidation, share exchange, business combination, or
other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 15% or more of the assets of the Company, taken
as a whole, in a single transaction or series of transactions; (iii) any tender
offer or exchange offer for 15% or more of the outstanding shares of capital
stock of the Company or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any person having acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 15% or
more of the then outstanding shares of capital stock of the Company; or (v) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
"Confidential Information" means any information concerning the
business and affairs of the Company prior to Closing or the Buyer subsequent to
Closing that is not already generally available to the public.
"Confidentiality Agreement" means that certain letter confidentiality
agreement between the Buyer and the Company dated June 3, 1996.
"Controlled Group of Corporations" has the meaning set forth in Code
Sec. 1563.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement that is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
that is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement that is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program, or (e) bonus, stock option, severance
or termination pay, stock purchase, stock appreciation right, restricted stock,
phantom stock or other employee benefit plan, program, agreement or arrangement.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
-2-
<PAGE> 8
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(l).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means SouthTrust Bank of Alabama, N.A.
"Escrow Agreement" means the Escrow Agreement in the form attached
hereto as Exhibit C
"Escrow Fund" means $30,000.00 in cash of the Purchase Price that shall
be delivered to Escrow Agent by Buyer.
"Event of Indemnity" has the meaning set forth in Section 7.2 below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exhibits" means the Exhibits to this Agreement.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission, or other governmental or other regulatory
authority or agency.
"Hazardous Material" has the meaning set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 USC Section
9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of
1986. The term "Hazardous Material" also means, any material that contains
asbestos, radon, polychlorinated biphenyl, PCB's, methylene
-3-
<PAGE> 9
chloride, trichloroethylene, trans-dichloroethylene, dioxins, dibenzofurans,
urea formaldehyde foam insulation, explosive or radioactive material, or motor
fuel or other petroleum hydrocarbons.
"HSRA" means the Hart-Scott-Rodino AntiTrust-Improvements Act of 1976,
as amended.
"Indemnifying Sellers" has the meaning set forth in Section 7.3 below.
"Indemnity Period" has the meaning set forth in Section 7.4 below.
"Intellectual Property" means (a) inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) trademarks, service marks, trade dress, logos, trade
names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) computer software (including data and
related documentation), (g) all other proprietary rights in any of the
foregoing, and (h) all copies and tangible embodiments thereof (in whatever form
or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Loss" means all claims, judgments, damages, penalties, fines, costs,
amounts paid in settlement, liabilities (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), obligations, taxes, losses, expenses, and fees, including
(without limitation) all attorneys' fees and expenses, court costs, and fees and
expenses of expert witnesses, suffered or incurred by a party to this Agreement
arising from a breach by another party of a representation, warranty, covenant
or agreement set forth in this Agreement.
"Material" and "Material Adverse Effect" means any event, change or
effect on or with respect to an entity (or group of entities taken as a whole)
which is materially adverse to the consolidated condition (financial or
otherwise), properties, assets (including intangible assets), liabilities
(including contingent liabilities), business, results of operations or prospects
of such entity (or, if with respect thereto, of such group of entities taken as
a whole).
"Material Contract" has the meaning set forth in Section 4.12 below.
-4-
<PAGE> 10
"Most Recent Financial Statements" has the meaning set forth in Section
4.3 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4.3
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4.3
below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Nasdaq" means the Nasdaq Stock Market's National Market.
"Notice of Claim" has the meaning set forth in Section 7.3 below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a Governmental Entity.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"Purchase Price" means $600,000.00.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Schedules" means the schedules to this Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanics, materialmens',
and similar liens arising by operation of law, (b) liens for Taxes not yet due
and payable or for Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (c) purchase money liens and liens securing rental
payments under capital lease arrangements, and (d) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing
of money.
"Seller(s)" has the meaning set forth in the preamble hereof.
-5-
<PAGE> 11
"Subsidiary" means any corporation or other entity with respect to
which a specified Person (or a Subsidiary thereof) owns a majority of the common
stock or has the power to vote or direct the voting of sufficient securities to
elect a majority of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Sec. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Voting Debt" means any bonds, debentures, notes, or other indebtedness
having the right to vote (or are convertible into securities having the right to
vote).
ARTICLE II
PURCHASE AND SALE OF COMPANY SHARES
SECTION 2.1 BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from each of the
Sellers, and each of the Sellers agrees to sell to the Buyer, all of his or its
Company Shares for the consideration specified below in this Section 2.2.
SECTION 2.2 PURCHASE PRICE. The Buyer agrees to pay to the Sellers at
the Closing $600,000.00 (the "Purchase Price") by delivery of cash in the amount
of the Purchase Price payable by wire transfer or delivery of other immediately
available funds. The Purchase Price shall be allocated among the Sellers in
proportion to their respective holdings of the Company Shares as set forth in
Exhibit A attached hereto.
SECTION 2.3 THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Holland &
Knight in Tampa, Florida, commencing at 9:00 a.m. local time on the next
business day following the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective parties will take
at the Closing itself) or such other date as the Buyer and the Sellers may
mutually determine (the "Closing Date"); provided, however, that the Closing
Date shall be no earlier than September 17, 1996.
-6-
<PAGE> 12
SECTION 2.4 DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers
will deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 6.1 below, (ii) the Buyer will deliver to the Sellers the
various certificates, instruments, and documents referred to in Section 6.2
below, (iii) each of the Sellers will deliver to the Buyer stock certificates
representing all of his or Company Shares, endorsed in blank or accompanied by
duly executed assignment documents, and (iv) the Buyer will deliver to each of
the Sellers the consideration specified in Section 2.2 above.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the
Sellers represents and warrants to the Buyer that the statements contained in
this Section 3.1 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3.1) with respect to himself, except as set forth in
Schedule 3.1 attached hereto.
(a) Each Seller has full power and authority to execute and
deliver this Agreement and to perform his or its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the Sellers,
enforceable in accordance with its terms and conditions. No Seller needs to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(b) Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling charge, or other restriction of any government, governmental
agency, or court order to which any Seller is subject or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, crate in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any Seller is a party or by which he is bound or to
which any of his assets is subject.
(c) No Seller has any liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable or
obligated.
(d) Each Seller holds of records and owns beneficially the
number of Company Shares set forth next to his or its name in Exhibit A, free
and clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests, options,
warranties, purchase rights, contracts, commitments, equities, claims, and
demands. No Seller is a party to any option, warranty, purchase right, or other
contract
-7-
<PAGE> 13
or commitment that could require such Seller to sell, transfer, or otherwise
dispose of any capital stock of the Company (other than this Agreement). No
Seller is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the Company.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Sellers that the statements contained in this
Section 3.2 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3.2).
(a) The Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation.
(b) The Buyer has full power and authority (including full corporate
power and authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions. The Buyer need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement.
(c) Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of its charter or bylaws or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject.
(d) The Buyer has no liability or obligation to pay any fees or
commissions to any broker, trader, or agent with respect to the transactions
contemplated by this Agreement for which any Seller could become liable or
obligated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Sellers represent and warrant to the Buyer that the statements
contained in this Article IV are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article IV).
-8-
<PAGE> 14
SECTION 4.1 ORGANIZATION. The Company is a corporation organized,
validly existing, and in active status under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority and all
necessary governmental approvals to own, lease, and operate its properties and
to carry on its business as now being conducted. Schedule 4.1 sets forth for the
Company (a) its name and jurisdiction of incorporation, (b) the number of shares
of authorized capital stock of each class of its capital stock, (c) the number
of issued and outstanding shares of each class of its capital stock, the names
of the holders thereof, and the number of shares held by each such holder, (d)
the number of shares of its capital stock held in treasury, and (e) its
directors and officers. The Company is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the property owned,
leased, or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and be in good standing would not have a Material
Adverse Effect on the Company taken as a whole.
SECTION 4.2 CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists solely of 3,000 shares of Company Common
Stock of which, as of the date hereof, 3,000 shares of Company Common Stock are
issued and outstanding. The issued and outstanding shares of Company Common
Stock are registered in the names and in the respective amounts shown on Exhibit
A hereto. All the outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable and free of any
preemptive or similar rights in respect thereof, and no shares are held in the
treasury of the Company. As of the date hereof, no Voting Debt of the Company is
issued or outstanding. As of the date hereof, there are no existing options,
warrants, puts, calls, subscriptions or other rights or other agreements or
commitments of any character relating to the issued or unissued capital stock or
Voting Debt of the Company, or obligating the Company to issue, transfer, or
sell or cause to be issued, transferred, or sold, any shares of capital stock or
Voting Debt of, or other equity interests in, the Company, or securities
convertible into or exchangeable for such shares or equity interests or
obligating the Company to grant, extend, or enter into any such option, warrant,
call, subscription or other right, agreement or commitment. As of the date
hereof, there are no outstanding contractual obligations of the Company to
repurchase, redeem, or otherwise acquire any shares of capital stock of the
Company. All of the outstanding shares of Company Common Stock were issued
pursuant to available exemptions under federal and state securities laws. The
Company does not have any Subsidiaries or own any shares of stock of any other
corporation.
SECTION 4.3 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the
following financial statements (collectively the "Company Financial
Statements"): (i) audited consolidated and unaudited consolidating balance
sheets and statements of income, changes in stockholders' equity, and cash flow
as of and for the fiscal year ended December 31, 1995, (the "Most Recent Fiscal
Year End") for the Company; and (ii) unaudited consolidated and consolidating
balance sheets and statements of income, changes in stockholders' equity, and
cash flow (the "Most Recent Financial Statements") as of and for the six months
ended June 30, 1996, and as of the management financial statements dated August
31, 1996 (the "Most Recent Fiscal Month End") for the Company, provided,
however, that the Most Recent Financial Statements are subject to
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normal year end adjustments and lack footnotes and other presentation items. The
Company Financial Statements (including the Notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods, are
correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete). At the Most Recent
Fiscal Month End, Company owned all assets shown on the Most Recent Financial
Statements, subject to no Security Interests, liens, charges, mortgages, or
other encumbrances except as noted therein. To the Knowledge of the Sellers, all
liabilities of the Company are reflected on the books and records of Company.
SECTION 4.4 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
4.4, since the Most Recent Fiscal Year End, no event has occurred which had or
could have a Material Adverse Effect on the Company. Without limiting the
generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving payment by the Company of more than $10,000.00 or
outside the Ordinary Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or cancelled any agreement, contract, lease, or license
(or series of related agreements, contracts, leases, and licenses) involving
more than $10,000.00, to which the Company is a party or by which any of them is
bound;
(iv) the Company has not imposed or granted any Security Interest
upon any of its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series
of related capital expenditures) either involving more than $10,000.00, or
outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $10,000.00, or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or
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capitalized lease obligation either involving more than $10,000.00, singly or
$50,000.00, in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
(ix) the Company has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $10,000.00, or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the
charter or bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise) any of
its capital stock;
(xiii) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock other than dividends paid to policyholders in the Ordinary Course
of Business;
(xiv) the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(xvii) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);
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(xix) the Company has not made any other change in employment
terms for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) the Company has not received any notice of termination
of any contract, lease or other agreement or suffered any damage, destruction or
loss (whether or not covered by insurance) which, in any case or in the
aggregate, has had a Material Adverse Effect on the assets, operations or
prospects of the Company;
(xxii) the Company has not encountered any labor union
organizing activity, had any actual or threatened employee strikes, work
stoppages, slow-downs or lockouts, or had any material change in its relations
with its employees, agents, customers or suppliers;
(xxiii) the Company has not instituted, settled or agreed to
settle any litigation, action or proceeding before any court or governmental
body relating to the Company or its properties;
(xxiv) the Company has not entered into any transaction,
contract or commitment other than in the Ordinary Course of Business or paid or
agreed to pay any legal, accounting, brokerage, finder's fee, taxes or other
finder's fee, taxes or other expenses in connection with, or incurred any
severance pay obligations by reason of, this Agreement or the transactions
contemplated hereby;
(xxv) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company; and
(xxvi) the Company has not committed to any of the foregoing.
SECTION 4.5 NO UNDISCLOSED LIABILITIES. Except as disclosed in the
Company Financial Statements or in the Schedules to this Agreement, the Company
has no outstanding indebtedness, guaranties, or matter of suretyship, is not a
party to any mortgage, deed of trust, indenture, loan or credit agreement, or
similar instrument or agreement, and is not subject to any claims or
liabilities, accrued, absolute, contingent or otherwise, other than trade or
business obligations incurred in the ordinary course of business since the date
of the Company Financial Statements, in amounts usual and normal both
individually and in the aggregate for its business.
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SECTION 4.6 EMPLOYEE BENEFITS.
(a) Schedule 4.6 lists each Employee Benefit Plan that
the Company maintains or to which the Company contributes.
(i) To the knowledge of the Sellers, each such
Employee Benefit Plan (and each related trust, insurance contract, or fund)
complies in form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(ii) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect
to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) that are due have
been paid to each such Employee Benefit Plan that is an Employee Pension Benefit
Plan and all contributions for any period ending on or before the Closing Date
that are not yet due have been paid to each such Employee Pension Benefit Plan
or accrued in accordance with the past custom and practice of the Company. All
premiums or other payments for all periods ending on or before the Closing Date
have been paid with respect to each such Employee Benefit Plan that is an
Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan that is an
Employee Pension Benefit Plan meets the requirements of a "qualified plan" under
Code Sec. 401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such
Employee Benefit Plan that is an Employee Pension Benefit Plan equals or exceeds
the present value of all vested and nonvested Liabilities thereunder determined
in accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on the date for determination.
(vi) The Company has delivered to the Buyer
correct and complete copies of the plan documents and summary plan descriptions,
the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements that implement each such
Employee Benefit Plan.
(vii) There are no pending or, to the knowledge of
the Sellers, threatened or expected claims by or on behalf of any such Employee
Benefit Plan, by any employee or beneficiary covered under any such Employee
Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than
routine claims for benefits).
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<PAGE> 19
(b) To the Knowledge of the Sellers, with respect to each
Employee Benefit Plan that the Company maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been required
to contribute:
(i) No such Employee Benefit Plan that is an
Employee Pension Benefit Plan has been completely or partially terminated or
been the subject of a Reportable Event as to which notices would be required to
be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee
Pension Benefit Plan has been instituted or, to the Knowledge of the Sellers,
threatened.
(ii) There have been no Prohibited Transactions
with respect to any such Employee Benefit Plan. No Fiduciary has any liability
for breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than routine claims for benefits) is pending or, to the Knowledge of the
Sellers threatened. The Sellers do not have any Knowledge of any Basis for any
such action, suit, proceeding, hearing, or investigation.
(iii) The Company has not incurred or has any
reason to expect that the Company shall incur, any Liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA or under the
Code with respect to any such Employee Benefit Plan that is an Employee Pension
Benefit Plan.
(iv) No such Employee Benefit Plan that is an
Employee Pension Benefit Plan has incurred any "accumulated funding deficiency"
(as defined in ERISA Sec. 302 and Code Sec. 412), whether or not waived, as of
the last day of the most recent fiscal year of each such Employee Pension
Benefit Plan ended prior to the Closing Date.
(c) The Company does not contribute to and has never
contributed to, or ever has been required to contribute to any Multiemployer
Plan and does not have liability (including withdrawal Liability) under any
Multiemployer Plan.
(d) The Company does not maintain or contribute, or ever
has maintained or contributed, or ever has been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Sec. 4980B).
SECTION 4.7 OTHER BENEFIT PLANS. Except as set forth in Schedule 4.7
and except as provided for in this Agreement, as of the date of this Agreement
the Company is not a party to any oral or written (e) consulting agreement not
terminable on 60 days or less notice involving the payment of more than
$10,000.00 per annum, (f) union or collective bargaining agreement, (g)
agreement with any executive officer or other key employee of the Company the
benefits of
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which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company of the nature contemplated by
this Agreement, or agreement with respect to any executive officer of the
Company providing any term of employment or compensation guarantee extending for
a period longer than one year and for the payment of in excess of $10,000.00 per
annum, or (h) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan, or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
SECTION 4.8 LITIGATION. Schedule 4.8 sets forth each instance in which
the Company (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is a party or, to the Knowledge of the
Sellers, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits proceedings, hearings, and
investigations set forth in Schedule 4.8 could have a Material Adverse Effect
upon the business, financial condition, operations, results of operations, or
future prospects of the Company. The Sellers do not have any reason to believe
that any other such action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Company.
SECTION 4.9 COMPLIANCE WITH APPLICABLE LAW. To the knowledge of the
Seller's, the Company holds all permits, licenses, variances, exemptions,
orders, and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Company Permits"), except for
failures to hold such permits, licenses, variances, exemptions, orders, and
approvals that would not, individually or in the aggregate, have a Material
Adverse Effect on the Company taken as a whole. To the knowledge of the Sellers,
the Company is in compliance with the terms of the Company Permits, except where
the failure so to comply would not have a Material Adverse Effect on the
Company. To the knowledge of the Sellers, and except as disclosed in Schedule
Section 4.9, the business of the Company is not being conducted in violation of
any law, ordinance, or regulation of any Governmental Entity, except for
possible violations that individually or in the aggregate do not, and, insofar
as reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on the Company. To the knowledge of the Sellers, and except as set forth
in Schedule 4.9, no investigation or review by any Governmental Entity with
respect to the Company is pending or, to the best knowledge of the Sellers,
threatened, nor has any Governmental Entity indicated an intention to conduct
the same, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen, in the future will not have a Material Adverse
Effect on the Company.
SECTION 4.10 VOTE REQUIRED. The affirmative vote of Sellers is the only
vote of the holders of any class or series of the Company's capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
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SECTION 4.11 TAX RETURNS AND AUDITS.
