<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2 )*
-----
CNA Surety Corporation
- --------------------------------------------------------------------------------
(NAME OF ISSUER)
Common Stock, par value $0.01 per share
- --------------------------------------------------------------------------------
(TITLE OF CLASS OF SECURITIES)
12612L 10 08
- --------------------------------------------------------------------------------
(CUSIP NUMBER)
Susan Obuchowski
Two N. Riverside Plaza, Suite 600, Chicago, IL 60606 (312) 466-4010
- --------------------------------------------------------------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS)
July 14, 1998
- --------------------------------------------------------------------------------
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
*The remainder of this cover page shall be filled our for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 61
<PAGE> 2
[ CUSIP No. 12612L 10 08 ] 13D [ Page 2 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Samuel Zell
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 3
[ CUSIP No. 12612L 10 08 ] 13D [ Page 3 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Samuel Zell Revocable Trust U/T/A dated 01/17/90
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 4
[ CUSIP No. 12612L 10 08 ] 13D [ Page 4 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Ann Lurie
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 5
[ CUSIP No. 12612L 10 08 ] 13D [ Page 5 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Ann and Robert H. Lurie Family Foundation
36-3486274
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 6
[ CUSIP No. 12612L 10 08 ] 13D [ Page 6 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LFT Partnership, an Illinois general partnership
36-6527526
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 7
[ CUSIP No. 12612L 10 08 ] 13D [ Page 7 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Anda Partnership
88-0132846
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Nevada
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 8
[ CUSIP No. 12612L 10 08 ] 13D [ Page 8 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Samstock, L.L.C.
36-4156890
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 9
[ CUSIP No. 12612L 10 08 ] 13D [ Page 9 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Samstock/SZRT, L.L.C.
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 10
[ CUSIP No. 12612L 10 08 ] 13D [ Page 10 of 61 ]
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Alpha/ZFT General Partnership
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH REPORTING 8 SHARED VOTING POWER
PERSON WITH
0
-------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE> 11
ONLY THOSE ITEMS AMENDED ARE REPORTED HEREIN.
CAPITALIZED TERMS NOT OTHERWISE DEFINED HEREIN SHALL HAVE
THE SAME MEANING AS THEY HAVE IN THE INITIAL
SCHEDULE 13D THERETO.
Item 2. Identity and Background.
(a) - (c) This Item is being amended to add the following as a
Reporting Person:
Alpha/ZFT General Partnership, an Illinois general partnership
("Alpha/ZFT"). The two general partners of Alpha/ZFT are Alphabet
Partners, an Illinois general partnership, and ZFT Partnership, an
Illinois general partnership, both of whose partners are trusts
created for the benefit of Samuel Zell and his family. Alpha/ZFT,
whose principal business is investments, has a business address of
Two N. Riverside Plaza, Chicago, IL 60606.
(d) and (e) Alpha/ZFT has not, during the last five years (i) been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors), or (ii) been a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and
as a result of such proceeding was, or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting
or mandatory activities subject to, federal or state securities
laws, or find any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
and
Item 5. Interest in Securities of the Issuer.
Since January 15, 1998, the date of filing of Amendment Number One
to Schedule 13D, the following transactions in Common Stock have
been effected:
1) On May 27, 1998, Samuel Zell exercised options to purchase
65,000 shares of Common Stock for total consideration of
$232,750, which was derived from Mr. Zell's personal funds.
2) On July 1, 1998, Samstock/SZRT sold 578,649 shares of Common
Stock to Alpha/ZFT pursuant to a Sale Agreement to Alpha/ZFT
General Partnership ("Agreement"), which is attached hereto as
Exhibit 5 and incorporated herein by reference. Pursuant to the
Agreement, Alpha/ZFT will pay Samstock/SZRT $825,332.81 per year
for the full term of the natural life of Samuel Zell. The 1998
payment made by Alpha/ZFT to Samstock/SZRT was derived from the
working capital of Alpha/ZFT.
3) On July 14, 1998, Samstock, Alpha/ZFT, Anda Partnership, LFT
Partnership, Samuel Zell and the Lurie Foundation sold
1,988,769, 578,649, 498,684, 486,760, 65,000, and 486,760 shares
of Common Stock, respectively, for $13.75 per share less a $.69
per share commission in an underwritten offering. The net
proceeds received by Samstock, Alpha/ZFT, Anda Partnership, LFT
Partnership, Samuel Zell and the Lurie Foundation
Page 11 of 61
<PAGE> 12
were $25,973,323.14, $7,557,155.94, $6,512,813.04,
$6,357,085.60, $848,900.00 and $6,357,085.60, respectively.
As of July 14, 1998, the Reporting Persons no longer owned any
shares of Common Stock and ceased to be the beneficial owner of
more than five percent of the Common Stock outstanding.
Item 6. Contracts, Arrangements, Understandings or Relationships
With Respect to Securities of the Issuer.
As discussed in Item 3. and Item 5. above, Samstock/SZRT and
Alpha/ZFT entered into the Agreement pursuant to which Samstock/SZRT
sold 578,649 shares of Common Stock to Alpha/ZFT in exchange for
annual payments of $825,332.81 for the full term of the natural life
of Samuel Zell.
As discussed in Item 3. and Item 5. above, certain of the Reporting
Persons sold shares in an underwritten offering and had entered in
to that certain Underwriting Agreement dated July 9, 1998 by and
among such Reporting Persons, Donaldson, Lufkin & Jenrette
Securities Corporation, Smith Barney Inc. and the Issuer
("Underwriting Agreement"), which is attached hereto as Exhibit 6
and incorporated herein by reference.
Item 7. Materials to Be Filed as Exhibits.
Exhibit 5 Sale Agreement to Alpha/ZFT Partnership.
Exhibit 6 Underwriting Agreement dated July 9, 1998 by and
among Donaldson, Lufkin, Jenrette Securities
Corporation, Smith Barney Inc., certain of the
Reporting Persons and the Issuer.
Page 12 of 61
<PAGE> 13
SIGNATURES
After reasonable inquiry, and the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C>
Samuel Zell Revocable Trust Samstock, L.L.C.
U/T/A 01/17/90 By: SZ Investments, L.L.C., its sole member
By: Samuel Zell Revocable Trust U/T/A
By: /s/ Samuel Zell 1/17/90, its managing member
----------------------------
Samuel Zell, Trustee
By: /s/ Samuel Zell
-----------------------------
Samuel Zell, Trustee
/s/ Samuel Zell /s/ Ann Lurie
- ---------------------------- -----------------------------
Samuel Zell Ann Lurie
Alpha/ZFT General Partnership, an Illinois Samstock/SZRT, L.L.C.
general partnership By: Samuel Zell Revocable Trust
By: ZFT Partnership, a general partner U/T/A 1/17/90, its sole member
By: Samuel Zell Trust, a general partner
By: /s/ Sheli Z. Rosenberg By: /s/ Samuel Zell
---------------------------- -----------------------------
Sheli Z. Rosenberg, Trustee Samuel Zell, Trustee
Anda Partnership, a Nevada general partnership LFT Partnership, an Illinois general partnership
By: Ann Only Trust, a general partner By: Jesse Trust, a general partner
By: /s/ Ann Lurie By: /s/ Ann Lurie
---------------------------- -----------------------------
Ann Lurie, Co-Trustee Ann Lurie, Trustee
</TABLE>
DATED: July 20, 1998
Page 13 of 61
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
NUMBER
<S> <C> <C>
1 Joint Filing Agreement dated October 10, *
1997.
2 Reorganization Agreement, dated as of *
December 19, 1997 and amended July 14,
1997 among Capsure, Continental Casualty
Company and certain of its affiliates,
Issuer and Surety Acquisition Company
(incorporated herein by reference to
Appendix A of the Registration Statement
on Form S-4, dated as of August 15,
1997, of Issuer).
3 Registration Rights Agreement dated as *
of September 30, 1997 between Issuer and
Equity.
4 Amended and Restated Joint Filing *
Agreement dated as of January 15, 1998.
5 Sales Agreement to Alpha/ZFT Partnership. 15
6 Underwriting Agreement by and among 26
certain of the Reporting Persons,
Donaldson Lufkin & Jenrette Securities
Corporation, Smith Barney Inc. and CNA
Surety Corporation.
</TABLE>
* previously filed.