(a) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all material respects
(based upon advice from Company's accountants). All Taxes owed by the Company
(whether or not shown on any Tax Return) have been paid. The Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Tax.
(b) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) The Company does not expect any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax Liability of the Company either (i)
claimed or raised by any authority in writing or (ii) as to which the Sellers
have Knowledge based upon personal contact with any agent of such authority.
Schedule 4.11 lists all federal, state, local, and foreign income Tax Returns
filed with respect to the Company for taxable periods ended on or after December
31, 1995, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. The Company has
delivered to the Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1995.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. The Company has not made any payments, is
not obligated to make any payments, or is not a party to any agreement that
under certain circumstances could obligate it to make any payments not
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company (A) has not
been a member of an Affiliated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was the Company) or (B)
has any liability for the Taxes of any Person (other than any of the Company)
under United States Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(f) The unpaid Taxes of the Company (A) did not, as of
December 31, 1995, exceed the reserve for Tax Liability (rather than any reserve
for deferred Taxes established to
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reflect timing differences between book and Tax income) set forth on the face
of the Company's balance sheet as of June 30, 1996 (rather than in any notes
thereto) and (B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company in filing its Tax Returns.
SECTION 4.12 MATERIAL CONTRACTS. Schedule 4.12 lists the following
contracts and other agreements to which the Company is a party (each a "Material
Contract"):
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease payments in
excess of $10,000.00 per year;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services (including
insurance, reinsurance and other risk-sharing agreements), the performance of
which shall extend over a period of more than one year, result in a Material
loss to the Company, or involve consideration in excess of $10,000.00;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $10,000.00 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(e) any agreement concerning confidentiality or noncompetition;
(f) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of any current or former directors, officers, and
employees;
(g) any collective bargaining agreement;
(h) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $30,000.00 or providing severance benefits;
(i) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary Course of
Business;
(j) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on the Company; or
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.00.
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The Company has delivered to the Buyer a correct and complete copy of each
written agreement listed in Schedule 4.12 (as amended to date) and a written
summary setting forth the terms and conditions of each oral agreement referred
to in Schedule 4.12. With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement shall continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated by this Agreement, and no event has occurred that with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under any such agreement; and (C) no
party has repudiated any provision of any such agreement.
SECTION 4.13 REAL PROPERTY AND LEASES. (a) The Company does not own any
real property. Schedule 4.13 lists all parcels of real property leased by the
Company. To the knowledge of the Sellers, with respect to each parcel of leased
real property, the lease or sublease is legal, valid, binding, and enforceable,
and in full force and effect. All facilities owned or leased have received all
approvals of applicable Governmental Entities (including licenses and permits)
required in connection with the operation thereof.
(b) Company has delivered to Buyer a true and complete copy of
every lease under which Company is a tenant or subtenant (and for each sublease,
true and complete copies of all leases to which the sublease is subject, and
each such Lease is described on Schedule 4.13.
(c) Each lease is in full force and effect and has not been
assigned, modified, supplemented, or amended except as described on Schedule
4.13, and neither Company nor, to the best of Seller's knowledge, the landlord
or sublandlord under any lease is in default under any of the leases, and no
circumstances or state of facts presently exists that, with the giving of notice
or passage of time, or both, would permit the landlord or sublandlord under any
lease to terminate any such lease.
(d) Each lease sets forth the entire agreement between the
landlord or sublandlord and Target, and there are no amendments, oral or
written, except as set forth on Schedule 4.13, and no landlord has the presently
exercisable right to cancel or terminate any lease.
(e) There are no outstanding or unsatisfied obligations of Company
to perform any leasehold improvement or other work or to reimburse or pay for
any such work under any of the leases.
(f) There are no outstanding or unsatisfied obligations of Company
for any leasing commissions under any of the leases.
(g) Company has (without exception) a good, marketable, and
insurable leasehold estate to all Real Property that it leases, free and clear
of all Security Interests.
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SECTION 4.14 TANGIBLE PERSONAL PROPERTY.
(a) Ownership. Except as set forth in the Company Financial
Statements, Company is the sole lawful and beneficial owner of its tangible
personal property, other than tangible personal property that Company has the
right to use in its business pursuant to valid and enforceable contracts, free
and clear of all Security Interests, and it has good and marketable title to all
such property.
(b) Depreciation Schedule. Schedule 4.14 is Company's depreciation
schedule, and such schedule sets forth all material tangible personal property
existing on the date hereof.
(c) No Removal of Property. Company has not removed or permitted
the removal of any tangible personal property from its business premises since
the Most Recent Financial Statement, except in the Ordinary Course of Business.
SECTION 4.15 ENVIRONMENTAL AND EMPLOYEE SAFETY MATTERS.
(a) The Company has complied with all Environmental, Health, and
Safety Laws, and no action, suit, proceedings, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against it
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, the Company has obtained and been in compliance with all of
the terms and conditions of all permits, licenses, and other authorizations that
are required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables that are contained in, all Environmental, Health, and Safety Laws.
(b) The Company does not have any liability (and the Company has
not handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Company
giving rise to any Liability) for damage to any site, location, or body of water
(surface or subsurface), for any illness of or, personal injury to any employee
or other individual, or for any reason under any Environmental, Health, and
Safety Law.
(c) All properties and equipment used in the business of the
Company have been free of Hazardous Materials.
SECTION 4.16 INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission, all Intellectual Property
necessary for or used in the operation of the business of the Company as
presently conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Company immediately prior to the
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Closing Date shall remain owned or available for use by the Company on identical
terms and conditions as of the Closing Date. The Company has taken all necessary
and desirable action to maintain and protect each item of Intellectual Property
that it owns or uses.
(b) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and the Company has never received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that any of
the Company must license or refrain from using any Intellectual Property rights
of any third party). To the Knowledge of the Sellers, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Company.
(c) Schedule 4.16(a) identifies each trademark, copyright and
patent registration that has been issued to the Company with respect to any of
its Intellectual Property, identifies each pending trademark, copyright or
patent application or application for registration that the Company has made
with respect to any of its Intellectual Property. Schedule 4.16(b) identifies
each trade name, trademark and service mark (whether or not registered), used by
the Company. Schedule 4.16(c) identifies each license, agreement, or other
permission that any of the Company has granted to any third party with respect
to any of its Intellectual Property (together with any exceptions). The Company
has delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if applicable)
of each such item.
(d) As to each item of Intellectual Property required to be
identified in Schedule 4.16:
(i) the Company possesses all right, title, and interest in
and to the item, free and clear of any Security Interest, or other restriction
other than a license;
(ii) other than those items required to be identified in
Schedule 4.16(c), the Company possesses all right, title, and interest in and to
the item, free and clear of any license;
(iii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iv) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of the
Company, is threatened that challenges the legality, validity, enforceability,
use, or ownership of the item; and
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(v) the Company has never agreed to indemnify any Person for
or against any interference, infringement, misappropriation, or other conflict
with respect to the item.
(e) Schedule 4.16(d) identifies each item of Intellectual Property
that any third party owns and that the Company uses pursuant to license,
sublicense, agreement, or permission (other than commercially available software
for personal computers). The Company has delivered to the Buyer correct and
complete copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of Intellectual Property
required to be identified in Schedule 4.16;
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect;
(ii) the license, sublicense, agreement, or permission
shall continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated by this Agreement;
(iii) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred that with notice
or default or permit termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in clauses (i) through (iv) above are
true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of the Sellers, is threatened that challenges the legality, validity,
or enforceability of the underlying item of Intellectual Property; and
(viii) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or permission.
(f) To the Knowledge of the Sellers, the Company shall not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted and as presently
proposed to be conducted.
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SECTION 4.17 INSURANCE POLICIES. Schedule 4.17 sets forth a complete
and correct list and summary description of all insurance policies held by the
Company with respect to their respective businesses, and true and complete
copies of such policies have been delivered to the Buyer. The Company has
complied with all the provisions of such policies, and the policies are in full
force and effect.
SECTION 4.18 ERRORS AND OMISSIONS. Except as disclosed on Schedule
4.18, the Company has not incurred any liability or taken or failed to take any
action that will result in a liability (whether reported or unreported, absolute
or contingent, liquidated or unliquidated, due or to become due, or known or
unknown) for errors or omissions in the conduct of the business of the Company,
except such liabilities as are covered by insurance. Of those matters described
on Schedule 4.18, the Company has received no notice of any activity of any kind
with respect to the prosecution of any of such claims for a period of at least
two years prior to and through the date hereof.
SECTION 4.19 BROKERS' FEES. The Company has no liability or obligation
to pay any fees, commissions, or other compensation to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
SECTION 4.20 NO MISREPRESENTATIONS. None of the representations and
warranties of the Sellers set forth in this Agreement or in the attached
Exhibits and Schedules, notwithstanding any investigation thereof by the Buyer,
contains or will contain any untrue statement of a material fact, or omits or
will omit the statement of any material fact necessary to render the same not
misleading, either at the date hereof or at the Closing Date.
ARTICLE V
COVENANTS
SECTION 5.1 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to
the other provisions in this Agreement, the parties hereto shall each use all
reasonable efforts to perform their respective obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law to satisfy all conditions to the obligations of
the parties under this Agreement and to cause the transactions contemplated by
this Agreement to be carried out promptly in accordance with the terms hereof
and shall cooperate fully with each other and their respective officers,
directors, employees, agents, counsel, accountants and other designees in
connection with any steps required to be taken as part of their respective
obligations under this Agreement.
SECTION 5.2 NOTICES AND CONSENTS. The Sellers will cause the Company
will give any notices to third parties, and will use all reasonable efforts to
obtain any third party consents, that the Buyer may request in connection with
the matters referred to in Section 4.3 above.
SECTION 5.3 OPERATION OF BUSINESS. The Sellers will not cause or permit
the Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary
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Course of Business. Without limiting the generality of the foregoing, the
Sellers will not cause or permit the Company to, without the written consent of
the Buyer:
(a) authorize or effect any change in its charter or bylaws;
(b) grant any options, warrants, or other rights to purchase or
obtain any of its capital stock or issue, sell, or otherwise dispose of any of
its capital stock;
(c) declare, set aside, or pay any dividend or distribution with
respect to its capital stock (whether in cash or in kind), or redeem,
repurchase, or otherwise acquire any of its capital stock, except that Company
may pay policyholder dividends in the Ordinary Course of Business;
(d) issue any note, bond, or other debt security or create,
incur, assume, or guarantee any indebtedness for borrowed money or capitalized
lease obligation outside the Ordinary Course of Business;
(e) impose any Security Interest upon any of its assets outside
the Ordinary Course of Business;
(f) make any capital investment in, make any loan to, or acquire
the securities or assets of, any other Person outside the Ordinary Course of
Business;
(g) make any change in employment terms for any of its
directors, officers, or employees outside the Ordinary Course of Business;
(h) sell, lease, transfer, or dispose of any of its properties
or assets, waive or release any rights or cancel, compromise, release, or assign
any indebtedness owed to it or any claims held by it, except in the Ordinary
Course of Business but in no event shall any such sale, lease, transfer,
disposition, waiver, release, cancellation, compromise, or assignment exceed
$10,000.00;
(i) fail to perform in all material respects its obligations
under Material Contracts (except those being contested in good faith) or enter
into, assume, or amend any contract or commitment that would be a Material
Contract other than contracts to provide services entered into in the ordinary
and usual course of business;
(j) permit any insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated or any of the coverage
thereunder to lapse, unless the Company makes reasonable efforts to obtain
simultaneously with such termination or cancellation replacement policies
providing substantially the same coverage on commercially reasonable terms and,
if so available, such policies are in full force and effect;
(k) enter into any union, collective bargaining, or similar
agreement; or
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(1) enter into any agreement to do any of the things described
in clauses (a) through (k) above.
SECTION 5.4 FULL ACCESS. The Sellers will cause the Company to permit
representatives of the Buyer to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to the Company. The Buyer will treat and hold as such any
Confidential Information it receives from the Company in the course of the
reviews contemplated by this Section, will not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to the Company all
tangible embodiments (and all copies) thereof that are in its possession. The
Sellers will cause the Company to request its auditing firm to permit the Buyer
and its representatives, including its auditing firm, to review the work papers
of the auditing firm of the Company relating to their examination of the
Company Financial Statements. No investigation by or on behalf of the Buyer
heretofore or hereafter made shall affect the representations and warranties of
the Sellers.
SECTION 5.5 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the others of any adverse development causing a Material breach of any
of its own representations and warranties in Articles III and IV above. No
disclosure by any party pursuant to this Section, however, shall be deemed to
amend or supplement the Schedules to this Agreement or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
SECTION 5.6 EXCLUSIVITY. From the date hereof until the Closing Date or
until this Agreement. is terminated as provided in Article IX, the Sellers shall
not, directly or indirectly, through any officer, director, agent, stockholder
or otherwise, initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, directly or indirectly,
any Competing Transaction, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing Transaction
or authorize or permit any of the officers, directors or employees of the
Company or any investment banker, financial advisor, attorney, accountant or
other representative retained by the Company or the Sellers to take any such
action, and the Sellers shall notify the Buyer thereof orally (within one
business day) and in writing (as promptly as practicable) of all of the relevant
details relating to all inquiries and proposals which it or any such officer,
director, employee, investment banker, financial advisor, attorney, accountant
or other representative may receive relating to any of such matters and if such
inquiry or proposal is in writing, the Sellers shall deliver to the Buyer a copy
of such inquiry or proposal.
SECTION 5.7 INSURANCE AND INDEMNIFICATION. The Seller will cause the
Company to observe any indemnification provisions now existing in the Articles
of Incorporation or Bylaws of the Company for the benefit of any individual who
served as a director or officer of the Company at any time prior to the Closing
Date.
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SECTION 5.8 PUBLIC ANNOUNCEMENTS. The timing and content of all
announcements regarding any aspect of this Agreement to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance unless the Buyer is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable Nasdaq rules.
SECTION 5.9 EXPENSES. Except as otherwise provided in this Agreement,
whether or not the transaction contemplated by this Agreement is consummated,
all costs and expenses (including any brokerage commissions or any finder's or
investment banker's fees and including attorneys' and accountants' fees)
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that the Buyer
and the Sellers shall share equally the costs of any required filings with
federal and state regulatory authorities.
SECTION 5.10 ANTITRUST CHALLENGES. The Sellers and the Buyer have not
made a filing pursuant to the HSRA because the size of the transactions
contemplated by this Agreement is less than $15,000,000.00. In the event a suit
is instituted challenging the transaction contemplated by this Agreement as
violative of the antitrust laws, each of the Buyer and the Sellers will use all
reasonable efforts to defend against such suit. The Buyer and the Sellers will
use all reasonable efforts to take such action as may be required by any federal
or state court of the United States, in any suit brought by a private party or
Governmental Entity challenging the transaction contemplated by this Agreement
as violative of the antitrust laws, in order to avoid the entry of, or to effect
the dissolution of, any injunction, temporary restraining order or other order
which has the effect of preventing the consummation of the transaction
contemplated by this Agreement; however, the Buyer shall not be required to
agree to any divestiture by the Buyer or the Company, of any shares of capital
stock or of any business, properties or assets of the Buyer or the Company, or
to the imposition of any material limitation on the ability of the Buyer to
conduct such business or to own or exercise control of such stock, business,
properties or assets.
ARTICLE VI
CONDITIONS
SECTION 6.1 CONDITIONS TO OBLIGATIONS OF THE BUYER. Consummation of the
transactions contemplated this Agreement is subject to the fulfillment to the
satisfaction of the Buyer, prior to or at the Closing, of each of the following
conditions:
(a) Consents, Authorizations, etc. All consents, authorizations,
orders and approvals of, and filings and registrations with, any Governmental
Entity which are required for or in connection with the execution and delivery
of this Agreement by the Sellers and the consummation by the Sellers of the
transactions contemplated hereby shall have been obtained or made.
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(b) Injunction, etc. The consummation of the transactions
contemplated by this Agreement will not violate the provisions of any
injunction, order, judgment, decree, law or regulation applicable or effective
with respect to the Sellers, the Company, the Buyer, or their respective
officers and directors. No suit or proceeding shall have been instituted by any
person, or, to the knowledge of the Buyer, shall have been threatened by any
Governmental Entity, which seeks (i) to prohibit, restrict or delay consummation
of the transactions contemplated by this Agreement or to limit in any material
respect the right of the Buyer to control any material aspect of the business of
the Buyer or the Company after the Closing Date, or (ii) to subject the Buyer or
the Company or their respective directors or officers to material liability on
the ground that it or they have breached any law or regulation or otherwise
acted improperly in relation to the transactions contemplated by this Agreement;
however, in the case of (ii) above, the Buyer shall have made a good faith
determination that a substantial basis exists which would support a finding of
such liability against the officers and directors of the Company or the Buyer.
(c) Representations and Warranties. The representations and
warranties of the Sellers contained in this Agreement shall have been true and
correct in all respects at the date hereof and shall also be true and correct in
all respects at and as of the Closing Date, except for changes contemplated in
this Agreement, with the same force and effect as if made at and as of the
Closing Date, except in either case as such representations and warranties by
their terms relate only to periods of time prior to the Closing Date, and except
as set forth in the disclosure schedules delivered by the Sellers to the Buyer
pursuant to this Agreement (the "Disclosure Schedule"), and the Sellers shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it at
or prior to the Closing Date.
(d) Certificate. The Sellers shall have delivered to the Buyer a
certificate, dated as of the Closing Date, to the effect that (i) they are
familiar with the provisions of this Agreement and (ii) to the best of their
Knowledge the conditions specified in Section 6.1 have been satisfied. Such
certificate shall also specify the number of issued and outstanding shares of
the Company Common Stock and shall certify that to the best of their Knowledge
there has been no violation by the Company of Sections 5.4 or 5.8 hereof.
(e) Opinion and Confirmation of Seller's Counsel. The Buyer shall
have received an opinion or opinions, dated, as of the Closing Date, of
Rushton, Stakely, Johnston & Garrett, counsel to the Sellers, in form and
substance and with such exceptions and limitations as shall be reasonably
satisfactory to the Buyer, substantially to the effect that:
(i) The Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of Alabama, and has
the corporate power and authority to own its properties and assets and to
conduct its business as it is presently conducted.
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(ii) The authorized capital stock of the Company consists of
3,000 shares of Company Common Stock. As of the date of such opinion, there are
3,000 shares of Company Common Stock issued and outstanding. The issued and
outstanding shares of Company Common Stock are duly authorized, validly issued,
and fully paid and nonassessable, were issued pursuant to available exemptions
under federal and state securities laws, and are held by the Sellers in the
amounts set forth on Exhibit A to this Agreement. To the Knowledge of such
counsel, the Company has no commitments to issue or sell any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire from the
Company, any shares of its capital stock, and no securities or obligations
evidencing any such rights are outstanding.
(iii) Each Seller has the power and authority to execute and
deliver this Agreement and the Escrow Agreement to be executed by them, and to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Escrow Agreement have been duly executed and delivered by the Sellers and
are valid and binding agreements of the Sellers, enforceable in accordance with
their respective terms, subject to: (i) bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting creditors' rights generally; and
(ii) general principles of equity, regardless of whether enforceability is
considered in a proceeding in equity or at law.
(iv) Neither the execution or delivery by the Sellers of
this Agreement nor the performance of its obligations hereunder will (with the
passage of time or the giving of notice or both): (i) constitute a violation of,
constitute a default or require any payment under, permit a termination of, or
result in the creation or imposition of any security interest, lien or other
encumbrance or adverse claim against, or upon any of the property of, the
Company under (I) any term or provision of the Articles of Incorporation or
Bylaws of the Company, (II) any Material Contract, (III) any permit, judgment,
decree or order of any Governmental Entity that is applicable to the business of
the Company or that is known to such counsel or (IV) any applicable law that in
the experience of such counsel is normally applicable to transactions of the
kind contemplated by this Agreement; or (ii) create or cause the acceleration of
the maturity of, any indebtedness, obligation, or liability of the Company that
is listed on Schedule 4.14 or that is known to such counsel.
(v) Each consent, authorization, order and approval of, and
filing and registration with, any Governmental Entity required to be made or
obtained by the Company for the execution and delivery of this Agreement and the
other documents and agreements contemplated hereby and the consummation of the
transactions contemplated by this Agreement have been made or obtained.
(f) Certain Antitrust Matters. No proceeding shall be pending or
threatened with respect to the transactions hereunder and no order, decree or
judgment shall have been entered or issued, which, in any such case, would
require any divestiture by the Buyer or the Company of any shares of capital
stock or of any business, properties or assets of the Buyer or
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the Company, or the imposition of any material limitation on the ability of the
Buyer to conduct its business or to own or exercise control of such stock,
business, properties or assets.
(g) Due Diligence Review. The Buyer shall be fully satisfied in its
sole discretion with the results of its review of, and its other due diligence
investigations with respect to, the business, operations, affairs, prospects,
properties, assets, existing and potential liabilities, obligations, and
condition (financial or otherwise) of the Company.
(h) Estoppel Certificates. Seller shall deliver to Buyer an estoppel
certificate of each lessor under each lease of Real Property in form and
substance satisfactory to Buyer which describes in the property leased, the
monthly or annual rental, the remaining term of the lease, certifying that there
is not a default under the lease, and confirming that the lease will continue in
full force and effect after the Closing.
(i) 401(k) Plan. Company shall have terminated its existing 401(k)
benefit plan.
(j) Company Shares. Each Seller shall deliver to Buyer stock
certificates representing all of its Company Shares, endorsed in blank or
accompanied by duly executed assignment documents.
(k) Additional Certificates, etc. The Sellers shall have furnished to
the Buyer such additional certificates, opinions, and other documents as the
Buyer may have reasonably requested as to any of the conditions set forth in
Section 6.1.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF THE SELLERS. Consummation of
the transactions contemplated by this Agreement is subject to the fulfillment to
the satisfaction of the Buyer, prior to or at the Closing Date, of each of the
following conditions:
(a) Consents, Authorizations, etc. All consents, authorizations,
orders and approvals of, and filings and registrations with, any Governmental
Entity, which are required for or in connection with the execution and delivery
of this Agreement by the Buyer and the consummation by the Buyer of the
transactions contemplated hereby shall have been obtained or made.
(b) Injunction, etc. The consummation of the transactions contemplated
hereby will not violate the provisions of any injunction, order, judgment,
decree, law, or regulation applicable or effective with respect to the Company
or its officers or directors.
(c) Representations and Warranties. The representations and warranties
of the Buyer contained in this Agreement shall have been true and correct in
all respects at the date hereof and shall also be true and correct in all
respects at and as of the Closing Date, except for changes contemplated in
this Agreement, with the same force and effect as if made at and as of the
Closing Date or except as such representations and warranties by their terms
relate only to
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periods of time prior to the Closing Date or except where the failure of any
representation or warranty to be correct would not have a Material Adverse
Effect on the ability of the Buyer to consummate the transaction contemplated
hereby or would not have a Material Adverse Effect on the Buyer, and the Buyer
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
at or prior to the Closing Date.
(d) Certificate. The Buyer shall have delivered to the Sellers a
certificate, dated as of the Closing Date, of the Chief Executive Officer or a
senior executive officer of the Buyer to the effect that (i) he is familiar with
the provisions of this Agreement and (ii) to the best of his Knowledge the
conditions specified in Section 6.2 have been satisfied.
(e) Purchase Price. The Buyer shall pay the Purchase Price to the
Sellers less the amount that is being deposited in the Escrow fund.
(e) Additional Certificates, etc. The Buyer shall have furnished
to the Sellers such additional certificates, opinions, and other documents as
the Sellers may have reasonably requested as to any of the conditions set forth
in Section 6.2.
ARTICLE VII
REMEDIES FOR BREACHES OF THIS AGREEMENT
SECTION 7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. The
representations, warranties, covenants, indemnification provisions, and
agreements of the Parties made or set forth in this Agreement (including the
Exhibits and Schedules hereto), as the same may be modified in any certificate
delivered by the Sellers or any of them at Closing and approved by the Buyer or
in any certificate or document delivered pursuant hereto, shall survive the
execution and delivery of this Agreement, the Closing Date, the consummation of
the transactions contemplated hereby, and any investigation made by the parties
and shall continue in full force and effect thereafter for the period provided
in this Article VII.
SECTION 7.2 INDEMNIFICATION.
(a) Subject to Section 7.4 the Sellers shall, jointly and
severally, indemnify and hold harmless the Buyer from and against any Loss that
the Buyer, or its successors and assigns, for any cause at any time may sustain
or incur as a result of any misrepresentation or breach of any warranty,
covenant, agreement or obligation made by the Sellers under this Agreement, any
Ancillary Agreement, or in any Schedule, Exhibit, certificate or other
instrument pursuant hereto, or for any and all tax liability that is assessed
against the Company with respect to any matter that arises prior to the Closing
Date (in each case, an "Event of Indemnity").
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(b) Buyer agrees that it will not seek indemnification against
Sellers pursuant to this Agreement until the aggregate amount of Losses suffered
by Buyer exceeds $10,000.00.
SECTION 7.3 MANNER OF INDEMNIFICATION. Upon the occurrence of an Event
of Indemnity, the Buyer may, at or at any time after such occurrence, notify the
Seller(s) from whom indemnification is sought (the "Indemnifying Sellers") and
Escrow Agent thereof, stating specifically the obligation(s) with respect to
which the claim is made, the facts giving rise to and alleged basis for such
claim, and the amount of the Loss incurred or that may be incurred by reason
thereof (a "Notice of Claim"). If the Buyer makes a demand for indemnification
with respect to an Event of Indemnity for which more than one Indemnifying
Seller would be liable under this Agreement, it shall make such demand against
the Indemnifying Sellers that would be liable for said Event of Indemnity.
Within 30 days after the mailing of such notice, the Indemnifying Sellers shall,
subject to Section 7.4, either (a) notify the Buyer and Escrow Agent that they
accept the amount of such indemnification claim as set forth in the Notice of
Claim, in whole or in part, and instruct the Escrow Agent to charge such
accepted amount against the Sellers pro rata under the Escrow Agreement, or (b)
deny or dispute the alleged occurrence of such Event of Indemnity as asserted in
the Notice of Claim by the Buyer. If such Event of Indemnity relates to a claim
by a person or persons other than the Buyer, and the amount of such claim is
fully covered by the foregoing indemnity, as limited by Section 7.4 hereof, the
Indemnifying Sellers or any of them may elect, within said 30-day period, to
defend against such claim at their expense, in lieu of the Buyer assuming such
defense. If the Indemnifying Sellers or any of them elect to assume such
defense, they shall retain counsel reasonably satisfactory to the Buyer. If the
Loss incurred relates to the failure of a Seller to collect any note or account
receivable and if any Indemnifying Sellers pay in full the unpaid balance
thereof to the Buyer, the Buyer will cause the Company to assign said note or
account without recourse to the Sellers paying same.
If within said 30-day period, none of the Indemnifying Sellers has,
with respect to an Event of Indemnity, taken the action required to be taken
within said period, the amount set forth in Buyer's Notice of Claim with respect
to such Event of Indemnity shall be deemed to be charged against the Sellers as
Settled Losses of the Buyer pro rata under the Escrow Agreement.
SECTION 7.4 CERTAIN LIMITATIONS. Except in the case of fraud or willful
concealment, the liability of the Sellers hereunder shall be limited as follows:
(a) All liability of the Sellers under this Article VII shall
cease three years after the Closing Date. However, the liabilities of the
Sellers hereunder shall continue indefinitely with respect to the occurrence of
Events of Indemnity with respect which the Buyer shall have mailed notice prior
to the expiration of the Indemnity Period or with respect to which there has
been any willful concealment by the Sellers, or either of them, either before or
after the date hereof.
(b) The liability of any particular Seller with respect to any
Loss shall be limited to such Seller's pro rata share of the Purchase Price.
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SECTION 7.5 NOTICES. The Buyer will endeavor to notify the Sellers and
the Escrow Agent promptly upon the receipt by a responsible officer of the Buyer
of knowledge of a state of facts that if not corrected, would in its judgment
constitute an Event of Indemnity hereunder. However, in no event shall the
Buyer's failure to notify the Sellers under this Section 7.5 bar its right to
indemnity pursuant to Section 7.2.
SECTION 7.6 EXPENSES. Any expenses in connection with a claim of Loss
hereunder, including without limitation, investigation or audit expenses,
attorneys' fees, or court costs, shall be borne by the prevailing party in any
dispute; however, upon assumption of the defense of a claim hereunder and the
admission by the assuming Seller of liability (subject to Section 7.4) for the
Loss, a Seller will not be liable to the Buyer for any legal or other costs and
expenses subsequently incurred by the Buyer in connection with the defense.
SECTION 7.7 OTHER REMEDIES. Except for non-monetary equitable relief,
from and after the Closing, the rights set forth in this Article VII shall be
the Buyer's sole and exclusive remedy against the Sellers for any
misrepresentations and any and all breaches of the warranties, covenants,
agreements and obligations contained in or arising out of Article IV of this
Agreement. Nothing herein shall prevent the Buyer from asserting or recovering
upon a claim based upon allegations of fraud or other willful breach of an
obligation of or with respect to the Sellers in connection with this Agreement
or for breach of any of the covenants that by their terms continue in effect
after the Closing Date. In the event that any such claim for fraud or willful
breach is asserted, the prevailing party's attorneys fees and costs shall be
paid by the non-prevailing party.
ARTICLE VIII
ESTABLISHMENT OF ESCROW
SECTION 8.1 CREATION. The Escrow Fund, shall be delivered by the Buyer
to the Escrow Agent. The fees payable to the Escrow Agent for maintaining the
Escrow Fund shall be paid by the Buyer. The Escrow Fund shall be maintained by
the Escrow Agent for a period beginning at the Closing Date and ending two
years thereafter, and shall be available to satisfy the indemnification rights
of the Buyer forth in Article VII, pursuant to the terms of the Escrow
Agreement.
SECTION 8.2 DISBURSEMENT FOR CLAIMS. Disbursements from the Escrow Fund
shall be made at the expiration of the Escrow Agreement, subject to the
retention of all or any part of the Escrow Fund as to which claims have not been
settled, all in accordance with the terms of the Escrow Agreement.
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ARTICLE AX
TERMINATION AND ABANDONMENT
SECTION 9.1 TERMINATION AND ABANDONMENT. This Agreement may be
terminated and abandoned at any time prior to the Closing Date:
(a) By mutual action of the Board of Directors of the Buyer and
the Sellers.
(b) By the Buyer:
(i) if any event shall have occurred as a result of which
any condition set forth in Section 6.1 is no longer capable of being satisfied;
or
(ii) if there has been a breach by the Sellers of any
representation or warranty contained in this Agreement that would have or would
be reasonably likely to have a Material Adverse Effect on the Company or the
Sellers, or there has been a Material breach of any of the covenants or
agreements set forth in this Agreement on the part of the Sellers, which breach
is not curable, or, if curable, is not cured within 30 days after written notice
of such breach is given by the Buyer to the Sellers.
(c) By the Buyer if
(i) The Company (or its Board of Directors) or the Sellers
shall have authorized, recommended, proposed or publicly announced its intention
to enter into a Competing Transaction which has not been consented to in writing
by the Buyer;
(ii) Any person, entity or "group" (as that term is used in
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) (other than the Buyer or any of its affiliates) shall have (A)
commenced or publicly proposed to commence a tender offer or exchange offer for
at least 15 percent of the then total outstanding Company Common Stock, (B)
acquired more than 15 percent of the then total outstanding Company Common
Stock, or (C) solicited and received proxies or consents sufficient to permit it
to elect directors nominated by it to a majority of the members of the Company's
Board of Directors or to block approval of the transactions contemplated by this
Agreement by the Sellers.
(d) By the Sellers:
(i) if any event shall have occurred as a result of which
any condition set forth in Section 6.2 is no longer capable of being satisfied.
(ii) if there has been a breach by the Buyer of any
representation or warranty contained in this Agreement which would have or would
be reasonably likely to have a Material Adverse Effect on the ability of the
Buyer to consummate the transactions contemplated hereby, or there has been a
Material breach of any of the covenants or agreements
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<PAGE> 38
set forth in this Agreement on the part of the Buyer, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by the Sellers to the Buyer.
(e) By the Buyer or the Sellers if there shall have occurred (i)
any general suspension of, or limitation on, trading in securities generally on
Nasdaq continuing for a period of 15 days, or (h) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States continuing for a period of 15 days.
(f) By either the Buyer or the Sellers if the transactions
contemplated hereby shall not have been consummated by November 1, 1996;
however, the terminating party shall not have breached in any material respect
its obligations under this Agreement in any manner which proximately contributed
to the failure of any such condition to be satisfied or the failure to
consummate the transactions contemplated hereby.
SECTION 9.2 SPECIFIC PERFORMANCE. The parties acknowledge that the
rights of each party to consummate the transactions contemplated hereby are
special, unique, and of extraordinary character, and that, in the event that any
party violates or fails and refuses to perform any covenant made by it herein,
the other parties will be without adequate remedy at law. Each party agrees,
therefore, that, in the event that it violates or fails and refuses to perform
any covenant made by it herein, the other parties so long as it or they are not
in breach hereof, may, in addition to any remedies at law, institute and
prosecute an action in a court of competent jurisdiction to enforce specific
performance of such covenant or seek any other equitable relief.
SECTION 9.3 RIGHTS AND OBLIGATIONS UPON TERMINATION. If this Agreement
is terminated and abandoned as provided herein, each party will redeliver all
documents, work papers, and other materials of any party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof, to the party furnishing the same, except to the extent previously
delivered to third parties in connection with the transactions contemplated
hereby, and all information received by any party hereto with respect to the
business of any other party shall not at any time be used for the advantage of,
or disclosed to third parties by, such party to the detriment of the party
furnishing such information; however, this Section 9.3 shall not apply to any
documents, work papers, material, or information which is a matter of public
knowledge or which heretofore has been or hereafter is published in any
publication for public distribution or filed as public information with any
Governmental Entity. The Buyer shall continue to be bound by the provisions of
the Confidentiality Agreement following termination of this Agreement.
SECTION 9.4 EXPENSES. The Sellers and the Buyer each acknowledge that
the other spent, and will be required to spend, substantial time and effort in
examining the business, properties, affairs, financial condition and prospects
of the other and their respective Subsidiaries, and has incurred, and will
continue to incur, substantial fees and expenses in connection with such
examination, the preparation and negotiation of this Agreement and the
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<PAGE> 39
accomplishment of the transactions contemplated hereunder, and will be unable to
evaluate similar transactions with other parties due to the limited number of
personnel available for such purpose and the constraints of time. Therefore, the
Sellers and the Buyer agree as follows:
(a) Expenses. If the Buyer terminates this Agreement pursuant to
Section 9.1(b) by reason of the failure to meet the condition of Section 6.1
due to the Seller's knowing and intentional or grossly negligent
misrepresentation or knowing and intentional or grossly negligent breach of
warranty or breach of any covenant or agreement, or pursuant to Section 9.1(c),
then the Sellers shall pay the Expenses to the Buyer on demand, in same day
funds. If the Sellers terminates this Agreement pursuant to Section 9.1(d) by
reason of the failure to meet the condition of Section 6.2 due to the Buyer's
knowing and intentional or grossly negligent misrepresentation or knowing and
intentional or grossly negligent breach of warranty or breach of any covenant or
agreement, then the Buyer shall pay the Expenses to the Sellers on demand, in
same day funds. For purposes of this Section 9.4, "Expenses" shall include all
reasonable out-of-pocket expenses and fees (including, without limitation, fees
and expenses payable to all investment banking firms and their respective agents
and counsel, and all fees of counsel, accountants, experts and consultants to
the Buyer and the Sellers, respectively) actually incurred by the Buyer or the
Sellers or on their behalf in connection with the transactions contemplated by
this Agreement.