Page 14 of 61
<PAGE> 1
EXHIBIT 5
SALE AGREEMENT
TO
ALPHA/ZFT GENERAL PARTNERSHIP
THIS AGREEMENT, dated as of the 1st day of July, 1998, by and between
SAMSTOCK/SZRT, L.L.C., a Delaware limited liability company, as Seller
(hereinafter referred to as the "Seller"), and ALPHA/ZFT GENERAL PARTNERSHIP,
an Illinois general partnership, as Purchaser (hereinafter referred to as the
"Purchaser"):
W I T N E S S E T H:
WHEREAS, Seller is the owner of at least Five Hundred Seventy-Eight
Thousand Six Hundred Forty-Nine (578,649) shares of common stock (hereinafter
sometimes referred to as the "Subject Shares") of CNA Surety Corporation
(hereinafter referred to as the "Corporation"), a Delaware corporation; and
WHEREAS, Seller, upon the advice and with the consent of Samuel Zell, the
Grantor, trustee and beneficiary of the Samuel Zell Revocable Trust, the sole
member of the Seller, desires to avoid the uncertainties in connection with the
holding of common stock of the Corporation and risk in preservation of the
principal value of common stock of the Corporation, and desires to assure
itself now of the receipt of a certain fixed annual income for the full term of
the natural life of Samuel Zell; and
WHEREAS, Seller is willing to sell, assign, transfer, convey and set over
the Subject Shares to Purchaser, provided that Purchaser will agree to pay to
Seller a sum certain per annum for the full term of Samuel Zell's life,
regardless of the value from time to time of the Subject Shares and regardless
of the amount of income therefrom received from time to time by Purchaser; and
Page 15 of 61
<PAGE> 2
WHEREAS, Purchaser desires to purchase the Subject Shares and is willing
to pay to Seller a sum certain for the full term of Samuel Zell's life; and
WHEREAS, Seller and Purchaser desire to sell and purchase the Subject
Shares on the terms contained herein, which both parties acknowledge reasonably
reflect the terms on which unrelated parties would enter into such sale and
purchase; and
NOW THEREFORE, it is mutually agreed as follows:
1. Sale. Seller hereby sells, assigns, transfers, conveys and sets over
absolutely to Purchaser Five Hundred Seventy-Eight Thousand Six Hundred
Forty-Nine (578,649) shares of the common stock of the Corporation. Purchaser
agrees to pay Seller the fair market value of the Subject Shares sold
hereunder, as determined for federal estate tax purposes as of the date hereof,
payable as provided in Section 3 hereof.
2. Delivery of Certificate. Seller hereby conveys legal and equitable
title in the Subject Shares to Purchaser, and Seller agrees to provide delivery
of certificates or other materials evidencing the Subject Shares within a
reasonable time hereof, along with executed stock powers or other documents of
transfer so that the Subject Shares can be transferred to Purchaser on the
books of the Corporation.
3. Annuity. (a) Purchaser hereby agrees to pay or to cause to be paid
annually to Seller (or to anyone Seller appoints pursuant to Section 11 hereof)
for and during the full term of the natural life of Samuel Zell, the Grantor,
trustee and beneficiary of the Samuel Zell Revocable Trust, the sole
- 2 -
Page 16 of 61
<PAGE> 3
member of the Seller, a "sum certain", as defined in subsection 3(b) hereof, in
lawful currency of the United States of America, as provided in Section 6
hereof.
(b) As used herein, the "sum certain" payable annually hereunder shall be
the amount which is equal to the result obtained by dividing the annuity factor
(calculated as provided in subsection 3(d) hereof) into the fair market value
of the Subject Shares being sold hereunder. Said sum certain shall be computed
as shown on Exhibit A, a sample of which is attached hereto and incorporated
herein by this reference.
(c) For purposes of Section 3 hereof, the "fair market value" of the
Subject Shares being sold hereunder shall be the mean between the highest and
lowest quoted selling prices per share of the common stock of the Corporation
on the date hereof multiplied by the number of Subject Shares. Purchaser shall
deliver to Seller within five (5) business days of the date hereof a signed
statement of the fair market value of the Subject Shares being sold hereunder
and the computation of the sum certain described in subsection 3(b) hereof and
as shown on Exhibit A. Seller shall either sign such statement in acceptance
thereof or shall have five (5) business days to object in writing to such
computation, but if Seller does not so object, the sum certain shall be deemed
part of this Agreement.
(d) As provided in Section 25.2512-5(d)(2)(iv) of the Treasury Department
Regulations (referred to herein as the "Regulations"), the annuity factor to be
used hereunder shall be calculated by (i) first, locating in Table S of Section
20.2031-7(d)(6) of the Regulations (referred to herein as "Table S") the
remainder factor for a single life annuity for a person of Samuel Zell's age as
of the date hereof at the interest rate which is one hundred twenty percent
(120%) of the applicable federal mid-term rate in effect under Section 1274(d)
of the Internal Revenue Code of 1986 (referred to herein as the "Code") for the
- 3 -
Page 17 of 61
<PAGE> 4
date of execution of this Agreement, (ii) subtracting such remainder factor
from one (1) and (iii) dividing the difference by one hundred twenty percent
(120%) of said applicable federal mid-term rate.
4. Automatic Readjustment of Value. Purchaser and Seller intend that the
sale, transfer, assignment and delivery of Seller's interest in the Subject
Shares hereunder to the Purchaser shall be made for their full fair market
value and the annuity payments to be paid by the Purchaser to the Seller shall
be full and fair consideration for the within transaction. In the event that
the fair market value of the Subject Shares or the sum certain shall be finally
determined (such event hereinafter referred to as "Final Determination"), for
any reason whatsoever, by a final order of any court of competent jurisdiction
or by a final decision of any administrative agency of the United States of
America (from which order or decision no appeal is taken), to be greater or
less than the fair market value as determined in accordance with this Agreement,
then the annual annuity payments shall be recomputed using the value
established by such Final Determination. With respect to each annuity payment
actually made prior to the date of said Final Determination (the "Final
Determination Date"), if the fair market value of the Subject Shares or the
sum certain is increased the Purchaser agrees to pay to the Seller, and if the
fair market value of the Subject Shares or the sum certain is decreased the
Seller agrees to pay to the Purchaser, an amount equal to the difference
between each annuity payment actually made and the annuity payment which would
have been paid had this newly determined value been used as the fair market
value of the Subject Shares or the sum certain on the date of execution of this
Agreement. In either event, said difference shall be payable within one
hundred eighty (180) days from the Final Determination Date with interest
accruing at the Contract Interest Rate (as defined in Section 5 hereof) from
the date such prior annuity payment was actually made (referred to herein as
a "Start Date") until such additional amount is paid. The failure of Purchaser
to pay in full, within two (2) years of the Final Determination Date, any such
additional amount, plus interest thereon, due to Seller shall constitute a
- 4 -
Page 18 of 61
<PAGE> 5
"Default" hereunder and the second anniversary of the Final Determination Date
shall be a "Default Date" hereunder. All annuity payments after the Final
Determination Date shall be made as if the newly determined value had been the
fair market value of the Subject Shares or the sum certain on the date of this
Agreement.
5. Contract Interest Rate. As used herein, the Contract Interest Rate is
one hundred twenty percent (120%) of the rate listed below in subparagraph (a),
(b) or (c), compounded semi-annually, which shall result in the maximum accrued
interest when the amount due is paid:
(a) the applicable federal mid-term rate in effect under Section
1274(d) of the Code for the date of execution of this
Agreement;
(b) the highest applicable federal rate in effect under Section
1274(d) of the Code for the applicable Start Date; or
(c) for each month for which interest is payable, the applicable
federal short-term rate in effect under Section 1274(d) of the
Code for such month; provided, however, that if interest shall
be payable with respect to any complete calendar year, then the
blended annual rate, calculated pursuant to the provisions of
Revenue Ruling 86-17, 1986-1 Cumulative Bulletin 377, shall be
substituted for the twelve (12) separate monthly rates for that
year.
6. Payment of Annuity. Each annual annuity payment shall be due and
payable on the anniversary date of this Agreement, with the first such
installment due and payable on the anniversary of this Agreement in the year
following the year of execution of this Agreement and the last such installment
due and payable on the anniversary of this Agreement in the year in which the
death of Samuel Zell shall occur but only if Samuel Zell shall be alive on such
anniversary date, it being distinctly understood that such payments are to be
made only for and during the natural life of Samuel Zell without regard to
whether the aggregate amount paid be more or less than the present fair market
value of the
- 5 -
Page 19 of 61
<PAGE> 6
Subject Shares transferred by Seller hereunder, and that no annuity payments
shall be due and payable hereunder after the death of Samuel Zell.