(b) Payment. Any payment required pursuant to this Section 9.4
shall be made as promptly as practicable, but in no event later than five
business days after termination of this Agreement and shall be made by wire
transfer of immediately available funds to an account designated by the Buyer.
If either party is entitled to the Expenses, the other party shall also pay to
the other interest at the rate of 8 1/2% per year on any amounts that are not
paid when due, plus all costs and expenses in connection with or arising out of
the enforcement of the obligation to pay the Expenses or such interest.
(c) Effect of Payment. Except as provided in Section 9.5, upon
payment of the Expenses this Agreement shall terminate with no further liability
of the Sellers or the Buyer at law or equity resulting therefrom.
SECTION 9.5 EFFECT OF TERMINATION. In the event of a termination and
abandonment of this Agreement pursuant to Section 9.1 above, this Agreement
shall forthwith become void and have no further effect, without any liability on
the part of any party hereto or its respective officers, directors or
stockholders, other than the provisions of Section 5.9, 5.10, 5.11, 9.3, 9.4 and
this Section 9.5. Notwithstanding the foregoing, nothing contained in this
Section 9.5 shall relieve any party from liability for any breach of this
Agreement, and any such termination shall be without prejudice to the rights of
any party hereto arising out of the willful breach by any other party of any
covenant or agreement contained in this Agreement.
ARTICLE X
MISCELLANEOUS
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<PAGE> 40
SECTION 10.1 EXTENSION; WAIVER. At any time prior to the Closing Date,
the Buyer and the Sellers may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the other
contained herein or in any document delivered pursuant hereto by the other, and
(iii) waive compliance with any of the agreements by the other or conditions to
such party's obligations contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
SECTION 10.2 NOTICES. Every notice, consent, demand, approval, and
request required or permitted by this Agreement will be valid only if it is in
writing, delivered personally or by telecopy, commercial courier, or first
class, postage prepaid certified United States mail, and addressed by the sender
to the party who is the intended recipient at its address set forth below or to
the address most recently designated to the other party by notice given in
accordance with this Section. A validly given notice, consent, demand, approval,
or request will be effective on the earlier of its receipt, if delivered
personally, by telecopy, or by commercial courier, or the third day after it is
postmarked by the United States Postal Service, if it is delivered by United
States mail.
(a) If to the Buyer, to
RISCORP, Inc.
1390 Main Street
Sarasota, Florida 34236
Attention: Gregory M. Marks, General Counsel
Telecopy No.: (941) 362-6122
with a copy to
Michael L. Jamieson, Esq.
Holland & Knight
400 N. Ashley Street, Suite 2050
Tampa, FL 33602
Telecopy No.: (813) 229-0134
(b) If to the Sellers, to each of:
Peter D. Norman Thomas K. Albrecht Hugh D. Langdale, Jr.
P.O. Box 195 1410 Meriweather Rd. 124 Countryplace Dr.
Fort Deposit, AL 36032 Montgomery, AL 36116 Deatsville, AL 36022
Attention:
---------------------
Telecopy No.:
------------------
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<PAGE> 41
with a copy to:
Thomas G. Mancuso, Esq.
Rushton, Stakely, Johnston & Garrett
184 Commerce Street
Montgomery, Alabama 36104
Telecopy No.: (334) 262-6277
with an additional copy to:
Jackson M. Payne, Esq.
Leitman, Siegal & Payne, P.C.
400 Land Title Building
600 North 20th Street
Birmingham, Alabama 35203
Telecopy No.: (205) 323-2197
SECTION 10.3 TABLE OF CONTENTS; HEADINGS. The Table of Contents and
headings contained herein are for convenience of reference only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
SECTION 10.4 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party hereto. Upon any such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated by this Agreement are consummated to
the extent possible.
SECTION 10.5 WAIVER. The failure of any party hereto at any time or
times to require performance of any provision hereof shall in no manner affect
the right to enforce the same. No waiver by any party of any condition, or the
breach of any term, provision, warranty, representation, agreement or covenant
contained in this Agreement or the other agreements contemplated hereby, whether
by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term, provision,
warranty, representation, agreement or covenant herein or therein contained.
SECTION 10.6 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT. This Agreement
shall inure to the benefit of the parties and their respective successors and
permitted assignees. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any
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<PAGE> 42
person or entity, including, without limitation, employees not a party to this
Agreement. Except for assignments to wholly-owned Subsidiaries (direct or
indirect) of the Buyer, in which event the Buyer shall remain liable for the
performance of this Agreement, no transfer or assignment (including by operation
of law) of this Agreement or of any rights or obligations under this Agreement
may be made by any party without the prior written consent of the other parties
and any attempted transfer or assignment without that required consent shall be
void. No transfer or assignment by a party of its rights under this Agreement
shall relieve it of any of its obligations to the other parties under this
Agreement.
SECTION 10.7 TIME OF THE ESSENCE; COMPUTATION OF TIME. Time is of the
essence of each and every provision of this Agreement. Whenever the last day for
the exercise of any right or the discharge of any duty under this Agreement
shall fall upon Saturday, Sunday or a public or legal holiday, the party having
such right or duty shall have until 5:00 p.m. Eastern time on the next
succeeding regular business day to exercise such right or to discharge such
duty.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed by each party
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signatures of all of the
parties. This Agreement may be executed in two or more counterparts, each of
which shall be an original, and each of which shall constitute one and the same
agreement. Any party may deliver an executed copy of this Agreement and of any
documents contemplated hereby by facsimile transmission to another party and
such delivery shall have the same force and effect as any other delivery of a
manually signed copy of this Agreement or of such other documents.
SECTION 10.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without giving
effect to the conflicts of law principles thereof.
SECTION 10.10 ENTIRE AGREEMENT. This Agreement (with its Exhibits and
Schedules) contains, and is intended as, a complete statement of all the terms
of the arrangements among the parties with respect to the matters provided for,
supersedes any previous agreements and understandings between the parties with
respect to those matters and cannot be changed or terminated orally.
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<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date first written above.
RISCORP, INC.
By: /s/
---------------------------------
Title: Senior Vice President
------------------------------
/s/ Thomas K. Albrecht
------------------------------------
Thomas Albrecht
/s/ Peter Norman
------------------------------------
Peter Norman
/s/ Hugh D. Langdale, Jr.
------------------------------------
Hugh D. Langdale, Jr.
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<PAGE> 1
EXHIBIT 10.76
CHARTWELL REINSURANCE COMPANY
WORKERS COMPENSATION QUOTA SHARE RETROCESSIONAL
TREATY AGREEMENT
EFFECTIVE: September 1, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE SUBJECT PAGE(S)
------- ------- -------
<S> <C> <C>
Preamble 1
1 Application of Agreement 1
2 Cover 1-2
3 Commencement and Termination 2-3
4 Exclusions 3-4
5 Territory 4
6 Definitions 5-6
7 Reinsurance Premium and Commissions 6-7
8 Profit Commission 7
9 Reports and Remittances 7
10 Other Reinsurance 8
11 Losses and Loss Adjustment Expenses 8-9
12 Extra Contractual Obligations 9-10
13 Excess Limits Liability 10
14 Insolvency 10-11
15 Offset 11
16 Currency 11
17 Errors and Omissions 11
18 Salvage and Subrogation 12
19 Amendments 12
20 Access to Records 12
21 Arbitration 12-14
22 Reserves and Taxes 14
23 Commutation 14
24 Headings 14
25 Loss Funding 14-15
26 Intermediary 15
</TABLE>
<PAGE> 2
WORKERS COMPENSATION QUOTA SHARE RETROCESSIONAL TREATY
AGREEMENT
This Agreement is made and entered into by and between CHARTWELL REINSURANCE
COMPANY, (hereinafter referred to as the "Retrocedant") in respect of original
business underwritten by RISCORP Management Services (hereinafter referred to
as the "Underwriting Manager") on behalf of VIRGINIA SURETY COMPANY INC.
(hereinafter referred to as the "Original Company"), and RISCORP INSURANCE
COMPANY, Sarasota, Florida (hereinafter referred to as the "Retrocessionaire").
WITNESSETH:
The Retrocessionaire hereby reinsures the Retrocedant to the extent and on the
terms and conditions and subject to the exceptions, exclusions and limitations
hereinafter set forth and nothing hereinafter shall in any manner create any
obligations or establish any rights against the Retrocessionaire in favor of
any third parties or any persons not parties to this Agreement.
ARTICLE I
APPLICATION OF AGREEMENT
A. This Agreement applies only to Workers Compensation and Employers
Liability insurance business, except as excluded under Article 4 of this
Agreement, which is produced, underwritten, issued and serviced on behalf
of the Original Company by RISCORP Management Services, Inc., Sarasota,
Florida (hereinafter referred to as the "Underwriting Manager") pursuant
to Underwriting Management Agreement No. VSC 1995-4 (hereinafter referred
to as the "Underwriting Management Agreement") between the Original
Company and the Underwriting Manager, and reinsured by the Retrocedant.
B. The Original Company has agreed to keep a copy of the Underwriting
Management Agreement (or successor agreement) on file with the Retrocedant
and Retrocessionaire, and the Original Company shall provide written
notice to and obtain the prior approval of the Retrocedant and
Retrocessionaire of any change in the Underwriting Management Agreement no
later than 45 days prior to the intended date of implementation.
ARTICLE 2
COVER
A. The Retrocedant is obligated, to cede to the Retrocessionaire, and the
Retrocessionaire is obligated to accept as reinsurance from the
Retrocedant (in respect of the Original Quota Reinsurance Agreement,
hereinafter referred to as
1
<PAGE> 3
the "Original Reinsurance Agreement", between Virginia Surety Company and
Chartwell Reinsurance Company), 50% of the liability hereunder as respects
original policies ceded under the Original Reinsurance Agreement.
B. The Retrocessionaire agrees to pay all losses and loss adjustment expense
in respect to the business retained by the Retrocedant in excess of a pure
loss ratio of 105%, calculated by dividing Paid Loss and Loss Adjustment
Expense by Gross Net Earned Premium.
C. The Retrocessionaire agrees to pay to the Retrocedant 100% of all ceding
commission costs greater than 30% under the Original Reinsurance
Agreement. Ceding Commission items shall include agent's commissions,
taxes, assessments, residual market loads, etal. plus 6% of all premiums
ceded under the Original Reinsurance Agreement which the Retrocedant is
obligated to pay to the Original Company.
D. The Retrocessionaire's liability will begin obligatorily and
simultaneously with that of the Retrocedant and all reinsurance ceded
hereunder will be subject to the same terms, rates, conditions,
interpretations, waivers, modifications, alterations and cancellations as
the respective policies of the Original Company insofar as they relate to
the business in the Original Reinsurance Agreement and covered hereunder.
The liability of the Retrocessionaire will extend to any policy coverage
required of the Retrocedant by any legislative, regulatory or judicial
body or arbitration proceedings
ARTICLE 3
COMMENCEMENT AND TERMINATION
A. This Agreement shall take effect as of 12:01 A.M. Standard Time (as
defined in the Original Company's policies), September 1, 1995 and will
remain in force and effect for one year, expiring at 12:01 A.M. Standard
Time, September 1, 1996 unless terminated before that as hereinafter
provided.
B. Either party may terminate this Agreement at any time by giving at least
90 days notice in writing, stating therein the date on which termination
shall become effective. During any such period of notice, the
Retrocessionaire will remain bound by the terms of the Agreement. In the
event of termination prior to the end of a calendar month, the last
partial month shall be added to the last complete month and considered one
month for the purposes of this Agreement.
C. Upon the expiration or termination of this Agreement, the
Retrocessionaire will remain liable for all policies in force under the
Original Reinsurance Agreement until their natural expiration or renewal
dates, whichever comes first. Alternatively, at the expiration or
termination of the Agreement the Original
2
<PAGE> 4
Company may elect to terminate the Retrocedant's liability on a cut-off
basis as of the date of expiration or termination, and termination
hereunder shall follow the Original Reinsurance Agreement in like manner.
If cut-off basis is elected, the Retrocessionaire will have no further
liability hereunder for losses occurring subsequent to the expiration or
termination of this Agreement, in consideration of which the
Retrocessionaire shall return to the Retrocedant the unearned premium
(calculated on the monthly pro rata basis) as of the expiration or
termination date, less commission previously allowed thereon.
D. Every notice of termination shall be given by certified letter addressed
to the intended recipient as set forth in the Preamble of this Agreement.
In determining whether the requisite number of days' notice has been given
in any case, the date of termination shall be counted but the date of
mailing shall not.
E. Notwithstanding the expiration or termination of this Agreement as herein
above provided, the provisions of this Agreement shall continue to apply
to all unfinished business hereunder to the end that all obligations and
liabilities incurred by each party hereunder prior to such expiration or
termination shall be fully performed and discharged.
ARTICLE 4
EXCLUSIONS
A. The reinsurance provided under this Agreement is subject to the exclusions
set forth below and shall not cover said excluded risks, hazards and
coverages unless individually submitted by the Retrocedant to the
Retrocessionaire for inclusion hereunder, and, if specially accepted by
the Retrocessionaire, such business shall then be covered under the terms
of this Agreement, except as such terms shall be modified by such
acceptance.
B. The reinsurance provided under this Agreement does not apply to:
1. All reinsurance assumed by the Retrocedant except for that
reinsurance assumed under the Original Agreement.
2. Risks involving a nuclear facility or nuclear material, spent
fuel or waste as defined in the Nuclear Incident Exclusion
Clause, except for the use of radioactive isotopes.
3. Liability of the Original Company arising by contract from its
voluntary participation or membership in any insolvency fund.
"Insolvency Fund" includes any guarantee fund, insolvency fund,
plan, pool, association, fund or other facility which provides
for the assessment of, payment by, or assumption by the
Retrocedant of a part or the whole of any claim, debt,
3
<PAGE> 5
charge, fee or other obligations of an insurer, or its successors
or assigns, which has been declared insolvent by any authority
having jurisdiction. This exclusion shall not apply to
assessments arising by operations of law or involuntary
membership or participation in any insolvency fund.
4. Business voluntarily derived from any Pool, Association,
including Joint Underwriting Association, Syndicate, Exchange,
Plan, Fund, or any other facility directly as a member,
subscriber, or participant, or indirectly by way of reinsurance.
This exclusion shall not apply to Worker's Compensation assigned
risks which may be currently or subsequently covered hereunder or
any involuntary assessments from any Pool Association, Joint
Underwriting Association, Syndicate, Exchange, Plan or Fund.
5. Construction and maintenance of Caisson or Coffer Dams (except
earth filled Dams).
6. Manufacturing, packing, handling or shipping of explosives,
explosive substances intended for use as an explosive,
ammunition, fuses, arms or fireworks.
7. Manufacturing, Production and Refining Petroleum or its products.
8. Professional Sports Teams.
9. Railroad Operations.
10. Oil and Gas drilling, refining, production or manufacturing.
11. Underground Mining.
12. Tunneling Operations involving tunnels over 100 feet.
13. Wrecking or Demolition of buildings, structures or vessels over 5
stories in height.
14. Asbestos, Lead Paint or other toxic substance abatement, when
written as such.
15. Maritime or Jones Act (except for USL&H)
ARTICLE 5
TERRITORY
This Agreement covers original policies wherever issued in the United States of
America, and reinsured under the Original Reinsurance Agreement by the
Retrocedant.
4
<PAGE> 6
ARTICLE 6
DEFINITIONS
A. "Policy" or "policies" means all original policies, contracts, binders,
certificates or agreements of insurance whether written or oral, issued by
the Original Company and reinsured 100% by the Retrocedant.
B. "Gross Net Written Premium" means the Gross Net Written Premium assumed by
the Retrocedant under the Original Agreement, being Gross Written Premium
less return premiums and dividends paid on policies that are written
subject to a loss sensitive dividend plan. (For original business that is
written subject to an installment billing plan, the premium shall be
considered written thirty (30) days after the day which they became due to
the original Company.) Additionally, the Retrocedant's proportionate share
of reinsurance premium due for the Reinsurance protection excess of
$500,000 each loss (as detailed under Article 10 - OTHER REINSURANCE)
shall be deducted from the Retrocedant's retained Gross Net Written
Premium.
"Gross Net Earned Premium" means the Earned portion of the Gross Net
Written Premium as defined above, calculated by applying the incoming
Unearned Premium if any at the beginning of the period plus the Gross Net
Written Premium less the Unearned if any at the end of the Agreement.
C. "Loss" means the amount paid by the Retrocedant or for which the
Retrocedant has become liable to pay under the Original Reinsurance
Agreement and in turn covered under this retrocession (including, but not
limited to, amounts in settlement of claims and suits and in satisfaction
of judgments, and interest accrued prior to final judgment if such
interest is included as part of loss under the policies). All salvages
and subrogations will be deducted from the amount of loss. Loss will not
include loss expense unless loss expense is included within the limit of
liability of policies reinsured under the Original Reinsurance Agreement.
D. "Loss expense" means all expenses incurred by the Retrocedant as respects
the investigation, appraisal, adjustment, settlement, litigation, appeal,
and/or defense of claims under the policies reinsured under the Original
Agreement (including, but not limited to, attorneys' fees; court costs;
interest accrued prior to final judgment if it is included as part of loss
expense under the policies; interest accrued after final judgment; and
salaries and expenses of employees of the Original Company who have been
diverted from their normal and customary duties and assigned to the
field adjustment of losses under this Agreement). Loss expense will also
include coverage dispute expense and monitoring expense. The
Retrocessionaire will bear its proportionate share of all loss expense in
addition to its liability hereunder unless such loss expense is included
as part of loss under the policies
5
<PAGE> 7
and will benefit accordingly in all salvages, subrogation, discounts, and
other recoveries. Loss expense excludes unallocated loss expense, (i.e.
internal office expenses, salaries, per diem, and other remuneration of
Original Company employees who have not been diverted from their normal
and customary duties and assigned to the field adjustment of losses under
this Agreement).
E. "Coverage dispute expense" means all expenses (including, but not limited
to, attorneys' fees, arbitration costs, and court costs) the Original
Company has paid, or has become liable to pay, in connection with any
coverage disputes regarding the policies reinsured under the Original
Agreement, including, but not limited to, declaratory judgment actions and
arbitration proceedings brought to determine the defense and/or
indemnification obligations attributable to such policies. Coverage
dispute expense will be deemed to have been incurred by the Original
Company on the date the loss was suffered, or allegedly suffered, under
the policy.
F. "Monitoring expense" means all expenses the Original Company has paid in
connection with claims under this Agreement, including, but not limited
to, attorneys' fees and all other legal expenses, when such expenses were
incurred by directly assisting in the handling of claims or by acting in a
supervisory, reviewing, or advisory capacity. Monitoring expense will be
deemed to have been incurred by the Original Company on the date the loss
was suffered, or allegedly suffered, under the policy.
ARTICLE 7
REINSURANCE PREMIUM AND COMMISSION
A. The Retrocedant, either directly or through the Underwriting Manager, will
remit to the Retrocessionaire its proportionate share of the Gross Net
Written Premium on all policies inforce, written or renewed under the
Original Reinsurance Agreement with an effective date on or after the
inception of this Agreement, for sections A-C as described in Article
2-Cover.
B. The Retrocessionaire shall allow the Retrocedant a commission equal to 30%
of all Gross Net Written Premiums ceded hereunder (before cost of inuring
Excess of Loss Reinsurance). Such commission shall include reimbursement
for acquisition costs, premium taxes and fees. Assessments and residual
market loads shall be paid for the 100% portfolio of business by the
Retrocessionaire to the Retrocedant separately and in addition to
commission for reimbursement to the Original Company as detailed in
Paragraph C of Article 2-Cover. The Retrocedant shall allow the same 30%
return commission on return premiums.
C. It is understood that the amount of the commission in excess of the 30%
allowance paid to the Retrocedant for reimbursement to the Original
Company, pursuant to
6
<PAGE> 8
Article 7(B), will be adjusted annually, utilizing the December 31
figures, based on the figures provided by the Original Company.
ARTICLE 8
PROFIT COMMISSION
The Retrocedant shall pay the Retrocessionaire a profit commission (as respects
the Retrocedant's retained 50% portion after cession hereunder) equal to 75% of
the Retrocedant's profit (being gross net earned premium, as defined in Article
6, Paragraph B, less ceding commission less incurred losses and loss adjustment
expense) less 6% of Gross Net Earned Premium for the Retrocedant's reinsurance
management expenses. The profit commission calculation shall take place 48
months after the inception of this Agreement, (being September 1, 1999) and
shall be recalculated and adjusted annually thereafter until all losses are
settled.
ARTICLE 9
REPORTS AND REMITTANCES.
A. Within 30 days after the end of each month, the Retrocedant, either
directly or through the Underwriting Manager, will furnish the
Retrocessionaire with a report summarizing the following information for
business transacted during the month:
1. Gross Net Written Premium; less
2. Commission allowance to the Retrocedant; less
3. Paid losses and loss expense; less
4. Amounts paid in respect of extra contractual obligations and/or
excess limits liability; plus
5. Monies recovered;
6. Balance (items 1-2-3-4+5 above) due to the Retrocessionaire (or,
if negative balance, to the Retrocedant).
B. Amounts due the Retrocessionaire will be remitted with the report.
Amounts due the Retrocedant will be remitted within 10 days following the
Retrocessionaire's receipt and verification of the report.
C. In addition, the Retrocedant, either directly or through the Underwriting
Manager, will furnish the Retrocessionaire a monthly statement showing the
unearned premium, the total reserves for outstanding losses including loss
adjustment expense and such other information as may be required by the
Retrocessionaire for completion of its NAIC annual statements.
7
<PAGE> 9
ARTICLE 10
OTHER REINSURANCE
A. Excess of Loss Reinsurance Coverage for 100% of loss excess of $500,000
each and every occurrence is deemed to be in place and shall inure to the
benefit of both the Retrocedant and Retrocessionaire. Premium for such
cover shall be paid by the Retrocedant and Retrocessionaire in proportion
to their interests, being 50% each. This Excess of Loss Reinsurance
Coverage shall be liable for 100% of the amount by which such 100% subject
loss exceeds $500,000, but the liability shall not exceed statutory limits
for Workers' Compensation or $2,000,000 for Employers' Liability as
respects any one occurrence. In the event this Excess of Loss Reinsurance
Coverage is not kept in place, the Retrocessionaire shall assume 100% of
all losses in excess of $500,000 from the Retrocedant including any
differences in conditions which might fall outside this contract excess
$500,000.
B. "Occurrence" as used in the Excess of Loss Reinsurance Agreement, unless
otherwise defined in the original policies reinsured thereunder, will mean
each and every accident, disaster, occurrence or casualty or series of
accidents, disasters, occurrences or casualties arising out of one event.
Occupational disease sustained by each employee shall be deemed to be one
separate occurrence and the occurrence shall be deemed to take place on
the date upon which the employee is last exposed to work conditions
allegedly causing such occupational disease.
ARTICLE 11
LOSSES AND LOSS ADJUSTMENT EXPENSES
A. The Retrocessionaire shall pay to the Retrocedant, either directly or
through the Underwriting Manager, its proportionate share of all loss and
loss expense (including coverage dispute expense and monitoring expense),
as defined in Article 6 of this Agreement.
B. The Retrocessionaire agrees to abide by all disposition of claims,
including exgratia settlements, directed by the Retrocedant and/or the
Original Company and/or the Underwriting Manager as the Original Company's
agent, or as directed or amended by enactment or interpretation by any
legislative, regulatory, or judicial body, provided that: (i) the Original
Company and/or the Underwriting Manager, as applicable, shall settle all
claims in accordance with the underlying policies and applicable law, and
(ii) the Original Company and/or the Underwriting Manager shall comply
with all provisions of this Article.
C. The Retrocedant, either directly or through the Underwriting Manager as
its agent, shall report promptly to the Retrocessionaire, as in the
Original Reinsurance
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<PAGE> 10
Agreement, each claim or loss for which the Retrocedant's estimated amount
of gross loss exceeds $100,000 or more.
D. When so requested, and as applicable, the Retrocedant will afford the
Retrocessionaire, at its own expense, an opportunity to be associated with
the Retrocedant in the defense of any claim, suit, or proceeding involving
this Agreement, and the Retrocedant and the Retrocessionaire will
cooperate in every respect in such defense.
E. The Retrocessionaire shall benefit pro rata in all salvages, discounts and
other recoveries.
ARTICLE 12
EXTRA CONTRACTUAL OBLIGATIONS
A. This Agreement will cover 100% of any extra contractual obligations, as
defined in this Article, and is intended to follow that contained in the
Original Reinsurance Agreement.
B. "Extra contractual obligations" are defined as those liabilities not
covered under any other provision of this Agreement 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
Original 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 trial of any
action against its insured or in the preparation or prosecution of an
appeal consequent upon such action.
C. The date on which an extra contractual obligation is incurred by the
Original Company shall be deemed, in all circumstances, to be the date of
the original accident, casualty, disaster or loss occurrence.
D. However, this Article shall not apply where the loss has been incurred due
to the fraud of a member of the Board of Directors or a corporate officer
of the Original 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.
E. Recoveries from any form of insurance or reinsurance which protects the
Original Company against claims the subject matter of this Article will
inure to the benefit of the Retrocedant under the Original Reinsurance
Agreement, and the Retrocessionaire under this Agreement and shall be
deducted to arrive at the amount of the Retrocessionaire's liability under
this Article.
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<PAGE> 11
F. Should any Extra Contractual Obligations arise between the Original
Company and the Retrocedant, any such liabilities shall be shared
proportionately between the Retrocedant and Retrocessionaire.
ARTICLE 13
EXCESS LIMITS LIABILITY
A. In the event a third party claimant is awarded an amount in excess of the
Original Company's policy limit and as a result of the Original Company's
alleged or actual tortious conduct in the handling of the investigation,
defense or settlement of the claim made against the Original Company's
insured an action is taken by the insured or assignee and a judgment
rendered against the Original Company for an amount in excess of the
Original Company's policy limit, 100% of only that portion of the award
made to the third party claimant which is in excess of the Original
Company's policy limit shall be added to the amount of the Original
Company's policy limit and the sum thereof shall be considered one loss
under the Original Reinsurance Agreement and under this Agreement, subject
to the provision in (B) below and other provisions, exclusions and
limitations set forth in this Agreement.
B. Recoveries from any form of insurance or reinsurance which protects the
Original Company against claims the subject matter of this Article will
inure to the benefit of the Retrocedant under the Original Reinsurance
Agreement and the Retrocessionaire under this Agreement, and shall be
deducted to arrive at the amount of the Retrocessionaire's liability under
this Article.
ARTICLE 14
INSOLVENCY
In the event of the insolvency of the Retrocedant and the appointment of a
conservator, liquidator, receiver or statutory successor, the reinsurance
provided by this Agreement shall be payable by the Retrocessionaire directly to
the Retrocedant or its liquidator, receiver or statutory successor on the basis
of the liability of the Retrocedant under the contract or contracts reinsured.
Subject to the right of offset and the verification of coverage, the
Retrocessionaire shall pay its share of the loss without diminution because of
the insolvency of the Retrocedant. The liquidator, receiver or statutory
successor of the Retrocedant shall give the Retrocessionaire written notice of
the pendency of each claim against the Retrocedant on a policy or bond
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Retrocessionaire may, at
its own expense, investigate such claim and interpose in the proceeding where
such claim is to be adjudicated any defense or defenses which it may deem
available to the Retrocedant, its liquidator, receiver or statutory successor.
Subject to court approval, any expense thus incurred by the Retrocessionaire
shall be chargeable
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<PAGE> 12
against the Retrocedant as part of the expense of liquidation to the extent of
such proportionate share of the benefit as shall accrue to the Retrocedant
solely as a result of the defense undertaken by the Retrocessionaire. The
reinsurance shall be payable as set forth above except where this Agreement
specifically provides for the payment of reinsurance proceeds to another party
in the event of the insolvency of the Retrocedant.
ARTICLE 15
OFFSET
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any balance or balances whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under this Agreement or under
any other reinsurance agreement heretofore or hereafter entered into by and
between them, and may offset the same against any balance or balances due or to
become due to the former from the latter under the same or any other
reinsurance agreement between them; and the party asserting the right of offset
shall have and may exercise such right whether the balance or balances due or
to become due to such party from the other are on account of premiums or on
account of losses or otherwise and regardless of the capacity, whether as
assuming insurer or as ceding insurer, in which each party acted under the
agreement or, if more than one, the different agreements involved, provided,
however, that, in the event of the insolvency of a party hereto, offsets shall
only be allowed in accordance with the laws of the insolvent party's state of
domicile.
ARTICLE 16
CURRENCY
All payments made by either party hereunder will be in United States Dollars.
ARTICLE 17
ERRORS AND OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this Agreement
or any transaction hereunder will not relieve either party from any liability
that would have attached had such delay, error, or omission not occurred;
but the liability of the Retrocessionaire under this Agreement shall in no
event be extended to cover any risks, perils or classes of insurance generally
or specifically excluded therein.
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<PAGE> 13
ARTICLE 18
SALVAGE AND SUBROGATION
The Retrocessionaire will be credited with its proportionate share of any
salvage or subrogation recoveries (i.e. as under the Original Reinsurance
Agreement, reimbursement obtained or recovery made by the Original Company,
less the actual cost, excluding salaries of officials and employees of the
Original Company, of obtaining such reimbursement or making such recovery) on
account of claims and settlements involving policies reinsured under the
Original Agreement and in turn hereunder. If the recovery expense exceeds the
amount recovered, the amount recovered (if any) will be applied to the
reimbursement of recovery expense and the remaining expense will be borne by
the Retrocessionaire.
ARTICLE 19
ARBITRATION
This Agreement may be altered or amended in any of its terms and conditions by
mutual consent of the Retrocedant and the Retrocessionaire by addenda hereto or
by an exchange of letters requesting acceptance of revised pages or special
acceptances. Such addenda or letters will then constitute a part of this
Agreement.
ARTICLE 20
ACCESS TO RECORDS
The Retrocedant, either directly or through the Underwriting Manager, shall
place at the disposal of the Retrocessionaire and the Retrocessionaire shall
have the right to inspect, through its authorized representatives, at all
reasonable times during the currency of this Agreement and thereafter, the
books, records and papers of the Retrocedant and the Underwriting Manager
pertaining to the reinsurance provided hereunder and all claims made in
connection therewith.
ARTICLE 21
ARBITRATION
A. If any dispute arises between the Retrocedant and Retrocessionaire with
reference to the interpretation, performance, or breach of this Agreement
(whether the dispute arises before or after termination of this
Agreement), such dispute, if not resolved by the parties must be submitted
to non binding mediation. If such dispute is not resolved by non binding
mediation within sixty (60) days it will then be submitted to final and
binding arbitration.
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<PAGE> 14
B. As a condition precedent to any right of action hereunder, any dispute
arising out of this Agreement shall be submitted to the decision of a
board of arbitration composed of two arbitrators and an umpire, meeting in
Stamford, Connecticut unless otherwise agreed.
C. The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies. Each party
shall appoint its arbitrator and the two arbitrators shall choose an
umpire before instituting the hearing. If the respondent fails to appoint
its arbitrator within four weeks after being requested to do so by the
claimant, the latter shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the appointment of an umpire within four
weeks after their nominations, each of them shall name three, of whom the
other shall decline two and the decision shall be made by drawing lots.
The arbitrators will not be obliged to follow judicial formalities or
rules of evidence except to the extent required by the law of the state of
Minnesota.
D. The claimant shall submit its initial brief within 20 days from
appointment of the umpire. The respondent shall submit its brief within
20 days after receipt of the claimant's brief and the claimant may submit
a reply brief within 10 days after receipt of the respondent's brief
E. The board shall make its decision with regard to the custom and usage of
the insurance and reinsurance business. The board shall issue its
decision in writing based upon a hearing in which evidence may be
introduced without following strict rules of evidence but in which cross
examination and rebuttal shall be allowed. The board shall make its
decision within 60 days following the termination of the hearings unless
the parties consent to an extension. The majority decision of the board
shall be final and binding upon all parties to the proceeding. Judgment
may be entered upon the award of the board in any court having
jurisdiction thereof.
F. Each party shall bear the expense of their own arbitrator and will
jointly and equally bear with the other party the cost of the umpire and
arbitration. Additionally, the Retrocessionaire agrees to hold harmless
and fully indemnify the Retrocedant as respects its obligation to the
Original Company in respect to all costs and expenses, of whatsoever
nature incurred or suffered by the Retrocedant in the event arbitration
proceedings are initiated between the Retrocedant and the Original Company
and/or its Underwriting Manager.
The Retrocessionaire agrees to hold harmless and fully indemnify the
Retrocedant in respect to all costs and expenses, of whatsover nature
incurred or suffered by the Retrocedant in the event of arbitration
proceeds are initiated between the Original Company and the Underwriting
Manager and/or between the Original Company and the Retrocedant.
G. It is agreed that the jurisdiction of the arbitrators to make or render
any decision or award shall be limited by the limit of liability expressly
herein before set forth, and
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<PAGE> 15
that the arbitrators shall have no jurisdiction to make any decision or
render any award exceeding such expressly stated limit of liability of the
Retrocessionaire under Article 2-Cover, nor do they have the jurisdiction
to authorize any punitive, exemplary or consequential damage awards
between the parties hereto.
ARTICLE 22
RESERVES AND TAXES
A. The Retrocessionaire shall maintain legal reserves with respect to
unearned premiums and claims hereunder.
B. The Retrocedant will be liable for all taxes on premiums reported to the
Retrocessionaire hereunder and will reimburse the Retrocessionaire for
such premium taxes where the Retrocessionaire is required to pay the same
directly to the taxing authority.
ARTICLE 23
COMMUTATION
To be agreed.
ARTICLE 24
HEADINGS
The Article headings contained in this Agreement are for reference purposes
only and will not affect in any way the meaning or interpretation of this
Agreement.
ARTICLE 25
LOSS FUNDING
(To apply in the event the Retrocessionaire does not maintain its Admitted
Security status in Minnesota by keeping $50,000,000 in policyholders' surplus
and in such event that the Retrocessionaire does not provide a funds withheld
alternative arrangement agreed by the Retrocedant.)
With respect to losses, funding will be in accordance with the attached Loss
Funding Clause unless the requirements of regulatory authorities in the
jurisdiction involved are not met by this Clause, in which event the
Retrocessionaire will fund in accordance with the requirements of such
regulatory authorities.
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<PAGE> 16
ARTICLE 26
INTERMEDIARY
G.J. Sullivan Company is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications relating thereto
shall be transmitted to the Company and the Reinsurer through G.J. Sullivan
Company, 800 West Sixth Street, Los Angeles, California 90017, except those
relating to payments hereunder. All payments, and all correspondence relating
to payments hereunder, shall be transmitted directly between the Company and
the Reinsurer.