7. Failure to Make Payment; Events of Default. Interest on an annuity
payment not made in full by Purchaser hereunder when due shall be accrued at
the Contract Interest Rate, from the date such annuity payment is due (referred
to herein as a "Start Date") until paid, and each such unpaid payment or
portion thereof shall constitute a liability of Purchaser immediately due and
payable in addition to its obligation to make the regular annual payments
solely during the life of Samuel Zell pursuant to Section 6 hereof. Any
failure to make an annuity payment, or portion thereof, within two (2) years of
the date when such annuity payment is due shall constitute a "Default"
hereunder and the second anniversary of the date when such annuity payment is
due shall be a "Default Date" hereunder. Additionally, an arrearage for at
least one (1) year of any portion or all of two (2) annuity payments shall
constitute a "Default" hereunder and the first date on which there shall be two
(2) annuity payments, or portions thereof, in arrears for at least one (1) year
shall be a "Default Date" hereunder.
8. Remedy in Event of Default. Purchaser agrees that, in the event of a
Default, in addition to any amounts due prior to the Default Date with respect
to such Default plus interest on such amounts, "the anticipated aggregate of
annuity payments" shall be due and payable on demand. For purposes of this
Agreement, the phrase "the anticipated aggregate of annuity payments" shall
mean the present worth of Seller receiving an annual annuity equal to the sum
certain for the full term of Samuel Zell's anticipated life as of such Default
Date, such worth to be determined by multiplying the sum certain by the annuity
factor of a single life annuity for a person of Samuel Zell's age as of such
Default Date. Said annuity factor shall be calculated as provided in
subsection 3(d) hereof except that such Default Date shall be substituted for
the date of this Agreement in said calculation. The anticipated
- 6 -
Page 20 of 61
<PAGE> 7
aggregate of annuity payments shall accrue interest at the Contract Interest
Rate from the Default Date (also referred to herein as a "Start Date") until
paid.
9. Absence of Collateral. Purchaser and Seller understand that, in the
event of a Default, the remedy described above in Section 8 shall constitute
the sole and exclusive remedy available to Seller. Accordingly, Purchaser and
Seller expressly agree that neither such Section 8 nor any other provision of
this Agreement shall create a security interest in the Subject Shares or in any
other assets of Purchaser now owned or hereafter acquired, and further that no
restriction shall be imposed hereby upon the alienation of the Subject Shares
or other assets by Purchaser. Purchaser agrees not to take any actions that
will impair or otherwise inhibit the Purchaser's payment of other liabilities.
10. Age. Samuel Zell was born on September 28, 1941, and, based upon his
age as of his birthday nearest to the date of this Agreement, is considered to
be the age of fifty-seven (57) years for purposes hereof. Seller agrees to
furnish to Purchaser proof of Samuel Zell's age before payment of the first
annuity payment if Purchaser so requests in writing.
11. Appointment of Other Payees. Seller shall have the right to appoint,
at any time and from time to time, any other payee to be the recipient of all
or any one or more annual annuity payments by notifying Purchaser in writing of
the recipient so appointed and any such notification shall, to the extent it
shall be inconsistent with any prior notification, modify and supersede any
prior notification. If any such payee shall die or otherwise cease to exist
before the death of Samuel Zell, the interest of such payee shall revert to
Seller.
- 7 -
Page 21 of 61
<PAGE> 8
12. Construction. The parties agree that all matters pertaining to the
validity, construction and effect of this Agreement shall be determined in
accordance with the laws of the State of Illinois. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their permitted
successors and assigns hereunder.
13. Notice. All notices, statements, requests and demands given to or
made upon Seller or Purchaser in accordance with the provisions of this
Agreement shall be deemed to have been given or made: (i) if mailed, two
business days after deposit in the mail, postage prepaid; (ii) in the case of
delivery via messenger or nationally recognized courier service, on the date
actually delivered; or (iii) in the case of notice via telecopy, on the date
transmitted, in any case to the last known addresses of the parties or such
other addresses at which the parties shall from time to time notify one
another.
14. Counterparts. This Agreement may be executed in any number of
counterpart copies, each of which shall be deemed an original for all purposes,
but all of which shall constitute one and the same agreement.
-8-
Page 22 of 61
<PAGE> 9
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date first above written.
SAMSTOCK/SZRT, L.L.C.
By: /s/ Donald J. Liebentritt
-------------------------------------
Donald J. Liebentritt, Vice President
ALPHA/ZFT GENERAL PARTNERSHIP
By: ALPHABET PARTNERS
By: /s/ Arthur A. Greenberg
-------------------------------------
Arthur A. Greenberg, Trustee,
General Partner
By: ZFT PARTNERSHIP
By: /s/ Sheli Z. Rosenberg
-------------------------------------
Sheli Z. Rosenberg, Trustee,
General Partner
- 9 -
Page 23 of 61
<PAGE> 10
ACKNOWLEDGMENT AND CONSENT
The undersigned, SAMUEL ZELL, both individually and as the Grantor,
trustee and beneficiary of the Samuel Zell Revocable Trust, the sole member of
SAMSTOCK/SZRT, L.L.C., hereby acknowledges that he is aware of, and consents to
the execution of, this Agreement, with payment provisions based on his life
expectancy.
/s/ Samuel Zell
-------------------------------------
Samuel Zell, both individually and
as Grantor, trustee and beneficiary
of the Samuel Zell Revocable Trust,
the sole member of SAMSTOCK/SZRT,
L.L.C.
- 10 -
Page 24 of 61
<PAGE> 11
EXHIBIT A TO
SALE AGREEMENT
(a) Highest quoted selling price per share $15.0625
--------
(b) Lowest quoted selling price per share $14.625
--------
(1) Mean between (a) and (b) = Value per share $14.84375
-----------------
(2) Multiplied by number of shares x 578,649
-----------------
(3) Equals Fair Market Value $8,589,321.09
=================
(4) Annuity factor 10.4071
-----------------
(5) Annual Annuity Payment of "sum certain" is equal to the Fair Market Value
divided by the Annuity Factor:
Fair Market Value
______________________________ = $8,589,321.09/ 10.4071 = $825,332.81
Annuity Factor
IN WITNESS WHEREOF, the parties agree to the fair market value per share
and such computations of the Annual Annuity Payment as set forth above and have
hereunto set their hands and seals.
Date: July 1, 1998 SAMSTOCK/SZRT, L.L.C.
By: /s/ Donald J. Liebentritt
-------------------------------------
Donald J. Liebentritt, Vice President
Date: July 1, 1998 ALPHA/ZFT GENERAL PARTNERSHIP
By: ALPHABET PARTNERS
By: /s/ Arthur A. Greenberg
-------------------------------------
Arthur A. Greenberg, Trustee,
General Partner
By: ZFT PARTNERSHIP
By: /s/ Sheli Z. Rosenberg
-------------------------------------
Sheli Z. Rosenberg, Trustee,
General Partner
Page 25 of 61
<PAGE> 1
EXHIBIT 6
[EXECUTION COPY]
4,188,129 Shares
CNA Surety Corporation
Common Stock
UNDERWRITING AGREEMENT
July 8, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Certain stockholders named in Schedule II hereto (the "Selling
Shareholders") of CNA Surety Corporation (the "Company"), severally propose to
sell to the several underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 4,188,129 shares of Common Stock, par value
$.01 per share, of the Company (the "Firm Shares"), each Selling Shareholder
selling the amount of Firm Shares set forth opposite such Selling Shareholder's
name set forth on Schedule II hereto. The Company also proposes to issue and
sell to the several Underwriters not more than 628,219 additional shares of
Common Stock, par value $.01 per share, of the Company (the "Additional
Shares"), if requested by the Underwriters as provided in Section 2 hereof.
The Firm Shares and the Additional Shares are herein collectively called the
"Shares". The shares of common stock of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock". The Company and the Selling Shareholders are hereinafter
collectively called the "Sellers".
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and
Page 26 of 61
<PAGE> 2
2
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement on Form S-1 (No. 333-56063) including a prospectus
relating to the Shares. The registration statement, as amended at the time
when it became effective, including the information (if any) deemed to be part
of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus". If the company has filed or is
requested pursuant to the terms hereof to file a registration statement
pursuant to Rule 462(b) under the Act registering additional shares of Common
Stock (a "Rule 462(b) Registration Statement"), then, unless otherwise
specified, any reference herein to the term "Registration Statement" shall be
deemed to include such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement,
and subject to its terms and conditions, (i) each Selling Shareholder agrees,
severally and not jointly, to sell to the Underwriters the number of Firm
Shares set forth opposite such Selling Shareholder's name in Schedule II hereto
and (ii) each Underwriter agrees, severally and not jointly, to purchase from
each Selling Shareholder at a price per Firm Share of $13.06 (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) which bears the same proportion to the
total number of Firm Shares to be sold by such Selling Shareholder as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to the terms and conditions hereof, (i) the Company
agrees to issue and sell up to 628,219 Additional Shares and (ii) the
Underwriters shall have the right to purchase, severally and not jointly, up to
an aggregate of 628,219 Additional Shares from the Company at the Purchase
Price. Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
Underwriters may exercise their right to purchase Additional Shares in whole or
in part from time to time by giving written notice thereof to the Company
within 30 days after the date of this Agreement. You shall give any such
notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof. The date specified in any such
notice shall be a business day (i) no earlier than the Closing Date (as
hereinafter defined), (ii) no later than ten business days after such notice
has been given and (iii) no earlier than three business days after such notice
has been given. If any Additional Shares are to be purchased, each
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) which bears the same proportion to the
total number of Additional Shares to be purchased from the Company as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I bears to the total number of Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares
Page 27 of 61
<PAGE> 3
3
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with
the ownership of any Common Stock (regardless of whether any of the
transactions described in clause (i) or (ii) is to be settled by the delivery
of Common Stock, or such other securities, in cash or otherwise), except to the
Underwriters pursuant to this Agreement, for a period of 180 days after the
date of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. Notwithstanding the foregoing, during such
period the Company may (i) grant stock options pursuant to the Company's
existing stock option plans, (ii) issue shares of Common Stock upon the
exercise of any option or warrant or the conversion of a security outstanding
on the date hereof and (iii) issue shares or options in connection with an
acquisition in which the acquiror or acquirors of such shares agree(s) to the
restrictions set forth herein. The Company also agrees not to file any
registration statement with respect to any shares of Common Stock for a period
of 180 days after the date of the Prospectus without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation. In addition, each
Selling Shareholder agrees that, for a period of 180 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, it will not make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
The Company shall, prior to or concurrently with the execution of this
Agreement, deliver an agreement executed by (i) each Selling Stockholder, (ii)
each of the directors and officers of the Company who is not a Selling
Stockholder and (iii) each other stockholder listed on Annex I hereto to the
effect that such person will not, during the period commencing on the date such
person signs such agreement and ending 180 days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
SECTION 3. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations
and registered in such names as Donaldson, Lufkin & Jenrette Securities
Corporation shall request not later than two business days prior to the Closing
Date or the applicable Option Closing Date (as defined below), as the case may
be. The Shares shall be delivered by or on behalf of the Sellers, with any
transfer taxes thereon duly paid by the respective Sellers, to Donaldson,
Lufkin & Jenrette Securities Corporation through the facilities of The
Depository Trust Company ("DTC"), for the respective accounts of the several
Underwriters, against payment to the Sellers of the Purchase Price therefore by
wire transfer of Federal or other funds immediately available in New York City.
The certificates representing the Shares shall be made available for
inspection not later than 9:30 A.M., New York City time, on the business
Page 28 of 61
<PAGE> 4
4
day prior to the Closing Date or the applicable Option Closing Date (as defined
below), as the case may be, at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of delivery and payment for the
Firm Shares shall be 9:00 A.M., New York City time, on July 14, 1998 or such
other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation, the Company and the Selling Shareholders shall agree in
writing. The time and date of delivery and payment for the Firm Shares are
hereinafter referred to as the "Closing Date". The time and date of delivery
and payment for any Additional Shares to be purchased by the Underwriters shall
be 9:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 or such other time on the
same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation
and the Company shall agree in writing. The time and date of delivery and
payment for any Additional Shares are hereinafter referred to as the "Option
Closing Date".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York, and the Shares shall be delivered at the Designated
Office, all on the Closing Date or such Option Closing Date, as the case may
be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm
such advice in writing, (i) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information, (ii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the
Shares for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required
to file a Rule 462(b) Registration Statement after the effectiveness of
this Agreement, when the Rule 462(b) Registration Statement has become
effective and (v) of the happening of any event during the period
referred to in Section 5(d) below which makes any statement of a material
fact made in the Registration Statement or the Prospectus untrue or which
requires the making of any additions to or changes in the Registration
Statement or the Prospectus in order to make the statements therein not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company
will use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
(b) To furnish to you, without charge, three signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
Page 29 of 61
<PAGE> 5
5
(c) To prepare the Prospectus, the form and substance of which
shall be satisfactory to you, and to file the Prospectus in such form
with the Commission within the applicable period specified in Rule 424(b)
under the Act; during the period specified in Section 5(d) below, not to
file any further amendment to the Registration Statement and not to make
any amendment or supplement to the Prospectus of which you shall not
previously have been advised or to which you shall reasonably object
after being so advised; and, during such period, to prepare and file with
the Commission, promptly upon your reasonable request, any amendment to
the Registration Statement or amendment or supplement to the Prospectus
which may be necessary or advisable in connection with the distribution
of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business
day after the date of this Agreement and from time to time thereafter for
such period as, in the opinion of counsel for the Underwriters, a
prospectus is required by law to be delivered in connection with sales by
an Underwriter or a dealer, to furnish in New York City to each
Underwriter and any dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request.
(e) If during the period specified in Section 5(d) any event shall
occur or condition shall exist as a result of which, in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of
the circumstances under which they were made, when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with any applicable law, forthwith to prepare and
file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not, in the light of the circumstances under which
they were made, when it is so delivered, be misleading, or so that the
Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter
or dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with
you and counsel for the Underwriters in connection with the registration
or qualification of the Shares for offer and sale by the several
Underwriters and by dealers under the state securities or Blue Sky laws
of such jurisdictions as you may request, to continue such registration
or qualification in effect so long as required for distribution of the
Shares and to file such consents to service of process or other documents
as may be necessary in order to effect such registration or
qualification; provided, however, that the Company shall not be required
in connection therewith to qualify as a foreign corporation in any
jurisdiction in which it is not now so qualified or to take any action
that would subject it to general consent to service of process or
taxation other than as to matters and transactions relating to the
Prospectus, the Registration Statement, any
Pge 30 of 61
<PAGE> 6
6
preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as
soon as practicable an earnings statement covering the twelve-month
period ending September 30, 1999 that shall satisfy the provisions of
Section 11 (a) of the Act, and to advise you in writing when such
statement has been so made available.
(h) During the period of three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports
or other communications furnished to the record holders of Common Stock
or furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed and
such other publicly available information concerning the Company and its
subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of the Sellers' obligations
under this Agreement, including: (i) the fees, disbursements and expenses
of the Company's counsel and the Company's accountants in connection with
the registration and delivery of the Shares under the Act and all other
fees and expenses in connection with the preparation, printing, filing
and distribution of the Registration Statement (including financial
statements and exhibits), any preliminary prospectus, the Prospectus and
all amendments and supplements to any of the foregoing, including the
mailing and delivering of copies thereof to the Underwriters and dealers
in the quantities specified herein, (ii) all costs and expenses related
to the transfer and delivery of the Shares to the Underwriters, including
any transfer or other taxes payable thereon, (iii) all costs of printing
or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares,
(iv) all expenses in connection with the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of
the several states and all costs of printing or producing any Preliminary
and Supplemental Blue Sky Memoranda in connection therewith (including
the filing fees and fees and disbursements of counsel for the
Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and disbursements of
counsel for the Underwriters in connection with the review and clearance
of the offering of the Shares by the National Association of Securities
Dealers, Inc., (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar
and/or depositary, and (viii) all other costs and expenses incident to
the performance of the obligations of the Company and the Selling
Shareholders hereunder for which provision is not otherwise made in this
Section. The provisions of this Section shall not supersede or otherwise
affect any agreement that the Company and the Selling Shareholders may
otherwise have for allocation of such expenses among themselves.
Pge 31 of 61
<PAGE> 7
7
(j) To use its best efforts to maintain the listing of the Shares
on the New York Stock Exchange ("NYSE") for a period of three years after
the date of this Agreement.
(k) To use its best efforts to do and perform all things required
or necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness
of this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time,
on the date of this Agreement and to pay to the Commission the filing fee
for such Rule 462(b) Registration Statement at the time of the filing
thereof or to give irrevocable instructions for the payment of such fee
pursuant to Rule 111 (b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement
filed after the effectiveness of this Agreement will become effective no
later than 10:00 P.M., New York City time, on the date of this Agreement;
and no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose are pending
before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness
of this Agreement), when it became effective, did not contain and, as
amended, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this
Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act, (iii) if
the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto when they become effective (A) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) will comply in all material
respects with the Act and (iv) the Prospectus does not contain, and, as
amended or supplemented, if applicable, will not contain, any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations and
warranties set forth in this paragraph
Page 32 of 61
<PAGE> 8
8
do not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the Act, and did not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply
to statements or omissions in any preliminary prospectus based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties, and each is duly qualified and
is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole.