LOSS FUNDING
(This clause is only applicable to those Retrocessionaire's who cannot qualify
for credit by the regulatory authorities having jurisdiction over the
Retrocedant's loss reserves.)
As regards policies or bonds issued by the Retrocedant coming within the scope
of this Agreement, the Retrocedant agrees that, when it shall file with the
Insurance Department or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Retrocessionaire a statement showing the proportion of such loss reserves which
is applicable to them. The Retrocessionaire hereby agrees that it will apply
for and secure delivery to the Retrocedant of a clean, irrevocable and
unconditional Letter of Credit, issued by a bank chosen by the Retrocessionaire
and acceptable to the appropriate insurance authorities, in an amount equal to
the Retrocessionaire's proportion of reserves in respect of known outstanding
losses that have been reported to the Retrocessionaire and allocated loss
expenses relating thereto as shown in the statement prepared by the
Retrocedant. Under no circumstances shall any amount relating to reserves in
respect of Incurred But Not Reported losses or any application thereto be
included in the amount of the Letter of Credit.
The Letter of Credit shall be issued for a period of not less than one year,
and shall be automatically extended for one year from its date of expiration or
any future expiration date unless thirty (30) days prior to any expiration date
the issuing bank shall notify the Retrocedant by registered mail that the
issuing bank elects not to consider the Letter of Credit extended for any
additional period.
Notwithstanding any other provision of this Agreement, the Retrocedant or its
successors in interest may draw upon such credit at any time without diminution
because of the insolvency of the Retrocedant or of the Retrocessionaire for one
or more of the following purposes only:
(a) To pay the Retrocessionaire's share or to reimburse the
Retrocedant for the Retrocessionaire's share of any loss
reinsured by this Agreement, the payment of which has been agreed
by the Retrocessionaire and which has not been otherwise paid.
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<PAGE> 17
(b) To make refund of any sum which is in excess of the actual amount
required to pay the Retrocessionaire's share of any liability
reinsured by this Agreement.
(c) In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Retrocessionaire's share
of known and reported outstanding losses and allocated expenses
relating thereto under this Agreement. Such cash deposit shall
be held in an interest bearing account separate from the
Retrocedant's other assets, and interest thereon shall accrue to
the benefit of the Retrocessionaire.
The bank chosen for the issuance of the Letter of Credit shall have no
responsibility whatsoever in connection with the propriety of withdrawals made
by the Retrocedant or the disposition of funds withdrawn, except to ensure that
withdrawals are made only under the order of properly authorized
representatives of the Retrocedant.
At annual intervals, or more frequently as agreed but never more frequently
than quarterly, the Retrocedant shall prepare a specific statement, for the
sole purpose of amending the Letter of Credit, of the Retrocessionaire's share
of known and reported outstanding losses and allocated expenses relating
thereto. If the statement shows that Retrocessionaire's share of such losses
and allocated loss expenses exceeds the balance of credit as of the statement
date, the Retrocessionaire shall, within thirty (30) days after receipt of
notice of such excess, secure delivery to the Retrocedant of an amendment of
the Letter of Credit increasing the amount of credit by the amount of such
difference. If, however, the statement shows that Retrocessionaire's share of
known and reported outstanding losses plus allocated loss expenses relating
thereto is less than the balance of credit as of the statement date, the
Retrocedant shall, within thirty (30) days after receipt of written request
from the Retrocessionaire, release such excess credit by agreeing to secure an
amendment to the Letter of Credit reducing the amount of credit available by
the amount of such excess credit.
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<PAGE> 18
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
in duplicate this 10th day of May, 1996, Stamford, Connecticut.
ACCEPTED:
CHARTWELL REINSURANCE COMPANY
- -----------------------------
/s/ Allison H. Gooden
- -----------------------------
Attested by:
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
in duplicate this 21st day of May, 1996, Sarasota, Florida.
RISCORP INSURANCE COMPANY
-------------------------
-------------------------
Attested by:
<PAGE> 1
EXHIBIT 10.77
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
BETWEEN
NARM MERCANTILE GROUP SELF INSURANCE ASSOCIATION
OF VIRGINIA HEREINAFTER REFERRED TO
AS THE "GSIA"
AND
RISCORP NATIONAL INSURANCE COMPANY
HEREINAFTER REFERRED TO AS THE "REINSURER"
<PAGE> 2
LOSS PORTFOLI0 TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - BUSINESS COVERED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 - REINSURANCE PREMIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 5 - NOTICE OF ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 7 - ASSESSMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 9 - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 10 - OTHER OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 11 - REQUIRED REGULATORY APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 13 - ERRORS OR OMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 14 - ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 15 - HONORABLE UNDERTAKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 16 - TAX NEUTRALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 17 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
D. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
F. Non-waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
G. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
1
<PAGE> 3
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
(Hereinafter referred to as the "Agreement")
between
NARM MERCANTILE GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA
(Hereinafter referred to as the "GSIA")
and
RISCORP NATIONAL INSURANCE COMPANY
(Hereinafter referred to as the "Reinsurer")
ARTICLE 1 - BUSINESS COVERED
A. The Reinsurer assumes by assumption reinsurance the Policies and the
liability to pay all losses, including loss adjustment expenses, covered by
Policies issued by the GSIA prior to October 1, 1996, to all policyholders,
including all existing and incurred but not reported ("IBNR") claims covered by
the Policies (hereinafter "Reinsured Claims"), subject to the terms and
conditions contained herein.
B. The term "Policies" shall mean all binders, policies, contracts,
certificates and other obligations, whether oral or written, of insurance
issued by the GSIA to its member employers. It is understood and agreed that
the Reinsurer is bound by all the terms and conditions of the GSIA's Policies
as if the Policies had been issued by the Reinsurer.
C. The GSIA hereby transfers to the Reinsurer all rights the GSIA may have
now or in the future under or with respect to the Policies, including, without
limitation, the right to collect and adjust premiums, adjust and settle claims,
deny coverage, rescind policies, etc.
ARTICLE 2 - EFFECTIVE DATE
This Agreement shall be effective as of 12:01 a.m., Eastern Standard
Time, October 1, 1996.
ARTICLE 3 - REINSURANCE PREMIUM
The GSIA shall pay a premium equal to the sum of all of its assets as of
the Effective Date in accordance with the following terms and conditions.
2
<PAGE> 4
However, Reinsurer acknowledges that policyholders of the GSIA have the right
under Virginia law not to accept the transfer of their Policies to the
Reinsurer, and that the reinsurance premium payable hereunder will be affected
by the number of policyholders who do not accept the transfer. Prior to the
Effective Date, the GSIA shall deliver to the Reinsurer a schedule of the
specific investments and assets which the GSIA will use to pay the premium.
All investments shall be listed on the schedule at fair market value. As of
the Effective Date, the GSIA shall transfer all scheduled investments and
assets to the Reinsurer and shall execute all documents necessary to effectuate
such transfer.
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF
DOCUMENTS
A. The parties hereto agree to act in good faith and cooperate with each
other in effecting the assumption of the Reinsured Claims provided for in this
Agreement. The parties shall take all actions necessary to assist each other
in obtaining all regulatory approvals or responding to information requests of
those insurance regulatory authorities asserting jurisdiction over the
transactions herein described.
B. Upon demand by, and in accordance with instructions of the Reinsurer, the
GSIA shall deliver originals or copies of all policy records and claims files
pertaining to the Reinsured Claims and all other files and records incidental
to the Reinsured Claims as are necessary for the Reinsurer to perform its
obligations under this Agreement. The Reinsurer shall retain all policy
records, claim files, and other documents received by it from the GSIA as
required by applicable law. Upon reasonable notice, each of the Reinsurer and
the GSIA will be entitled to reasonable access to the books and records of the
other party at any reasonable time, but only to the extent such materials
pertain to the business assumed and reinsured under this Agreement. Each party
will pay its own expenses associated with any such review of the books and
records. The GSIA will retain as its property all its original corporate
records, including, without limitation, articles of incorporation, bylaws,
minute books, and certificate of authority; provided, however, that the GSIA
shall provide the Reinsurer with copies of all such documents upon the
effective date hereof.
C. Whenever the GSIA receives any payments or communications, including
notices of claims and proofs of loss, pertaining to the Reinsured Claims, it
will forward such payments and communications promptly to the Reinsurer.
ARTICLE 5 - NOTICE OF ASSUMPTION
As soon as practicable after the Effective Date, the GSIA will issue and
deliver or cause its agents to deliver to the named insureds under the Policies
an appropriate notice of transfer/assumption substantially in the form attached
hereto. The Reinsurer will take all other necessary actions to assume the
Reinsured Claims. The GSIA will cooperate fully with the Reinsurer in
implementing such assumption, including, without limitation,
3
<PAGE> 5
executing any document reasonably necessary to evidence the completion of the
transactions contemplated by the Agreement.
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS
A. From and after the Effective Date, the Reinsurer will be solely liable for
the administration and disposition of all aspects of the Reinsured Claims
assumed by the Reinsurer including, without limitation, the defense,
adjustment, settlement, and payment of all losses and expenses arising under or
relating to the Reinsured Claims. The GSIA hereby grants and assigns to the
Reinsurer full authority to administer such losses, claims, expenses, defenses,
adjustments, settlements, and payments, and such matters will be under the
Reinsurer's control and within its discretion. The Reinsurer will bear all
expenses and costs incurred by it in connection with the administration and
disposition of such losses, claims, expenses, defenses, adjustments,
settlements, and payments.
B. The GSIA will cause all information and notices regarding the Reinsured
Claims actually received by the GSIA after the Effective Date to be promptly
reported to the Reinsurer or the Reinsurer's designated representative. The
GSIA also will undertake any reasonable arrangements deemed necessary by the
Reinsurer to ensure that all notices received by the GSIA after the Effective
Date in connection with the Reinsured Claims are promptly delivered to the
Reinsurer.
C. All losses and similar items regarding the Reinsured Claims that the
Reinsurer determines to be payable will be paid directly and promptly by the
Reinsurer.
ARTICLE 7 - ASSESSMENTS
In the event that an assessment is made against any present or former
policyholders of the GSIA pursuant to Virginia General Statutes, the Reinsurer
agrees to pay the full assessment on behalf of said policyholders. By this
undertaking, the Reinsurer and the GSIA expressly intend to benefit as third
party beneficiaries all present and former policyholders of the GSIA, and the
Reinsurer agrees to be subject to suit by any policyholder as set out in
Article 8.
ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER
The Reinsurer hereby covenants and agrees that it may be sued for
its actions after the Effective Date, in its own name, by insured under the
Policies.
ARTICLE 9 - INDEMNIFICATION
The Reinsurer agrees to defend, protect, indemnify and hold harmless the
GSIA and its successors or assigns, against any liability, claim, loss or
damage, including punitive damages, arising under or out of any of the
Reinsured Claims reinsured hereunder or the transactions contemplated by this
Agreement.
4
<PAGE> 6
ARTICLE 10 - OTHER OBLIGATIONS
The Reinsurer shall also be responsible for any losses assessed against
the GSIA or the Reinsurer. Such losses are defined as those liabilities
(whether they constitute compensatory, incidental, exemplary or punitive
damages) not covered under any other provision of this Agreement.
ARTICLE 11 - REQUIRED REGULATORY APPROVAL
This Agreement remains subject to the approval of the Virginia Bureau of
Insurance. The GSIA and the Reinsurer shall take all steps necessary to obtain
requisite regulatory approval of this Agreement and the transaction described
herein.
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES
A. In the event of the payment of any loss by the Reinsurer under this
Agreement, the Reinsurer shall be subrogated, to the extent of such payment, to
all of the rights of the GSIA against any person or entity legally responsible
for the loss. The Reinsurer is hereby authorized and empowered to bring any
appropriate action in its own name or in the name of the GSIA to enforce such
rights.
B. Any payments received by or due to the GSIA from any reinsurer of the GSIA
which is payable on a Reinsured Claim shall become the property of and paid to
the Reinsurer. If any payment is received by the GSIA which is to be credited
to the Reinsurer under or with respect to any of the Reinsured Claims, the GSIA
will immediately endorse (without warranty or recourse) and deliver to the
Reinsurer such checks, drafts, or money intended as such payment, and until
delivery of such items to the Reinsurer, the GSIA will treat any such checks,
drafts, or money as the property of the Reinsurer held for the account of the
Reinsurer. The Reinsurer and the GSIA will each use all commercially reasonable
efforts to cause the transfer and assignment (as of the Effective Date) to the
Reinsurer of all of the GSIA's rights, interests, and obligations under the
GSIA's reinsurance agreements, if any, covering the risks, liabilities, and
obligations of the GSIA under or with respect to the Reinsured Claims,
including, without limitation, obtaining any necessary consents or approvals to
such transfer and assignment by the reinsurers under any such reinsurance
agreements effective as of the Effective Date. Any failure to receive the
consents referred to herein will not relieve or diminish in any manner the
Reinsurer's obligations under this Agreement.
C. The Reinsurer shall be authorized and entitled to file and pursue the
collection of claims against the State of Virginia, Second Injury Fund, arising
out of or resulting from Reinsured Claims (hereinafter "SIF Claims") to pursue
the collection of SIF Claims filed by the GSIA prior to the Effective Date; and
to collect, receive, and retain any monies
5
<PAGE> 7
paid in settlement of satisfaction of any SIF Claims filed by either the
Reinsurer or the GSIA.
ARTICLE 13 - ERRORS OR OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would otherwise have attached had such delay, error, or omission
not occurred. Regardless, the responsible party will rectify each such delay,
error, or omission as promptly as practicable after discovery.
ARTICLE 14 - ARBITRATION
A. Any dispute or other matter in question between the GSIA and the Reinsurer
arising out of or relating to the formation, interpretation, performance, or
breach of this Agreement, whether such dispute arises before or after
termination of this Agreement, shall be settled by arbitration if the parties
are unable to resolve the dispute through negotiation. Arbitration shall be
initiated by the delivery of a written notice of demand for arbitration by one
party to the other.
B. Each party shall appoint an individual as arbitrator and the two so
appointed shall then appoint a third arbitrator. If either party refuses or
neglects to appoint an arbitrator within sixty (60) days of receipt of a
written notice of demand for arbitration, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third arbitrator
within sixty (60) days of their appointment, each of the arbitrators shall
nominate three individuals. Each arbitrator shall then decline two of the
nominations presented by the other arbitrator. The third arbitrator shall then
be chosen from the remaining two nominations by drawing lots. The arbitrators
shall be active or former officers of insurance or reinsurance companies; the
arbitrators shall not have a personal or financial interest in the result of
arbitration.
C. The arbitration hearings shall be held in Richmond, Virginia, or such
other place as may be mutually agreed. Each party shall submit its case to the
arbitrators within sixty (60) days of the selection of the third arbitrator or
within such longer period as may be agreed by the arbitrators. The
arbitrators shall not be obliged to follow judicial formalities or the rules of
evidence except to the extent required by governing law, that is, the state law
of the situs of the arbitration as herein agreed; they shall make their
decisions according to the practice of the reinsurance business. The decision
rendered by a majority of the arbitrators shall be final and binding on both
parties. Such decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute which either party may have
against the other. Judgement upon the award rendered may be entered in any
court having jurisdiction thereof.
6
<PAGE> 8
D. Each party shall pay the fee and expenses of its own arbitrator and
attorneys and one-half of the fees and expenses of the third arbitrator. All
other expenses of the arbitration shall be equally divided between the
parties.
E. Except as provided above, arbitration shall be based, insofar as
applicable, upon the Commercial Arbitration Rules of the American Arbitration
Association.
ARTICLE 15 - HONORABLE UNDERTAKING
This Agreement shall be construed as an honorable undertaking between the
parties hereto not to be defeated by technical legal constructions, it being
the intention of this Agreement that the fortunes of the Reinsurer shall in all
cases follow the fortunes of the GSIA.
ARTICLE 16 - TAX NEUTRALITY
The parties to the Agreement contemplate that as a result of or concurrent
with the transfer of assets and liabilities contemplated hereby, the GSIA shall
become entitled to a refund of certain taxes, and that the Reinsurer shall
sustain a corresponding tax liability. Accordingly, and in order to render the
transaction tax-neutral as to such refund, the GSIA hereby disavows any right
to collect any tax refund to which it currently is or may become entitled, and
assigns its rights to any such tax refund to the Reinsurer.
ARTICLE 17 - GENERAL PROVISIONS
A. Successors and Assigns. This Agreement shall inure to the benefit of and
bind the GSIA and its successors and assigns and the Reinsurer and its
successors and assigns. Neither this Agreement nor any right hereunder nor any
part hereof may be assigned by any party hereto without the prior written
consent of the other party hereto. Prior to any such assignment, the consent
of all necessary regulatory authorities must be obtained.
B. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Virginia (without giving effect to
principles of conflicts of laws) applicable to a contract executed and to be
performed in such state.
C. Entire Agreement This Agreement supersedes all prior discussions and
agreements between, and contains the sole and entire agreement between the GSIA
and the Reinsurer with respect to the subject matter hereof.
D. Counterparts. This Agreement may be executed simultaneously in any number
of counterparts, each of which will be deemed an original, but all of which
will constitute one and the same instrument.
7
<PAGE> 9
E. Headings, etc. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement. Unless the context of this Agreement otherwise
requires, (a) words of any gender will be deemed to include each other gender,
(b) words using the singular or plural number will also include the plural or
singular number, respectively, (c) the terns "hereof" "herein," "hereby," and
derivative or similar words will refer to this entire Agreement, and
(d) the conjunction "of"will denote any one or more, or any combination or all,
of the specified items or matter involved in the respective list.