(e) Except as disclosed on Schedule III hereto, there are no
outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens granted or issued by the Company
or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the
Company or any of its subsidiaries, except as otherwise disclosed in the
Registration Statement.
(f) All the Firm Shares have been duly authorized and validly
issued and are fully paid, non-assessable and none of the outstanding
shares of capital stock of the Company (including the Shares to be sold
by the Selling Stockholders) are subject to any preemptive or similar
rights; and the Additional Shares to be issued and sold by the Company
have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will
be validly issued, fully paid and non-assessable, and the issuance of
such Additional Shares will not be subject to any preemptive or similar
rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and
are fully paid and non-assessable, and are owned by the Company, directly
or indirectly through one or more subsidiaries, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature.
Page 33 of 61
<PAGE> 9
9
(h) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus
under "Description of Capital Stock"; and the only outstanding shares of
capital stock of the Company are shares of Common Stock.
(i) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of
any material obligation, agreement, covenant or condition contained in
any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as
a whole, to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective property
is bound.
(j) The execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions hereof
and the consummation of the transactions contemplated hereby will not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company
or any of its subsidiaries, (iii) conflict with or constitute a material
breach of any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound, (iv) violate or
conflict in any material respect with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, any of its
subsidiaries or their respective property or (v) result in the
suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment
of the rights of the holder of any such Authorization, except where such
suspension, termination, revocation or impairment would not, singly or in
the aggregate, have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole.
(k) There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened to which the Company or any of
its subsidiaries is a party or to which any of their respective property
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described; nor are there any
statutes, regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so described
or filed as required.
(l) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "Authorization") of, and has made all filings with
and notices to, all governmental or
Page 34 of 61
<PAGE> 10
10
regulatory authorities and self-regulatory organizations and all courts
and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate
its respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or
notice would not, singly or in the aggregate, have a material adverse
effect on the business, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole. Each such
Authorization is valid and in full force and effect and each of the
Company and its subsidiaries is in material compliance with all the terms
and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of
any notice from any authority or governing body) which allows or, after
notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse
of time or both, would result in any other impairment of the rights of the
holder of any such Authorization; except where such failure to be valid
and in full force and effect or to be in compliance, the occurrence of any
such event or the presence of any such restriction would not, singly or in
the aggregate, have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole.
(m) This Agreement has been duly authorized, executed and delivered
by the Company.
(n) Deloitte & Touche LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(o) Coopers & Lybrand L.L.P. were independent public accountants
with respect to Capsure Holdings Corp., a Delaware corporation
("Capsure"), as required by the Act.
(p) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly in all material
respects the consolidated financial position, results of operations and
cash flows of the Company and its subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except
as disclosed therein; and the other financial and statistical information
and data set forth in the Registration Statement and the Prospectus (and
any amendment or supplement thereto) is, in all material respects,
accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(q) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), presented fairly in all material
respects the consolidated financial
Page 35 of 61
<PAGE> 11
11
position, results of operations and changes in financial position of
Capsure and its subsidiaries on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes were prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; and
the other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) is, in all material respects, accurately presented and prepared
on a basis consistent with such financial statements and the books and
records of Capsure.
(r) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto)
have been prepared on a basis consistent with the historical financial
statements of the Company and its subsidiaries, give effect to the
assumptions used in the preparation thereof on a reasonable basis and in
good faith. Such pro forma financial statements have been prepared in
accordance with the applicable requirements of Rule 11-02 of Regulation
S-X promulgated by the Commission. The other pro forma financial and
statistical information and data set forth in the Registration Statement
and the Prospectus (and any supplement or amendment thereto) are, in all
material respects, accurately presented and prepared on a basis
consistent with the pro forma financial statements.
(s) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(t) Except as disclosed on Schedule IV hereto, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement.
(u) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or, to
the knowledge of the Company, any development which could reasonably be
expected to cause a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii)
there has not been any material adverse change or, to the knowledge of
the Company, any development which could reasonably be expected to cause
a prospective material adverse change in the capital stock or in the
long-term debt of the Company or any of its subsidiaries and (iii)
neither the Company nor any of its subsidiaries has incurred any material
liability or obligation, direct or contingent, other than liabilities
under surety bonds in the ordinary course of business.
Page 36 of 61
<PAGE> 12
12
(v) The Common Stock is listed on the NYSE.
(w) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(x) There is (i) no significant unfair labor practice complaint
pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, before the
National Labor Relations Board or any state or local labor relations
board, and no significant grievance or more significant arbitration
proceeding arising out of or under any collective bargaining agreement is
so pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, and (ii) no
significant strike, labor dispute, slowdown or stoppage pending against
the Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against it or any of its subsidiaries except for such
actions specified in clause (i) or (ii) above, which, singly or in the
aggregate could not reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(y) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(z) All material tax returns required to be filed by the Company
and each of its subsidiaries in any jurisdiction have been filed, other
than those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees
and other charges due pursuant to and as set forth in such returns or
pursuant to any assessment received by the Company or any of its
subsidiaries have been paid, other than those being contested in good
faith or for which adequate reserves have been provided.
(aa) The Company and each of its subsidiaries (i) own or possess
adequate right to use all material trademarks, copyrights and licenses
necessary for the conduct of their respective businesses and (ii) have no
reason to believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of conflict
with, any such rights of others which would render any rights of the
Company or any of its subsidiaries invalid or inadequate to protect the
interest of the Company or such subsidiary therein and which infringement
or conflict (if the subject of any unfavorable decision, ruling or
finding), invalidity or inadequacy, individually
Page 37 of 61
<PAGE> 13
13
or in the aggregate, would have a material adverse affect on the Company
and its subsidiaries, taken as a whole.
(bb) To the best of the Company's knowledge, except as disclosed in
the Registration Statement, no change in any insurance laws, rules or
regulations has been introduced which would reasonably be expected to be
adopted and, if adopted, would reasonably be expected to have,
individually or in the aggregate with all such changes, a material
adverse effect upon the financial condition, business affairs or results
of operations of the Company and its Insurance Subsidiaries (as defined
below) considered as one enterprise. As used in this Agreement,
"Insurance Subsidiaries" shall be the collective reference to Western
Surety Company ("Western Surety") and Universal Surety of America
("USA").
(cc) The Company and the Insurance Subsidiaries have filed all
reports, information statements and other documents with the insurance
regulatory authorities of their respective jurisdictions of incorporation
as are required to be filed pursuant to the insurance statutes of such
jurisdictions and the rules and regulations of the insurance regulator
authorities thereunder (the "Applicable Insurance Laws"), except where
the failure to file such statements or reports would not, individually or
in the aggregate, have a material adverse effect on the financial
condition, business affairs or results of operations of the Company and
its subsidiaries taken as a whole.
(dd) The Company and the Insurance Subsidiaries have made no
material changes in their reserving practices or accounting policies
since December 31, 1997.
(ee) All reinsurance treaties, agreements and arrangements to which
the Company or any Insurance Subsidiary is a party are in full force and
effect and neither the Company nor any Insurance Subsidiary is in
violation of or in default in the performance, observance or fulfillment
of, any obligation, agreement, covenant or condition contained therein
which violation or default would reasonably be expected to have a
material adverse effect on the financial condition, business affairs or
results of operations of the Company and its subsidiaries taken as a
whole; neither the Company nor any Insurance Subsidiary has received any
notice from any of the other parties to such treaties, contracts or
agreements that such other party intends not to perform such treaty and,
to the best knowledge of the Company, the Company has no reason to
believe that any of the other parties to such treaties or arrangements
will be unable to perform such treaty or arrangement.
(ff) The 1997 statutory financial statements of the Company and the
Insurance Subsidiaries have been prepared in conformity with statutory
accounting principles or practices required or permitted by the National
Association of Insurance Commissioners, by the South Dakota Department of
Commerce and Regulation -- Division of Insurance (in the case of Western
Surety) and the Texas Department of Insurance (in the case of USA) and
such statutory accounting principles and practices have been applied on
a consistent basis throughout the periods involved, except as may
otherwise be indicated therein or in the notes thereto, and present
fairly in all
Page 38 of 61
<PAGE> 14
14
material respects the combined statutory financial position of the
Company or the Insurance Subsidiaries, as the case may be, as of the
dates thereof, and the statutory basis results of operations of the
Company or the Insurance Subsidiaries, as the case may be, for the
periods covered thereby is in conformity with such statutory accounting
principles and practices.
(gg) Western Surety is rated "A+" (Superior) and USA is rated "A"
(Excellent) by A.M. Best & Company.
(hh) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
SECTION 7. Representations and Warranties of the Selling Shareholders.
Each Selling Shareholder represents and warrants to each Underwriter that:
(a) Such Selling Shareholder is the lawful owner of the Firm Shares
to be sold by such Selling Shareholder pursuant to this Agreement and
has, and on the Closing Date will have, good and clear title to such Firm
Shares, free of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever (subject to any lien
created hereby and restrictions arising under applicable securities law,
which do not survive the Closing).
(b) Such Selling Shareholder has, and on the Closing Date will
have, full legal right, power and authority, and all authorization and
approval required by law, to enter into this Agreement and the Power of
Attorney (the "Power of Attorney") of such Selling Shareholder, if
applicable, appointing certain individuals as such Selling Shareholder's
attorneys-in-fact (the "Attorneys") to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement and to sell, assign, transfer and deliver the Shares to be sold
by such Selling Shareholder in the manner provided herein and therein.
(c) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Shareholder.
(d) The Power of Attorney of such Selling Shareholder has been duly
authorized, executed and delivered by such Selling Shareholder and is a
valid and binding instrument of such Selling Shareholder, enforceable in
accordance with its terms, and, pursuant to such Power of Attorney, such
Selling Shareholder has, among other things, authorized the Attorneys, or
any one of them, to execute and deliver on such Selling Shareholder's
behalf this Agreement and any other document that they, or any one of
them, may deem necessary or desirable in connection with the transactions
contemplated hereby and thereby and to deliver the Firm Shares to be sold
by such Selling Shareholder pursuant to this Agreement.
Page 39 of 61
<PAGE> 15
15
(e) Upon delivery of and payment for the Firm Shares to be sold by
such Selling Shareholder pursuant to this Agreement, the Underwriters
will acquire all of the rights of such Selling Shareholder and will also
acquire their interest in such Firm Shares free of any adverse claim.
(f) The execution, delivery and performance of this Agreement and
Power of Attorney, if applicable, of such Selling Shareholder by or on
behalf of such Selling Shareholder, the compliance by such Selling
Shareholder with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not
(i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the organizational documents of such
Selling Shareholder, if such Selling Shareholder is not an individual, or
any indenture, loan agreement, mortgage, lease or other agreement or
instrument to which such Selling Shareholder is a party or by which such
Selling Shareholder or any property of such Selling Shareholder is bound
or (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Shareholder or any
property of such Selling Shareholder, other than, in the case of clauses
(ii) and (iii), any conflict or violation that, would not affect the
validity of, or adversely affect the Selling Shareholder's ability to
consummate the transactions contemplated hereunder.
(g) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relates to such
Selling Shareholder does not, and will not on the Closing Date, contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(h) At any time during the period described in Section 5(d), if
there is any change in the information referred to in Section 7(g), such
Selling Shareholder will immediately notify you of such change.
(i) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement,
and other than as permitted by the Act, such Selling Stockholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Shares.
(j) Each certificate signed by or on behalf of such Selling
Shareholder and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a
Page 40 of 61
<PAGE> 16
16
representation and warranty by such Selling Shareholder to the
Underwriters as to the matters covered thereby.
SECTION 8. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter, its directors, its officers and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished in writing to the Company by such
Underwriter through you expressly for use therein; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter who failed to deliver a Prospectus
(as then amended or supplemented, provided by the Company to the several
Underwriters in the requisite quantity and on a timely basis to permit proper
delivery on or prior to the Closing Date) to the person asserting any losses,
claims, damages and liabilities and judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or alleged
material misstatement or omission was cured in such Prospectus and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person.
(b) Each of the Selling Shareholders agrees, severally and not jointly,
to indemnify and hold harmless each Underwriter, its directors, its officers
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to each Underwriter, but only with
reference to information relating to such Selling Shareholder furnished in
writing by or on behalf such Selling Shareholder expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus.
Notwithstanding the foregoing, the aggregate liability of any Selling
Shareholder pursuant to this Section 8(b) shall be limited to an amount equal
to the total proceeds (before deducting underwriting discounts and commissions
and expenses) received by such Selling Shareholder from the Underwriters for
the sale of the Firm Shares sold by such Selling Shareholder hereunder;
provided, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages and liabilities and
judgments purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or
Page 41 of 61
<PAGE> 17
17
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the Shares to such person, and if the Prospectus (as so amended and
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or judgment. The Company and the Selling Shareholders may
enter into other agreements amongst themselves with respect to the
indemnification obligations hereunder, provided that such agreements shall not
affect the indemnification obligations of the Company and the Selling
Shareholders to the several Underwriters under this Agreement.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
Selling Shareholder and each person, if any, who controls such Selling
Shareholder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company and
the Selling Shareholders to such Underwriter but only with reference to
information relating to such Underwriter furnished in writing to the Company by
such Underwriter through you expressly for use in the Registration Statement
(or any amendment thereto), the Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus.
(d) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a), 8(b) or 8(c) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) or 8(b) and 8(c), the Underwriter shall not be required
to assume the defense of such action pursuant to this Section 8(d), but may
employ separate counsel and participate in the defense thereof, but the fees
and expenses of such counsel, except as provided below, shall be at the expense
of such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the
indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for (i) the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for all
Underwriters, their officers and directors and all persons, if any, who control
any Underwriter
Page 42 of 61
<PAGE> 18
18
within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act, (ii) the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for the Company, its directors,
its officers who sign the Registration Statement and all persons, if any, who
control the Company within the meaning of either such Section and (iii) the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all Selling Shareholders and all persons, if any, who
control any Selling Shareholder within the meaning of either such Section, and
all such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Underwriters, their officers and
directors and such control persons of any Underwriters, such firm shall be
designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation.
In the case of any such separate firm for the Company and such directors,
officers and control persons of the Company, such firm shall be designated in
writing by the Company. In the case of any such separate firm for the Selling
Shareholders and such control persons of any Selling Shareholders, such firm
shall be designated in writing by the Attorneys. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than twenty business
days after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could
have been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(e) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in the case of
the Company (x) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other hand from the offering of the Shares or (y)
if the allocation provided by clause 8(e)(i)(x) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(e)(i)(x) above but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations and (ii) in the case of any
Selling Shareholder (x) in such proportion as is appropriate to reflect the
relative benefits received by such Selling Shareholder on the
Page 43 of 61
<PAGE> 19
19
one hand and the Underwriters on the other hand from the offering of the Firm
Shares sold by such Selling Shareholder or (y) if the allocation provided by
clause 8(e)(ii)(x) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause 8(e)(ii)(x) above but also the relative fault of such Selling
Shareholders on the one hand and the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received (A) as between the
Company and the Selling Shareholders on the one hand and the Underwriters on
the other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (after deducting underwriting discounts and
commissions, but before deducting expenses) received by the Selling
Shareholders, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares and (B)
as between each Selling Shareholder on the one hand and the Underwriters on the
other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (after deducting underwriting discounts and
commissions, but before deducting expenses) received by such Selling
Shareholder bear to the underwriting discounts and commissions received by the
Underwriters in respect of the Firm Shares sold by such Selling Shareholder, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault (A) as between the Company and the Selling Shareholders on the
one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Shareholders on the one hand or the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission and (B) as between each Selling
Shareholder on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such Selling
Shareholder on the one hand or the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged
Page 44 of 61
<PAGE> 20
20
omission and no Selling Shareholder shall be required to contribute any amount
in excess of the amount by which the total price at which the Firm Shares of
such Selling Shareholders were offered to the public exceeds the amount of any
damages which such Selling Shareholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission and no Selling Shareholder shall be required to contribute in respect
of any losses, claims, damages, liabilities or judgments (or expenses incurred
in connection therewith) unless the same arise with respect to information
relating to such Selling Shareholder furnished in writing by or on behalf of
the Selling Shareholder for use in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8(e) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
(f) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(g) Each Selling Shareholder hereby designates CNA Surety Corporation,
CNA Plaza, Chicago, Illinois 60685, as its authorized agent, upon which process
may be served in any action which may be instituted in any state or federal
court in the State of New York by any Underwriter, any director or officer of
any Underwriter or any person controlling any Underwriter asserting a claim for
indemnification or contribution under or pursuant to this Section 8, and each
Selling Shareholder will accept the jurisdiction of such court in such action,
and waives, to the fullest extent permitted by applicable law, any defense
based upon lack of personal jurisdiction or venue. A copy of any such process
shall be sent or given to such Selling Shareholder, at the address for notices
specified in Section 12 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date with the
same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been commenced
or shall be pending before or, to the knowledge of the Company or the
Underwriters, contemplated by the Commission.