F. Non-waiver. The failure of either party hereto at any time to enforce any
provision of this Agreement shall not be construed as a waiver of that
provision and shall not effect the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
G. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligation of any party under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable, (b)
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable
provision or by its severance added automatically as a part of this Agreement,
a legal, valid, and enforceable provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible.
H. Notices. Any notice or communication given pursuant to this Agreement
must be in writing and will be deemed to have been duly given if mailed (by
registered or certified mail, postage prepaid, return receipt requested), or if
transmitted by facsimile, or if delivered by courier, as follows:
To the GSIA:
NARM Mercantile Group Self Insurance Association of Virginia
6800 Paragon Place, Suite 200
Richmond, VA 23230
Attention: Mr. Gurney Cowling, Jr., Chairman of the Board
(804) 673-6116 or (800) 355-3596
To the Reinsurer:
RISCORP National Insurance Company
600 Paragon Place, Suite 200
Richmond, VA 23230
Attention: Stephen Ficarra, Vice President
(804) 673-6116 or (800) 355-3596
8
<PAGE> 10
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this paragraph will, whether sent by mail,
facsimile, or courier, be deemed given upon the first business day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a representative
of such party or by the facsimile confirmation). Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives this 27 day of September,
1996.
ATTEST: NARM Mercantile Group Self Insurance
Association of Virginia
Josephine A. Stephens By: /s/ Gordey Cowring, Jr.
- ----------------------------------- ----------------------------------------
NAME: GORDEY COWRING, JR.
--------------------------------------
Title: CHAIRMAN OF THE BOARD
-------------------------------------
ATTEST: RISCORP National Insurance Company
/s/ Lisa A. Hanewick BY: /s/ James A. Malone
- ----------------------------------- ----------------------------------------
Name: James A. Malone
--------------------------------------
Title: President
-------------------------------------
9
<PAGE> 1
EXHIBIT 10.78
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
BETWEEN
NARM SERVICES' GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA
HEREINAFTER REFERRED TO AS THE "GSIA"
AND
RISCORP NATIONAL INSURANCE COMPANY
HEREINAFTER REFERRED TO AS THE "REINSURER"
Had the Company adopted
SFAS 123, pro forma net income and earnings per share for the year ended
December 31, 1996 and 1995 would not have been materially different from actual
results of operations.
<PAGE> 2
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1 - BUSINESS COVERED ............................................. 2
ARTICLE 2 - EFFECTIVE DATE ............................................... 2
ARTICLE 3 - REINSURANCE PREMIUM .......................................... 2
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS ............. 3
ARTICLE 5 - NOTICE OF ASSUMPTION ......................................... 3
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS ............................ 4
ARTICLE 7 - ASSESSMENTS .................................................. 4
ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER ............................ 4
ARTICLE 9 - INDEMNIFICATION .............................................. 4
ARTICLE 10 - OTHER OBLIGATIONS ............................................ 5
ARTICLE 11 - REQUIRED REGULATORY APPROVAL ................................. 5
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES ...................... 5
ARTICLE 13 - ERRORS OR OMISSIONS .......................................... 6
ARTICLE 14 - ARBITRATION .................................................. 6
ARTICLE 15 - HONORABLE UNDERTAKING ........................................ 7
ARTICLE 16 - TAX NEUTRALITY ............................................... 7
ARTICLE 17 - GENERAL PROVISIONS ........................................... 7
A. Successors and Assigns .................................... 7
B. Governing Law ............................................. 7
C. Entire Agreement .......................................... 7
D. Counterparts .............................................. 7
E. Headings, etc.............................................. 8
F. Non-waiver ................................................ 8
G. Severability .............................................. 8
H. Notices ................................................... 8
</TABLE>
1
<PAGE> 3
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
(Hereinafter referred to as the "Agreement")
between
NARM SERVICES' GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA
(Hereinafter referred to as the "GSIA")
and
RISCORP NATIONAL INSURANCE COMPANY
(Hereinafter referred to as the "Reinsurer")
ARTICLE I - BUSINESS COVERED
A. The Reinsurer assumes by assumption reinsurance the Policies and the
liability to pay all losses, including loss adjustment expenses, covered by
Policies issued by the GSIA prior to October 1, 1996, to all policyholders,
including all existing and incurred but not reported ("IBNR") claims covered by
the Policies (hereinafter "Reinsured Claims"), subject to the terms and
conditions contained herein.
B. The term "Policies" shall mean all binders, policies, contracts,
certificates and other obligations, whether oral or written, of insurance
issued by the GSIA to its member employers. It is understood and agreed that
the Reinsurer is bound by all the terms and conditions of the GSIA's Policies
as if the Policies had been issued by the Reinsurer.
C. The GSIA hereby transfers to the Reinsurer all rights the GSIA may have now
or in the future under or with respect to the Policies, including, without
limitation, the right to collect and adjust premiums, adjust and settle claims,
deny coverage, rescind policies, etc.
ARTICLE 2 - EFFECTIVE DATE
This Agreement shall be effective as of 12:01 a.m., Eastern
Standard Time, October 1, 1996.
ARTICLE 3 - REINSURANCE PREMIUM
The GSIA shall pay a premium equal to the sum of all of its assets as of
the Effective Date to the Reinsurer in accordance with the following terms and
conditions.
2
<PAGE> 4
However, Reinsurer acknowledges that policyholders of the GSIA have the right
under Virginia law not to accept the transfer of their Policies to the
Reinsurer, and that the reinsurance premium payable hereunder will be affected
by the number of policyholders who do not accept the transfer. Prior to the
Effective Date, the GSIA shall deliver to the Reinsurer a schedule of the
specific investments and assets which the GSIA will use to pay the premium. All
investments shall be listed on the schedule at fair market value. As of the
Effective Date, the GSIA shall transfer all scheduled investments and assets to
the Reinsurer and shall execute all documents necessary to effectuate such
transfer.
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF
DOCUMENTS
A. The parties hereto agree to act in good faith and cooperate with each other
in effecting the assumption of the Reinsured Claims provided for in this
Agreement. The parties shall take all actions necessary to assist each other in
obtaining all regulatory approvals or responding to information requests of
those insurance regulatory authorities asserting jurisdiction over the
transactions herein described.
B. Upon demand by, and in accordance with instructions of the Reinsurer, the
GSIA shall deliver originals or copies of all policy records and claims files
pertaining to the Reinsured Claims and all other files and records incidental
to the Reinsured Claims as are necessary for the Reinsurer to perform its
obligations under this Agreement. The Reinsurer shall retain all policy
records, claim files, and other documents received by it from the GSIA as
required by applicable law. Upon reasonable notice, each of the Reinsurer and
the GSIA will be entitled to reasonable access to the books and records of the
other party at any reasonable time, but only to the extent such materials
pertain to the business assumed and reinsured under this Agreement. Each party
will pay its own expenses associated with any such review of the books and
records. The GSIA will retain as its property all its original corporate
records, including, without limitation, articles of incorporation, bylaws,
minute books, and certificate of authority; provided, however, that the GSIA
shall provide the Reinsurer with copies of all such documents upon the
effective date hereof.
C. Whenever the GSIA receives any payments or communications, including
notices of claims and proofs of loss, pertaining to the Reinsured Claims, it
will forward such payments and communications promptly to the Reinsurer.
ARTICLE 5 - NOTICE OF ASSUMPTION
As soon as practicable after the Effective Date, the GSIA will issue and
deliver or cause its agents to deliver to the named insureds under the Policies
an appropriate notice of transfer/assumption substantially in the form attached
hereto. The Reinsurer will take all other necessary actions to assume the
Reinsured Claims. The GSIA will cooperate fully with the Reinsurer in
implementing such assumption, including, without limitation,
3
<PAGE> 5
executing any document reasonably necessary to evidence the completion of the
transactions contemplated by the Agreement.
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS
A. From and after the Effective Date, the Reinsurer will be solely liable for
the administration and disposition of all aspects of the Reinsured Claims
assumed by the Reinsurer including, without limitation, the defense,
adjustment, settlement, and payment of all losses and expenses arising under or
relating to the Reinsured Claims. The GSIA hereby grants and assigns to the
Reinsurer full authority to administer such losses, claims, expenses, defenses,
adjustments, settlements, and payments, and such matters will be under the
Reinsurer's control and within its discretion. The Reinsurer will bear all
expenses and costs incurred by it in connection with the administration and
disposition of such losses, claims, expenses, defenses, adjustments,
settlements, and payments.
B. The GSIA will cause all information and notices regarding the Reinsured
Claims actually received by the GSIA after the Effective Date to be promptly
reported to the Reinsurer or the Reinsurer's designated representative. The
GSIA also will undertake any reasonable arrangements deemed necessary by the
Reinsurer to ensure that all notices received by the GSIA after the Effective
Date in connection with the Reinsured Claims are promptly delivered to the
Reinsurer.
C. All losses and similar items regarding the Reinsured Claims that the
Reinsurer determines to be payable will be paid directly and promptly by the
Reinsurer.
ARTICLE 7 - ASSESSMENTS
In the event that an assessment is made against any present or former
policyholders of the GSIA pursuant to Virginia General Statutes, the Reinsurer
agrees to pay the full assessment on behalf of said policyholders. By this
undertaking, the Reinsurer and the GSIA expressly intend to benefit as third
party beneficiaries all present and former policyholders of the GSIA, and the
Reinsurer agrees to be subject to suit by any policyholder as set out in
Article 8.
ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER
The Reinsurer hereby covenants and agrees that it may be sued for its
actions after the Effective Date, in its own name, by insured under the
Policies.
ARTICLE 9 - INDEMNIFICATION
The Reinsurer agrees to defend, protect, indemnify and hold harmless the
GSIA and its successors or assigns, against any liability, claim, loss or
damage, including punitive damages, arising under or out of any of the
Reinsured Claims reinsured hereunder or the transactions contemplated by this
Agreement.
4
<PAGE> 6
ARTICLE 10 - OTHER OBLIGATIONS
The Reinsurer shall also be responsible for any losses assessed against
the GSIA or the Reinsurer. Such losses are defined as those liabilities
(whether they constitute compensatory, incidental, exemplary or punitive
damages) not covered under any other provision of this Agreement.
ARTICLE 11 - REQUIRED REGULATORY APPROVAL
This Agreement remains subject to the approval of the Virginia Bureau of
Insurance. The GSIA and the Reinsurer shall take all steps necessary to obtain
requisite regulatory approval of this Agreement and the transaction described
herein.
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES
A. In the event of the payment of any loss by the Reinsurer under this
Agreement, the Reinsurer shall be subrogated, to the extent of such payment, to
all of the rights of the GSIA against any person or entity legally responsible
for the loss. The Reinsurer is hereby authorized and empowered to bring any
appropriate action in its own name or in the name of the GSIA to enforce such
rights.
B. Any payments received by or due to the GSIA from any reinsurer of the GSIA
which is payable on a Reinsured Claim shall become the property of and paid to
the Reinsurer. If any payment is received by the GSIA which is to be credited
to the Reinsurer under or with respect to any of the Reinsured Claims, the GSIA
will immediately endorse (without warranty or recourse) and deliver to the
Reinsurer such checks, drafts, or money intended as such payment, and until
delivery of such items to the Reinsurer, the GSIA will treat any such checks,
drafts, or money as the property of the Reinsurer held for the account of the
Reinsurer. The Reinsurer and the GSIA will each use all commercially reasonable
efforts to cause the transfer and assignment (as of the Effective Date) to the
Reinsurer of all of the GSIA's rights, interests, and obligations under the
GSIA's reinsurance agreements, if any, covering the risks, liabilities, and
obligations of the GSIA under or with respect to the Reinsured Claims,
including, without limitation, obtaining any necessary consents or approvals to
such transfer and assignment by the reinsurers under any such reinsurance
agreements effective as of the Effective Date. Any failure to receive the
consents referred to herein will not relieve or diminish in any manner the
Reinsurer's obligations under this Agreement.
C. The Reinsurer shall be authorized and entitled to file and pursue the
collection of claims against the State of Virginia, Second Injury Fund, arising
out of or resulting from Reinsured Claims(hereinafter "SIF Claims); to pursue
the collection of SIF Claims filed by the GSIA prior to the Effective Date;
and to collect, receive, and retain any monies
5
<PAGE> 7
paid in settlement of satisfaction of any SIF Claims filed by either the
Reinsurer or the GSIA.
ARTICLE 13 - ERRORS OR OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would otherwise have attached had such delay, error, or omission
not occurred. Regardless, the responsible party will rectify each such delay,
error, or omission as promptly as practicable after discovery.
ARTICLE 14 - ARBITRATION
A. Any dispute or other matter in question between the GSIA and the Reinsurer
arising out of or relating to the formation, interpretation, performance, or
breach of this Agreement, whether such dispute arises before or after
termination of this Agreement, shall be settled by arbitration if the parties
are unable to resolve the dispute through negotiation. Arbitration shall be
initiated by the delivery of a written notice of demand for arbitration by one
party to the other.
B. Each party shall appoint an individual as arbitrator and the two so
appointed shall then appoint a third arbitrator. If either party refuses or
neglects to appoint an arbitrator within sixty (60) days of receipt of a
written notice of demand for arbitration, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third arbitrator
within sixty (60) days of their appointment, each of the arbitrators shall
nominate three individuals. Each arbitrator shall then decline two of the
nominations presented by the other arbitrator. The third arbitrator shall then
be chosen from the remaining two nominations by drawing lots. The arbitrators
shall be active or former officers of insurance or reinsurance companies; the
arbitrators shall not have a personal or financial interest in the result of
arbitration.
C. The arbitration hearings shall be held in Richmond, Virginia, or such other
place as may be mutually agreed. Each party shall submit its case to the
arbitrators within sixty (60) days of the selection of the third arbitrator or
within such longer period as may be agreed by the arbitrators. The arbitrators
shall not be obliged to follow judicial formalities or the rules of evidence
except to the extent required by governing law, that is, the state law of the
situs of the arbitration as herein agreed; they shall make their decisions
according to the practice of the reinsurance business. The decision rendered by
a majority of the arbitrators shall be final and binding on both parties. Such
decision shall be a condition precedent to my right of legal action arising out
of the arbitrated dispute which either party may have against the other.
Judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
6
<PAGE> 8
D. Each party shall pay the fee and expenses of its own arbitrator and
attorneys and one-half of the fees and expenses of the third arbitrator. All
other expenses of the arbitration shall be equally divided between the parties.
E. Except as provided above, arbitration shall be based, insofar as
applicable, upon the Commercial Arbitration Rules of the American Arbitration
Association.
ARTICLE 15 - HONORABLE UNDERTAKING
This Agreement shall be construed as an honorable undertaking between the
parties hereto not to be defeated by technical legal constructions, it being
the intention of this Agreement that the fortunes of the Reinsurer shall in all
cases follow the fortunes of the GSIA.
ARTICLE 16 - TAX NEUTRALITY
The parties to the Agreement contemplate that as a result of or concurrent
with the transfer of assets and liabilities contemplated hereby, the GSIA shall
become entitled to a refund of certain taxes, and that the Reinsurer shall
sustain a corresponding tax liability. Accordingly, and in order to render the
transaction tax-neutral as to such refund, the GSIA hereby disavows any right
to collect any tax refund to which it currently is or may become entitled, and
assigns its rights to any such tax refund to the Reinsurer.
ARTICLE 17 - GENERAL PROVISIONS
A. Successors and Assigns. This Agreement shall inure to the benefit of and
bind the GSIA and its successors and assigns and the Reinsurer and its
successors and assigns. Neither this Agreement nor any right hereunder nor
any part hereof may be assigned by any party hereto without the prior written
consent of the other party hereto. Prior to any such assignment, the consent of
all necessary regulatory authorities must be obtained.
B. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Virginia (without giving effect to
principles of conflicts of laws) applicable to a contract executed and to be
performed in such state.
C. Entire Agreement. This Agreement supersedes all prior discussions and
agreements between, and contains the sole and entire agreement between the GSIA
and the Reinsurer with respect to the subject matter hereof
D. Counterparts. This Agreement may be executed simultaneously in any number
of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
7
<PAGE> 9
E. Headings, etc. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement. Unless the context of this Agreement otherwise
requires, (a) words of any gender will be deemed to include each other gender,
(b) words using the singular or plural number will also include the plural or
singular number, respectively, (c) the terms "hereof," "herein,"
"hereby," and derivative or similar words will refer to this entire Agreement,
and (d) the conjunction "or" will denote any one or more, or any combination or
all, of the specified items or matter involved in the respective list.
F. Non-waiver. The failure of either party hereto at any time to enforce any
provision of this Agreement shall not be construed as a waiver of that
provision and shall not effect the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
G. Severability. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law, and if the rights or
obligation of any party under this Agreement will not be materially and
adversely affected thereby, (a) such provision will be fully severable, (b)
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable
provision or by its severance added automatically as a part of this Agreement,
a legal, valid, and enforceable provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible.
H. Notices. Any notice or communication given pursuant to this Agreement must
be in writing and will be deemed to have been duly given if mailed (by
registered or certified mail, postage prepaid, return receipt requested), or if
transmitted by facsimile, or if delivered by courier, as follows:
To the GSIA:
NARM Services' Group Self Insurance Association of Virginia
6800 Paragon Place, Suite 200
Richmond, VA 23230
Attention: Mr. Kenneth M. Zenzel., Chairman of the Board
(804) 673-6116 or (800) 355-3596
To the Reinsurer:
RISCORP National Insurance Company
6800 Paragon Place, Suite 200
Richmond, VA 23230
Attention: Stephen Ficarra, Vice President
(804) 673-6116 or (800) 355-3596
8
<PAGE> 10
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this paragraph will, whether sent by mail,
facsimile, or courier, be deemed given upon the first business day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a representative
of such party or by the facsimile confirmation). Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives this 26th day of September,
1996.