Page 45 of 61
<PAGE> 21
21
(c) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Mark C. Vonnahme, in his capacity as
President and Chief Executive Officer of the Company, and John S.
Heneghan, in his capacity as Vice President and Chief Financial Officer
of the Company, confirming the matters set forth in Sections 6(u), 9(a)
and 9(b) and that the Company has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be
complied with or satisfied by the Company on or prior to the Closing
Date.
(d) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the
Company and its subsidiaries, taken as a whole, (ii) there shall not have
been any change or any development involving a prospective change in the
capital stock or in the long-term debt of the Company or any of its
subsidiaries and (iii) neither the Company nor any of its subsidiaries
shall have incurred any liability or obligation, direct or contingent,
the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in
your judgment, makes it impracticable to market the Shares on the terms
and in the manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling
Shareholder contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the
Closing Date and you shall have received on the Closing Date a
certificate dated the Closing Date from each Selling Shareholder to such
effect and to the effect that such Selling Shareholder has complied with
all of the agreements and satisfied all of the conditions herein
contained and required to be complied with or satisfied by such Selling
Shareholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Seyfarth, Shaw, Fairweather & Geraldson ("Seyfarth, Shaw"),
counsel for the Company, to the effect that:
(i) each of the Company and its subsidiaries has been
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described
in the Prospectus and to own, lease and operate its properties;
(ii) the Firm Shares have been duly authorized and validly
issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights;
Page 46 of 61
<PAGE> 22
22
(iii) the Additional Shares to be issued and sold by the
Company hereunder have been duly authorized and, if and when issued
and delivered to the Underwriters against payment therefor as
provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Additional Shares will not
be subject to any preemptive or similar rights;
(iv) all of the outstanding shares of capital stock of each
of the Company's Insurance Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable, and are
owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus under the heading "Description of Capital Stock";
(vii) the Registration Statement has become effective under
the Act, no stop order suspending its effectiveness has been issued
and no proceedings for that purpose are, to the best of such
counsel's knowledge, pending before or contemplated by the
Commission;
(viii) the statements under the captions "Description of
Capital Stock" in the Prospectus and Items 14 and 15 of Part II of
the Registration Statement, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, fairly present the information required with respect to
such legal matters, documents and proceedings;
(ix) the execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the
provisions hereof and the consummation of the transactions
contemplated hereby will not (A) require any consent, approval,
authorization or other order of, or qualification with, any court
or governmental body or agency (except such as may be required under
the securities or Blue Sky laws of the various states or under
applicable state insurance laws if any person acquires an aggregate
of more than 10% of the outstanding Common Stock pursuant to the
offering), (B) conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter or by-laws
of the Company or any of its subsidiaries or conflict with or
constitute a material breach of any of the terms or provisions of,
or a default under, any indenture, loan agreement, mortgage, lease
or other agreement or instrument that has been identified as
material to the business of the Company and its subsidiaries by an
officer of the Company to such counsel to which the Company or any
of its subsidiaries is a party or
Page 47 of 61
<PAGE> 23
23
by which the Company or any of its subsidiaries or their respective
property is bound (other than as to whether any such action would
constitute a breach or default with respect to any financial ratios
or representation or warranty relating to the financial condition of
the Company or any of its subsidiaries as to which such counsel need
not express any opinion) or (C) violate or conflict with, in any
material respect, any applicable U.S. Federal, Illinois or Delaware
General Corporation law, rule, regulation (other than with respect
to any state securities or "blue sky" laws or any insurance
regulatory or administrative matters or tax matters as to which such
counsel need not express any opinion), or any judgment, order or
decree of any Illinois court, governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their
respective property;
(x) such counsel does not know of any legal or governmental
proceedings pending or threatened (other than insurance regulatory
or administrative proceedings, as to which such counsel need not
express any opinion) to which the Company or any of its
subsidiaries is a party or to which any of their respective
property is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described,
or of any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not so described or filed as required;
(xi) the Company is not and, after giving effect to the
offering and sale of the Additional Shares and the application of
the proceeds thereof as described in the Prospectus, will not be,
an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended;
(xii) except as set forth on Schedule IV hereto, to the best
of such counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with
the Shares registered pursuant to the Registration Statement;
(xiii) (A) the Registration Statement and the Prospectus and
any supplement or amendment thereto (except for the financial
statements, schedules and other financial and statistical data
included therein as to which no opinion need be expressed) comply
as to form, in all material respects, with the Act, (B) nothing has
come to the attention of such counsel that has caused such counsel
to believe that at the time the Registration Statement became
effective, the Registration Statement (except for the financial
statements, schedules and other financial and statistical data as
to which such counsel need not express any belief) contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to
Page 48 of 61
<PAGE> 24
24
make the statements therein not misleading and (C) nothing has
come to the attention of such counsel that has caused such counsel
to believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and other financial
and statistical data, as aforesaid) contains any untrue statement of
a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
The opinion of Seyfarth, Shaw described in Section 9(f) above shall
be rendered to you at the request of the Company and the Selling
Shareholders and shall so state therein.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Rosenberg & Liebentritt, P.C., counsel for the Selling
Shareholders, with respect to each of the Selling Shareholders other than
Bruce A. Esselborn and Lorraine Esselborn to the effect that:
(i) such Selling Stockholder is the record owner of the
Shares to be sold by such Selling Stockholder pursuant to this
Agreement;
(ii) such Selling Shareholder has full legal right, power and
authority, and all authorization and approval required by law, to
enter into this Agreement and the Power of Attorney of such Selling
Shareholder, as applicable, and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Shareholder in the
manner provided herein and therein;
(iii) this Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Shareholder;
(iv) the Power of Attorney of each such Selling Shareholder,
as applicable, has been duly authorized, executed and delivered by
such Selling Shareholder and is a valid and binding instrument of
such Selling Shareholder, enforceable in accordance with its terms,
and, pursuant to such Power of Attorney such Selling Shareholder
has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Shareholder's behalf
this Agreement and any other document they, or any one of them, may
deem necessary or desirable in connection with the transactions
contemplated hereby and thereby and to deliver the Shares to be
sold by such Selling Shareholder pursuant to this Agreement;
(v) assuming that the Underwriters purchase the Shares to be
delivered by or on behalf of each of such Selling Shareholders at
the Closing without notice of any adverse claim, as such term is
used in Section 8-303 of the Uniform Commercial Code, upon the
delivery of certificates representing such Shares and payment by
the Underwriters of the purchase price therefor
Page 49 of 61
<PAGE> 25
25
pursuant to the Underwriting Agreement, the Underwriters will
acquire their interest in such Shares, free and clear of all
adverse claims.
(vi) the execution, delivery and performance of this
Agreement and Power of Attorney of each such Selling Shareholder by
such Selling Shareholder, the compliance by such Selling
Shareholder with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue
Sky laws of the various states), (B) conflict with or constitute a
breach of any of the terms or provisions of, or a default under,
the organizational documents of such Selling Shareholder, if such
Selling Shareholder is not an individual, or, to our knowledge, any
indenture, loan agreement, mortgage, lease or other agreement or
instrument to which such Selling Shareholder is a party or by which
any property of such Selling Shareholder is bound or (C) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency
having jurisdiction over such Selling Shareholder or any property
of such Selling Shareholder, except in the case of clauses (B) or
(C), for such conflicts, breaches, defaults or violations that,
singly or in the aggregate, could not reasonably be expected to
have a material adverse effect on the consummation of the
transactions contemplated hereby or thereby;
and with respect to Bruce A. Esselborn and Lorraine Esselborn,
an opinion to the effect that:
(vii) assuming that the Underwriters purchase the Shares to
be delivered by or on behalf of such Selling Shareholder at the
Closing without notice of any adverse claim, as such term is used
in Section 8-303 of the Uniform Commercial Code, upon the delivery
of certificates representing such Shares and payment by the
Underwriters of the purchase price therefor pursuant to the
Underwriting Agreement, the Underwriters will acquire their
interest in such Shares, free and clear of all adverse claims.
The opinion of Rosenberg & Liebentritt, P.C. described in Section
9(g) above shall be rendered to you at the request of the Selling
Shareholders and shall so state therein.
(h) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Simpson Thacher & Bartlett, counsel for the
Underwriters, in form and substance satisfactory to you.
In giving such opinions with respect to the matters covered by
Section 9(f)(iii), counsel for the Company and counsel for the
Underwriters may state that their opinion and belief are based upon their
participation in the preparation of the Registration
Page 50 of 61
<PAGE> 26
26
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(i) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Deloitte &
Touche LLP, independent public accountants, containing the information
and statements of the type ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus.
(j) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Coopers &
Lybrand L.L.P., independent public accountants, containing the
information and statements of the type ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(k) The Company shall have delivered to you the agreements
specified in Section 2 hereof which agreements shall be in full force and
effect on the Closing Date.
(l) The Company and the Selling Shareholders shall not have failed
on or prior to the Closing Date to perform or comply with any of the
agreements herein contained and required to be performed or complied with
by the Company or the Selling Shareholders, as the case may be, on or
prior to the Closing Date.
(m) You shall have received on the Closing Date, a certificate of
each Selling Shareholder who is not a U.S. Person (as defined under
applicable U.S. federal tax legislation) to the effect that such Selling
Shareholder is not a U.S. Person, which certificate may be in the form of
a properly completed and executed United States Treasury Department Form
W-8 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any
Additional Shares hereunder are subject to the delivery to you on the
applicable Option Closing Date of such documents as you may reasonably request
with respect to the good standing of the Company, the due authorization and
issuance of such Additional Shares and other matters related to the issuance of
such Additional Shares.
SECTION 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
Page 51 of 61
<PAGE> 27
27
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus, (ii)
the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, (v) the declaration of a
banking moratorium by either federal or New York State authorities, (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States or (vii) A.M. Best
shall have publicly announced that it has under review, with possible negative
implications, its rating of the claims-paying ability of any Insurance
Subsidiary.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not
more than one-tenth of the total number of Firm Shares or Additional Shares, as
the case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule I bears
to the total number of Firm Shares which all the non-defaulting Underwriters
have agreed to purchase, or in such other proportion as you may specify, to
purchase the Firm Shares or Additional Shares, as the case may be, which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; provided that in no event shall the number of Firm Shares or
Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Firm Shares to be purchased by all Underwriters and arrangements satisfactory
to you, the Company and the Selling Shareholders for purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Shareholders. In any such case which does not result
Page 52 of 61
<PAGE> 28
28
in termination of this Agreement, either you or the Sellers shall have the
right to postpone the Closing Date, but in no event for longer than seven days,
in order that the required changes, if any, in the Registration Statement and
the Prospectus or any other documents or arrangements may be effected. If, on
an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
SECTION 11. Agreements of the Selling Shareholders. Each Selling
Shareholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Firm Shares to be sold by such Selling
Shareholder to the Underwriters.
(b) To do and perform all things to be done and performed by such Selling
Shareholder under this Agreement prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Firm Shares to be sold by such
Selling Shareholder pursuant to this Agreement.
SECTION 12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to CNA
Surety Corporation, CNA Plaza, Chicago, Illinois 60685, (ii) if to the Selling
Shareholders (other than LFT Partnership), to Rod Dammeyer, 2 North Riverside
Plaza, Suite 600, Chicago, Illinois, 60606, (iii) if to LFT Partnership, to
Mark Slezak, 2 North Riverside Plaza, Suite 1500, Chicago, Illinois, 60606, and
(iv) if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention:
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Shareholders and
the several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Shareholder or any person controlling such Selling
Shareholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
Page 53 of 61
<PAGE> 29
29
If the sale of the Shares provided for herein is not consummated because
of the refusal, inability or failure of any Selling Shareholder to perform its
agreements herein, comply with any provision hereof or satisfy any condition to
the obligations of the Underwriters set forth in Section 9 hereof (in each
case, other than by reason of a default by any of the Underwriters), such
defaulting Selling Shareholder agrees, severally and not jointly, to reimburse
the several Underwriters for all out of pocket expenses (including reasonable
fees and disbursements of counsel) incurred by them as a result of such
refusal, inability or failure. If the sale of the Shares provided for herein
is not consummated because of the refusal, inability or failure of the Company
to perform its agreements herein, comply with any provision hereof or satisfy
any condition to the obligations of the Underwriters set forth in Section 9
hereof (in each case, other than by reason of a default by any of the
Underwriters), the Company agrees, severally and not jointly, to reimburse the
several Underwriters for all out of pocket expenses (including reasonable fees
and disbursements of counsel) incurred by them as a result of such refusal,
inability or failure. Notwithstanding any termination of this Agreement, the
Company shall be liable for all expenses which it has agreed to pay pursuant to
Section 5(i) hereof. Each Selling Shareholder also agrees, severally and not
jointly, to reimburse the several Underwriters, their directors and officers
and any persons controlling any of the Underwriters for all out of pocket
expenses (including reasonable fees and disbursements of counsel) incurred by
them in connection with enforcing their rights hereunder against such Selling
Shareholder (including, without limitation, pursuant to Section 8 hereof). The
Company also agrees to reimburse the several Underwriters, their directors and
officers and any persons controlling any of the Underwriters for all out of
pocket expenses (including reasonable fees and disbursements of counsel)
incurred by them in connection with enforcing their rights hereunder against
the Company (including, without limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Shareholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Page 54 of 61
<PAGE> 30
30
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
CNA SURETY CORPORATION
By: /s/ Mark C. Vonnahme
President and Chief Executive Officer
THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE II HERETO
(OTHER THAN ANDA PARTNERSHIP,
LFT PARTNERSHIP AND THE ANN
AND ROBERT H. LURIE FAMILY
FOUNDATION), ACTING SEVERALLY
By: /s/ Rod Dammeyer
------------------
Attorney-in-fact
LFT PARTNERSHIP
By: /s/ Mark Slezak
------------------
Attorney-in-fact
ANDA PARTNERSHIP
By The Ann Only Trust, a general partner
By The Ann and Descendants Trust, a
general partner
By: /s/ Mark Slezak
------------------
Trustee
Page 55 of 61
<PAGE> 31
31
THE ANN AND ROBERT H. LURIE
FAMILY FOUNDATION
By: /s/ Mark Slezak
------------------
Vice President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Stephan A. Kiratsous
--------------------------
Senior Vice President
Page 56 of 61
<PAGE> 32
SCHEDULE I
Number of Firm Shares
Underwriters Being Sold
Donalson, Lufkin & Jenrette Securities Corporation 1,664,576
Smith Barney Inc. 1,664,575
ABN AMRO Chicago Corporation 95,442
Chatsworth Securities, LLC 95,442
Cochran, Caronia & Co., Inc. 95,442
Conning & Company 95,442
Dowling & Partners Securities LLC 95,442
Fox-Pitt, Kelton Incorporated 95,442
Janney Montgomery Scott Inc. 95,442
Keefe, Bruyette & Woods, Inc. 95,442
Kelton International 95,442
___________
Total 4,188,129
Page 57 of 61
<PAGE> 33
SCHEDULE II
Selling Shareholders
Number of Firm Shares
Name Being Sold
Samstock, L.L.C. 1,988,769
Alpha/ZFT General Partnership 578,649
Anda Partnership 498,684
LFT Partnership 486,760
Samuel Zell 65,000
Ann and Robert H. Lurie
Family Foundation 486,760
Bruce and Lorraine Esselborn 83,507
___________
Total 4,188,129
Page 58 of 61
<PAGE> 34
SCHEDULE III
Securities issued or issuable pursuant to:
(i) CNA Surety Corporation Non Employee Directors Deferred
Compensation Plan;
(ii) CNA Surety Corporation Replacement Stock Option Plan; and
(iii) CNA Surety Corporation 1997 Long-Term Equity Compensation
Plan.
Page 59 of 61
<PAGE> 35
SCHEDULE IV
* Registration Rights Agreement, dated as of September 30, 1996, between CNA
Surety Corporation and Equity Capsure Limited Partnership
* Restricted Stock and Registration Rights Agreement, dated as of September
22, 1994, by and between Capsure Financial Group, Inc., Capsure Holdings
Corp. and John Knox, Jr.
Page 60 of 61
<PAGE> 36
Annex I
Continental Casualty Company
National Fire Insurance Company of Hartford
American Casualty Company of Reading, Pennsylvania
Fireman's Insurance Company of Newark, New Jersey
Continental Insurance Company
CNA Surety Corporation
Samstock, L.L.C.
Alpha/ZFT General Partnership
Anda Partnership
LFT Partnership
Samuel Zell
The Ann and Robert H. Lurie
Family Foundation
Bruce A. Esselborn
David T. Cumming
Melvin Gray
Joe P. Kirby
Roy Posner
Adrian M. Tocklin
Mark C. Vonnahme
Robert E. Ayo
Dan L. Kirby
Stephen T. Pate
John S. Heneghan
Giorgio Balzer
Philip H. Britt
Rod F. Dammeyer
Robert T. Van Gieson
William Pate
Michael Dougherty
Melita Geoghegan
Thomas P. Greasel
Paul T. Lively
John L. McReynolds
Thomas A. Pottle
Sharon A. Sartori
Page 61 of 61