ATTEST: NARM Services' Group Self Insurance
Association of Virginia
/s/ Heather W. Giroux By: Kenneth M. Zenzel
- ------------------------ -----------------------------
Name: Kenneth M. Zenzel
--------------------------
Title: Chairman of the Board
------------------------
ATTEST: RISCO National Insurance Company
/s/ Lisa A. Hanewier By: /s/ James A. Mabne
- ------------------------ -----------------------------
Name: James A. Mabne
---------------------------
Title: President
-------------------------
9
<PAGE> 1
EXHIBIT 10.79
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
between
NARM Manufacturers' Group Self Insurance Association of Virginia
Hereinafter referred to as the "GSIA""
and
RISCORP National Insurance Company
Hereinafter referred to as the "Reinsurer"
<PAGE> 2
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1 - BUSINESS COVERED ............................................................ 2
ARTICLE 2 - EFFECTIVE DATE .............................................................. 2
ARTICLE 3 - REINSURANCE PREMIUM ......................................................... 2
ARTICLE 4 - COOPERATION AMONG PARTIES; TRANSFER OF DOCUMENTS ............................ 3
ARTICLE 5 - NOTICE OF ASSUMPTION ........................................................ 3
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS ........................................... 4
ARTICLE 7 - ASSESSMENTS ................................................................. 4
ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER ........................................... 4
ARTICLE 9 - INDEMNIFICATION ............................................................. 4
ARTICLE 10 - OTHER OBLIGATIONS ........................................................... 5
ARTICLE 11 - REQUIRED REGULATORY APPROVAL ................................................ 5
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES ..................................... 5
ARTICLE 13 - ERRORS OR OMISSIONS ......................................................... 6
ARTICLE 14 - ARBITRATION ................................................................. 6
ARTICLE 15 - HONORABLE UNDERTAKING ....................................................... 7
ARTICLE 16 - TAX NEUTRALITY .............................................................. 7
ARTICLE 17 - GENERAL PROVISIONS .......................................................... 7
A. Successor and Assigns .................................................... 7
B. Governing Law ............................................................ 7
C. Entire Agreement ......................................................... 7
D. Counterparts.............................................................. 7
E. Headings, etc ............................................................ 8
F. Non-waiver ............................................................... 8
G. Severability ............................................................. 8
H. Notices .................................................................. 8
</TABLE>
1
<PAGE> 3
LOSS PORTFOLIO TRANSFER
ASSUMPTION REINSURANCE AGREEMENT
(Hereinafter referred to as the "Agreement")
between
NARM MANUFACTURERS' GROUP SELF INSURANCE ASSOCIATION OF VIRGINIA
(Hereinafter referred to as the "GSIA")
and
RISCORP NATIONAL INSURANCE COMPANY
(Hereinafter referred to as the "Reinsurer")
ARTICLE 1 - BUSINESS COVERED
A. The Reinsurer assumes by assumption reinsurance the Policies and the
liability to pay all losses, including loss adjustment expenses, covered by
Policies issued by the GSIA prior to October 1, 1996, to all policyholders,
including all existing and incurred but not reported ("IBNR") claims covered by
the Policies (hereinafter "Reinsured Claims"), subject to the terms and
conditions contained herein.
B. The term "Policies" shall mean all binders, policies, contracts, certificates
and other obligations, whether oral or written, of insurance issued by the GSIA
to its member employers. It is understood and agreed that the Reinsurer is bound
by all the terms and conditions of the GSIA's Policies as if the Policies had
been issued by the Reinsurer.
C. The GSIA hereby transfers to the Reinsurer all rights the GSIA may have now
or in the future under or with respect to the Policies, including, without
limitation, the right to collect and adjust premiums, adjust and settle claims,
deny coverage, rescind policies, etc.
ARTICLE 2 - EFFECTIVE DATE
This Agreement shall be effective as of 12:01 a.m., Eastern Standard Time,
October 1, 1996.
ARTICLE 3 - REINSURANCE PREMIUM
The GSIA shall pay a premium equal to the sum of all of its assets as of the
Effective Date to the Reinsurer in accordance with the following terms and
conditions.
2
<PAGE> 4
executing any document reasonably necessary to evidence the completion of the
transactions contemplated by the Agreement.
ARTICLE 6 - ADMINISTRATION AND CLAIM PAYMENTS
A. From and after the Effective Date, the Reinsurer will be solely liable for
the administration and disposition of all aspects of the Reinsured Claims
assumed by the Reinsurer including, without limitation, the defense, adjustment,
settlement, and payment of all losses and expenses arising under or relating to
the Reinsured Claims. The GSIA hereby grants and assigns to the Reinsurer full
authority to administer such losses, claims, expenses, defenses, adjustments,
settlements, and payments, and such matters will be under the Reinsurer's
control and within its discretion. The Reinsurer will bear all expenses and
costs incurred by it in connection with the administration and disposition of
such losses, claims, expenses, defenses, adjustments, settlements, and payments.
B. The GSIA will cause all information and notices regarding the Reinsured
Claims actually received by the GSIA after the Effective Date to be promptly
reported to the Reinsurer or the Reinsurer's designated representative. The
GSIA also will undertake any reasonable arrangements deemed necessary by
the Reinsurer to ensure that all notices received by the GSIA after the
Effective Date in connection with the Reinsured Claims are promptly delivered
to the Reinsurer.
C. All losses and similar items regarding the Reinsured Claims that the
Reinsurer determines to be payable will be paid directly and promptly by the
Reinsurer.
ARTICLE 7 - ASSESSMENTS
In the event that an assessment is made against any present or former
policyholders of the GSIA pursuant to Virginia General Statutes, the Reinsurer
agrees to pay the full assessment on behalf of said policyholders. By this
undertaking, the Reinsurer and the GSIA expressly intend to benefit as third
party beneficiaries all present and former policyholders of the GSIA, and the
Reinsurer agrees to be subject to suit by any policyholder as set out in Article
8.
ARTICLE 8 - DIRECT SUIT AGAINST THE REINSURER
The Reinsurer hereby covenants and agrees that it may be sued for its
actions after the Effective Date, in its own name, by insured under the
Policies.
ARTICLE 9 - INDEMNIFICATION
The Reinsurer agrees to defend, protect, indemnify and hold harmless
the GSIA and its successors or assigns, against any liability, claim, loss or
damage, including punitive damages, arising under or out of any of the Reinsured
Claims reinsured hereunder or the transactions contemplated by this Agreement.
4
<PAGE> 5
ARTICLE 10 OTHER OBLIGATIONS
The Reinsurer shall also be responsible for any losses assessed against
the GSIA or The Reinsurer. Such losses are defined as those liabilities (whether
they constitute compensatory, incidental, exemplary or punitive damages) not
covered under any other provision of this Agreement.
ARTICLE 11 - REQUIRED REGULATORY APPROVAL
This Agreement remains subject to the approval of the Virginia Bureau
of Insurance. The GSIA and the Reinsurer shall take all steps necessary to
obtain requisite regulatory approval of this Agreement and the transaction
described herein.
ARTICLE 12 - SUBROGATION AND REINSURANCE RECEIVABLES
A. In the event of the payment of any loss by the Reinsurer under this
Agreement, the Reinsurer shall be subrogated, to the extent of such payment, to
all of the rights of the GSIA against any person or entity legally responsible
for the loss. The Reinsurer is hereby authorized and empowered to bring any
appropriate action in its own name or in the name of the GSIA to enforce such
rights.
B. Any payments received by or due to the GSIA from any reinsurer of the GSIA
which is payable on a Reinsured Claim shall become the property of and paid to
the Reinsurer. If any payment is received by the GSIA which is to be credited to
the Reinsurer under or with respect to any of the Reinsured Claims, the GSIA
will immediately endorse (without warranty or recourse) and deliver to the
Reinsurer such checks, drafts, or money intended as such payment, and until
delivery of such items to the Reinsurer, the GSIA will treat any such checks,
drafts, or money as the property of the Reinsurer held for the account of the
Reinsurer. The Reinsurer and the GSIA will each use all commercially reasonable
efforts to cause the transfer and assignment (as of the Effective Date) to the
Reinsurer of all of the GSIA's rights, interests, and obligations under the
GSIA's reinsurance agreements, if any, covering the risks, liabilities, and
obligations of the GSIA under or with respect to the Reinsured Claims,
including, without limitation, obtaining any necessary consents or approvals to
such transfer and assignment by the reinsurers under any such reinsurance
agreements effective as of the Effective Date. Any failure to receive the
consents referred to herein will not relieve or diminish in any manner the
Reinsurer's obligations under this Agreement.
C. The Reinsurer shall be authorized and entitled to file and pursue the
collection of claims against the State of Virginia, Second Injury Fund, arising
out of or resulting from Reinsured Claims (hereinafter "SIF Claims"); to pursue
the collection of SIF Claims filed by the GSIA prior to the Effective Date; and
to collect, receive, and retain any monies
5
<PAGE> 6
paid in settlement of satisfaction of any SIF Claims filed by either the
Reinsurer or the GSIA.
ARTICLE 13- ERRORS OR OMISSIONS
Inadvertent delays, errors, or omissions made in correction with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would otherwise have attached had such delay, error, or omission
not occurred. Regardless, the responsible party will rectify each such delay,
error, or omission as promptly as practicable after discovery.
ARTICLE 14 - ARBITRATION
A. Any dispute or other matter in question between the GSIA and the Reinsurer
arising out of or relating to the formation, interpretation, performance, or
breach of this Agreement, whether such dispute arises before or after
termination of this Agreement, shall be settled by arbitration if the parties
are unable to resolve the dispute through negotiation. Arbitration shall be
initiated by the delivery of a written notice of demand for arbitration by one
party to the other.
B. Each party shall appoint an individual as arbitrator and the two so appointed
shall then appoint a third arbitrator. If either party refuses or neglects to
appoint an arbitrator within sixty (60) days of receipt of a written notice of
demand for arbitration, the other party may appoint the second arbitrator. If
the two arbitrators do not agree on a third arbitrator within sixty (60) days of
their appointment, each of the arbitrators shall nominate three individuals.
Each arbitrator shall then decline two of the nominations presented by the other
arbitrator. The third arbitrator shall then be chosen from the remaining two
nominations by drawing lots. The arbitrators shall be active or former officers
of insurance or reinsurance companies; the arbitrators shall not have a personal
or financial interest in the result of arbitration.
C. The arbitrate on hearings shall be held in Richmond, Virginia, or such other
place as may be mutually agreed. Each party shall submit its case to the
arbitrators within sixty (60) days of the selection of the third arbitrator or
within such longer period as may be agreed by the arbitrators. The arbitrators
shall not be obliged to follow judicial formalities or the rules of evidence
except to the extent required by governing law, that is, the state law of the
situs of the arbitration as herein agreed; they shall make their decisions
according to the practice of the reinsurance business. The decision rendered by
a majority of the arbitrators shall be final and binding on both parties. Such
decision shall be a condition precedent to any right of legal action arising out
of the arbitrated dispute which either party may have against the other.
Judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
6
<PAGE> 7
D. Each party shall pay the fee and expenses of its own arbitrator and attorneys
and one-half of the fees and expenses of the third arbitrator. All other
expenses of the arbitration shall be equally divided between the parties.
E. Except as provided above, arbitration shall be based, insofar as applicable,
upon the Commercial Arbitration Rules of the American Arbitration Association.
ARTICLE 15 - HONORABLE UNDERTAKING
This Agreement shall be construed as an honorable undertaking between
the parties hereto not to be defeated by technical legal constructions, it being
the intention of this Agreement that the fortunes of the Reinsurer shall in all
cases follow the fortunes of the GSIA.
ARTICLE 16 - TAX NEUTRALITY
The parties to the Agreement contemplate that as a result of or
concurrent with the transfer of assets and liabilities contemplated hereby, the
GSIA shall become entitled to a refund of certain taxes, and that the Reinsurer
shall sustain a corresponding tax liability. Accordingly, and in order to render
the transaction tax-neutral as to such refund, the GSIA hereby disavows any
right to collect any tax refund to which it currently is or may become entitled,
and assigns its rights to any such tax refund to the Reinsurer.
ARTICLE 17 - GENERAL PROVISIONS
A. Successors and Assigns. This Agreement shall inure to the benefit of and bind
the GSIA and its successors and assigns and the Reinsurer and its successors and
assigns. Neither this Agreement nor any right hereunder nor any part hereof may
be assigned by any party hereto without the prior written consent of the other
party hereto. Prior to any such assignment, the consent of all necessary
regulatory authorities must be obtained.
B. Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of Virginia (without giving effect to principles of
conflicts of laws) applicable to a contract executed and to be performed in such
state.
C. Entire Agreement. This Agreement supersedes all prior discussions and
agreements between, and contains the sole and entire agreement between the GSIA
and the Reinsurer with respect to the subject matter hereof.
D. Counterparts. This Agreement may be executed simultaneously in any number of
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument.
7
<PAGE> 8
E. Headings, etc. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement. Unless the context of this Agreement otherwise
requires, (a) words of any gender will be deemed to include each other gender,
(b) words using the singular or plural number will also include the plural or
singular number, respectively, (c) the terns "hereof," "herein," "hereby," and
derivative or similar words will refer to this entire Agreement, and (d) the
conjunction "or" will denote any one or more, or any combination or all, of the
specified items or matter involved in the respective list.
F. Non-waiver. The failure of either party hereto at any time to enforce any
provision of this Agreement shall not be construed as a waiver of that provision
and shall not effect the right of either party thereafter to enforce each and
every provision of this Agreement in accordance with its terms.
G. Severabilty. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law, and if the rights or
obligation of any party under this Agreement will not be materially and
adversely affected thereby, (a) such provision will be fully severable, (b) this
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable
provision or by its severance added automatically as a part of this Agreement, a
legal, valid, and enforceable provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible.
H. Notice. Any notice or communication given pursuant to this Agreement must be
in writing and will be deemed to have been duly given if mailed (by registered
or certified mail, postage prepaid, return receipt requested), or if transmitted
by facsimile, or if delivered by courier, as follows:
To the GSIA:
NARM Manufacturers' Group Self Insurance Association of Virginia
6800 Paragon Place, Suite 200
Richmond, VA 23230
Attention: Ms. Kamini Pahuja, Chairperson of the Board
(804) 673-6116 or (800) 355-3596
To the Reinsurer:
RISCORP National Insurance Company
6800 Paragon Place, Suite 200
Richmond, VA 23230
Attention: Stephen Ficarra, Vice President
(804) 673-6116 or (800-) 355-3596
8
<PAGE> 9
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this paragraph will, whether sent by mail,
facsimile, or courier, be deemed given upon the first business day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a representative
of such party or by the facsimile confirmation). Any party from time to time may
change its address for the purpose of notices to that party by giving a similar
notice specifying a new address, but no such notice will be deemed to have been
given until it is actually received by the party sought to be charged with the
contents thereof
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives this __ day ______ of 1996.
ATTEST: NARM Manufacturers' Group Self Insurance
Association of Virginia
By:/s/Kamani Pahuja
- ---------------------------- --------------------------------------
Name:Kamani Pahuja
------------------------------------
Title:Chairperson of the Board
-----------------------------------
ATTEST: RISCORP National Insurance Company
/s/ By:/s/James A. Malone
- ---------------------------- --------------------------------------
Name:James A. Malone
------------------------------------
Title:President
-----------------------------------
9
<PAGE> 10
EXHBIT 11
RISCORP, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Income
Weighted average common and common
share equivalents outstanding:
Average number of common shares outstanding 34,422,483 30,092,500 30,092,500
Redemption contingency for CompSource acquisition 382,100 -- --
Redemption contingencies for IAA acquisition 225,503 -- --
Common stock equivalents - assumed exercise
of stock options (1) 1,757,602 -- --
Weighted average common and common share
equivalents outstanding 36,787,688 30,092,500 30,092,500
Earnings per share $ 0.38 $ 0.45 $ 0.23
</TABLE>
(1) 1995 and 1994 earnings per share calculation excludes 2,556,557 and
1,835,392 shares, respectively, of Class A Common Stock reserved for
issuance pursuant to the exercise of stock options outstanding as of
December 31, 1995 and 1994, having a weighted average exercise price of
$3.96 and $3.01 per share, respectively.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 228,802
<DEBT-CARRYING-VALUE> 23,809
<DEBT-MARKET-VALUE> 22,892
<EQUITIES> 4,045
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 255,656
<CASH> 26,335
<RECOVER-REINSURE> 170,612
<DEFERRED-ACQUISITION> (2,263)
<TOTAL-ASSETS> 790,589
<POLICY-LOSSES> 426,994
<UNEARNED-PREMIUMS> 81,029
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 16,303
0
0
<COMMON> 363
<OTHER-SE> 168,593
<TOTAL-LIABILITY-AND-EQUITY> 790,589
176,444
<INVESTMENT-INCOME> 11,347
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 28,579
<BENEFITS> 113,338
<UNDERWRITING-AMORTIZATION> (10,319)
<UNDERWRITING-OTHER> 69,195
<INCOME-PRETAX> 23,510
<INCOME-TAX> 9,465
<INCOME-CONTINUING> 14,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,045<F1>
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<RESERVE-OPEN> 261,700
<PROVISION-CURRENT> 117,556
<PROVISION-PRIOR> 8,698
<PAYMENTS-CURRENT> 47,896
<PAYMENTS-PRIOR> 60,072
<RESERVE-CLOSE> 426,994
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Net investment income is reported net of any realized gains and losses in the
Statement of Income.
</FN>
</TABLE>
